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As filed with the Securities and Exchange Commission on August 22, 1997
Registration No. 33-95374
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________________
AMENDMENT NO. 2
(POST-EFFECTIVE AMENDMENT NO. 1)
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
_________________________
REALTY INCOME CORPORATION
(Exact name of registrant as specified in its charter)
MARYLAND 33-0580106
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
220 WEST CREST STREET
ESCONDIDO, CALIFORNIA 92025-1725
(760) 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 LAURA I. BUSHNELL, ESQ.
(760) 741-2111 LATHAM & WATKINS
650 TOWN CENTER DRIVE, 20TH FLOOR
(Name, address, including zip code, and COSTA MESA, CALIFORNIA 92626-1925
telephone number, including area code, (714) 540-1235
of agent for service)
__________________________
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ADOPTION OF REGISTRATION STATEMENT BY THE REGISTRANT
This Amendment No. 2 (Post-Effective Amendment No. 1) is being filed
pursuant to Rule 414 promulgated under the Securities Act of 1933, as amended
(the "Securities Act") to reflect the merger and succession of Realty Income
Corporation, a Delaware corporation ("Realty Income Delaware"), with and into
Realty Income of Maryland, Inc., a Maryland corporation, which simultaneously
with the merger changed its name to Realty Income Corporation (the
"Company"), which had been a wholly-owned subsidiary of Realty Income
Delaware. Such succession occurred on May 28, 1997 upon consummation of the
merger (the "Merger") of Realty Income Delaware with and into the Company.
The Merger was approved by the stockholders of Realty Income Delaware at a
meeting held on May 27, 1997 for which proxies were solicited pursuant to
Section 14(a) of the Securities Exchange Act 1934, as amended (the "Exchange
Act").
In accordance with Rule 414, the Company as the successor issuer hereby
expressly adopts this registration statement as its own for all purposes of
the Securities Act and the Exchange Act. References to the Company shall be
deemed to include Realty Income Delaware unless the context otherwise
requires.
The registration fees were paid at the time of the original filing of
this registration statement.
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PROSPECTUS
$200,000,000
REALTY INCOME CORPORATION
DEBT SECURITIES, PREFERRED STOCK AND COMMON STOCK
___________
Realty Income Corporation, a Maryland corporation (the "Company"), may
from time to time offer in one or more series (i) its debt securities (the
"Debt Securities"), (ii) shares of its Preferred Stock, $1.00 par value per
share (the "Preferred Stock"), or (iii) shares of its Common Stock, $1.00 par
value per share (the "Common Stock"), with an aggregate public offering price
of up to $200,000,000 on terms to be determined at the time of offering. The
Debt Securities, the Preferred Stock and the Common Stock (collectively, the
"Securities") may be offered, separately or together, in separate series, in
amounts, at prices and on terms to be set forth in one or more supplements to
this Prospectus (each, a "Prospectus Supplement").
The specific terms of the Securities in respect of which this Prospectus
is being delivered will be set forth in the applicable Prospectus Supplement
and will include, where applicable: (i) in the case of Debt Securities, the
specific title, aggregate principal amount, currency, form (which may be
registered or bearer, or certificated or global), authorized denominations,
maturity, rate (or manner of calculation thereof) and time of payment of
interest, terms for redemption at the Company's option or repayment at the
holder's option, terms for sinking fund payments, terms for conversion into
shares of Preferred Stock or Common Stock, covenants and any initial public
offering price; (ii) in the case of Preferred Stock, the specific
designation, preferences, conversion and other rights, voting powers,
restrictions, limitations as to transferability, dividends and other
distributions and terms and conditions of redemption and any initial public
offering price; and (iii) in the case of Common Stock, any initial public
offering price. In addition, such specific terms may include limitations on
actual, beneficial or constructive ownership and restrictions on transfer of
the Securities, in each case as may be appropriate to preserve the status of
the Company as a real estate investment trust ("REIT") for federal income tax
purposes. See "Restrictions on Ownership and Transfers of Capital Stock."
The applicable Prospectus Supplement will also contain information, where
applicable, about certain United States federal income tax considerations
relating to, and any listing on a securities exchange of, the Securities
covered by such Prospectus Supplement.
The Common Stock is traded on the New York Stock Exchange under the
symbol "O." On August 19, 1997, the last reported sale price of the Common
Stock was $26.75 per share.
The Securities may be offered directly, through agents designated from
time to time by the Company, or to or through underwriters or dealers. If any
agents or underwriters are involved in the sale of any of the Securities,
their names, and any applicable purchase price, fee, commission or discount
arrangement between or among them, will be set forth, or will be calculable
from the information set forth, in the applicable Prospectus Supplement. See
"Plan of Distribution." No Securities may be sold without delivery of the
applicable Prospectus Supplement describing the method and terms of the
offering of such Securities.
___________
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 date of this Prospectus is August 22, 1997.
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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. Electronic filings made through the
Commission's EDGAR filing system are publicly available through the
Commission's web site (http://www.sec.gov).
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 Securities. This Prospectus does not contain all the
information set forth in the Registration Statement, certain portions of
which have been omitted as permitted by the 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 or incorporated by reference 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 Securities, 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:
(i) the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996;
(ii) the Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1997;
(iii) the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1997; and
(iv) the description of the Common Stock contained in the Company's
Registration Statement on Form 8-B, filed with the Commission on
July 29, 1997.
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 Securities 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: (760) 741-2111).
THE COMPANY
Realty Income Corporation, a Maryland corporation (the "Company"), is a
fully integrated, self-administered and self-managed real estate investment
trust ("REIT") that focuses on the acquisition of long-term net lease
properties. The Company's philosophy is to employ a strategy of acquiring,
owning and managing additional properties that are preleased on a long-term
net lease basis to national and regional chain operators in a variety of
consumer service and retail industries throughout the United States. As of
August 19, 1997, the Company directly owned controlling interests in 771
properties located throughout the United States.
The Company commenced operations as a REIT on August 15, 1994 through the
merger and consolidation of 25 public and private real estate limited
partnerships (the "Consolidation"). From September 1993 until May 28, 1997,
the Company existed as a corporation formed under the laws of the State of
Delaware (the "Delaware Company"). In March 1997, the Company formed
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Realty Income of Maryland, Inc., a Maryland corporation and wholly-owned
subsidiary of the Delaware Company (the "Maryland Company"), specifically for
the purpose of reincorporating the Company under the laws of the State of
Maryland (the "Reincorporation"). The Maryland Company conducted no business
and had no material assets or liabilities prior to May 28, 1997. On May 28,
1997, the Delaware Company was merged into the Maryland Company pursuant to
an Agreement and Plan of Merger approved by the Company's stockholders. Upon
completion of the merger, the Maryland Company changed its name to Realty
Income Corporation. The Reincorporation did not result in any change in the
Company's business, assets or liabilities and did not result in any
relocation of management or other employees. For a more complete description
of the potential effects of the Reincorporation, reference is hereby made to
the section entitled, "Reincorporation of the Company in Maryland and Related
Changes to the Rights of Stockholders" of the Company's Proxy Statement filed
with the Commission on March 28, 1997 in connection with its 1997 Annual
Meeting of Stockholders, which section is incorporated by reference herein.
The Company's executive offices are located at 220 West Crest
Street, Escondido, California 92025, and the telephone number is (760)
741-2111.
USE OF PROCEEDS
Unless otherwise described in the applicable Prospectus Supplement, the
Company intends to use the net proceeds from the sale of the Securities for
general corporate purposes, which may include the construction and
acquisition of additional properties and other acquisition transactions, the
expansion and improvement of certain properties in the Company's portfolio,
and the repayment of indebtedness.
RATIOS OF EARNINGS TO FIXED CHARGES
The following table sets forth ratios of earnings to fixed charges for
the periods shown. The years ended December 31, 1996 and 1995 and the six
months ended June 30, 1997 are for the Company. The results of operations
used to compute the ratio for the year ended December 31, 1994 are comprised
of those of the combined 10 private and 15 publicly held real estate limited
partnerships that were included in the Consolidation from January 1, 1994
through August 15, 1994 and those of the Company from August 16, 1994 through
December 31, 1994. The ratio shown for the year ended December 31, 1993 is
derived from the combined historical financial information of the
Predecessor. Ratios are not shown for the year ended December 31, 1992
because the Predecessor did not have any fixed charges for such period.
SIX MONTHS YEAR ENDED DECEMBER 31,
ENDED JUNE 30, ---------------------------------------
1997 1996 1995 1994 1993
---------------- ------ ------ ------ --------
6x 14x 10x 39x 5,865x
The ratios of earnings to fixed charges were computed by dividing
earnings by fixed charges. For this purpose, earnings consist of net income
before extraordinary items plus fixed charges (excluding interest costs
capitalized). Fixed charges consist of interest expense (including interest
costs capitalized) and the amortization of debt issuance costs. To date, the
Company has not issued any Preferred Stock; therefore, the ratios of earnings
to fixed charges and preferred share dividends are the same as the ratios
presented above.
DESCRIPTION OF DEBT SECURITIES
GENERAL
The Debt Securities will be direct obligations of the Company, which may
be secured or unsecured, and which may be senior or subordinated indebtedness
of the Company. The Debt Securities may be issued under one or more
indentures, each dated as of a date on or before the issuance of the Debt
Securities to which it relates and in the form that has been filed as an
exhibit to the Registration Statement of which this Prospectus is a part or
incorporated by reference herein by means of a post-effective amendment to
the Registration Statement or a Form 8-K, subject to such amendments or
supplements as may be adopted from time to time. Each such indenture
(collectively, the "Indenture") will be entered into between the Company and
a trustee (the "Trustee"), which may be the same Trustee. The Indenture will
be subject to, and governed by, the Trust Indenture Act of 1939, as amended.
The statements made hereunder relating to the Indenture and the Debt
Securities are summaries of certain anticipated provisions thereof, do not
purport to be complete and are subject to, and are qualified in their
entirety by reference to, all provisions of the Indenture and such Debt
Securities. Capitalized terms used but not defined herein shall have the
respective meanings set forth in the Indenture.
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TERMS
The particular terms of the Debt Securities offered by a Prospectus
Supplement will be described in the particular Prospectus Supplement, along
with any applicable modifications of or additions to the general terms of the
Debt Securities as described herein and in the applicable Indenture.
Accordingly, for a description of the terms of any series of Debt Securities,
reference must be made to both the Prospectus Supplement relating thereto and
the description of the Debt Securities set forth in this Prospectus. To the
extent that any particular terms of the Debt Securities described in a
Prospectus Supplement differ from any of the terms described herein, then
such terms described herein shall be deemed to have been superseded by such
Prospectus Supplement.
Except as set forth in any Prospectus Supplement, the Debt Securities may
be issued without limit as to aggregate principal amount, in one or more
series, in each case as established from time to time by the Company's Board
of Directors or as set forth in the applicable Indenture or one or more
indentures supplemental to the Indenture. All Debt Securities of one series
need not be issued at the same time and, unless otherwise provided, a series
may be reopened, without the consent of the holders of the Debt Securities of
such series, for issuances of additional Debt Securities of such series.
Each Indenture will provide that the Company may, but need not, designate
more than one Trustee thereunder, each with respect to one or more series of
Debt Securities. Any Trustee under an Indenture may resign or be removed
with respect to one or more series of Debt Securities, and a successor
Trustee may be appointed to act with respect to such series. If two or more
persons are acting as Trustee with respect to different series of Debt
Securities, each such Trustee shall be a Trustee of a trust under the
applicable Indenture separate and apart from the trust administered by any
other Trustee and, except as otherwise indicated herein, any action described
herein to be taken by a Trustee may be taken by each such Trustee with
respect to, and only with respect to, the one or more series of Debt
Securities for which it is Trustee under the applicable Indenture.
The following summaries set forth certain general terms and provisions of
the Indenture and the Debt Securities. The Prospectus Supplement relating to
the series of Debt Securities being offered will contain further terms of
such Debt Securities, including the following specific terms:
(1) the title of such Debt Securities;
(2) the aggregate principal amount of such Debt Securities and
any limit on such aggregate principal amount;
(3) the price (expressed as a percentage of the principal amount
thereof) at which such Debt Securities will be issued and, if other
than the principal amount thereof, the portion of the principal amount
thereof payable upon declaration of acceleration of the maturity
thereof, or (if applicable) the portion of the principal amount of
such Debt Securities that is convertible into Common Stock or
Preferred Stock, or the method by which any such portion shall be
determined;
(4) if convertible, the terms on which such Debt Securities are
convertible, including the initial conversion price or rate and
conversion period and, in connection with the preservation of the
Company's status as a REIT, any applicable limitations on the
ownership or transferability of the Common Stock or the Preferred
Stock into which such Debt Securities are convertible;
(5) the date or dates, or the method for determining such date
or dates, on which the principal of such Debt Securities will be
payable;
(6) the rate or rates (which may be fixed or variable), or the
method by which such rate or rates shall be determined, at which such
Debt Securities will bear interest, if any;
(7) the date or dates, or the method for determining such date
or dates, from which any interest will accrue, the dates upon which
any such interest will be payable, the record dates for payment of
such interest, or the method by which any such dates shall be
determined, the persons to whom such interest shall be payable, and
the basis upon which interest shall be calculated if other than that
of a 360-day year of twelve 30-day months;
(8) the place or places where the principal of (and premium, if
any) and interest, if any, on such Debt Securities will be payable,
where such Debt Securities may be surrendered for conversion or
registration of transfer or exchange and where notices or demands to
or upon the Company in respect of such Debt Securities and the
Indenture may be served;
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(9) the period or periods, if any, within which, the price or
prices at which and the terms and conditions upon which such Debt
Securities may be redeemed, as a whole or in part, at the Company's
option;
(10) the obligation, if any, of the Company to redeem, repay or
purchase such Debt Securities pursuant to any sinking fund or
analogous provision or at the option of a holder thereof, and the
period or periods within which, the price or prices at which and the
terms and conditions upon which such Debt Securities will be redeemed,
repaid or purchased, as a whole or in part, pursuant to such
obligation;
(11) if other than U.S. dollars, the currency or currencies in
which such Debt Securities are denominated and payable, which may be a
foreign currency or units of two or more foreign currencies or a
composite currency or currencies, and the terms and conditions
relating thereto;
(12) whether the amount of payments of principal of (and premium,
if any) or interest, if any, on such Debt Securities may be determined
with reference to an index, formula or other method (which index,
formula or method may, but need not, be based on a currency,
currencies, currency unit or units or composite currency or
currencies) and the manner in which such amounts shall be determined;
(13) whether such Debt Securities will be issued in certificated
and/or book-entry form, and, if so, the identity of the depositary for
such Debt Securities;
(14) whether such Debt Securities will be in registered or bearer
form and, if in registered form, the denominations thereof if other
than $1,000 and any integral multiple thereof and, if in bearer form,
the denominations thereof and terms and conditions relating thereto;
(15) the applicability, if any, of the defeasance and covenant
defeasance provisions described herein or set forth in the applicable
Indenture, or any modification thereof;
(16) any deletions from, modifications of or additions to the
events of default or covenants of the Company with respect to such
Debt Securities;
(17) whether and under what circumstances the Company will pay
any Additional Amounts on such Debt Securities in respect of any tax,
assessment or governmental charge and, if so, whether the Company will
have the option to redeem such Debt Securities in lieu of making such
payment;
(18) the subordination provisions, if any, relating to such Debt
Securities;
(19) the provisions, if any, relating to any security provided
for such Debt Securities; and
(20) any other terms of such Debt Securities.
If so provided in the applicable Prospectus Supplement, the Debt
Securities may be issued at a discount below their principal amount and
provide for less than the entire principal amount thereof to be payable upon
declaration of acceleration of the maturity thereof ("Original Issue Discount
Securities"). In such cases, any material U.S. federal income tax,
accounting and other considerations applicable to Original Issue Discount
Securities will be described in the applicable Prospectus Supplement.
DENOMINATIONS, INTEREST, REGISTRATION AND TRANSFER
Unless otherwise described in the applicable Prospectus Supplement, the
Debt Securities of any series will be issuable in denominations of $1,000 and
integral multiples thereof.
Unless otherwise described in the applicable Prospectus Supplement, the
principal of (and premium, if any) and interest on any series of Debt
Securities will be payable at the applicable Trustee's corporate trust
office, the address of which will be set forth in the applicable Prospectus
Supplement; PROVIDED, HOWEVER, that, unless otherwise provided in the
applicable Prospectus Supplement, at the Company's option, payment of
interest may be made by check mailed to the address of the person entitled
thereto as it appears in the applicable register for such Debt Securities or
by wire transfer of funds to such person at an account maintained within the
United States.
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Subject to certain limitations imposed on Debt Securities issued in
book-entry form, the Debt Securities of any series will be exchangeable for
any authorized denomination of other Debt Securities of the same series and
of a like aggregate principal amount and tenor upon surrender of such Debt
Securities at the office of any transfer agent designated by the Company for
such purpose. In addition, subject to certain limitations imposed on Debt
Securities issued in book-entry form, the Debt Securities of any series may
be surrendered for conversion or registration of transfer thereof at the
office of any transfer agent designated by the Company for such purpose.
Every Debt Security surrendered for conversion, registration of transfer or
exchange shall be duly endorsed or accompanied by a written instrument of
transfer and the person requesting such transfer must provide evidence of
title and identity satisfactory to the Company and the applicable transfer
agent. No service charge will be made for any registration of transfer or
exchange of any Debt Securities, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge payable in
connection therewith. The Company may at any time rescind the designation of
any transfer agent appointed with respect to the Debt Securities of any
series or approve a change in the location through which any such transfer
agent acts, except that the Company will be required to maintain a transfer
agent in each place of payment for such series. The Company may at any time
designate additional transfer agents with respect to any series of Debt
Securities.
Neither the Company nor any Trustee shall be required to (a) issue,
register the transfer of or exchange Debt Securities of any series if such
Debt Security may be among those selected for redemption during a period
beginning at the opening of business 15 days before the mailing or first
publication, as the case may be, of notice of redemption of such Debt
Securities and ending at the close of business on (i) if the Debt Securities
of such series are issuable only in registered form, the day of mailing of
the relevant notice of redemption or (ii) if the Debt Securities of such
series are issuable in bearer form, the day of the first publication of the
relevant notice of redemption or, if such Debt Securities are also issuable
in registered form and there is no such publication, the day of mailing of
the relevant notice of redemption; (b) register the transfer of or exchange
any Debt Security in registered form, or portion thereof, so selected for
redemption, in whole or in part, except the unredeemed portion of any Debt
Security being redeemed in part; or (c) exchange any Debt Security in bearer
form so selected for redemption, except in exchange for a Debt Security of
such series in registered form that is simultaneously surrendered for
redemption; or (d) issue, register the transfer of or exchange any Debt
Security that has been surrendered for repayment at the holder's option,
except the portion, if any, of such Debt Security not to be so repaid.
MERGER, CONSOLIDATION OR SALE OF ASSETS
Each Indenture will provide that the Company will not consolidate with,
or sell, lease or convey all or substantially all of its assets to, or merge
with or into, any person unless (a) either the Company shall be the
continuing entity, or the successor person (if other than the Company) formed
by or resulting from any such consolidation or merger or which shall have
received the transfer of such assets shall be a corporation organized and
existing under the laws of the United States or any State thereof and shall
expressly assume the Company's obligation to pay the principal of (and
premium, if any) and interest on all the Debt Securities issued under such
Indenture and the due and punctual performance and observance of all the
covenants and conditions contained in such Indenture and in such Debt
Securities; (b) immediately after giving effect to such transaction and
treating any indebtedness that becomes an obligation of the Company or any
Subsidiary as a result thereof as having been incurred, and any liens on any
property or assets of the Company or any Subsidiary that are incurred,
created or assumed as a result thereof as having been created, incurred or
assumed, by the Company or such Subsidiary at the time of such transaction,
no event of default under the Indenture, and no event that, after notice or
the lapse of time, or both, would become such an event of default, shall have
occurred and be continuing; and (c) an officers' certificate and legal
opinion covering such conditions shall be delivered to the Trustee.
CERTAIN COVENANTS
EXISTENCE. Except as permitted under "-Merger, Consolidation or Sale of
Assets," each Indenture will require the Company to do or cause to be done
all things necessary to preserve and keep in full force and effect its
corporate existence, all material rights (by certificate of incorporation,
by-laws and statute) and all material franchises; PROVIDED, HOWEVER, that the
Company shall not be required to preserve any right or franchise if its Board
of Directors determines that the preservation thereof is no longer desirable
in the conduct of its business.
MAINTENANCE OF PROPERTIES. Each Indenture will require the Company to
cause all of its material properties used or useful in the conduct of its
business or the business of any Subsidiary to be maintained and kept in good
condition, repair and working order and supplied with all necessary equipment
and to cause to be made all necessary repairs, renewals, replacements,
betterments and improvements thereof, all as in the Company's judgment may be
necessary so that the business carried on in connection therewith may be
properly and advantageously conducted at all times; PROVIDED, HOWEVER, that
the Company and its Subsidiaries shall not be prevented from selling or
otherwise disposing of their properties for value in the ordinary course of
business.
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INSURANCE. Each Indenture will require the Company to, and to cause each
of its Subsidiaries to, keep in force upon all of its properties and
operations policies of insurance carried with responsible companies in such
amounts and covering all such risks as shall be customary in the industry in
accordance with prevailing market conditions and availability.
PAYMENT OF TAXES AND OTHER CLAIMS. Each Indenture will require the
Company to pay or discharge or cause to be paid or discharged, before the
same shall become delinquent, (a) all taxes, assessments and governmental
charges levied or imposed on it or any Subsidiary or on the income, profits
or property of the Company or any Subsidiary and (b) all lawful claims for
labor, materials and supplies that, if unpaid, might by law become a lien
upon the property of the Company or any Subsidiary; PROVIDED, HOWEVER, that
the Company shall not be required to pay or discharge or cause to be paid or
discharged any such tax, assessment, charge or claim the amount,
applicability or validity of which is being contested in good faith by
appropriate proceedings.
PROVISION OF FINANCIAL INFORMATION. Whether or not the Company is
subject to Section 13 or 15(d) of the Exchange Act, each Indenture will
require the Company, within 15 days after each of the respective dates by
which the Company would have been required to file annual reports, quarterly
reports and other documents with the Commission if the Company were so
subject, (a) to transmit by mail to all holders of Debt Securities issued
under such Indenture, as their names and addresses appear in the applicable
register for such Debt Securities, without cost to such holders, copies of
the annual reports, quarterly reports and other documents that the Company
would have been required to file with the Commission pursuant to Section 13
or 15(d) of the Exchange Act if the Company were subject to such Sections,
(b) to file with the applicable Trustee copies of the annual reports,
quarterly reports and other documents that the Company would have been
required to file with the Commission pursuant to Section 13 or 15(d) of the
Exchange Act if the Company were subject to such Sections, and (c) to supply,
promptly upon written request and payment of the reasonable cost of
duplication and delivery, copies of such documents to any prospective holder
of such Debt Securities.
Except as may otherwise be provided in the Prospectus Supplement relating
to any series of Debt Securities, the term "Subsidiary", as used in the
Indenture, means with respect to the Company, any other Person of which more
than 50% of (i) the equity or other ownership interests or (ii) the total
voting power of shares of capital stock or other ownership interests entitled
(without regard to the occurrence of any contingency) to vote in the election
of directors, managers, trustees or general or managing partners thereof is
at the time owned by the Company or one or more of the other Subsidiaries of
the Company or a combination thereof.
ADDITIONAL COVENANTS. Any additional covenants of the Company with
respect to any of the series of Debt Securities will be set forth in the
Prospectus Supplement relating thereto.
EVENTS OF DEFAULT, NOTICE AND WAIVER
Unless otherwise provided in the applicable Indenture, each Indenture
will provide that the following events are "events of default" with respect
to any series of Debt Securities issued thereunder: (a) default for 30 days
in the payment of any installment of interest on any Debt Security of such
series; (b) default in the payment of the principal of (or premium, if any,
on) any Debt Security of such series when due, whether at stated maturity or
by declaration of acceleration, notice of redemption, notice of option to
elect repayment or otherwise; (c) default in making any sinking fund payment
as required for any Debt Security of such series; (d) default in the
performance of any other covenant of the Company contained in the Indenture
(other than a covenant added to the Indenture solely for the benefit of a
series of Debt Securities issued thereunder other than such series),
continued for 60 days after written notice to the Company by the Trustee or
the holders of at least 25% in principal amount of the outstanding Debt
Securities of such series; (e) a default under any bond, debenture, note or
other evidence of indebtedness for money borrowed by the Company or any of
its Subsidiaries (including obligations under leases required to be
capitalized on the balance sheet of the lessee under generally accepted
accounting principles, but not including any indebtedness or obligations for
which recourse is limited to property purchased) in an aggregate principal
amount in excess of $25,000,000 or under any mortgage, indenture or
instrument under which there may be issued or by which there may be secured
or evidenced any indebtedness for money borrowed by the Company or any of its
Subsidiaries (including such leases, but not including such indebtedness or
obligations for which recourse is limited to property purchased) in an
aggregate principal amount in excess of $25,000,000, whether such
indebtedness exists at the date of the relevant Indenture or shall thereafter
be created, which default shall have resulted in such indebtedness becoming
or being declared due and payable prior to the date on which it would
otherwise have become due and payable or such obligations being accelerated,
without such acceleration having been rescinded or annulled; (f) certain
events of bankruptcy, insolvency or reorganization, or court appointment of a
receiver, liquidator or trustee of the Company or any Significant Subsidiary
of the Company; and (g) any other Event of Default provided with respect to a
particular series of Debt Securities. The term "Significant Subsidiary" has
the meaning ascribed to such term in Regulation S-X promulgated under the
Securities Act, as such Regulation was in effect on January 1, 1996.
If an event of default under any Indenture with respect to Debt
Securities of any series at the time outstanding occurs and is continuing,
then in every such case the applicable Trustee or the holders of not less
than 25% in principal amount of the outstanding
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Debt Securities of that series may declare the principal amount (or, if the
Debt Securities of that series are Original Issue Discount Securities or
Indexed Securities, such portion of the principal amount as may be specified
in the terms thereof) of all the Debt Securities of that series to be due and
payable immediately by written notice thereof to the Company (and to the
applicable Trustee if given by the holders). However, at any time after such
a declaration of acceleration with respect to Debt Securities of such series
has been made, but before a judgment or decree for payment of the money due
has been obtained by the applicable Trustee, the holders of not less than a
majority of the principal amount of the outstanding Debt Securities of such
series may rescind and annul such declaration and its consequences if (a) the
Company shall have deposited with the applicable Trustee all required
payments of the principal of (and premium, if any) and interest on the Debt
Securities of such series (other than principal and premium, if any, and
interest which have become due solely as a result of such acceleration), plus
certain fees, expenses, disbursements and advances of the applicable Trustee
and (b) all events of default, other than the nonpayment of accelerated
principal (or specified portion thereof), premium, if any, and interest with
respect to Debt Securities of such series have been cured or waived as
provided in the Indenture. Each Indenture will also provide that the holders
of not less than a majority in principal amount of the outstanding Debt
Securities of any series may waive any past default with respect to such
series and its consequences, except a default (y) in the payment of the
principal of (or premium, if any) or interest on any Debt Security of such
series or (z) in respect of a covenant or provision contained in such
Indenture that cannot be modified or amended without the consent of the
holder of each outstanding Debt Security of such series affected thereby.
Each Indenture will require each Trustee to give notice to the holders of
Debt Securities within 90 days of a default under the Indenture unless such
default shall have been cured or waived, subject to certain exceptions;
PROVIDED, HOWEVER, that such Trustee may withhold notice to the holders of
any series of Debt Securities of any default with respect to such series
(except a default in the payment of the principal of (or premium, if any) or
interest on any Debt Security of such series or in the payment of any sinking
fund installment in respect of any Debt Security of such series) if specified
Responsible Officers of the Trustee consider such withholding to be in such
holders' interest.
Each Indenture will provide that no holders of Debt Securities of any
series may institute any proceedings, judicial or otherwise, with respect to
the Indenture or for any remedy thereunder, except in the case of failure of
the Trustee, for 60 days, to act after it has received a written request to
institute proceedings in respect of an event of default from the holders of
not less than 25% in principal amount of the outstanding Debt Securities of
such series, as well as an offer of indemnity reasonably satisfactory to it,
and no direction inconsistent with such written request has been given to the
Trustee during such 60-day period by holders of a majority in principal
amount of the outstanding Debt Securities of such series. This provision
will not prevent, however, any holder of Debt Securities from instituting
suit for the enforcement of payment of the principal of (and premium, if any)
and interest on such Debt Securities at the respective due dates thereof.
Each Indenture will provide that, subject to provisions in the Trust
Indenture Act of 1939 relating to its duties in case of default, the Trustee
is under no obligation to exercise any of its rights or powers under the
Indenture at the request or direction of any holders of any series of Debt
Securities then outstanding under the Indenture, unless such holders shall
have offered to the Trustee reasonable security or indemnity. The holders of
not less than a majority in principal amount of the outstanding Debt
Securities of any series shall have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee,
or of exercising any trust or power conferred upon the Trustee; provided that
such direction shall not conflict with any rule of law or the Indenture and
the Trustee may refuse to follow any direction that may involve the Trustee
in personal liability or that may be unduly prejudicial to the holders of
Debt Securities of such series not joining therein.
Within 120 days after the close of each fiscal year, the Company will be
required to deliver to the Trustee a certificate, signed by one of several
specified officers, stating whether or not such officer has knowledge of any
default under the Indenture and, if so, specifying each such default and the
nature and status thereof.
MODIFICATION OF THE INDENTURE
Modifications and amendments of any Indenture will be permitted with the
consent of the holders of not less than a majority in principal amount of all
outstanding Debt Securities of each series issued under such Indenture
affected by such modification or amendment; PROVIDED, HOWEVER, that no such
modification or amendment may, without the consent of the holder of each Debt
Security affected thereby, (a) change the stated maturity of the principal
of, or any installment of principal, interest (or premium, if any) on, any
such Debt Security; (b) reduce the principal amount of, or the rate or amount
of interest on, or any premium payable on redemption of, any such Debt
Security, or reduce the amount of principal of an Original Issue Discount
Security that would be due and payable upon declaration of acceleration of
the maturity thereof or would be provable in bankruptcy, or adversely affect
any right of repayment at the option of the holder of any Debt Security (or
reduce the amount of premium payable upon any such repayment); (c) change the
place of payment, or the coin or currency, for payment of principal of (or
premium, if any) or interest on any such
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Debt Security; (d) impair the right to institute suit for the enforcement of
any payment on or with respect to any such Debt Security when due; (e) reduce
the above-stated percentage of outstanding Debt Securities of any series
necessary to modify or amend the Indenture, to waive compliance with certain
provisions thereof or certain defaults and consequences thereunder or to
reduce the quorum or voting requirements set forth in the Indenture; or (f)
modify any of the foregoing provisions or any of the provisions relating to
the waiver of certain past defaults or certain covenants, except to increase
the required percentage to effect such action or to provide that certain
other provisions may not be modified or waived without the consent of the
holder of each outstanding Debt Security affected thereby.
The holders of a majority in aggregate principal amount of outstanding
Debt Securities of any series may, on behalf of all holders of Debt
Securities of that series waive, insofar as that series is concerned,
compliance by the Company with certain restrictive covenants in the
applicable Indenture.
Modifications and amendments of an Indenture will be permitted to be made
by the Company and the Trustee without the consent of any holder of Debt
Securities for any of the following purposes: (a) to evidence the succession
of another person to the Company as obligor under the Indenture; (b) to add
to the covenants of the Company for the benefit of the holders of all or any
series of Debt Securities or to surrender any right or power conferred upon
the Company in the Indenture; (c) to add events of default for the benefit of
the holders of all or any series of Debt Securities; (d) to add or change any
provisions of the Indenture to facilitate the issuance of, or to liberalize
certain terms of, Debt Securities in bearer form, or to permit or facilitate
the issuance of Debt Securities in uncertificated form, PROVIDED that such
action shall not adversely affect the interests of the holders of the Debt
Securities of any series in any material respect; (e) to change or eliminate
any provisions of the Indenture, PROVIDED that any such change or elimination
does not apply to any outstanding Debt Securities of a series created prior
to the date of such amendment or supplement that are entitled to the benefit
of such provision; (f) to secure the Debt Securities; (g) to establish the
form or terms of Debt Securities of any series, including the provisions and
procedures, if applicable, for the conversion of such Debt Securities into
Common Stock or Preferred Stock; (h) to provide for the acceptance of
appointment by a successor Trustee or facilitate the administration of the
trusts under the Indenture by more than one Trustee; (i) to cure any
ambiguity, defect or inconsistency in the Indenture or to make any other
provisions with respect to matters or questions arising under the Indenture
PROVIDED, HOWEVER, that such action shall not adversely affect the interests
of holders of Debt Securities of any series in any material respect; or (j)
to supplement any of the provisions of the Indenture to the extent necessary
to permit or facilitate defeasance, covenant defeasance and discharge of any
series of such Debt Securities, PROVIDED, HOWEVER, that such action shall not
adversely affect the interests of the holders of the Debt Securities of any
series in any material respect.
Each Indenture will provide that in determining whether the holders of
the requisite principal amount of outstanding Debt Securities of a series
have given any request, demand, authorization, direction, notice, consent or
waiver thereunder or whether a quorum is present at a meeting of holders of
Debt Securities, (a) the principal amount of an Original Issue Discount
Security that shall be deemed to be outstanding shall be the amount of the
principal thereof that would be due and payable as of the date of such
determination upon declaration of acceleration of the maturity thereof, (b)
the principal amount of any Debt Security denominated in a foreign currency
that shall be deemed outstanding shall be the U.S. dollar equivalent,
determined on the issue date for such Debt Security, of the principal amount
(or, in the case of an Original Issue Discount Security, the U.S. dollar
equivalent on the issue date of such Debt Security of the amount determined
as provided in (a) above), (c) the principal amount of an Indexed Security
that shall be deemed outstanding shall be the principal face amount of such
Indexed Security at original issuance, unless otherwise provided with respect
to such Indexed Security in the applicable Indenture, and (d) Debt Securities
owned by the Company or any other obligor upon the Debt Securities or any
affiliate of the Company or of such other obligor shall be disregarded.
Each Indenture will contain provisions for convening meetings of the
holders of Debt Securities of a series. A meeting may be permitted to be
called at any time by the Trustee, and also, upon request, by the Company or
the holders of at least 10% in principal amount of the outstanding Debt
Securities of such series, in any such case upon notice given as provided in
the Indenture. Except for any consent or waiver that must be given by the
holder of each Debt Security affected thereby, any resolution presented at a
meeting or adjourned meeting duly reconvened at which a quorum is present may
be adopted by the affirmative vote of the holders of a majority in principal
amount of the outstanding Debt Securities of that series; PROVIDED, HOWEVER,
that, except as referred to above, any resolution with respect to any
request, demand, authorization, direction, notice, consent, waiver or other
action that may be made, given or taken by the holders of a specified
percentage, which is less than a majority, in principal amount of the
outstanding Debt Securities of a series may be adopted at a meeting or
adjourned meeting duly reconvened at which a quorum is present by the
affirmative vote of the holders of such specified percentage in principal
amount of the outstanding Debt Securities of that series. Any resolution
passed or decision taken at any meeting of holders of Debt Securities of any
series duly held in accordance with the Indenture will be binding on all
holders of Debt Securities of that series. The persons holding or
representing a majority in principal amount of the outstanding Debt
Securities of a series shall constitute a quorum for a meeting of holders of
such series; PROVIDED, HOWEVER, that if any action is to be taken at such
meeting with respect to a consent or waiver that may be given by the
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holders of not less than a specified percentage in principal amount of the
outstanding Debt Securities of a series, the persons holding or representing
such specified percentage in principal amount of the outstanding Debt
Securities of such series will constitute a quorum.
Notwithstanding the foregoing provisions, each Indenture will provide
that if any action is to be taken at a meeting of holders of Debt Securities
of any series with respect to any request, demand, authorization, direction,
notice, consent, waiver or other action that the Indenture expressly provides
may be made, given or taken by the holders of such series and one or more
additional series: (a) there shall be no minimum quorum requirement for such
meeting and (b) the principal amount of the outstanding Debt Securities of
all such series that are entitled to vote in favor of such request, demand,
authorization, direction, notice, consent, waiver or other action shall be
taken into account in determining whether such request, demand,
authorization, direction, notice, consent, waiver or other action has been
made, given or taken under the Indenture.
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
Unless otherwise indicated in the applicable Prospectus Supplement, upon
request of the Company any Indenture shall cease to be of further effect with
respect to any series of Debt Securities issued thereunder specified in such
Company request (except as to certain limited provisions of such Indenture
which shall survive) when either (i) all Debt Securities of such series have
been delivered to the Trustee for cancellation or (ii) all Debt Securities of
such series have become due and payable or will become due and payable within
one year (or are scheduled for redemption within one year) and the Company
has irrevocably deposited with the applicable Trustee, in trust, funds in
such currency or currencies, currency unit or units or composite currency or
currencies in which such Debt Securities are payable in an amount sufficient
to pay the entire indebtedness on such Debt Securities in respect of
principal (and premium, if any) and interest to the date of such deposit (if
such Debt Securities have become due and payable) or to the stated maturity
or redemption date, as the case may be.
Each Indenture will provide that, unless otherwise indicated in the
applicable Prospectus Supplement, the Company may elect either to (a) defease
and be discharged from any and all obligations with respect to any series of
Debt Securities (except for the obligation to pay Additional Amounts, if any,
upon the occurrence of certain events of tax with respect to payments on such
Debt Securities and the obligations to register the transfer or exchange of
such Debt Securities, to replace temporary or mutilated, destroyed, lost or
stolen Debt Securities, to maintain an office or agency in respect of such
Debt Securities and to hold money for payment in trust) ("defeasance") or (b)
be released from its obligations with respect to certain covenants (which
will be described in the relevant Prospectus Supplement) applicable to such
Debt Securities under the applicable Indenture (which may include, subject to
a limited exception, the covenants described under "_Certain Covenants"), and
any omission to comply with such obligations shall not constitute a default
or an event of default with respect to such Debt Securities ("covenant
defeasance"), in either case upon the irrevocable deposit by the Company with
the applicable Trustee, in trust, of an amount, in such currency or
currencies, currency unit or units or composite currency or currencies in
which such Debt Securities are payable at stated maturity, or Government
Obligations (as defined below), or both, applicable to such Debt Securities
that through the scheduled payment of principal and interest in accordance
with their terms will provide money in an amount sufficient to pay the
principal of (and premium, if any) and interest on such Debt Securities, and
any mandatory sinking fund or analogous payments thereon, on the scheduled
due dates therefor.
Such a trust may only be established if, among other things, the Company
has delivered to the applicable Trustee an opinion of counsel (as specified
in the applicable Indenture) to the effect that the holders of such Debt
Securities will not recognize income, gain or loss for U.S. federal income
tax purposes as a result of such defeasance or covenant defeasance and will
be subject to U.S. federal income tax on the same amounts, in the same manner
and at the same times as would have been the case if such defeasance or
covenant defeasance had not occurred, and such opinion of counsel, in the
case of defeasance, must refer to and be based on a ruling of the Internal
Revenue Service (the "IRS") or a change in applicable U.S. federal income tax
law occurring after the date of the applicable Indenture. In the event of
such defeasance, the holders of such Debt Securities would thereafter be able
to look only to such trust fund for payment of principal (and premium, if
any) and interest.
"Government Obligations" means securities that are (a) direct obligations
of the United States of America or the government which issued the foreign
currency in which the Debt Securities of a particular series are payable, for
the payment of which its full faith and credit is pledged, or (b) obligations
of a person controlled or supervised by and acting as an agency or
instrumentality of the United States of America or such government which
issued the foreign currency in which the Debt Securities of such series are
payable, the payment of which is unconditionally guaranteed as a full faith
and credit obligation by the United States of America or such other
government, which, in either case, are not callable or redeemable at the
option of the issuer thereof, and shall also include a depository receipt
issued by a bank or trust company as custodian with respect to any such
Government Obligation or a specific payment of interest on or principal of
any such Government Obligation held by such custodian for the account of the
holder of a depository receipt; PROVIDED, HOWEVER, that (except as required
by law) such custodian is not authorized to make any deduction from
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the amount payable to the holder of such depository receipt from any amount
received by the custodian in respect of the Government Obligation or the
specific payment of interest on or principal of the Government Obligation
evidenced by such depository receipt.
Unless otherwise provided in the applicable Prospectus Supplement, if
after the Company has deposited funds and/or Government Obligations to effect
defeasance or covenant defeasance with respect to Debt Securities of any
series, (a) the holder of a Debt Security of such series is entitled to, and
does, elect pursuant to the applicable Indenture or the terms of such Debt
Security to receive payment in a currency, currency unit or composite
currency other than that in which such deposit has been made in respect of
such Debt Security or (b) a Conversion Event (as defined below) occurs in
respect of the currency, currency unit or composite currency in which such
deposit has been made, the indebtedness represented by such Debt Security
will be deemed to have been, and will be, fully discharged and satisfied
through the payment of the principal of (and premium, if any) and interest on
such Debt Security as they become due out of the proceeds yielded by
converting the amount so deposited in respect of such Debt Security into the
currency, currency unit or composite currency in which such Debt Security
becomes payable as a result of such election or Conversion Event based on the
applicable market exchange rate. "Conversion Event" means the cessation of
use of (i) a currency, currency unit or composite currency both by the
government of the country which issued such currency and for the settlement
of transactions by a central bank or other public institution of or within
the international banking community, (ii) the ECU both within the European
Monetary System and for the settlement of transactions by public institutions
of or within the European Communities, or (iii) any currency unit or
composite currency other than the ECU for the purposes for which it was
established. Unless otherwise provided in the applicable Prospectus
Supplement, all payments of principal of (and premium, if any) and interest
on any Debt Security that is payable in a foreign currency that ceases to be
used by its government of issuance shall be made in U.S. dollars.
In the event the Company effects covenant defeasance with respect to any
Debt Securities and such Debt Securities are declared due and payable because
of the occurrence of any event of default, other than the event of default
described in clause (d) under "_Events of Default, Notice and Waiver" with
respect to the specified sections of the applicable Indenture (which sections
would no longer be applicable to such Debt Securities) or clause (g)
thereunder with respect to any other covenant as to which there has been
covenant defeasance, the amount in such currency, currency unit or composite
currency in which such Debt Securities are payable, and Government
Obligations on deposit with the applicable Trustee, may not be sufficient to
pay amounts due on such Debt Securities at the time of the acceleration
resulting from such event of default. The Company would, however, remain
liable to make payment of such amounts due at the time of acceleration.
The applicable Prospectus Supplement may further describe the provisions,
if any, permitting such defeasance or covenant defeasance, including any
modifications to the provisions described above, with respect to the Debt
Securities of or within a particular series.
CONVERSION RIGHTS
The terms and conditions, if any, upon which the Debt Securities are
convertible into Common Stock or Preferred Stock will be set forth in the
applicable Prospectus Supplement relating thereto. Such terms will include
whether such Debt Securities are convertible into Common Stock or Preferred
Stock, the conversion price (or manner of calculation thereof), the
conversion period, provisions as to whether conversion will be at the option
of the holders or the Company, the events requiring an adjustment of the
conversion price and provisions affecting conversion in the event of the
redemption of such Debt Securities and any restrictions on conversion,
including restrictions directed at maintaining the Company's REIT status.
UNCLAIMED PAYMENTS
All amounts paid by the Company to a paying agent or a Trustee for the
payment of the principal of or any premium or interest on any Debt Security
that remain unclaimed at the end of two years after such principal, premium
or interest has become due and payable will be repaid to the Company, and the
holder of such Debt Security thereafter may look only to the Company for
payment thereof.
GLOBAL SECURITIES
The Debt Securities of a series may be issued in whole or in part in the
form of one or more global securities (the "Global Securities") that will be
deposited with, or on behalf of, a depositary identified in the applicable
Prospectus Supplement relating to such series. Global Securities may be
issued in either registered or bearer form and in either temporary or
permanent form. The specific terms of the depositary arrangement with
respect to a series of Debt Securities will be described in the applicable
Prospectus Supplement relating to such series.
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DESCRIPTION OF COMMON STOCK
The Company has authority to issue 100,000,000 shares of Common Stock,
$1.00 par value per share. As of August 19, 1997, the Company had
outstanding 22,994,964 shares of Common Stock.
GENERAL
The following description of the Common Stock sets forth certain general
terms and provisions of the Common Stock to which any Prospectus Supplement
may relate, including a Prospectus Supplement providing that the Common Stock
will be issuable upon conversion of Debt Securities or Preferred Stock. The
statements below describing the Common Stock are in all respects subject to
and qualified in their entirety by reference to the applicable provisions of
the Company's charter (the "Charter") and Bylaws (the "Bylaws").
TERMS
Subject to the preferential rights of any other shares or series of stock
and to the provisions of the Charter regarding the restrictions on transfer
of stock, holders of Common Stock are entitled to receive dividends when, as
and if authorized and declared by the Company's Board of Directors out of
assets legally available therefor. Payment and authorization of dividends on
the Common Stock and purchases of shares thereof by the Company may be
subject to certain restrictions if the Company fails to pay dividends on the
Preferred Stock. See "Description of Preferred Stock." Upon any liquidation,
dissolution or winding up of the Company, holders of Common Stock are
entitled to share equally and ratably in any assets available for
distribution to them, after payment or adequate provision for payment of the
debts and other liabilities of the Company and the preferential amounts owing
with respect to any outstanding Preferred Stock. Subject to the provisions
of the Charter regarding the restrictions on transfer of stock, each
outstanding share of Common Stock entitles the holder to one vote on all
matters submitted to a vote of stockholders, including the election of
directors and, except as provided with respect to any other class or series
of stock, the Holders of such shares will possess the exclusive voting power.
Holders of Common Stock do not have cumulative voting rights in the election
of directors, which means that holders of more than 50% of all the shares of
the Company's Common Stock voting for the election of directors can elect all
the directors if they choose to do so and the holders of the remaining shares
cannot elect any directors. Holders of shares of Common Stock do not have
preemptive rights, which means they have no right to acquire any additional
shares of Common Stock that may be issued by the Company at a subsequent
date. Holders of shares of Common Stock have no preference, conversion,
exchange, sinking fund, redemption or appraisal rights. Under Maryland law,
stockholders generally are not liable for the corporation's debts or
obligations. All shares of Common Stock now outstanding are, and additional
shares of Common Stock offered will be when issued, fully paid and
nonassessable, and no shares of Common Stock are or will be subject to
preemptive or similar rights.
Under the MGCL, a Maryland corporation generally cannot dissolve, amend
its charter, merge, sell all or substantially all of its assets, engage in a
share exchange or engage in similar transactions outside the ordinary course
of business unless approved by the affirmative vote of stockholders holding
at least two thirds of the shares entitled to vote on the matter unless a
lesser percentage (but not less than a majority of all of the votes entitled
to be cast on the matter) is set forth in the corporation's charter. The
Charter provides that any such action shall be effective if approved by the
affirmative vote of holders of shares entitled to cast a majority of all the
votes entitled to be cast on the matter.
The Charter authorizes the Board of Directors to reclassify any unissued
shares of Common Stock into other classes or series of classes of stock and
to establish the number of shares in each class or series and to set the
preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends or other distributions, qualifications or terms
or conditions of redemption for each such class or series.
RESTRICTIONS ON OWNERSHIP
For the Company to qualify as a REIT under the Internal Revenue Code of
1986, as amended (the "Code"), not more than 50% in value of its outstanding
capital stock may be owned, actually or constructively, by five or fewer
individuals (defined in the Code to include certain entities) during the last
half of a taxable year. To assist the Company in meeting this requirement
and certain other requirements relating to its tax status as a REIT, the
Company may take certain actions to limit the actual, beneficial or
constructive ownership by a single person or entity of the Company's
outstanding equity securities. See "Restrictions on Ownership and Transfers
of Capital Stock."
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TRANSFER AGENT
The registrar and transfer agent for the Common Stock is The Bank of New
York.
DESCRIPTION OF PREFERRED STOCK
The Company is authorized to issue 20,000,000 shares of Preferred Stock,
$1.00 par value per share, of which no shares were outstanding as of August
19, 1997.
GENERAL
The following description of the Preferred Stock sets forth certain
general terms and provisions of the Preferred Stock to which any Prospectus
Supplement may relate. The statements below describing the Preferred Stock
are in all respects subject to and qualified in their entirety by reference
to the applicable provisions of the Charter (including any applicable
Articles Supplementary) and the Bylaws.
The Charter authorizes the Board of Directors to classify any unissued
shares of Preferred Stock and to reclassify any previously classified but
unissued shares of any class or series, as authorized by the Board of
Directors. Prior to issuance of shares of each series, the Board is required
by the MGCL and the Charter to set, subject to the provisions of the Charter
regarding the restrictions on transfer of stock, the terms, preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends or other distributions, qualifications and terms or conditions of
redemption for each such series. Thus, the Board could authorize the
issuance of shares of Preferred Stock with terms and conditions which could
have the effect of delaying, deferring or preventing a transaction or a
change in control of the Company that might involve a premium price for
holders of Common Stock or otherwise be in their best interest. As of the
date hereof, no shares of Preferred Stock are outstanding and the Company has
no present plans to issue any Preferred Stock. The Preferred Stock will,
when issued, be fully paid and nonassessable and will have no preemptive
rights.
Reference is made to the Prospectus Supplement relating to the Preferred
Stock offered thereby for specific terms, including:
(1) the title of such Preferred Stock;
(2) the number of shares of such Preferred Stock offered,
the liquidation preference per share and the offering price of such
Preferred Stock;
(3) the dividend rate(s), period(s) and/or payment date(s)
or method(s) of calculation thereof applicable to such Preferred
Stock;
(4) whether such Preferred Stock is cumulative or not and,
if cumulative, the date from which dividends on such Preferred Stock
shall accumulate;
(5) the procedures for any auction and remarketing, if any,
for such Preferred Stock;
(6) the provision for a sinking fund, if any, for such
Preferred Stock;
(7) any voting rights of such Preferred Stock;
(8) the provision for redemption, if applicable, of such
Preferred Stock;
(9) any listing of such Preferred Stock on any securities
exchange;
(10) the terms and conditions, if applicable, upon which
such Preferred Stock will be convertible into Common Stock, including
the conversion price (or manner of calculation thereof);
(11) a discussion of federal income tax considerations
applicable to such Preferred Stock;
(12) any limitations on actual, beneficial or constructive
ownership and restrictions on transfer, in each case as may be
appropriate to preserve the Company's REIT status;
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(13) the relative ranking and preferences of such Preferred
Stock as to dividend rights and rights upon liquidation, dissolution
or winding up of the affairs of the Company;
(14) whether liquidation preferences on Preferred Stock
shall be counted as liabilities of the Company in determining
distributions to junior stockholders can be made under the MGCL;
(15) any limitations on issuance of any series or class of
Preferred Stock ranking senior to or on a parity with such series or
class of Preferred Stock as to dividend rights and rights upon
liquidation, dissolution or winding up of the affairs of the Company;
and
(16) any other specific terms, preferences, rights,
limitations or restrictions of such Preferred Stock.
RANK
Unless otherwise specified in the applicable Prospectus Supplement, the
Preferred Stock will, with respect to dividend rights and rights upon
liquidation, dissolution or winding up of the affairs of the Company, rank
(a) senior to all classes or series of Common Stock and to all equity
securities ranking junior to such Preferred Stock with respect to dividend
rights or rights upon liquidation, dissolution or winding up of the Company;
(b) on a parity with all equity securities issued by the Company the terms of
which specifically provide that such equity securities rank on a parity with
the Preferred Stock with respect to dividend rights or rights upon
liquidation, dissolution or winding up of the affairs of the Company; and (c)
junior to all equity securities issued by the Company the terms of which
specifically provide that such equity securities rank senior to the Preferred
Stock with respect to dividend rights or rights upon liquidation, dissolution
or winding up of the affairs of the Company. For these purposes, the term
"equity securities" does not include convertible debt securities.
DIVIDENDS
Holders of shares of the Preferred Stock of each series or class shall be
entitled to receive, when, as and if authorized and declared by the Company's
Board of Directors, out of the Company's assets legally available for
payment, cash dividends at such rates and on such dates as will be set forth
in the applicable Prospectus Supplement. Each such dividend shall be payable
to holders of record as they appear on the Company's stock transfer books on
such record dates as shall be fixed by the Company's Board of Directors.
Dividends on any series or class of Preferred Stock may be cumulative or
noncumulative, as provided in the applicable Prospectus Supplement.
Dividends, if cumulative, will be cumulative from and after the date set
forth in the applicable Prospectus Supplement. If the Company's Board of
Directors fails to authorize a dividend payable on a dividend payment date on
any series or class of Preferred Stock for which dividends are noncumulative,
then the holders of such series or class of Preferred Stock will have no
right to receive a dividend in respect of the dividend period ending on such
dividend payment date, and the Company will have no obligation to pay the
dividend accrued for such period, whether or not dividends on such series or
class are declared or paid for any future period.
If any shares of Preferred Stock of any series or class are outstanding,
no full dividends shall be authorized or paid or set apart for payment on the
Preferred Stock of any other series or class ranking, as to dividends, on a
parity with or junior to the Preferred Stock of such series or class for any
period unless (a) if such series or class of Preferred Stock has a cumulative
dividend, then full cumulative dividends have been or contemporaneously are
authorized and paid or authorized and a sum sufficient for the payment
thereof is set apart for such payment on the Preferred Stock of such series
or class for all past dividend periods and the then current dividend period
or (b) if such series or class of Preferred Stock does not have a cumulative
dividend, then full dividends for the then current dividend period have been
or contemporaneously are authorized and paid or authorized and a sum
sufficient for the payment thereof is set apart for such payment on the
Preferred Stock of such series or class. When dividends are not paid in full
(or a sum sufficient for such full payment is not so set apart) upon the
shares of Preferred Stock of any series or class and the shares of any other
series or class of Preferred Stock ranking on a parity as to dividends with
the Preferred Stock of such series or class, then all dividends authorized on
shares of Preferred Stock of such series or class and any other series or
class of Preferred Stock ranking on a parity as to dividends with such
Preferred Stock shall be authorized pro rata so that the amount of dividends
authorized per share on the Preferred Stock of such series or class and such
other series or class of Preferred Stock shall in all cases bear to each
other the same ratio that accrued dividends per share on the shares of
Preferred Stock of such series or class (which shall not include any
accumulation in respect of unpaid dividends for prior dividend periods if
such Preferred Stock does not have a cumulative dividend) and such other
series or class of Preferred Stock bear to each other. No interest, or sum
of money in lieu of interest, shall be payable in respect of any dividend
payment or payments on Preferred Stock of such series or class that may be in
arrears.
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Except as provided in the immediately preceding paragraph,
unless (a) if such series or class of Preferred Stock has a cumulative
dividend, full cumulative dividends on the Preferred Stock of such series or
class have been or contemporaneously are authorized and paid or authorized
and a sum sufficient for the payment thereof is set apart for payment for all
past dividend periods and the then current dividend period and (b) if such
series or class of Preferred Stock does not have a cumulative dividend, full
dividends on the Preferred Stock of such series or class have been or
contemporaneously are authorized and paid or authorized and a sum sufficient
for the payment thereof is set apart for payment for the then current
dividend period, then no dividends (other than in the Common Stock or other
stock of the Company ranking junior to the Preferred Stock of such series or
class as to dividends and upon liquidation) shall be authorized or paid or
set aside for payment nor shall any other distribution be authorized or made
on the Common Stock or any other stock of the Company ranking junior to or on
a parity with the Preferred Stock of such series or class as to dividends or
upon liquidation, nor shall the Common Stock or any other stock of the
Company ranking junior to or on a parity with the Preferred Stock of such
series or class as to dividends or upon liquidation be redeemed, purchased or
otherwise acquired for any consideration (or any amounts be paid to or made
available for a sinking fund for the redemption of any shares of any such
stock) by the Company (except by conversion into or exchange for other stock
of the Company ranking junior to the Preferred Stock of such series or class
as to dividends and upon liquidation).
Any dividend payment made on shares of a series or class of Preferred
Stock shall first be credited against the earliest accrued but unpaid
dividend due with respect to shares of such series or class that remains
payable.
REDEMPTION
If so provided in the applicable Prospectus Supplement, the shares of
Preferred Stock will be subject to mandatory redemption or redemption at the
Company's option, as a whole or in part, in each case on the terms, at the
times and at the redemption prices set forth in such Prospectus Supplement.
The Prospectus Supplement relating to a series or class of Preferred
Stock that is subject to mandatory redemption will specify the number of
shares of such Preferred Stock that shall be redeemed by the Company in each
year commencing after a date to be specified, at a redemption price per share
to be specified, together with an amount equal to all accumulated and unpaid
dividends thereon (which shall not, if such Preferred Stock does not have a
cumulative dividend, include any accumulation in respect of unpaid dividends
for prior dividend periods) to the date of redemption. The redemption price
may be payable in cash or other property, as specified in the applicable
Prospectus Supplement. If the redemption price for Preferred Stock of any
series or class is payable only from the net proceeds of the issuance of
stock of the Company, the terms of such Preferred Stock may provide that, if
no such stock shall have been issued or to the extent the net proceeds from
any issuance are insufficient to pay in full the aggregate redemption price
then due, such Preferred Stock shall automatically and mandatorily be
converted into shares of the applicable stock of the Company pursuant to
conversion provisions specified in the applicable Prospectus Supplement.
Notwithstanding the foregoing, unless (a) if such series or class of
Preferred Stock has a cumulative dividend, full cumulative dividends on all
shares of such series or class of Preferred Stock have been or
contemporaneously are authorized and paid or authorized and a sum sufficient
for the payment thereof is set apart for payment for all past dividend
periods and the then current dividend period and (b) if such series or class
of Preferred Stock does not have a cumulative dividend, full dividends on the
Preferred Stock of such series or class have been or contemporaneously are
authorized and paid or authorized and a sum sufficient for the payment
thereof is set apart for payment for the then current dividend period, then
no shares of such series or class of Preferred Stock shall be redeemed unless
all outstanding shares of Preferred Stock of such series or class are
simultaneously redeemed; PROVIDED, HOWEVER, that the foregoing shall not
prevent the purchase or acquisition of shares of Preferred Stock of such
series or class to preserve the Company's REIT status or pursuant to a
purchase or exchange offer made on the same terms to holders of all
outstanding shares of Preferred Stock of such series or class. In addition,
unless (i) if such series or class of Preferred Stock has a cumulative
dividend, full cumulative dividends on all outstanding shares of such series
or class of Preferred Stock have been or contemporaneously are authorized and
paid or authorized and a sum sufficient for the payment thereof is set apart
for payment for all past dividend periods and the then current dividend
period and (ii) if such series or class of Preferred Stock does not have a
cumulative dividend, full dividends on the Preferred Stock of such series or
class have been or contemporaneously are authorized and paid or authorized
and a sum sufficient for the payment thereof is set apart for payment for the
then current dividend period, the Company shall not purchase or otherwise
acquire directly or indirectly any shares of Preferred Stock of such series
or class (then except by conversion into or exchange for stock of the Company
ranking junior to the Preferred Stock of such series or class as to dividends
and upon liquidation); PROVIDED, HOWEVER, that the foregoing shall not
prevent the purchase or acquisition of shares of Preferred Stock of such
series or class to preserve the Company's REIT status or pursuant to a
purchase or exchange offer made on the same terms to holders of all
outstanding shares of Preferred Stock of such series or class.
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If fewer than all the outstanding shares of Preferred Stock of any series
or class are to be redeemed, the number of shares to be redeemed will be
determined by the Company and such shares may be redeemed pro rata from the
holders of record of such shares in proportion to the number of such shares
held by such holders (with adjustments to avoid redemption of fractional
shares) or any other equitable method determined by the Company.
Notice of redemption will be mailed at least 30, but not more than 60,
days before the redemption date to each holder of record of a share of
Preferred Stock of any series or class to be redeemed at the address shown on
the Company's stock transfer books. Each notice shall state: (a) the
redemption date; (b) the number of shares and series or class of the
Preferred Stock to be redeemed; (c) the redemption price; (d) the place or
places where certificates for such Preferred Stock are to be surrendered for
payment of the redemption price; (e) that dividends on the shares to be
redeemed will cease to accumulate on such redemption date; and (f) the date
on which the holder's conversion rights, if any, as to such shares shall
terminate. If fewer than all the shares of Preferred Stock of any series or
class are to be redeemed, the notice mailed to each such holder thereof shall
also specify the number of shares of Preferred Stock to be redeemed from each
such holder and, upon redemption, a new certificate shall be issued
representing the unredeemed shares without cost to the holder thereof. If
notice of redemption of any shares of Preferred Stock has been given and if
the funds necessary for such redemption have been set aside by the Company in
trust for the benefit of the holders of any shares of Preferred Stock so
called for redemption, then from and after the redemption date dividends will
cease to accrue on such shares of Preferred Stock, such shares of Preferred
Stock shall no longer be deemed outstanding and all rights of the holders of
such shares will terminate, except the right to receive the redemption price.
In order to facilitate the redemption of shares of Preferred Stock of any
series or class, the Board of Directors may fix a record date for the
determination of shares of such series or class of Preferred Stock to be
redeemed.
Subject to applicable law and the limitation on purchases when dividends
on a series or class of Preferred Stock are in arrears, the Company may, at
any time and from time to time, purchase any shares of such series or class
of Preferred Stock in the open market, by tender or by private agreement.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding up
of the affairs of the Company, then, before any distribution or payment shall
be made to the holders of the Common Stock or any other series or class of
stock of the Company ranking junior to any series or class of the Preferred
Stock in the distribution of assets upon any liquidation, dissolution or
winding up of the affairs of the Company, the holders of such series or class
of Preferred Stock shall be entitled to receive out of assets of the Company
legally available for distribution to shareholders liquidating distributions
in the amount of the liquidation preference per share (set forth in the
applicable Prospectus Supplement), plus an amount equal to all dividends
accrued and unpaid thereon (which shall not include any accumulation in
respect of unpaid dividends for prior dividend periods if such Preferred
Stock does not have a cumulative dividend). After payment of the full amount
of the liquidating distributions to which they are entitled, the holders of
Preferred Stock will have no right or claim to any of the remaining assets of
the Company. If, upon any such voluntary or involuntary liquidation,
dissolution or winding up, the legally available assets of the Company are
insufficient to pay the amount of the liquidating distributions on all
outstanding shares of any series or class of Preferred Stock and the
corresponding amounts payable on all shares of other classes or series of
stock of the Company ranking on a parity with such series or class of
Preferred Stock in the distribution of assets upon liquidation, dissolution
or winding up, then the holders of such series or class of Preferred Stock
and all other such classes or series of capital stock shall share ratably in
any such distribution of assets in proportion to the full liquidating
distributions to which they would otherwise be respectively entitled.
If liquidating distributions shall have been made in full to all holders
of any series or class of Preferred Stock, the remaining assets of the
Company shall be distributed among the holders of any other classes or series
of stock ranking junior to such series or class of Preferred Stock upon
liquidation, dissolution or winding up, according to their respective rights
and preferences and in each case according to their respective number of
shares. For such purposes, the consolidation or merger of the Company with
or into any other entity, or the sale, lease, transfer or conveyance of all
or substantially all of the Company's property or business, shall not be
deemed to constitute a liquidation, dissolution or winding up of the affairs
of the Company.
VOTING RIGHTS
Holders of the Preferred Stock will not have any voting rights, except as
set forth below or as indicated in the applicable Prospectus Supplement.
Unless provided otherwise for any series or class of Preferred Stock, so
long as any shares of Preferred Stock of a series or class remain
outstanding, the Company shall not, without the affirmative vote or consent
of the holders of at least a majority of the shares of such series or class
of Preferred Stock outstanding at the time, given in person or by proxy,
either in writing or at a
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meeting (such series or class voting separately as a class), (a) authorize or
create, or increase the authorized or issued amount of, any class or series
of stock ranking prior to such series or class of Preferred Stock with
respect to payment of dividends or the distribution of assets upon
liquidation, dissolution or winding up or reclassify any authorized stock of
the Company into any such shares, or create, authorize or issue any
obligation or security convertible into or evidencing the right to purchase
any such shares; or (b) amend, alter or repeal the provisions of the Charter
or the Articles Supplementary for such series or class of Preferred Stock,
whether by merger, consolidation or otherwise, so as to materially and
adversely affect any right, preference, privilege or voting power of such
series or class of Preferred Stock or the holders thereof; PROVIDED, HOWEVER,
that any increase in the amount of the authorized Preferred Stock or the
creation or issuance of any other series or class of Preferred Stock, or any
increase in the amount of authorized shares of such series or class or any
other series or class of Preferred Stock, in each case ranking on a parity
with or junior to the Preferred Stock of such series or class with respect to
payment of dividends or the distribution of assets upon liquidation,
dissolution or winding up, shall not be deemed to materially and adversely
affect such rights, preferences, privileges or voting powers.
The foregoing voting provisions will not apply if, at or prior to the
time when the act with respect to which such vote would otherwise be required
shall be effected, all outstanding shares of such series or class of
Preferred Stock shall have been redeemed or called for redemption upon proper
notice and sufficient funds shall have been deposited in trust to effect such
redemption.
CONVERSION RIGHTS
The terms and conditions, if any, upon which shares of any series or
class of Preferred Stock are convertible into shares of Common Stock will be
set forth in the applicable Prospectus Supplement relating thereto. Such
terms will include the number of shares of Common Stock into which the
Preferred Stock is convertible, the conversion price (or manner of
calculation thereof), the conversion period, provisions as to whether
conversion will be at the option of the holders of the Preferred Stock or the
Company, the events requiring an adjustment of the conversion price and
provisions affecting conversion in the event of the redemption of such
Preferred Stock.
RESTRICTIONS ON OWNERSHIP
For the Company to qualify as a REIT under the Code, not more than 50% in
value of its outstanding capital stock may be owned, actually or
constructively, by five or fewer individuals (defined in the Code to include
certain entities) during the last half of a taxable year. To assist the
Company in meeting this requirement and certain other requirements relating
to its tax status as a REIT, the Company may take certain actions to limit
the actual, beneficial or constructive ownership by a single person or entity
of the Company's outstanding equity securities. See "Restrictions on
Ownership and Transfers of Capital Stock."
TRANSFER AGENT
The transfer agent and registrar for any series or class of Preferred
Stock will be set forth in the applicable Prospectus Supplement.
RESTRICTIONS ON OWNERSHIP AND TRANSFERS OF CAPITAL STOCK
In order for the Company to qualify as a REIT under the Code, no more
than 50% in value of its outstanding shares of stock may be owned, actually
or constructively, by five or fewer individuals (as defined in the Code to
include certain entities) during the last half of a taxable year (other than
the first year for which an election to be treated as a REIT has been made).
In addition, if the Company, or an owner of 10% or more of the Company,
actually or constructively owns 10% or more of a tenant of the Company (or a
tenant of any partnership in which the Company is a partner), the rent
received by the Company (either directly or through any such partnership)
from such tenant will not be qualifying income for purposes of the REIT gross
income tests of the Code. A REIT's stock must also be beneficially owned by
100 or more persons during at least 335 days of a taxable year of twelve
months or during a proportionate part of a shorter taxable year (other than
the first year for which an election to be treated as a REIT has been made).
Because the Company expects to continue to qualify as a REIT, the Charter
contains restrictions on the ownership and transfer of Common Stock which are
intended to assist the Company in complying with these requirements. The
Charter provides that, subject to certain specified exceptions, no person or
entity may own, or be deemed to own by virtue of the applicable constructive
ownership provisions of the Code, more than 9.8% (by number or value,
whichever is more restrictive) of the outstanding shares of Common Stock (the
"Ownership Limit"). The constructive ownership rules of the Code are
complex, and may cause shares of Common Stock owned actually or
constructively by a group of related individuals and/or entities to be
constructively owned by one individual or entity. As a result, the
acquisition of less than 9.8% of the shares of Common Stock (or the
acquisition of an interest in an entity that owns, actually or
constructively, Common Stock) by an individual or entity, could, nevertheless
cause that
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individual or entity, or another individual or entity, to own constructively
in excess of 9.8% of the outstanding Common Stock and thus violate the
Ownership Limit, or such other limit as provided in the Charter or as
otherwise permitted by the Board of Directors. The Board of Directors may,
but in no event is required to, waive the Ownership Limit with respect to a
particular stockholder if it determines that such ownership will not
jeopardize the Company's status as a REIT. As a condition of such waiver,
the Board of Directors may require an opinion of counsel satisfactory to it
and/or undertakings or representations from the applicant with respect to
preserving the REIT status of the Company.
The Charter further prohibits (i) any person from actually or
constructively owning shares of stock of the Company that would result in the
Company being "closely held" under Section 856(h) of the Code or otherwise
cause the Company to fail to qualify as a REIT, and (ii) any person from
transferring shares of stock of the Company if such transfer would result in
shares of stock of the Company being beneficially owned by fewer than 100
persons (determined without reference to any rules of attribution).
Any person who acquires or attempts or intends to acquire actual or
constructive ownership of shares of stock of the Company that will or may
violate any of the foregoing restrictions on transferability and ownership is
required to give notice immediately to the Company and provide the Company
with such other information as the Company may request in order to determine
the effect of such transfer on the Company's status as a REIT. The foregoing
restrictions on transferability and ownership will not apply if the Board of
Directors determines that it is no longer in the best interest of the Company
to attempt to qualify, or to continue to qualify, as a REIT and such
determination is approved by a two thirds vote of the Company's stockholders
as required by the Charter. Except as otherwise described above, any change
in the Ownership Limit would require an amendment to the Charter.
Pursuant to the Charter, if any purported transfer of Common Stock or any
other event would otherwise result in any person violating the Ownership
Limit or such other limit as provided in the Charter or as otherwise
permitted by the Board of Directors, then any such purported transfer will be
void and of no force or effect with respect to the purported transferee (the
"Prohibited Transferee") as to that number of shares in excess of the
Ownership Limit or such other limit, and the Prohibited Transferee shall
acquire no right or interest (or, in the case of any event other than a
purported transfer, the person or entity holding record title to any such
excess shares (the "Prohibited Owner") shall cease to own any right or
interest) in such excess shares. Any such excess shares described above will
be transferred automatically, by operation of law, to a trust, the
beneficiary of which will be a qualified charitable organization selected by
the Company (the "Beneficiary"). Such automatic transfer shall be deemed to
be effective as of the close of business on the business day prior to the
date of such violative transfer. Within 20 days of receiving notice from the
Company of the transfer of shares to the trust, the trustee of the trust (who
shall be designated by the Company and be unaffiliated with the Company and
any Prohibited Transferee or Prohibited Owner) will be required to sell such
excess shares to a person or entity who could own such shares without
violating the Ownership Limit, or such other limit as provided in the Charter
or as otherwise permitted by the Board of Directors, and distribute to the
Prohibited Transferee or Prohibited Owner, as applicable, an amount equal to
the lesser of the price paid by the Prohibited Transferee or Prohibited Owner
for such excess shares or the sales proceeds received by the trust for such
excess shares. In the case of any excess shares resulting from any event
other than a transfer, or from a transfer for no consideration (such as a
gift), the trustee will be required to sell such excess shares to a qualified
person or entity and distribute to the Prohibited Owner an amount equal to
the lesser of the Market Price (as defined in the Charter) of such excess
shares as of the date of such event or the sales proceeds received by the
trust for such excess shares. In either case, any proceeds in excess of the
amount distributable to the Prohibited Transferee or Prohibited Owner, as
applicable, will be distributed to the Beneficiary. Prior to a sale of any
such excess shares by the trust, the trustee will be entitled to receive, in
trust for the Beneficiary, all dividends and other distributions paid by the
Company with respect to such excess shares, and also will be entitled to
exercise all voting rights with respect to such excess shares. Subject to
Maryland law, effective as of the date that such shares have been transferred
to the trust, the trustee shall have the authority (at the trustee's sole
discretion) (i) to rescind as void any vote cast by a Prohibited Transferee
or Prohibited Owner, as applicable, prior to the discovery by the Company
that such shares have been transferred to the trust and (ii) to recast such
vote in accordance with the desires of the trustee acting for the benefit of
the Beneficiary. However, if the Company has already taken irreversible
corporate action, then the trustee shall not have the authority to rescind
and recast such vote. Any dividend or other distribution paid to the
Prohibited Transferee or Prohibited Owner (prior to the discovery by the
Company that such shares had been automatically transferred to a trust as
described above) will be required to be repaid to the trustee upon demand for
distribution to the Beneficiary. In the event that the transfer to the trust
as described above is not automatically effective (for any reason) to prevent
violation of the Ownership Limit or such other limit as provided in the
Charter or as otherwise permitted by the Board of Directors, then the Charter
provides that the transfer of the excess shares will be void.
In addition, shares of stock of the Company held in the trust shall be
deemed to have been offered for sale to the Company, or its designee, at a
price per share equal to the lesser of (i) the price per share in the
transaction that resulted in such transfer to the trust (or, in the case of a
devise or gift, the Market Price at the time of such devise or gift) and (ii)
the Market Price on the date the Company, or its designee, accepts such
offer. The Company shall have the right to accept such offer until the
trustee has sold the shares of stock held in the trust. Upon such a sale to
the Company, the interest of the Beneficiary in the shares sold shall
terminate and the trustee shall distribute the net proceeds of the sale to
the Prohibited Transferee or Prohibited Owner.
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If any purported transfer of shares of Common Stock would cause the
Company to be beneficially owned by fewer than 100 persons, such transfer
will be null and void in its entirety and the intended transferee will
acquire no rights to the stock.
All certificates representing shares of Common Stock will bear a legend
referring to the restrictions described above. The foregoing ownership
limitations could delay, defer or prevent a transaction or a change in
control of the Company that might involve a premium price for the Common
Stock or otherwise be in the best interest of stockholders.
Under the Charter, every owner of a specified percentage (or more) of the
outstanding shares of Common Stock must file a completed questionnaire with
the Company containing information regarding their ownership of such shares,
as set forth in the Treasury Regulations. Under current Treasury
Regulations, the percentage will be set between 0.5% and 5.0%, depending upon
the number of record holders of the Company's shares of Common Stock. In
addition, each stockholder shall upon demand be required to disclose to the
Company in writing such information as the Company may request in order to
determine the effect, if any, of such stockholder's actual and constructive
ownership of Common Stock on the Company's status as a REIT and to ensure
compliance with the Ownership Limit, or such other limit as provided in the
Charter or as otherwise permitted by the Board of Directors.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following summary of certain federal income tax considerations to the
Company is based on current law, is for general information only, and is not
tax advice. The tax treatment of a holder of any of the Securities will vary
depending upon the terms of the specific Securities acquired by such holder,
as well as his particular situation, and this discussion does not attempt to
address any aspects of federal income taxation relating to holders of
Securities. Certain federal income tax considerations relevant to holders of
the Securities will be provided in the applicable Prospectus Supplement
relating thereto.
EACH INVESTOR IS URGED TO CONSULT THE APPLICABLE PROSPECTUS SUPPLEMENT,
AS WELL AS HIS OWN TAX ADVISOR, REGARDING THE TAX CONSEQUENCES TO HIM OF THE
ACQUISITION, OWNERSHIP AND SALE OF THE SECURITIES, INCLUDING THE FEDERAL,
STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF SUCH ACQUISITION,
OWNERSHIP AND SALE AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
TAXATION OF THE COMPANY AS A REIT
GENERAL. The Company has elected to be taxed as a real estate investment
trust under Sections 856 through 860 of the Code, commencing with its taxable
year ended December 31, 1994. The Company believes that, commencing with its
taxable year ended December 31, 1994, it has been organized and has operated
in such a manner as to qualify for taxation as a REIT under the Code, and the
Company intends to continue to operate in such a manner, but no assurance can
be given that it has operated or will operate in a manner so as to qualify or
remain qualified.
These sections of the Code are highly technical and complex. The
following sets forth the material aspects of the sections that govern the
federal income tax treatment of a REIT. This summary is qualified in its
entirety by the applicable Code provisions, rules and regulations promulgated
thereunder, and administrative and judicial interpretations thereof. Latham &
Watkins has acted as tax counsel to the Company in connection with this
Prospectus and the Company's election to be taxed as a REIT.
Latham & Watkins has rendered an opinion to the Company as of September
8, 1995 to the effect that commencing with the Company's taxable year ended
December 31, 1994, the Company has been organized in conformity with the
requirements for qualification as a REIT, and its proposed method of
operation has enabled and will continue to enable it to meet the requirements
for qualification and taxation as a REIT under the Code. It must be
emphasized that this opinion is based on various assumptions and is
conditioned upon certain representations made by the Company as to factual
matters, and that Latham & Watkins undertakes no obligation to update this
opinion subsequent to such date. Moreover, such qualification and taxation as
a REIT depends upon the Company's ability to meet (through actual annual
operating results, distribution levels and diversity of stock ownership) the
various qualification tests imposed under the Code discussed below, the
results of which have not been and will not be reviewed by Latham & Watkins.
Accordingly, no assurance can be given that the actual results of the
Company's operation in any particular taxable year will satisfy such
requirements. See "-Failure to Qualify."
If the Company qualifies for taxation as a REIT, it generally will not be
subject to federal corporate income taxes on its net income that is currently
distributed to stockholders. This treatment substantially eliminates the
"double taxation" (at the corporate and stockholder levels) that generally
results from investment in a regular corporation. However, the Company will
be subject to federal income tax as follows: First, the Company will be taxed
at regular corporate rates on any undistributed real estate investment trust
taxable income, including undistributed net capital gains. Second, under
certain circumstances, the Company may be subject to the
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"alternative minimum tax" on its items of tax preference. Third, if Company
has (i) net income from the sale or other disposition of "foreclosure
property" which is held primarily for sale to customers in the ordinary
course of business or (ii) other non-qualifying income from foreclosure
property, it will be subject to tax at the highest corporate rate on such
income. Fourth, if the Company has net income from prohibited transactions
(which are, in general, certain sales or other dispositions of property held
primarily for sale to customers in the ordinary course of business other than
foreclosure property), such income will be subject to a 100% tax. Fifth, if
the Company should fail to satisfy the 75% gross income test or the 95% gross
income test (as discussed below), but has nonetheless maintained its
qualification as a real estate investment trust because certain other
requirements have been met, it will be subject to a 100% tax on an amount
equal to (a) the gross income attributable to the greater of the amount by
which the Company fails the 75% or 95% test, multiplied by (b) a fraction
intended to reflect the Company's profitability. Sixth, if the Company should
fail to distribute during each calendar year at least the sum of (i) 85% of
its real estate investment trust ordinary income for such year, (ii) 95% of
its real estate investment trust capital gain net income for such year, and
(iii) any undistributed taxable income from prior periods, the Company would
be subject to a 4% excise tax on the excess of such required distribution
over the amounts actually distributed. Seventh, with respect to any asset (a
"Built-in Gain Asset") acquired by the Company from a corporation which is or
has been a C corporation (i.e., generally a corporation subject to full
corporate-level tax) in a transaction in which the basis of the Built-in Gain
Asset in the hands of the Company is determined by reference to the basis of
the asset in the hands of the C corporation, if the Company recognizes gain
on the disposition of such asset during the 10-year period (the "Recognition
Period") beginning on the date on which such asset was acquired by the
Company, then, to the extent of the Built-in Gain (i.e., the excess of (a)
the fair market value of such asset over (b) the Company's adjusted basis in
such asset, determined as of the beginning of the Recognition Period), such
gain will be subject to tax at the highest regular corporate rate pursuant to
Treasury Regulations that have not yet been promulgated. The results
described above with respect to the recognition of Built-in Gain assume that
the Company has made an election pursuant to IRS Notice 88-19.
REQUIREMENTS FOR QUALIFICATION. The Code defines a REIT as a
corporation, trust or association (1) which is managed by one or more
trustees or directors, (2) the beneficial ownership of which is evidenced by
transferable shares, or by transferable certificates of beneficial interest,
(3) which would be taxable as a domestic corporation, but for Sections 856
through 859 of the Code, (4) which is neither a financial institution nor an
insurance company subject to certain provisions of the Code, (5) the
beneficial ownership of which is held by 100 or more persons, (6) during the
last half of each taxable year, not more than 50% in value of the outstanding
stock of which is owned, actually or constructively, by five or fewer
individuals (as defined in the Code to include certain entities) and (7)
which meets certain other tests, described below, regarding the nature of its
income and assets and the amount of its distributions. The Code provides that
conditions (1) to (4) must be met during the entire taxable year and that
condition (5) must be met during at least 335 days of a taxable year of 12
months, or during a proportionate part of a taxable year of less than 12
months. Conditions (5) and (6) will not apply until after the first taxable
year for which an election is made to be taxed as a real estate investment
trust.
The Company believes that it has satisfied condition (5) and that it has
issued sufficient shares to allow it to satisfy condition (6). In addition,
the Company's Charter provides for restrictions regarding ownership and
transfer of the Company's capital stock, which restrictions are intended to
assist the Company in continuing to satisfy the share ownership requirements
described in (5) and (6) above. Such ownership and transfer restrictions are
described in "Restrictions on Ownership and Transfers of Capital Stock."
There can be no assurance, however, that such transfer and ownership
restrictions will, in all cases, prevent a violation of the stock ownership
provisions described in (5) and (6) above. The ownership and transfer
restrictions pertaining to a particular class or series of capital stock will
be described in the applicable Prospectus Supplement pertaining to such class
or series.
The Company owns, and has owned, interests in various partnerships. In
the case of a REIT that is a partner in a partnership, Treasury Regulations
provide that the REIT will be deemed to own its proportionate share of the
assets of the partnership and will be deemed to be entitled to the income of
the partnership attributable to such share. In addition, the character of the
assets and gross income of the partnership will retain the same character in
the hands of the real estate investment trust for purposes of Section 856 of
the Code, including satisfying the gross income tests and the asset tests.
Thus, the Company's proportionate share of the assets, liabilities and items
of income of the partnerships in which the Company is a partner will be
treated as assets, liabilities and items of income of the Company for
purposes of applying the requirements described herein. See "-Tax Risks
Associated with the Partnerships."
The Company owns 100% of the stock of a subsidiary that is a qualified
REIT subsidiary (a "QRS") and may acquire stock of one or more new
subsidiaries. A corporation will qualify as a QRS if 100% of its stock is
held by the Company at all times during the period such QRS was in existence.
A QRS will not be treated as a separate corporation, and all assets,
liabilities, and items of income, deduction, and credit of a QRS will be
treated as assets, liabilities and such items (as the case may be) of the
Company for all purposes of the Code including the REIT qualification tests.
For this reason, references under "Certain Federal Income Tax Considerations"
to the income and assets of the Company shall include the income and assets
of any QRS. A QRS will not be subject
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to federal income tax and the Company's ownership of the voting stock of a
QRS will not violate the restrictions against ownership of securities of any
one issuer which constitute more than 10% of such issuer's voting securities
or more than 5% of the value of the Company's total assets, described below
under "-Asset Tests."
INCOME TESTS. In order to maintain qualification as a REIT, the Company
annually must satisfy three gross income requirements. First, at least 75% of
the Company's gross income (excluding gross income from prohibited
transactions) for each taxable year must be derived directly or indirectly
from investments relating to real property or mortgages on real property
(including "rents from real property" and, in certain circumstances,
interest) or from certain types of temporary investments. Second, at least
95% of the Company's gross income (excluding gross income from prohibited
transactions) for each taxable year must be derived from such real property
investments, dividends, interest and gain from the sale or disposition of
stock or securities (or from any combination of the foregoing). Third,
short-term gain from the sale or other disposition of stock or securities,
gain from prohibited transactions and gain on the sale or other disposition
of real property held for less than four years (apart from involuntary
conversions and sales of foreclosure property) must represent less than 30%
of the Company's gross income (including gross income from prohibited
transactions) for each taxable year.
Rents received by the Company will qualify as "rents from real property"
in satisfying the gross income requirements for a real estate investment
trust described above only if several conditions are met. First, the amount
of rent must not be based in whole or in part on the income or profits of any
person. However, an amount received or accrued generally will not be excluded
from the term "rents from real property" solely by reason of being based on a
fixed percentage or percentages of receipts or sales. Second, the Code
provides that rents received from a tenant will not qualify as "rents from
real property" in satisfying the gross income tests if the real estate
investment trust, or an owner of 10% or more of the real estate investment
trust, actually or constructively owns 10% or more of such tenant (a "Related
Party Tenant"). Third, if rent attributable to personal property leased in
connection with a lease of real property is greater than 15% of the total
rent received under the lease, then the portion of rent attributable to such
personal property will not qualify as "rents from real property." Finally,
for rents received to qualify as "rents from real property," the real estate
investment trust generally must not operate or manage the property or furnish
or render services to the tenants of such property, other than through an
independent contractor from whom the real estate investment trust derives no
revenue; PROVIDED, HOWEVER, the Company may directly perform certain services
that are "usually or customarily rendered" in connection with the rental of
space for occupancy only and are not otherwise considered "rendered to the
occupant" of the property. The Company does not and will not (i) charge rent
for any property that is based in whole or in part on the income or profits
of any person (except by reason of being based on a percentage of receipts or
sales, as described above), (ii) rent any property to a Related Party Tenant,
(iii) derive rental income attributable to personal property (other than
personal property leased in connection with the lease of real property, the
amount of which is less than 15% of the total rent received under the lease),
or (iv) perform services considered to be rendered to the occupant of the
property, other than through an independent contractor from whom the Company
derives no revenue. Notwithstanding the foregoing, the Company may take
certain of the actions set forth in (i) through (iv) above to the extent such
actions will not, based on the advice of tax counsel to the Company,
jeopardize the Company's tax status as a REIT.
The term "interest" generally does not include any amount received or
accrued (directly or indirectly) if the determination of such amount depends
in whole or in part on the income or profits of any person. However, an
amount received or accrued generally will not be excluded from the term
"interest" solely by reason of being based on a fixed percentage or
percentages of receipts or sales.
If the Company fails to satisfy one or both of the 75% or 95% gross
income tests for any taxable year, it may nevertheless qualify as a real
estate investment trust for such year if it is entitled to relief under
certain provisions of the Code. These relief provisions will generally be
available if the Company's failure to meet such tests was due to reasonable
cause and not due to willful neglect, the Company attaches a schedule of the
sources of its income to its federal income tax return, and any incorrect
information on the schedule was not due to fraud with intent to evade tax. It
is not possible, however, to state whether in all circumstances the Company
would be entitled to the benefit of these relief provisions. As discussed
above under "-General," even if these relief provisions apply, a tax would be
imposed with respect to the excess net income.
ASSET TESTS. The Company, at the close of each quarter of its taxable
year, must also satisfy three tests relating to the nature of its assets.
First, at least 75% of the value of the Company's total assets must be
represented by real estate assets (including stock or debt instruments held
for not more than one year purchased with the proceeds of a stock offering or
long-term (at least five years) public debt offering of the Company), cash,
cash items and government securities. Second, not more than 25% of the
Company's total assets may be represented by securities other than those in
the 75% asset class. Third, of the investments included in the 25% asset
class, the value of any one issuer's securities owned by the Company may not
exceed 5% of the value of the Company's total assets and the Company may not
own more than 10% of any one issuer's outstanding voting securities.
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ANNUAL DISTRIBUTION REQUIREMENTS. The Company, in order to qualify as a
REIT, is required to distribute dividends (other than capital gain dividends)
to its stockholders in an amount at least equal to (A) the sum of (i) 95% of
the Company's "REIT taxable income" (computed without regard to the dividends
paid deduction and the Company's net capital gain) and (ii) 95% of the net
income (after tax), if any, from foreclosure property, minus (B) the sum of
certain items of non-cash income. In addition, if the Company disposes of any
asset during its Recognition Period, the Company will be required, pursuant
to IRS regulations which have not yet been promulgated, to distribute at
least 95% of the Built-in Gain (after tax), if any, recognized on the
disposition of such asset. Such distributions must be paid in the taxable
year to which they relate, or in the following taxable year if declared
before the Company timely files its tax return for such year and if paid on
or before the first regular dividend payment after such declaration. To the
extent that the Company does not distribute all of its net capital gain or
distributes at least 95%, but less than 100%, of its REIT taxable income, as
adjusted, it will be subject to tax thereon at regular ordinary and capital
gain corporate tax rates.
It is possible that the Company, from time to time, may not have
sufficient cash or other liquid assets to meet the 95% distribution
requirement due to timing differences between (i) the actual receipt of
income and actual payment of deductible expenses and (ii) the inclusion of
such income and deduction of such expenses in arriving at taxable income of
the Company. In the event that such timing differences occur, in order to
meet the 95% distribution requirement, the Company may find it necessary to
arrange for short-term, or possibly long-term, borrowings or to pay dividends
in the form of taxable stock dividends.
Under certain circumstances, the Company may be able to rectify a failure
to meet the above distribution requirements for a year by paying "deficiency
dividends" to stockholders in a later year, which may be included in the
Company's deduction for dividends paid for the earlier year. Thus, the
Company may be able to avoid being taxed on amounts distributed as deficiency
dividends; however, the Company will be required to pay interest based upon
the amount of any deduction taken for deficiency dividends.
Furthermore, if the Company should fail to distribute during each
calendar year at least the sum of (i) 85% of its real estate investment trust
ordinary income for such year, (ii) 95% of its real estate investment trust
capital gain income for such year, and (iii) any undistributed taxable income
from prior periods, the Company would be subject to a 4% excise tax on the
excess of such required distribution over the amounts actually distributed.
The Company intends to make timely distributions sufficient to satisfy the
annual distribution requirements set forth above.
DISTRIBUTION OF ACQUIRED EARNINGS. In addition to the above annual
distribution requirements, a REIT is not allowed to have accumulated earnings
and profits attributable to non-REIT years. A REIT has until the close of its
first taxable year in which it has non-REIT earnings and profits to
distribute any such earnings and profits. In a corporate reorganization
qualifying as a tax-free statutory merger, the acquired corporation's
earnings and profits are carried over to the surviving corporation. Any
earnings and profits treated as having been acquired by a REIT through such a
merger will be treated as accumulated earnings and profits of the REIT
attributable to non-REIT years. On August 17, 1995, R.I.C. Advisor, Inc., a
California corporation ("R.I.C. Advisor"), merged with and into the Company
(the "Merger") pursuant to an Agreement and Plan of Merger dated as of April
28, 1995, by and among the Company, R.I.C. Advisor and the shareholders of
R.I.C. Advisor. Accordingly, as a result of the Merger, the Company was
treated as having acquired the earnings and profits (the "Acquired Earnings")
of R.I.C. Advisor. The Company was required to distribute (or be deemed to
distribute) the Acquired Earnings prior to the close of 1995. Failure to do
so would result in the loss of the Company's REIT status, which would have a
material adverse effect on the financial position and results of operations
of the Company and its ability to make distributions to stockholders and debt
service payments. See "-Failure to Qualify."
The amount of the Acquired Earnings was based on the earnings and profits
of R.I.C. Advisor immediately prior to the Merger. The Acquired Earnings were
determined through an earnings and profits study based on the corporate tax
returns of R.I.C. Advisor for the tax years beginning with R.I.C. Advisor's
date of incorporation through the date of the Merger. The Company requested
that KPMG Peat Marwick LLP perform certain procedures relating to the amount
of the earnings and profits of R.I.C. Advisor for purposes of the earnings
and profits distribution requirement. Based on KPMG Peat Marwick LLP's
conclusions (which were based on R.I.C. Advisor's tax returns as filed with
the Internal Revenue Service (the "IRS"), certain other information provided
by R.I.C. Advisor and other assumptions and qualifications set forth in KPMG
Peat Marwick LLP's report) and other relevant factors, the Company believes
that it made (or was deemed to make) distributions to its shareholders which
were sufficient to distribute the Acquired Earnings prior to the close of
1995.
The calculation of the amount of Acquired Earnings is subject to
challenge by the IRS. The IRS may examine R.I.C. Advisor's prior tax returns
and propose adjustments to increase its taxable income. Because the earnings
and profits study used to calculate the amount of Acquired Earnings was based
on these returns, such adjustments may increase the amount of the Acquired
Earnings. If the IRS determines that the Company did not distribute all of
the Acquired Earnings prior to the end of 1995, the Company would fail to
qualify as a REIT for 1995 and perhaps for subsequent years, which would have
a material adverse effect
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on the financial position and results of operations of the Company and its
ability to make distributions to stockholders and debt service payments. See
"-Failure to Qualify." However, the Company may make an additional
distribution within 90 days of such a determination by the IRS to distribute
the Acquired Earnings and would be required to pay to the IRS an interest
charge based on 50% of the amount not previously distributed. If such
additional distribution is made, the Company's failure to distribute the
Acquired Earnings would not prevent it from qualifying as a REIT for years
subsequent to 1995.
TAX RISKS ASSOCIATED WITH THE PARTNERSHIPS
The Company presently owns an interest in one partnership and previously
owned an interest in other partnerships. The ownership of an interest in a
partnership may involve special tax risks, including the possible challenge
by the IRS of (i) allocations of income and expense items, which could affect
the computation of taxable income of the Company, and (ii) the status of a
partnership as a partnership (as opposed to an association taxable as a
corporation) for federal income tax purposes. If the partnership was treated
as an association taxable as a corporation for federal income tax purposes,
the partnership would be treated as a taxable entity. In addition, in such a
situation, (i) if the Company owned more than 10% of the outstanding voting
securities of such partnership, or the value of such securities exceeded 5%
of the value of the Company's assets, the Company would fail to satisfy the
asset tests described above and would therefore fail to qualify as a REIT,
(ii) distributions from the partnership to the Company would be treated as
dividends, which are not taken into account in satisfying the 75% gross
income test described above and could, therefore, make it more difficult for
the Company to satisfy such test, (iii) the interest in the partnership held
by the Company would not qualify as a "real estate asset," which could make
it more difficult for the Company to meet the 75% asset test described above,
and (iv) the Company would not be able to deduct its share of any losses
generated by the partnerships in computing its taxable income. See "-Failure
to Qualify" for a discussion of the effect of the Company's failure to meet
such tests for a taxable year. The Company believes that each of the
partnerships in which the Company owns or has owned an interest have been and
will be treated for tax purposes as a partnership (rather than an association
taxable as a corporation). The Company's position will not be binding on the
IRS and no assurance can be given that the IRS will not successfully
challenge the status of any partnership as a partnership for federal income
tax purposes.
FAILURE TO QUALIFY
If the Company fails to qualify for taxation as a REIT in any taxable
year, and the relief provisions do not apply, the Company will be subject to
tax (including any applicable alternative minimum tax) on its taxable income
at regular corporate rates. Such a failure to qualify for taxation as a REIT
would reduce the cash available for distribution by the Company to
stockholders and to pay debt service and could have an adverse effect on the
market value and marketability of the Securities. Distributions to
stockholders in any year in which the Company fails to qualify will not be
deductible by the Company nor will they be required to be made. In such
event, to the extent of current and accumulated earnings and profits, all
distributions to stockholders will be taxable as ordinary income and, subject
to certain limitations of the Code, corporate distributees may be eligible
for the dividends received deduction. Unless entitled to relief under
specific statutory provisions, the Company will also be disqualified from
taxation as a REIT for the four taxable years following the year during which
qualification was lost. It is not possible to state whether in all
circumstances the Company would be entitled to such statutory relief.
TAXPAYER RELIEF ACT OF 1997
On August 5, 1997, President Clinton signed into law the Taxpayer Relief
Act of 1997 (H.R. 2014), which will have the effect of modifying certain
REIT-related Code provisions for tax years beginning on or after January 1,
1998. Some of the potentially significant REIT-related changes contained in
this legislation include: (i) the rule disqualifying a REIT for any year in
which it fails to comply with certain regulations requiring the REIT to
monitor its stock ownership is replaced with an intermediate financial
penalty; (ii) the rule disqualifying a REIT in any year that it is "closely
held" does not apply if during such year the REIT complied with certain
regulations which require the REIT to monitor its stock ownership, and the
REIT did not know or have reason to know that it was closely held; (iii) a
REIT is permitted to render a DE MINIMIS amount of impermissible services to
tenants in connection with the management of property and still treat amounts
received with respect to such property (other than certain amounts relating
to such services) as qualified rent; (iv) the rules regarding attribution to
partnerships for purposes of defining qualified rent and independent
contractors are modified so that attribution occurs only when a partner owns
a 25% or greater interest in the partnership; (v) the 30% gross income test
is repealed; (vi) any corporation wholly-owned by a REIT is permitted to be
treated as a qualified REIT subsidiary regardless of whether such subsidiary
has always been owned by the REIT; (vii) the ordering rule for purposes of
the requirement that newly-electing REITs distribute earnings and profits
accumulated in non-REIT years is modified; (viii) the class of excess noncash
items for purposes of the REIT distribution requirements is expanded; and
(ix) certain other Code provisions relating to REITs are amended. Some or
all of the provisions could affect both the Company's operations and its
ability to maintain its REIT status for its taxable years beginning in 1998.
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STATE AND LOCAL TAXES
The Company may be subject to state or local taxes in other jurisdictions
such as those in which the Company may be deemed to be engaged in activities
or own property or other interests. Such tax treatment of the Company in
states having taxing jurisdiction over it may differ from the federal income
tax treatment described in this summary.
PLAN OF DISTRIBUTION
The Company may sell the Securities to one or more underwriters for
public offering and sale by them or may sell the Securities to investors
directly or through agents. Any such underwriter or agent involved in the
offer and sale of the Securities will be named in the applicable Prospectus
Supplement.
Underwriters may offer and sell the Securities at a fixed price or
prices, which may be changed, at prices relating to the prevailing market
prices at the time of sale or at negotiated prices. The Company also may,
from time to time, authorize underwriters acting as the Company's agents to
offer and sell the Securities upon the terms and conditions as are set forth
in the applicable Prospectus Supplement. In connection with the sale of
Securities, underwriters may be deemed to have received compensation from the
Company in the form of underwriting discounts or commissions and may also
receive commissions from purchasers of Securities for whom they may act as
agent. Underwriters may sell Securities to or through dealers, and such
dealers may receive compensation in the form of discounts, concessions or
commissions from the underwriters and/or commissions from the purchasers for
whom they may act as agent. Any underwriting compensation paid by the Company
to underwriters or agents in connection with the offering of Securities, and
any discounts, concessions or commissions allowed by underwriters to
participating dealers, will be set forth in the applicable Prospectus
Supplement. Underwriters, dealers and agents participating in the
distribution of the Securities may be deemed to be underwriters, and any
discounts and commissions received by them and any profit realized by them on
resale of the Securities may be deemed to be underwriting discounts and
commissions, under the Securities Act. Any such underwriter or agent will be
identified, and such compensation received from the Company will be
described, in the applicable Prospectus Supplement.
Underwriters, dealers and agents may be entitled, under agreements
entered into with the Company, to indemnification against and contribution
toward certain civil liabilities, including liabilities under the Securities
Act.
Certain of the underwriters, dealers and agents and their affiliates may
be customers of, engage in transactions with and perform services for the
Company and its subsidiaries in the ordinary course of business.
Unless otherwise specified in the related Prospectus Supplement, each
series of Securities will be a new issue with no established trading market,
other than the Common Stock. The Common Stock is currently listed on the
NYSE. Unless otherwise specified in the related Prospectus Supplement, any
shares of Common Stock sold pursuant to a Prospectus Supplement will be
listed on the NYSE, subject to official notice of issuance. The Company may
elect to list any series of Debt Securities or Preferred Stock on an exchange
or Nasdaq, but is not obligated to do so. It is possible that one or more
underwriters may make a market in a series of Securities, but will not be
obligated to do so and may discontinue any market making at any time without
notice. Therefore, there can be no assurance as to the liquidity of, or the
trading market for, the Securities.
EXPERTS
The consolidated financial statements and financial statement schedule of
Realty Income Corporation as of December 31, 1996 and 1995 and for each of
the years in the three-year period ended December 31, 1996 included in Realty
Income Corporation's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 and incorporated by reference herein have been audited by
KPMG Peat Marwick LLP, independent certified public accountants, and have
been incorporated herein by reference in reliance upon the reports of KPMG
Peat Marwick LLP, incorporated herein by reference, and upon the authority of
such firm as experts in accounting and auditing.
LEGAL MATTERS
The validity of the Securities will be passed upon for the Company by
Ballard Spahr Andrews & Ingersoll and Latham & Watkins.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The MGCL permits a Maryland corporation to include in its charter a
provision limiting the liability of its directors and officers to the
corporation and its stockholders for money damages except for liability
resulting from (a) actual receipt of an improper benefit or profit in money,
property or services or (b) active and deliberate dishonesty established by a
final judgment as being material to the cause of action. The charter of the
Company contains such a provision which eliminates such liability to the
maximum extent permitted by the MGCL.
The charter of the Company authorizes it, to the maximum extent permitted
by Maryland law, to obligate itself to indemnify and to pay or reimburse
reasonable expenses in advance of final disposition of a proceeding to (a)
any present or former director or officer or (b) any individual who, while a
director of the Company and at the request of the Company, serves or has
served another corporation, real estate investment trust, partnership, joint
venture, trust, employee benefit plan or any other enterprise as a director,
officer, partner or trustee of such corporation, real estate investment
trust, partnership, joint venture, trust, employee benefit plan or other
enterprise from and against any claim or liability to which such person may
become subject or which such person may incur by reason of his or her stature
as a present or former director or officer of the Company. The Bylaws of the
Company obligate it, to the maximum extent permitted by Maryland law, to
indemnify and to pay or reimburse reasonable expenses in advance of final
disposition of a proceeding to (a) any present or former director or officer
who is made a party to the proceeding by reason of his service in that
capacity or (b) any individual who, while a director of the Company and at
the request of the Company, serves or has served another corporation, real
estate investment trust, partnership, joint venture, trust, employee benefit
plan or any other enterprise as a director, officer, partner or trustee of
such corporation, real estate investment trust, partnership, joint venture,
trust, employee benefit plan or other enterprise and who is made a party to
the proceeding by reason of his service in that capacity. The charter and
Bylaws also permit the Company to indemnify and advance expenses to any
person who served a predecessor of the Company in any of the capacities
described above and to any employee or agent of the Company or a predecessor
of the Company.
The MGCL requires a corporation (unless its charter provides otherwise,
which the Company's charter does not) to indemnify a director or officer who
has been successful, on the merits or otherwise, in the defense of any
proceeding to which he is made a party by reason of his service in that
capacity. The MGCL permits a corporation to indemnify its present and former
directors and officers, among others, against judgments, penalties, fines,
settlements and reasonable expenses actually incurred by them in connection
with any proceeding to which they may be made a party by reason of their
service in those or other capacities unless it is established that (a) the
act or omission of the director or officer was material to the matter giving
rise to the proceeding and (i) was committed in bad faith or (ii) was the
result of active and deliberate dishonesty, (b) the director or officer
actually received an improper personal benefit in money, property or services
or (c) in the case of any criminal proceeding, the director or officer had
reasonable cause to believe that the act or omission was unlawful. However,
under the MGCL, a Maryland corporation may not indemnify for an adverse
judgment in a suit by or in the right of the corporation or for a judgment of
liability on the basis that personal benefit was improperly received, unless
in either case a court orders indemnification and then only for expenses. In
addition, the MGCL permits a corporation to advance reasonable expenses to a
director or officer upon the corporation's receipt of (a) a written
affirmation by the director or officer of his good faith belief that he has
met the standard of conduct necessary for indemnification by the corporation
and (b) a written statement by or on his behalf to repay the amount paid or
reimbursed by the corporation if it shall ultimately be determined that the
standard of conduct was not met.
The Company has entered into indemnification agreements with its
executive officers and directors. The indemnification agreements require,
among other matters, that the Company indemnify its executive officers and
directors to the fullest extent permitted by law and advance to the executive
officers and directors all related expenses, subject to reimbursement if it
is subsequently determined that indemnification is not permitted. Under the
indemnification agreements, the Company must also indemnify and advance all
expenses incurred by executive officers and directors seeking to enforce
their rights under the indemnification agreements and may cover executive
officers and directors under the Company's directors' and officers' liability
insurance. Although the form of indemnification agreement offers
substantially the same scope of coverage afforded by law, it provides greater
assurance to directors and executive officers that indemnification will be
available, because, as a contract, it cannot be modified unilaterally in the
future by the Board of Directors or the stockholders to eliminate the rights
it provides.
II-1
<PAGE>
ITEM 16. EXHIBITS
1.1 Form of Underwriting Agreement for Debt Securities(1)
1.2 Form of Underwriting Agreement for Equity Securities(1)
2 Agreement and Plan of Merger dated May 27, 1997 (incorporated by
reference to Exhibit B to the Company's Registration Statement on Form
8-B dated July 29, 1997)
3.1 Charter (incorporated by reference to Exhibit 3.1 to the Company's
Registration Statement on Form 8-B)
3.2 Bylaws (incorporated by reference to Exhibit 3.2 to the Company's
Registration Statement on Form 8-B)
4.1 Form of Indenture (previously filed)
4.2 Form of Debt Security (included in Exhibit 4.1)
4.3 Form of Articles Supplementary for the Preferred Stock(1)
4.4 Form of Preferred Stock Certificate(1)
5.1 Opinion of Ballard Spahr Andrews & Ingersoll regarding the legality of
Securities to be issued
5.2 Opinion of Latham & Watkins regarding the legality of Securities to
be issued
12 Statement of Computation of Ratios of Earnings to Fixed Charges
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Ballard Spahr Andrews & Ingersoll (contained in Exhibit 5.1)
23.3 Consent of Latham & Watkins (contained in Exhibit 5.2)
24 Power of Attorney (contained on page II-4)
25 Statement of Eligibility of Trustee on Form T-1(1)
___________
(1) To be filed by amendment or incorporated by reference in connection
with the offering of Securities.
ITEM 17. UNDERTAKINGS
(a) The undersigned Company 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;
II-2
<PAGE>
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 Company 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
(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 Company hereby further undertakes that, for the
purposes of determining any liability under the Securities Act, each filing
of the Company'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 Company pursuant to the provisions under Item 15 above, or
otherwise, the Company 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
Company of expenses incurred or paid by a director, officer or controlling
person of the Company 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 Company will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
(d) The undersigned Company hereby undertakes to file an application
for the purpose of determining the eligibility of the trustee to act under
subsection (a) of Section 310 of the Trust Indenture Act in accordance with
the rules and regulations prescribed by the Commission under Section
305(b)(2) of the Trust Indenture Act.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Company certifies
that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment No. 2
(Post-Effective Amendment No. 1) to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Escondido, State of California, on August 22, 1997.
REALTY INCOME CORPORATION
By:/s/ THOMAS A. LEWIS
------------------------------------
Thomas A. Lewis
Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby authorizes and appoints
Thomas A. Lewis, 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 Amendment No. 2
(Post-Effective Amendment No. 1) to the Registration Statement has been
signed by the following persons in the capacities indicated on August 22,
1997.
SIGNATURE TITLE
/s/ Thomas A. Lewis Chief Executive Officer, Director
------------------------------
Thomas A. Lewis
/s/ Richard J. VanDerhoff President and Chief Operating Officer,
------------------------------ Director
Richard J. VanDerhoff
/s/ Gary M. Malino Chief Financial Officer (Principal
------------------------------ Financial and Accounting Officer)
Gary M. Malino
/s/ William E. Clark Chairman of the Board
------------------------------
William E. Clark
/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/ Willard H. Smith Jr Director
------------------------------
Willard H. Smith Jr
II-4
<PAGE>
EXHIBIT INDEX
Sequential
Exhibit Page
Number Number
- ------- -----------
1.1 Form of Underwriting Agreement for Debt Securities(1) N/A
1.2 Form of Underwriting Agreement for Equity Securities(1) N/A
2 Agreement and Plan of Merger dated May 27, 1997 N/A
(incorporated by reference to Exhibit B to the
Company's Registration Statement on Form 8-B
dated July 29, 1997)
3.1 Charter (incorporated by reference to N/A
Exhibit 3.1 to the Company's Registration Statement
on Form 8-B)
3.2 Bylaws (incorporated by reference to Exhibit 3.2 to the N/A
Company's Registration Statement on Form 8-B)
4.1 Form of Indenture (previously filed) N/A
4.2 Form of Debt Security (included in Exhibit 4.1) N/A
4.3 Form of Certificate of Designations for the Preferred Stock(1) N/A
4.4 Form of Preferred Stock Certificate(1) N/A
5.1 Opinion of Ballard Spahr Andrews & Ingersoll regarding the
legality of Securities to be issued
5.2 Opinion of Latham & Watkins regarding the legality of Securities to
be issued
12 Statement of Computation of Ratios of Earnings to Fixed
Charges
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Ballard Spahr Andrews & Ingersoll (contained
in Exhibit 5.1)
23.3 Consent of Latham & Watkins (contained in Exhibit 5.2)
24 Power of Attorney (contained on page II-4)
25 Statement of Eligibility of Trustee on Form T-1(1) N/A
___________
(1) To be filed by amendment or incorporated by reference in connection
with the offering of Securities.
<PAGE>
[Letterhead of Ballard Spahr Andrews & Ingersoll]
FILE NUMBER
111111
August 22, 1997
Realty Income Corporation
220 West Crest Street
Escondido, California 92025
Re: Registration Statement on Form S-3 (Registration No. 33-95374)
---------------------------------------------------------------------
Ladies and Gentlemen:
We have served as Maryland counsel to Realty Income Corporation, a
Maryland corporation (the "Company"), in connection with certain matters of
Maryland law arising out of the registration of the following securities of
the Company having an aggregate initial offering price of up to $200,000,000
(collectively, the "Securities"): (a) debt securities ("Debt Securities"),
(b) shares of Preferred Stock, $1.00 par value per share, of the Company
("Preferred Stock"), and (c) shares of Common Stock, $1.00 par value per
share, of the Company ("Common Stock"), covered by Post-Effective Amendment
No. 1 to the above-referenced Registration Statement (the "Registration
Statement"), filed by the Company with the Securities and Exchange Commission
(the "Commission") under the Securities Act of 1933, as amended (the "1933
Act"). Unless otherwise defined herein, capitalized terms used herein shall
have the meanings assigned to them in the Registration Statement.
In connection with our representation of the Company, and as a basis for
the opinion hereinafter set forth, we have examined originals, or copies
certified or otherwise identified to our satisfaction, of the following
documents (collectively, the "Documents"):
<PAGE>
Realty Income Corporation
August 22, 1997
Page 2
1. The Registration Statement and the related form of prospectus
included therein in the form in which it was transmitted to the Commission
under the 1933 Act;
2. The charter of the Company (the "Charter"), certified as of a recent
date by the State Department of Assessments and Taxation of Maryland (the
"SDAT");
3. The Bylaws of the Company, certified as of a recent date by its
Secretary;
4. Resolutions adopted by the Board of Directors of the Company (the
"Board") relating to the sale, issuance and registration of the Securities,
certified as of a recent date by the Secretary of the Company (the
"Resolutions");
5. The form of certificate representing a share of Common Stock,
certified as of a recent date by the Secretary of the Company;
6. A certificate of the SDAT as to the good standing of the Company,
dated as of a recent date;
7. A certificate executed by the Secretary of the Company, dated as of
the date hereof; and
8. Such other documents and matters as we have deemed necessary or
appropriate to express the opinion set forth in this letter, subject to the
assumptions, limitations and qualifications stated herein.
In expressing the opinion set forth below, we have assumed, and so far as
is known to us there are no facts inconsistent with, the following:
1. Each individual executing any of the Documents, whether on behalf of
such individual or another person, is legally competent to do so.
2. Each individual executing any of the Documents on behalf of a party
(other than the Company) is duly authorized to do so.
<PAGE>
Realty Income Corporation
August 22, 1997
Page 3
3. Each of the parties (other than the Company) executing any of the
Documents has duly and validly executed and delivered each of the Documents
to which such party is a signatory, and such party's obligations set forth
therein are legal, valid and binding.
4. All Documents submitted to us as originals are authentic. All
Documents submitted to us as certified or photostatic copies conform to the
original documents. All signatures on all such Documents are genuine. All
public records reviewed or relied upon by us or on our behalf are true and
complete. All statements and information contained in the Documents are true
and complete. There are no oral or written modifications or amendments to
the Documents, by action or conduct of the parties or otherwise.
5. The Securities will not be transferred in violation of any
restriction or limitation contained in the Charter.
6. In accordance with the Resolutions, the issuance of, and certain
terms of, the Securities to be issued by the Company from time to time will
be approved by the Board or a duly authorized committee thereof in accordance
with the Maryland General Corporation Law (with such approval referred to
herein as the "Corporate Proceedings").
The phrase "known to us" is limited to the actual knowledge, without
independent inquiry, of the lawyers at our firm who have performed legal
services in connection with the issuance of this opinion.
Based upon the foregoing, and subject to the assumptions, limitations and
qualifications stated herein, it is our opinion that:
1. The Company is a corporation duly incorporated and existing under
and by virtue of the laws of the State of Maryland and is in good standing
with the SDAT.
2. Upon the completion of all Corporate Proceedings relating to the
Securities that are shares of Common Stock (including shares of Common Stock
which may be issued upon conversion of Debt Securities or shares of Preferred
Stock) (the
<PAGE>
Realty Income Corporation
August 22, 1997
Page 4
"Common Securities") and the due execution, countersignature and delivery of
certificates representing Common Securities and assuming that the sum of (a)
all shares of Common Stock issued as of the date hereof, (b) any shares of
Common Stock issued between the date hereof and the date on which any of the
Common Securities are actually issued (not including any of the Common
Securities), and (c) the Common Securities will not exceed the total number
of shares of Common Stock that the Company is authorized to issue, the Common
Securities are duly authorized and, when and if delivered against payment
therefor in accordance with the Resolutions and the Corporate Proceedings,
will be validly issued, fully paid and nonassessable.
3. Upon the completion of all Corporate Proceedings relating to the
Securities that are shares of Preferred Stock (including shares of Preferred
Stock which may be issued upon conversion of Debt Securities) (the "Preferred
Securities") and the due execution, countersignature and delivery of
certificates representing Preferred Securities and assuming that the sum of
(a) all shares of Preferred Stock issued as of the date hereof, (b) any
shares of Preferred Stock issued between the date hereof and the date on
which any of the Preferred Securities are actually issued (not including any
of the Preferred Securities), and (c) the Preferred Securities will not
exceed the total number of shares of Preferred Stock that the Company is
authorized to issue, the Preferred Securities are duly authorized and, when
and if delivered against payment therefor in accordance with the Resolutions
and the Corporate Proceedings, will be validly issued, fully paid and
nonassessable.
4. Upon the completion of all Corporate Proceedings relating to the
Securities that are Debt Securities (including Debt Securities which may be
issued upon exercise of Warrants), the issuance of the Debt Securities will
have been duly authorized by all necessary corporate action.
The foregoing opinion is limited to the laws of the State of Maryland and
we do not express any opinion herein concerning any other law. The opinion
expressed herein is subject to the effect of judicial decisions which may
permit the introduction of parol evidence to modify the terms or the
interpretation of agreements. We express no opinion as to compliance with
the securities (or "blue sky") laws of the State of Maryland.
<PAGE>
Realty Income Corporation
August 22, 1997
Page 5
We assume no obligation to supplement this opinion if any applicable law
changes after the date hereof or if we become aware of any fact that might
change the opinion expressed herein after the date hereof.
This opinion is being furnished to you for submission to the Commission
as an exhibit to the Registration Statement. Accordingly, it may not be
relied upon by, quoted in any manner to, or delivered to any other person or
entity without, in each instance, our prior written consent.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of the name of our firm therein. In
giving this consent, we do not admit that we are within the category of
persons whose consent is required by Section 7 of the 1933 Act.
Very truly yours,
/s/ Ballard Sphahr Andrews & Ingersoll
<PAGE>
[LETTERHEAD]
August 22, 1997
Realty Income Corporation
220 West Crest Street
Escondido, CA 92025
Re: Registration Statement on Form S-3 (Registration No. 33-95374)
--------------------------------------------------------------
Gentlemen:
We have acted as special counsel to Realty Income Corporation, a
Maryland corporation (the "Company"), in connection with Post-Effective
Amendment No. 1 to the Company's Registration Statement on Form S-3 (No.
33-95374) (the "Registration Statement") filed with the Securities and
Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended (the "1933 Act"), for the registration of the following securities of
the Company having an aggregate initial offering price of up to $200,000,000:
(a) debt securities ("Debt Securities"), (b) Shares of preferred stock,
$1.00 par value per share, and (c) shares of Common Stock, $1.00 par value
per share. Except as otherwise expressly indicated, the term Registration
Statement shall include all documents incorporated or deemed to be included
by reference therein. Debt Securities will be issued under one or more
indentures, each in the form filed as an exhibit to the Registration
Statement (each, an Indenture) between the Company and one or more trustees
(each, a "Trustee").
In our capacity as the Company's counsel, we have made such legal
and factual examinations and inquiries as we have deemed necessary or
appropriate for purposes of this opinion, except where a statement is
qualified as to knowledge or information or awareness, in
<PAGE>
Realty Income Corporation
August 22, 1997
Page 2
which case we have not undertaken any independent investigation to determine
the accuracy of any such statement except as otherwise expressly indicated.
In our examination, we have assumed the genuineness of all signatures, the
authenticity of all documents submitted to us as originals, and the
conformity to authentic original documents of all documents submitted to us
as copies. We have examined originals or copies, certified or otherwise
identified to our satisfaction, of such documents, corporate records,
certificates of public officials and other instruments as we have deemed
necessary or advisable for purposes of this opinion.
We are opining herein as to the effect on the subject transaction
only of the federal laws of the United States and the internal laws of the
State of New York, and we express no opinion with respect to the
applicability thereto, or the effect thereon, of the laws of any other
jurisdiction.
Subject to the foregoing and the other matters set forth herein, it
is our opinion that, as of the date hereof, when the Company and a Trustee
execute and deliver an Indenture and the specific terms of a particular Debt
Security have been duly authorized and established in accordance with the
Indenture, and the Debt Security has been duly authorized, executed,
authenticated, issued and delivered in accordance with the Indenture, against
payment therefor or upon exchange in accordance with the applicable
underwriting or other agreement, the Debt Security will constitute the valid
and binding obligation of the Company.
In connection with the foregoing opinion, we have assumed that, at or
prior to the time of the delivery of any Debt Security, (i) the Board of
Directors of the Company shall have duly established the terms of the Debt
Security and duly authorized the issuance and sale of the Debt Security, in each
case in accordance with Maryland law, and such authorization shall not have been
modified or rescinded; (ii) the Registration Statement shall have been declared
effective and such effectiveness shall not have been terminated or rescinded;
(iii) the applicable Indenture, if any, shall have been duly authorized,
executed and delivered in accordance with Maryland law and the applicable
Trustee shall have been qualified under the Trust Indenture Act of 1939, as
amended; and (iv) there will not have occurred any change in law affecting the
validity or enforceability of the Debt Security. We have also assumed that none
of the terms of any Debt Security to be established subsequent to the date
hereof, nor the issuance and delivery of the Debt Security, nor the compliance
by the Company with the terms of the Debt Security will violate any applicable
law or will result in a violation of any provision of any instrument or
agreement then binding upon the Company, or any restriction imposed by any court
or governmental body having jurisdiction over the Company.
<PAGE>
Realty Income Corporation
August 22, 1997
Page 3
The foregoing opinion is subject to the following exceptions,
limitations and qualifications: (i) the effect of bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to or affecting the rights and remedies of creditors; (ii) the
effect of general principles of equity, whether enforcement is considered in
a proceeding in equity or law, and the discretion of the court before which
any proceeding therefor may be brought; (iii) we express no opinion
concerning the enforceability of the waiver of rights or defenses contained
in the Indenture; and (iv) the manner by which the acceleration of the Debt
Securities may affect the collectibility of that portion of the stated
principal amount thereof which might be determined to constitute unearned
interest thereon.
To the extent the obligations of the Company under the Debt
Securities may be dependent upon such matters, we assume for purposes of this
opinion that the Trustee under the Indenture is duly organized, validly
existing and in good standing under the laws of its jurisdiction of
organization; that the Trustee is duly qualified to engage in the activities
contemplated by the Indenture; that the Indenture has been duly authorized,
executed and delivered by the Trustee and constitutes a legally valid,
binding and enforceable obligation of the Trustee enforceable against the
Trustee in accordance with its terms; and the Trustee is in compliance,
generally and with respect to acting as trustee under the Indenture, with all
applicable laws and regulations; and that the Trustee has the requisite
organizational and legal power and authority to perform its obligations under
the Indenture.
This opinion is rendered only to you for submission to the Commission
as an exhibit to the Registration Statement. This opinion may not be relied
upon by you for any other purpose, or furnished to, quoted to or relied upon by
any other person, firm or corporation for any purpose, without our prior written
consent.
We hereby consent to the use of this opinion as Exhibit 5.2 to the
Registration Statement and to the use of our name therein.
Very truly yours,
/s/ Latham & Watkins
<PAGE>
EXHIBIT 12
REALTY INCOME CORPORATION
STATEMENT OF COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
(dollars in thousands)
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------------------------------
June 30,
1997 1996 1995 1994 1993 1992
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Income $16,253 $32,223 $25,600 $15,224 $29,318 $28,053
--------------------------------------------------------------
Fixed Charges:
Interest 3,149 1,987 2,186 354 5 --
Amortization of fees 172 380 456 42 -- --
Interest Capitalized 82 150 217 -- -- --
--------------------------------------------------------------
Fixed Charges 3,403 2,517 2,859 396 5 0
--------------------------------------------------------------
Net Income before
Fixed Charges 19,574 34,590 28,242 15,620 29,323 28,053
Divided by Fixed Charges 3,403 2,517 2,859 396 5 0
--------------------------------------------------------------
Ratio of Earnings to
Fixed Charges 6:1 14:1 10:1 39:1 5865:1 N/A
--------------------------------------------------------------
--------------------------------------------------------------
</TABLE>
<PAGE>
Consent of Independent Accountants
The Board of Directors
Realty Income Corporation:
We consent to incorporation by reference in Amendment No. 2 (Post-Effective
Amendment No. 1) to the registration statement (No. 33-95374) on Form S-3 of
Realty Income Corporation of our report dated January 24, 1997, except as to
paragraph two of note 11, which is as of February 24, 1997, relating to the
consolidated balance sheets of Realty Income Corporation and subsidiaries as
of December 31, 1996 and 1995, and the related statements of income,
stockholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1996, and the related financial statement schedule,
which report appears in the December 31, 1996 annual report on Form 10-K of
Realty Income Corporation.
/s/ KPMG Peat Marwick LLP
San Diego, California
August 22, 1997
