<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 30, 1997.
Registration No. 333-____
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------
LEXINGTON CORPORATE PROPERTIES, INC.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C> <C>
MARYLAND 6798 13-3717318
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
355 LEXINGTON AVENUE
NEW YORK, NEW YORK 10017
TELEPHONE NUMBER (212) 692-7260
(Address, Including Zip Code, and Telephone Number, Including
Area Code, of Registrant's Principal Executive Offices)
---------------------------
T. WILSON EGLIN
PRESIDENT AND CHIEF OPERATING OFFICER
LEXINGTON CORPORATE PROPERTIES, INC.
355 LEXINGTON AVENUE
NEW YORK, NEW YORK 10017
(212) 692-7260
(Name, Address, Including Zip Code, and Telephone
Number, Including Area Code, of Agent For Service)
COPIES TO:
BARRY A. BROOKS, ESQ.
SCOTT M. WORNOW, ESQ.
PAUL, HASTINGS, JANOFSKY & WALKER LLP
399 PARK AVENUE
NEW YORK, NEW YORK 10022-4697
(212) 318-6000
Approximate date of commencement of proposed sale of the
securities to the public: As soon as practicable after the Registration
Statement becomes effective and the merger of Corporate Realty
Income Trust I with and into Lexington Corporate Properties, Inc.
(the "Merger") has become effective.
---------------------------
If the securities being registered on this form are being offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box. / /
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CALCULATION OF REGISTRATION FEE
========================================================================================================================
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AMOUNT TO BE PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF SHARES REGISTERED (1), (3) OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED PER SHARE (2) PRICE (2) REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------------------
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Common Stock, $.0001 Par Value ......... 1,496,907 $13.69 $20,492,657 $6,210
========================================================================================================================
</TABLE>
(1) REPRESENTS THE ESTIMATED MAXIMUM NUMBER OF SHARES OF COMMON STOCK THAT MAY
BE ISSUED UPON CONSUMMATION OF THE MERGER.
(2) ESTIMATED SOLELY FOR PURPOSES OF CALCULATING THE REGISTRATION FEE IN
ACCORDANCE WITH RULE 457(C) AND IS BASED UPON THE AVERAGE OF THE HIGH AND
LOW PRICES PER SHARE OF THE REGISTRANT'S COMMON STOCK AS REPORTED BY THE
NEW YORK STOCK EXCHANGE ON JUNE 25, 1997.
(3) THIS REGISTRATION STATEMENT ALSO RELATES TO AN INDETERMINATE NUMBER OF
SHARES OF COMMON STOCK THAT MAY BE ISSUED BASED UPON STOCK SPLITS, STOCK
DIVIDENDS OR SIMILAR TRANSACTIONS IN ACCORDANCE WITH RULE 416 UNDER THE
SECURITIES ACT OF 1933, AS AMENDED.
---------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE> 2
CORPORATE REALTY INCOME TRUST I
388 GREENWICH STREET
NEW YORK, NEW YORK 10013
JULY __, 1997
Dear Shareholder:
A special meeting of shareholders of Corporate Realty Income Trust I
("CRIT") will be held on ___________________, 1997 (the "Meeting"). The purpose
of the Meeting is to consider and vote on a proposed (i) merger (the "Merger")
of CRIT with and into Lexington Corporate Properties, Inc. ("Lexington
Properties" or the "Company") and (ii) amendment (the "Trust Amendment") to
CRIT's First Amended and Restated Declaration of Trust to permit CRIT to merge
with other entities subject to a required vote of CRIT's Board of Trustees and
shareholders, as described in the attached Joint Proxy Statement/Prospectus.
The proposed Merger has been unanimously approved by CRIT's Board of
Trustees, which believes the transaction to be in the best interest of CRIT and
its shareholders and recommends a vote FOR its approval. The reasons for this
belief are set forth in the accompanying Joint Proxy Statement/Prospectus. The
investment banking firm of McFarland Dewey & Co. has issued its opinion to CRIT,
a copy of which is attached as Annex B to the Joint Proxy Statement/Prospectus,
that the consideration to be received by CRIT shareholders in the Merger is
financially fair to the shareholders of CRIT.
The proposed Merger is very important to you as a shareholder. In
addition, the adoption of the Trust Amendment is necessary for the consummation
of the Merger; however, even if the Merger proposal is not adopted by the
shareholders, the Trust Amendment will give CRIT the flexibility to engage in
certain business transactions in the future. Therefore, whether or not you plan
to attend the Meeting, I urge you to give your immediate attention to the
proposals contained in the Joint Proxy Statement/Prospectus. Please review the
enclosed materials, sign and date the enclosed proxy card and return it promptly
in the enclosed postage-paid envelope.
Very truly yours,
James C. Cowles
Chairman
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CORPORATE REALTY INCOME TRUST I
NOTICE OF MEETING OF SHAREHOLDERS
A special meeting of shareholders (the "Meeting") of Corporate Realty Income
Trust I ("CRIT") will be held on [ ], 1997 at 11:00 am, local time, at CRIT's
offices at 388 Greenwich Street, New York, New York, 33rd floor, for the
following purposes:
1. To consider and act on a proposal to approve the merger (the "Merger") of
CRIT with and into Lexington Corporate Properties, Inc. ("Lexington
Properties") as set forth in the Agreement and Plan of Merger, dated as of
May 29, 1997, between Lexington and CRIT (the "Merger Agreement"). Pursuant
to the Merger Agreement, each share of beneficial interest, par value $0.10
per share, of CRIT (the "CRIT Shares") issued and outstanding immediately
prior to the effective time of the Merger shall be converted into a number
of shares of Lexington Common Stock, par value $0.0001 per share (the
"Lexington Common Stock"), based upon a calculated value per CRIT Share of
approximately $17.96. For purposes of calculating the ratio at which the
CRIT Shares will be converted into shares of Lexington Common Stock in the
Merger, the value of Lexington Common Stock will be based on the average of
the closing sales prices of Lexington Common Stock on the New York Stock
Exchange, Inc. on the 20 consecutive trading days ending on the fifth
business day immediately preceding the Meeting (the "Lexington Common Stock
Price"); however, the Lexington Common Stock Price will be deemed to equal
(i) $14.125 if the average price of the Lexington Common Stock calculated
above is greater than $14.125 or (ii) $12.125 if the average price of the
Lexington Common Stock is less than $12.125. As a result of the
transaction, Lexington Properties will succeed to the operations and assets
of CRIT, the separate existence of CRIT will cease and the former holders
of the CRIT Shares will become shareholders of Lexington Properties.
A copy of the Merger Agreement is attached as Annex A to the Joint Proxy
Statement/Prospectus accompanying this Notice.
2. To consider and act on a proposal to amend the First Amended and Restated
Declaration of Trust to permit CRIT to merge into or consolidate with other
entities with the approval of a majority of the Trustees and the
affirmative vote of the holders of a majority of the outstanding CRIT
Shares entitled to vote thereon.
3. To transact such other business as may properly come before the Meeting or
any adjournments or postponements thereof.
CRIT's shareholders are not entitled to dissenters' rights of appraisal in
connection with the Merger.
The Board of Trustees has fixed the close of business on [ ], 1997 as the record
date for CRIT Shares entitled to vote at the Meeting.
A Joint Proxy Statement/Prospectus and a form of proxy are enclosed with this
Notice.
You are requested, if you cannot be present at the Meeting, to complete, sign
and return the proxy in the enclosed business reply envelope promptly.
BY ORDER OF THE BOARD OF TRUSTEES
Mark R. Patterson
Secretary
, 1997
- ---------------- ---
- -------------------------------------------------------------------------------
IMPORTANT: PLEASE FILL IN, DATE, SIGN AND MAIL PROMPTLY THE ENCLOSED PROXY IN
THE POSTAGE-PAID ENVELOPE PROVIDED TO ENSURE THAT YOUR CRIT SHARES ARE
REPRESENTED AT THE MEETING. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON IF
YOU WISH TO DO SO EVEN THOUGH YOU HAVE PREVIOUSLY SENT IN YOUR PROXY.
- --------------------------------------------------------------------------------
2
<PAGE> 4
SUBJECT TO COMPLETION
JUNE 30, 1997
PROSPECTUS
1,496,907 SHARES
LEXINGTON CORPORATE PROPERTIES, INC.
COMMON STOCK
------------------------------------
PROXY STATEMENT
CORPORATE REALTY INCOME TRUST I
MEETING OF SHAREHOLDERS
TO BE HELD [ ,] 1997
------------------------------------
This Joint Proxy Statement and Prospectus (the "Joint Proxy
Statement/Prospectus") is being furnished in connection with the solicitation of
proxies by the Board of Trustees of Corporate Realty Income Trust I, a
Massachusetts business trust ("CRIT"), from holders of outstanding shares of
beneficial interest, par value $0.10 per share, of CRIT (the "CRIT Shares") for
use at the special meeting of shareholders of CRIT to be held at ____________,
at 11:00 a.m. (local time) on _____________, 1997, and at any adjournment or
postponement thereof (the "Meeting").
At the Meeting, the shareholders of CRIT will be asked to consider
and act upon a proposal to (1) approve an Agreement and Plan of Merger, dated as
of May 29, 1997 (the "Merger Agreement"), between CRIT and Lexington Corporate
Properties, Inc., a Maryland corporation ("Lexington Properties" or the
"Company") and transactions contemplated thereby (the "Merger Proposal"); and
(2) to amend CRIT's First Amended and Restated Declaration of Trust (the
"Declaration of Trust") to permit CRIT to merge into and consolidate with
another entity upon receipt of approvals from the CRIT Board of Trustees and
shareholders (the "Trust Amendment Proposal"). A copy of the Merger Agreement is
attached hereto as Annex A. Pursuant to the Merger Agreement, CRIT will merge
with and into the Company, with the Company as the surviving corporation (the
"Merger"). The consent of the holders of a majority of CRIT's outstanding shares
is a condition to the consummation of the Merger.
This Joint Proxy Statement/Prospectus also serves as a Prospectus of
the Company with respect to the Company's common stock, par value $0.0001
("Lexington Common Stock"), to be issued in the Merger in exchange for the CRIT
Shares. On June 25, 1997, the last reported sales price of the Lexington Common
Stock on the New York Stock Exchange (the "NYSE") was $13.625.
Under the terms of the Merger Agreement, each CRIT Share issued and
outstanding immediately prior to the effective time of the Merger will be
converted into shares of Lexington Common Stock based upon a value per CRIT
Share of approximately $17.96 (the "Stock Consideration"). For purposes of
calculating the ratio at which the CRIT Shares will be converted into Lexington
Common Stock in the Merger, the value of the Lexington Common Stock will be
based on the average of the closing sales prices of Lexington Common Stock on
the NYSE during the 20 consecutive trading days ending on the fifth business day
immediately preceding the Meeting; provided, however, that in the event the
Lexington Common Stock Price is (i) greater than $14.125, then, for purposes of
determining the Stock Consideration, the Lexington Common Stock Price will be
deemed to be $14.125, and (ii) in the event the Lexington Common Stock Price is
less than $12.125, then, for purposes of determining the stock consideration,
the Lexington Common Stock Price shall be deemed to be $12.125. As a result of
the transaction, the Company will succeed to the operations and assets of CRIT,
the separate existence of CRIT will cease and the former holders of the CRIT
Shares will become shareholders of the Company.
This Joint Proxy Statement/Prospectus and the form of proxy are first
being mailed to shareholders of CRIT on or about __________, 1997.
FOR A DESCRIPTION OF RISK FACTORS RELATING TO THE MERGER AND THE RELATED
TRANSACTIONS DESCRIBED IN THIS PROSPECTUS, SEE "RISK FACTORS."
------------------------------------
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
JOINT PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
------------------------------------
The date of this Joint Proxy Statement/Prospectus is , 1997.
<PAGE> 5
<TABLE>
T A B L E O F C O N T E N T S
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AVAILABLE INFORMATION.................................................................................. 2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE........................................................ 2
JOINT PROXY STATEMENT/PROSPECTUS SUMMARY............................................................... 4
Parties to the Merger......................................................................... 4
Date, Time and Place of Meeting............................................................... 4
Shareholders Entitled to Vote................................................................. 4
Purpose of the Meeting........................................................................ 5
Vote Required................................................................................. 5
Effect of the Merger.......................................................................... 5
Trust Amendment Proposal...................................................................... 5
Recommendation of the CRIT Board of Trustees.................................................. 5
Opinion of Financial Advisor to CRIT.......................................................... 5
Interests of Certain Persons in the Merger.................................................... 5
Effective Time of the Merger.................................................................. 6
Management After the Merger................................................................... 6
Conditions to the Merger...................................................................... 6
Termination................................................................................... 6
Surrender of Certificates..................................................................... 6
No Appraisal Rights........................................................................... 6
Certain Federal Income Tax Consequences....................................................... 6
Accounting Treatment.......................................................................... 7
Comparison of Shareholder Rights.............................................................. 7
Resales of Lexington Common Stock Issued in the Pending Transaction;
Affiliates.................................................................................... 7
SUMMARY HISTORICAL AND UNAUDITED PRO FORMA CONSOLIDATED
FINANCIAL DATA OF THE COMPANY.......................................................................... 8
CRIT HISTORICAL FINANCIAL DATA......................................................................... 10
COMPARATIVE PER SHARE DATA............................................................................. 11
PRICE RANGE OF THE COMPANY'S COMMON STOCK AND
DISTRIBUTION HISTORY................................................................................... 12
MARKET FOR CRIT SHARES AND RELATED SHAREHOLDER MATTERS................................................. 13
RISK FACTORS........................................................................................... 14
THE MEETING............................................................................................ 18
General....................................................................................... 18
Matters To Be Considered at the Meeting....................................................... 18
Voting at the Meeting; Record Date............................................................ 18
Proxies....................................................................................... 19
THE MERGER............................................................................................. 20
Background of the Merger...................................................................... 20
Reasons for the Merger; Recommendation of the CRIT
Board of Trustees............................................................................. 20
Opinion of Financial Advisor to CRIT.......................................................... 23
Accounting Treatment.......................................................................... 27
</TABLE>
i
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No Appraisal Rights........................................................................... 27
Interests of Certain Persons in the Merger.................................................... 27
THE MERGER AGREEMENT (PROPOSAL 1)...................................................................... 28
The Merger.................................................................................... 28
Conversion of Securities...................................................................... 28
Representations and Warranties................................................................ 29
Certain Covenants and Agreements.............................................................. 29
No Solicitation............................................................................... 30
Indemnification............................................................................... 30
Conditions.................................................................................... 31
Termination; Termination Fees and Expenses.................................................... 31
Amendment and Waiver.......................................................................... 33
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES.................................................. 33
TRUST AMENDMENT (PROPOSAL 2)........................................................................... 42
INFORMATION REGARDING LEXINGTON PROPERTIES............................................................. 43
The Company................................................................................... 43
The Net Lease Real Estate Business............................................................ 43
Business Objectives........................................................................... 44
Internal Growth; Effectively Managing Assets.................................................. 44
Tenant Relations and Lease Compliance......................................................... 44
Extending Lease Maturities.................................................................... 44
Revenue Enhancing Property Expansion.......................................................... 44
Property Sales and Redeployment of Assets..................................................... 44
Acquisition Strategies........................................................................ 44
Operating Partnership Structure............................................................... 45
Acquisitions of Portfolio and Individual Net Lease Properties................................. 45
Sale/Leaseback Transactions................................................................... 45
Build-to-suit Properties...................................................................... 45
Acquisitions from Affiliated Net Lease Partnerships........................................... 45
Refinancing Existing Indebtedness and Increasing Access to Capital............................ 45
Completed Acquisitions........................................................................ 46
Recent Activities............................................................................. 47
Recent Acquisitions........................................................................... 47
Cymer, Inc.; Rancho Bernardo, California...................................................... 47
Exel Logistics; Pennsylvania.................................................................. 47
Johnson Controls; Alabama..................................................................... 47
Pending Acquisitions.......................................................................... 47
Bull HN Information Systems; Phoenix, Arizona................................................. 47
Financing Activities.......................................................................... 47
Public Offering of Lexington Common Stock..................................................... 47
Salt Lake City Refinancing.................................................................... 48
Partnership Merger............................................................................ 48
Sale of Exchangeable Notes.................................................................... 48
Credit Facility............................................................................... 48
Sale of Convertible Preferred Stock........................................................... 48
REMIC Financing............................................................................... 49
Potential Acquisitions from Affiliates........................................................ 49
Possible Property Sale........................................................................ 49
Reorganization Of The Company As A Maryland
Real Estate Investment Trust.................................................................. 50
Organizational Structure...................................................................... 50
Distributions On OP Units..................................................................... 51
Properties.................................................................................... 52
</TABLE>
ii
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Indebtedness of the Company................................................................... 59
Salt Lake City Refinancing.................................................................... 59
Sale of Exchangeable Notes.................................................................... 59
Credit Facility............................................................................... 59
REMIC Financing............................................................................... 59
Subordinated Notes............................................................................ 60
Mortgage Indebtedness......................................................................... 60
Legal Proceedings............................................................................. 61
Capitalization................................................................................ 62
Selected Historical and Unaudited Pro Forma Consolidated Financial Data....................... 63
Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................................................... 65
Unaudited Pro Forma Consolidated Financial Data............................................... 68
Unaudited Pro Forma Consolidated Statements of Income......................................... 68
Notes to the Unaudited Pro Forma Consolidated Statements of Income............................ 69
Unaudited Pro Forma Consolidated Condensed Financial Statements............................... 70
Notes to the Unaudited Pro Forma Consolidated Condensed
Financial Statements.......................................................................... 71
INFORMATION REGARDING CRIT............................................................................. 73
Business...................................................................................... 73
Investment Policy............................................................................. 73
Properties.................................................................................... 74
The Circuit City Property..................................................................... 74
The Allegiance Property (formerly the "Baxter Property")...................................... 75
The Dana Property............................................................................. 76
Legal Proceedings............................................................................. 77
Selected Financial Data....................................................................... 78
Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................................................... 78
Liquidity and Capital Resources............................................................... 78
Results of Operations......................................................................... 79
Year Ended December 31, 1996 versus Year Ended December 31, 1995.............................. 79
Year Ended December 31, 1995 versus Year Ended December 31, 1994.............................. 79
Beneficial Ownership of Common Shares......................................................... 80
MANAGEMENT OF THE COMPANY.............................................................................. 81
Compensation of Executive Officers............................................................ 82
Summary of Cash and Certain Other Compensation................................................ 82
Compensation of Directors..................................................................... 83
Management After the Merger................................................................... 84
Principal Security Holders.................................................................... 84
Stock Ownership of Directors and Executive Officers........................................... 84
COMPARISON OF SHAREHOLDER RIGHTS....................................................................... 86
Board of Trustees............................................................................. 86
Issuance of Capital Stock..................................................................... 86
Distributions to Shareholders................................................................. 87
Shareholder Meetings.......................................................................... 87
Shareholder Approval of Certain Actions....................................................... 87
Restrictions on Corporate Activities.......................................................... 88
Interested Party Transactions................................................................. 89
Ownership Limit............................................................................... 89
Maintaining REIT Status....................................................................... 90
Indemnification............................................................................... 90
Nominations of Directors by Shareholders...................................................... 90
</TABLE>
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DESCRIPTION OF LEXINGTON PROPERTIES CAPITAL STOCK...................................................... 91
Description of Preferred Stock................................................................ 91
Description of Common Stock................................................................... 91
General....................................................................................... 91
Terms......................................................................................... 91
Restrictions on Ownership..................................................................... 92
Transfer Agent................................................................................ 92
Restrictions on Transfers of Capital Stock
and Anti-takeover Provisions.................................................................. 92
LEGAL MATTERS.......................................................................................... 94
EXPERTS................................................................................................ 94
</TABLE>
iv
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AVAILABLE INFORMATION
The Company has filed a Registration Statement on Form S-4 (the
"Registration Statement") under the Securities Act of 1933, as amended
("Securities Act"), with the Securities and Exchange Commission (the
"Commission") covering the shares of Lexington Common Stock to be issued in
connection with the Merger. This Joint Proxy Statement/Prospectus also
constitutes the proxy statement of CRIT for the Meeting. As permitted by the
rules and regulations of the Commission, this Joint Proxy Statement/Prospectus
omits certain information, exhibits and undertakings contained in the
Registration Statement. For further information pertaining to the securities
offered hereby, reference is made to the Registration Statement, including the
exhibits filed as a part thereof.
The Company and CRIT are each subject to the informational
requirements of the Securities Exchange Act of 1934, as amended ("Exchange
Act"), and, in accordance therewith, files reports, proxy statements and other
information with the Commission. Reports, proxy statements and other information
filed by the Company and CRIT can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549; and at its Regional Offices located at Suite 1400, 500
West Madison Street, Chicago, Illinois 60661; and Seven World Trade Center, New
York, New York 10048. Copies of such material can be obtained at prescribed
rates from the Public Reference Section of the Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549. The Commission maintains a Website that contains
reports, proxy and information statements and other information filed
electronically by the Company and CRIT, and can be found at http:\\www.sec.gov.
The Lexington Common Stock is listed on the NYSE and reports, proxy statements
and other information concerning the Company can be inspected at the offices of
the NYSE, 20 Broad Street, New York, New York 10005.
All information contained in this Joint Proxy Statement/Prospectus
with respect to the Company has been supplied by the Company, and all
information with respect to CRIT has been supplied by CRIT.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents or information have been filed by the Company
with the Commission and are incorporated herein by reference:
1. The Company's Quarterly Report on Form 10-Q (Commission File
No. 1-12386) for the quarter ended March 31, 1997, filed on May
15, 1997 and Form 10-Q/A filed on June 12, 1997.
2. The Company's Annual Report on Form 10-K (Commission File No.
1-12386) for the year ended December 31, 1996, filed on March
31, 1997.
3. The Company's Current Report on Form 8-K/A filed on June 17,
1997.
4. The Company's 1997 Proxy Statement on Schedule 14-A filed on
May 6, 1997.
5. The description of the Company's capital stock contained in the
Company's Registration Statement on Form 8-B under the Exchange
Act, filed on August 10, 1994 (Commission File No. 1-12386),
including any amendment or report filed for the purpose of
updating that description.
The following documents or information have been filed by CRIT with
the Commission and are incorporated herein by reference:
1. CRIT's Annual Report on Form 10-K (Commission File No.
33-29987) for the year ended December 31, 1996, filed on March
31, 1997.
2
<PAGE> 10
2. CRIT's Quarterly Report on Form 10-Q (Commission File No.
33-29987) for the quarter ended March 31, 1997, filed on May
15, 1997.
3. CRIT's Current Report on Form 8-K, filed on June 2, 1997.
All documents subsequently filed by the Company and CRIT with the
Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act
after the date of this Joint Proxy Statement/Prospectus and prior to the Meeting
will be deemed incorporated by reference into this Joint Proxy
Statement/Prospectus and to be a part hereof from the date of filing of such
documents. Any statement contained in a document incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this Joint
Proxy Statement/Prospectus to the extent that a statement contained herein
modifies or supersedes such statement. Any statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this Joint Proxy Statement/Prospectus.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS, OR
INCORPORATED IN IT BY REFERENCE, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS JOINT
PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO PURCHASE, THE SECURITIES OFFERED BY THIS JOINT PROXY
STATEMENT/PROSPECTUS, OR THE SOLICITATION OF A PROXY, IN ANY JURISDICTION TO OR
FROM ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER, OR SOLICITATION OF AN
OFFER, OR PROXY SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS
JOINT PROXY STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF THE SECURITIES OFFERED
PURSUANT TO THIS JOINT PROXY STATEMENT/PROSPECTUS SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE OF THIS JOINT PROXY STATEMENT/PROSPECTUS.
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY
REFERENCE WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS
ARE AVAILABLE WITHOUT CHARGE (OTHER THAN EXHIBITS TO SUCH DOCUMENTS WHICH ARE
NOT SPECIFICALLY INCORPORATED BY REFERENCE THEREIN) UPON REQUEST FROM (1)
LEXINGTON CORPORATE PROPERTIES, INC., 355 LEXINGTON AVENUE, NEW YORK, NEW YORK
10017 (TELEPHONE NO. (212) 692-7260), ATTENTION: T. WILSON EGLIN, PRESIDENT AND
CHIEF OPERATING OFFICER, OR (2) CORPORATE REALTY INCOME TRUST I, 388 GREENWICH
STREET, NEW YORK, NEW YORK (TELEPHONE NO. (212) 816-8237), ATTENTION: JAMES C.
COWLES.
3
<PAGE> 11
JOINT PROXY STATEMENT/PROSPECTUS SUMMARY
Shareholders are urged to read carefully this entire Joint Proxy
Statement/Prospectus and the documents incorporated herein by reference. The
following summary is qualified in its entirety by the more detailed information
and Consolidated Financial Statements and related Notes thereto included
elsewhere in this Joint Proxy Statement/Prospectus, or otherwise incorporated
herein or therein by reference. A copy of the Merger Agreement is set forth in
Annex A to this Joint Proxy Statement/Prospectus and reference is made thereto
for a complete description of the terms of the Merger. All references to the
"Company" refer to Lexington Corporate Properties, Inc. and those entities owned
or controlled, directly or indirectly, by Lexington Corporate Properties, Inc.
Unless the context otherwise requires, the pro forma financial and certain other
information presented in this Joint Proxy Statement/Prospectus, including the
Annexes hereto, gives effect to the Pro Forma Adjustments (as defined herein,
see "--Summary Historical and Unaudited Pro Forma Consolidated Financial Data").
PARTIES TO THE MERGER
The Company. Lexington Corporate Properties, Inc. is a self-managed
and self-administered real estate investment trust ("REIT") that acquires, owns
and manages a geographically diversified portfolio of net leased office,
industrial and retail properties. As of the date of this Joint Proxy
Statement/Prospectus, the Company owns controlling interests in 43 properties
(the "Properties," and each a "Property") and minority interests in two
additional properties. The Properties, all of which are 100% net leased, are
located in 23 states, have approximately 6.3 million net rentable square feet
and, under the terms of their applicable leases, currently generate
approximately $42.0 million in annual base rent. As of May 1, 1997, the
Company's leases had a weighted average remaining term of approximately 8.6
years (excluding renewal options). The Company's tenants, a majority of which
(based on annual rental revenue) have debt ratings of investment grade and many
of which are nationally recognized, include Bank One, Arizona, N.A., Circuit
City Stores, Inc., Federal Express Corp., The Hartford Fire Insurance Company,
Honeywell, Inc., Northwest Pipeline Corporation, and Wal-Mart Stores, Inc. The
Company currently generates approximately 43%, 33% and 24% of its annual rental
revenues from office, industrial and retail properties, respectively.
Substantially all of the Company's leases are "Net Leases," under which the
tenant is responsible for all costs of real estate taxes, insurance, ordinary
maintenance and structural repairs.
The Company's principal executive offices are located at 355
Lexington Avenue, New York, New York 10017, and its telephone number is (212)
692-7260.
CRIT. CRIT was formed as a Massachusetts business trust under the
laws of Massachusetts on June 27, 1989 and qualified as a REIT in 1990. CRIT was
formed to invest in triple net leased income producing commercial and industrial
real estate properties throughout the United States. CRIT owns and operates
directly three properties located in Alabama, Tennessee and Virginia. Corporate
Realty Advisors, Inc. (the "Advisor") acts as advisor to CRIT pursuant to an
Advisory Services Agreement (the "Advisory Agreement").
CRIT's principal executive offices are located at 388 Greenwich
Street, New York, New York 10013, and its telephone number is (212) 816-8237.
DATE, TIME AND PLACE OF MEETING. The Meeting will be held at 11:00 a.m., local
time, on _____________, 1997, at CRIT's offices at 388 Greenwich Street, New
York, New York, 33rd Floor, for the purposes described below under "Purpose of
Meeting".
SHAREHOLDERS ENTITLED TO VOTE. Only holders of record of CRIT Shares at the
close of business on _____________, 1997 (the "Record Date") are entitled to
notice of, and to vote at, the Meeting. As of the Record Date, there were
1,010,776 CRIT Shares outstanding. As of the Record Date, the Advisor owned
10,000 CRIT Shares, and none of the CRIT Board members or officers of CRIT
beneficially owned any CR IT Shares.
4
<PAGE> 12
PURPOSE OF THE MEETING. The purpose of the Meeting is to consider and vote upon
(i) the Merger Proposal, (ii) the Trust Amendment Proposal and (iii) such other
matters as may properly be brought before the Meeting, or any postponements or
adjournments thereof.
VOTE REQUIRED. The approval of the Trust Amendment Proposal by CRIT shareholders
will require the affirmative vote of the holders of a majority of the
outstanding CRIT Shares entitled to vote thereon. Pursuant to such amendment, if
approved, the affirmative vote of the holders of a majority of the outstanding
CRIT Shares entitled to vote thereon will be required for the approval of the
Merger Proposal. Each CRIT Share is entitled to one vote. Shareholders do not
have cumulative voting rights. Votes cast in person or by proxy at the Meeting
will be tabulated by the inspector of election for the Meeting.
EFFECT OF THE MERGER. The CRIT Board of Trustees (the "CRIT Board") has
unanimously approved the Merger and the Merger Agreement, a copy of which is
attached hereto as Annex A. Pursuant to the Merger Agreement, upon fulfillment
(or waiver) of the conditions set forth therein, at the Effective Time (i) CRIT
will be merged with and into the Company, with the Company being the surviving
corporation in the Merger, and (ii) each issued and outstanding CRIT Share will
be converted into a number of shares of Lexington Common Stock equal to the
Stock Consideration, subject to adjustment pursuant to the Merger Agreement. See
"The Merger Agreement -- Conversion of Securities."
No fractional shares of Lexington Common Stock will be issued in
connection with the Merger. In lieu thereof, a holder of a CRIT Share otherwise
entitled to a fractional share of Lexington Common Stock will be given a check
representing an amount in cash (without interest) rounded to the nearest cent
determined by multiplying (i) the Lexington Common Stock Price, by (ii) the
fraction of a share of Lexington Common Stock which such holder would otherwise
be entitled.
Based upon the number of CRIT Shares and shares of Lexington Common Stock
outstanding as of the date hereof and assuming a Lexington Common Stock Price of
$____ per share, upon consummation of the Merger the former CRIT shareholders
will be issued approximately _____ shares of Lexington Common Stock,
representing approximately ______% of the aggregate number of outstanding
Lexington Common Stock, on a fully diluted basis, as of the date hereof.
TRUST AMENDMENT PROPOSAL. CRIT shareholders will also be asked to consider and
vote on an amendment to the Declaration of Trust that will allow CRIT to merge
into or consolidate with any other corporation, association, partnership, trust,
limited liability company or other organization with the approval of a majority
of the CRIT Board and the affirmative vote of the holders of a majority of the
outstanding CRIT Shares entitled to vote thereon. CRIT's Declaration of Trust
currently lacks such authority; the passage of this amendment, therefore, is
necessary for the proposed Merger to be consummated. See "Amendment to
Declaration of Trust."
RECOMMENDATION OF THE CRIT BOARD OF TRUSTEES. The terms of the Merger and the
Merger Agreement were arrived at as the result of arm's length negotiations
between representatives of the Company and CRIT. The CRIT Board has approved the
Merger and the transactions contemplated by the Merger Agreement by unanimous
vote, believes the Merger is advisable and in the best interests of CRIT and its
shareholders and recommends its adoption and approval by CRIT shareholders. The
decision of the CRIT Board to approve the Merger Agreement and the Merger and to
recommend the approval thereof to the shareholders of CRIT was based on a number
of considerations, including the fairness, from a financial point of view, of
the Stock Consideration. See "The Merger -- Reasons for the Merger;
Recommendations of the CRIT Board of Trustees."
OPINION OF FINANCIAL ADVISOR TO CRIT. McFarland Dewey & Co. delivered a written
opinion on May 29, 1997 to the CRIT Board to the effect that the terms of the
Merger are fair from a financial point of view to the holders of CRIT Shares. A
copy of the opinion of the financial advisor is attached as Annex B to this
Joint Proxy Statement/Prospectus. See "The Merger -- Opinion of Financial
Advisor to CRIT."
INTERESTS OF CERTAIN PERSONS IN THE MERGER. Certain members of CRIT management
and the CRIT Board may be deemed to have interests in the Merger. These
interests include provisions in the Merger Agreement
5
<PAGE> 13
providing indemnification rights to such officers, trustees and other parties
under certain conditions. As of the Record Date, the Advisor owned 10,000 CRIT
Shares. James C. Cowles is Trustee, Chairman, President and Treasurer of CRIT
and is Chairman and President of the Advisor. Pursuant to the Advisory Agreement
with CRIT, the Advisor is entitled to receive a termination fee of approximately
$850,000 in connection with the consummation of the Merger. However, the Advisor
has determined to waive $787,000 of such fee, with the remaining $61,000 to be
payable by CRIT at the Effective Time. The amount of the fee will effectively
reimburse the Advisor for an identical amount paid during 1997 by the Advisor to
Antony E. Monk, a former trustee and officer of CRIT and the former president of
the Advisor who resigned from those positions in 1992, in connection with the
termination of a Management and Consulting Services Agreement among the Advisor,
Smith Barney, Harris, Upham & Co., Monk and Hadley Page Ellis, Inc. ("Hadley"),
a corporation whose sole shareholder is Mr. Monk. In addition, Hadley will
receive a $50,000 finder's fee from the Company upon consummation of the Merger.
EFFECTIVE TIME OF THE MERGER. In accordance with the Maryland General
Corporation Law (the "MGCL"), the Merger will become effective upon the
acceptance for recording of the Articles of Merger by the State Department of
Assessments and Taxation of Maryland. It is anticipated that the Merger will
become effective as promptly as practicable after the requisite approval of the
CRIT shareholders has been obtained and all other conditions to the Merger have
been satisfied or waived (the "Effective Time"). It is anticipated that,
assuming all conditions are met, the Merger will occur on or about September __,
1997.
MANAGEMENT AFTER THE MERGER. After the Effective Time, CRIT will merge with and
into the Company and the current management of the Company will remain
unchanged.
CONDITIONS TO THE MERGER. The obligation of the Company and CRIT to consummate
the Merger is subject to the satisfaction of certain conditions, including, but
not limited to, CRIT obtaining requisite shareholder approval of the Merger
Proposal and Trust Amendment Proposal, the continuing accuracy of the
representations and warranties made in the Merger Agreement on and as of the
Effective Time, and the receipt of certain legal opinions with respect to tax
matters. The consummation of the Merger is not subject to any federal or state
regulatory requirements. The Merger is not subject to receipt of shareholder
approval by the Company. See "The Merger Agreement -- Conditions."
TERMINATION. The Merger Agreement is subject to termination at any time prior to
the Effective Time under certain circumstances, including, but not limited to,
mutual written consent of the Company and CRIT, failure to achieve requisite
votes for approval by the CRIT shareholders, and at the option of either the
Company or CRIT if the Merger is not consummated on or before October 1, 1997.
See "The Merger Agreement -- Termination."
SURRENDER OF CERTIFICATES. After the Effective Time, CRIT will mail a letter of
transmittal with instructions to all holders of record of CRIT Shares
immediately prior to the Merger for use in surrendering their stock certificates
in exchange for certificates representing shares of Lexington Common Stock and a
cash payment in lieu of fractional shares, if any. See "The Merger Agreement --
Conversion of Securities."
NO APPRAISAL RIGHTS. CRIT shareholders are not entitled to dissenters' rights of
appraisal under CRIT's Declaration of Trust or under the laws of the
Commonwealth of Massachusetts in connection with the Merger.
See "Merger -- No Appraisal Rights."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES. Conditions precedent to the Merger
include, among other things, the receipt by each of CRIT and the Company of an
opinion of counsel to the effect that the Merger will be treated for United
States federal income tax purposes as a tax-free reorganization within the
meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended. See
"The Merger -- Certain United States Federal Income Tax Consequences." BECAUSE
CERTAIN TAX CONSEQUENCES MAY VARY DEPENDING UPON THE PARTICULAR CIRCUMSTANCES OF
EACH SHAREHOLDER, IT IS RECOMMENDED THAT SHAREHOLDERS CONSULT THEIR OWN TAX
ADVISORS CONCERNING THE UNITED STATES FEDERAL, STATE, LOCAL AND FOREIGN TAX
CONSEQUENCES TO THEM OF THE MERGER IN THEIR PARTICULAR CIRCUMSTANCES.
6
<PAGE> 14
ACCOUNTING TREATMENT. The Merger will be treated as a purchase in accordance
with Accounting Principles Board Opinion No. 16.
COMPARISON OF SHAREHOLDER RIGHTS. The rights of CRIT shareholders are currently
determined by the Declaration of Trust. At the Effective Time, CRIT shareholders
will become shareholders of the Company, and their rights as shareholders of the
Company will be determined by the Articles of Incorporation and ByLaws of the
Company, as amended, and Maryland law, the jurisdiction in which the Company is
incorporated. See "Comparison of Shareholder Rights" for a summary of the
material differences between the rights of holders of CRIT Shares and Lexington
Common Stock. The Company has received the approval of its shareholders to
reorganize as a Maryland real estate investment trust and intends to do so in
1997. The rights of holders of Lexington Common Stock will be affected by such
reorganization. See "The Company -- Reorganization of the Company as a Maryland
Real Estate Investment Trust."
RESALES OF LEXINGTON COMMON STOCK ISSUED IN THE PENDING TRANSACTION; AFFILIATES.
All Lexington Common Stock received by holders of CRIT Shares who are deemed
affiliates of CRIT for purposes of Rule 145 under the Securities Act may be
resold by them only in transactions permitted by the resale provisions of Rule
145 or as otherwise permitted by the Securities Act. Pursuant to the Merger
Agreement, CRIT shall use its reasonable best efforts to cause each person who
may be deemed to be an "affiliate" of CRIT to enter into a letter agreement with
CRIT prior to the closing date of the Merger providing that such affiliate will
not sell, transfer or otherwise dispose of any Lexington Common Stock obtained
as a result of the Merger except in compliance with the Securities Act and the
rules and regulations of the Commission thereunder. The Company has agreed to
file with the Commission required reports covering Lexington Common Stock
received in the Merger by any CRIT affiliate to enable such affiliate to sell
such shares of Lexington Common Stock without registration under the Securities
Act pursuant to Rule 145(d)(1) or any successor rule.
7
<PAGE> 15
SUMMARY HISTORICAL AND UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL DATA OF THE COMPANY
The Summary Historical and Unaudited Pro Forma Consolidated Financial
Data of the Company set forth below has been derived from the Selected Unaudited
Historical and Pro Forma Consolidated Financial Statements of the Company
incorporated or included elsewhere in this Joint Proxy Statement/Prospectus, and
should be read in conjunction with the Consolidated Financial Statements and
Notes thereto included elsewhere in this Joint Proxy Statement/Prospectus. The
unaudited pro forma financial data gives effect to (i) the Merger, (ii)
acquisitions consummated since January 1, 1997; (iii) the Bull Information
Systems Acquisition (as defined herein); (iv) the Salt Lake City Refinancing (as
defined herein); (v) the issuance and sale of 1,325,000 shares of Convertible
Preferred Stock (as defined herein) and the application of the net proceeds
therefrom; (vi) the possible sale of the Ross Stores Newark Property (as defined
herein); (vii) acquisitions consummated in 1996, as such pro forma financial
data relates to 1996; and (viii) the June 1997 public offering of 2,800,000
shares of Lexington Common Stock and the application of the proceeds therefrom
(collectively, the "Pro Forma Adjustments"), as if such Pro Forma Adjustments
had occurred on January 1, 1996 and 1997 for the operating data and on March 31,
1997 for the balance sheet data. The pro forma financial data does not purport
to be indicative of what the results of the Company would have been had the
transactions been completed on the dates assumed, nor is such pro forma
financial data necessarily indicative of the results of operations of the
Company that may exist in the future. There can be no assurance that the Pending
Acquisitions or sale of the Ross Stores Newark Property will be consummated or,
if consummated as to the terms or timing thereof. The financial data for the
three months ended March 31, 1997 includes all adjustments, consisting of normal
recurring accruals, which management considers necessary for the fair
presentation of the financial position and the results of operations of the
Company for such period. The results for the three-month period may not be
indicative of the results to be expected for the full year.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
(UNAUDITED)
--------------------------
PRO PRO FORMA
FORMA (UNAUDITED) YEAR ENDED DECEMBER 31,
------- ------ --------------------------------------------
1997 1997 1996 1996 1996 1995 1994 1993 1992
------- ------ ------- ------ ------- ------- ------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE AND PROPERTY DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Operating Data:
Rental revenue.............................. $10,941 $9,699 $ 6,657 $43,998 $31,244 $24,523 $25,894 $25,702 $ 25,620
Interest and other income................... 132 125 142 470 431 479 144 169 177
------- ------ ------- ------ ------- ------- ------- ------- --------
Total revenues.............................. $11,073 $9,824 $ 6,799 $44,468 $31,675 $25,002 $26,038 $25,871 $ 25,797
Interest expense............................ 3,978 4,240 2,559 15,833 12,818 10,295 10,982 11,066 11,220
Depreciation................................ 2,759 2,461 1,565 10,894 7,627 5,817 5,909 5,909 5,892
Amortization of deferred expenses........... 309 194 146 717 619 464 346 268 262
Property operating expenses................. 218 218 137 765 686 620 808 558 964
General and administrative expenses......... 870 870 665 3,298 3,125 2,694 2,416 1,020 2,172
Income before minority interests, 2,317
gain on sale of properties,
lease termination proceeds and
extraordinary item.......................... 2,870 1,772 1,727 12,317 6,156 5,112 5,577 4,609 5,287
Minority interests............................ 360 262 54 1,598 690 93 98 81 93
Net Income(1)................................. $ 2,510 $1,510 $ 1,673 $10,719 $ 5,466 $ 3,284 $ 5,479 $ 4,528 $ 5,194
======= ====== ======= ====== ======= ======= ======= ======= ========
Per Share of Common Stock:(2)
Income before extraordinary item
Primary.................................. $0.15 $0.14 $0.18 $0.65 $0.58 $0.88 $0.59 $0.48 $0.56
Fully diluted............................ 0.15 0.13 0.18 0.64 0.58 0.88 0.59 0.48 0.56
Net income
Primary.................................. $0.15 $0.14 $0.18 $0.65 $0.58 $0.35 $0.59 $0.48 $0.56
Fully diluted............................ 0.15 0.13 0.18 0.64 0.58 0.35 0.59 0.48 0.56
Cash distributions paid -- $0.29 $0.27 -- $1.10 $1.08 $1.08 $0.24 --
Weighted average, common shares outstanding
Primary.................................. 14,051 9,932 9,363 13,944 9,393 9,263 9,306 9,303 9,303
Fully diluted............................ 16,676 11,967 9,363 16,570 9,393 9,263 9,306 9,303 9,303
BALANCE SHEET DATA (AT END OF PERIOD):
Real estate, before accumulated
depreciation................................ $390,471 $369,740 $244,316 -- $339,411 $244,223 $243,280 $243,280 $243,280
Total assets.................................. 376,899 340,121 220,150 -- 309,126 221,216 216,020 222,467 230,387
Mortgage loans payable (including
accrued interest)........................... 179,923 203,694 120,471 -- 186,188 121,690 110,065 112,501 115,222
Total liabilities............................. 217,853 240,169 124,056 -- 216,467 124,698 114,800 116,815 119,794
Shareholders' equity.......................... 159,046 99,952 96,094 -- 92,659 96,518 101,220 105,652 110,593
</TABLE>
8
<PAGE> 16
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
(UNAUDITED)
--------------------------
PRO PRO FORMA
FORMA (UNAUDITED) YEAR ENDED DECEMBER 31,
------- ------ ----------------------------------------------
1997 1997 1996 1996 1996 1995 1994 1993 1992
------- ------ ------- ------ ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AND PROPERTY DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
Cash flows from operating activities.......... -- $ 4,476 $ 3,175 -- $14,972 $ 7,216 $12,423 $11,151 $12,002
Cash flows from investing activities.......... -- (24,329) (94) -- (16,951) 7,887 -- -- (2,870)
Cash flows from financing activities.......... -- 21,514 (3,159) -- 1,859 (15,611) (12,304) (12,780) (8,254)
Funds from operations(3) (4).................. $5,698 4,302 3,439 $24,442 15,015 12,048 11,486 12,959 12,673
Total net rentable sq. ft. (at end of period). 6,511 6,338 4,228 6,511 5,235 4,212 3,767 3,767 3,767
</TABLE>
- ---------------------------
(1) Net income (historical and pro forma) for the three months ended
March 31, 1997 includes $69 of transactional expenses; net income
(historical and pro forma) for the year ended December 31, 1996,
includes $644 of transactional expenses; net income for the year
ended December 31, 1995 includes gain on sale of properties of
$1,514, proceeds from lease terminations of $1,600 and an
extraordinary loss on extinguishment of debt of $4,849; and net
income for the year ended December 31, 1993 includes expenses of the
mergers of $2,441.
(2) Primary net income per share is computed by dividing net income
reduced by preferred dividends by the weighted average number of
common and diluted common equivalent shares outstanding during the
period. Fully diluted net income per share amounts are similarly
computed, but include the effect, when dilutive of the Company's
other potentially dilutive securities. Fully diluted net income
excludes preferred dividends and is increased by minority interests
resulting from the assumed conversion of the OP Units (as defined
herein). The Company's convertible preferred stock and exchangeable
Notes are excluded from the 1997 and 1996 historical and pro forma
computations due to their anti-dilutive effect during those periods.
(3) The Company considers Funds From Operations to be one measure of the
performance of an equity REIT. Funds From Operations is defined by
the National Association of Real Estate Investment Trusts, Inc.
("NAREIT") as "net income (or loss) (computed in accordance with
generally accepted accounting principles), excluding gains (or
losses) from debt restructuring and sales of property, plus real
estate depreciation and amortization and after adjustments for
unconsolidated partnerships and joint ventures." The Company's method
of calculating Funds From Operations excludes other non-recurring
revenue and expense items and may be different from methods used by
other REITs and, accordingly, may not be comparable to such other
REITs. Funds From Operations should not be considered an alternative
to net income as an indicator of operating performance or to cash
flows from operations as a measure of liquidity as defined by
generally accepted accounting principles ("GAAP"), and is not
necessarily indicative of cash available to fund all cash flow needs
and liquidity, nor the Company's ability to make distributions.
(4) Non-recurring and other non-cash expenses described in (3) above for
the years ended December 31, 1996 (historical and pro forma), 1995,
1993 and 1992 were approximately $1,300, $1,100, $2,400 and $1,400,
respectively. Non-recurring and other non-cash expenses for the three
months ended March 31, 1997 (historical and pro forma) and 1996 were
approximately $69 and $147, respectively.
9
<PAGE> 17
CRIT HISTORICAL FINANCIAL DATA
The following sets forth financial information for CRIT on a historical
basis and should be read in conjunction with, and is qualified in its entirety
by, the historical financial statements and notes thereto of CRIT which are
incorporated by reference in this Joint Proxy Statement/Prospectus. The
financial information of CRIT at December 31, 1996 and 1995 and for each of the
three years in the period ended December 31, 1996 has been derived from the
historical financial statements of CRIT audited by Ernst & Young LLP,
independent auditors, whose report with respect to the financial statements of
CRIT as of December 31, 1996 and 1995 and for each of the three years in the
period ended December 31, 1996 are incorporated by reference into this Proxy
Statement/Prospectus. The financial information as of March 31, 1997 and 1996
and for the three month periods then ended has been derived from the unaudited
financial statements of CRIT and, in the opinion of management, such financial
statements include all adjustments necessary to present fairly the information
set forth therein. The results for the three-month periods may not be
indicative of the results to be expected for the full year. The financial
statements of CRIT as of December 31, 1994, 1993 and 1992 and for each of the
two years in the period ended December 31, 1993 were derived from CRIT's
audited financial statements.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
(UNAUDITED) YEAR ENDED DECEMBER 31,
---------------------- ---------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
--------- --------- -------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement:
Revenue:
Rental.................................... $ 855,817 $ 855,817 $3,423,267 $3,423,267 $3,423,267 $3,423,267 $3,176,251
Interest income........................... 6,893 4,125 36,699 19,556 20,124 17,669 56,080
--------- --------- ---------- --------- --------- --------- ---------
Total revenue.......................... $ 862,710 $ 859,942 $3,459,966 $3,442,823 $3,443,391 $3,440,936 $3,232,331
Expenses:
Interest expense.......................... $ 345,113 $ 346,711 $1,385,018 $1,398,421 $1,436,645 $1,428,489 $1,270,640
Depreciation.............................. 199,278 199,279 797,114 797,114 797,115 797,115 739,958
Amortization of deferred expenses......... 5,716 5,715 22,863 22,779 22,370 22,369 20,110
General and administrative expenses....... 41,479 38,863 170,626 148,057 146,398 149,461 172,486
Base annual fee to Advisor................ 43,930 43,518 175,152 173,028 164,005 162,666 156,428
--------- --------- -------- --------- --------- --------- ---------
Total expenses......................... $ 635,516 $ 634,086 $2,550,773 $2,539,399 $2,566,533 $2,560,100 $2,359,622
Net income.................................. $ 227,194 $ 225,856 $ 909,193 $ 903,424 $ 876,858 $ 880,836 $ 872,709
Shares outstanding.......................... 1,010,776 1,010,776 1,010,776 1,010,776 1,010,776 1,010,776 1,010,776
Net income per share (1).................... .23 .22 .90 .89 .87 .87 .86
Cash distributions paid..................... .35 .35 1.40 1.40 1.40 1.40 1.55
BALANCE SHEET DATA (AT END OF PERIOD):
Real estate, before accumulated depreciation $32,600,000 $32,600,000 $32,600,000 $32,600,000 $32,600,000 $32,600,000 $32,600,000
Total assets................................ 30,451,617 31,046,104 30,585,114 31,155,095 31,802,627 32,241,966 32,715,083
Mortgage loans payable...................... 15,386,588 15,454,396 15,404,146 15,470,369 15,506,127 15,421,658 15,344,500
Total liabilities........................... 15,843,376 15,933,308 15,850,295 15,914,383 16,050,253 15,951,364 15,890,231
Shareholders' equity........................ 14,608,241 15,112,796 14,734,819 15,240,712 15,752,374 16,290,602 16,824,852
OTHER DATA:
Cash flows from operating activities........ $ 398,670 $ 722,758 $1,784,363 $1,239,820 $1,486,582 $1,396,675 $1,273,154
Cash flows from investing activities........ -- -- -- -- -- 30,000 (1,580,000)
Cash flows used in financing activities..... (371,330) (369,745) (1,481,309) (1,475,330) (1,469,890) (1,415,086) (574,563)
Funds from operations (2)................... 426,472 425,135 1,706,307 1,700,538 1,673,973 1,677,951 1,612,667
</TABLE>
(1) Net income per share is computed by dividing net income by the weighted
average number of common shares outstanding during the period.
(2) CRIT considers Funds From Operations to be one measure of the performance
of an equity REIT. Funds From Operations is defined by NAREIT as "net
income (or loss) (computed in accordance with generally accepted accounting
principles), excluding gains (or losses) from debt restructuring and sales
of property, plus real estate depreciation and amortization and after
adjustments for unconsolidated partnerships and joint ventures." Funds From
Operations should not be considered an alternative to net income as an
indicator of operating performance or to cash flows from operations as a
measure of liquidity as defined by GAAP, and is not necessarily indicative
of cash available to fund all cash flow needs and liquidity, nor CRIT's
ability to make distributions.
10
<PAGE> 18
COMPARATIVE PER SHARE DATA
The following table sets forth the Company's and CRIT's historical per
share data, unaudited pro forma per share data after giving effect to the Merger
(using the purchase method of accounting), and the equivalent pro forma combined
per share amounts of CRIT. The pro forma combined per share data also gives
effect to the other Pro Forma Adjustments. See "Summary Historical and
Unaudited Pro Forma Consolidated Financial Data of the Company." The Pro Forma
and the CRIT Equivalent data are not necessarily indicative of actual financial
position or future operating results or that which would have occurred or will
occur upon consummation of the Merger.
<TABLE>
<CAPTION>
Year Ended December 31, 1996 Three Months Ended March 31, 1997
----------------------------------------------- -----------------------------------------------
Company Company CRIT Company Company CRIT
Historical Pro Forma(A) Equivalent(B) Historical Pro Forma(A) Equivalent(B)
------------ -------------- --------------- ------------- ------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
Net Income
Lexington Primary...... $ .58 $ .65 $ .14 $ .15
Fully diluted.......... .58 .64 .13 .15
CRIT................... $ .90 $ .85 $ .23 $ .20
Cash Dividends
Lexington.............. $ 1.12 $ 1.12 $ .29 $ .29
CRIT................... $ 1.40 $ 1.47 $ .35 $ .38
Book Value Per Common
Share
Lexington.............. $9.83 N/A $ 9.86 $11.15
CRIT................... $14.58 N/A $14.45 $14.66
</TABLE>
- ------------------------------------
(A) The pro forma combined per share data for the Company and CRIT has been
prepared assuming that in the Merger each CRIT Share is converted into
1.315 (the "Exchange Ratio") of shares of Lexington Common Stock resulting
in total outstanding shares of Lexington Common Stock of 13,943,833 and
14,050,766 as of December 31, 1996 and March 31, 1997, respectively.
(B) The equivalent pro forma combined per share amounts of CRIT are calculated
by multiplying pro forma Net Income per share of Lexington Common Stock,
pro forma Cash Dividends per share of Lexington Common Stock and pro forma
Book Value per share of Lexington Common Stock by the Exchange Ratio of
CRIT Shares for Lexington Common Stock so that the per share amounts are
equated to the comparative values for each such CRIT Share.
11
<PAGE> 19
PRICE RANGE OF THE COMPANY'S COMMON STOCK AND DISTRIBUTION HISTORY
The Lexington Common Stock has been traded on the NYSE under the symbol
"LXP" since October 1993. On May 28, 1997 (the last full trading date prior to
the execution and delivery of the Merger Agreement and the public announcement
thereof), the last reported sale price of the Lexington Common Stock on the NYSE
was $13.25 per share. On June 25, 1997, the last reported sale price of the
Lexington Common Stock on the NYSE was $13.625 per share. On June 25, 1997,
there were outstanding 12,254,037 shares of Lexington Common Stock. The
following table sets forth the quarterly high and low sales prices per share
reported on the NYSE and the distributions paid by the Company with respect to
the periods indicated.
<TABLE>
<CAPTION>
PRICE
----------------------------
QUARTER ENDED HIGH LOW DISTRIBUTION
- --------------------------- ---------- ----------- ----------------
<S> <C> <C> <C>
1995
First Quarter.............................................. $ 9.500 $ 8.625 $ 0.27
Second Quarter ............................................ $ 11.000 $ 9.125 $ 0.27
Third Quarter ............................................. $ 11.375 $ 10.000 $ 0.27
Fourth Quarter............................................. $ 11.250 $ 9.625 $ 0.27
1996
First Quarter.............................................. $ 12.125 $ 10.500 $ 0.27
Second Quarter............................................. $ 12.375 $ 11.125 $ 0.28
Third Quarter.............................................. $ 13.375 $ 11.500 $ 0.28
Fourth Quarter ............................................ $ 15.000 $ 12.125 $ 0.29
1997
First Quarter.............................................. $ 15.000 $ 12.125 $ 0.29
Second Quarter (through June 25, 1997)..................... $ 14.500 $ 12.125 [N/A]
Third Quarter.............................................. $ $ $
</TABLE>
The Company increased the distributions paid per share of Lexington Common
Stock from $0.27 per share ($1.0 8 on an annualized basis) to $0.28 per share
($1.12 per share on an annualized basis) for the quarter ended June 30, 1996 and
to $0.29 per share ($1.16 per share on an annualized basis) commencing with the
quarter ended December 31, 1996. In order to maintain the Company's status as a
REIT, the Company must make annual distributions (other than capital gain
distributions) to its shareholders in amounts at least equal to (i) the sum of
(A) 95% of its "REIT taxable income" (computed without regard to the
distributions paid deduction and its net capital gain), and (B) 95% of any
after-tax net income from foreclosure property, minus (ii) excess noncash
income. Distributions by the Company to the extent of its current or accumulated
earnings and profits generally will be taxable to shareholders as ordinary
distribution income for federal income tax purposes and will not be eligible for
the distributions-received deductions for corporations. Distributions in excess
of current and accumulated earnings and profits will constitute a non-taxable
return of capital to a shareholder to the extent that such distributions do not
exceed the adjusted basis of the shareholder's shares, and will result in a
corresponding reduction in the shareholder's basis in the shares. Approximately
4.54% of the Company's distributions for the year ended December 31, 1996
represented a return of capital. Any portion of such distributions that exceed
both current and accumulated earnings and profits and the adjusted basis of a
shareholder's shares will be taxed as a capital gain from the disposition of
shares provided that the shares are held as capital assets. The payment of
future distributions by the Company will be at the discretion of the Board of
Directors and will depend on numerous factors, including actual cash flow of the
Company, its financial condition, contractual restrictions, capital
requirements, the annual distribution requirements under the REIT provisions of
the Code and such other factors as the Board of Directors deems relevant. See
"Description of Lexington Properties Capital Stock -- Description of Common
Stock."
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<PAGE> 20
MARKET FOR CRIT SHARES AND RELATED SHAREHOLDER MATTERS
Since the termination of its public offering in October 1991, there have
been only occasional, isolated public trades of the CRIT Shares. The most recent
trades of which CRIT has knowledge occurred in March 1997, when 3,750 shares
were sold at a price of $11.40 per share. No established public trading market
for the CRIT Shares exists and none is anticipated. As of June 27, 1997, the
CRIT Shares were held by 504 holders of record.
It is CRIT's policy to make distributions at least quarterly to holders of
its shares aggregating annually at least 9 5% of its REIT Taxable Income (which
term does not include capital gains realized by CRIT). In addition, when
investment properties are sold by CRIT, CRIT intends to distribute the net
proceeds (less appropriate reserves) of the sale of each investment property to
the holders of its shares (a "self-liquidating" distribution), except under
limited circumstances.
CRIT has paid a $.35 per share cash dividend to its shareholders for each
of the quarters for the years ended December 31, 1996 and 1995 and the quarter
ended March 31, 1997, and declared a $.35 per share cash dividend for the
quarter ended June 30, 1997, to be paid on August 15, 1997 to CRIT shareholders
of record as of June 30, 1997.
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<PAGE> 21
RISK FACTORS
In considering the matters set forth in this Joint Proxy
Statement/Prospectus, CRIT shareholders should carefully consider, among other
things, the risk factors described below which are associated with an investment
in Lexington Common Stock. CRIT's shareholders do not have appraisal rights in
connection with, or as a result of, the matters to be acted upon relating to the
Merger at the Meeting. Shareholders of CRIT who vote against the Merger (or do
not vote) will be bound by the results of the vote if CRIT's shareholders
approve the Merger See "The Merger -- Dissenters' Rights."
Risks Involved in Single Tenant Leases. The Company focuses its
acquisition activities in Net Leased real properties or interests therein.
Because the Company's Net Leased real properties are leased to single tenants,
the financial failure of or other default by a tenant resulting in the
termination of a lease is likely to cause a significant reduction in the
operating cash flow of the lessor and might decrease the value of the property
leased to such tenant.
Dependence on Major Tenants. Revenues from several of the Company's
Properties constitute a significant percentage of the Company's consolidated
rental revenues. On May 22, 1996, the Company consummated the acquisition of its
Salt Lake City, Utah property (the "Northwest Salt Lake City Property") which is
100% occupied by Northwest Pipeline Corporation pursuant to a Net Lease which
expires on September 30, 2009, subject to two renewal options for a total of 19
additional years. Revenue derived from the Northwest Salt Lake City Property
(net of ground lease payments) represents approximately 20% of the
Company's annualized rental revenue as of May 1, 1997. In addition,
the Company's Newark, California Property (the "Ross Stores Newark Property")
is 100% occupied by Ross Stores, Inc. ("Ross Stores") pursuant to a Net Lease
which expires on August 31, 2002, subject to six five-year renewal options.
(See Possible Property Disposition below) During 1996, the revenue derived by
the Company from the Ross Stores Newark Property represented approximately 10%
of the Company's consolidated rental revenue. The default, financial distress
or bankruptcy of either of the foregoing tenants could cause interruptions in
the receipt of lease revenues from such tenants and/or result in vacancies in
the respective properties, which would reduce the revenues of the Company until
the affected property is relet, and could decrease the ultimate sale value of
each such property. Upon the expiration of the leases that are currently in
place with respect to these properties, the Company may not be able to
re-lease the vacant property at a comparable lease rate or without incurring
additional expenditures in connection with such releasing.
Possible Property Disposition. Ross Stores, the tenant of the Company's
Ross Stores Newark Property, has exercised an option to purchase the Ross Stores
Newark Property for its fair market value, which was determined by arbitration
based on estimates of fair market value submitted by Ross Stores and the
Company. The estimate of the fair market value of the Ross Stores Newark
Property submitted by Ross Stores was selected by the arbitrator and confirmed
by a California state court. The arbitration decision would allow Ross Stores to
purchase the Ross Stores Newark Property for $24.8 million on or about September
1, 1997. The Company is currently appealing the state court decision and the
outcome of such appeal cannot be determined at this time. The net book value of
the Ross Stores Newark Property at March 31, 1997 was $25.5 million, which
includes approximately $1.5 million of deferred rent and deferred expenses
related to the Company's refinancing of certain properties, which were allocated
to the Ross Stores Newark Property. If the Company does not prevail on its
appeal of the California state court decision, the potential loss on the sale of
the Ross Stores Newark Property on or about September 1, 1997 would be
approximately $400,000, after the write-off of $514,895 of deferred financing
expenses. As of December 31, 1996, the annual net rent for the Ross Stores
Newark Property was approximately $3.3 million, which is scheduled to increase
to approximately $3.4 million commencing September 1, 1997. Revenue derived from
the Ross Stores Newark Property accounted for approximately 10% of the Company's
consolidated rental revenue for 1996. Unless offset by other revenue sources,
the loss of such annual rental revenue from the Ross Stores Newark Property will
adversely affect the Company's results of operations in the foreseeable future.
Concentration of Ownership; Dilution. In December 1996, the Company
entered into an investment agreement which contemplates the issuance by the
Company of up to 2,000,000 shares of Class A Senior
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<PAGE> 22
Cumulative Convertible preferred stock (the "Convertible Preferred Stock") to
Five Arrows Realty, L.L.C. ("Five Arrows"). As of the date of this Joint Proxy
Statement/Prospectus, 1,325,000 shares of such Convertible Preferred Stock had
been issued to Five Arrows under such investment agreement, which would
currently represent approximately 12.3% of the issued and outstanding voting
stock of the Company if all such shares of Convertible Preferred Stock were
immediately converted into shares of Lexington Common Stock. In March 1997, the
Company sold to an institutional investor in a private placement of 8%
Exchangeable Redeemable Secured Notes (the "Exchangeable Notes") in the
aggregate principal amount of $25 million. The Exchangeable Notes are
exchangeable at $13 per share for shares of the Lexington Common Stock beginning
in the year 2000, subject to adjustment. If, however, the Exchangeable Notes
were immediately converted into shares of the Lexington Common Stock, such
shares of Lexington Common Stock would represent approximately 15.1% of the
issued and outstanding voting stock of the Company (assuming conversion of all
outstanding shares of Convertible Preferred Stock).
Renewal of Leases and Re-letting of Space. The Company will be subject
to the risks that, upon expiration of leases for space located in the Company's
Properties, the premises may not be re-let or the terms of re-letting (including
the cost of concessions to tenants) may be less favorable than current lease
terms. If the Company were unable to re-let promptly all or a substantial
portion of its commercial units or if the rental rates upon such re-letting were
significantly lower than expected rates, the Company's net income and ability to
make expected distributions to shareholders would be adversely affected. There
can be no assurance that the Company will be able to retain tenants in any of
the Company's Properties upon the expiration of their leases.
Risks Relating to Acquisitions. A significant element of the Company's
business strategy is the enhancement of its portfolio through acquisitions of
additional properties. There can be no assurance that the Company will be able
to identify and acquire additional properties or that it will be able to finance
acquisitions in the future. In addition, there can be no assurance that any such
acquisition, if consummated, will be profitable for the Company. The
consummation of any future acquisition will be subject to satisfactory
completion of the Company's extensive valuation analysis and due diligence
review and to the negotiation of definitive documentation. If the Company is
unable to consummate the acquisition of additional properties in the future,
there can be no assurance that the Company will be able to increase or maintain
the cash available for distribution to shareholders.
Leverage; No Limitation on Debt; Possible Inability to Refinance
Balloon Payments on Mortgage Debt. The Company has incurred, and may continue to
incur, indebtedness (secured and unsecured) in furtherance of its activities.
Neither the Articles of Incorporation nor any policy statement formally adopted
by the Board limits either the total amount of indebtedness or the specified
percentage of indebtedness (based upon the total market capitalization of the
Company) which may be incurred. Accordingly, the Company could become more
highly leveraged, resulting in increased risk of default on obligations of the
Company and in an increase in debt service requirements which could adversely
affect the financial condition and results of operations of the Company and the
Company's ability to pay distributions. The secured revolving credit facility
with Fleet National Bank (the "Credit Facility") limits the amount of
indebtedness the Company may incur to 60% of the Company's total market
capitalization.
A significant number of the Company's Properties are subject to
mortgages with balloon payments. Balloon payments, relating to four Properties,
of approximately $10.0 million, $5.6 million and $8.0 million are due in 1998,
1999 and 2000, respectively. In addition, the Company may fund certain projects
and operating expenses from borrowings under its Credit Facility. The Credit
Facility matures in 1999. Also, on May 19, 1995, the Company, through its wholly
owned subsidiary, LXP Funding Corp., completed a $70 million secured debt
offering, secured by fifteen of the Company's Properties, by issuing commercial
mortgage pass-through certificates, which mature in 2005. See Note 6 of the
Company's Consolidated Financial Statements included in the Company's 1996
Annual Report on Form 10-K. The ability of the Company to make such balloon
payments will depend upon its ability either to refinance the mortgage related
thereto or to sell the related property. The ability of the Company to
accomplish such goals will be affected by various factors existing at the
relevant time, such as the state of the national and regional economies, local
real estate conditions, available mortgage rates, the Company's equity in the
mortgaged
15
<PAGE> 23
properties, the financial condition of the Company, the operating history of the
mortgaged properties, and tax laws.
Although the Company does not generally cross- collateralize any of its
properties, management may determine to do so from time to time. As of the date
of this Joint Proxy Statement/Prospectus, two of the Company's Properties in
Florida were cross-collateralized and fifteen of the Company's Properties were
the subject of a segregated pool of assets with respect to which commercial
mortgage pass-through certificates (as discussed above) were issued. To the
extent that any of the Company's Properties are cross-collateralized, any
default by the Company under the mortgage relating to one such Property will
result in a default under the financing arrangements relating to any other
Property which also provides security for such mortgage.
Possible Liability Relating to Environmental Matters. Under various
federal, state and local environmental laws, statutes, ordinances, rules and
regulations, an owner of real property may be liable for the costs of removal or
remediation of certain hazardous or toxic substances at, on, in or under such
property, as well as certain other potential costs relating to hazardous or
toxic substances (including government fines and penalties and damages for
injuries to persons and adjacent property). Such laws often impose liability
without regard to whether the owner knew of, or was responsible for, the
presence or disposal of such substances. Such liability may be imposed on the
owner in connection with the activities of an operator of, or tenant at, the
property. The cost of any required remediation, removal, fines or personal or
property damages and the owner's liability therefor could exceed the value of
the property and/or the aggregate assets of the owner. In addition, the presence
of such substances, or the failure to properly dispose of or remove such
substances, may adversely affect the owner's ability to sell or rent such
property or to borrow using such property as collateral, which, in turn, would
reduce the Company's revenues and ability to make distributions. A property can
also be adversely affected either through physical contamination or by virtue of
an adverse effect upon value attributable to the migration of hazardous or toxic
substances, or other contaminants that have or may have emanated from other
properties. Although the Company's tenants are primarily responsible for any
environmental damages and claims related to the leased premises, in the event of
the bankruptcy or inability of the tenant of such premises to satisfy any
obligations with respect thereto, the Company may be required to satisfy such
obligations. In addition, under certain environmental laws, the Company, as the
owner of such properties may be held directly liable for any such damages or
claims irrespective of the provisions of any lease.
From time to time, in connection with the conduct of the Company's
business, and prior to the acquisition of any property from a third party or as
required by the Company's financing sources, the Company authorizes the
preparation of Phase I environmental reports and, when necessary, Phase II
environmental reports, with respect to its Properties. Based upon such
environmental response and management's ongoing review of its Properties, as of
the date of this Joint Proxy Statement/Prospectus, management was not aware of
any environmental condition with respect to any of the Company's Properties
which management believed would be reasonably likely to have a material adverse
effect on the Company. There can be no assurance, however, that (i) the
discovery of environmental conditions, the existence or severity of which were
previously unknown, (ii) changes in law, (iii) the conduct of tenants or (iv)
activities relating to properties in the vicinity of the Company's Properties
will not expose the Company to material liability in the future. Changes in laws
increasing the potential liability for environmental conditions existing on
properties or increasing the restrictions on discharges or other conditions may
result in significant unanticipated expenditures or may otherwise adversely
affect the operations of the Company's tenants, which could adversely affect the
Company's financial condition or results of operations.
Uninsured Loss. The Company carries comprehensive liability, fire,
extended coverage and carries rent loss insurance on most of its Properties,
with policy specifications and insured limits customarily carried for similar
properties. However, with respect to certain of the Properties where the leases
do not provide for abatement of rent under any circumstances, the Company
generally does not maintain rent loss insurance. In addition, there are certain
types of losses (such as due to wars or acts of God) that generally are not
insured because they are either uninsurable or not economically insurable.
Should an uninsured loss or a loss in excess of insured limits occur, the
Company could lose capital invested in a Property, as well as the anticipated
future
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<PAGE> 24
revenues from a Property, while remaining obligated for any mortgage
indebtedness or other financial obligations related to the Property. Any such
loss would adversely affect the financial condition of the Company. Management
believes that the Company's Properties are adequately insured in accordance with
industry standards.
Adverse Effects of Changes in Market Interest Rates. The trading prices
of equity securities issued by REITs have historically been affected by changes
in broader market interest rates, with increases in interest rates resulting in
decreases in trading prices, and decreases in interest rates resulting in
increases in such trading prices. An increase in market interest rates could
therefore adversely affect the trading prices of any equity Securities issued by
the Company.
Competition. The real estate industry is highly competitive. The
Company's principal competitors include national REITs many of which are
substantially larger and have substantially greater financial resources than the
Company.
Failure to Qualify as a REIT. The Company and CRIT believe that they
have met the requirements for qualification as a REIT for United States federal
income tax purposes beginning with their taxable years ended December 31, 1993,
and December 31, 1990, respectively, and the Company intends to continue to meet
such requirements in the future. However, qualification as a REIT involves the
application of highly technical and complex provisions of the Internal Revenue
Code of 1986, as amended (the "Code"), for which there are only limited judicial
or administrative interpretations. No assurance can be given that the Company or
CRIT has qualified, or that the Company will remain qualified, as a REIT. The
Code provisions and income tax regulations applicable to REITs are more complex
than those applicable to corporations. The determination of various factual
matters and circumstances not entirely within the Company's control may affect
its ability to qualify as a REIT. In addition, no assurance can be given that
legislation, regulations, administrative interpretations or court decisions will
not significantly change the requirements for qualification as a REIT or the
United States federal income tax consequences of such qualification. If the
Company did not qualify as a REIT, the Company would not be allowed a deduction
for distributions to shareholders in computing its income subject to United
States federal income tax at the regular corporate rates. The Company also could
be disqualified from treatment as a REIT for the four taxable years following
the year during which qualification was lost. Cash available for distribution to
the Company's shareholders would be significantly reduced for each year in which
the Company did not qualify as a REIT. Although the Company currently intends to
continue to qualify as a REIT, it is possible that future economic, market,
legal, tax or other considerations may cause the Company, without the consent of
the shareholders, to revoke the REIT election or to otherwise take action that
would result in disqualification. See "The Merger -- Certain United States
Federal Income Tax Consequences - - Treatment of the Company as a REIT."
17
<PAGE> 25
THE MEETING
GENERAL
This Joint Proxy Statement/Prospectus is being furnished to holders of
CRIT Shares in connection with the solicitation of proxies by the CRIT Board for
use at the Meeting to be held on , 1997 at CRIT's offices at 388 Greenwich
Street, New York, New York, 33rd Floor, commencing at 11:00 a.m., local time,
and at any adjournments or postponements thereof.
This Joint Proxy Statement/Prospectus and the accompanying form of
proxy are first being mailed to shareholders of CRIT on or about , 1997.
If CRIT receives a written request from any shareholder at least five
days prior to the Meeting stating that the shareholder will be present in person
at the Meeting and desires to ask questions of the auditors concerning CRIT's
financial statements, CRIT will arrange to have a representative of Ernst &
Young present at the Meeting who will respond to appropriate questions and have
an opportunity to make a statement.
MATTERS TO BE CONSIDERED AT THE MEETING
At the Meeting, holders of CRIT Shares will consider and vote upon the
Trust Amendment Proposal, the Merger Proposal and such other matters as may
properly be brought before the Meeting, or any postponements or adjournments
thereof. THE CRIT BOARD HAS UNANIMOUSLY APPROVED THE TRUST AMENDMENT PROPOSAL
AND THE MERGER PROPOSAL AND RECOMMENDS A VOTE FOR APPROVAL AND ADOPTION OF SUCH
PROPOSALS.
Other Matters. The CRIT Board of Trustees knows of no other business
which will be presented at the Meeting. If other matters properly come before
the Meeting, the persons named as proxy holders will vote on them in accordance
with their best judgment.
The expense of preparing, printing and mailing the form of proxy and
the material used in the solicitation thereof shall be shared equally by CRIT
and the Company provided CRIT's portion does not exceed $15,000. In addition to
the use of the mails, some of the officers of CRIT and/or regular employees of
the Advisor may solicit proxies by telephone. CRIT will request brokerage houses
and other custodians, nominees and fiduciaries to forward soliciting material to
the beneficial owners of shares held of record by such persons and may verify
the accuracy or marked proxies by contacting record and beneficial owners of
CRIT Shares. CRIT will reimburse such persons for their reasonable expenses
incurred in forwarding such soliciting materials. CRIT has retained Innisfree M
& A Incorporated to assist with the solicitation of proxies and will pay a fee
of approximately $3,000 for its services.
1997 Annual Meeting. CRIT will hold an annual meeting in 1997 only if
the Merger is not consummated. Shareholder proposals intended to be presented at
the 1997 Annual Meeting, if held, must be received a reasonable amount of
time prior to CRIT's solicitation of proxies relating to such Meeting.
VOTING AT THE MEETING; RECORD DATE
Holders of record of CRIT shares on the Record Date will be entitled to
notice of and to vote at the Meeting. As of the Record Date, there were
1,010,776 CRIT Shares outstanding, entitled to vote and held by approximately
____ holders of record. Each holder of record of CRIT Shares on the Record Date
is entitled to cast one vote per share on each proposal submitted for the vote
of the CRIT shareholders, either in person or by properly executed proxy, at the
Meeting. The presence, in person or by properly executed proxy, of the holders
of a majority of the outstanding shares entitled to vote is necessary to
constitute a quorum at the Meeting.
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<PAGE> 26
The approval and adoption by CRIT shareholders of the Trust Amendment
Proposal and the Merger Proposal will require the affirmative vote of the
holders of a majority of the outstanding CRIT Shares.
At the Meeting, in determining whether the Merger Proposal and the
Trust Amendment Proposal have received the requisite number of affirmative
votes, abstentions and broker non-votes will have the same effect as a vote
against such proposal. At the Meeting, abstentions and broker non-votes will be
counted for purposes of determining the presence or absence of a quorum. A
"broker non-vote" occurs when a nominee holding shares for a beneficial owner
does not vote on a proposal because, for such proposal, the nominee does not
have discretionary voting power and has not received instructions with respect
to voting of such shares.
PROXIES
All CRIT Shares which are entitled to vote and are represented at the
Meeting by properly executed proxies received prior to or at the Meeting, and
not revoked, will be voted at the Meeting in accordance with the instructions
indicated on such proxies. If no instructions are indicated, such proxies will
be voted for approval and adoption of the Merger Proposal and for the adoption
of the Trust Amendment Proposal.
If any other matters are properly presented at the Meeting for
consideration, including, among other things, consideration of a motion to
adjourn the Meeting to another time and/or place (including, without limitation,
for the purpose of soliciting additional proxies), the persons named in the
enclosed form of proxy and acting thereunder will have discretion to vote on
such matters in accordance with their best judgment unless the proxy contains
instructions to the contrary.
Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before it is voted. Proxies may be revoked by (i)
filing with the Secretary of CRIT at or before the taking of the vote at the
Meeting, a written notice of revocation bearing a later date than the proxy,
(ii) duly executing a later dated proxy relating to the same shares and
delivering it to the Secretary of CRIT before the taking of the vote at the
Meeting or (iii) attending the Meeting and voting in person (although attendance
at the Meeting will not in and of itself constitute a revocation of a proxy).
Any written notice of revocation or subsequent proxy should be sent so as to be
delivered to CRIT, 388 Greenwich St., New York, N.Y. 10013, Attention: Investor
Relations, or hand delivered to the Secretary of CRIT, at or before the taking
of the vote at the Meeting.
CRIT SHAREHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES WITH THEIR PROXY
CARDS.
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<PAGE> 27
THE MERGER
BACKGROUND OF THE MERGER
On April 12, 1996, CRIT received an unsolicited proposal from the
Company relating to the acquisition by the Company of CRIT. To assist it in
assessing and evaluating this proposal, CRIT endeavored to obtain additional
expressions of interest against which to compare the bid from the Company.
Toward that end, CRIT authorized its Advisor to prepare and distribute private
offering memoranda to a number of potential acquirors known in the industry as
purchasers of net leases. Among those initially contacted, two parties submitted
cash bids to acquire the assets of CRIT, subject to significant contingencies.
During this time, the Company increased its offer to acquire CRIT.
On September 18, 1996, the Board met to consider the cash offers and
the Company's revised offer. In addition, the Board considered whether CRIT's
three properties could be sold for a higher price if marketed separately rather
than in the aggregate. The Board believed that an active market existed for each
of the properties but that coordinating separate sales of CRIT's properties
within a reasonable time at acceptable prices would be impractical, and that the
potential cost of administering CRIT for a smaller portfolio of properties would
be burdensome and economically inefficient. Accordingly, the CRIT Board
determined to offer for sale all three properties as a portfolio or to effect a
merger of CRIT with or into another entity, preferably one which would provide
CRIT shareholders greater liquidity. After further discussions with existing and
potential offerors, the CRIT Board determined to move forward with a cash offer
submitted by one of the parties contacted by CRIT and commenced negotiations for
the sale of its three properties to this party (the "Initial Cash Offeror").
Negotiations with the Initial Cash Offeror did not result in a
definitive agreement, leading CRIT's financial advisors to send a further round
of inquiries to potential investors in early December 1996. On December 24,
1996, the CRIT Board met to discuss responses to its inquiries and an offer that
CRIT received from a fourth interested party that had arisen from such
inquiries. At the meeting, the CRIT Board concluded that the offer from the
Primary Cash Offeror remained the most viable, and authorized the Advisor to
continue to work with the Primary Cash Offeror toward a definitive agreement.
After further negotiations, the parties were unable to reach a definitive
agreement on terms acceptable to both parties, and in early 1997 discussions
between CRIT and the Primary Cash Offeror terminated.
On April 10, 1997, the Company delivered a revised increased offer.
CRIT thereafter entered into negotiations with the Company which resulted in the
execution on May 29, 1997 of the Merger Agreement. The CRIT Board met on May
28, 1997 to consider a proposed amendment to the Declaration of Trust that would
authorize CRIT to merge with another entity, and a proposal for CRIT to enter
into the Merger Agreement with the Company. The CRIT Board unanimously approved
both proposals and the Merger Agreement was executed on May 29, 1997.
REASONS FOR THE MERGER; RECOMMENDATION OF THE CRIT BOARD OF TRUSTEES
At a special meeting of the CRIT Board held on May 28, 1997, CRIT's
management and representatives of McFarland Dewey made presentations concerning
the business prospects of CRIT and the potential combination of CRIT and the
Company. The CRIT Board also reviewed the terms of the Merger Agreement with
CRIT's management and CRIT's financial and legal advisors. BY UNANIMOUS VOTE,
THE CRIT BOARD DETERMINED THAT THE MERGER IS FAIR TO, AND IN THE BEST INTERESTS
OF, CRIT AND ITS SHAREHOLDERS, APPROVED THE MERGER AND AUTHORIZED CRIT TO ENTER
INTO THE MERGER AGREEMENT AND CONSUMMATE THE TRANSACTIONS CONTEMPLATED THEREBY.
THE CRIT BOARD UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS OF CRIT APPROVE THE
MERGER PROPOSAL.
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<PAGE> 28
The CRIT Board believes that the Merger provides an opportunity for
CRIT's shareholders to become equity holders in a self-administered REIT that
has an expanded and diversified geographic presence in the United States,
significantly greater liquidity, a lower risk capital structure, a higher
current yield, better access to the capital markets and greater potential for
long-term appreciation. The CRIT Board also believes that the Merger will
combine complementary assets of CRIT with the Company's larger but similar
quality portfolio, while enabling the CRIT portfolio to benefit from the
expertise of the Company's experienced management team.
In making its determination with respect to the Merger, the CRIT Board
considered a number of factors, including without limitation, the factors listed
below. In view of the wide variety of factors considered by the CRIT Board, the
Board did not quantify or otherwise attempt to assign relative weights to the
specific factors considered in making its determination:
(i) Consideration: The CRIT Board believed that the Merger was the best
offer reasonably available for CRIT's shareholders. The Board
believed that there were no other prospective purchasers that had
the financial ability to complete the transaction and would be
willing to pay an aggregate consideration greater than that to be
paid by the Company representatives in the Merger. In seeking to
maximize value to CRIT shareholders, CRIT and its representatives
solicited the interest of approximately twenty prospective
buyers and received a number of indications of interest at various
times. In response to CRIT's solicitation of interest, four
proposals were received offering to acquire CRIT itself or
substantially all of its assets. The Company's proposal presented
the most attractive price on a per share basis with the greatest
certainty of execution. In addition, certain of the other proposals
were subject to various conditions, including, in some cases, the
acquiror obtaining necessary financing approvals and performing
additional due diligence before committing to a definitive
transaction.
(ii) Liquidity: The Board believed that the exchange of the CRIT shares
for the Company stock, which is listed on the New York Stock
Exchange and has a larger total market capitalization than that of
CRI T, would provide a significant increase in the liquidity
available to CRIT shareholders.
(iii) Alternatives: As a stand-alone entity, CRIT would likely
experience difficulty in accessing the capital markets on
acceptable terms in the future, resulting in shareholders'
continued lack of a reasonable degree of liquidity. The Board also
considered as a possible alternative to the Merger auctioning
CRIT's properties individually. In this regard, the CRIT Board
believed that an active market existed for each of the properties,
but coordinating within a reasonable time at acceptable prices
would be impracticable, and that the potential cost of
administering CRIT for a smaller portfolio of properties would be
burdensome and economically inefficient. As a result, the CRIT
Board believed that, at that time, there were no feasible
alternatives that were available to CRIT that were as likely in the
near term to provide greater shareholder value and certainty of
execution.
(iv) Financial analysis: Information relating to the financial
performance, condition, business operations and prospects of CRIT
and the Company on a separate and combined basis were considered.
Based on the analyses prepared by management and McFarland Dewey,
the Board believed that the Merger would be accretive to the FFO
per share and cash available for distribution per share of the
Company. For a discussion of the factors relied on by McFarland
Dewey in preparation of such analyses, see "-- Opinion of the
Financial Advisor of CRIT."
(v) Increased Current Yield: The Board viewed as favorable the
determination that CRIT's shareholders will likely realize an
increase in quarterly dividend income as shareholders of the
Company, assuming, among other things, that (i) the Company will
continue to make regular quarterly distributions at the Company's
current rate of $0.29 per share; and (ii) there will be sufficient
cash available to make such distributions.
(vi) Cost savings: The Board considered the anticipated cost savings and
operating efficiencies available to the Company from the Merger,
particularly in the reduction of overhead expenses and the
elimination of CRIT's advisory fee. The CRIT Board did not attempt
to quantify those savings with precision.
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However, the advisory fee and general and administrative expenses
in 1996 for CRIT were approximately $175,000 and $171,000,
respectively, all of which can be viewed as potential overhead
savings as a result of the Merger.
(vii) Merger Agreement terms: The terms of the Merger Agreement,
including the exchange ratio of shares and the equity interest in
the Company to be received by CRIT's shareholders were
considered. In this regard, the Board noted that the exchange
ratio has been determined through arms-length negotiations, it
fairly reflected the current market price of the stock of the two
companies and it provides downside protection through the
floating exchange ratio mechanism.
(viii) Structure: In this regard, the Board viewed as favorable the fact
that the Merger, as a "stock-for- stock" structure with a
floating exchange ratio mechanism rather than a "cash-for-stock"
transaction, will provide an opportunity for CRIT's shareholders
to share in any future appreciation of the Company as well as
enable CRIT's shareholders to convert their CRIT Shares into the
Lexington Common Stock on a tax-free basis. The Merger Agreement
provides for a floating exchange ratio based upon a fraction of
which the numerator is the Share Value and the denominator is the
Lexington Common Stock Price (see "The Merger Agreement --
Conversion of Securities").
(ix) Finite life of CRIT: The finite life of CRIT led the CRIT Board
to the conclusion that a future liquidation of CRIT would
eventually be required and would likely lead to less value
realized for shareholders in view of the term of the Baxter Lease
(as defined). The Merger will provide an opportunity for CRIT
shareholders to become holders in a REIT which is
self-administered, has a larger number of properties and the
capacity for future growth so that lease expiration can be better
managed.
(x) Outstanding indebtedness of CRIT: Each of CRIT's properties is
encumbered by mortgage debt. Although the debt is generally at
rates above that which would be achievable given the current
interest rate environmental and condition of the mortgage market,
high prepayment premiums prevent a current refinancing. In
addition, the debt includes balloon payments of principal which
are due at maturity of each loan. The loans would be difficult to
refinance in the event that a tenant does not exercise its
renewal option or otherwise renew its lease and a replacement
tenant is not found in a timely fashion. In such case, it is
possible that CRIT would be subject to foreclosure proceedings.
(xi) McFarland Dewey opinion: The CRIT Board considered the analyses,
presentations and opinion of McFarland Dewey described below
under "Opinion of the Financial Advisor of CRIT" that stated, as
of the date of such opinion and based upon and subject to certain
matters stated therein, that the consideration to be received by
the holders of CRIT Shares pursuant to the Merger Agreement was
fair from a financial point of view to such holders. In this
respect, the CRIT Board considered McFarland Dewey's financial
analyses in its overall evaluation of the Merger and viewed such
analyses as favorable to its determination. The Board viewed
McFarland Dewey's opinion as favorable to its determination based
upon the McFarland Dewey's experience and expertise as a
recognized investment banking and advisory firm that is regularly
engaged in the valuation of businesses and securities in
connection with mergers and acquisitions, private placements and
valuation for estate, corporate and other purposes.
The CRIT Board also considered certain potentially negative factors in
its deliberations concerning the Merger:
(i) The risk that the portfolios of the Company and CRIT may not be
fully complementary as each of the tenants in the CRIT portfolio
is rated on an investment grade category while the Company has
some tenants which are not rated as such;
(ii) The fact that, because the value of the Lexington Common Stock
for purposes of calculating the ratio at which CRIT Shares will
be converted is fixed when the Lexington Common Stock Price falls
below
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$12.125, a decline in the value of the Lexington Common Stock
below $12.125 would reduce the value of the consideration to be
received by CRIT's shareholders in the Merger;
(iii) The various conditions to the Company's obligations to consummate
the Merger (see The Merger Agreement -- "Conditions");
(iv) The risk that the anticipated benefits of the Merger to CRIT
shareholders may not be realized as a result of possible changes
in the real estate markets in general, the inability to achieve
the anticipated reductions in expenses, the effect of the factors
described in clause (i) above and the inability of the Company to
access the capital markets in an efficient manner; and
(v) The fact that if the Merger Agreement is terminated under certain
circumstances, CRIT must pay the Company a termination fee of
$700,000. (See The Merger Agreement -- "Termination; Tenant Fees
and Expenses.") The CRIT Board recognizes that the inclusion of
such provisions in the Merger Agreement could render it unlikely
that a more attractive offer for the acquisition of CRIT would be
presented to CRIT and its shareholders; however, the Board
believes that, based on its efforts to find a buyer for CRIT, the
Merger represents the best offer reasonably available to CRIT and
its shareholders, that the inclusion of such a termination fee
was a reasonable method to compensate the Company for expending
significant time and money in negotiating and attempting to
complete the Merger, and that the termination fee was within the
range of fees payable in comparable transactions.
In the view of CRIT's Board, the potentially negative factors considered
were not sufficient, either individually or collectively, to outweigh the
positive factors considered by the Board in its deliberations relating to the
Merger.
In the event the Merger is not consummated for any reason, CRIT intends
to continue to manage its properties in the near term in the manner in which it
has heretofore. In addition, CRIT may seek another strategic combination,
assuming the Trust Amendment Proposal is adopted by the shareholders, or the
sale of all or substantially all of its assets in one transaction or a series of
transactions. The CRIT Board believes there are no feasible alternatives to the
Merger available to CRIT at the present time that are likely to result in
greater shareholder value.
OPINION OF FINANCIAL ADVISOR TO CRIT
CRIT retained McFarland Dewey & Co. ("McFarland Dewey") to provide a
fairness opinion in connection with the Merger and related matters based upon
McFarland Dewey's qualifications, reputation and expertise. At the May 28, 1997
meeting of the CRIT Board of Trustees, McFarland Dewey rendered an oral opinion
to the CRIT Board of Trustees that, as of such date and subject to the
considerations expressed to the CRIT Board of Trustees, the Merger consideration
to be received by the public holders of CRIT Shares pursuant to the Merger
Agreement is fair from a financial point of view to such holders. McFarland
Dewey confirmed its oral opinion by delivery of a written opinion dated as of
May 29, 1997.
THE FULL TEXT OF THE MCFARLAND DEWEY OPINION, WHICH SETS FORTH THE
ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN,
IS ATTACHED TO THIS JOINT PROXY STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN
BY REFERENCE. HOLDERS OF CRIT SHARES ARE URGED TO, AND SHOULD, READ THE
MCFARLAND DEWEY OPINION CAREFULLY AND IN ITS ENTIRETY. THE MCFARLAND DEWEY
OPINION IS DIRECTED TO THE CRIT BOARD OF TRUSTEES AND ADDRESSES ONLY THE
FAIRNESS FROM A FINANCIAL POINT OF VIEW OF THE CONSIDERATION TO BE RECEIVED BY
THE PUBLIC HOLDERS OF CRIT SHARES PURSUANT TO THE MERGER AGREEMENT, AND IT DOES
NOT ADDRESS ANY OTHER ASPECT OF THE MERGER NOR DOES IT CONSTITUTE A
RECOMMENDATION TO ANY HOLDER OF CRIT SHARES AS TO HOW TO VOTE AT THE CRIT
SPECIAL MEETING. THE SUMMARY OF THE MCFARLAND DEWEY OPINION SET
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FORTH IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE FULL TEXT OF SUCH OPINION ATTACHED.
In arriving at its opinion, McFarland Dewey (i) analyzed certain publicly
available financial statements and other information of CRIT, (ii) analyzed
certain internal financial statements and other financial and operating data
concerning CRIT prepared by the management of CRIT, (iii) analyzed certain
financial projections prepared by the management of CRIT, (iv) discussed the
past and current operations and financial condition and prospects of CRIT and
certain of its real property assets with a senior executive of CRIT, (v)
reviewed the reported prices and trading activity of the CRIT Shares, (vi)
analyzed certain publicly available financial statements and other information
of the Company, (vii) discussed the past and current operations and financial
condition and prospects of the Company and certain of its real property assets
with senior management of the Company, (viii) reviewed the reported prices and
trading activity of the Lexington Common Stock, (ix) compared the financial
performance of the Company and the prices and trading activity of the Lexington
Common Stock with those of certain comparable publicly-traded companies and
their securities, and (x) performed such other analyses as McFarland Dewey
deemed appropriate.
In rendering its opinion, McFarland Dewey assumed and relied upon,
without independent verification, the accuracy and completeness of the
information reviewed by McFarland Dewey for the purposes of its opinion. With
respect to the projected financial information, McFarland Dewey assumed that
such information has been reasonably prepared on bases reflecting the best then
available estimates and judgments of the future financial performance of CRIT.
McFarland Dewey did not make any independent valuation or appraisal of the
assets or liabilities of CRIT or of the Company, and was supplied an independent
third party appraisal of CRIT properties. The McFarland Dewey opinion rendered
on May 29, 1997 is necessarily based on economic, market and other conditions as
in effect on, and the information made available to McFarland Dewey as of, such
date.
In arriving at its opinion, McFarland Dewey was not authorized to
solicit, and did not solicit interest from any party with respect to the
acquisition of CRIT or any of its assets, nor did McFarland Dewey negotiate with
any party with respect to the possible acquisition of CRIT or any of its assets.
At the meeting of the CRIT Board, McFarland Dewey presented certain
financial analyses accompanied by written materials in connection with the
delivery of its fairness opinion. The following is a summary of the material
financial and comparative analyses performed by McFarland Dewey in arriving at
its May 29, 1997 opinion. The opinion assumed $700,000 of the $18.15 million
consideration would be paid in cash and applied toward transaction expenses, as
permitted by the Merger Agreement. See "The Merger Agreement - Conversion of
Securities." Subsequent to the meeting date, the Advisor waived substantially
all of its termination fee under its Advisory Agreement. As a consequence of
such waiver, CRIT management currently anticipates that all or substantially all
of the $18.15 million will be applied to the Stock Consideration.
SELECTED COMPARABLE PUBLIC COMPANIES ANALYSIS
Using publicly available information, McFarland Dewey compared selected
historical and projected financial, operating and stock market performance data
of CRIT and the Company with corresponding data of certain publicly-traded
companies that McFarland Dewey considered comparable in certain respects with
those of CRIT and the Company for purposes of this analysis. The comparable
companies consisted of net leased REITs. McFarland Dewey considered CRIT and the
Company in relation to a set of comparables which consisted of Commercial Net
Lease Realty, Franchise Financial Corp., Golf Trust of America, National Golf
Properties, TriNet Corporate Realty Trust, Realty Income Trust, and Hospitality
Properties Trust (the "Net Leased Comparables"). The ratios of the common stock
trading price to Funds From Operations per share (each, an "FFO Multiple") for
1996 and 1997 for the Net Leased Comparables were based on Funds From Operations
per share as reported by the companies, if available, and as estimated by First
Call and McFarland Dewey and closing stock prices as of May 24, 1997. Funds From
Operations estimates for CRIT for 1997 were based on internal projections.
McFarland Dewey noted that the price offered by the Company for each share of
the CRIT Shares represented 10.2x and 10.1x CRIT's reported 1996 and estimated
1997 Funds From Operations per share, respectively, below the average FFO
Multiples of the Net Leased Comparables of 12.0x and 11.7x for 1996 and
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1997, respectively. McFarland Dewey noted that CRIT's market capitalization was
smaller and leverage was higher than that of all of the Net Leased Comparables
and that as a result CRIT may be viewed negatively by the public relative to the
Net Leased Comparables.
McFarland Dewey compared the Company's FFO Multiple with the median FFO
Multiple for the Net Leased Comparables. The FFO Multiple for the Company for
the year ending December 31, 1996 was based on reported Funds From Operations,
and for the year ended December 31, 1997 the FFO Multiple was based on the
projected Funds From Operations. In calculating the FFO Multiples for the
periods, McFarland Dewey noted that the Company's 1996 FFO Multiple of 8.9x and
1997 FFO Multiple of 8.9x were lower than the average FFO Multiples of the Net
Leased Comparables of 12.0x and 11.7x for 1996 and 1997. McFarland Dewey noted
that the Company's leverage was higher than all the Net Leased Comparables and
that as a result the Company may have a lower FFO Multiple relative to the Net
Leased Comparables.
STOCK TRADING HISTORY
McFarland Dewey reviewed the history of trading prices and volume for the
CRIT Shares and the Lexington Common Stock. The Company was viewed in relation
to the Standard & Poor's 400 Index and an index composed of the Net Leased
Comparables. McFarland Dewey noted that the CRIT Shares trade infrequently and
that the Company's historical stock price performance was slightly lower than
Net Leased Comparables. However, McFarland Dewey noted that the Lexington Common
Stock will provide CRIT shareholders with more liquidity.
CONTRIBUTION ANALYSIS
McFarland Dewey reviewed CRIT's financial contribution to the Company on
a projected pro forma basis. On a pro forma basis, CRIT shareholders are
receiving approximately 8.8% of the ownership in the Company based on an
Exchange Ratio of 1.315 and could receive as high as 9.5% and as low as 8.2%
based upon the Share Value. Based on CRIT management's financial projections for
1997, CRIT would contribute 7.3% of the Funds From Operations of the Company.
McFarland Dewey noted that CRIT's shareholders will receive a greater percentage
of the stock than would theoretically be indicated by their contribution of
Funds From Operations.
PRO FORMA MERGER ANALYSIS
McFarland Dewey performed an analysis of the effect of the Merger on the
Company's Funds From Operations per share for the projected years ending
December 31, 1997 through December 31, 1998, which assumed that the Merger had
been consummated on January 1, 1997. McFarland Dewey combined the projected
operating results of CRIT and the Company to arrive at a combined projected
Funds From Operations. McFarland Dewey then compared the combined Funds From
Operations per share with the Company's stand-alone Funds From Operations per
share to determine the projected pro forma impact of the Merger. This analysis
indicated that the Company's Funds From Operations per share on a pro forma
basis in each of 1997 through 1998 would most likely be higher than the
stand-alone projections for the Company of Funds From Operations for each year
were the Merger not to occur. McFarland Dewey noted that the Merger would result
in a dividend increase of approximately 9.3% for CRIT shareholders, based on the
Company's maintenance of the Company's current $0.29 quarterly dividend per
share and the Exchange Ratio of 1.315, and could increase by a maximum of 17.9%
and a minimum of 1.4% based upon the Share Value.
McFarland Dewey noted that the Merger would result in a slight decrease
in the leverage ratios for the Company. Specifically, the Company's ratio of
Debt to Total Market Capitalization as of December 31, 1996 would decrease from
60.8% to 57.2% on a pro forma basis.
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DISCOUNTED CASH FLOW ANALYSIS
McFarland Dewey also performed discounted cash flow analyses (i.e., an
analysis of the present value of the projected cash flows for the periods using
the discount rates indicated) of CRIT based upon projections for the years 1997
through 2001, inclusive, using discount rates reflecting a weighted average cost
of capital ranging from 10% to 11% and terminal value multiples in calendar year
2001 ranging from 10x to 11x. McFarland Dewey observed that the offer for the
CRIT Shares was within the ranges of values implied by the discounted cash flow
analysis.
PRECEDENT TRANSACTIONS ANALYSIS
An analysis was conducted of the stock-for-stock mergers involving public
REITs consummated since 1995. As there have been no prior Net Leased REIT
mergers, McFarland Dewey does not believe that this type of analysis provides a
reliable comparison to the Merger or that such analysis regarding REIT mergers
is significant to McFarland Dewey's determination that the price is fair to the
public holders of the CRIT Shares from a financial point of view.
McFarland Dewey, however, compared certain financial ratios of the Merger
with those of selected other mergers and strategic transactions involving REITs
which McFarland Dewey deemed to be reasonably comparable to the Merger.
Using publicly available information, McFarland Dewey calculated the
premium of the implied offer value per share relative to the acquired company's
stock price on the day before announcement of the respective transaction and the
implied offer value per share for the acquired company, as of the day before the
announcement of the respective transaction, as a multiple of the projected FFO
per share for such company. This analysis yielded a range of premiums with a
mean of 10.9% and a range of transaction multiples of 11.8x to 14.4x with a mean
of 12.9x.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to a partial analysis or summary description. McFarland
Dewey believes that its analyses must be considered as a whole and that
selecting portions of its analyses, without considering all analyses, would
create an incomplete view of the process underlying its opinion. In addition,
McFarland Dewey may have given various analyses more or less weight than other
analyses, and may have deemed various assumptions more or less probable than
other assumptions, so that the ranges of valuations resulting for any particular
analysis described above should not be taken to be McFarland Dewey's view of the
actual value of CRIT and the Company.
In performing its analyses, McFarland Dewey made numerous assumptions
with respect to industry performance, general business and economic conditions
and other matters, many of which are beyond the control of CRIT and the Company.
The analyses performed by McFarland Dewey are not necessarily indicative of
actual value, which may be significantly more than or less favorable than
suggested by such analyses. Such analyses were prepared solely as a part of
McFarland Dewey's analysis of whether the Merger consideration to be received by
the public holders of the CRIT Shares is fair from a financial point of view to
such holders, and were conducted in connection with the delivery of the
McFarland Dewey opinion. The analyses do not purport to be appraisals or to
reflect the prices at which CRIT might actually be sold. Because such estimates
are inherently subject to uncertainty, none of CRIT, McFarland Dewey, or any
other person assumes responsibility for their accuracy. The McFarland Dewey
analyses described above should not be viewed as determinative of the opinion of
the CRIT Board or the management of CRIT with respect to the value of CRIT or of
whether McFarland Dewey would have rendered an opinion of fairness with respect
to, or the CRIT Board or the management of CRIT would have been willing to agree
to, any consideration other than the Merger consideration.
The CRIT Board retained McFarland Dewey based upon its experience and
expertise. McFarland Dewey is a recognized investment banking and advisory firm.
As part of its investment banking business, McFarland
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Dewey is regularly engaging in the valuation of businesses and securities in
connection with mergers and acquisitions, private placements and valuation for
estate, corporate and other purposes.
ACCOUNTING TREATMENT
The Merger will be treated as a purchase in accordance with Accounting
Principles Board Opinion No. 16. The fair market value of the consideration
given by the Company in the Merger will be used as the valuation basis of the
Merger. The assets and liabilities of CRIT will be revalued to their respective
fair market values at the Effective Time. The consolidated financial statements
of the Company will include the results of operations of CRIT from the Effective
Time.
NO APPRAISAL RIGHTS
Holders of CRIT Shares are not entitled to dissenters' rights of
appraisal under CRIT's Declaration of Trust or under the laws of the
Commonwealth of Massachusetts in connection with the Merger.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of the CRIT management and the CRIT Board may be deemed
to have interests in the Merger. These include provisions in the Merger
Agreement providing indemnification rights to such officers, trustees and other
parties under certain conditions. The Merger Agreement provides that CRIT shall,
and the Company shall, after the Effective Time, indemnify and hold harmless
trustees, officers, employees, fiduciaries or agents of CRIT against any
liabilities in connection with any threatened or actual claim or investigation
based on or pertaining to such persons' position as trustees, officers or
employees or agents of CRIT, whether asserted or arising before or after the
Effective Time, and liabilities based on or pertaining to the Merger Agreement
or the transactions contemplated thereby, to the extent permitted by law or the
Declaration of Trust of CRIT. After the Effective Time, for a period of six
years thereafter, the Company will fulfill the obligations of CRIT pursuant to
the Declaration of Trust as in effect on the date of the Merger Agreement. See
"The Merger Agreement -- Indemnification."
As of the Record Date, the Advisor owned 10,000 CRIT Shares.
James C. Cowles is Trustee, Chairman, President and Treasurer of CRIT and is
Chairman and President of the Advisor. Pursuant to the Advisory Agreement with
CRIT, the Advisor is entitled to receive a termination fee of approximately
$850,000 in connection with the consummation of the Merger. However, the
Advisor has determined to waive $787,000 of such fee, with the remaining
$61,000 to be payable by CRIT at the Effective Time. The amount of the fee will
effectively reimburse the Advisor for an identical amount paid during 1997 by
the Advisor to Antony E. Monk, a former trustee and officer of CRIT and the
former president of the Advisor who resigned from those positions in 1992, in
connection with the termination of a Management and Consulting Services
Agreement among the Advisor, Smith Barney, Harris, Upham & Co., Monk and Hadley
Page Ellis, Inc. ("Hadley"), a corporation whose sole shareholder is Mr. Monk.
In addition, Hadley will receive a $50,000 finder's fee from the Company upon
consummation of the Merger.
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THE MERGER AGREEMENT (PROPOSAL 1)
The following is a brief summary of certain provisions of the Merger
Agreement, a copy of which is attached as Annex A to this Joint Proxy
Statement/Prospectus and incorporated herein by reference. Such summary is
qualified in its entirety by reference to the Merger Agreement. Shareholders of
CRIT are urged to read the Merger Agreement in its entirety for a more complete
description of the Merger.
THE MERGER
The Merger Agreement provides that, following the approval and adoption
of the Merger Agreement by the CRIT shareholders and the satisfaction or waiver
of the other conditions to the Merger, CRIT be merged with and into the Company,
with the Company continuing as the surviving corporation (the "Surviving
Corporation").
If all such conditions to the Merger are satisfied or waived, the Merger
will be completed pursuant to Chapter 182 of the Massachusetts General Laws (the
"MGL") and Section 3-114 of the Maryland General Corporation Law (the "MGCL")
and will become effective upon the acceptance for record of the Articles of
Merger by the State Department of Assessments and Taxation of Maryland in
accordance with the MGCL or at such time thereafter which CRIT and the Company
have agreed upon and designated in such filing in accordance with applicable law
as the effective time of the Merger.
CONVERSION OF SECURITIES
Upon consummation of the Merger, pursuant to the Merger Agreement, the
Company will issue shares of Lexington Common Stock in exchange for all CRIT
Shares at the Effective Time. Each issued and outstanding CRIT Share (other than
shares owned by CRIT as treasury shares or by the Company or any of the
Company's subsidiaries, all of which will be cancelled) will be converted into
the right to receive a number of shares of Lexington Common Stock equal to a
fraction, the numerator of which is the Share Value and the denominator of which
is the Lexington Common Stock Price (collectively, the "Stock Consideration").
If any holder of CRIT Shares would be entitled to receive a number of Lexington
Common Stock that includes a fraction, then, in lieu of a fractional share,
such holder will be entitled to receive cash in an amount equal to such
fractional part of a share of Lexington Common Stock multiplied by the
Lexington Common Stock Price.
The "Lexington Common Stock Price" means an amount equal to the average
of the closing sales prices of the Lexington Common Stock on the NYSE during the
twenty consecutive trading days ending on the fifth business day immediately
preceding the Meeting; provided, however, that in the event the Lexington Common
Stock Price is (i) greater than $14.125, then, for purposes of determining the
Stock Consideration, the Lexington Common Stock Price shall be deemed to be
$14.125, and (ii) in the event the Lexington Common Stock Price is less than
$12.125, then, for purposes of determining the Stock Consideration, the
Lexington Common Stock Price shall be deemed to be $12.125. The "Share Value"
will equal the quotient obtained by dividing (A) an amount equal to (y) $18.15
million minus (z) the amount of the Cash Payment (as defined below), if any,
which CRIT shall elect to receive from the Company (up to $1,000,000) and apply
toward the payment of CRIT's obligations, by (B) the total number of CRIT Shares
issued and outstanding immediately prior to the Effective Time (subject to
adjustments). The "Share Value" as of the date of this Joint Proxy
Statement/Prospectus is $17.96 per share, which assumes that CRIT will elect to
receive no Cash Payment. The stock consideration will be appropriately adjusted
to reflect the effect of any stock split, reverse stock split, stock dividend,
reorganization, recapitalization or other like change with respect to the
Lexington Common Stock occurring prior to the Effective Time, or to reflect the
effect of any merger, consolidation or other transaction involving the Company
which would affect the Lexington Common Stock or its listing on the NYSE.
The Merger Agreement authorizes CRIT, at its option, to direct that up to
$1,000,000 in cash (the "Cash Payment") be deducted from the $18.15 million in
consideration to be paid by Lexington in connection with the Merger, and be
available for use by the Advisor to pay and discharge obligations of CRIT that
Lexington will
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not be responsible to assume in the Merger. The Merger Agreement further
provides that, in the event any such amount is requested by CRIT and applied
toward the payment of its obligations, any unexpended balance will be paid to
the CRIT shareholders at a later time. One such obligation of CRIT that would
not be assumed by Lexington would have been a termination fee in the approximate
amount of $850,000 payable by CRIT to the Advisor pursuant to the Advisory
Agreement; however, the Advisor has determined to waive $787,000 of such
termination fee, with the remaining $61,000 to be payable by CRIT at the
Effective Time. See "The Merger--Interests of Certain Persons in the Merger." As
a consequence, management of CRIT believes that CRIT will have sufficient cash
on hand at the effective time of the Merger to satisfy those obligations of CRIT
that Lexington will not be responsible for after the Merger, and currently
anticipates that all or substantially all of the $18.15 million in consideration
provided for in the Merger Agreement will be applied to the Stock Consideration
to be received by the CRIT shareholders in the Merger.
Promptly after the Effective Time, Chase Mellon Shareholder Services
LLC (the "Exchange Agent") will mail transmittal forms and exchange instructions
to each holder of record of CRIT Shares to be used to surrender and exchange
certificates evidencing CRIT Shares for certificates evidencing the Lexington
Common Stock to which such holder has become entitled. After receipt of such
transmittal forms, each holder of certificates formerly representing CRIT Shares
will be able to surrender such certificates to the Exchange Agent, and each such
holder will receive in exchange therefor certificates, evidencing the number of
whole shares of Lexington Common Stock to which such holder is entitled and any
cash which may be payable in lieu of a fractional share of Lexington Common
Stock. Such transmittal forms will be accompanied by instructions specifying
other details of the exchange. CRIT SHAREHOLDERS SHOULD NOT SEND IN THEIR
CERTIFICATES UNTIL THEY RECEIVE A TRANSMITTAL FORM.
After the Effective Time, each certificate evidencing CRIT Shares,
until so surrendered and exchanged, will be deemed, for all purposes, to
evidence only the right to receive the number of whole shares of Lexington
Common Stock which the holder of such certificate is entitled to receive and the
right to receive any cash payment in lieu of a fractional share of Lexington
Common Stock. The holder of such unexchanged certificate will not be entitled to
receive any dividends or other distributions, if any, payable by the Company
until the certificate has been exchanged. Subject to applicable laws, such
dividends and distributions, together with any cash payment in lieu of a
fractional share of Lexington Common Stock, will be paid without interest.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various customary representations and
warranties relating to, among other things, (a) the due organization, valid
existence and good standing of each of CRIT and the Company and certain similar
corporate matters; (b) the capital structure of each of CRIT and the Company;
(c) the authorization, execution, delivery and enforceability of the Merger
Agreement, the consummation of the transactions contemplated by the Merger
Agreement and related matters; (d) conflicts under organizational documents,
required consents or approvals and violations of any instruments or law; (e)
documents and financial statements filed by each of CRIT and the Company with
the Commission and the accuracy of information contained therein; (f)
undisclosed liabilities; (g) the absence of certain material adverse changes or
events; (h) taxes, tax returns and audits; (i) properties; (j) contracts and
commitments; (k) litigation; (l) environmental matters, hazardous materials and
hazardous materials activities; (m) leases; (n) affiliated transactions; (o) the
accuracy of information supplied by each of CRIT and the Company in connection
with the Registration Statement and this Joint Proxy Statement/Prospectus; (p)
employees; and (q) opinion of financial advisor.
CERTAIN COVENANTS AND AGREEMENTS
Pursuant to the Merger Agreement, CRIT has agreed, among other things,
that during the period from the date of the Merger Agreement until the Effective
Time, except as otherwise consented to in writing by the Company or as
contemplated by the Merger Agreement, CRIT will: (a) preserve intact its
business organizations and goodwill; (b) notify and confer with the Company on
operational matters of materiality, proposals to engage in material transactions
and material adverse conditions; (c) deliver copies of any documents filed with
the
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Commission; (d) conduct its operations in the ordinary course; (e) not acquire
additional real property, incur additional indebtedness, encumber assets or
commence construction of any other type of real estate projects; (f) not issue
any shares of its capital stock, grant any option, warrant, conversion right to
acquire any shares of its capital stock; (g) not increase any compensation or
enter into or amend any employment agreement with its officers or trustees or
retain any person as an employee; (h) not adopt any employee benefit plan; (i)
not to dispose of any of its properties; (j) not make any loans; (k) not pay any
claims, liabilities or obligations other than in the ordinary course of
business; (k) not enter into any commitment in excess of $25,000; (l) not enter
into any commitment with any officer, trustee, consultant or affiliate of CRIT;
and (m) not effect any material change in any lease or occupancy agreement
currently in effect, renew or extend the term of any lease, enter into any new
lease or cancel or terminate any lease. CRIT may declare regular quarterly
dividends and pay a special dividend within 30 days prior to the Effective Time
in an aggregate amount up to the amount of cash at hand at the time of such
declaration; provided, however, that CRIT may only make such payment after
reserving a sufficient amount of cash necessary to pay those expenses for which
it is responsible under the Merger Agreement. The CRIT Board has resolved to pay
a quarterly dividend of $.35 per share for the quarter ending June 30, 1997, and
has declared such dividend payable to shareholders of record of CRIT as of June
30, 1997, to be paid on August 15, 1997.
Pursuant to the Merger Agreement, the Company has agreed, among other
things, that during the period from the date of the Merger Agreement until the
Effective Time, except as otherwise consented to in writing by CRIT or as
contemplated by the Merger Agreement, the Company will: (a) preserve intact its
business organizations and goodwill; (b) notify CRIT in the event the employment
of certain members of senior management terminates; and (c) deliver copies of
any documents filed with the Commission.
NO SOLICITATION
The Merger Agreement provides that CRIT will not, directly or indirectly,
through any officer, trustee, employee, representative or agent of CRIT, (i)
solicit or initiate any inquiries or proposals regarding any merger, sale of
substantial assets, sale of shares of beneficial interest (including without
limitation by way of a tender offer for 15% or more of the outstanding CRIT
Shares) or similar transactions involving CRIT other than the Merger (any of the
foregoing inquiries or proposals being referred to in the Merger Agreement as an
"Acquisition Proposal"), (ii) except as otherwise required by CRIT's Declaration
of Trust or applicable law, engage in negotiations concerning, or provide any
nonpublic information to any person relating to, any Acquisition Proposal, or
(iii) agree to, approve, or recommend any Acquisition Proposal; provided,
however, that nothing contained in the Merger Agreement shall prevent the CRIT
Board from (A) considering, negotiating, discussing, approving and recommending
to the shareholders of CRIT a bona fide Acquisition Proposal not solicited in
violation of the Merger Agreement, if, and only to the extent that, the CRIT
Board determines in good faith (upon advice of outside counsel) that it is
required to do so in order to discharge properly its fiduciary duties or (B)
complying with Rules 14e-9 and 14e-2 promulgated under the Exchange Act with
regard to any Acquisition Proposal.
CRIT is required to notify the Company after receipt of any Acquisition
Proposal, or any modification of or amendment to any Acquisition Proposal.
INDEMNIFICATION
The Merger Agreement provides that CRIT shall, and after the Effective
Time, the Surviving Corporation shall, indemnify and hold harmless each person
who was as of the date of the Merger Agreement or has been at any time prior to
the date thereof, or who becomes prior to the Effective Time, a trustee,
officer, employee, fiduciary or agent of CRIT against all losses, claims,
damages, liabilities, costs, expenses, judgments, fines and amounts paid in
settlement in connection with any such threatened or actual claim, action, suit,
proceeding or investigation based in whole or in part on, or arising in whole or
in part out of, or pertaining to the fact that such person is or was a trustee,
officer or employee or agent of CRIT, whether asserted or arising before or
after the Effective Time ("Indemnified Liabilities"), and all Indemnified
Liabilities based in whole or in part on, or arising in whole or in part out of,
or pertaining to the Merger Agreement or the transactions contemplated
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thereby, in each case to the full extent permitted by law or the Declaration of
Trust of CRIT. After the Effective Time, for a period of six years after the
Effective Time, the Surviving Corporation will fulfill and honor in all respects
the obligations of CRIT pursuant to the Declaration of Trust of CRIT or similar
organizational documents as in effect as of the date of the Merger Agreement.
CONDITIONS
The respective obligations of CRIT and the Company to effect the Merger
are subject to the following conditions, among others: (a) the Merger Proposal
and the Trust Amendment Proposal authorizing the Merger shall have been approved
by the CRIT shareholders; (b) neither of the parties shall be subject to any
order, ruling or injunction of a court of competent jurisdiction which prohibits
the consummation of the transactions contemplated by the Merger Agreement; (c)
the Registration Statement shall have been declared effective and shall not be
the subject of a stop order or proceeding seeking a stop order; (d) the approval
for the listing of the shares of Lexington Common Stock to be issued in the
Merger on the NYSE subject to official notice of issuance; (e) all material
consents, authorizations, orders and approvals of (or filings or registrations
with) any governmental commission, board, other regulatory body or third parties
required to be made or obtained by the Company, CRIT and any affiliated entities
in connection with the Merger Agreement shall have been obtained or made, (f)
the accuracy in all material respects of the representations and warranties of
the other party set forth in the Merger Agreement; (g) the performance in all
material respects of all obligations of the other party required to be performed
under the Merger Agreement; (h) receipt by CRIT and the Company, respectively,
of the opinion of counsel to the effect that the Merger will be treated for
federal income tax purposes as a tax-free reorganization qualifying under the
provisions of Sections 368(a) of the Code (see "Merger -- Certain Federal Income
Tax Consequences"); (i) receipt by the Company of estoppel certificates that all
Leases (as defined in the Merger Agreement) are in full force and effect and
there are no defaults thereunder; (j) receipt by the Company of Affiliate
Letters (as defined in the Merger Agreement); (k) none of the Properties (as
defined in the Merger Agreement) shall have been encumbered by any lien,
easement, covenant, restriction or other title matter not reflected on the Title
Policies (as defined in the Merger Agreement) for the related property other
than those title matters set forth on title reports delivered to the Company;
(l) CRIT shall have paid any real estate transfer or similar taxes incurred in
connection with the Merger which are payable in connection with filing a
certificate of merger or quitclaim deed, but not otherwise; (m) the Company
shall have received evidence that CRIT's mortgage lenders have approved the
assumption by the Company of the mortgages on each of CRIT's properties; (n)
each guarantor of any lease relating to any of CRIT's properties shall have
agreed to the continuing effectiveness of such guarantee upon confirmation of
the Merger; and (o) the Company shall have received a certain survey and back-up
documentation with respect to the CRIT property located in Virginia.
TERMINATION; TERMINATION FEES AND EXPENSES
The Merger Agreement may be terminated and abandoned at any time prior to
the Effective Time, whether before or after approval and adoption of the Merger
Agreement by the shareholders of CRIT:
(i) by mutual written consent of CRIT and the Company;
(ii) by either CRIT or the Company if the Merger shall not have been
consummated on or before October 1, 1997 (provided that the right to terminate
the Merger Agreement under this clause shall not be available to any party whose
failure to fulfill any obligation under the Merger Agreement has been the cause
of or resulted in the failure of the Merger to occur on or before such date);
(iii) by either CRIT or the Company if any United States federal or
state court of competent jurisdiction or other governmental entity shall have
issued an order, decree or ruling or taken any other action permanently
restraining, enjoining or otherwise prohibiting the Merger and such order,
decree, ruling or other action shall have become final and non-appealable,
provided that the party seeking to terminate shall have used its best efforts to
appeal such order, decree, ruling or other action;
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(iv) by CRIT, if (i) the Merger Agreement and the transactions
contemplated thereby shall have failed to receive the requisite vote for
approval and adoption by the shareholders of CRIT upon the holding of a duly
convened shareholder meeting or (ii) within ten days after receipt of notice
from the Company of any Material Structural Change (as defined in the Merger
Agreement);
(v) by CRIT or the Company, if there has been a material breach of
any representation, warranty, covenant or agreement on the part of the other
party set forth in the Merger Agreement, in either case such that the conditions
set forth in the Merger Agreement relating to (i) the accuracy of
representations and warranties and (ii) the performance of all agreements and
covenants, as the case may be, would be incapable of being satisfied by October
1, 1997; provided, however, that, in any case, a willful breach shall be deemed
to cause such conditions to be incapable of being satisfied;
(vi) by the Company if (i) the CRIT Board shall have withdrawn,
amended, modified or changed its approval or recommendation of the Merger
Agreement or any of the transactions contemplated thereby in a manner adverse to
the Company or shall have resolved to do so; (ii) the requisite vote of
shareholders shall not have been obtained at a duly held meeting on or prior to
October 1, 1997; or (iii) the CRIT Board shall have recommended that
shareholders of CRIT accept or approve an Acquisition Proposal by a person other
than the Company (or CRIT or the CRIT Board shall have resolved to do such) or a
tender offer or exchange offer for 15% or more of the outstanding CRIT Shares is
commenced (other than by the Company) and the Board of Trustees recommends that
the shareholders of CRIT tender their shares in such tender or exchange offer;
(vii) by CRIT (i) if the Board of Trustees recommends to CRIT's
shareholders approval or acceptance of an Acquisition Proposal by a person other
than the Company, but only in the event that the CRIT Board, after consultation
with and based upon the advice of legal counsel, has determined in good faith
that such action is necessary for the CRIT Board to comply with its fiduciary
duties to its shareholders under applicable law or (ii) if the average closing
sales price of Lexington Common Stock on the NYSE on twenty trading days ending
on the fifth business day immediately preceding the date of the Meeting is equal
to or less than $11.125, without any liability on the part of CRIT; or
(viii) by the Company if (i) any tenant of CRIT shall have filed a
petition commencing a voluntary case concerning such tenant under any chapter of
Title 11 of the United States Code entitled "Bankruptcy," or an involuntary case
shall be commenced against such tenant under any such chapter and relief is
ordered against such tenant or the petition is controverted but is not dismissed
within sixty days after the commencement of the case, or (ii) any of the CRIT
properties shall have been substantially destroyed by fire or other casualty and
the tenant under the affected CRIT property shall not be required to apply the
casualty insurance proceeds to restore such property.
In the event of any termination of the Merger Agreement by either CRIT or
the Company as provided above, the Merger Agreement will become void and there
will be no liability or obligation on the part of CRI T, the Company, or their
respective affiliates, trustees, officers, directors, shareholders or
affiliates, except to the extent that such termination results from the willful
breach by a party of any of its representations, warranties, covenants or
agreements set forth in the Merger Agreement, provided that the provisions
described below relating to the payment of fees and expenses shall survive any
such termination.
Except as described below, whether or not the Merger is consummated, all
fees, costs and expenses incurred in connection with the Merger Agreement and
the transactions contemplated thereby shall be paid by the party incurring such
expenses, except that, in addition to its own costs and expenses, CRIT will be
responsible for and shall discharge prior to the Effective Time or from the
proceeds of the Cash Payment all costs associated with environmental audits of
CRIT properties, which audits have been received and approved by the Company,
and all other closing costs including, but not limited to, survey charges, third
party and governmental fees (except fees payable to the Commission and state
"blue sky" fees, which shall be paid by the Company), charges and taxes, and the
expenses of CRIT's attorneys, accountants and investment bankers, except as
provided below; and, in addition to its own costs and expenses, the Company
shall be responsible for the fees and expenses of its legal counsel, and
engineering studies of CRIT properties with respect to the structural
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soundness of CRIT properties. Fees, incurred in relation to the printing costs
of this Proxy Statement/Prospectus shall be shared equally by CRIT and the
Company, provided that CRIT's portion of such costs shall not exceed $15,000;
and (ii) restructuring or assumption or amendment fees payable to CRIT's
lenders, provided that the Company's portion of such fees shall not exceed
$30,000.
CRIT is required to pay the Company a termination fee of $700,000 upon:
(i) the termination of the Merger Agreement by CRIT under the circumstances
described in paragraph (g)(i) above; (ii) the termination of the Merger
Agreement by the Company under the circumstances described in paragraph (f)(iii)
above; or (iii) the termination of the Merger Agreement by the Company under the
circumstances described in paragraph (f)(i) or (ii), and thereafter on or prior
to the 60th day after the date of such termination, CRIT enters into a
definitive agreement relating to any merger, consolidation, share exchange, sale
of a substantial portion of its assets, liquidation or other similar
extraordinary corporate transaction.
Any fees payable as described above are required to be paid within five
business days after the first to occur of the relevant termination events under
paragraphs (g)(i) or (f)(iii) or the consummation of any such alternative
transaction under paragraphs f(i) or f(ii).
AMENDMENT AND WAIVER
The Merger Agreement may be amended at any time by action taken or
authorized by the respective Board of Trustees and Board of Directors of CRIT
and the Company, but after approval by the shareholders of CRI T of the matters
presented in connection with the Merger to them, no amendment shall be made
which by law requires further approval by such shareholders, without such
further approval. CRIT and the Company, by action taken or authorized by their
respective Board of Trustees and Board of Directors, may extend the time for
performance of the obligations or other acts of the other parties to the Merger
Agreement, may waive inaccuracies in the representations or warranties contained
in the Merger Agreement and may waive compliance with any agreements or
conditions contained in the Merger Agreement.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a summary of certain United States federal
income tax consequences of the Merger. However, this discussion does not address
all aspects of United States federal income taxation that may be relevant to
CRIT shareholders in light of their particular circumstances or to certain types
of shareholders subject to special treatment under the United States federal
income tax laws (such as dealers in securities, tax-exempt organizations, life
insurance companies, other financial institutions, partnerships or other
pass-through entities, regulated investment companies and foreign taxpayers). No
foreign, state or local income tax considerations, or United States federal,
state, local or foreign estate, gift or other non-income tax considerations are
addressed herein.
CRIT SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE
SPECIFIC TAX CONSEQUENCES TO THEM OF THE MERGER, INCLUDING THE APPLICABLE UNITED
STATES FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO THEM OF THE MERGER.
A condition precedent to CRIT's obligation to effect the Merger is the
receipt from Day, Berry & Howard of an opinion of counsel, based in part on
representations of CRIT and the Company, to the effect that the Merger will be
treated for United States federal income tax purposes as a tax-free
reorganization under Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code"). A condition precedent to the Company's obligation to
effect the Merger is the receipt from Paul, Hastings, Janofsky & Walker LLP of
an opinion of counsel, based in part on representations of CRIT and the Company,
to the effect that the Merger will be treated for United States federal income
tax purposes as a tax-free reorganization under Section 368(a) of the Code.
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The following summary is based upon the Code, applicable Treasury
Regulations, judicial authority and administrative rulings and practices, all as
in effect on the date hereof, and is not binding on the Internal Revenue Service
("IRS"), which is not precluded from adopting a contrary position. No ruling has
been or will be sought from the IRS concerning the United States federal tax
consequences of the Merger. In addition, there can be no assurance that future
legislation, judicial or administrative changes or interpretations will not
adversely affect the accuracy of the statements and conclusions set forth
herein. Any such changes or interpretations could be applied retroactively and
could result in tax consequences of the Merger to the Company, CRIT and/or CRIT
shareholders that are different from those described in this summary.
Under current law, subject to the limitations and qualifications referred
to herein, and assuming that the Merger and related transactions will take place
as described herein and in the Merger Agreement:
(i) The Merger will constitute a reorganization within the
meaning of Section 368(a)(1)(A) of the Code, and the Company and CRIT
will each be a party to a reorganization within the meaning of Section
368(b) of the Code;
(ii) No gain or loss will be recognized by the Company or CRIT
in the Merger;
(iii) No gain or loss will be recognized by CRIT shareholders
upon their receipt of shares of Lexington Common Stock in exchange for
their CRIT Shares;
(iv) A CRIT shareholder who receives cash in lieu of a
fractional interest in a share of Lexington Common Stock will be
treated as having first received and then exchanged for cash such
fractional interest and, therefore, will recognize gain or loss equal
to the difference between the amount of such cash and the tax basis
allocable to such fractional interest. Such gain or loss will
constitute capital gain or loss if such CRIT Shareholder's CRIT Shares
are held as capital assets at the effective time of the Merger;
(v) The tax basis of the shares of Lexington Common Stock
received by a CRIT shareholder in the Merger will equal the tax basis
of such shareholder's CRIT Shares exchanged in the Merger, reduced by
the tax basis allocable to any fractional interest in a share of
Lexington Common Stock treated as having been received and exchanged
for cash; and
(vi) The holding period of the shares of Lexington Common
Stock received by a CRIT shareholder in exchange for such shareholder's
CRIT Shares will include the holding period of such shareholder's CRIT
Shares so exchanged.
THE DISCUSSIONS SET FORTH BELOW UNDER THE HEADINGS "TREATMENT OF THE
COMPANY AS A REIT," "TAXATION OF TAXABLE SHAREHOLDERS," "TAXATION OF FOREIGN
SHAREHOLDERS," "TAXATION OF TAX-EXEMPT SHAREHOLDERS," "TAXATION OF REINVESTED
DIVIDENDS" AND "OTHER TAX CONSIDERATIONS" ARE INCLUDED FOR GENERAL INFORMATION
ONLY. THEY DO NOT ADDRESS ANY STATE, LOCAL OR FOREIGN TAX ASPECTS OF REIT
OPERATIONS. THE DISCUSSIONS ARE BASED ON CURRENTLY EXISTING PROVISIONS OF THE
CODE, EXISTING AND PROPOSED TREASURY REGULATIONS THEREUNDER AND CURRENT
ADMINISTRATIVE RULINGS AND COURT DECISIONS. ALL THE FOREGOING AUTHORITIES ARE
SUBJECT TO CHANGE AND ANY SUCH CHANGE COULD AFFECT THE CONTINUING ACCURACY OF
THIS DISCUSSION. ANY SUCH CHANGE MAY OR MAY NOT BE RETROACTIVE AND COULD AFFECT
THE QUALIFICATION AND TAXATION OF THE COMPANY AS A REIT. EACH HOLDER OF CRIT
SHARES SHOULD CONSULT HIS OR HER OWN TAX ADVISOR WITH RESPECT TO THE OWNERSHIP
OF SHARES OF LEXINGTON COMMON STOCK, INCLUDING THE APPLICATION AND EFFECT OF
UNITED STATES FEDERAL, STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX LAWS.
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Treatment of the Company as a REIT
General. The Company and CRIT elected to be taxed as REITs under Sections
856 through 860 of the Code effective for their taxable years ended December 31,
1993, and December 31, 1990, respectively. The Company and CRIT each believes
that it was organized, and has operated, in such a manner so as to qualify for
taxation as a REIT under the Code, and the Company intends to conduct its
operations so as to continue to qualify for taxation as a REIT. No assurance,
however, can be given that the Company and CRIT have operated in a manner so as
to qualify, or that the Company will be able to operate in such a manner so as
to remain qualified, as a REIT. The following is a general summary of the
requirements for qualification as a REIT and the United States federal income
tax treatment of a REIT and its shareholders. Qualification and taxation as a
REIT depend upon the Company's ability to meet, through actual annual operating
results, the required distribution levels, diversity of stock ownership and the
various qualification tests imposed under the Code discussed below, the results
of which will not be reviewed by counsel. Accordingly, no assurance can be given
that the actual result of the Company's operations for any one taxable year will
satisfy such requirements.
If the Company qualifies for taxation as REIT, it generally will not be
subject to United States federal corporate income tax on its net income that is
currently distributed to shareholders. This treatment substantially eliminates
the "double taxation" (at the corporate and shareholder levels) that generally
results from investment in a corporation. However, the Company will be subject
to United States federal income tax as follows: First, the Company will be taxed
at regular corporate rates on any undistributed REIT taxable income, including
undistributed net capital gains. Second, under certain circumstances, the
Company may be subject to the "alternative minimum tax" on its items of tax
preference. Third, if the 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 nonqualifying 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 nonetheless has maintained its
qualification as a REIT 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 REIT ordinary income for such
year, (ii) 95% of its REIT 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, if the Company acquires any asset from a C
Corporation (i.e., a corporation generally subject to full corporate level tax)
in a transaction in which the basis of the asset in the Company's hands is
determined by reference to the basis of the asset (or any other property) in the
hands of the C corporation, and the Company recognizes gain on the disposition
of such asset during the 10-year period beginning on the date on which such
asset was acquired by the Company, then, to the extent of such property's
"built-in gain" (the excess of the fair market value of such property at the
time of the acquisition by the Company over the adjusted basis of such property
at such time), such gain will be subject to tax at the highest regular corporate
rate applicable (as to be provided in Treasury Regulations that have not yet
been promulgated).
Requirements for Qualification. A REIT is a corporation, trust or
association (i) which is managed by one or more trustees or directors, (ii) the
beneficial ownership of which is evidenced by transferable shares, or by
transferable certificates of beneficial interest, (iii) which would be taxable
as a domestic corporation but for Sections 856 through 859 of the Code, (iv)
which is neither a financial institution nor an insurance company subject to
certain provisions of the Code, (v) the beneficial ownership of which is held by
100 or more persons, (vi) during the last half of each taxable year not more
than 50% in value of the outstanding stock of which is owned, directly or
indirectly, by five or fewer individuals (as defined in the Code to include
certain entities), and (vii) which meets certain other tests, described below,
regarding the nature of its income and assets. The Code provides that conditions
(i) through (iv), inclusive, must be met during the entire taxable year and that
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condition (v) 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.
The Company may redeem, at its option, a sufficient number of shares or restrict
the transfer thereof to bring or maintain the ownership of the shares in
conformity with the requirements of the Code.
In the case of a REIT which is a partner in a partnership, Treasury
Regulations provide that the REIT will be deemed to own its proportionate share
of each 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 items of gross income of the partnership will retain
the same character in the hands of the REIT for purposes of Section 856 of the
Code, including satisfying the gross income tests and assets (as discussed
below). Thus, the Company's proportionate share of the assets, liabilities, and
items of gross income of the partnerships in which the Company owns an interest
are treated as assets, liabilities and items of the Company for purposes of
applying the requirements described herein.
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. 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 REIT 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 REIT, or an owner of 10% or more of the REIT, 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 REIT 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 REIT derives no revenue.
The REIT may, however, directly perform certain services that are "usually or
customarily rendered" in connection with the rental of space for occupancy only
and are not otherwise considered "rendered to the occupant" of the property.
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 REIT for
such year if such failure was due to reasonable cause and not willful neglect,
it disclosed the nature and amounts of its items of gross income in a schedule
attached to its return, and any incorrect information on the schedule was not
due to fraud with intent to evade tax. A 100% penalty tax would be imposed on
the amount by which the Company failed the 75% or 95% test (whichever amount is
greater), less an amount which generally reflects expenses attributable to
earning the nonqualified income. No analogous relief is available for failure to
satisfy the 30% income test.
Any gain realized by the Company on the sale of any property held as
inventory or other property held primarily for sale to customers in the ordinary
course of business will be treated as income from a prohibited transaction that
is subject to a 100% penalty tax. Such prohibited transaction income may also
have an adverse
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effect upon the Company's ability to satisfy the income tests for qualification
as a REIT. Under existing law, whether property is held as inventory or
primarily for sale to customers in the ordinary course of a trade or business is
a question of fact that depends on all the facts and circumstances with respect
to the particular transaction.
Asset Tests. The Company must also satisfy three tests relating to the
nature of its assets every quarter. First at least 75% of the value of the
Company's total assets must be represented by real estate assets (including (i)
its allocable share of real estate assets held by partnerships in which the
Company owns an interest or held by "qualified REIT subsidiaries" (as defined in
the Code) of the Company and (ii) 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) 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 (except that shares of qualified REITs and of
certain wholly owned subsidiaries are exempt from these prohibitions). The
Company expects that substantially all of its assets will consist of (i) real
properties, (ii) stock or debt investments that earn qualified temporary
investment income, (iii) other qualified real estate assets, and (iv) cash, cash
items and government securities. The Company may also invest in securities of
other entities, provided that such investments will not prevent the Company from
satisfying the asset and income tests for REIT qualification set forth above.
If the Company inadvertently fails one or more of the asset tests at the
end of a calendar quarter, such a failure would not cause it to lose its REIT
status, provided that (i) it satisfied all of the asset tests at the close of a
preceding calendar quarter, and (ii) the discrepancy between the values of the
Company's assets and the standards imposed by the asset test either did not
exist immediately after the acquisition of any particular acquisition or was not
wholly or partly caused by such an acquisition. If the condition described in
clause (ii) of the preceding sentence were not satisfied, the Company could
still avoid disqualification by eliminating any discrepancy within 30 days after
the close of the calendar quarter in which it arose.
Distribution Test. With respect to each taxable year, the Company must
distribute to its shareholders an amount equal to the sum of (i) 95% of its
"REIT Taxable Income" (determined without regard to the deduction for dividends
paid and by excluding any net capital gain), and (ii) 95% of any after-tax net
income from foreclosure property, in each case less any "excess noncash income."
REIT Taxable Income is generally computed in the same manner as taxable income
of ordinary corporations, with several adjustments, such as a deduction allowed
for dividends paid, but not for dividends received. "Excess noncash income" is
the amount, if any, by which the sum of certain items of noncash income exceeds
5% of REIT Taxable Income for the taxable year (determined without regard to the
deduction for dividends paid and by excluding any net capital gain). These items
of noncash income for which relief from the distribution requirement is provided
are (i) the excess of amounts includible in gross income due to the operation of
Section 467 of the Code (relating to deferred rental agreements) over the
amounts that would have been includible without regard to such provision, (ii)
income from certain like-kind exchanges not eligible for tax-free treatment and
(iii) the amounts includible in gross income with respect to the amount that
original issue discount on purchase money debt obligations (but not other kinds
of original issue discount or market discount) exceed the amount of money and
fair market value of other property received during the taxable year under such
instruments.
To the extent that the Company does not distribute all of its net
long-term capital gain or distributes at least 95%, but less than 100%, of its
REIT Taxable Income, as adjusted, it will be subject to regular United States
federal corporate income tax (including any applicable alternative minimum tax)
on such undistributed net long-term capital gain or such undistributed REIT
Taxable Income. In addition, a nondeductible 4% excise tax is imposed on the
excess of (i) 85% of the Company's ordinary income for the year plus 95% of
capital gain net income for the year and the undistributed portion of the
required distribution for the prior year over (ii) the actual distribution to
shareholders during the year (if any). Net operating losses generated by the
Company may be carried forward (but not carried back) and used by the Company
for 15 years to reduce REIT Taxable Income
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and the amount that the Company will be required to distribute in order to
remain qualified as a REIT. Net capital losses of the Company may be carried
forward for five years (but not carried back) and used to reduce capital gains.
In general, a distribution must be made during the taxable year to which
it relates to satisfy the distribution test and to be deducted in computing REIT
Taxable Income. However, the Company may elect to treat a dividend declared and
paid after the end of the year (a "subsequent declared dividend") as paid during
such year for purposes of complying with the distribution test and computing
REIT Taxable Income, if the dividend is (i) declared before the regular or
extended due date of the Company's tax return for such year and (ii) paid not
later than the date of the first regular dividend payment made after the
declaration (but in no case later than 12 months after the end of the year). For
purposes of computing the 4% excise tax, a subsequent declared dividend is
considered paid when actually distributed. Furthermore, any dividend that is
declared by the Company in October, November of December of a calendar year, and
payable to shareholders of record as of a specified date in such month of such
year will be deemed to have been paid by the Company (and received by
shareholders) on December 31 of such calendar year, but only if such dividend is
actually paid by the Company in January of the following calendar year. For
purposes of complying with the distribution test for a taxable year as a result
of an adjustment in certain of its items of income, gain or deduction by the
IRS, the Company may be permitted to remedy such failure by paying a "deficiency
dividend" in a later year together with interest and a penalty. Such deficiency
dividend may be included in the Company's deduction of dividends paid for the
earlier year for purposes of satisfying the distribution test. For purposes of
the 4% excise tax, the deficiency dividend is taken into account when paid, and
any income giving rise to the deficiency adjustment is treated as arising when
the deficiency dividend is paid.
The Company believes that it has distributed, and intends to continue to
distribute, to its shareholders an amount at least equal to 95% of the sum of
(i) its REIT Taxable Income (determined without regard to the deduction for
dividends paid and by excluding any net capital gains) and (ii) any after-tax
net income from foreclosure properties less any "excess noncash income," as
those amounts are determined in good faith by the Company or its independent
accountants. However, it is possible that timing differences between the accrual
of income and its actual collection, and the need to make nondeductible
expenditures (such as capital improvements or principal payments on debt) may
cause the Company to recognize taxable income in excess of its net cash
receipts, thus increasing the difficulty of compliance with the distribution
requirement. In order to meet the 95% requirement, the Company might find it
necessary to arrange for short-term, or possibly long-term, borrowings.
Failure to Qualify. If the Company fails to qualify as a REIT for any
taxable year, and if certain relief provisions of the Code do not apply, it will
be subject to United States federal income tax (including applicable alternative
minimum tax) on its taxable income at regular corporate rates. Distributions to
shareholders 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. As a result, the
Company's failure to qualify as a REIT would reduce the cash available for
distribution by the Company to its shareholders. In addition, if the Company
fails to qualify as a REIT, all distributions to shareholders will be taxable as
ordinary income, to the extent of the Company's current and accumulated earnings
and profits. Subject to certain limitations of the Code, corporate distributees
may be eligible for the dividends received deduction.
If the Company's failure to qualify as a REIT is not due to reasonable
cause but results from willful neglect, the Company will not be permitted to
elect REIT status for the four taxable years after the taxable year for which
such disqualification is effective. In the event the Company were to fail to
qualify as a REIT in one year and subsequently requalify in a later year, the
Company might be required to recognize taxable income based on the net
appreciation in value of its assets as a condition to requalification. In the
alternative, the Company may be taxed on the net appreciation in value of its
assets if it sells properties within ten years of the date the Company
requalifies as a REIT under federal income tax laws.
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Taxation of Taxable Shareholders
As long as the Company qualifies as a REIT, distributions made to the
Company's U.S. shareholders out of current or accumulated earnings and profits
(and not designated as capital gain dividends) will be taken into account by
them as ordinary income and will not be eligible for the dividends received
deductions for corporations. For purposes of computing the Company's earnings
and profits, depreciation for depreciable real estate will be computed on a
straight-line basis over a 40-year period. Distributions that are properly
designated as capital gain dividends will be taxed as long-term capital gains
(regardless of how long a shareholder has owned his shares) to the extent they
do not exceed the Company's actual net capital gain for the taxable year.
However, corporate shareholders may be required to treat up to 20% of certain
capital gain dividends as ordinary income pursuant to Section 291 of the Code.
Distributions in excess of current and accumulated earnings and profits will
constitute a non-taxable return of capital to a shareholder to the extent that
such distributions do not exceed the adjusted basis of the shareholder's shares,
and will result in a corresponding reduction in the shareholder's basis in the
shares. Any reduction in a shareholder's tax basis for its shares will increase
the amount of taxable gain or decrease the deductible loss that will be realized
upon the eventual disposition of the shares. The Company will notify
shareholders at the end of each year as to the portions of the distributions
which constitute ordinary income, capital gain or a return of capital. Any
portion of such distributions that exceed the adjusted basis of a shareholder's
shares will be taxed as capital gain from the disposition of shares, provided
that the shares are held as capital assets.
Aside from the different income tax rates applicable to ordinary income
and capital gain dividends, regular and capital gain dividends from the Company
will be treated as dividend income for most other United States federal income
tax purposes. In particular, such dividends will be treated as "portfolio"
income for purposes of the passive activity loss limitation with respect to
shareholders subject to such limitation (including all individuals) and
generally will not be able to be used to offset any "passive losses." Dividends
will be treated as investment income for purposes of the investment interest
limitation contained in Section 63(d) of the Code, which limits the
deductibility of interest expense incurred by noncorporate taxpayers with
respect to indebtedness attributable to certain investment assets.
In general, dividends paid by the Company will be taxable to shareholders
in the year in which they are received, except in the case of dividends declared
at the end of the year, but paid in the following January, as discussed above.
In general, any gain or loss realized upon a taxable disposition of
shares by a shareholder who is not a dealer in securities will be treated as
long-term capital gain or loss if the shares have been held for more than one
year and otherwise as short-term capital gain or loss. However, any loss
realized upon a taxable disposition of shares held for less than six months will
be treated as long-term capital loss to the extent of any capital gain dividends
received with respect to such shares. All or a portion of any loss realized upon
a taxable disposition of shares may be disallowed if other shares of the Company
are purchased within 30 days before or after the disposition. Shareholders may
not include in their tax return any net operating losses or capital losses of
the Company.
Taxation of Foreign Shareholders
The following discussion is only a summary of the rules governing United
States federal income taxation of nonresident alien individuals, foreign
corporations, foreign partnerships and other foreign shareholders (collectively,
"Non-U.S. Shareholders"). Non-U.S. Shareholders should consult with their own
tax advisors to determine the impact of United States federal, state and local
income and other tax laws with regard to ownership of shares of Lexington Common
Stock, including any reporting requirements.
Distributions that are not attributable to gain from sales or exchanges
by the Company of United States real property interests and not designated by
the Company as capital gain dividends will be treated as dividends of ordinary
income to the extent that they are made out of current or accumulated earnings
and profits of the Company. Such distributions ordinarily will be subject to a
withholding tax equal to 30% of the gross amount
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of the distribution unless an applicable tax treaty reduces or eliminates that
tax. Certain tax treaties limit the extent to which dividends paid by a REIT can
qualify for a reduction of the withholding tax on dividends. The Company expects
to withhold United States income tax at the rate of 30% on the gross amount of
any such dividends made to a Non-U.S. Shareholder unless (i) a lower treaty rate
applies and the shareholder files an I RS Form 1001 or (ii) the Non-U.S.
Shareholder files a properly completed IRS Form 4224 with the Company claiming
that the distribution is effectively connected with the Non-U.S. Shareholder's
conduct of a U.S. trade or business. Distributions in excess of current and
accumulated earnings and profits of the Company will not be taxable to a
Non-U.S. Shareholder to the extent that they do not exceed the adjusted basis of
the Non-U.S. Shareholder's shares, but rather will reduce the adjusted basis of
such shares. To the extent that such distributions exceed the adjusted basis of
a Non-U.S. Shareholder's shares, they will give rise to tax liability if the
Non-U.S. Shareholder would otherwise be subject to tax on any gain from the sale
or disposition of his shares in the Company, as described below.
For any year in which the Company qualifies as a REIT, distributions that
are attributable to gain from sales or exchanges by the Company of United States
real property interests will be taxed to a Non-U.S. Shareholder under the
provisions of the Foreign Investment in Real Property Tax Act of 1980
("FIRPTA"). Under FIRPTA, a Non-U.S. Shareholder is taxed as if such gain were
effectively connected with a United States business. Non-U.S. Shareholders would
thus be taxed at the normal capital gain rates applicable to U.S. shareholders
(subject to applicable alternative minimum tax and a special alternative minimum
tax in the case of non-resident alien individuals). Also, distributions subject
to FIRPTA may be subject to a 30% branch profits tax in the hands of a corporate
Non-U.S. Shareholder not entitled to treaty relief. The Company is required by
applicable regulations to withhold 35% of any distribution that could be
designated by the Company as a capital gain dividend regardless of the amount
actually designated as a capital gain dividend. This amount is creditable
against the Non-U.S. Shareholder's FIRPTA tax liability.
Gain recognized by a Non-U.S. Shareholder upon a sale of shares generally
will not be taxed under FIRPTA if the Company is a "domestically controlled
REIT," defined generally as a REIT in which at all times during specified
testing period less than 50% in value of the stock was held directly or
indirectly by foreign persons. It is anticipated that the Company will be a
"domestically controlled REIT;" therefore, the sale of shares will not be
subject to taxation under FIRPTA. However, gain not subject to FIRPTA will be
taxable to a Non-U.S. Shareholder if (i) investment in the shares is effectively
connected with the Non-U.S. Shareholder's United States trade or business, in
which case the Non-U.S. Shareholder will be subject to the same treatment as
U.S. Shareholders with respect to such gain, or (ii) the Non-U.S. Shareholder is
a nonresident alien individual who was present in the United States for 183 days
or more during the taxable year and such gain is attributable to an office or
fixed place of business in the United States or such nonresident alien
individual has a "tax home" in the United States and such gain is not
attributable to an office or fixed place of business located outside the United
States or, if such gain is attributable to an office or fixed place of business
located outside the United States, it is not subject to foreign income tax equal
to at least 10% of such gain. If the gain on the sale of shares were to be
subject to taxation under FIRPTA, the Non-U.S. Shareholder will be subject to
the same treatment as U.S. Shareholders with respect to such gain (subject to
applicable alternative minimum tax, special alternative minimum tax in the case
of nonresident alien individuals and possible application of the 30% branch
profits tax in the case of foreign corporations) and the purchaser would be
required to withhold and remit to the IRS 10% of the purchase price.
Taxation of Tax-Exempt Shareholders
Tax-exempt entities, including qualified employee pension and profit
sharing trusts and individual retirement accounts ("Exempt Organizations"),
generally are exempt from United States federal income taxation. However, they
are subject to taxation on their unrelated business taxable income ("UBTI").
While investments in real estate may generate UBTI, the Service has issued a
published ruling to the effect that dividend distributions by a REIT to an
exempt employee pension trust do not constitute UBTI, provided that the shares
of the REIT are not otherwise used in an unrelated trade or business of the
exempt employee pension trust. Based on that ruling and on the intention of the
Company to invest its assets in a manner that will avoid the recognition of UBTI
by the Company, amounts distributed by the Company to Exempt Organizations
generally
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should not constitute UBTI. However, if an Exempt Organization financed its
acquisition of CRIT Shares with debt, a portion of its income from the Company,
if any, will constitute UBTI pursuant to the "debt-financed property" rules.
Furthermore, social clubs, voluntary employee benefit associations, supplemental
employment benefit trusts, and qualified group legal services plans that are
exempt from taxation under paragraphs (7), (9 ), (17), and (20), respectively,
of Code Section 501(c) are subject to different UBTI rules, which generally will
require them to characterize distributions from the Company as UBTI.
In addition, a pension trust that owns more than 10% of the Company is
required to treat a percentage of the dividends from the Company as UBTI (the
"UBTI Percentage") in certain circumstances. The UBTI Percentage is the gross
income derived from an unrelated trade or business (determined as if the Company
were a pension trust) divided by the gross income of the Company for the year in
which the dividends are paid. The UBTI rule applies only if (i) the UBTI
Percentage is at least 5%, (ii) the Company qualifies as a REIT by reason of the
modification of the 5/50 Rule that allows the beneficiaries of the pension trust
to be treated as holding shares of the Company in proportion to their actuarial
interests in the pension trust, and (iii) either (A) one pension trust owns more
than 25% of the value of the Company's stock or (B) a group of pension trusts
individually holding more than 10% of the value of the Company's stock
collectively own more than 50% of the value of the Company's stock.
While ownership of Lexington Common Stock by an Exempt Organization
generally is not expected to result in UBTI except in the circumstances
described in the preceding paragraph, any gross UBTI that does arise from such
ownership will be combined with all other gross UBTI of the Exempt Organization
for a taxable year and reduced by all deductions attributable to the UBTI plus
$1,000. Any amount then remaining will constitute UBTI on which the Exempt
Organization will be subject to tax. If the gross income taken into account in
computing UBTI exceeds $1,000, the Exempt Organization is obligated to file a
tax return for such year on IRS Form 990-T. None of the Company, the Board of
Directors, or any of their Affiliates expects to undertake the preparation or
filing of IRS Form 990-T for any Exempt Organization in connection with an
investment by such Exempt Organization in the Lexington Common Stock. Generally,
IRS Form 990-T must be filed with the Service by April 15 of the year following
the year in which it relates.
Taxation of Reinvested Dividends
Those holders of shares of Lexington Common Stock who elect to
participate in the Company's dividend reinvestment plan will be deemed to have
received the gross amount of dividends distributed on their behalf by the plan
agent as agent for the participants in such plan. Such deemed dividends will be
treated as actual dividends to such shareholders by the Company and will retain
their character and have the tax effects as described above. Participants that
are subject to United States federal income tax will thus be taxed as if they
received such dividends despite the fact that their distributions have been
reinvested and, as a result, they will not receive any cash with which to pay
the resulting tax liability.
Other Tax Considerations
Entity Classification. A significant number of the Company's investments
are held through partnerships. If any such partnerships were treated as an
association, the entity would be taxable as a corporation and therefore would be
subject to an entity level tax on its income. In such a situation, the character
of the Company's assets and items of gross income would change and might
preclude the Company from qualifying as a REIT.
Prior to January 1, 1997, an organization formed as a partnership or a
limited liability company was treated as a partnership for United States federal
income tax purposes rather than as an association taxable as a corporation only
if it had no more than two of the four corporate characteristics that the
Treasury Regulations in effect at that time used to distinguish a partnership
from a corporation for tax purposes. These four characteristics were (i)
continuity of life, (ii) centralization of management, (iii) limited liability
and (iv) free transferability of interests. Under final Treasury Regulations
which became effective January 1, 1997, the four factor test has been eliminated
and an entity formed as a partnership or as a limited liability company will be
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taxed as a partnership for United States federal income tax purposes, unless it
specifically elects otherwise. The Treasury Regulations provide that the IRS
will not challenge the classification of an existing partnership or limited
liability company for tax periods prior to January 1, 1997 so long as (1) the
entity had a reasonable basis for its claimed classification, (2) the entity and
all its members recognized the United States federal income tax consequences of
any changes in the entity's classification within the 60 months prior to January
1, 1997, and (3) neither the entity nor any member of the entity had been
notified in writing on or before May 8, 1996, that the classification of the
entity was under examination by the IRS.
The Company believes that each partnership in which it holds an interest
(either directly or indirectly) is properly treated as a partnership for tax
purposes (and not as an association taxable as a corporation).
Tax Allocations with Respect to the Properties. When property is
contributed to a partnership in exchange for an interest in the partnership, the
partnership generally takes a carryover basis in that property for tax purposes
equal to the adjusted basis of the contributing partner in the property, rather
than a basis equal to the fair market value of the property at the time of
contribution (this difference is referred to as "Book-Tax Difference"). Special
rules under 704(c) of the Code and the regulations thereunder tend to eliminate
the Book-Tax Difference on an annual basis or with respect to a specific taxable
transaction such as a sale. Thus, the carryover basis of the contributed
properties in the hands of the partnership could cause the Company (i) to be
allocated lower amounts of depreciation and other deductions for tax purposes
than would be allocated to the Company if all properties were to have a tax
basis equal to their fair market value at the time the properties were
contributed to the partnership, and (ii) possibly to be allocated taxable gain
in the event of a sale of such contributed properties in excess of the economic
or book income allocated to the Company as a result of such sale.
TRUST AMENDMENT (PROPOSAL 2)
At the Meeting, shareholders will also be asked to consider and vote on
an amendment to the Declaration of Trust that will allow CRIT to merge into or
consolidate with any other corporation, association, partnership, trust, limited
liability company or other organization with the approval of a majority of the
CRIT Board of Trustees and the affirmative vote of the holders of a majority of
the outstanding CRIT Shares entitled to vote thereon. Under Massachusetts law,
in order for a Massachusetts business trust to merge into or consolidate with an
unrelated entity, express authority must be contained in the business trust's
declaration of trust. CRIT's Declaration of Trust currently lacks such
authority; therefore, the passage of this amendment is necessary for the
proposed Merger to be consummated. Even if the proposed Merger were not approved
by shareholders or did not otherwise take place, approval of this amendment to
the Declaration of Trust would allow CRIT flexibility to undertake certain
transactions beneficial to the shareholders in the future in the event that the
Merger Proposal is not approved by the Shareholders.
The Declaration of Trust sets forth special voting requirements with
respect to, among other transactions, mergers with an "Acquiring Person" (as
defined in the Declaration of Trust). An Acquiring Person is a person or entity
who, together with its affiliates, and with any other person with whom it has an
agreement with respect to acquiring, holding, voting or disposing of CRIT
Shares, owns 8.5% or more of the outstanding CRIT Shares. In order to merge with
an Acquiring Person, the Declaration of Trust requires the affirmative vote of
not less than 80% of the outstanding CRIT Shares entitled to vote held by
shareholders other than an Acquiring Person. As of June 27, 1997, the Company
owned no CRIT Shares, which means the Company is not an Acquiring Person, and
such special voting provisions do not apply. Pursuant to the Trust Amendment
Proposal, if approved, the affirmative vote of the holders of a majority of the
outstanding CRIT Shares entitled to vote thereon will be required for the
approval of the Merger Proposal. The CRIT Board of Trustees has resolved that
the Trust Amendment Proposal is advisable and in the best interests of the
shareholders and CRIT and recommends that the shareholders of CRIT vote for
its approval. The affirmative vote of the holders of a majority of the
outstanding CRIT Shares entitled to vote thereon is required for the approval
of the Trust Amendment Proposal.
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INFORMATION REGARDING LEXINGTON PROPERTIES
THE COMPANY
The Company is a self-managed and self-administered REIT that acquires,
owns and manages a geographically diversified portfolio of net leased office,
industrial and retail properties. As of the date of this Joint Proxy
Statement/Prospectus, the Company owns controlling interests in 43 Properties
and minority interests in two additional properties. The Properties, all of
which are 100% net leased, are located in 23 states, have approximately 6.3
million net rentable square feet and, under the terms of their applicable
leases, currently generate approximately $42.0 million in annualized base rent.
As of May 1, 1997, the Company's leases had a weighted average remaining term of
approximately 8.6 years (excluding renewal options). The Company's tenants, a
majority of which (based on annual rental revenue) have debt ratings of
investment grade and many of which are nationally recognized, include Bank One,
Arizona, N.A., Circuit City Stores, Inc., Federal Express Corp., The Hartford
Fire Insurance Company, Honeywell, Inc., Northwest Pipeline Corporation, and
Wal-Mart Stores, Inc. The Company currently generates approximately 43%, 33% and
24% of its annual rental revenues from office, industrial and retail properties,
respectively. Substantially all of the Company's leases are "net leases," under
which the tenant is responsible for all costs of real estate taxes, insurance,
ordinary maintenance and structural repairs. Management believes that owning,
acquiring and managing net leased properties results in lower operating expenses
for the Company than the Company otherwise would incur through investments in
properties which were not net leased. See "Properties."
The Company's senior executive officers average 17 years of experience in
the real estate investment and net lease business. Management has diversified
the Company's portfolio by geographical location, tenant industry segment, lease
term expiration and property type with the intention of providing steady
internal growth with low volatility. Management believes that such
diversification should help insulate the Company from regional recession,
industry specific downturns and price fluctuations by property type. Since
August 1, 1995, the Company has also enhanced the value of its portfolio by
acquiring 100% interests in 17 Properties, controlling interests in four
Properties and minority interests in two additional properties. See "--Completed
Acquisitions." As part of management's ongoing efforts, the Company expects to
continue to effect portfolio and individual property acquisitions and
dispositions, expand existing Properties, attract investment grade quality
tenants, extend lease maturities in advance of expiration and refinance
outstanding indebtedness when advisable.
The Company commenced operations in 1993 as a REIT, with several operating
partnership subsidiaries. This operating partnership structure enables the
Company to acquire property by issuing to a seller, as a form of consideration,
interests ("OP Units") in the Company's subsidiary operating partnerships.
Management believes that this structure facilitates the Company's ability to
raise capital and to acquire portfolio and individual properties by enabling the
Company to structure transactions which may defer tax gains for a contributor of
property while preserving the Company's available cash for other purposes,
including the payment of distributions. The Company has used OP Units as a form
of consideration in connection with the acquisition of 13 of the 21 Properties
acquired by the Company since August 1, 1995.
THE NET LEASE REAL ESTATE BUSINESS
Under a typical net lease, the tenant is responsible for all costs of real
estate taxes, insurance and ordinary maintenance. Investments in net leased
properties can offer more predictable returns than investments in properties
which are not net leased, as rising costs of operating net leased properties are
typically absorbed by tenants. Investors in net leased properties have,
historically, included limited partnerships, REITs, pension funds and finance
subsidiaries of large corporations.
Net leased properties are often acquired in sale/leaseback transactions. In
a typical sale/leaseback transaction, the purchaser/landlord (such as the
Company) acquires a property from an operating company and simultaneously leases
the property back to the operating company under a long-term lease. A
sale/leaseback transaction is
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structured to provide the purchaser/landlord with a consistent stream of income
which typically increases periodically pursuant to the lease. Sale/leaseback
transactions are advantageous to the seller/tenant as they (i) enable the
seller/tenant to realize the value of its owned real estate while continuing
occupancy on a long-term basis; (ii) may provide the seller/tenant with
off-balance sheet financing; (iii) may provide the seller/tenant with increased
earnings by replacing generally higher depreciation and mortgage interest costs
with rental costs; and (iv) may reduce the seller's/tenant's debt-to-equity
ratio.
BUSINESS OBJECTIVES
The Company's primary objectives are to increase Funds from Operations (as
defined herein) and cash available for distribution to its shareholders. Since
1995, management has principally focused on:
- effectively managing existing assets through lease extensions, revenue
enhancing property expansions, opportunistic property sales and
redeployment of assets, when advisable;
- acquiring portfolio and individual net lease properties from third
parties, completing sale/leaseback transactions, acquiring build-to-suit
properties and acquiring properties from affiliated net lease
partnerships; and
- refinancing existing indebtedness at lower average interest rates and
increasing the Company's access to capital to finance property
acquisitions and expansions.
INTERNAL GROWTH; EFFECTIVELY MANAGING ASSETS
Tenant Relations and Lease Compliance. The Company maintains close contact
with its tenants in order to understand their future real estate needs. The
Company monitors the financial, property maintenance and other lease obligations
of its tenants through a variety of means, including periodic reviews of
financial statements and physical inspections of the Properties. The Company
performs annual inspections of those Properties where it has an ongoing
obligation with respect to the maintenance of the Property and for all
Properties during each of the last three years prior to lease expiration.
Biannual physical inspections are undertaken for all other Properties.
Extending Lease Maturities. The Company seeks to extend its leases in
advance of their expiration in order to maintain a balanced lease rollover
schedule. Since February 1994, the Company has entered into lease extensions of
three years or more on seven of its Properties.
Revenue Enhancing Property Expansions. The Company undertakes expansions of
its Properties based on tenant requirements. The Company believes that selective
property expansions can provide it with attractive rates of return and actively
seeks such opportunities. From December 1995 to May 28, 1997, the Company
completed property expansions totaling approximately 171,000 net rentable square
feet.
Property Sales and Redeployment of Assets. The Company may determine to sell
a Property, either to the Property's existing tenant or to a third party, if it
deems such disposition to be in the Company's best interest. As of May 28, 1997,
the Company has sold one Property and used the proceeds therefrom to repay
certain mortgage indebtedness, thereby lowering its average cost of borrowing.
The restrictions applicable to REITs may limit the Company's ability to dispose
of a property. See "Federal Income Tax Considerations -- Treatment of the
Company as a REIT -- Income Tests" in the accompanying Joint Proxy
Statement/Prospectus.
ACQUISITION STRATEGIES
The Company seeks to enhance its net lease property portfolio through
acquisitions of general purpose, efficient, well located buildings in growing
markets. Management has diversified the Company's portfolio by geographical
location, tenant industry segment, lease term expiration and property type with
the intention of
44
<PAGE> 52
providing steady internal growth with low volatility. Management believes that
such diversification should help insulate the Company from regional recession,
industry specific downturns and price fluctuations by property type. Prior to
effecting any acquisitions, management analyzes the (i) property's design,
construction quality, efficiency, functionality and location with respect to the
immediate submarket, city and region; (ii) lease integrity with respect to term,
rental rate increases, corporate guarantees and property maintenance provisions;
(iii) present and anticipated conditions in the local real estate market; and
(iv) prospects for selling or re-leasing the property on favorable terms in the
event of a vacancy. Management also evaluates each potential tenant's financial
strength, growth prospects, competitive position within its respective industry
and a property's strategic location and function within a tenant's operations or
distribution systems. Management believes that its comprehensive underwriting
process is critical to the assessment of long-term profitability of any
investment by the Company.
Operating Partnership Structure. The operating partnership structure enables
the Company to acquire property by issuing to a seller, as a form of
consideration, OP Units. Management believes that this structure facilitates the
Company's ability to raise capital and to acquire portfolio and individual
properties by enabling the Company to structure transactions which may defer tax
gains for a contributor of property while preserving the Company's available
cash for other purposes, including the payment of distributions. The Company has
used OP Units as a form of consideration in connection with the acquisition of
13 of the 21 Properties acquired by the Company since August 1, 1995.
Acquisitions of Portfolio and Individual Net Lease Properties. The Company
seeks to acquire portfolio and individual properties that are leased to
creditworthy tenants under long-term net leases. Management believes there is
significantly less competition for the acquisition of property portfolios
containing a number of net leased properties located in more than one geographic
region. Management also believes that the Company's geographical
diversification, acquisition experience and access to capital will allow it to
compete effectively for the acquisition of such net leased properties.
Sale/Leaseback Transactions. The Company seeks to acquire portfolio and
individual net lease properties in sale/leaseback transactions. The Company
selectively pursues sale/leaseback transactions with creditworthy
sellers/tenants with respect to properties that are integral to the
sellers'/tenants' ongoing operations. See "-- The Net Lease Real Estate
Business."
Build-to-suit Properties. The Company may also acquire, after
construction has been completed, "build-to- suit" properties that are entirely
pre-leased to their intended corporate users before construction. As a result,
the Company does not assume the risk associated with the construction phase of a
project.
Acquisitions from Affiliated Net Lease Partnerships. Management believes
that net lease partnerships affiliated with the Company provide it with an
opportunity to acquire properties with which management is already familiar. The
Company has acquired ten Properties and minority interests in two additional
properties from its affiliated limited partnerships since August 1995.
REFINANCING EXISTING INDEBTEDNESS AND INCREASING ACCESS TO CAPITAL
As a result of the Company's financing activities, the weighted average
interest rate on the Company's outstanding indebtedness has been reduced from
approximately 10.0% as of December 31, 1994 to approximately 8.4% immediately
following the Salt Lake City Refinancing. In addition, management is constantly
pursuing opportunities to increase the Company's access to public and private
capital in order to achieve maximum operating flexibility.
45
<PAGE> 53
COMPLETED ACQUISITIONS
Since August 1, 1995, the Company has acquired 100% interests in 17
Properties, controlling interests in four Properties and minority interests in
two additional properties. The following chart sets forth certain information
regarding such properties.
<TABLE>
<CAPTION>
NET
RENTABLE ACQUISITION ANNUALIZED
SQUARE ACQUISITION COST BASE RENT AT LEASE
TENANT LOCATION FEET DATE (IN MILLIONS)(1) MAY 1, 1997(2) EXPIRATION
- ------------------------- ------------------- ---------- ----------- ---------------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Northwest Pipeline Salt Lake City, UT 295,000 05/96 $ 55.392 $ 8,164,712 09/30/09
Corporation(3)
Exel Logistics, Inc. New Kingstown, PA 330,000 03/97 12.200 1,139,496 11/30/06
Liberty House, Inc.(3) Honolulu, HI 85,610 12/96 10.519 962,981 09/30/09
Exel Logistics, Inc. Mechanicsburg, PA 252,000 03/97 9.000 845,242 11/30/06
Hechinger Property Bethesda, MD 95,000 08/95 N/A 772,383 04/30/06
Co.(3)(4)
Cymer, Inc. Rancho Bernardo, CA 65,755 05/97 7.725 736,872 12/31/09
Federated Dept. Stores, Laguna Hills, CA 160,000 08/95 4.528 676,601 01/31/06
Inc.(3)
Johnson Controls, Inc. Plymouth, MI 134,160 12/96 6.296 648,804 12/22/06
Scandinavian Health Spa, Canton, OH 37,214 12/95 4.410 612,692 12/31/08
Inc.
Exel Logistics, Inc. New Kingstown, PA 179,200 03/97 5.900 552,203 11/30/06
Johnson Controls, Inc. Oberlin, OH 111,160 12/96 4.765 491,040 12/22/06
GFS Realty, Inc. Oxon Hill, MD 107,337 08/95 2.534 408,360 02/29/04
Mervyn's(4) Bakersfield, CA 122,000 08/95 N/A 406,948 12/31/02
Toys "R" Us, Inc.(3) Houston, TX 123,293 12/96 3.753 400,200 08/31/06
Toys "R" Us, Inc.(3) Clackamas, OR 42,842 12/96 3.135 382,783 05/31/06
Toys "R" Us, Inc.(3) Lynwood, WA 43,105 12/96 2.928 357,331 05/31/06
Toys "R" Us, Inc.(3) Tulsa, OK 43,123 12/96 2.679 326,925 05/31/06
SKF USA, Inc. Franklin, NC 72,868 12/96 3.413 322,397 12/31/14
Johnson Controls, Inc. Cottondale, AL 58,800 02/97 2.900 288,608 02/18/07
Wal-Mart Stores, Inc. Riverdale, GA 81,911 12/95 2.596 269,770 01/31/11
GFS Realty, Inc.(3) Rockville, MD 51,682 08/95 1.726 224,016 02/28/05
Montgomery Ward & Co., Brownsville, TX 115,000 08/95 1.242 152,760 10/31/04
Inc.(3)
Wal-Mart Stores, Inc. Jacksonville, AL 56,132 02/96 2.050 146,040 01/31/09
---------- ---------------- --------------
Total: 2,663,192 $ 149.691 $ 19,289,164
========== ================ ==============
</TABLE>
- ----------
(1) Represents total capitalized cost for such acquisitions, including
transaction expenses and assumed debt.
(2) Annualized base rent is calculated by multiplying monthly rent in
effect as of May 1, 1997 by 12.
(3) The Company holds leasehold interests in the land on which these
buildings are situated. The Company owns in fee simple the land on
which all other listed buildings are situated.
(4) The Company holds 33.85% and 19% of the limited partnership interests
in the limited partnerships that, respectively, own the properties in
Bethesda, MD and Bakersfield, CA.
46
<PAGE> 54
RECENT ACTIVITIES
RECENT ACQUISITIONS
Cymer, Inc.; Rancho Bernardo, California. In May 1997, the Company acquired
a 65,755 square foot office/research and development facility in Rancho
Bernardo, California for approximately $7.7 million. The Property is currently
leased to Cymer, Inc. under a net lease which expires in December 2009. The
acquisition was financed with cash proceeds from the sale of Convertible
Preferred Stock. See "--Financing Activities." The lease provides for current
annualized base rent payments (including a management fee) of $736,872, which
will increase to $755,294 on June 1, 1997 and by approximately 5% every two
years thereafter. The average annual net rent payable during the remaining lease
term is $860,419, or approximately 11.1% of the purchase price.
Exel Logistics; Pennsylvania. In March 1997, the Company acquired the Exel
Pennsylvania Properties, totaling 761,200 net rentable square feet, for $27.0
million. The Exel Pennsylvania Properties are all 100% leased to Exel Logistics,
Inc. under net leases which expire in November 2006. The acquisition was
financed with net proceeds of approximately $24.1 million from the sale of the
Exchangeable Notes and the balance of approximately $2.9 million in cash.
Current annualized base rent payments under the leases total approximately $2.5
million. The average annual net rent payable during the remaining terms of the
leases is approximately $3.0 million or approximately 11.1% of the purchase
price.
Johnson Controls; Alabama. In February 1997, the Company acquired a 58,800
square foot industrial property in Cottondale, Alabama for approximately $2.9
million. The Cottondale Property is leased to Johnson Controls, Inc. under a net
lease which expires in February 2007. The acquisition was financed entirely with
borrowings under the Credit Facility. The current annualized base rent is
$288,608 and increases annually by three times the percentage change in the
Consumer Price Index ("CPI"), not to exceed 4.5%.
PENDING ACQUISITIONS
In addition to the Merger, the Company has pending the following
acquisitions:
Bull HN Information Systems; Phoenix, Arizona. The Company has entered into
a definitive agreement to acquire a 137,058 square foot office building in
Phoenix, Arizona for approximately $10.9 million (the "Bull Information Systems
Acquisition," and together with the Merger, the "Pending Acquisitions"). The
property is currently net leased to Bull HN Information Systems, Inc. through
October 2005. The Bull Information Systems Acquisition will be financed with
approximately $600,000 in a promissory note issued to the seller, the assumption
of approximately $5.9 million of mortgage indebtedness (which bears interest at
8.12%), a credit received by the Company for the transfer of an existing
security deposit of approximately $1.0 million in cash. The current annualized
base rent on the property is $972,118. The average annual net rent payable
during the remaining lease term is $1,028,260. The groundwater under the Bull HN
Information Systems, Inc. property has been contaminated by a prior owner of
this property. The contamination currently is under remediation. Honeywell,
Inc., the prior owner, and the tenant, Bull HN Information Systems, Inc. (which
was owned by Honeywell at the time of the contamination) have agreed to be
solely responsible for all environmental costs and liabilities associated with
this contamination and its remediation. In the event the acquisition of this
property is consummated by the Company, at the closing of this acquisition, the
Company will be assigned the benefits of an indemnification agreement under
which Bull HN Information Systems, Inc. will be obligated to indemnify the
Company against any liabilities relating to this contamination. There can be no
assurance that the Bull Information Systems Acquisition will be consummated or,
if consummated, as to the timing thereof.
FINANCING ACTIVITIES
Public Offering of Lexington Common Stock. In June 1997, the Company
completed an offering of 2,800,000 shares of Lexington Common Stock, at a price
of $13.75 per share, less underwriting discounts and commissions.
47
<PAGE> 55
Proceeds of the offering, net of underwriting fees, amounted to $36.2 million,
which was used to repay debt, and the balance was used for other general
corporate purposes.
Salt Lake City Refinancing. In May 1997, the Company completed the
refinancing of $22.1 million mortgage (the "Refinanced Amount") secured by its
Property in Salt Lake City, Utah (the "Salt Lake City Refinancing"). The Company
borrowed approximately $24.25 million to effect the Salt Lake City Refinancing,
with excess proceeds used to pay debt restructuring and transaction costs and
for general corporate purposes. The Salt L ake City Refinancing reduced the
stated interest rate on the Refinanced Amount from 12.9% to 7.61% per annum,
and, commencing January 1, 1998, will reduce the Company's annual debt service
payments by approximately $1.35 million. See "Indebtedness of the Company."
Partnership Merger. In March 1997, in connection with the acquisition of
three warehouse properties in Pennsylvania (the "Exel Pennsylvania Properties"),
an unaffiliated partnership (the "Exel Partnership"), merged into Lepercq
Corporate Income Fund L.P. ("LCIF"). As a result of the merger, LCIF issued
480,028 OP Units (the "Exel Partnership OP Units") exchangeable beginning in
April 1999 for shares of Lexington Common Stock, to the former partners of the
Exel Partnership. The Exel Partnership OP Units are entitled to distributions at
the same rate as shares of Lexington Common Stock. At the time of the merger,
the Exel Partnership's sole assets consisted of approximately $6.0 million in
cash and the right to acquire the Exel Pennsylvania Properties in a tax-free
exchange under the Code.
Sale of Exchangeable Notes. In March 1997, in connection with the
acquisition of the Exel Pennsylvania Properties, LCIF issued and sold $25
million aggregate principal amount of its 8.0% Exchangeable Redeemable Secured
Notes (the "Exchangeable Notes") to an institutional investor in a private
placement. The Exchangeable Notes bear interest at a rate of 8.0% per annum and
mature in March 2004. The Exchangeable Notes are secured by first mortgage liens
on the Exel Pennsylvania Properties, are fully guaranteed by the Company and can
be exchanged by the holders thereof for shares of Lexington Common Stock at $13
per share beginning in the year 2000, subject to adjustment. The Exchangeable
Notes require interest only payments semi-annually in arrears and may be
redeemed at the Company's option after three years at a price of 103.2% of the
principal amount thereof, declining to par after five years. In connection with
the sale of the Exchangeable Notes, the Company entered into certain related
agreements providing for, among other things, certain demand and piggyback
registration rights to the initial purchaser of the Exchangeable Notes. The
Exchangeable Notes are subordinated in right of payment to the Company's
obligations under the Credit Facility (as defined below).
Credit Facility. In February 1997, the Company's secured revolving credit
facility (the "Credit Facility") was amended to extend the maturity to June 1999
and to increase the maximum borrowing availability to $60 million. The Credit
Facility is currently secured by first mortgage liens on seven Properties and
bears interest at 150 basis points over the London Inter-Bank Offered Rate
("LIBOR"). As of May 28, 1997, the aggregate amount outstanding under the Credit
Facility was approximately $26.4 million, with an interest rate thereon of
approximately 7.2%. The Credit Facility contains various leverage, debt service
coverage, net worth maintenance and other customary covenants. See "Indebtedness
of the Company."
Sale of Convertible Preferred Stock. In December 1996, the Company entered
into an agreement with Five Arrows Realty Services L.L.C. ("Five Arrows")
providing for the sale of up to 2,000,000 shares of Convertible Preferred Stock.
Under the terms of the agreement, the Company may sell the Convertible Preferred
Stock to Five Arrows at up to three closings, at the Company's option, during
1997 for an aggregate price of approximately $25 million. The Convertible
Preferred Stock, which is convertible into Lexington Common Stock on a
one-for-one basis at $12.50 per share, subject to adjustment, is entitled to
quarterly distributions equal to the greater of $.295 or the product of 1.05 and
the per share quarterly distribution on Lexington Common Stock. The Convertible
Preferred Stock may be redeemed by the Company after five years at a 6% premium
over the liquidation preference of $12.50 per share (plus accrued and unpaid
dividends), with such premium declining to zero on or after December 31, 2011.
Each share of Convertible Preferred Stock is entitled to one vote per share and
holders will be entitled to vote on all matters submitted to a vote of holders
of outstanding Lexington Common Stock. In connection with such sale, the Company
has entered into certain related agreements with Five
48
<PAGE> 56
Arrows, providing, among other things, for certain demand and piggyback
registration rights with respect to such shares and the right to designate a
member or members of the Board of Directors under certain circumstances. John D.
McGurk is currently serving as Five Arrows' designee to the Board of Directors
of the Company.
As of May 28, 1997, two closings under the agreement have taken place. On
January 21, 1997, the Company sold 700,000 shares of Convertible Preferred Stock
to Five Arrows and used the proceeds of approximately $ 8.75 million to repay in
full approximately $8.5 million of outstanding mortgage indebtedness (including
$520,000 of related prepayment premiums) on Properties located in Tulsa,
Oklahoma; Clackamas, Oregon; Lynnwood, Washington; and Houston, Texas. Such
mortgage indebtedness bore interest at 12.625% per annum and would have required
interest and principal payments of approximately $1.45 million in 1997. On April
2 8, 1997, the Company sold an additional 625,000 shares of Convertible
Preferred Stock to Five Arrows and used the proceeds of approximately $7.8
million to acquire a Property in Rancho Bernardo, California. Pursuant to the
agreement with Five Arrows, the Company may sell an additional 675,000 shares of
Convertible Preferred Stock for a sale price of $8.5 million before December 31,
1997.
REMIC Financing. In May 1995, the Company completed the $70 million debt
offering (the "REMIC Financing") by issuing commercial mortgage pass-through
certificates secured by 15 Properties, and used a portion of the proceeds to
repay approximately $51 million of mortgage indebtedness on eight such
Properties. The remaining net proceeds of the REMIC Financing were used to repay
other existing indebtedness and for general corporate purposes. The REMIC
Financing has a fixed interest rate of 8.10% and matures in May 2005.
See "Indebtedness of the Company."
POTENTIAL ACQUISITIONS FROM AFFILIATES
The Company has been granted an option (the "Option") by The LCP Group, L.P.
("LCP"), an affiliate of E. Robert Roskind, Chairman of the Board of Directors
and Co-Chief Executive Officer of the Company, exercisable at any time, to
acquire general partnership interests ("General Partnership Interests")
currently owned by LCP in two limited partnerships, Net 1 L.P. and Net 2 L.P.
(together, the "Net Partnerships"), which own net leased office, industrial and
retail properties. The Net Partnerships own a total of 60 single-tenant
properties located in 16 states which contain approximately 1.3 million net of
rentable square feet. The tenants of such properties include Alco Standard
Corporation, Ameritech Services, Honeywell, Inc. and Wal-Mart Stores, Inc. Under
the terms of the Option, the Company, subject to review of any such transaction
by the independent members of its Board of Directors, may acquire the General
Partnership Interests at their fair market value based upon a formula relating
to partnership cash flows, with the Company retaining the option of paying such
fair market value in securities of the Company, OP Units, cash or a combination
thereof. The Company has not yet determined whether to exercise the Option.
POSSIBLE PROPERTY SALE
Ross Stores, Inc. ("Ross Stores"), the tenant of the Company's Newark,
California Property ("Ross Stores Newark Property"), has exercised an option to
purchase the Ross Stores Newark Property for its fair market value, which was
determined by arbitration based on estimates of fair market value submitted by
Ross Stores and the Company. The estimate of the fair market value of the Ross
Stores Newark Property submitted by Ross Stores was selected by the arbitrator
and confirmed by a California state court. The arbitration decision would allow
Ross Stores to purchase the Ross Stores Newark Property for $24.8 million on or
about September 1, 1997. The Company is currently appealing the state court
decision approximately $3.4 million and the outcome of such appeal cannot be
determined at this time. The net book value of the Ross Stores Newark Property
at March 31, 1997 was approximately $25.5 million, which includes approximately
$1.5 million of deferred rent and deferred expenses related to the REMIC
Financing which were allocated to the Ross Stores Newark Property. If the
Company does not prevail on its appeal of the California state court decision,
the potential loss on the sale of the Ross Stores Newark Property as of
September 1, 1997 would be approximately $400,000, after the write-off of
$514,895 of deferred financing expenses. Subject to the approval of the
trustee under the REMIC trust, the Company is permitted to substitute another
property into the REMIC Financing pool in place of the Ross Stores Newark
Property. In the
49
<PAGE> 57
event the Company is unable to complete such substitution, the Company would be
required to repay approximately $19.6 million of the REMIC Financing and would
incur a prepayment premium of approximately $750,000. As of May 1, 1997, the
annualized base rent for the Ross Stores Newark Property was approximately $3.3
million, which is scheduled to increase to approximately $3.4 million commencing
September 1, 1997. See "Risk Factors -- Dependence on Major Tenants" and "Risk
Factors -- Possible Property Disposition" in the accompanying Joint Proxy
Statement/Prospectus.
REORGANIZATION OF THE COMPANY AS A MARYLAND REAL ESTATE INVESTMENT TRUST
The Company is currently incorporated under the laws of the State of
Maryland, but intends to reorganize as a Maryland REIT in 1997. The
reorganization is expected to result in franchise tax savings for the Company in
certain jurisdictions in which the Company owns properties. The reorganization
will be effected by merging the Company with and into a newly formed Maryland
REIT. In the merger, each outstanding share of Lexington Common Stock and
Convertible Preferred Stock of the Company will be converted into one common
share of beneficial interest or preferred share of beneficial interest, as the
case may be, of the Maryland REIT. Each common or preferred share of beneficial
interest in the Maryland REIT will entitle the holder thereof to the same voting
rights to which such shareholder was entitled prior to the merger, and it will
not be necessary for shareholders of the Company to surrender or exchange their
existing stock certificates for new certificates of the Maryland REIT. The Board
of Directors does not believe that the reorganization will result in any
material change in the Company's business or operations, or otherwise have any
affect on the Company's financial statements. Upon effectiveness of the merger,
the Company will be known as Lexington Corporate Properties Trust.
The Company believes that the merger will be treated for United States
federal income tax purposes as a reorganization within the meaning of Section
368(a)(1)(F) of the Code. Accordingly, holders of shares of Lexington Common
Stock and Convertible Preferred Stock will not recognize any gain or loss for
United States federal income tax purposes as a result of the conversion of their
shares into shares of the Maryland REIT. For United States federal income tax
purposes, a holder's aggregate basis in the shares of the Maryland REIT received
in the merger will equal such holder's adjusted basis in the shares converted
therefor and such holder's holding period for the new shares received in the
merger will include such holder's holding period in the shares converted
therefor. In addition, the Company will not recognize any gain or loss for
United States federal income tax purposes upon the transfer of its property to
the Maryland REIT pursuant to the merger. Holders of shares of Lexington Common
Stock should consult their own tax advisers as to the application and effect of
United States federal, state, local and foreign income and other tax laws to the
conversion of their shares of Lexington Common Stock or Convertible Preferred
Stock into shares of the Maryland REIT in the merger. See "The Merger -- Certain
United Stated Federal Income Tax Consequences."
ORGANIZATIONAL STRUCTURE
The chart set forth below provides information with regard to certain
property-holding affiliates of the Company as of the date of this Joint Proxy
Statement/Prospectus.
[ORGANIZATIONAL CHART]
(A) An approximately 32% limited partnership interest is held by certain
other limited partners.
(B) An approximately 2% limited partnership interest is held by certain
other limited partners.
(C) Each of the Barnes Partnership properties is owned by a limited
partnership of which LCIF is the controlling general partner.
(D) LCIF holds a minority interest in the limited partnerships which own
these properties.
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<PAGE> 58
DISTRIBUTIONS ON OP UNITS
The Company's operating partnership structure enables the Company to acquire
property by issuing to a seller, as a form of consideration, OP Units. All of
such OP Units are convertible at certain times into shares of Lexington Common
Stock on a one-for-one basis and all of such interests require the Company to
pay certain distributions to the holders thereof. As a result, the Company's
cash available for distribution to holders of Lexington Common Stock and
Convertible Preferred Stock is reduced by the amount of the distributions
required by the terms of such OP Units, and the number of shares of Lexington
Common Stock that will be outstanding in the future should be expected to
increase, from time to time, as such OP Units and shares of Convertible
Preferred Stock are converted into shares of Lexington Common Stock. The table
set forth below provides certain information with respect to such OP Units as of
March 31, 1997.
The general partner of each of the limited partnerships has the right to
redeem the OP Units held by all, but not less than all, of the limited partners
under certain circumstances, including but not limited to a merger, sale of
assets or other transaction by the Company or such partnerships which would
result in a change of beneficial ownership in the Company or such partnership by
50% or more.
<TABLE>
<CAPTION>
CONVERTIBLE
CURRENT INTO SHARES
NUMBER ANNUALIZED TOTAL OF COMMON UNITS OWNED
OF UNITS PER UNIT ANNUALIZED STOCK BY
PARTNERSHIP ISSUED DISTRIBUTION DISTRIBUTIONS COMMENCING: AFFILIATES(1)
- -------------------------------------- ----------- -------------- --------------- ---------------- -------------
<S> <C> <C> <C> <C> <C>
LCIF-- Special Limited Partners....... 112,229 $ 1.16 (2) $ 130,186 At any time 85,933
LCIF II Special Limited Partners...... 56,880 1.16 (2) 65,981 At any time 44,598
Barngiant Livingston.................. 52,335 0.27 (3) 14,130 3/04 1,593
Barnhale Modesto...................... 23,267 0 (3) N/A 2/06 1,743
Barnes Rockshire...................... 36,825 0 (3) N/A 3/05 1,933
Barnvyn Bakersfield................... 7,441 0 (3) N/A 1/03 978
Barnhech Montgomery................... 11,766 0.29 (3) 3,412 5/06 695
Barnward Brownsville.................. 35,400 0 (3) N/A 11/04 2,856
Red Butte Creek Associates............ 1,715,294 0.66 (4) 1,132,094 5/98 6,540
114,006 1.08 (5) 123,126 5/98 114,006
Toy Properties Associates II.......... 94,999 1.12 (6) 106,398 1/99 23,088
Toy Properties Associates V........... 34,988 1.12 (6) 39,186 1/99 11,797
Fort Street Partners.................. 207,728 0 (7) N/A 1/06 416
17,259 1.12 (6) 19,330 1/99 17,259
Exel Partnership...................... 480,028 1.16 (2) 556,832 4/99 -
----------- --------------- -------------
3,000,445 $2,190,675 313,435
=========== =============== =============
</TABLE>
- ----------
(1) Represents OP Units owned by affiliates of the Company: Richard J.
Rouse, E. Robert Roskind (each a member of the Board of Directors and
Co-Chief Executive Officer of the Company), The LCP Group, L.P. and its
affiliates.
(2) Holders of these units receive distributions that are equal to
distributions on Lexington Common Stock.
(3) Holders of these units receive distributions as noted until such units
become eligible for conversion to Lexington Common Stock, upon which
date they will receive distributions as described in (2) above.
(4) Distributions on these units will increase to $1.08 annually in January
1998.
(5) Holders of these units receive distributions that are equal to
distributions on Lexington Common Stock, with an annual cap of $1.08.
(6) Holders of these units receive distributions that are equal to
distributions on Lexington Common Stock, with an annual cap of $1.12.
(7) Holders of these units will receive distributions as described in
footnote (6) above when they become eligible for conversion into
Lexington Common Stock.
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<PAGE> 59
PROPERTIES
As of June 25, 1997, the Company owns controlling interests in 43 Properties
and minority interests in two additional properties. The Properties, all of
which are 100% net leased, are located in 23 states, have approximately 6.3
million net rentable square feet and, under the terms of their applicable
leases, currently generate approximately $42.0 million in annualized base rent.
The Company's leases currently have a weighted average remaining term (excluding
renewal options) of approximately 8.6 years. A majority of the Company's tenants
have debt ratings of investment grade. The Company currently generates
approximately 43%, 33% and 24% of its annualized base rent from office,
industrial and retail properties, respectively.
The following table sets forth certain information, as of the date of this
Joint Proxy Statement/Prospectus, regarding each of the Properties (excluding
the Ross Stores Newark Property), the two properties in which the Company owns a
minority interest and the Pending Acquisitions.
<TABLE>
<CAPTION>
ANNUALIZED
LAND AREA (ACRES)/ BASE LEASE TERM AND (RENEWAL BASE RENT AT
TENANT AND PROPERTY LOCATION YEAR NET RENTABLE ANNUAL RENTS PER NET OPTIONS) TERM MAY 1,
(OBLIGOR*/GUARANTOR**) BUILT SQUARE FEET RENTABLE SQUARE FOOT PER OPTION 1997(1)
- ------------------------------------ --------- ------------------- ---------------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Office
Northwest Pipeline Corporation (2).... 1982 19.79/ 10/82-90/09 (1) 9 year $ 8,164,712
295 Chipeta Way 295,000 10/95-09/97: $27.68 (1) 10 year
Salt Lake City, UT 10/97-09/09: $29.06
(plus CPI adjustments)
Circuit City Stores, Inc.(2)(3)....... 1990 19.71/ 03/90-02/10 (4) 10 year $ 2,478,125
9950 Mayland Drive 288,562 03/96-02/00: $ 8.59 (1) 5 year
Richmond, VA 03/00-02/10: $ 9.91
Stratus Computer, Inc. (4)............ 1988 17.02/ 01/90-01/00 (2) 10 year $ 2,253,776
55 Fairbanks 202,087 02/95-01/00: $11.15
Marlborough, MA
Hartford Fire Insurance Company(5).... 1983 12.40/ 09/91-12/05 (1) 5 year $ 2,165,500
200 Southington Executive Park 153,364 01/95-12/05: $14.12
Southington, CT
Bank One, Arizona, N.A................ 1960 & 10.26/ 11/88-11/98 (2) 5 year $ 1,967,059
3615 North 27th Avenue 1979 179,280 06/96-11/98: $10.97
Phoenix, AZ
Honeywell, Inc.(5).................... 1985 51.79/ 07/86-07/01 (3) 5 year $ 1,892,250
19019 No. 59th Avenue 252,300 07/96-07/01: $ 7.50
Glendale, AZ
Time Customer Service, Inc............ 1986 14.38/ 04/87-03/02 (4) 5 year $ 1,102,412
10419 North 30th Street 132,981 01/97-12/97: $ 8.29
Tampa, FL 01/98-12/98: $ 8.78
(Time, Inc.**) 01/99-12/99: $ 9.31
01/00-12/00: $ 9.87
01/01-12/01: $10.46
01/02-03/02: $11.09
Bull HN Information
Systems, Inc.(3)(6)................... 1985 & 13.37/ 10/94-10/05 None $ 972,118
13430 North Black Canyon Freeway 1994 137.058 10/94-10/00: $ 7.09
Phoenix, AZ 10/00-10/01: $ 7.43
10/01-10/02: $ 7.62
10/02-10/03: $ 7.82
10/03-10/04: $ 8.01
10/04-10/05: $ 8.20
</TABLE>
52
<PAGE> 60
<TABLE>
<CAPTION>
ANNUALIZED
LAND AREA (ACRES)/ BASE LEASE TERM AND (RENEWAL BASE RENT AT
TENANT AND PROPERTY LOCATION YEAR NET RENTABLE ANNUAL RENTS PER NET OPTIONS) TERM MAY 1,
(OBLIGOR*/GUARANTOR**) BUILT SQUARE FEET RENTABLE SQUARE FOOT PER OPTION 1997(1)
- ------------------------------------ ---------- ------------------- --------------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Cymer, Inc............................ 1989 2.73/ 06/96-12/09 None $ 736,872
16160 West Bernardo Drive 65,755 06/96-05/97: $10.98
Rancho Bernardo, CA 06/97-05/99: $11.26
------------------- 06/99-05/01: $11.82 --------------
161.45/ 06/01-05/03: $12.42 $ 21,732,824
SUBTOTAL: OFFICE 1,706,387 06/03-05/05: $13.04
------------------- 06/05-05/07: $13.69 --------------
06/07-12/09: $14.37
Industrial
Exel Logistics, Inc.(7)............... 1985, 1991 29.01/ 10/90-03/12 (2) 10 year $ 1,771,262
6345 Brackbill Boulevard & 1995 507,000 03/97-03/02: $ 3.49
Mechanicsburg, PA 03/02-03/07: $ 4.02
(NFC plc**) 03/07-03/12: greater
of $4.62 or fair
market rent as
specified in the lease
Federal Express Corp.(7).............. 1987 10.92/ 02/88-01/98 (1) 5 year $ 1,284,953
3350 Miac Cove Road 141,359 02/93-01/98: $ 9.09
Memphis, TN
Exel Logistics, Inc................... 1989 24.38/ 11/15/91-11/30/06 (2) 5 year $ 1,139,496
6 Doughton Road 330,000 12/01/94-11/30/97:
New Kingstown, PA $3.45
(NFC plc**) 12/01/97-11/30/00:
$3.77
12/01/00-11/30/03:
$4.12
12/01/03-11/30/06:
$4.51
Time Customer Service, Inc............ 1986 15.02/ 08/87-07/02 (1) 5 year $ 913,828
3102 Queen Palm Drive 229,605 08/96-07/98: $ 3.98
Tampa, FL 08/98-07/01: $ 4.16
(Time, Inc.**) 08/01-07/02: $ 4.39
Exel Logistics, Inc................... 1985 12.52/ 11/91-11/06 (2) 5 year $ 845,242
245 Salem Church Road 252,000 12/94-11/97: $ 3.35
Mechanicsburg, PA 12/97-11/00: $ 3.67
(NFC plc**) 12/00-11/03: $ 4.01
12/03-11/06: $ 4.38
Johnson Controls, Inc.(5)............. 1996 24.00/ 12/96-12/06 (2) 5 year $ 648,804
46600 Port Street 134,160 12/96-12/97: $ 4.84
Plymouth, MI 12/97-12/06: annual
esc. equal to 3xCPI,
not to exceed
4.5%/annum
White Consolidated
Industries, Inc.(7)................... 1970 26.57/ 12/86-12/01 (2) 5 year $ 593,436
Tappan Park 296,720 01/97-12/01: $ 2.00
22 Chambers Road (8)
Mansfield, OH
Exel Logistics, Inc................... 1981 9.66/ 11/91-11/06 (2) 5 year $ 552,203
34 East Main Street 179,200 12/94-11/97: $ 3.08
New Kingstown, PA 12/97-11/00: $ 3.37
(NFC plc**) 12/00-11/03: $ 3.68
12/03-11/06: $ 4.02
</TABLE>
53
<PAGE> 61
<TABLE>
<CAPTION>
ANNUALIZED
LAND AREA (ACRES)/ BASE LEASE TERM AND (RENEWAL BASE RENT AT
TENANT AND PROPERTY LOCATION YEAR NET RENTABLE ANNUAL RENTS PER NET OPTIONS) TERM MAY 1,
(OBLIGOR*/GUARANTOR**) BUILT SQUARE FEET RENTABLE SQUARE FOOT PER OPTION 1997(1)
- ------------------------------------ --------- ------------------- --------------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Johnson Controls, Inc.(5)........... 1996 25.20/ 12/96-12/06 (2) 5 year $ 491,040
450 Stern Street 111,160 12/96-12/97: $ 4.42
Oberlin, OH 12/97-12/06: annual
esc. equal to 3xCPI,
not to exceed
4.5%/annum
Allegiance Healthcare
Corporation(2)(3)................... 1991 10.16/ 09/91-09/01 (2) 5 year $ 472,500
5950 Greenwood Pkway 123,924 09/91-09/01: $ 3.81
Bessemer, AL
(Baxter International, Inc.**)
Walker Manufacturing
Company(7).......................... 1968 & 20.00/ 08/87-08/00 None $ 446,059
904 Industrial Road 1972 195,640 08/94-08/97: $ 2.28
Marshall, MI 08/97-08/00: greater
(Tenneco Automotive, Inc.**) of $2.49 or CPI esc.
Toys "R" Us, Inc.(2)................ 1981 7.56/ 09/81-08/06 (5) 5 year $ 400,200
West Wingfoot Rd. 123,293 09/87-04/98 $ 3.25
Houston, TX 05/98-08/06 $ 3.98
Unisource Worldwide, Inc............ 1958 & 7.00/ 10/87-09/02 None $ 346,040
109 Stevens Street 1969 168,800 10/92-09/97: $ 2.05
Jacksonville, FL 10/97-09/02: $ 2.25
Dana Corporation(3)................. 1983 & 20.95/ 08/92-08/07 (2) 5 year $ 325,367
One Spicer Dr. 1985 148,000 08/96-07/99: $ 2.20 (1) 4 years,
Gordonsville, TN 08/99-07/02: $ 2.26 11 mos.
08/02-07/05: $ 2.33
08/05-08/07: $ 2.40
SKF USA, Inc........................ 1996 21.13/ 12/96-12/14 (3) 10 year $ 322,397
324 Industrial Park Road 72,868 12/96-12/99: $ 4.42
Franklin, NC 01/00-12/14: CPI
adjusted every three
years
Crown Cork & Seal
Company, Inc.(7).................... 1970 & 5.80/ 09/86-09/01 (1) 5 year $ 293,460
567 So. Riverside Drive 1976 146,000 09/96-09/01: $ 2.01
Modesto, CA
Johnson Controls, Inc.(5)........... 1997 22.20/ 02/97-02/07 (2) 5 year $ 288,608
15911 Progress Drive 58,800 02/97-02/98: $ 4.91
Cottondale, AL 02/98-02/07: annual
esc. equal to 3xCPI,
not to exceed
4.5%/annum
Walker Manufacturing
Company(7).......................... 1979 8.26/ 08/87-08/00 None $ 152,760
1601 Pratt Avenue 53,600 08/94-08/97: $ 2.85
Marshall, MI 08/97-08/00: greater
(Tenneco Automotive, Inc.**) of $ 3.11 or CPI esc.
------------------- --------------
300.34/ $ 11,287,655
SUBTOTAL: INDUSTRIAL 3,272,129
------------------- --------------
</TABLE>
54
<PAGE> 62
<TABLE>
<CAPTION>
ANNUALIZED
LAND AREA (ACRES)/ BASE LEASE TERM AND (RENEWAL BASE RENT AT
TENANT AND PROPERTY LOCATION YEAR NET RENTABLE ANNUAL RENTS PER NET OPTIONS) TERM MAY 1,
(OBLIGOR*/GUARANTOR**) BUILT SQUARE FEET RENTABLE SQUARE FOOT PER OPTION 1997(1)
- ------------------------------------ --------- ------------------- --------------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Retail
Fred Meyer, Inc.(7)................. 1986 13.90/ 03/88-03/08 (3) 10 year $ 1,009,375
2655 Shasta Way 178,204 03/88-03/08: $ 5.66
Klamath Falls, OR
Liberty House, Inc.(2).............. 1980 1.22/ 10/80-09/09 (1) 115 mos. $ 962,981
Fort Street Mall (King St.) 85,610 10/95-09/05: $11.25 (1) 2 year
Honolulu, HI 10/05-09/09: $11.56 (3) 5 year
Fred Meyer, Inc.(7)................. 1986 8.81/ 06/86-05/11 (3) 5 year $ 826,086
Highway 101 118,179 06/86-05/11: $ 6.99
Newport, OR plus 0.5% of gross
sales in excess of
$20,000,000 ($60,977
paid in 1997)
Hechinger Property Co.(2)........... 1980 7.61/ 05/81-04/06 (1) 10 year $ 772,383(t)
7111 Westlake Terrace 95,000 05/96-04/06: $ 8.13 (3) 5 year
Bethesda, MD
(Hechinger Stores Company*)
Federated Department
Stores, Inc.(2)..................... 1974 11.00/ 02/76-01/06 (1) 8 year $ 676,601
24100 Laguna Hills Mall 160,000 02/80-01/06: $ 4.23 (2) 15 year
Laguna Hills, CA (1) 6 year
Physical Fitness Centers of
Philadelphia, Inc.(7)............... 1987 2.87/ 07/87-07/07 (2) 5 year $ 619,850
1160 White Horse Road 31,750 07/92-07/97: $19.52
Voorhees, NJ 07/97-07/02: $22.45
(Bally Total Fitness Corp.**) 07/02-07/07: $25.82
Scandinavian Health
Spa, Inc............................ 1987 3.32/ 01/89-12/08 (2) 5 year $ 612,692
4733 Hills and Dales Road 37,214 01/97-12/97: $16.46
Canton, OH 01/98-12/08:
(Bally Total Fitness Holding Corp.**) 2.2% annual
escalations
Bally Total Fitness Corp.(7)........ 1987 2.73/ 07/87-07/07 (2) 5 year $ 499,100
5917 South La Grange Road 25,250 07/92-07/97: $19.77
Countryside, IL 07/97-07/02: $22.73
07/02-07/07: $26.14
GFS Realty, Inc..................... 1976 10.60/ 01/77-02/04 (6) 5 year $ 408,360
9580 Livingston Road 107,337 03/77-02/04: $ 3.80
Oxon Hill, MD
(Giant Food, Inc.**)
Mervyn's............................ 1976 11.00/ 02/77-12/02 (5) 5 year $ 406,948(t)
4450 California Street 122,000 01/78-12/02: $ 3.34
Bakersfield, CA
(Dayton Hudson Corporation**)
Champions Fitness IV, Inc.(7)....... 1977 & 3.66/ 08/87-08/07 (2) 5 year $ 386,400
5801 Bridge Street 1987 24,990 08/92-08/97: $15.46
DeWitt, NY 08/97-08/02: $17.78
(Bally Total Fitness Corp.*) 08/02-08/07: $20.45
Toys "R" Us, Inc.(2)................ 1981 5.85/ 06/81-05/06 (5) 5 year $ 382,783
12535 SE 82nd Avenue 42,842 07/94-01/98 $ 8.93
Clackamas, OR 02/98-05/01 $ 9.74
06/01-05/06 $ 9.91
Toys "R" Us, Inc.(2)................ 1981 3.64/ 06/81-05/06 (5) 5 year $ 357,331
18601 Alderwood Mall Blvd. 43,105 06/86-01/98 $ 8.29
Lynwood, WA 02/98-05/01 $ 9.03
06/01-05/06 $ 9.18
</TABLE>
55
<PAGE> 63
<TABLE>
<CAPTION>
ANNUALIZED BASE
LAND AREA (ACRES)/ BASE LEASE TERM AND (RENEWAL BASE RENT AT
TENANT AND PROPERTY LOCATION NET RENTABLE ANNUAL RENTS PER NET OPTIONS) TERM MAY 1,
(OBLIGOR*/GUARANTOR**) YEAR BUILT SQUARE FEET RENTABLE SQUARE FOOT PER OPTION 1997(1)
- -------------------------------------- ---------- ----------------- -------------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Circuit City Stores
West Coast, Inc.(7)................... 1988 3.93/ 10/88-10/08 (3) 10 year $ 352,580
7272 55th Street 45,308 10/93-10/98: $7.78
Sacramento, CA 10/98-10/03: $8.54
(Circuit City Stores, Inc.*) 10/03-10/08: $9.30
Toys "R" Us, Inc.(2).................. 1981 4.44/ 06/81-05/06 (5) 5 year $ 326,925
6910 S. Memorial Highway 43,123 06/86-01/98 $7.58
Tulsa, OK 02/98-05/01 $8.26
06/01-05/06 $8.40
Circuit City Stores
West Coast, Inc.(7)................... 1988 2.72/ 12/88-12/08 (3) 10 year $ 304,794
6405 South Virginia Street 31,400 12/93-12/98: $ 9.71
Reno, NV 12/98-12/03: $10.65
(Circuit City Stores, Inc.*) 12/03-12/08: $11.60
Wal-Mart Stores
East, Inc.(7)......................... 1985 8.61/ 12/85-01/11 (5) 5 year $ 269,770
7055 Highway 85 South 81,911 12/85-01/11: $3.29
Riverdale, GA
Circuit City Stores
West Coast, Inc.(7)................... 1988 2.57/ 12/88-12/08 (3) 10 year $ 260,560
5055 West Sahara Avenue 36,053 12/93-12/98: $7.23
Las Vegas, NV 12/98-12/03: $7.93
(Circuit City Stores, Inc.*) 12/03-12/08: $8.64
GFS Realty, Inc.(2)................... 1977 7.32/ 01/78-02/05 (1) 12 year $ 224,016
Rockshire Village Center 51,682 01/78-02/05: $4.33 (2) 10 year
West Ritchie Parkway
Rockville, MD
(Giant Food, Inc.**)
Montgomery Ward Co., Inc.(2).......... 1973 7.61/ 11/74-10/04 (3) 5 year $ 152,760
Amigoland Shopping Center 115,000 11/74-10/04: $1.33
Mexico Street and Palm Boulevard
Brownsville, TX
Wal-Mart Stores, Inc.(5).............. 1982 5.21/ 08/83-01/09 (5) 5 year $ 146,040
Highway 21 South 56,132 09/87-01/09: $2.60
Jacksonville, AL plus 1% of gross sales in
excess of $10,290,204
($40,518 paid in 1996)
--------------- -----------
SUBTOTAL: RETAIL 128.62/
1,532,090 $ 9,958,335
---------------- -----------
TOTAL................................. 590.41/6,510,606 (9) $42,978,814
================ ===========
</TABLE>
- ---------------------------
(1) Annualized base rent is calculated by multiplying monthly rent in
effect as of May 1, 1997 by 12.
(2) The Company holds leasehold interests in the land on which these
buildings are situated. The Company owns in fee simple the land on
which all other buildings are situated.
(3) Represents a Pending Acquisition.
(4) The tenant of this Property has indicated its interest in acquiring the
Property from the Company.
(5) The Credit Facility is secured by first mortgage liens on these
Properties. As of May 28, 1997, approximately $26.4 million was
outstanding under the Credit Facility.
(6) Assumes the tenant pays its rent annually in advance, resulting in a
prompt payment discount of 3.5% per year.
(7) The REMIC Financing is secured by first mortgage liens on these
Properties and the Ross Stores Newark Property.
(8) Effective March 1, 1999 tenant may cancel lease upon 12 months notice
and payment of a cancellation fee equal to $197,812.
(9) Includes Pending Acquisitions but excludes the Ross Stores Newark
Property. If the Pending Acquisitions were excluded and the Ross Stores
Newark Property were included, total Net Rentable Square Feet would be
6,338,118 and the Annualized Base Rent at May 1, 1997 would be
$41,986,186.
(t) The Company holds 33.85% and 19% of the limited partnership interest in
the limited partnerships that, respectively, own the properties in
Bethesda, Maryland and Bakersfield, California.
56
<PAGE> 64
The following table sets forth certain information as of May 1, 1997,
regarding the timing of lease expirations of the Company's Properties (excluding
the Ross Stores Newark Property), the two properties owned by limited
partnerships in which the Company holds a minority interest and the Pending
Acquisitions.
<TABLE>
<CAPTION>
NUMBER PERCENTAGE OF
OF ANNUALIZED TOTAL
LEASES BASE RENT AT ANNUALIZED
YEAR (1) EXPIRING MAY 1, 1997 (2) BASE RENT
- ---------------------- -------- --------------- -------------
<S> <C> <C> <C>
1997........................ 0 $ 0 0
1998........................ 2 3,252,012 7.57%
1999........................ 0 0 0
2000........................ 3 2,852,595 6.64%
2001........................ 4 3,251,646 7.57%
2002........................ 4 2,769,228 6.44%
2003........................ 0 0 0
2004........................ 2 561,120 1.31%
2005........................ 3 3,361,634 7.82%
2006........................ 11 6,593,008 15.34%
2007........................ 5 2,119,325 4.93%
2008 and thereafter......... 14 18,218,246 42.38%
-- --------------- ------
Total....................... 48 $ 42,978,814 100.00%
== =============== ======
</TABLE>
- ---------------------------
(1) The Company's leases, including the Pending Acquisitions and properties
in which the Company owns a minority interest, currently have an
average weighted remaining term (excluding renewal options) of
approximately 8.6 years.
(2) Annualized base rent is calculated by multiplying monthly base rent in
effect at May 1, 1997 by 12. The amounts do not include percentage
rents (i.e., additional rent calculated as a percentage of the tenant's
gross sales above a specified level), if any, that may be payable under
leases covering certain of the Properties or CPI adjustments.
57
<PAGE> 65
The following table sets forth certain state-by-state information
regarding the Properties (excluding the Ross Stores Newark Property), the two
properties owned by limited partnerships in which the Company holds a minority
interest and the Pending Acquisitions as of May 1, 1997.
<TABLE>
<CAPTION>
Percentage of
Number Annualized Total Annualized
of Net Rentable Base Rent at Base
STATE Properties Square Feet May 1, 1997 (1) Rent
- ----------------------- ------------ ------------ ---------------- ----------------
<S> <C> <C> <C> <C>
Alabama ............... 3 238,856 $ 907,148 2.11%
Arizona ............... 3 568,638 4,831,427 11.24
California ............ 5 539,063 2,466,461 5.73
Connecticut ........... 1 153,364 2,165,500 5.04
Florida ............... 3 531,386 2,362,280 5.50
Georgia ............... 1 81,911 269,770 0.63
Hawaii ................ 1 85,610 962,981 2.24
Illinois .............. 1 25,250 499,100 1.16
Maryland .............. 3 254,019 1,404,759 3.27
Massachusetts ......... 1 202,087 2,253,776 5.24
Michigan .............. 3 383,400 1,247,623 2.90
Nevada ................ 2 67,453 565,354 1.32
New Jersey ............ 1 31,750 619,850 1.44
New York .............. 1 24,990 386,400 0.90
North Carolina ........ 1 72,868 322,397 0.75
Ohio .................. 3 445,094 1,697,168 3.95
Oklahoma .............. 1 43,123 326,925 0.76
Oregon ................ 3 339,225 2,218,244 5.16
Pennsylvania .......... 4 1,268,200 4,308,203 10.02
Tennessee ............. 2 289,359 1,610,320 3.75
Texas ................. 2 238,293 552,960 1.29
Utah .................. 1 295,000 8,164,712 19.00
Virginia............. 1 288,562 2,478,125 5.77
Washington ............ 1 43,105 357,331 0.83
-- --------- ---------------- ------
Total ................. 48 6,510,606 $ 42,978,814 100.00%
== ========= ================ ======
</TABLE>
- ------------------------------------
(1) Annualized base rent is calculated by multiplying monthly base rent in
effect at May 1, 1997 by 12. The amounts do not include percentage rents
(i.e., additional rent calculated as a percentage of the tenant's gross
sales above a specified level), if any, that may be payable under leases
covering certain of the properties.
Substantially all of the Company's leases are net leases, under which the
tenant is responsible for all costs of real estate taxes, insurance and ordinary
maintenance. The remainder of the Company's leases are on terms which management
believes are substantially similar to those of its net leases. However the
Company has retained responsibility for certain structural repairs with respect
to four Properties. Management estimates that the Company's expenditures and
reserves for these items will be approximately $150,000 for the year ended
December 31, 1997 and $175,000 for the year ended December 31, 1998.
The Company carries comprehensive liability, fire, extended coverage and
casualty insurance for all of its Properties, and carries rent loss insurance on
certain of its Properties. However, with respect to certain of the Properties
where the leases do not provide for abatement of rent under any circumstances,
the Company generally does not maintain rent loss insurance. See "Risk Factors
- -- Uninsured Loss" in the accompanying Joint Proxy Statement/Prospectus.
58
<PAGE> 66
INDEBTEDNESS OF THE COMPANY
The Company's aggregate consolidated outstanding indebtedness as of March
31, 1997, was approximately $210.1 million, which consisted of approximately (i)
$68.7 million of indebtedness outstanding under the REMIC Financing, (ii) $27.9
million of borrowings outstanding under the Credit Facility, (iii) $25.0 million
of outstanding indebtedness in respect of the Exchangeable Notes described
below, (iv) $81.8 million of outstanding mortgage indebtedness related to 12
Properties and (v) other debt of approximately $6.7 million. All of the
mortgages outstanding on the Properties have a fixed rate of interest. As of
March 31, 1997, the Company's ratio of debt-to-total market capitalization
(defined as debt divided by the sum of debt plus the market value of equity,
including Lexington Common Stock, Convertible Preferred Stock and OP Units) was
approximately 56.8%. On a pro forma basis, after giving effect to the Pro Forma
Adjustments, the Company's ratio of debt-to-total market capitalization, as of
March 31, 1997, would have been 46.2%.
Salt Lake City Refinancing. In May 1997, the Company completed the
refinancing of a $22.1 million mortgage in the Salt Lake City Refinancing. The
Company borrowed approximately $24.25 million to effect the Salt Lake City
Refinancing, with excess proceeds used to pay debt restructuring and transaction
costs and for general corporate purposes. The Salt Lake City Refinancing reduced
the stated interest rate on the Refinanced Amount from 12.9% to 7.61% per annum
and, commencing January 1, 1998, will reduce the Company's annual debt service
payments by $1.35 million.
Sale of Exchangeable Notes. In March 1997, in connection with the
acquisition of the Exel Pennsylvania Properties, LCIF issued and sold $25
million aggregate principal amount of its Exchangeable Notes to an institutional
investor in a private placement. The Notes bear interest at a rate of 8.0% per
annum and mature in March 2004. The Exchangeable Notes are secured by first
mortgage liens on the Exel Pennsylvania Properties, are fully guaranteed by the
Company and can be exchanged by the holders thereof for shares of Lexington
Common Stock at $13 per share beginning in the year 2000, subject to adjustment.
The Exchangeable Notes require interest only payments semi-annually and may be
redeemed at the Company's option after three years at a price of 103.2% of the
principal amount thereof, declining to par after five years. In connection with
the sale of the Exchangeable Notes, the Company entered into certain related
agreements providing for, among other things, certain demand and piggyback
registration rights to the initial purchaser of the Exchangeable Notes. The
Exchangeable Notes are subordinated in right of payment to the Company's
obligations under the Credit Facility.
Credit Facility. In February 1997, the Company's secured revolving Credit
Facility was amended to extend the maturity to June 1999 and to increase the
maximum borrowing availability to $60 million. The Credit Facility is currently
secured by first mortgage liens on seven Properties and bears interest at 150
basis points over LIBOR. As of May 28, 1997, the aggregate amount outstanding
under the Credit Facility was approximately $26.4 million, with a weighted
average interest rate thereon of approximately 7.2%. The Credit Facility limits
the amount of indebtedness the Company may incur to 60% of the Company's total
market capitalization. The Credit Facility is secured by first mortgage liens on
the following seven Properties: Glendale, Arizona; Southington, Connecticut;
Riverdale, Georgia; Jacksonville, Alabama; Plymouth, Michigan; Oberlin, Ohio;
and Cottondale, Alabama.
REMIC Financing. In May 1995, the Company completed the $70 million REMIC
Financing by issuing commercial mortgage pass-through certificates secured by 15
Properties, and used a portion of the proceeds to repay approximately $51
million of mortgage indebtedness on eight of these Properties. The remaining net
proceeds of the REMIC Financing were used to repay other existing indebtedness
and for general corporate purposes. The REMIC Financing has a fixed interest
rate of 8.10% and matures in May 2005. The REMIC Financing is secured by
Mortgages on the following fifteen Properties: Modesto, California; Mansfield,
Ohio; Marshall, Michigan (904 Industrial Road); Marshall, Michigan (1601 Pratt
Avenue); Memphis, Tennessee; Mechanicsburg (6345 Brackbill Blvd.), Pennsylvania;
Newark, California; Countryside, Illinois; Voorhees, New Jersey; Dewitt, New
York; Newport, Oregon; Sacramento, California; Reno, Nevada; Las Vegas, Nevada;
and Klamath Falls, Oregon.
59
<PAGE> 67
Subordinated Notes. As of March 31, 1997, the Company had approximately
$1.9 million of subordinated notes outstanding (the "Subordinated Notes"). The
Subordinated Notes mature on October 12, 2000 and bear interest at a fixed rate
of 7.75% per annum, payable semiannually on January 1 and July 1 of each year to
the holders of record at the close of business on the December 15 or June 15
immediately preceding such interest payment date. The Subordinated Notes are
redeemable, at the Company's option, in whole or in part, upon not less than 15
nor more than 60 days' notice, at a redemption price equal to 100% of the
principal amount plus all accrued and unpaid interest on the Subordinated Notes
through the date of redemption.
Mortgage Indebtedness. As of May 28, 1997, a total of 12 Properties (in
addition to the Properties securing the Credit Facility and the REMIC Financing)
were subject to outstanding mortgages. The aggregate outstanding principal
amount of such mortgages, including accrued interest thereon, was approximately
$81.4 million as of such date. These mortgages are subject to certain balloon
payments, which, in general, are due over the next five years as follows: $0 in
1997; approximately $10 million in 1998; approximately $5.5 million in 1999 (in
addition to $26.4 under the Credit Facility); approximately $8.0 million in
2000, and $0 in 2001. The ability of the Company to make such mortgage payments
will depend upon the Company's ability to refinance the relevant mortgages, sell
the mortgaged Properties or draw from the Credit Facility sufficient amounts to
satisfy such balloon payments. The ability of the Company to accomplish these
goals may be affected by economic factors affecting the real estate industry
generally, including the available mortgage rates at the time, the Company's
equity in the mortgaged Properties, the financial condition of the Company, the
operating history of the mortgaged Properties, the then current tax laws and the
national, regional and local economic conditions at the time.
The following table sets forth certain information regarding outstanding
mortgage indebtedness on the Company's Properties as of March 31, 1997:
60
<PAGE> 68
<TABLE>
<CAPTION>
APPROXIMATE
INTEREST RATE
MORTGAGE AS OF SCHEDULED
BALANCE AS OF MARCH 31, DEBT SERVICE
PROPERTY LOCATION MARCH 31, 1997 1997 MATURITY IN 1997
- ------------------------------ -------------- -------------- -------- -------------
<S> <C> <C> <C> <C>
Salt Lake City, UT(1)......... $ 22,090,270 12.900% 10/1/05 $ 4,316,798
12,920,150 7.870% 10/1/05 2,098,896
Marlborough, MA............... 10,208,449 10.180% 9/15/00 1,590,857
Tampa, FL
(104 North 30th Street)....... 6,063,332 8.600% 6/1/98 784,539
Honolulu, HI.................. 6,416,085 10.250% 1/1/10 841,170
Phoenix, AZ................... 5,692,694 10.750% 5/1/99 692,707
Laguna Hills, CA.............. 4,633,931 8.375% 2/1/06 665,711
Tampa, FL
(3102 Queen Palm Drive)....... 4,289,775 9.125% 5/1/98 391,442
Canton, OH.................... 2,761,082 9.490% 2/28/09 387,719
Franklin, NC (2).............. 2,300,000 8.500% 4/1/15 222,252
Oxon Hill, MD................. 2,155,895 6.250% 3/1/04 381,042
Rockville, MD................. 1,267,364 8.820% 3/1/05 221,491
Brownsville, TX............... 980,054 8.375% 11/1/04 150,380
------------- ------------
Total......................... $ 81,779,081 (3) $ 12,745,004
============= ============
</TABLE>
- ---------------------------
(1) Before the Salt Lake City Refinancing. See "Recent Activities --
Financing Activities."
(2) Represents the annualized debt service assuming debt was incurred
January 1, 1997.
(3) Does not include mortgage balances of $4,127,244 and $2,415,596 as of
March 31, 1997 from the Bethesda, Maryland and Bakersfield, California
properties, respectively, the minority owned properties.
LEGAL PROCEEDINGS
On August 26, 1996, Ross Stores, Inc., the tenant in the Newark Property,
exercised an option to purchase such Property for its fair market value. The
tenant filed a motion in California state court on February 19, 1997 to confirm
an arbitration decision which would allow the tenant to purchase the Property
for $24.8 million on or about September 1, 1997. On March 18, 1997, the
California state court ruled in favor of the tenant's motion. The Company is
appealing the decision, the outcome of which cannot be determined.
61
<PAGE> 69
CAPITALIZATION
The following table sets forth the historical capitalization of the Company
as of March 31, 1997 and the pro forma capitalization of the Company as of March
31, 1997, which gives effect to the Pro Forma Adjustments. See "--Summary
Historical and Unaudited Pro Forma Consolidated Financial Data." This table
should be read in conjunction with the financial information presented elsewhere
in this Joint Proxy Statement/Prospectus and the Consolidated Financial
Statements of the Company and Notes thereto incorporated by reference.
<TABLE>
<CAPTION>
UNAUDITED
------------------------
AT MARCH 31, 1997
------------------------
HISTORICAL PRO FORMA
---------- ---------
(IN THOUSANDS)
<S> <C> <C>
Debt:
Credit Facility (1) ....................................... $ 27,900 $ --
REMIC (2) ................................................. 68,797 49,193
8% Exchangeable Redeemable Secured Notes .................. 25,059 25,059
Other Mortgage Notes ...................................... 81,938 105,672
Other debt ................................................ 6,370 6,370
-------- --------
Total debt .............................................. 210,064 186,294
Minority interest ......................................... 28,428 28,428
Shareholders' equity:
Preferred Stock, $.0001 par value, 10,000,000 shares
authorized, 700,000 shares of Class A Senior Cumulative
Convertible Preferred issued and outstanding at March 31,
1997; 1,325,000 pro forma shares issued and outstanding . 0 0
Excess stock, $.0001 par value, 40,000,000 shares
authorized, no shares issued or outstanding ............. 0 0
Common Stock, $.0001 par value, 40,000,000 shares
authorized, 9,439,716 shares issued and outstanding at
March 31, 1997, 13,558,947 pro forma shares issued
and outstanding(3) ...................................... 1 1
Paid-in capital ........................................... 99,951 159,045
-------- --------
Total shareholders' equity .............................. 99,952 159,046
-------- --------
Total capitalization .............................. $338,444 $373,768
======== ========
</TABLE>
- ------------------------------------
(1) The pro forma balance reflects a net decrease in borrowings under the
credit facility due to (i) the repayment of such borrowings with a
portion of the net proceeds of the Lexington Common Stock Offering
completed on June 23, 1997 at $13.75 per share and (ii) the net
proceeds from the possible sale of ross stores newark property
assuming the repayment of remic financing of approximately $19.6
million and the associated prepayment penalty of approximately $750,000.
as of May 28, 1997, $26.4 million was outstanding under the credit
facility.
(2) The pro forma balance reflects a net decrease in the remic financing
due to the repayment of such indebtedness of approximately $19.6
million with a portion of the proceeds from the possible sale of the
ross stores newark property.
(3) Assumes exchange of shares in connection with the Merger at $13.75
per share. If the exchange took place at the minimum price ($12.125)
the total pro forma shares issued and outstanding would be 13,736,623.
If the exchange took place at the maximum price ($14.125) total pro
forma shares issued and outstanding would be 13,524,672.
62
<PAGE> 70
SELECTED HISTORICAL AND UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The Selected Historical and Unaudited Pro Forma Consolidated Financial
Data set forth below should be read in conjunction with the Consolidated
Financial Statements and Notes thereto incorporated by reference. The unaudited
pro forma financial data gives effect to the Pro Forma Adjustments as if such
Pro Forma Adjustments had occurred on January 1, 1996 and 1997 for the operating
data and on March 31 for the balance sheet data. See "--Summary Historical and
Unaudited Pro Forma Consolidated Financial Data." The pro forma financial
information does not purport to be indicative of what the results of operations
or financial position of the Company would have been had the transactions been
completed on the dates assumed, nor is such pro forma financial data necessarily
indicative of the results of operations of the Company that may exist in the
future. The pro forma financial data for the three months ended March 31, 1997
includes all adjustments, consisting of normal recurring accruals, which
management considers necessary for the fair presentation of the financial
position and the results of operations of the Company for such period. The
results for the three-month period may not be indicative of the results to be
expected for the full year.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
(UNAUDITED)
-------------------------
PRO PRO FORMA
FORMA (UNAUDITED) YEAR ENDED DECEMBER 31,
------- ------ ------ ------- -----------------------------------------------
1997 1997 1996 1996 1996 1995 1994 1993 1992
------- ------ ------ ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AND PROPERTY DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT:
Revenue:
Rental ................... $10,941 $9,699 $6,657 $43,998 $31,244 $24,523 $25,894 $25,702 $25,620
Interest and other income 132 125 142 470 431 479 144 169 177
------- ------ ------ ------- ------- ------- ------- ------- -------
Total Revenue ........ 11,073 9,824 6,799 44,468 31,675 25,002 26,038 25,871 25,797
Expenses:
Interest expense ......... 3,978 4,240 2,559 15,833 12,818 10,295 10,982 11,066 11,220
Depreciation ............. 2,759 2,461 1,565 10,894 7,627 5,817 5,909 5,909 5,892
Amortization of deferred
expenses ................. 309 194 146 717 619 464 346 268 262
Property operating
expenses ................. 218 218 137 765 686 620 808 558 964
General and administrative
expenses ................. 870 870 665 3,298 3,125 2,694 2,416 1,020 2,172
Other expenses ........... 69 69 -- -- -- -- -- -- --
Expenses of the mergers .. -- -- -- -- -- -- -- 2,441 --
Transactional expenses ... -- -- -- 644 644 -- -- -- --
------- ------ ------ ------- ------- ------- ------- ------- -------
Total Expenses ....... 8,203 8,052 5,072 32,151 25,519 19,890 20,461 21,262 20,510
Income before minority
interests, gain on sale of
properties, lease
termination, proceeds and
extraordinary item ....... 2,870 1,772 1,727 12,317 6,156 5,112 5,577 4,609 5,287
Minority interests ....... 360 262 54 1,598 690 93 98 81 93
------- ------ ------ ------- ------- ------- ------- ------- -------
Income before gain on sale
of properties, lease
termination proceeds and
extraordinary item ....... 2,510 1,510 1,673 10,719 5,466 5,019 5,479 4,528 5,194
Gain on sale of properties -- -- -- -- -- 1,514 -- -- --
Proceeds from lease
termination .................. -- -- -- -- -- 1,600 -- -- --
------- ------ ------ ------- ------- ------- ------- ------- -------
Income before extraordinary
item ..................... 2,510 1,510 1,673 10,719 5,466 8,133 5,479 4,528 5,194
Extraordinary item -- loss
on extinguishment of debt -- -- -- -- -- 4,849 -- -- --
------- ------ ------ ------- ------- ------- ------- ------- -------
Net income ............... $ 2,510 $1,510 $1,673 $10,719 $ 5,466 $ 3,284 $ 5,479 $ 4,528 $ 5,194
======= ====== ====== ======= ======= ======= ======= ======= =======
</TABLE>
63
<PAGE> 71
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
(UNAUDITED)
-------------------------
PRO PRO FORMA
FORMA (UNAUDITED) YEAR ENDED DECEMBER 31,
---- ---- ---- ---- -----------------------------------------------
1997 1997 1996 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE AND PROPERTY DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share of Common Stock:
(1)
Income before
extraordinary item
Primary ................... $ 0.15 $ 0.14 $ 0.18 $ 0.65 $ 0.58 $ 0.88 $ 0.59 $ 0.48 $ 0.56
Fully diluted ............. 0.15 0.13 0.18 0.64 0.58 0.88 0.59 0.48 0.56
Extraordinary item-- loss
on extinguishment of debt
Primary ................... $ -- $ -- $ -- $ -- $ -- $ (0.53) $ -- $ -- $ --
Fully diluted ............. -- -- -- -- -- (0.53) -- -- --
Net income
Primary ................... $ 0.15 $ 0.14 $ 0.18 $ 0.65 $ 0.58 $ 0.35 $ 0.59 $ 0.48 $ 0.56
Fully diluted ............. 0.15 0.13 0.18 0.64 $ 0.58 $ 0.35 $ 0.59 $ 0.48 $ 0.56
Weighted average Common
Stock shares outstanding
Primary ....................... 14,051 9,932 9,363 13,944 9,393 9,263 9,306 9,303 9,303
Fully diluted ................. 16,676 11,967 9,363 16,570 9,393 9,263 9,306 9,303 9,303
Cash distributions paid ....... -- $ 0.29 $ 0.27 $ -- $ 1.10 $ 1.08 $ 1.08 $ 0.24 --
BALANCE SHEET DATA (AT END OF
PERIOD):
Real estate, before
accumulated depreciation ...... $390,470 $369,740 $244,316 -- $339,411 $244,223 $ 243,280 $ 243,280 $ 243,280
Total assets .................. 367,899 340,121 220,150 -- 309,126 221,216 216,020 222,467 230,387
Mortgage loans payable
(including accrued
interest) ..................... 179,923 203,694 120,471 -- 186,188 121,690 110,065 112,501 115,222
Total liabilities ............. 217,853 240,169 124,056 -- 216,467 124,698 114,800 116,815 119,794
Shareholders' equity .......... 159,046 99,952 96,094 -- 92,659 96,518 101,220 105,652 110,593
OTHER DATA:
Cash flows from operating
activities .................... -- 4,476 3,175 -- 14,972 7,216 12,423 11,151 12,002
Cash flows from investing
activities .................... -- (24,329) (94) -- (6,951) 7,887 -- -- (2,870)
Cash flows from financing
activities .................... -- 21,514 (3,159) -- 1,859 (15,611) (12,304) (12,780) (8,254)
Funds from operations(2) ...... 5,698 4,302 3,439 24,442 15,015 12,048 11,486 12,959 12,673
Total net rentable sq. ft. (at)
end of period) ................ 6,511 6,338 4,228 6,511 5,235 4,212 3,767 3,767 3,767
</TABLE>
- ---------------------------
(1) Primary net income per share is computed by dividing net income reduced
by preferred dividends by the weighted average number of common and
dilutive common equivalent shares outstanding during the period.
Fully diluted net income per share amounts are similarly computed but
include the effect, when dilutive, of the Company's other potentially
dilutive securities. Fully diluted net income excludes preferred
dividends and is increased by minority interests resulting from
the assumed conversion of the limited operating partnership units. The
Company's Preferred Stock and 8% Exchangeable Redeemable Secured Notes
are excluded from the 1997 and 1996 historical and pro forma
computations due to their anti-dilutive effect during those periods.
(2) The Company considers Funds From Operations to be one measure of the
performance of an equity REIT. Funds From Operations is defined by
NAREIT as "net income (or loss) (computed in accordance with generally
accepted accounting principles), excluding gains (or losses) from debt
restructuring and sales of property, plus real estate depreciation and
amortization and after adjustments for unconsolidated partnerships and
joint ventures." The Company's method of calculating Funds From
Operations excludes other non-recurring revenue and expense items and
may be different from methods used by other REITs and, accordingly, may
not be comparable to such other REITs. Funds From Operations should not
be considered an alternative to net income as an indicator of operating
performance or to cash flows from operations as a measure of liquidity
as defined by GAAP, and is not necessarily indicative of cash available
to fund all cash flow needs and liquidity, including the Company's
ability to make distributions.
(3) Non-recurring and other non-cash expenses described in (2) above for
the years ended December 31, 1996 (historical and pro forma), 1995,
1993 and 1992 were approximately $1,300, $1,100, $2,400 and $1,400,
respectively. Non-recurring and other non-cash expenses for the three
months ended March 31, 1997 (historical and pro forma) and 1996 were
approximately $69 and $147, respectively.
64
<PAGE> 72
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
REAL ESTATE ASSETS. The Company's principal sources of liquidity are revenue
generated from the Properties, interest on cash balances, amounts available
under its Credit Facility and amounts that may be raised through the sale of
preferred shares described below or other private or public offerings. For the
quarter ended March 31, 1997, leases on the Properties generated approximately
$9,699,000 in revenue compared to $6,657,000 for the same period in 1996. For
the year ended December 31, 1996, leases on the properties generated
approximately $31,244,000 in revenue compared to $24,523,000 in 1995.
DIVIDENDS. The Company paid a dividend of $.27 per share to stockholders in
respect of each of the calendar quarters of 1995 and the first quarter of 1996,
$.28 per share in respect of the second and third quarters of 1996, and $.29 per
share in respect of the fourth quarter of 1996 and the first quarter of 1997.
The Company's annualized dividend rate is currently $1.16 per share.
OPERATING PARTNERSHIP STRUCTURE. The Company's operating partnership subsidiary
structure permits the Company to effect acquisitions by issuing to a seller, as
a form of consideration, interests in partnerships controlled by the Company.
See "The Company -- Distributions on OP Units."
RESULTS OF OPERATIONS
Quarter ended March 31, 1997 compared to quarter ended March 31, 1996
Total Revenues. Total revenues for the quarter ended March 31, 1997 were
$9,824,207, an increase of $3,024,851 from the same period in 1996. The increase
in revenues was attributable to an increase in rental revenue of $3,041,445.
Rental revenue increased primarily due to revenues from properties acquired in
May and December 1996 and in February and March 1997.
Total Expenses. Total expenses for the quarter ended March 31, 1997 were
$8,051,872, an increase of $2,979,640 from the same period in 1996. The increase
was primarily attributable to increases in interest expense, depreciation and
amortization of real estate, and general and administrative expenses.
Interest expense for the quarter ended March 31, 1997, in the amount of
$4,240,097, increased $1,681,270 from the same period in 1996 primarily due to
interest expense incurred on the mortgage notes assumed in the acquisition of
the Salt Lake City, Utah Property in May 1996 and on additional debt obtained or
assumed in connection with acquisitions in May and December 1996 and February
and March 1997. Depreciation and amortization of real estate for the quarter
ended March 31, 1997, in the amount of $2,460,545, increased $895,478 from the
same period in 1996 primarily due to properties acquired in May and December
1996 and February and March 1997. General and administrative expenses for the
quarter ended March 31, 1997, in the amount of $869,763, increased $204,816 from
the same period in 1996 as a result of increases in various operating costs due
to the incremental growth of the Company.
Net Income. Net income for the quarter ended March 31, 1997 was $1,510,450, a
decrease of $162,995 from the same period in 1996. Net income per share was
$0.14 and $0.18 per share for the quarters ended March 31, 1997 and 1996,
respectively. The decrease was attributable to an increase in income allocated
to minority interests ("minority interest expense") in the amount of $208,206,
combined with the increase in total expenses discussed above, offset by the
increase in total revenues discussed above. The increase in minority interest
expense is attributable to additional partnership interests issued to parties
other than the Company in connection with properties acquired in May and
December 1996 and March 1997.
Year ended December 31, 1996 compared to year ended December 31, 1995
Total Revenues. Total revenues for the year ended December 31, 1996 were
$31,675,355, an increase of $6,673,593 from the year ended December 31, 1995.
The increase in total revenues was attributable to an increase in rental
revenue, primarily due to revenues from properties acquired in August and
December 1995, and May 1996.
Total Expenses. Total expenses for the year ended December 31, 1996 were
$25,519,469 an increase of $5,629,284 from the year ended December 31, 1995. The
increase was primarily attributable to increases in
65
<PAGE> 73
interest expense, depreciation and general and administrative expenses, and
transactional expenses incurred in 1996.
Interest expense for the year ended December 31, 1996 was $12,817,528, an
increase of $2,522,352 from the year ended December 31, 1995, which was
primarily due to interest expense incurred on the mortgage notes assumed in the
exchange transaction of May 22, 1996 to acquire the Salt Lake City, Utah
Property.
Depreciation expense for the year ended December 31, 1996 was $7,627,232, an
increase of $1,809,994 from the year ended December 31, 1995, which was
primarily due to properties acquired in August and December 1995 and May 1996.
General and administrative expenses for the year ended December 31, 1996 were
$3,125,100, a $431,340 increase from the year ended December 31, 1995. This
increase is due to an increase in performance-based compensation of $146,702 and
an increase in professional fees.
The transactional expenses totaled $644,047 and were comprised of costs of
$169,530 associated with a proposed equity offering which was abandoned in favor
of the completed private equity placement, and $474,517 of expenses incurred in
connection with transactions in progress for which expenses are required to be
charged to current operations.
The Company has added two senior corporate officers and one additional employee
as employees as of October 1, 1996, in connection with the Company entering into
management agreements with two partnerships which own 59 single tenant
net-leased office, industrial and retail properties. The cost of the additional
overhead is expected to be offset by expenses reimbursed pursuant to the
management agreements.
Net income. Net income for the year ended December 31, 1996 was $5,465,824 an
increase of $2,181,824 from the year ended December 31, 1995. The increase was
primarily attributable to a non-recurring loss on extinguishment of debt
incurred in 1995 in the amount of $4,849,226, offset by non-recurring items in
1995 relating to the sale of the Eagan Property on March 31, 1995; a gain on the
sale of approximately $1.5 million and proceeds from lease termination of $1.6
million, offset by the related write-off of deferred rent receivable of
approximately $678,000. Additionally, the increase in rental revenue discussed
above also contributed to the increase in net income.
Year ended December 31, 1995 compared to year ended December 31, 1994
Total Revenues. Total revenues for the year ended December 31, 1995 were
$25,001,762, a decrease of $1,036,144 from the year ended December 31, 1994. The
decrease in total revenues resulted from a property sale that occurred in March,
1995. The loss of revenue resulting from the property sale was partially offset
by an increase in interest income of $334,648 and revenues from new
acquisitions.
Total Expenses. Total expenses for the year ended December 31, 1995 were
$19,890,185, a decrease of $571,338 from the year ended December 31, 1994.
Interest expense for the year ended December 31, 1995 was $10,295,176, a
decrease of $687,133 from 1994 as a result of debt refinancing. General and
administrative expenses for the year ended December 31, 1995 were $2,693,760, an
increase of $277,574 from the year ended December 31, 1994. The increase in
general and administrative expense is attributable to an expense of $441,562
relating to performance-based stock compensation. Property operating expenses
for the year ended December 31, 1995 were $620,058 a decrease of $188,360,
resulting from appraisal and environmental audit work undertaken in 1994.
Net Income. Net income for the year ended December 31, 1995 was $3,284,000, a
decrease of $2,194,796 from the year ended December 31, 1994. The decrease in
net income in 1995 was primarily attributable to a $4,849,226 loss on
extinguishment of debt, of which approximately $4.6 million was incurred by the
Company in connection with the REMIC Financing, which was partially offset when
the Company recognized a $1,514,400 gain and $1,600,000 of lease termination
proceeds resulting from the sale of the Company's property in Eagan, Minnesota.
FUNDS FROM OPERATIONS
The Company considers funds from operations ("FFO") to be an appropriate measure
of the performance of an equity REIT. FFO is defined by the National Association
of Real Estate Investment Trusts as "net income (computed in accordance with
generally accepted accounting principles), excluding gains (or losses) from debt
restructuring and sales of property, plus depreciation and after adjustments for
unconsolidated partnerships and joint ventures." FFO should not be considered as
an alternative to net income as an indicator of operating
66
<PAGE> 74
performance or to cash flows as a measure of liquidity as defined by generally
accepted accounting principles, and is not necessarily indicative of cash
available to fund all cash flow needs and liquidity, including the Company's
ability to make distributions. The following table reflects the Company's FFO
for the year ended December 31, 1996 and the quarter ended March 31, 1997:
The following table reflects the Company's FFO for the quarter ended
March 31, 1997:
<TABLE>
<CAPTION>
<S> <C> <C>
March 31, December 31,
1997 1997
---------- -----------
Income before minority interests $ 1,772,335 $ 6,155,886
Add back:
Depreciation and amortization of real estate 2,460,545 7,686,294
Transactional expenses 68,843 644,047
Cashless performance-based compensation 0 588,265
----------- -----------
FFO - shares/units 4,301,723 15,074,492
Less:
Minority interests share of depreciation (354,247) (751,482)
Minority interests share of income (261,885) (690,062)
FFO - shares only $ 3,685,591 $13,632,948
=========== ===========
</TABLE>
The Company's dividends declared to be paid to stockholders (including preferred
stockholders) amounted to approximately 80% of the Company's FFO for the quarter
ended March 31, 1997.
ACCOUNTING STANDARD NOT YET ADOPTED
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings Per Share ("SFAS No. 128").
SAFS No. 128 supersedes Accounting Principles Board of Opinion No. 15, Earnings
Per Share ("APB 15") and specifies the computation, presentation, and
disclosure requirements for earnings per share ("EPS") for entitles with
publicly held common stock or potential common stock. SFAS No. 128 replaces
the presentation of primary EPS with a presentation of basic EPS and fully
diluted EPS with diluted EPS. It also requires dual presentation of basic and
diluted EPS on the face of the income statement for all entities with complex
capital structures and requires a reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and denominator of the
diluted EPS computation. This statement will be adopted for both interim and
annual period ending after December 15, 1997.
Under SFAS 128, basic and diluted EPS would have been $0.14 and $0.13 per share
for the quarter ended March 31, 1997, and for the quarter ended March 31, 1996,
basic and diluted EPS would have been $0.18 per share.
67
<PAGE> 75
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following tables of unaudited pro forma consolidated financial data of the
Company have been prepared from the historical consolidated financial statements
of the Company, as adjusted to give effect to the Pro Forma Adjustments. The
accompanying pro forma statements of income and other financial data for the
year ended December 31, 1996 and the three months ended March 31, 1997 have been
prepared as if the events had been consummated as of January 1, 1996 and January
1, 1997, respectively. The accompanying pro forma balance sheet of the Company
has been prepared as if these events had been consummated on March 31, 1997. The
Company has not completed all evaluations necessary to finalize the purchase
price allocations for the Pending Acquisitions and, accordingly, actual
adjustments that reflect other evaluations of the purchased assets and assumed
liabilities may differ from the pro forma adjustments presented herein. There
can be no assurance that the Pending Acquisitions or sale of Ross Stores Newark
Property will be consummated, or, if consummated, as to the terms or timing
thereof. The unaudited pro forma financial data does not purport to be
indicative of what the results of the Company would have been had the
transactions been completed on the dates assumed, nor is such financial data
necessarily indicative of the results of operations of the Company that may
exist in the future. The unaudited pro forma financial data must be read in
conjunction with the Notes thereto and with the historical Consolidated
Financial Statements and the related Notes incorporated by reference.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
(FOR THE YEAR ENDED DECEMBER 31, 1996)
<TABLE>
<CAPTION>
HISTORICAL ADJUSTMENTS(1) MERGER(2) PRO FORMA
---------- -------------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenue:
Rental ............................. $31,244 $9,197 $3,557 $43,998
Interest and other ................. 431 2 37 470
------- ------ ------ -------
Total Revenues ................. 31,675 9,199 3,594 44,468
Expenses:
Interest expense ................... 12,818 1,607 1,408 15,833
Depreciation ....................... 7,627 2,345 922 10,894
Amortization of deferred expenses .. 619 98 -- 717
Property expenses .................. 686 79 -- 765
General and administrative expenses 3,125 173 -- 3,298
Transactional expenses ............. 644 -- -- 644
------- ------ ------ -------
Total Expenses ................. 25,519 4,302 2,330 32,151
------- ------ ------ -------
Income before minority interests 6,156 4,897 1,264 12,317
Minority interests ............. 690 908(3) -- 1,598
------- ------ ------ -------
Net income ......................... $ 5,466 $3,989 $1,264 $10,719
======= ====== ====== =======
Per share data (4):
Net income
Primary ............................ $ 0.58 $ 0.65
Fully diluted ...................... 0.58 0.64
Weighted average common shares
outstanding
Primary ............................ 9,393 3,232 1,319 13,944
Fully diluted ...................... 9,393 5,858 1,319 16,570
</TABLE>
68
<PAGE> 76
NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
(FOR THE YEAR ENDED DECEMBER 31, 1996)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(1) This column reflects (i) the addition of historical results of operations
for the period from January 1 to the respective acquisition dates for the
Properties acquired by the Company during 1996 and for a 12-month period
for Properties acquired since January 1, 1997 and for the Pending
Acquisitions; (ii) the elimination of the results of operations of the
Ross Stores Newark Property as if the sale had taken place on January 1,
1996, and (iii) the Salt Lake City Refinancing and (iv) the June 1997
public offering of 2,800,000 shares of Lexington Common Stock and the
application of the proceeds therefrom. The results of operations for
properties acquired during 1996, from their respective acquisition dates
through December 31, 1996 are included in the Company's historical 1996
consolidated statement of income. The results of operations consist
principally of rental revenue, interest expense and depreciation expense.
Rental revenue in these pro forma financial statements (both historical
and pro forma) is generated from leases that are "net leases," under
which the tenant is responsible for substantially all costs of real
estate taxes, insurance and ordinary maintenance. Pro forma rental income
represents straight-line rent as provided by GAAP, calculated as the
difference between the cash rent paid under the lease and the average
rent due over the noncancelable term of the lease.
The pro forma revenue adjustment consists of the effect of the following
transactions as if they had occurred on January 1, 1996. The adjustment
for depreciation expense relates to the depreciation from purchase price
adjustments as if the acquisitions described above had occurred on
January 1, 1996.
<TABLE>
<CAPTION>
RENTAL
REVENUE Depreciation
------- ------------
<S> <C> <C>
Acquisition of the Salt Lake City Property $3,264 $ 824
Acquisition of Properties leased to
Toys "R" Us (the "Toys Properties") and
Liberty House, Inc. 2,595 840
Exel Pennsylvania Properties Acquisition 2,949 601
Bull Information Systems Acquisition 1,023 243
Other acquisitions 2,608 563
Sale of Ross Stores Newark Property (3,242) (726)
------ -------
$9,197 $ 2,345
====== =======
</TABLE>
Applicable pro forma interest expense is calculated based on annual
interest rates on the respective debt as of the acquisition dates. The
pro forma interest expense adjustments includes (i) the impact of the
Salt Lake City Refinancing; (ii) paydown of the Credit Facility with
proceeds from the sale of the Ross Stores Newark Property and with
proceeds from the Lexington Common Stock offering completed June 23,
1997; (iii) repayment of the Toys Properties debt with proceeds from
the sale and issuance of Convertible Preferred Stock; and (iv) the
impact of interest on acquisitions described above as if they had
occurred on January 1, 1996.
(2) This column reflects the Merger.
(3) This amount represents the minority interest in the net income of LCIF
due to the issuance of OP units in the acquisition of the Salt Lake City
Property, the acquisition of the Toys Properties and the acquisition of
the Exel Pennsylvania Properties.
(4) Primary net income per share is computed by dividing net income (reduced
by preferred dividends) by the weighted average number of common and
diluted common equivalent shares outstanding during the period. Fully
diluted net income per share amounts are similarly computed but include
the effect when dilutive of the Company's other potentially dilutive
securities. Fully dilutive net income excludes preferred dividends and is
increased by minority interest resulting from the assumed conversion of
the limited operating partnership units. The Convertible Preferred Stock
and Exchangeable Notes are excluded from the pro forma computations due
to their anti-dilutive effect during the period.
69
<PAGE> 77
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(FOR THE THREE MONTHS ENDED AND AS OF MARCH 31, 1997)
(ALL AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO
HISTORICAL ADJUSTMENTS MERGER (1) FORMA
---------- ------------ ---------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Income Statement:
Revenues:
Rental ....................................... $ 9,699 $ 347 (2) $ 895 $ 10,941
Interest and other ........................... 125 -- 7 132
-------- -------- --------- --------
Total Revenues ........................... 9,824 347 902 11,073
Expenses:
Interest expense ............................. 4,240 (613)(2) 351 3,978
Depreciation ................................. 2,461 61 (2) 237 2,759
Amortization of deferred expenses ............ 194 115 -- 309
Property operating expenses .................. 218 -- -- 218
General and administrative expenses .......... 870 -- -- 870
Other expenses ............................... 69 -- -- 69
-------- -------- --------- --------
Total Expenses ........................... 8,052 (437) 588 8,203
-------- -------- --------- --------
Income before minority interests .............. 1,772 784 314 2,870
Minority interests ............................ 262 98 (3) -- 360
-------- -------- --------- --------
Net income ................................... $ 1,510 $ 686 $ 314 $ 2,510
======== ======== ========= ========
Per share data:(4)
Net income
Primary ...................................... $ 0.14 -- -- $ 0.15
Fully diluted ................................ 0.13 -- -- 0.15
Weighted average common shares outstanding
Primary ...................................... 9,932 2,800 1,319 14,051
Fully diluted ................................ 11,967 3,390 1,319 16,676
BALANCE SHEET (AT END OF PERIOD):
Real estate at cost .......................... $369,740 $(12,214)(5) $ 32,945 $390,471
Less: accumulated depreciation ............... 53,803 (6,884)(6) -- 46,919
-------- -------- --------- --------
Real estate, net ............................. 315,937 (5,330) 32,945 343,552
Other assets ................................. 24,184 9,125 (7) 38 33,347
-------- -------- --------- --------
Total assets ................... 340,121 $ 3,795 $ 32,983 $376,899
======== ======== ========= ========
Mortgage loans payable
(including accrued interest) ............. 203,694 (39,157)(8) 15,386 $179,923
Other liabilities ............................ 8,046 1,008 (9) 447 9,501
Minority interest ............................ 28,429 -- -- 28,429
Shareholders' equity ......................... 99,952 41,944(10) 17,150 159,046
-------- -------- --------- --------
Total liabilities and shareholders'
equity ................................... $340,121 $ 3,795 $ 32,983 $376,899
======== ======== ========= ========
</TABLE>
70
<PAGE> 78
NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS
(FOR THE THREE MONTHS ENDED AND AS OF MARCH 31, 1997)
(ALL AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(1) This column reflects the Merger.
(2) These amounts reflect (i) the addition of historical results of
operations for the period from January 1 to the respective acquisition
dates for the Properties acquired by the Company during 1997 and for a
3-month period for the Pending Acquisitions, (ii) the elimination of the
results of operations of the Ross Stores Newark Property as if the sale
had taken place on January 1, 1997 (iii) the Salt Lake City
Refinancing and (iv) the June 1997 public offering of 2,800,000 shares
of Lexington Common Stock and the application of the proceeds
therefrom. The results of operations for Properties acquired during
1997, from their respective acquisition dates through March 31, 1997,
are included in the Company's historical March 31, 1997 consolidated
statement of income.
Rental revenue in these financial statements (both historical and pro
forma) is generated from leases that are "net leases," under which the
tenant is responsible for substantially all costs of real estate taxes,
insurance and ordinary maintenance. Pro forma rental income represents
straight-line rent as provided by GAAP, calculated as the difference
between the cash rent paid under the lease and the average rent due over
the non-cancelable term of the lease.
The pro forma rental revenue adjustment consists of the following
transactions as if they had occurred on January 1, 1997:
<TABLE>
<CAPTION>
RENTAL
REVENUE
-------
<S> <C>
Bull Information Systems Acquisition............... $ 257
Exel Pennsylvania Properties Acquisition........... 648
Other Acquisitions................................. 253
Sale of Ross Stores Newark Property................ (811)
-------
$ 347
=======
</TABLE>
Applicable pro forma interest expense is calculated based on annual
interest rates on the respective debt as of the acquisition dates. The
pro forma interest expense adjustment includes (i) the impact of the
Salt Lake City Refinancing (ii) repayment of the Credit Facility with
proceeds from the sale of the Ross Stores Newark Property and with
proceeds from the Lexington Common Stock offering, and (iii) the impact
of interest on acquisitions described above as if they had occurred on
January 1, 1997.
The pro forma depreciation expense adjustment consists of the
following transactions as if they had occurred on January 1, 1997:
<TABLE>
<CAPTION>
DEPRECIATION
-------------
<S> <C>
Bull Information Systems Acquisition ... $ 61
Exel Pennsylvania Properties Acquisition 130
Other Acquisitions ..................... 52
Sale of Ross Stores Newark Property .... (182)
-----
$ 61
=====
</TABLE>
(3) This amount represents the minority interest in the net income of LCIF
due to the issuance of OP Units in connection with the acquisition of
the Company's Salt Lake City Property and the Exel Pennsylvania
Properties Acquisition.
71
<PAGE> 79
(4) Primary net income per share is computed by dividing net income reduced
by preferred dividends by the weighted average number of common and
diluted common equivalent shares outstanding during the period. Fully
diluted net income per share amounts are similarly computed but include
the effect when dilutive of the Company's other potentially dilutive
securities. Fully dilutive net income excludes preferred dividends and
is increased by minority interest resulting from the assumed conversion
of the limited operating partnership units. The Company's Convertible
Preferred Stock and Exchangeable Notes are excluded from the pro forma
computations due to their anti-dilutive effect during the period.
(5) This amount consists of the real estate values of the following
transactions as if they had occurred on March 31, 1997:
<TABLE>
<CAPTION>
<S> <C>
Bull Information Systems Acquisition .... $ 10,905
Sale of Ross Stores Newark Property ..... (30,844)
Rancho Bernardo California Acquisition 7,725
--------
$(12,214)
========
</TABLE>
(6) This adjustment represents the effect of the sale of the Ross Stores
Newark Property as if it occurred on March 31, 1997.
(7) This adjustment includes the cash portion of the acquisitions of
properties described in (5) above and the write off of deferred rent
receivable related to the possible sale of the Ross Stores Newark
Property.
(8) This amount reflects the effects of (i) the Salt Lake City Refinancing,
and (ii) repayment of the Credit Facility with the proceeds of sale of
the Ross Stores Newark Property, and with the proceeds from the
Lexington Common Stock offering completed in June 1997.
(9) This amount represents the effect of the Bull HN Information Systems
Acquisition.
(10) The increase in shareholders' equity is attributable to (i) the issuance
of 625 shares of Convertible Preferred Stock at a price of $12.50 per
share and (ii) the issuance of 2,800 shares of Lexington Common Stock at
$13.75 per share in connection with the Lexington Common Stock offering
conpleted in June 1997..
72
<PAGE> 80
INFORMATION REGARDING CRIT
BUSINESS
CRIT was formed as a Massachusetts business trust under the laws of the
Commonwealth of Massachusetts on June 27, 1989. CRIT qualified in 1990 as a
REIT. Corporate Realty Advisors, Inc. (the "Advisor") acts as advisor to CRIT
pursuant to the Amended and Restated Advisory Services Agreement between CRIT
and the Advisor.
CRIT was formed to invest in triple net leased income-producing
commercial and industrial real estate properties throughout the United States.
Through the ownership of equity interests in income-producing real property,
CRIT has sought rental income from the leasing of its real properties and long
term capital gains from appreciation in the value of its real properties. CRIT
was intended to have a life cycle consisting of three phases: (1) capital
formation and property acquisition; (2) real estate portfolio management; and
(3) property disposition. CRIT has completed the first phase, capital formation
and property acquisition, and is currently in the second phase of its life
cycle, real estate portfolio management. CRIT was designed to be a
self-liquidating/finite life trust. It has been anticipated that CRIT would
liquidate its portfolio of properties approximately six to ten years after the
acquisition of the last acquired property, and would distribute the net proceeds
to its shareholders. The last property acquired by CRIT was purchased on
September 28, 1992. In the event the proposed Merger is not consummated, CRIT
will continue to manage the properties and eventually dispose of them
individually or in the aggregate in accordance with the investment policy
described below.
INVESTMENT POLICY
CRIT's investment policy has been to acquire properties, located
throughout the United States, that are devoted to commercial and industrial
uses. CRIT owns no residential properties. CRIT does not have a policy, and
there have been no limitations, as to the amount or percentage of CRIT's assets
that may be invested in any one property or group of properties or with any one
person or group of persons. However, CRIT has attempted to acquire properties in
various locations throughout the United States to minimize the effect of changes
in local economic conditions and certain other risks.
Subject to the overall portfolio borrowing limitation described below,
any single property may be encumbered by indebtedness in an amount up to 75% of
the appraised value of such property. CRIT may also selectively leverage or
refinance, as the case may be, certain, but not necessarily all, of the
properties. CRIT will distribute the proceeds received from any such leveragings
or refinancings to the shareholders. The amount of any leverage for any property
and in the aggregate for all of the properties shall be subject to the
limitations described below.
The aggregate indebtedness (without regard to any temporary or bridge
financing) of CRIT's real estate portfolio will not exceed 50% of the aggregate
appraised values of all of the properties, and any single property may not bear
indebtedness in an amount greater than 75% of the appraised value of any
property. For purposes of determining maximum allowable indebtedness, "appraised
value" shall be the value reflected in the appraisal obtained by CRIT at the
time of acquisition of each property, unless one or more higher appraisals are
subsequently obtained, in which event the appraised value shall refer to the
value reflected in the highest appraisal.
If CRIT does not merge with the Company, CRIT expects to hold each
property it has acquired for an extended period until eventual liquidation.
Prior to its termination and dissolution, CRIT will sell some or all of the
properties. The decision to sell any property will depend, in part, on the
anticipated remaining economic benefits of continued ownership.
While CRIT will not conduct a mortgage lending business, it is not
precluded, subject to certain restrictions, from making investments in mortgages
or holding mortgages received in the process of liquidating CRIT, although CRIT
does not currently intend to provide seller financing in the disposition of its
properties.
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<PAGE> 81
The Declaration of Trust, among other things, prohibits CRIT from (i)
investing in commodities or commodity future contracts, (ii) engaging in any
short sales or engaging in trading or underwriting of securities issued by other
persons, (iii) issuing equity securities of more than one class; (iv) issuing
options or warrants to purchase CRIT Shares unless the exercise price equals or
exceeds the then fair market value of CRIT Shares, or issuing options or
warrants to purchase CRIT Shares to the Advisor, a Trustee or any affiliate
thereof unless such options or warrants are issued under the same terms as sold
to the general public and do not exceed 10% of the outstanding shares of CRIT on
the date of grant, (v) issuing debt securities unless cash flow is sufficient to
cover debt service on all debt securities to be outstanding, (vi) incurring
indebtedness in an aggregate amount in excess of 300% of net asset value
(defined as the total assets of CRIT (other than intangibles) at cost before
deducting depreciation or other non-cash reserves less total liabilities of
CRIT), and (vii) causing CRIT Shares to be listed for trading on a national or
regional stock exchange or included on the NASD automated quotation system
without the prior approval of the holders of a majority of the outstanding CRIT
Shares.
The Declaration of Trust requires that certain of the trustees review and
approve CRIT's investment policy at least annually. The investment objectives
and policies of CRIT, except as otherwise provided in the Declaration of Trust,
may be altered by CRIT Board without the approval of the shareholders. The
methods implementing CRIT's investment policies may also vary as new investment
techniques are developed.
PROPERTIES
To date, CRIT has acquired three properties which are triple net leased.
CRIT has contracted with the Advisor to provide management and other related
services with respect to such properties and with respect to the investment of
monies held in reserve for working capital purposes. CRIT currently has no
employees, as the Advisor and affiliates provide all services. All of CRIT's
operations are located in the United States. The business conducted by CRIT
during 1996, and the business of CRIT as currently conducted, related primarily
to managing the three properties previously acquired by CRIT. Further
information with respect to the three investment properties follows below:
The Circuit City Property. On March 27, 1990, CRIT acquired its first
rental property: the Circuit City Stores, Inc. ("Circuit City") corporate
headquarters building located outside of Richmond, Virginia. CRIT purchased the
headquarters building, and assumed the rights and obligations under a ground
lease for the underlying land, from CRA Acquisition Corp. ("CRAAC") for
$25,000,000 (less certain pro-rated closing amounts). The office building and
underlying land (the "Circuit City Property") has been leased to Circuit City
under a triple net lease for use by Circuit City as its corporate headquarters.
Funding sources for the purchase price of the Circuit City Property were
as follows: offering proceeds and cash in the amount of $9,313,609; a first
mortgage loan in the amount of $12,500,000 from Principal Mutual Life Insurance
Company plus accrued interest of $6,552 thereon; and an unsecured loan from
CRAAC in the amount of $3,156,990, which unsecured loan was net of $22,849 of
prorated rental income and interest. The unsecured loan from CRAAC was
subsequently paid in installments as additional offering proceeds were received
and was fully repaid on April 30, 1991.
The Circuit City Property is encumbered by a Deed of Trust and Security
Agreement (the "Deed of Trust") which secures a non-recourse note from CRAAC to
Principal Mutual Life Insurance Company (the "Lender") for $12,500,000 (the
"Note"). CRIT has assumed responsibility for payment on the Note and CRIT has
agreed to comply with the terms of the Deed of Trust. During the first five
years that the Note was outstanding, interest accrued at the rate of 9.25% per
annum, but was payable monthly in advance at the rate of 8.5% per annum. The
unpaid interest which accrued at a rate of .75% per annum was added monthly to
the principal balance of the Note. The Note matures on March 1, 2000, subject to
the right of CRIT to prepay the Note. Prepayment on the Note is subject to a
"make-whole" prepayment premium. The amount of the premium, if any, is
determined by comparing the then present value of the future yield on the Note
with the then present value of the future yield on certain government securities
specified in the Note. CRIT must pay a premium, in the amount of the difference,
only if the government securities would yield less in the future than the Note.
The rate of interest on the Note was subject to adjustment at the end of
five years to reflect the then current interest rate offered by the Lender for a
real estate loan of similar quality, term and amount, with the setting
74
<PAGE> 82
of an amortization arrangement as then prevalent in the lending industry. In
December 1994, CRIT reached an agreement with the Lender with respect to the
interest rate for the second five years. Effective March 1, 1995, the interest
rate under the Note decreased from 9.25% to 8.875%, and interest on the Note is
now payable in full monthly. The principal amount of the Note plus the unpaid
interest which accrued during the first five years of the loan, totaling
$13,093,133 in the aggregate, is payable on March 1, 2000.
The Circuit City office building is located on approximately 18.5 acres
of land, and has approximately 288,000 gross leasable square feet. The building
also houses a gymnasium/basketball court, exercise facility, full service
cafeteria with 200 seats, a 9,000 square foot computer facility with satellite
linkage to Circuit City's other business locations, and a 6,000 square foot
warehouse and staging facility. The Circuit City building has parking available
for approximately 1,100 cars.
The lease for the Circuit City office building (the "Circuit City Lease")
is a triple net lease under which Circuit City is responsible for real estate
taxes, maintenance, utility fees and insurance. As sole tenant, Circuit City
occupies 100% of the leasable square footage. The Circuit City Lease commenced
on February 28, 1990 and will expire on February 28, 2010. Circuit City has five
options to renew and extend the Circuit City Lease consisting of four ten-year
periods followed by one five-year period. The monthly rental for years one
through five was $189,583 payable monthly in advance. The monthly rental for
years six through ten is $206,510 and monthly rental for years eleven through
twenty will be $238,281. The rent for each renewal term may be adjusted by the
percent change in the consumer price index, as defined in the Circuit City
Lease. Rent attributed to the Circuit City Lease represented 76% of CRIT's total
rental income in 1996, which percentage was unchanged from 1995.
Circuit City is a leading retailer of brand name consumer electronics and
major appliances with over 320 stores in 31 states. Circuit City reported
revenues in fiscal 1996 of approximately $7.0 billion.
The Allegiance Property (formerly the "Baxter Property"). On October 9,
1991, pursuant to a Purchase and Sale Agreement dated as of October 19, 1990
between CRIT and Birmware I Limited Partnership ("Birmware"), a Texas limited
partnership affiliated with Trammell Crow Company, CRIT purchased all of
Birmware's right, title and interest in the land and a 123,924 square foot
distribution center built thereon (together, the "Allegiance Property") in
Bessemer, Alabama. CRIT purchased the rights to the Allegiance Property for
$4,500,000, including a 7.5% development fee payable to Birmware. The Allegiance
Property is located on 10.16 acres in the Greenwood Exchange development, an
industrial park developed by Trammell Crow Company in Bessemer, and is serving
as a regional distribution center for Allegiance Healthcare Corporation
("Allegiance").
Allegiance was formed as a result of the spin-off by Baxter
International, Inc. ("Baxter International") of the distribution and surgical
manufacturing businesses of Baxter Healthcare Corporation ("Baxter"), a
subsidiary of Baxter International, which spin-off was completed on September
30, 1996. In connection with the spin-off, assets of Baxter were transferred to
Allegiance, including the net lease covering the Allegiance Property described
below.
CRIT effected the acquisition of the Allegiance Property by means of a
financing arrangement with the Industrial Development Board of the City of
Bessemer ("IDB") in the form of an Inducement and Loan Agreement (the
"Inducement and Loan Agreement"). The Inducement and Loan Agreement was
originally entered into between Birmware and the IDB and was subsequently
assigned by Birmware to CRIT. In accordance with the terms of the Inducement and
Loan Agreement, at the request of Birmware the IDB purchased the land and
constructed the building with the proceeds of a non-interest bearing loan made
by Birmware to the IDB and evidenced by a bond anticipation note. CRIT acquired
beneficial interest to the Allegiance Property upon payment to the IDB of the
purchase price of $4,500,000.
In June, 1992, CRIT financed $1,000,000 of the purchase price pursuant to
a lease financing arrangement with the IDB, under which the IDB issued a first
mortgage industrial revenue bond in the principal amount of $1,000,000 to a
third party lender, Modern Woodmen of America. The payment of such revenue bond
is collateralized by, among other things, a first mortgage lien on the property.
The loan matures on September 1, 2001 and bears interest at an annual rate of
9.5% with monthly payments of interest only until maturity. CRIT,
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<PAGE> 83
in turn, entered into a lease with the IDB under which the lease payments equal
an amount sufficient to service the revenue bond. CRIT has the option to
purchase the Allegiance Property at any time after the revenue bond has been
paid in full for a nominal purchase price.
The Allegiance Property is being leased to Allegiance under a
pre-existing ten-year triple net lease which commenced on November 1, 1991 (the
"Allegiance Lease", formerly the "Baxter Lease"). As part of the spin-off from
Baxter International, Baxter assigned all of its right, title and interest under
the Baxter Lease to Allegiance, and Allegiance assumed the obligations of Baxter
under the lease accruing after the date of the assignment. Baxter remains liable
to CRIT under the Allegiance Lease except with respect to any amendment of the
Allegiance Lease subsequently entered into between CRIT and Allegiance. The
Allegiance Lease has a base annual rent of $472,500. Allegiance is required to
pay all taxes, utility charges, insurance, maintenance and repairs, management
fees and all other charges relating to the use and occupancy of the Allegiance
Property. Baxter International has unconditionally guaranteed all of the
obligations under the Allegiance Lease, except with respect to any amendments
entered into between CRIT and Allegiance. Under the terms of the Allegiance
Lease, Allegiance has two five-year renewal options at rents which reflect
increases in the Consumer Price Index, as published by the Bureau of Labor
Statistics of the United States Department of Labor, from the initial
commencement date of the lease through the renewal date; provided, however, that
pursuant to the assignment and assumption agreement entered into between Baxter
and Allegiance, any exercise by Allegiance of an option that would extend the
term of the Allegiance Lease beyond December 31, 2006 is subject to the prior
consent of Baxter. Any increase in rents may not be less than 3% nor more than
5% on a compounded annual basis. Rent attributed to the Allegiance Lease
represented 14% of CRIT's total rental income in 1996, which percentage was
unchanged from 1995.
Allegiance has the right under the Allegiance Lease to require CRIT to
pay for the expansion of the distribution center by an additional 88,920 square
feet. Allegiance may exercise this right at any time during the initial ten
years of the Allegiance Lease. If Allegiance does not exercise this option
within the first five years of the Allegiance Lease, Allegiance would be
obligated to pay CRIT an additional $100,000 if it later exercises the expansion
option.
Once the distribution center is expanded, the basic term of the
Allegiance Lease will be automatically extended by five to ten years, at
Allegiance's option, provided that under no circumstances will the term of the
Allegiance Lease expire before the end of the ten-year basic term. Commencement
of the two five-year optional renewal terms would then be deferred until the end
of the extended base term. Rent on the expanded space will depend on the length
of the lease extension and prevailing interest rates at the time of expansion,
but in no event will be less than 10.5% of the total cost of the expansion.
If Allegiance exercises the expansion option, CRIT would attempt to
finance 100% of the cost of construction of the expansion space and to arrange
the term of such financing to be coterminous with the lease extension selected
by Allegiance.
The Allegiance Property is located at the interchange of Morgan Road and
Interstate 459, a major artery serving the southern quadrant of the Birmingham
metropolitan area. Birmingham is Alabama's largest city with, according to the
National Census Bureau, a population in the metropolitan area in 1990 of over
907,000.
Depreciation of that portion of the purchase price allocated to the distribution
center is provided by the straight line method over a 40-year recovery period.
The Dana Property. On September 28, 1992, pursuant to a Purchase and Sale
agreement dated as of May 15, 1992 between CRIT and Shannon Properties Inc.
("Shannon"), a Delaware corporation, CRIT purchased all of Shannon's rights,
title and interest in the land and a 148,000 square foot regional assembly
facility built thereon (together, the "Dana Property"). CRIT purchased the
rights to the Property for $3,100,000. The Dana Property is located on 20.95
acres in Gordonsville, Tennessee, and is serving as a regional assembly facility
for Dana Corporation ("Dana").
CRIT financed 50% of the purchase price of the Dana Property by obtaining
a first mortgage loan from American Fidelity Assurance Company in the principal
amount of $1,550,000. The loan is due on September 1,
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<PAGE> 84
2002 and bears interest at an annual rate of 9.5% with a 15-year amortization of
monthly payments of principal and interest of $16,185, and a balloon payment in
the amount of $770,669 payable upon maturity of the loan. The loan is secured by
a deed of trust with respect to the Dana Property and assignment of the lease
with Dana. On December 31, 1996, the balance of the loan was $1,311,013.
The Dana Property is being leased to Dana under a pre-existing triple net
lease (the "Dana Lease") whereby Dana is required to pay all taxes, utility
charges, insurance, maintenance and repairs, management fees and all other
charges relating to the use and occupancy of the Dana Property. The lease is for
a term of 15 years, expiring on August 31, 2007. Dana has three options to renew
and extend the lease consisting of two five-year periods followed by one term of
four years and eleven months. The rent is payable monthly in advance. The
monthly rental was $26,324.17 per month through the period ending July 31, 1996;
$27,113.92 per month for the three-year period ending July 31, 1999; $27,927.33
per month for the three-year period ending July 31, 2002; $28,765.17 per month
for the three-year period ending July 31, 2005 and $29,544.75 per month
thereafter through August 31, 2007. The base rent for each renewal term will be
fixed and will equal market rates, but, in no event less than 95% or greater
than 105% of the rent in the year immediately preceding such option period. Rent
attributed to the Dana Lease represented 10% of CRIT's total rental income in
1996, which percentage was unchanged from 1995.
Dana is a manufacturer of vehicular products, including drivetrain
components, engine parts and chassis products, and other industrial products,
including fluid power systems and industrial power transmission products. Dana
had reported revenues in 1996 of approximately $7.7 billion.
LEGAL PROCEEDINGS
There are no material legal proceedings pending or threatened against
CRIT.
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<PAGE> 85
SELECTED FINANCIAL DATA
The following table sets forth certain historical selected financial
information for CRIT as of or for the year ended December 31, 1996, 1995, 1994,
1993 and 1992. The financial information of CRIT at December 31, 1996 and 1995
and for each of the three years in the period ended December 31, 1996 has been
derived from the historical financial statements of CRIT audited by Ernst &
Young LLP, independent auditors, whose report with respect to the financial
statements of CRIT as of December 31, 1996 and 1995 and for each of the three
years in the period ended December 31, 1996 are incorporated by reference into
this Proxy Statement/Prospectus. The financial statements of CRIT as of December
31, 1994, 1993 and 1992 and for each of the two years in the period ended
December 31, 1993 were derived from CRIT's audited financial statements. This
information should be read in conjunction with the historical financial
statements of CRIT, including the related notes thereto, and the other documents
incorporated herein by reference.
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total Revenues $ 3,459,966 $ 3,442,823 $ 3,443,391 $ 3,440,936 $ 3,232,331
Net Income 909,193 903,424 876,858 880,836 872,709
Net Income Per 0.90 0.89 0.87 0.87 0.86
Share (1)
Total Assets 30,585,114 31,155,095 31,802,627 32,241,966 32,715,083
Long Term 15,404,146 15,470,369 15,506,127 15,421,658 15,344,500
Obligations
Dividends $ 1.40 $ 1.40 $ 1.40 $ 1.40 $ 1.55
Per Share
</TABLE>
- ------------------------------------
(1) Based on 1,010,776 CRIT Shares outstanding during each of such years.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion should be read in conjunction with CRIT's
financial statements, and the notes thereto, which are incorporated by reference
in this Joint Proxy Statement/Prospectus and other information presented
elsewhere herein.
Liquidity and Capital Resources
CRIT's main sources of current liquidity are: (1) a working capital
reserve generated by the cash proceeds from the offering of CRIT Shares; (2) net
cash flow generated from rental payments received from the Circuit City,
Allegiance and Dana Properties; and (3) borrowings from financial institutions.
Since its inception in June 1989, CRIT's principal applications of its
capital resources have been: (1) the acquisition of income producing real
estate; (2) the payment of offering and organization expenses; (3) the payment
of interest and administrative expenses; (4) the payment of distributions to
shareholders; and (5) payments in respect of mortgages.
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<PAGE> 86
As of March 31, 1997, CRIT had cash of $862,000 which was invested in a
money market fund of an affiliate, and prepaid expenses and receivables
totalling approximately $110,000. Of these amounts, approximately $515,000
represented a working capital reserve, $353,772 was reserved to pay the
quarterly dividend in May 1997 and the balance was reserved for operations.
CRIT expects sufficient cash flow to be generated from operations to meet
its current operating and debt service requirements on a short-term and
long-term basis. CRIT's only significant liabilities are mortgages aggregating
$15,386,588 at March 31, 1997, maturing at various dates in approximately three
to five years. CRIT anticipates satisfying these mortgages with the proceeds of
refinancings or sales of underlying properties.
CRIT paid dividends aggregating $1,566,702 in 1992, $1,415,086 in each of
1993, 1994, 1995 and 1996 and $353,772 in each of February and May 1997.
Dividends have been paid by CRIT in excess of net income.
Such excess amounts have been charged to additional paid-in capital.
Results of Operations
Quarter Ended March 31, 1997 versus March 31, 1996
Net income for the three month ended March 31, 1997 approximated that of
the corresponding period in 1996. CRIT completed the property acquisition stage
of its life cycle in 1992 and has been in the portfolio management state since
the beginning of 1993. As a result, rental income and related expenses are
comparable for the quarters ended March 31, 1997 and 1996.
Year Ended December 31, 1996 versus Year Ended December 31, 1995
Net income in 1996 approximated net income in 1995. Interest income
increased due to the increase in cash invested in an interest bearing account.
Interest expense decreased primarily due to the decrease in the interest rate on
the Circuit City loan. An increase in general and administrative expenses was
attributable primarily to an increase in the aggregate amount of trustee fees
paid by CRIT. Such fees increased as a result of an additional independent
trustee (which was due to the change in status of an existing trustee from an
affiliated to an independent trustee) and payment for additional trustee
meetings to discuss and review proposals received regarding potential sales of
assets.
Year Ended December 31, 1995 versus Year Ended December 31, 1994
Net income in 1995 increased from 1994 due to the decrease in interest
expense resulting from the interest rate adjustment, from 9.25% to 8.875%, on
the Circuit City loan. Although rental income recognized for financial statement
purposes was the same for 1995 and 1994, actual rent received increased by
approximately $170,000 due to the rental increase on the Circuit City Property,
which became effective in March 1995. Interest expense decreased due to the
reduction in the annual interest rate on the Circuit City loan, which also
became effective in March 1995. However, since the pay rate on this loan
increased from 8.5% to 8.875%, actual cash paid for interest increased by
approximately $83,000. Net cash flow during 1995 increased as the higher rent
for the Circuit City Property more than offset the increased cash interest
payments on the Circuit City loan. As a result of the increased cash flow, the
base annual fee to the advisor increased by approximately $9,000 from 1994.
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<PAGE> 87
BENEFICIAL OWNERSHIP OF COMMON SHARES
To the knowledge of management of CRIT, the following entity is the only
holder of record or beneficial owner of more than 5% of the outstanding CRIT
Shares of CRIT.
<TABLE>
<CAPTION>
Amount and Nature Percent of
Name and Address of Beneficial Ownership Class
- ---------------- ----------------------- ----------
<S> <C> <C>
Glenmede Trust Company 274,725 CRIT Shares (1) 27.2%
Trustee for the
Pew Memorial Trust
1 Liberty Place
1650 Market Street, Suite 1200
Philadelphia, PA 19103
</TABLE>
(1) Sole voting and investment power.
As of June 30, 1997 no trustee or officer of CRIT beneficially owned any CRIT
Shares. As of June 30, 1997, the Advisor owned 10,000 Shares of CRIT.
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<PAGE> 88
MANAGEMENT OF THE COMPANY
The directors and senior executive officers of the Company are as
follows:
<TABLE>
<CAPTION>
NAME Age Office
- ---- --- ------
<S> <C> <C>
E. Robert Roskind......... 52 Chairman of the Board of Directors and Co-Chief
Executive Officer(1)
Richard J. Rouse.......... 51 Vice Chairman of the Board of Directors and Co-
Chief Executive Officer
T. Wilson Eglin........... 32 President, Chief Operating Officer and Director
Antonia G. Trigiani....... 36 Chief Financial Officer and Treasurer
Stephen C. Hagen.......... 54 Senior Vice President
Paul R. Wood.............. 37 Vice President, Chief Accounting Officer and
Secretary
Janet M. Kaz.............. 34 Vice President
Carl D. Glickman.......... 71 Director(1)(2)
Kevin W. Lynch............ 44 Director(2)
John McGurk............... 53 Director(1)(2)
Seth M. Zachary........... 44 Director(2)
</TABLE>
- ------------------------------------
(1) Member, Executive Committee of the Board of Directors.
(2) Member, Audit and Compensation Committees of the Board of Directors.
E. ROBERT ROSKIND has served as the Chairman of the Board of Directors
and Co-Chief Executive Officer of the Company since October 1993. He founded The
LCP Group, L.P. ("LCP") in 1973 and has been its Chairman since 1976. Prior to
founding LCP, Mr. Roskind headed the real estate net lease financing area of
Lehman Brothers Inc. He is also a general partner for a variety of entities
which serve as the general partner of various partnerships that hold net leased
real properties and other real estate or interests therein. Mr. Roskind is a
director of Berkshire Realty Company, Inc., Krupp Government Income Trust I and
Krupp Government Income Trust II.
RICHARD J. ROUSE became the Vice Chairman of the Board of Directors in
April 1996, has served as the Co-Chief Executive Officer and a director of the
Company since October 1993, and was the President of the Company from October
1993 until April 1996. Mr. Rouse was also a managing director of LCP. He had
been associated with LCP since 1979 and had been engaged there in all aspects of
net lease finance, acquisition and syndication and corporate financing
transactions.
T. WILSON EGLIN became the President of the Company in April 1996, has
served as Chief Operating Officer of the Company since October 1993, has been a
director of the Company since May 1994, and was the Executive Vice President of
the Company from October 1993 until April 1996. Prior to his association with
the Company, Mr. Eglin had been associated with LCP since 1987 and had been its
Vice President--Acquisitions from 1990 to 1993. In connection with his
responsibilities with LCP, Mr. Eglin was an officer of affiliated companies that
own and manage over 400 net leased real properties and was involved in all
aspects of real estate acquisition and finance, principally in net leased
transactions.
ANTONIA G. TRIGIANI has served as the Chief Financial Officer and
Treasurer of the Company since October 1993. She had been associated with LCP
from 1989 until April 1996, serving as its Vice President--Asset Management from
1990 until April 1996. Prior to joining LCP, Ms. Trigiani was associated
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<PAGE> 89
with HRE Properties, a REIT listed on the New York Stock Exchange, and Merrill
Lynch, Hubbard Inc., a real estate division of Merrill Lynch & Co., Inc.
STEPHEN C. HAGEN has served as Senior Vice President of the Company
since October 1996. From 1992 to 1994, Mr. Hagen was a principal of Pharus
Realty Investments, a money manager in real estate stocks, and served as Chief
Operating Officer of HRE Properties, a NYSE-listed REIT, from 1989 to 1992.
PAUL R. WOOD has served as Vice President, Chief Accounting Officer and
Secretary of the Company since October 1993. He had been associated with LCP
from 1988 to 1993 and from 1990 to 1993 had been responsible for all accounting
activities relating to the net leased properties managed by LCP and its
affiliates. Prior to joining LCP, Mr. Wood was, from 1987 to 1988, associated
with E.F. Hutton & Company Inc. as a senior accountant.
JANET M. KAZ has served as Vice President of the Company since May 1995,
and prior thereto served as Asset Manager of the Company since October 1993.
Prior to her association with the Company, Ms. Kaz had been a member of LCP's
property acquisition team from 1986 to 1990 and a member of LCP's asset
management team from 1991 to 1993. Ms. Kaz was involved in all aspects of real
estate acquisition, finance and management, principally in net leased
transactions.
CARL D. GLICKMAN has served as a director and a member of the Audit
Committee and Compensation Committee of the Board of Directors of the Company
since May 1994. He has been President of the Glickman Organization since 1953.
He is on the Board of Directors of Alliance Tire & Rubber Co., Ltd., Andal
Corp., Bear, Stearns Companies, Inc. (an affiliate of Bear, Stearns & Co. Inc.),
Continental Health Affiliates, Inc., Franklin Corporation, Infu-Tech, Inc.,
Jerusalem Economic Corporation Ltd. and OfficeMax Inc., as well as numerous
private companies.
KEVIN W. LYNCH is a founder and principal of The Townsend Group, an
institutional real estate consulting firm founded in 1983. Prior to forming The
Townsend Group, Mr. Lynch was a Vice President for Stonehenge Capital
Corporation. Mr. Lynch has been involved in the commercial real estate industry
since 1974, and is a director of First Industrial Realty Trust.
JOHN D. MCGURK became a member of the Board in January 1997 as the
designee of Five Arrows to the Board of Directors. He is the founder and
President of Rothschild Realty, Inc., the advisor to Five Arrows Realty
Securities L.L.C. ("Five Arrows"). Prior to starting Rothschild Realty, Inc. in
1981, Mr. McGurk served as a Regional Vice President for The Prudential
Insurance Company of America where he oversaw its New York City real estate loan
portfolio, equity holdings, joint ventures and projects under development. Mr.
McGurk is a member of the Urban Land Institute, Pension Real Estate Association,
Real Estate Board of New York and the National Real Estate Association, and is
the President of the Trustee Committee of the Caedmon School.
SETH M. ZACHARY has served as a director and a member of the Audit
Committee and Compensation Committee of the Board of Directors of the Company
since November 1993. Since 1987, he has been a partner in the law firm of Paul,
Hastings, Janofsky & Walker LLP, counsel to the Company.
COMPENSATION OF EXECUTIVE OFFICERS
Summary of Cash and Certain Other Compensation. The following table
contains certain information regarding aggregate compensation paid or accrued by
the Company during the years ended December 31, 1996, 1995 and 1994 to the
Chairman of the Board of Directors and Co-Chief Executive Officer, the President
and Chief Operating Officer and the two additional executive officers of the
Company who received an annual salary and bonus in excess of $100,000.
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<PAGE> 90
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------------------- --------------------------------------
AWARDS PAYOUTS
-------------------------- --------
LONG-
OTHER TERM ALL
ANNUAL RESTRICTED SECURITIES INCENTIVE OTHER
FISCAL COMPEN- STOCK UNDERLYING PLAN COMPEN-
NAME AND YEAR SALARY BONUS SATION AWARDS OPTIONS PAYOUTS SATION
PRINCIPAL POSITION ENDED ($) ($)(1) ($) ($)(2) (#)(3) ($) ($)(4)
- ------------------------- --------- -------- ------- ---------- ----------- ----------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
E. Robert Roskind........ 12/31/96 200,000 18,333 -- -- 265,400 -- 900
Chairman of the Board 12/31/95 200,000 18,333 -- 20,000 236,200 -- 900
of Directors and Co- 12/31/94 200,000 17,333 -- 21,060 -- -- 792
Chief Executive Officer
Richard J. Rouse......... 12/31/96 125,000 11,458 -- -- 166,600 -- 750
Vice Chairman and Co- 12/31/95 125,000 11,458 -- 12,600 133,800 -- 750
Chief Executive 12/31/94 125,000 10,825 -- 13,185 -- -- 660
Officer(5)
T. Wilson Eglin.......... 12/31/96 120,000 11,000 -- -- 142,250 -- 600
President and Chief 12/31/95 100,000 9,166 -- 10,000 81,000 -- 600
Operating Officer(6) 12/31/94 100,000 8,666 -- 10,530 -- -- 582
Antonia G. Trigiani...... 12/31/96 120,000 11,000 -- -- 136,250 -- 600
Chief Financial Officer 12/31/95 100,000 9,166 -- 10,000 75,000 -- 600
and Treasurer 12/31/94 100,000 8,666 -- 10,530 -- -- 528
</TABLE>
- ---------------------------
(1) BONUS AMOUNTS INCLUDE AMOUNTS DEFERRED AT THE ELECTION OF THE NAMED
EXECUTIVE OFFICERS PURSUANT TO THE COMPANY'S PLAN ESTABLISHED UNDER
SECTION 401(K) OF THE CODE.
(2) AMOUNT REPRESENTS THE DOLLAR VALUE OF AWARDS OF RESTRICTED STOCK AT
$9.00 PER SHARE FOR 1994 AND $11.25 PER SHARE FOR 1995, THE CLOSING
PRICES OF THE LEXINGTON COMMON STOCK ON DECEMBER 30, 1994 AND DECEMBER
29, 1995, RESPECTIVELY, THE BUSINESS DAY IMMEDIATELY PRIOR TO THE DATE
THE RESTRICTED STOCK GRANT BECAME EFFECTIVE.
(3) OF THE 1995 STOCK OPTIONS, 56,200, 43,800, 35,000 AND 35,000 WERE
GRANTED ON FEBRUARY 27, 1995 TO MESSRS. ROSKIND, ROUSE AND EGLIN AND
MS. TRIGIANI, RESPECTIVELY. THE REMAINING OPTIONS LISTED WERE GRANTED
TO THE NAMED EXECUTIVE OFFICERS ON JULY 28, 1995 IN CONNECTION WITH AN
EXERCISE OF PREVIOUSLY GRANTED OPTIONS. THE EXERCISE PRICE OF EACH
STOCK OPTION WAS EQUAL TO THE PRICE AT WHICH THE PREVIOUSLY GRANTED
OPTIONS WERE PURCHASED, WHICH WAS $11.125. ON FEBRUARY 27, 1995, THE
LEXINGTON COMMON STOCK HAD A FAIR MARKET VALUE OF $9.125 AND ON JULY
28, 1995 THE LEXINGTON COMMON STOCK HAD A FAIR MARKET VALUE OF $10.875.
OF THE 1996 STOCK OPTIONS, 32,800, 32,800, 46,000 AND 40,000 WERE
GRANTED ON JANUARY 2, 1996 TO MESSRS. ROSKIND, ROUSE AND EGLIN AND MS.
TRIGIANI, RESPECTIVELY. THE REMAINING OPTIONS WERE GRANTED TO THE NAMED
EXECUTIVE OFFICERS ON JANUARY 24, 1996 IN CONNECTION WITH AN EXERCISE
OF PREVIOUSLY GRANTED OPTIONS. THE EXERCISE PRICE OF EACH SUCH STOCK
OPTION WAS EQUAL TO THE PRICE AT WHICH THE PREVIOUSLY GRANTED OPTIONS
WERE PURCHASED, WHICH WAS $11.875. ON JANUARY 2, 1996, THE LEXINGTON
COMMON STOCK HAD A FAIR MARKET VALUE OF $11.25 AND ON JANUARY 24, 1996
THE LEXINGTON COMMON STOCK HAD A FAIR MARKET VALUE OF $11.50.
(4) AMOUNT REPRESENTS THE DOLLAR VALUE OF LIFE INSURANCE PREMIUMS PAID BY
THE COMPANY DURING THE APPLICABLE FISCAL YEAR WITH RESPECT TO THE LIFE
OF THE NAMED EXECUTIVE OFFICER.
(5) MR. ROUSE WAS ELECTED VICE CHAIRMAN OF THE COMPANY ON APRIL 1, 1996 AND
PRIOR TO SUCH DATE HAD SERVED AS PRESIDENT OF THE COMPANY.
(6) MR. EGLIN WAS ELECTED PRESIDENT AND CHIEF OPERATING OFFICER OF THE
COMPANY ON APRIL 1, 1996 AND PRIOR TO SUCH DATE HAD SERVED AS EXECUTIVE
VICE PRESIDENT AND CHIEF OPERATING OFFICER OF THE COMPANY.
COMPENSATION OF DIRECTORS
With the exception of the director appointed by Five Arrows, each
director who is not employed by the Company receives an annual fee of $20,000
for service as a director. In addition, such directors receive $1,000 for each
meeting of the Board of Directors or any committee thereof attended by the
director and reimbursement for expenses incurred in attending such meetings.
Pursuant to the 1994 Outside Director Stock Plan, as amended, during 1996 each
non-employee director was required to receive not less than 50% of such
director's fees in Lexington Common Stock at an amount per share equal to 95% of
the fair market value of one share of Lexington Common Stock as of the date of
purchase. During 1996, Messrs. Glickman, Zachary, and Mr. Harry E. Petersen (who
served as director until the Company's 1997 annual meeting of shareholders)
elected to receive 100%, 50% (as of August 1, 100%), and 10% (as of October 1,
100%), respectively, of their fees in Lexington Common Stock with respect to the
five meetings which the Board of Directors held in 1996. Effective as of
February 29, 1996, the 1994 Outside Director Stock Plan was amended to provide
that at least 50% of all non-employee
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<PAGE> 91
directors' fees must be converted into Lexington Common Stock as set forth
above. Non-employee directors will continue to have the option of converting all
or a portion of their remaining fees into Lexington Common Stock. Pursuant to
the Company's 1993 Stock Option Plan, non-employee directors automatically are
granted each year, on January 1, non-qualified stock options to purchase, after
a one-year holding period, 2,500 shares of Lexington Common Stock at an exercise
price equal to the fair market value of the Lexington Common Stock on the date
of the grant.
MANAGEMENT AFTER THE MERGER
After the Effective Time, CRIT will merge with and into the Company and
the current management of the Company will continue as members of management of
the Company.
PRINCIPAL SECURITY HOLDERS
Except as described herein, no person is known by the Company to own
beneficially in excess of five percent (5.0%) of the outstanding shares of
Lexington Common Stock or Preferred Stock as of June 25, 1997. On December 31,
1996, the Company entered into an agreement with Five Arrows, a real estate
investment fund of which Rothschild Realty Investors II L.L.C. ("Rothschild
Investors") is the managing member, under the terms of which Five Arrows agreed
to purchase an aggregate of up to 2,000,000 share of Preferred Stock, which
would be convertible into 2,000,000 shares of Lexington Common Stock, subject to
adjustment. If all 2,000,000 shares of Preferred Stock were purchased by Five
Arrows and converted into Lexington Common Stock, Five Arrows would, as of June
25, 1997, have been the beneficial owner of approximately 11.6% of the issued
and outstanding voting stock of the Company, on a fully diluted basis.
STOCK OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table indicates, as of June 25, 1997, (a) the number of
shares of Lexington Common Stock and Preferred Stock beneficially owned by each
director and nominee for director, each executive officer named in the Summary
Compensation Table above, and by all directors and executive officers as a
group, and (b) the percentage such shares represent of the total outstanding
shares of Lexington Common Stock, Preferred Stock and voting stock. All shares
were owned directly on such date with sole voting and investment power unless
otherwise indicated.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP OF SHARES
(1) PERCENT OF CLASS
------------------------------- --------------------------------------
LEXINGTON PREFERRED VOTING
NAME OF BENEFICIAL OWNER COMMON STOCK STOCK COMMON PREFERRED STOCK
- --------------------------- ------------- ----------- ------- --------- ------
<S> <C> <C> <C> <C> <C>
E. Robert Roskind ......... 660,808 (2) -- 4.258% -- 3.923%
Richard J. Rouse ......... 238,466 (3) -- 1.546 -- 1.424
Carl D. Glickman .......... 115,881 (4) -- * -- *
T. Wilson Eglin ........... 164,609 (5) -- 1.069 -- *
Kevin W. Lynch ............ 3,539 (6) -- * -- *
John D. McGurk ............ -- 1,325,000(7) -- 100.000% 7.992
Antonia G. Trigiani ....... 148,847 (8) -- * -- *
Seth M. Zachary ........... 16,481 (9) -- * -- *
All directors and executive
officers as a group
(10 persons) .............. 1,381,741 1,325,000 8.628% 100.000% 15.610%
</TABLE>
- ------------------------------------
* Represents beneficial ownership of less than 1%.
(1) For purposes of this table, a person is deemed to have "beneficial
ownership" of any shares as of a given date which such person has the
right to acquire within 60 days after such date. For purposes of
computing the percentage of outstanding shares held by each person
named above on a given date, any security which such person or persons
has the right to acquire within 60 days after such date is deemed to
be outstanding, but is not deemed to be outstanding for the purpose of
computing the percentage ownership of any other person.
(2) Includes (i) 70,574 units of special limited partner interest held by
Mr. Roskind in Lepercq Corporate Income Fund L.P.l and Lepercq
Corporate Income Fund II l.P., each of which is a subsidiary of the
Company, which are exchangeable, on a one-for-one basis, for shares of
Lexington Common Stock, (ii) 196,455 units of special limited partner
interest held by The LCP Group, L.P., which are exchangeable, on a
one-for-one basis, for shares of
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<PAGE> 92
Lexington Common Stock, (iii) 9,000 shares of Lexington Common Stock
owned of record by The LCP Group, L.P. (iv) options to purchase
180,000 shares of Lexington Common Stock at an exercise price of
$11.125 per share, 52,600 shares of Lexington Common Stock at an
exercise price of $11.875 per share and 32,800 shares of Lexington
Common Stock at an exercise price of $11.25 per share, (v) 46,650
shares of Lexington Common Stock owned of record by Mr. Roskind's
wife, and (vi) 13,000 shares of Lexington Common Stock owned of record
by a private pension plan for the benefit of Mr. Roskind and his wife.
Mr. Roskind disclaims beneficial ownership of the 46,650 shares listed
in clause (v) above.
(3) Includes (i) 46,406 units of special limited partner interest held by
Mr. Rouse in Lepercq Corporate Income Fund L.P. and Lepercq Corporate
Income Fund II L.P., which are exchangeable, on a one-for-one basis,
for shares of Lexington Common Stock, (ii) options to purchase 90,000
shares of Lexington Common Stock at an exercise price of $11,125 per
share. 43,800 shares of Lexington Common Stock at an exercise price of
$11,875 per share and 32,800 shares of Lexington Common Stock at an
exercise price of $11.25 per share and (iii) 1,500 shares of Lexington
Common Stock owned of record by a private pension plan for the benefit
of Mr. Rouse.
(4) Includes options to purchase 2,500 shares of Lexington Common Stock at
an exercise price of $10.125 per share, 2,500 shares of Lexington
Common Stock at an exercise price of $9.00 per share and 2,500 shares
of Lexington Common Stock at an exercise price of $11.25 per share.
(5) Includes options to purchase 61,250 shares of Lexington Common stock
at an exercise price of $11.125 per share, 35,000 shares of Lexington
Common Stock at an exercise price of $11.875 per share and 46,000
shares of Lexington Common Stock at an exercise price of $11.25 per
share.
(6) Includes options to purchase 2,500 shares of Lexington Common Stock at
an exercise price of $11.75 per share.
(7) Includes 700,000 shares of Preferred Stock owned beneficially and of
record by Five Arrows. Mr. McGurk, among others, has been appointed by
Rothschild Investors as a manager of Five Arrows. Mr. McGurk is also
the designee of Five Arrows to the Company's Board of Directors. Mr.
McGurk disclaims beneficial ownership of all such shares of Preferred
Stock.
(8) Includes options to purchase 61,250 shares of Lexington Common Stock
at an exercise price of $11.125 per share, 35,000 shares of Lexington
Common Stock at an exercise price of $11.875 per share and 40,000
shares of Lexington Common stock at an exercise price of $11.25 per
share.
(9) Includes options to purchase 2,500 shares of Lexington Common Stock at
an exercise price of $10.00 per share, 2,500 shares of Lexington
Common Stock at an exercise price of $10.125 per share, 2,500 shares
of Lexington Common Stock at an exercise price of $9.00 per share and
2,500 shares of Lexington Common Stock at an exercise price of $11.25
per share.
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<PAGE> 93
COMPARISON OF SHAREHOLDER RIGHTS
Upon consummation of the Merger, the CRIT shareholders will become
shareholders of the Company, a Maryland corporation. Differences between the
provisions of the MGCL, and the MGL, and the charter documents of the respective
companies, will result in several changes in the rights of CRIT shareholders. It
is not practical to summarize all such changes here or to cover all of the
respects on which Maryland law may differ from Massachusetts law. Shareholders
are advised to review the charter and the by-laws of the Company (the "Charter")
and the charter documents of CRIT (the "Declaration of Trust"), which are
available as described under "Available Information." CRIT's charter documents
and relevant provisions of Massachusetts law are summarized below under the
captions "CRIT," and the Company's charter documents and relevant provisions of
Maryland law are summarized below under the captions "The Company." The Company
believes that the provisions contained in the Charter and By-Laws are comparable
to those contained in the constituent documents of similarly situated
publicly-traded REITs.
The following defined terms apply to this discussion of Massachusetts
law and the CRIT charter documents: "independent trustees" means the Trustees
who (i) are not affiliated, directly or indirectly, with the Advisor or any
other affiliates of CRIT (except as permitted by (ii) below) whether by
ownership of, ownership interest in, employment by, any material business or
professional relationship with, or service as an officer or director of, the
Advisor or its affiliates, (ii) do not serve as a director or trustee for more
than two other REITs organized by the sponsor, and (iii) perform no other
services for CRIT, except as Trustees. For this purpose, (i) an indirect
relationship shall include circumstances in which a member of the immediate
family of a Trustee has one of the foregoing relationships with the Advisor or
CRIT, and (ii) a material business or professional relationship shall not
include provision of indemnification by the sponsor or its affiliates. "Sponsor"
means Smith Barney, Harris Upham & Co., Incorporated, and any other person
directly or indirectly instrumental in organizing (wholly or in part), or who
will manage or participate in the management of, CRIT, and any affiliate of any
such person but shall not include a person whose only relationship with CRIT is
that of an independent property manager whose sole compensation from CRIT is as
a property manager or any independent third party whose only compensation is for
professional services.
BOARD OF TRUSTEES
CRIT. The Declaration of Trust provides that the CRIT Board must consist
of at least three but not more than five persons, and at least a majority of the
CRIT Board of Trustees must be independent. The Declaration of Trust provides
that trustees may be removed either with or without cause by a vote of the
holders of record of at least a majority of the CRIT Shares outstanding and
entitled to vote.
The Declaration of Trust requires that vacancies on the CRIT Board and
newly created trusteeships be filled by a majority of the trustees in office,
although less than a quorum exists. Vacancies occurring as a result of the
removal of trustees by shareholders shall be filled by the shareholders.
The Company. The Board of Directors must consist of at least three
persons but not more than nine persons. The Charter does not require that a
majority of the Company's Board of Directors be independent.
The Charter provides that a director may be removed only for "cause" and
only by the affirmative vote of holders of at least 80% of the combined voting
power of all classes of shares of capital stock entitled to vote in the election
for directors.
The Charter requires that, subject to the rights of the holders of any
class of Preferred Stock, vacancies on the Board of Directors, except for those
resulting from removal by shareholders, and newly created directorships be
filled by a majority of the remaining directors, though less than a quorum, or
by the shareholders. A vacancy on the Board of Directors resulting from removal
of a director by shareholders shall be filled by a vote of the shareholders.
ISSUANCE OF CAPITAL STOCK
CRIT. CRIT is authorized by its Declaration of Trust to issue up to 20
million CRIT Shares. A majority of the Trustees are authorized to determine from
time to time the number of additional Shares that will be sold and issued to the
public or others. Preferred stock is not authorized.
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The Company. The Charter authorizes the Company to issue 40 million
shares of Common Stock and 10 million shares of Preferred Stock in such classes
or series and with such rights, preferences, limitations, terms and conditions,
as determined by the Board of Directors. The Charter also authorizes the Company
to issue 40 million shares of Excess Stock. The Board of Directors may classify
and reclassify any unissued shares of capital stock by changing or setting in
any respect the rights, privileges, and powers of such shares of stock.
DISTRIBUTIONS TO SHAREHOLDERS
CRIT. The Board of Trustees have complete discretion in choosing
whether and to what extent shareholders will receive dividends.
The Company. Shares of stock owned by a person in excess of 9.8% of the
outstanding shares of Equity Stock in the Company ("Excess Stock") are not
transferable and not entitled to dividends or voting rights. See "Description of
Lexington Properties Capital Stock."
SHAREHOLDER MEETINGS
CRIT. The Declaration of Trust requires that CRIT hold an annual meeting
of shareholders and furnish to each shareholder an annual report at least 30
days prior to each annual meeting of shareholders. A special meeting of
shareholders may be called by the Chairman of the Board, a majority of Trustees
or a majority of independent Trustees and will be called upon the written
request of the Shareholders holding in the aggregate not less than 10% of the
outstanding Shares of the Trust entitled to vote at such meeting.
CRIT must prepare an alphabetical list of the names of all the
shareholders who are entitled to vote at a shareholders meeting. The
shareholders' list must be available for inspection by any shareholder for a
period of ten days prior to the meeting or such shorter time as exists between
the record date and the meeting, and continuing through the meeting, at the
CRIT's principal office.
The Company. The Company's By-Laws require that the Company hold an
annual meeting of shareholders. A special meeting of shareholders may be called
by the Chairman of the Board of Directors or the President or the majority vote
of the Board of Directors. Special meetings of the stockholders shall also be
called as may be required by law.
At each meeting of stockholders, a full, true and complete list of all
stockholders entitled to vote at such meeting, showing the number and class of
shares held by each and certified by the transfer agent for such class or by the
Secretary, shall be furnished by the Secretary.
SHAREHOLDER APPROVAL OF CERTAIN ACTIONS
CRIT. Amendments to the Declaration of Trust require a majority of the
outstanding shares entitled to vote unless the amendment involves the rights
with respect to outstanding shares of the trust, ownership limits, or
shareholder approval requirements set out in the Declaration of Trust. In that
case, an affirmative vote of two-thirds of the shares entitled to vote is
necessary.
"Business Combinations" as defined in the Declaration of Trust with any
"Acquiring Person" requires approval by the affirmative vote of 80% of all votes
entitled to be cast on the matter and held by persons other than the Acquiring
Person. The term "Acquiring Person" is defined in the Declaration of Trust to
mean any person who, together with its affiliates, and with any other person
with whom it has an agreement or understanding with respect to holding or voting
CRIT's shares, beneficially owns, in the aggregate, 8.5% or more of the
outstanding CRIT Shares.
The Company. Amendments to the Company's charter require a vote of not
less than a majority of the aggregate votes entitled to be cast unless the
amendment is inconsistent with the Board of Directors' powers and processes as
delineated in the Charter or the shareholder proposal processes and voting
requirements of directors and shareholders as delineated in the Charter. If an
amendment is inconsistent with the requirements of the Charter, an affirmative
vote of no less than 80% of the aggregate votes entitled to be cast is
necessary.
The By-Laws may be amended by either a vote of not less than 80% of the
outstanding shares of capital stock in the Company entitled to vote or by vote
of two-thirds of the Board of Directors.
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Neither the Company's Charter nor By-Laws refer to any shareholder
approval requirements in reference to mergers, sales, acquisitions, or exchanges
of any kind.
RESTRICTIONS ON CORPORATE ACTIVITIES
CRIT. Under CRIT's Declaration of Trust, the Board of Trustees shall
not:
(A) sell property to the Sponsor, the Advisor, a Trustee or any
affiliate thereof;
(B) invest more than 10% of its total assets in or make mortgage loans
on unimproved real property (property which has the following
three characteristics: (i) the property was not acquired for the
purpose of producing rental or other operating income, (ii) there
is no development or construction in process on such land, and
(iii) no development or construction on such land is planned in
good faith to commence on such land within one year) or
indebtedness secured by a deed of trust or mortgage loans on
unimproved real property;
(C) invest in or make mortgage loans, unless (i) an appraisal is
obtained concerning the underlying property and, in the event the
Independent Trustees require or the mortgage loan involves the
Advisor, Trustees, Sponsor or affiliate, the appraisal is prepared
by an independent appraiser, (ii) the appraisal is maintained in
the Trust's records for at least five years and is available for
inspection and duplication by any shareholder, (iii) a mortgagee's
or owner's title insurance policy or commitment as to the priority
of the mortgage or the condition of the title is obtained, and
(iv) the aggregate amount of all mortgage loans, including
construction loans and the loans of the Trust, outstanding on the
property, does not exceed 85% of the appraised value of the
property without substantial justification;
(D) invest in or make any mortgage loans which are subordinate to any
mortgage loan or equity interest of the Advisor, Trustees, Sponsor
or affiliates of the Trust or invest in indebtedness ("junior
debt") secured by a mortgage on real property which is subordinate
to the lien of other indebtedness ("senior debt"), except where
the amount of such junior debt, plus the outstanding amount of the
senior debt on such property, does not exceed 85% of the appraised
value of such property, if after giving effect thereto, the value
of all such investments of the Trust (as shown on the books of the
Trust in accordance with generally accepted accounting principles,
after all reasonable reserves, but before provision for
depreciation) would not then exceed 10% of tangible assets of the
Trust;
(E) invest in real estate contracts of sale, unless such contracts of
sale are in recordable form and are appropriately recorded in the
chain of title;
(F) invest in any foreign currency, bullion, commodities, or
commodities futures contracts;
(G) engage in any short sale;
(H) engage in trading (as compared with investment activities) or
engage in the underwriting of or distributing as agent the
Securities issued by others;
(I) invest in any Security in any entity holding investments or
engaging in activities prohibited by the Declaration of Trust;
(J) invest in equity securities of any non-governmental issuer,
including other REITs or limited partnerships for a period in
excess of 18 months, provided further, that investments in money
market funds sponsored by Affiliates of the Advisor may not exceed
5% of the gross proceeds of the offering;
(K) issue "redeemable securities" (as defined in Section 2(A)(32) of
the Investment Company Act of 1940, as amended), "face amount
certificates of the installment types" as defined in Section
2(a)(5) thereof, or "periodic payment plan certificates" as
defined in Section 2(a)(27) thereof;
(L) issue options or warrants to purchase CRIT Shares to any person
unless (i) the exercise price equals or exceeds the fair market
value of the CRIT Shares on the date of grant and (ii) the
consideration received (which may include services), in the
judgment of the Independent Trustees, has a market value equal to
or exceeding the value of such options or warrants on the date of
grant;
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(M) issue options or warrants to purchase the CRIT Shares to the
Advisor, a Trustee, the Sponsor or an affiliate thereof, unless
such options or warrants (i) are issued on the same terms as such
options or warrants are sold to the general public and (ii) do not
exceed an amount equal to 10% of the outstanding CRIT Shares of
the Trust on the date of grant;
(N) issue CRIT Shares on a deferred payment basis or other similar
arrangement;
(O) issue debt securities to the public, unless the cash flow (in the
most recently completed fiscal year) excluding extraordinary
non-recurring items, is sufficient to properly service the
interest on all debt securities to be outstanding after the
issuance of any proposed debt securities;
(P) issue CRIT Shares in a private offering, unless the voting rights
per CRIT Share of such CRIT Shares do not exceed the voting rights
which bear the same relationship to the voting rights of the
publicly held CRIT Shares as the consideration received for each
privately offered CRIT Share bears to the Book Value of the CRIT
Shares issued pursuant to the Prospectus;
(Q) issue equity securities of more than one class;
(R) cause any of CRIT Shares to be listed for trading on a national or
regional stock exchange or included on the automated quotation
system maintained by the National Association of Securities
Dealers, Inc. without the prior approval of the holders of a
majority of the outstanding CRIT Shares entitled to vote;
(S) undertake any activity that would disqualify the Trust as a REIT
under the REIT Provisions of the Code as long as a REIT is
accorded substantially the same treatment or benefits under the
United States tax laws from time to time in effect as under the
REIT Provisions of the Internal Revenue Code as the date of
adoption of the Declaration of Trust; or
(T) invest in real property which, after acquisition by the Trust,
will be used primarily for residential, hotel, motel or restaurant
purposes.
The Company. The Company's charter documents do not contain similar
restrictions on the Company's activities.
INTERESTED PARTY TRANSACTIONS
CRIT. Under CRIT's Declaration of Trust, any transaction between the
Trust and the Sponsor, the Advisor, a Trustee or any affiliates, or any
investment by the Trust in an entity affiliated with any of the foregoing or any
joint venture with any of the foregoing, or any employment of or contract with
any of the foregoing, shall require approval by a majority of the Trustees not
otherwise interested in the transaction, including a majority of the Independent
Trustees not otherwise interest in such transaction.
The Company. The Company's charter documents contain no similar
restrictions with respect to interested party transactions.
Under the MGCL, any contract or transaction between a corporation and
any director or any entity in which the director has a material financial
interest will be voidable unless (i) it is approved, after disclosure of the
interest, by the affirmative vote of a majority of disinterested directors or by
the affirmative vote of a majority of the votes cast by disinterested
shareholders or (ii) it is fair and reasonable to the corporation.
OWNERSHIP LIMIT
CRIT. The Declaration of Trust requires that a beneficial owner of more
than 8.5% of the total shares outstanding give notice to the Trust of his/her
ownership position and any other information the Trust may require.
The Trust may take actions which in its discretion it deems necessary to
insure that the Trust maintains its REIT status, including but not limited to
purchasing the Excess Shares, as defined in the Declaration of Trust, from a
beneficial owner who owns more than 8.5% of the total outstanding shares or
refusing to permit a transaction that would lead to a beneficial owner
possessing more than 8.5% of the total outstanding shares.
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The Company. The Charter provides that the Ownership Limit for any
stockholder of the Corporation shall be 9.8% of the value of the outstanding
Equity Stock of the Corporation. Any shares held over and above the 9.8%
threshold are Excess Shares and are governed by the Charter. See "Description of
Lexington Properties Capital Stock."
MAINTAINING REIT STATUS
CRIT. The trustees may take necessary action to insure that CRIT
maintains its REIT Status. Any transaction that may occur which would disqualify
CRIT from REIT Status is null and void.
The Company. The Directors may take necessary action to insure that
Company remains a qualified REIT under the Code.
INDEMNIFICATION
CRIT. (A) The Trust shall indemnify and hold harmless the Trustees, the
Advisor or any affiliate of the Advisor who performs services on behalf of the
Trust against any and all losses, claims, demands, costs, damages, liabilities,
joint and several, expenses of any nature (including attorneys' fees and
disbursements), judgments, fines, settlements, and other amounts paid and
reasonably incurred by them in connection with or by reason of any act performed
or omitted to be performed by them in connection with the business of the Trust,
provided that (i) the Board of Trustees (excluding the indemnified party) has
determined, in good faith, that the course of conduct which caused the loss or
liability was in the best interests of the Trust, (ii) such liability or loss
was not the result of negligence or misconduct on the part of the indemnitee and
(iii) such indemnification or agreement to hold harmless is recoverable only out
of the assets of the Trust and not from the CRIT shareholders.
The Trust may indemnify a Trustee, the Advisor or any person acting as a
broker or dealer for the offering and sale of CRIT Shares for any liability or
loss and costs associated therewith, including attorneys' fees, if the liability
or loss relates to the expenses of successful defense or settlement of a lawsuit
alleging a violation of state or federal securities laws associated with the
offer and sale of CRIT Shares if a court (i) approves the settlement and finds
that indemnification of the settlement and related costs should be made or (ii)
approves indemnification of litigation costs if there has been a dismissal with
prejudice or a successful adjudication on the merits of each count involving
alleged securities law violations as to the particular indemnitee. The Trust may
not indemnify any persons for any liability imposed by judgment, or any costs
associated therewith, including attorneys' fees, arising from or out of a
violation of state or federal securities laws.
(B) The Trust may advance expenses incurred in defending a legal action,
suit or proceeding in advance of the final disposition of such action, suit or
proceeding provided that the following three conditions are satisfied: (i) the
legal action relates to the performance of duties or services by such person on
behalf of the Trust; (ii) the legal action is initiated by a third party who is
not a Shareholder of the Trust; and (iii) such Person agrees in writing to repay
the advanced funds to the Trust if it is ultimately determined that he or it is
not entitled to indemnification by the Trust.
The Company. The Company's Charter and By-Laws contain similar
provisions concerning the indemnification of directors, officers, agents and
employees.
NOMINATIONS OF DIRECTORS BY SHAREHOLDERS
CRIT. The Declaration of Trust of CRIT requires that trustees nominate
persons to be elected as trustees or appoint a committee of trustees to make
such nominations, and that independent trustees nominate persons to be elected
as independent trustees. No nominations for trustees, except those made by the
trustees themselves, shall be voted upon at an annual meeting of the
shareholders unless nominations of shareholders are made in writing and
delivered to the Secretary of CRIT at least 90 days prior to the date of the
annual meeting.
The Company. For any shareholder proposal to be presented in connection
with an annual meeting of shareholders of the Company, including any proposal
relating to the nomination of a director to be elected to be Board of Directors
of the Company, the shareholders must have given timely notice thereof in
writing to the Secretary of the Company. To be timely, a shareholder's proposal
shall be delivered to the Secretary at the principal executive offices of the
Company not less than 120 days in advance of the release date of the Company's
proxy statement to shareholders in connection with the preceding year's annual
meeting; provided,
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however, that in the event that the date of the annual meeting is advanced by
more than 30 days or delayed by more than 60 days from such anniversary date,
notice by the shareholder to be timely must be so delivered not earlier than the
90th day prior to such annual meeting and not later than the close of business
on the later of the 60th day prior to such annual meeting or the tenth day
following the day on which public announcement of the date of such meeting is
first made.
DESCRIPTION OF LEXINGTON PROPERTIES CAPITAL STOCK
DESCRIPTION OF PREFERRED STOCK
Under the Articles of Incorporation, the Company has authority to issue
10,000,000 shares of preferred stock, par value $.0001 per share ("Preferred
Stock"), 1,325,000 of which, designated as Class A Senior Cumulative Convertible
Stock, were outstanding as of the date of this Joint Proxy Statement/Prospectus.
Shares of Preferred Stock may be issued from time to time, in one or more
series, as authorized by the Board of Directors of the Company. Prior to
issuance of shares of each series, the Board of Directors is required by the
MGCL and the Articles of Incorporation to fix for each series, subject to the
provisions of the Articles of Incorporation regarding excess stock, $.0001 par
value per share ("Excess 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, as are
permitted by Maryland law. The Preferred Stock will, when issued against payment
therefor, be fully paid and nonassessable and will not be subject to preemptive
rights. The Board of Directors could authorize the issuance of shares of
Preferred Stock with terms and conditions that could have the effect of
discouraging a takeover or other transaction that holders of Lexington Common
Stock might believe to be in their best interests or in which holders of some,
or a majority, of the shares of Lexington Common Stock might receive a premium
for their shares over the then market price of such shares of Lexington Common
Stock. In December 1996, the Company entered into an agreement with Five Arrows
providing for the sale of up to 2,000,000 shares of Convertible Preferred Stock.
See "Information Regarding Lexington Properties -- Financing Activities -- Sale
of Convertible Preferred Stock."
DESCRIPTION OF COMMON STOCK
The description of the Lexington Common Stock set forth below does not
purport to be complete and is qualified in its entirety by reference to the
Articles of Incorporation and Bylaws.
GENERAL
Under the Articles of Incorporation, the Company has authority to issue
40,000,000 shares of Lexington Common Stock, par value $.0001 per share. Under
Maryland law, stockholders generally are not responsible for a corporation's
debts or obligations. At June 25, 1997, the Company had outstanding 12,254,037
shares of Lexington Common Stock.
TERMS
Subject to the preferential rights of any other shares or series of
stock and to the provisions of the Articles of Incorporation regarding Excess
Stock, holders of shares of Lexington Common Stock are entitled to receive
dividends on shares of Lexington Common Stock if, as and when authorized and
declared by the Board of Directors of the Company out of assets legally
available therefor and to share ratably in the assets of the Company legally
available for distribution to its stockholders in the event of its liquidation,
dissolution or winding-up after payment of, or adequate provision for, all known
debts and liabilities of the Company and the amount to which holders of any
class of stock classified or reclassified or having a preference on
distributions in liquidation, dissolution or winding-up of the Company have a
right.
Subject to the provisions of the Articles of Incorporation regarding
Excess Stock, each outstanding share of Lexington 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 otherwise required by law or except as
provided with respect to any other class or series of stock, the holders of
Lexington Common Stock will possess the exclusive voting power. There is no
cumulative voting in the election of Directors, which means that the holders of
a majority of the outstanding shares of Lexington Common Stock can elect all of
the Directors then standing for election, and the holders of the remaining
shares of Lexington Common Stock will not be able to elect any Directors.
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Holders of Lexington Common Stock have no conversion, sinking fund or
redemption rights, or preemptive rights to subscribe for any securities of the
Company.
The Company furnishes its stockholders with annual reports containing
audited consolidated financial statements and an opinion thereon expressed by an
independent public accounting firm and quarterly reports for the first three
quarters of each fiscal year containing unaudited financial information.
Subject to the provisions of the Articles of Incorporation regarding
Excess Stock, all shares of Lexington Common Stock will have equal dividend,
distribution, liquidation and other rights, and will have no preference,
appraisal or exchange rights.
Pursuant to the MGCL, a corporation generally cannot dissolve, amend its
Articles of Incorporation, 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 to be cast on the matter) is set forth in the corporation's Articles of
Incorporation. However, the Articles of Incorporation provide that such actions,
with the exception of certain amendments to the Articles of Incorporation for
which a higher vote requirement has been set, shall be valid and effective if
authorized by holders of a majority of the total number of shares of all classes
outstanding and entitled to vote thereon.
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, directly or indirectly,
by five or fewer individuals (as defined in the Code to include certain
entities) during the last half of a taxable year. To assist the Company in
meeting this requirement, the Company may take certain actions to limit the
beneficial ownership, directly or indirectly, by a single person of the
Company's outstanding equity securities. See "Restrictions on Transfers of
Capital Stock and Anti- Takeover Provisions."
TRANSFER AGENT
The transfer agent and registrar for the Lexington Common Stock is Chase
Mellon Shareholder Services LLC.
RESTRICTIONS ON TRANSFERS OF CAPITAL STOCK
AND ANTI-TAKEOVER PROVISIONS
Restrictions Relating to REIT Status. For the Company to qualify as a
REIT under the Code, among other things, not more than 50% in value of its
outstanding capital stock may be owned, directly or indirectly, by five or fewer
individuals (defined in the Code to include certain entities) during the last
half of a taxable year, and such capital stock must be beneficially owned by 100
or more persons during at least 335 days of a taxable year of 12 months or
during a proportionate part of a shorter taxable year (in each case, other than
the first such year). To assist the Company in continuing to remain a qualified
REIT, the Articles of Incorporation, subject to certain exceptions, provide that
no holder may own, or be deemed to own by virtue of the attribution provisions
of the Code, more than 9.8% (the "Ownership Limit") of the Company's equity
stock, defined as Lexington Common Stock or Preferred Stock. The Board of
Directors may waive the Ownership Limit if evidence satisfactory to the Board of
Directors and the Company's tax counsel is presented that the changes in
ownership will not then or in the future jeopardize the Company's status as a
REIT. Any transfer of equity stock or any security convertible into equity stock
that would create a direct or indirect ownership of equity stock in excess of
the Ownership Limit or that would result in the disqualification of the Company
as a REIT, including any transfer that results in the equity stock being owned
by fewer than 100 persons or results in the Company being "closely held" within
the meaning of Section 856(h) of the Code, shall be null and void, and the
intended transferee will acquire no rights to the equity stock. The foregoing
restrictions on transferability and ownership will not apply if the Board of
Directors determines that it is no longer in the best interests of the Company
to attempt to qualify, or to continue to qualify, as a REIT.
Equity stock owned, or deemed to be owned, or transferred to a
stockholder in excess of the Ownership Limit, will automatically be exchanged
for shares of Excess Stock that will be transferred, by operation of law, to the
Company as trustee of a trust for the exclusive benefit of the transferees to
whom such capital stock may be ultimately transferred without violating the
Ownership Limit. While the Excess Stock is held in trust, it will not be
entitled to vote, it will not be considered for purposes of any stockholder vote
or the determination of a
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quorum for such vote and, except upon liquidation, it will not be entitled to
participate in dividends or other distributions. Any dividend or distribution
paid to a proposed transferee of Excess Stock prior to the discovery by the
Company that equity stock has been transferred in violation of the provisions of
the Articles of Incorporation shall be repaid to the Company upon demand. The
Excess Stock is not treasury stock, but rather constitutes a separate class of
issued and outstanding stock of the Company. The original transferee-stockholder
may, at any time the Excess Stock is held by the Company in trust, transfer the
interest in the trust representing the Excess Stock to any individual whose
ownership of the equity stock exchanged into such Excess Stock would be
permitted under the Articles of Incorporation, at a price not in excess of the
price paid by the original transferee-stockholder for the equity stock that was
exchanged into Excess Stock, or, if the transferee-stockholder did not give
value for such equity stock, a price not in excess of the market price (as
determined in the manner set forth in the Articles of Incorporation) on the date
of the purported transfer. Immediately upon the transfer to the permitted
transferee, the Excess Stock will automatically be exchanged for equity stock of
the class from which it was converted. If the foregoing transfer restrictions
are determined to be void or invalid by virtue of any legal decision, statute,
rule or regulation, then the intended transferee of any Excess Stock may be
deemed, at the option of the Company, to have acted as an agent on behalf of the
Company in acquiring the Excess Stock and to hold the Excess Stock on behalf of
the Company.
In addition to the foregoing transfer restrictions, the Company will
have the right, for a period of 90 days during the time any Excess Stock is held
by the Company in trust, to purchase all or any portion of the Excess Stock from
the original transferee-stockholder for the lesser of the price paid for the
equity stock by the original transferee-stockholder or the market price (as
determined in the manner set forth in the Articles of Incorporation) of the
equity stock on the date the Company exercises its option to purchase. The
90-day period begins on the date on which the Company receives written notice of
the transfer or other event resulting in the exchange of equity stock for Excess
Stock.
Each stockholder shall upon demand be required to disclose to the
Company in writing any information with respect to the direct, indirect and
constructive ownership of beneficial interests as the Board of Directors deems
necessary to comply with the provisions of the Code applicable to REITs, to
comply with the requirements of any taxing authority or governmental agency or
to determine any such compliance.
This ownership limitation may have the effect of precluding acquisition
of control of the Company unless the Board of Directors determines that
maintenance of REIT status is no longer in the best interests of the Company.
Authorized Capital. The Company has an aggregate of 40,000,000
authorized shares of Lexington Common Stock, 40,000,000 shares of Excess Stock
and 10,000,000 undesignated shares of Preferred Stock available for issuance in
its Articles of Incorporation. The actual numbers of shares of Lexington Common
Stock outstanding and reserved for issuance fall far below the number of
authorized shares, and no shares of Excess Stock or Preferred Stock are
outstanding or reserved for issuance. Such shares (other than reserved shares)
may be issued from time to time by the Company in the discretion of the Board to
raise additional capital, acquire assets, including additional real properties,
redeem or retire debt or for any other business purpose. In addition, the
undesignated shares of Preferred Stock may be issued in one or more additional
classes with such designations, preferences and relative, participating,
optional or other special rights including, without limitation, preferential
dividend or voting rights, and rights upon liquidation, as shall be fixed by the
Board. Also, the Board of Directors is authorized to classify and reclassify any
unissued shares of capital stock by setting or changing, in any one or more
respects, the preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications or terms or conditions
of redemption of such shares of stock. Such authority includes, without
limitation, subject to the provisions of the Articles of Incorporation,
authority to classify or reclassify any unissued shares of such stock into a
class or classes of preferred stock, preference stock, special stock or other
stock, and to divide and reclassify shares of any class into one or more series
of such class. In certain circumstances, the issuance of Preferred Stock, or the
exercise by the Board of such rights to classify or reclassify stock, could have
the effect of deterring individuals or entities from making tender offers for
the shares of Lexington Common Stock or seeking to change incumbent management.
Maryland Corporation Law. The General Corporation Law of the State of
Maryland includes certain other provisions which may also discourage a change in
control of management of the Company. Maryland law provides that a Maryland
corporation may not engage in any "business combination" with any "interested
stockholder." An "interested stockholder" is defined, in essence, as any person
owning beneficially, directly or indirectly, 10% or more of the outstanding
voting stock of a Maryland corporation. Unless an exemption applies, the Company
may not engage in any business combination with an interested stockholder for a
period of five years after the interested stockholder became an interested
stockholder, and thereafter may not engage in a
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business combination unless it is recommended by the Board and approved by the
affirmative vote of at least (i) 80% of the votes entitled to be cast by the
holders of all outstanding voting stock of the Company, and (ii) 66 2/3% of the
votes entitled to be cast by all holders of outstanding shares of voting stock
other than voting stock held by the interested stockholder. The voting
requirements do not apply at any time to business combinations with an
interested stockholder or its affiliates if approved by the Board prior to the
time the interested stockholder first became an interested stockholder.
Additionally, if the business combination involves the receipt of consideration
by the stockholders in exchange for the Company's stock, the voting requirements
do not apply if certain "fair price" conditions are met.
Maryland law provides for the elimination of the voting rights of any
person who makes a Control Share Acquisition (as defined below) except to the
extent that such acquisition is exempt or is approved by at least 66 2/3% of all
votes entitled to be cast on the matter, excluding shares of capital stock owned
by the acquiror or by officers or directors who are employees of the Company. A
control share acquisition ("Control Share Acquisition") is the direct or
indirect acquisition by any person of ownership of, or the power to direct the
exercise of voting power with respect to, shares of voting stock ("Control
Shares") that would, if aggregated with all other voting stock owned by such
person, entitle such person to exercise voting power in electing directors
within one of the following ranges of voting power: (i) 20% or more but less
than 33 1/3%; (ii) 33 1/3% or more but less than a majority; or (iii) a majority
of voting power. A person who has made or proposes to make a Control Share
Acquisition, upon satisfaction of certain conditions (including an undertaking
to pay expenses), may compel the Board to call a special meeting of stockholders
to be held within 50 days of demand to consider the voting rights of the shares.
If no request for a meeting is made, the Company may itself present the question
at any stockholder meeting. If voting rights are not approved at the meeting or
if the acquiring person does not deliver an acquiring person statement as
permitted by the statute, then, subject to certain conditions and limitations,
the Company may redeem any or all of the Control Shares (except those for which
voting rights have previously been approved) for fair value determined, without
regard to voting rights, as of the date of the last Control Share Acquisition or
of any meeting of stockholders at which the voting rights of such shares are
considered and not approved. If voting rights for Control Shares are approved at
a stockholders meeting and the acquiror becomes entitled to vote a majority of
the shares entitled to vote, all other stockholders may exercise appraisal
rights. The fair value of the stock as determined for purposes of such appraisal
rights may not be less than the highest price per share paid in the Control
Share Acquisition, and certain limitations and restrictions otherwise applicable
to the exercise of dissenters' rights do not apply in the context of a Control
Share Acquisition. The Control Share Acquisition statute does not apply to stock
acquired in a merger, consolidation or stock exchange if the Company is a party
to the transaction, or to acquisitions approved or exempted by the charter or
by-laws of the Company.
LEGAL MATTERS
Certain legal matters, including the validity of the Shares and certain
tax matters, will be passed upon for the Company by Paul, Hastings, Janofsky &
Walker LLP, New York, New York. Seth M. Zachary, a partner of Paul, Hastings,
Janofsky & Walker LLP, is presently serving as a director of the Company and
will continue to serve as a director at least until the Company's 1998 Annual
Meeting of Shareholders. Mr. Zachary is the beneficial owner of 5,211 shares of
Lexington Common Stock and holds options to purchase an additional 12,500 shares
of Common Stock. In connection with certain matters related to the laws of the
State of Maryland, Paul, Hastings, Janofsky & Walker LLP will rely on the
opinion of Piper & Marbury LLP, Baltimore, Maryland.
EXPERTS
The consolidated financial statements of the Company incorporated into
this Joint Proxy Statement/Prospectus by reference to the Annual Report on Form
10-K for the year ended December 31, 1996, have been so incorporated in reliance
on the report incorporated by reference of KPMG Peat Marwick LLP, independent
certified public accountants, given on authority of said firm as experts in
accounting and auditing.
The financial statements and schedule of CRIT appearing in CRIT's Form
10-K for the year ended December 31, 1996, have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report thereon, dated January
29, 1997, included therein and incorporated herein by reference. The information
under the captions "CRIT Historical Financial Data" and "Selected Financial
Data" as of December 31, 1996 and 1995 and for each of the three years in the
period ended December 31, 1996, appearing in this Proxy Statement/Prospectus and
Registration Statement have been derived from financial statements audited by
Ernst & Young LLP, as set forth in their report, dated January 29, 1997,
incorporated herein by reference. Such
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financial statements and schedule are incorporated herein by reference, in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
SHAREHOLDER PROPOSALS
CRIT will hold an Annual Meeting in 1997 only if the Merger is not
consummated. Shareholder proposals intended to be presented at the 1997 Annual
Meeting must be received by CRIT a reasonable amount of time prior to CRIT's
solicitation of proxies relating to such meeting.
Mark R. Patterson
Secretary
__________, 1997
95
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ANNEX A
AGREEMENT AND PLAN OF MERGER
<PAGE> 104
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
between
CORPORATE REALTY INCOME TRUST I
and
LEXINGTON CORPORATE PROPERTIES, INC.
- --------------------------------------------------------------------------------
Dated as of May 29, 1997
- --------------------------------------------------------------------------------
<PAGE> 105
TABLE OF CONTENTS
ARTICLE 1 THE MERGER...........................................................1
Section 1.1 THE MERGER...................................................1
Section 1.2 THE CLOSING..................................................2
Section 1.3 EFFECTIVE TIME...............................................2
ARTICLE 2 ARTICLES OF INCORPORATION AND BY-LAWS OF THE SURVIVING
CORPORATION..........................................................2
ARTICLE 3 DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION..................2
ARTICLE 4 EXCHANGE OF STOCK, ASSUMPTION OF MORTGAGE AND OTHER
CONSIDERATION........................................................2
Section 4.1 CONVERSION AND REDEMPTION OF STOCK...........................2
Section 4.2 EXCHANGE OF CERTIFICATES REPRESENTING TRUST SHARES...........4
Section 4.3 RETURN OF EXCHANGE FUND......................................6
Section 4.4 CASH PAYMENT; CONTINUANCE OF MORTGAGES.......................6
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF THE TRUST..........................6
Section 5.1 EXISTENCE; GOOD STANDING; AUTHORITY; COMPLIANCE WITH LAW.....7
Section 5.2 AUTHORIZATION, VALIDITY AND EFFECT OF AGREEMENTS.............7
Section 5.3 CAPITALIZATION...............................................8
Section 5.4 SUBSIDIARIES AND OTHER INTERESTS.............................8
Section 5.5 NO VIOLATION.................................................8
Section 5.6 SEC DOCUMENTS................................................9
Section 5.7 LITIGATION...................................................9
Section 5.8 ABSENCE OF CERTAIN CHANGES...................................9
Section 5.9 ABSENCE OF UNDISCLOSED LIABILITIES..........................10
Section 5.10 REGISTRATION STATEMENT AND PROXY INFORMATION................10
Section 5.11 TAXES.......................................................10
Section 5.12 BOOKS AND RECORDS...........................................12
Section 5.13 PROPERTIES..................................................12
Section 5.14 ENVIRONMENTAL MATTERS.......................................13
Section 5.15 NO FEES.....................................................14
Section 5.16 OPINION OF FINANCIAL ADVISOR................................14
Section 5.17 CONTRACTS AND COMMITMENTS...................................14
Section 5.18 LEASES......................................................15
Section 5.19 AFFILIATED TRANSACTIONS.....................................15
Section 5.20 EMPLOYEES...................................................15
Section 5.21 DEFINITION OF THE TRUST'S KNOWLEDGE.........................16
ARTICLE 6 REPRESENTATIONS AND WARRANTIES OF LEXINGTON.........................16
Section 6.1 EXISTENCE; GOOD STANDING; AUTHORITY; COMPLIANCE WITH LAW....16
<PAGE> 106
Section 6.2 AUTHORIZATION, VALIDITY AND EFFECT OF AGREEMENTS............17
Section 6.3 CAPITALIZATION..............................................17
Section 6.4 REGISTRATION STATEMENT AND PROXY INFORMATION................17
Section 6.5 OTHER INTEREST..............................................17
Section 6.6 NO VIOLATION................................................18
Section 6.7 SEC DOCUMENTS...............................................18
Section 6.8 LITIGATION..................................................19
Section 6.9 ABSENCE OF CERTAIN CHANGES..................................19
Section 6.10 TAXES.......................................................19
Section 6.11 ENVIRONMENTAL MATTERS.......................................21
Section 6.12 NO FEES.....................................................21
Section 6.13 BENEFICIAL SHARE OWNERSHIP..................................22
Section 6.14 CONTRACTS AND COMMITMENTS...................................22
Section 6.15 LEXINGTON COMMON STOCK......................................22
Section 6.16 CONVERTIBLE SECURITIES......................................22
Section 6.17 DEFINITION OF LEXINGTON'S KNOWLEDGE.........................22
ARTICLE 7 COVENANTS...........................................................23
Section 7.1 ACQUISITION PROPOSALS.......................................23
Section 7.2 CONDUCT OF BUSINESSES.......................................23
Section 7.3 MEETING OF STOCKHOLDERS.....................................26
Section 7.4 FILINGS; OTHER ACTION.......................................27
Section 7.5 INSPECTION OF RECORDS.......................................27
Section 7.6 PUBLICITY...................................................28
Section 7.7 REGISTRATION STATEMENT......................................28
Section 7.8 LISTING APPLICATION.........................................29
Section 7.9 FURTHER ACTION..............................................29
Section 7.10 AFFILIATES OF THE TRUST.....................................29
Section 7.11 EXPENSES....................................................29
Section 7.12 INDEMNIFICATION AND INSURANCE...............................30
Section 7.13 REORGANIZATION..............................................31
Section 7.14 PAYMENT OF ADVISORY FEES AND TRANSACTION EXPENSES...........32
Section 7.15 REIT STATUS.................................................32
ARTICLE 8 CONDITIONS PRECEDENT................................................32
Section 8.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER..32
Section 8.2 CONDITIONS TO OBLIGATIONS OF THE TRUST TO EFFECT THE MERGER.33
Section 8.3 CONDITIONS TO OBLIGATION OF LEXINGTON TO EFFECT THE MERGER..34
ARTICLE 9 TERMINATION.........................................................35
Section 9.1 TERMINATION.................................................35
Section 9.2 EFFECT OF TERMINATION.......................................37
Section 9.3 FEES AND EXPENSES...........................................38
ii
<PAGE> 107
Section 9.4 EXTENSION; WAIVER...........................................38
ARTICLE 10 GENERAL PROVISIONS.................................................39
Section 10.1 NONSURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS...39
Section 10.2 NOTICES.....................................................39
Section 10.3 ASSIGNMENT; BINDING EFFECT; BENEFIT.........................39
Section 10.4 ENTIRE AGREEMENT............................................40
Section 10.5 CONFIDENTIALITY.............................................40
Section 10.6 AMENDMENT...................................................40
Section 10.7 GOVERNING LAW...............................................40
Section 10.8 COUNTERPARTS................................................41
Section 10.9 HEADINGS....................................................41
Section 10.10 WAIVERS.....................................................41
Section 10.11 INCORPORATION...............................................41
Section 10.12 SEVERABILITY................................................41
Section 10.13 INTERPRETATION AND CERTAIN DEFINITIONS......................41
Section 10.14 SCHEDULES...................................................42
Section 10.15 LIMITATION OF LIABILITY.....................................42
iii
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SCHEDULES
Schedule 4.4 - Trust Obligations
Schedule 5.1(c) - Trust Organizational Documents
Schedule 5.5 - Trust Conflicts or Breaches
Schedule 5.9 - Trust Liabilities
Schedule 5.11 - Trust Taxes
Schedule 5.13 - Trust Properties
Schedule 5.14 - Trust Environmental Matters
Schedule 5.17 - Trust Contracts and Commitments
Schedule 5.18 - Trust Consents
Schedule 5.19 - Trust Affiliated Transactions
Schedule 6.1(b) - Lexington Subsidiaries
Schedule 6.1(d) - Lexington Charter Documents
Schedule 6.3 - Lexington Reserved Shares
Schedule 6.6 - Lexington Conflicts or Violations
Schedule 6.8 - Lexington Litigation
Schedule 6.10 - Lexington Taxes
Schedule 6.11 - Lexington Environmental Matters
iv
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AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (the "Agreement") is made and entered
into as of May 29, 1997 between CORPORATE REALTY INCOME TRUST I, a Massachusetts
business trust having an office at 388 Greenwich Street, New York, New York
10013 (the "Trust"), and LEXINGTON CORPORATE PROPERTIES, INC., a Maryland
corporation having its offices at 355 Lexington Avenue, New York, New York 10017
("Lexington").
RECITALS
A. The Board of Trustees of the Trust and the Board of Directors of
Lexington each have determined that a business combination between the Trust and
Lexington is in the best interests of their respective companies and
stockholders, and accordingly have agreed to effect the merger provided for
herein upon the terms and subject to the conditions set forth herein.
B. It is intended that the merger provided for herein, for federal
income tax purposes, shall qualify as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code").
C. The Trust has received a fairness opinion from its financial advisor
relating to the transactions contemplated hereby as more fully described herein.
D. The Trust and Lexington desire to make certain representations,
warranties and agreements in connection with the merger.
NOW, THEREFORE, in consideration of the foregoing, and of the
representations, warranties, covenants and agreements contained herein, the
parties hereto hereby agree as follows:
1
THE MERGER
1.1 THE MERGER. Subject to the terms and conditions of this Agreement,
at the Effective Time (as defined in Section 1.3 hereof), the Trust shall be
merged with and into Lexington in accordance with this Agreement and the
separate corporate existence of the Trust shall thereupon cease (the "Merger").
Lexington shall be the surviving corporation in the Merger (sometimes
hereinafter referred to as the "Surviving Corporation"). The Merger shall be
completed pursuant to Chapter 182 of the Massachusetts General Laws (the "MGL")
and Section 3-114 of the Maryland General Corporation Law (the "MGCL").
<PAGE> 110
1.2 THE CLOSING. Subject to the terms and conditions of this Agreement,
the closing of the Merger (the "Closing") shall take place at the offices of
Paul, Hastings, Janofsky & Walker LLP in New York, New York, at 1:00 p.m., local
time, on the later of (a) September 4, 1997 or (b) the second business day after
the last condition set forth in Article 8 shall have been satisfied or waived by
the party entitled to effect such waiver (but in any event no later than October
1, 1997), or at such other time, date or place as the parties hereto may agree.
The date on which the Closing occurs is hereinafter referred to as the "Closing
Date".
1.3 EFFECTIVE TIME. If all the conditions to the Merger set forth in
Article 8 shall have been fulfilled or waived in accordance herewith and this
Agreement shall not have been terminated as provided in Article 9, the parties
hereto shall cause Articles of Merger satisfying the requirements of the MGCL
Law to be properly executed, verified and delivered for filing in accordance
with the MGCL Law on the Closing Date. The Merger shall become effective upon
the acceptance for record of the Articles of Merger by the State Department of
Assessments and Taxation of Maryland in accordance with the MGCL Law or at such
later time which the parties hereto shall have agreed upon and designated in
such filing in accordance with applicable law as the effective time of the
Merger (the "Effective Time").
2
ARTICLES OF INCORPORATION AND BY-LAWS OF THE SURVIVING CORPORATION
The articles of incorporation, as amended (the "Articles of
Incorporation") and by-laws of Lexington in effect immediately prior to the
Effective Time shall be the Articles of Incorporation and by-laws of the
Surviving Corporation:
3
DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION
The directors and officers of Lexington immediately prior to the
Effective Time shall be the directors and officers of the Surviving Corporation
as of the Effective Time.
4
EXCHANGE OF STOCK, ASSUMPTION OF MORTGAGE AND OTHER
CONSIDERATION
4.1 CONVERSION AND REDEMPTION OF STOCK.
(a) At the Effective Time, each outstanding share of common
stock, par value .0001 per share, of Lexington ("Lexington Common
Stock") and each outstanding share of Class A Senior Cumulative
Convertible Preferred Stock, par value $.0001 per share, of Lexington
("Lexington Preferred Stock") immediately prior to the Effective Time
shall remain outstanding and shall continue to represent one share of
Lexington Common Stock
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<PAGE> 111
or Lexington Preferred Stock, as the case may be, of the Surviving
Corporation. At the Effective Time, Lexington shall issue shares of
Lexington Common Stock as contemplated by Section 4.1(b) and shall
deliver $1,000,000 cash (the "Cash Payment") to Corporate Realty
Advisors, Inc., the Trust's advisor, as contemplated by Section 4.4.
(b) At the Effective Time, each share of beneficial interest,
par value $.10 per share, of the Trust (the "Trust Shares") issued and
outstanding immediately prior to the Effective Time shall, by virtue of
the Merger and without any action on the part of the Trust, Lexington
or the holders of any of the securities of either of these entities, be
converted into a number of shares of Lexington Common Stock equal to a
fraction, the numerator of which is the Share Value and the denominator
of which is the Lexington Common Stock Price (collectively, the "Stock
Consideration"); provided, however, that in the event the Lexington
Common Stock Price is (i) greater than $14.125, then, for purposes of
determining the Stock Consideration, the Lexington Common Stock Price
shall be deemed to be $14.125, and (ii) in the event the Lexington
Common Stock Price is less than $12.125, then, for purposes of
determining the Stock Consideration, the Lexington Common Stock Price
shall be deemed to be $12.125. The "Lexington Common Stock Price" means
an amount equal to the average of the closing sales prices of Lexington
Common Stock on the New York Stock Exchange, Inc. during the twenty
consecutive trading days ending on the fifth business day immediately
preceding the Trust's meeting of shareholders referred to in Section
7.3. The "Share Value" shall equal the quotient obtained by dividing
(A) an amount equal to (y) $18.15 million minus (z) the amount of cash
which the Trust shall elect to receive from Lexington and apply toward
the payment of Trust obligations as provided in Section 4.4, by (B) the
total number of Trust Shares issued and outstanding immediately prior
to the Effective Time (subject to the adjustments as described in
Section 7.15). The Stock Consideration shall be appropriately adjusted
to reflect the effect of any stock split, reverse stock split, stock
dividend, reorganization, recapitalization or other like change with
respect to the Lexington Common Stock occurring after the date hereof
and prior to the Effective Time, or to reflect the effect of any
merger, consolidation or other transaction involving Lexington which
shall affect the Lexington Common Stock or its listing on the New York
Stock Exchange, Inc. Subject to the right of the Trust to terminate as
set forth in Section 9.1(g), the Trust and Lexington shall agree in
good faith on the specific adjustments required to be made pursuant to
the preceding sentence.
(c) As a result of the Merger and without any action on the
part of the holders thereof, all Trust Shares shall cease to be
outstanding, shall be canceled and retired and shall cease to exist and
each holder of a certificate (a "Certificate") representing any Trust
Shares shall thereafter cease to have any rights with respect to such
Trust Shares, except the right to receive, without interest, shares of
Lexington Common Stock, dividends payable in accordance with Section
4.2(c), any unspent portion of the Cash Payment and cash in lieu of
fractional shares of Lexington Common Stock in accordance with Section
4.2(e) upon the surrender of such Certificate.
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(d) Each Trust Share issued and held in the Trust's treasury
and each Trust Share held by Lexington or any of the Lexington
Subsidiaries immediately prior to the Effective Time, if any, by virtue
of the Merger, shall cease to be outstanding, shall be canceled and
retired and shall cease to exist and no payment of any consideration
shall be made with respect thereto.
4.2 EXCHANGE OF CERTIFICATES REPRESENTING TRUST SHARES.
(a) At the Effective Time, Lexington shall deposit, or shall
cause to be deposited, with Chase Mellon Shareholder Services LLC (the
"Exchange Agent"), for the benefit of the holders of Trust Shares, for
exchange in accordance with this Article 4, certificates representing
the shares of Lexington Common Stock and the cash in lieu of fractional
shares (such cash and certificates for shares of Lexington Common Stock
being hereinafter referred to as the "Exchange Fund") to be issued
pursuant to Section 4.1 and paid pursuant to this Section 4.2,
respectively, in exchange for outstanding Trust Shares. After payment
by the Trust of its accrued expenses, any remaining portion of the Cash
Payment will be delivered to the Exchange Agent by the Trust's advisor,
Corporate Realty Advisors, Inc. (the "Trust Advisor") at such time as
shall be determined by the Trust Advisor, for distribution to the
former shareholders of the Trust; provided that in the event any such
distribution shall occur on any date other than the date on which
certificates representing shares of Lexington Common Stock are
distributed to the former stockholders of the Trust, then, in such
event, the Trust Advisor shall pay any and all fees and expenses to be
charged by the Exchange Agent for effecting such distribution prior to
the date of such distribution by the Exchange Agent.
(b) Promptly after the Effective Time, Lexington shall cause
the Exchange Agent to mail to each holder of record of a Certificate or
Certificates (i) a letter of transmittal which shall specify that
delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the
Exchange Agent and shall be in such form and have such other provisions
as Lexington may reasonably specify and (ii) instructions for use in
effecting the surrender of the Certificates in exchange for
certificates representing shares of Lexington Common Stock, cash in
lieu of fractional shares and the portion, if any, of the Cash Payment
distributable to the Trust's shareholders. Upon surrender of a
Certificate for cancellation to the Exchange Agent together with such
letter of transmittal, duly executed and completed in accordance with
the instructions thereto, the holder of such Certificate shall be
entitled to receive in exchange therefor (x) a certificate representing
the number of whole shares of Lexington Common Stock to which such
holder shall be entitled and (y) a check representing the amount of
cash in lieu of fractional shares, if any, plus the amount of any
dividends or distributions, if any, pursuant to paragraph (c) below,
after giving effect to any required withholding tax, and the
Certificate so surrendered shall forthwith be canceled. No interest
will be paid or accrued on the cash in lieu of fractional shares or on
the dividend or distribution, if any,
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payable to holders of Certificates, pursuant to this Section 4.2 or on
the portion of the Cash Payment distributable to the Trust's
shareholders. In the event of a transfer of ownership of Trust Shares
which is not registered in the transfer records of the Trust, a
Certificate representing the proper number of shares of Lexington
Common Stock, together with a check, for the Cash Payment, and the cash
to be paid in lieu of fractional shares plus, to the extent applicable,
the amount of any dividend or distribution, if any, payable pursuant to
paragraph (c) below, may be issued to such a transferee if the
Certificate representing shares of such Trust Shares is presented to
the Exchange Agent, accompanied by all documents required to evidence
and effect such transfer and to evidence that any applicable stock
transfer taxes have been paid.
(c) Notwithstanding any other provisions of this Agreement, no
dividends or other distributions on Lexington Common Stock shall be
paid with respect to any Trust Shares represented by a Certificate
until such Certificate is surrendered for exchange as provided herein;
provided, however, that subject to the effect of applicable laws,
following surrender of any such Certificate, there shall be paid by the
Surviving Corporation to the holder of the certificates representing
whole shares of Lexington Common Stock issued in exchange therefor,
without interest, (i) at the time of such surrender, the amount of
dividends or other distributions with a record date after the Effective
Time theretofore payable with respect to such whole shares of Lexington
Common Stock and not paid, less the amount of any withholding taxes
which may be required thereon, and (ii) at the appropriate payment
date, the amount of dividends or other distributions with a record date
after the Effective Time but prior to surrender and a payment date
subsequent to surrender payable with respect to such whole shares of
Lexington Common Stock, less the amount of any withholding taxes which
may be required thereon.
(d) At and after the Effective Time, there shall be no
transfers on the stock transfer books of the Trust of the Trust Shares
which were outstanding immediately prior to the Effective Time. If,
after the Effective Time, Certificates are presented to the Surviving
Corporation, they shall be canceled and exchanged for certificates for
shares of Lexington Common Stock, dividends, if any, the Cash Payment,
and cash in lieu of fractional shares, if any, in accordance with this
Section 4.2. Certificates surrendered for exchange by any person
constituting an "affiliate" of the Trust for purposes of Rule 145, as
such rule may be amended from time to time ("Rule 145"), of the rules
and regulations promulgated under the Securities Act of 1933, as
amended (the "Securities Act") shall not be exchanged until Lexington
has received an Affiliate Letter in a form satisfactory to the Trust
and Lexington from such person as provided in Section 7.10.
(e) No fractional shares of Lexington Common Stock shall be
issued pursuant hereto. In lieu of the issuance of any fractional share
of Lexington Common Stock pursuant to this Agreement, each holder of
the Trust Shares upon surrender of a Certificate for exchange shall be
paid an amount in cash (without interest), rounded to the nearest cent,
determined by multiplying (i) the Lexington Common Stock Price, by (ii)
the fraction of a
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<PAGE> 114
share of Lexington Common Stock which such holder would otherwise be
entitled to receive under this Article 4.
4.3 RETURN OF EXCHANGE FUND. Any portion of the Exchange Fund
(including the proceeds of any investments thereof and any shares of Lexington
Common Stock) that remains unclaimed by the former shareholders of the Trust one
year after the Effective Time shall be delivered to the Surviving Corporation.
Any remaining amount of the Cash Payment that remains unclaimed by the former
shareholders of the Trust one year after the Effective Time shall be delivered
to the Trust Advisor. Any former shareholders of the Trust who have not
theretofore complied with this Article 4 shall thereafter look only to (i) the
Surviving Corporation for payment of their shares of Lexington Common Stock, and
cash in lieu of fractional shares (plus dividends and distributions to the
extent set forth in Section 4.2(c), if any), as determined pursuant to this
Agreement, and (ii) the Trust Advisor for payment of their allocable share of
any remaining portion of the Cash Payment, in each case without any interest
thereon. None of Lexington, the Trust, the Exchange Agent or any other person
shall be liable to any former holder of Trust Shares for any amount properly
delivered to a public official pursuant to applicable abandoned property,
escheat or similar laws. In the event any Certificate shall have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed and, if required by
the Surviving Corporation, the posting by such person of a bond in such
reasonable amount as the Surviving Corporation may direct as indemnity against
any claim that may be made against it with respect to such Certificate, the
Exchange Agent or the Surviving Corporation or the Trust Advisor, as the case
may be, will issue in exchange for such lost, stolen or destroyed Certificate
the shares of Lexington Common Stock, the Cash Payment, and cash in lieu of
fractional shares (and to the extent applicable, dividends and distributions
payable pursuant to Section 4.2(c)).
4.4 CASH PAYMENT; CONTINUANCE OF MORTGAGES.
At the Effective Time, at the option of the Trust and if so requested
by the Trust, Lexington shall pay to the Trust Advisor, in immediately available
funds up to $1,000,000, which shall be used by the Trust and such advisor to pay
and discharge in full all of the Trust's obligations other than the mortgages
and other obligations described on Schedule 4.4. In the event any such amount is
requested by the Trust and applied toward the payment of Trust obligations as
aforesaid, any unexpended balance shall be paid to the Trust's former
stockholders in accordance with Section 4.2(a), at such time as the Trust
Advisor shall, in its sole discretion, determine, and Lexington shall have no
responsibility or liability for any such monies or the application thereof.
5
REPRESENTATIONS AND WARRANTIES OF THE TRUST
The Trust represents and warrants as follows:
6
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5.1 EXISTENCE; GOOD STANDING; AUTHORITY; COMPLIANCE WITH LAW.
(a) The Trust is a Massachusetts business trust duly formed,
validly existing and in good standing under the laws of Massachusetts.
The Trust is duly licensed or qualified to do business as a foreign
corporation and is in good standing under the laws of any other state
of the United States in which the character of the properties owned or
leased by it therein or in which the transaction of its business makes
such qualification necessary, except where the failure to be so
licensed or qualified would not have a material adverse effect on the
business, results of operations or financial condition of the Trust
taken as a whole (a "Trust Material Adverse Effect"). The Trust has all
requisite corporate power and authority to own, operate, lease and
encumber its properties and carry on its business as now conducted.
(b) The Trust is not in violation of any order of any court,
governmental authority or arbitration board or tribunal, or to the
knowledge of the Trust, any law, ordinance, governmental rule or
regulation to which the Trust or any of its respective properties or
assets is subject.
(c) Copies of the Declaration of Trust (the "Declaration") and
other organizational documents (and all amendments thereto) of the
Trust are listed in Schedule 5.1(c), and the copies of such documents,
which have previously been delivered or made available to Lexington,
are true and correct.
5.2 AUTHORIZATION, VALIDITY AND EFFECT OF AGREEMENTS. Upon shareholder
approval of an amendment to the Trust's Declaration of Trust, the Trust will
have the requisite power and authority to enter into the transactions
contemplated hereby. The Board of Trustees of the Trust has unanimously approved
this Agreement, the Merger, and the transactions contemplated by this Agreement
and declared such transactions advisable and in the best interest of the
shareholders and the Trust, and shall recommend that the holders of Trust Shares
adopt and approve this Agreement, the Merger, and the transactions contemplated
by this Agreement at the Trust shareholders' meeting which will be held in
accordance with the provisions of Section 7.3 hereof. Subject only to (i) the
approval by the holders of a majority of the outstanding Trust Shares of an
amendment to the Trust's Declaration of Trust authorizing the Trust to merge,
and (ii) the approval of this Agreement, the Merger and the transactions
contemplated hereby by the holders of a majority of the outstanding Trust
Shares, the execution by the Trust of this Agreement and the consummation of the
Merger and the transactions contemplated by this Agreement, have been duly and
validly authorized by all requisite action on the part of the Trust and no other
authorization by the Trust is required. This Agreement has been duly and validly
executed and delivered by the Trust and constitutes the valid and legally
binding obligations of the Trust, enforceable against the Trust in accordance
with its terms, subject to applicable bankruptcy, insolvency, moratorium or
other similar laws relating to creditors' rights and general principles of
equity.
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5.3 CAPITALIZATION. The authorized capital of the Trust consists of
20,000,000 Trust Shares. As of the date hereof, there are 1,010,776 Trust Shares
issued and outstanding and no Trust Shares are held in treasury or otherwise
reserved for issuance for any reason. All such Trust Shares are duly authorized,
validly issued, fully paid, nonassessable and free of preemptive rights. The
Trust has no outstanding bonds, debentures, notes or other obligations the
holders of which have the right to vote (or which are convertible into or
exercisable for securities having the right to vote) with the shareholders of
the Trust on any matter. There are not at the date of this Agreement any
existing options, warrants, calls, subscriptions, convertible securities, or
other rights, agreements or commitments which obligate the Trust to issue,
transfer or sell any Trust Shares. There are no agreements or understandings to
which the Trust is a party with respect to the voting of any Trust Shares or
which restrict the transfer of any such shares, nor does the Trust have
knowledge of any such agreements or understandings with respect to the voting of
any such shares or which restrict the transfer of any such shares other than
those set forth in the Trust's Declaration of Trust with respect to the
maintenance of the Trust as a real estate investment trust ("REIT"). There are
no outstanding contractual obligations of the Trust to repurchase, redeem or
otherwise acquire any Trust Shares or any other securities of the Trust. The
Trust is not under any obligation, contingent or otherwise, by reason of any
agreement to register any of its securities under the Securities Act.
5.4 SUBSIDIARIES AND OTHER INTERESTS. The Trust does not own directly
or indirectly any interest or investment (whether equity or debt) in any
corporation, partnership, joint venture, business trust or other entity (other
than investments in short-term investment securities).
5.5 NO VIOLATION. Neither the execution and delivery by the Trust of
this Agreement nor the consummation by the Trust of the transactions
contemplated by this Agreement in accordance with its terms, will: (i) conflict
with or result in a breach of any provisions of the Trust's Declaration or other
organizational documents, if they are amended as contemplated in Section 7.3;
(ii) except as set forth in Schedule 5.5, violate, or conflict with, or result
in a breach of any provision of, or constitute a default (or an event which,
with notice or lapse of time or both, would constitute a default) under, or
result in the termination or in a right of termination or cancellation of, or
accelerate the performance required by, or result in the creation of any lien,
security interest, charge or encumbrance upon any of the properties of the Trust
under, or result in being declared void, voidable or without further binding
effect, any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, deed of trust or any license, franchise, permit, lease, contract,
agreement or other instrument, commitment or obligation to which the Trust is a
party, or by which the Trust or any of its properties is bound or affected; or
(iii) other than the filings provided for in Article 1 of this Agreement, the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Securities
Act or applicable state securities and "Blue Sky" laws (collectively, the
"Regulatory Filings"), filings as may be required in the registries of deeds or
similar governmental offices in those states where the Trust Properties (as
hereinafter defined) are located or filings necessary to qualify Lexington to do
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business as a foreign corporation in such states, require any consent, approval
or authorization of, or declaration, filing or registration with, any
governmental or regulatory authority.
5.6 SEC DOCUMENTS. The Trust has filed all required forms, reports and
documents with the Securities and Exchange Commission ("SEC") since December 31,
1994 (collectively, the "Trust SEC Reports"), all of which were prepared in
accordance with the applicable requirements of the Exchange Act and the
Securities Act. The Trust SEC Reports were filed with the SEC in a timely manner
and constitute all forms, reports and documents required to be filed by the
Trust since December 31, 1994 under the Securities Act, the Exchange Act and the
rules and regulations promulgated thereunder (the "Securities Laws"). As of
their respective dates, the Trust SEC Reports (i) complied as to form in all
material respects with the applicable requirements of the Securities Laws and
(ii) did not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
made therein, in the light of the circumstances under which they were made, not
misleading. Each of the balance sheets of the Trust included in or incorporated
by reference into the Trust SEC Reports (including the related notes and
schedules) fairly presents the financial position of the Trust as of its date
and each of the statement of income, retained earnings and cash flows of the
Trust included in or incorporated by reference into the Trust SEC Reports
(including any related notes and schedules) fairly presents the results of
operations, retained earnings or cash flows, as the case may be, of the Trust
for the periods set forth therein (subject, in the case of unaudited statements,
to normal year-end audit adjustments which would not be material in amount or
effect), in each case in accordance with generally accepted accounting
principles consistently applied during the periods involved, except as may be
noted therein and except, in the case of the unaudited statements, as permitted
by Form 10-Q pursuant to Section 13 or 15(d) of the Exchange Act.
5.7 LITIGATION. There are (i) no continuing orders, injunctions or
decrees of any court, arbitrator or governmental authority to which the Trust is
a party or by which any of its properties or assets are bound, or, to which any
person who is now, or, to the knowledge of the Trust, has been at any time prior
to the date hereof, a trustee, officer, employee or agent of the Trust acting in
such capacity is a party, and (ii) no actions, suits or proceedings pending
against the Trust or, to the knowledge of the Trust, threatened against the
Trust or against any person who is now, or has been at any time prior to the
date hereof, a trustee, officer, employee or agent of the Trust acting in such
capacity, at law or in equity, or before or by any federal or state commission,
board, bureau, agency or instrumentality.
5.8 ABSENCE OF CERTAIN CHANGES. Except as disclosed in the Trust SEC
Reports filed with the SEC prior to the date hereof, since December 31, 1996,
the Trust has conducted its business only in the ordinary course of such
business and there has not been (i) any Trust Material Adverse Effect; (ii) any
declaration, setting aside or payment of any dividend or other distribution with
respect to Trust Shares except as disclosed in writing to Lexington; (iii) any
material commitment, contractual obligation, borrowing, capital expenditure or
transaction (each, a "Commitment") entered into by the Trust, inside or outside
the ordinary course of business
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except for Commitments for expenses of environmental engineers, attorneys,
accountants and investment bankers incurred in connection with the Merger; or
(iv) any change in the Trust's accounting principles, practices or methods,
except as disclosed in writing to Lexington.
5.9 ABSENCE OF UNDISCLOSED LIABILITIES. Except as set forth on Schedule
5.9 or in the Trust SEC Reports and for liabilities incurred in the ordinary
course of business since December 31, 1996, and in connection with the
transactions contemplated hereby, to the knowledge of the Trust, the Trust does
not have any material liabilities, claims, losses, damages, deficiencies or
obligations (whether absolute, contingent, accrued or otherwise) of any nature
whatsoever.
5.10 REGISTRATION STATEMENT AND PROXY INFORMATION. None of the
information supplied or to be supplied by the Trust for inclusion in the Form
S-4 (as defined in Section 7.7), including any supplements or amendments
thereto, will, at the time it is mailed to the shareholders of the Trust, at the
time of the meeting of the Trust's shareholders or at the time that the Form S-4
is declared effective, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they
were made, not misleading. Notwithstanding the foregoing, the Trust makes no
representation or warranty with respect to any information supplied or to be
supplied by Lexington which is contained in the Form S-4.
5.11 TAXES. Except as set forth in Schedule 5.11:
(a) The Trust has timely and fully paid or caused to be paid,
or has adequately accrued or reserved for, all federal, state, local,
foreign, and other taxes (including without limitation, income taxes,
estimated taxes, alternative minimum taxes, excise taxes, sales taxes,
use taxes, value-added taxes, gross receipts taxes, franchise taxes,
capital stock taxes, employment and payroll-related taxes, withholding
taxes, stamp taxes, transfer taxes, windfall profit taxes, property
taxes and environmental taxes, whether or not measured in whole or in
part by net income), fees, duties, assessments, withholdings or
governmental charges of any kind whatsoever, and all deficiencies, or
other additions to tax, additional amounts, interest, fines and
penalties with respect to any of the foregoing (collectively, "Taxes"),
required to be paid, accrued or reserved by it through the date hereof;
(b) The Trust has timely filed, in accordance with all
applicable laws, all federal, state, local and foreign tax returns,
reports, declarations, estimates, informational returns and statements
regarding Taxes (collectively "Returns") required to be filed in
respect of the Trust through the date hereof, and all such Returns
completely and accurately set forth the facts regarding the income,
properties, operations and status of any entity required to be shown
thereon and the amount of any Taxes relating to the applicable period;
(c) The Trust has timely and fully withheld and paid to the
appropriate governmental authority all taxes required to have been
withheld and paid in connection
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with amounts paid or owing to any employee, independent contractor,
creditor, stockholder or other party;
(d) For its taxable year ended December 31, 1996, for all of
its prior taxable years beginning with the taxable year ended December
31, 1990 and at all times thereafter up to and including the date
hereof, the Trust has qualified to be treated as a REIT within the
meaning of Sections 856-860 of the Code, including, without limitation,
the requirements of Sections 856 and 857 of the Code. For the periods
described in the preceding sentence, the Trust has satisfied all
requirements necessary to be treated as a REIT for purposes of the
income tax provisions of those states in which the Trust is subject to
income tax and which provide for the taxation of a REIT in a manner
similar to the treatment of REITS under Sections 856-860 of the Code;
(e) Neither the Internal Revenue Service ("IRS") nor any other
governmental authority has asserted by written notice to the Trust or,
to the knowledge of the Trust, threatened to assert against the Trust
any deficiency or claim for additional Taxes. There is no dispute or
claim concerning any Tax liability of the Trust either claimed or
raised in writing by the IRS or any other governmental authority, or,
to the knowledge of the Trust, which, at some future date, may be
claimed or raised by the IRS or any other governmental authority. No
written claim has ever been made by a taxing authority in a
jurisdiction where the Trust does not file Returns that the Trust is or
may be subject to taxation by that jurisdiction. There are no security
interests, liens or other encumbrances of any nature on any of the
assets of the Trust that arose in connection with any failure (or
alleged failure) to pay any Taxes when due. The Trust has never been a
party to any Tax sharing or similar agreement or entered into a closing
agreement pursuant to Section 7121 of the Code (or any comparable
provision of state, local or foreign law); and
(f) The Trust has not received notice of any audit of any Tax
Return filed by the Trust, and the Trust has not been notified by any
Tax authority that any such audit is contemplated or pending. The Trust
has not executed or filed with the IRS or any other taxing authority,
and no person has been requested to so execute or file any agreement
extending the period for assessment or collection of any income or
other Taxes, or the time to file any Return other than routine
extensions. True, correct and complete copies of all federal, state and
local income or franchise tax returns required to be filed by the Trust
and all written communications relating thereto (including, without
limitation, in respect of any audits and examinations) have been
delivered to Lexington or made available to representatives of
Lexington. The Trust has not agreed, and is not required, to make any
adjustments under Section 481(a) of the Code (or any comparable
provision of state, local or foreign law) by reason of a change in
accounting method or otherwise. Since the most recent Tax period for
which the Trust has provided Lexington with a copy of each of its
federal, state and local income and franchise tax returns, neither the
Trust nor any person or entity on its behalf has made or changed any
election concerning Taxes or Returns, changed an annual accounting
period, adopted or changed any accounting method, filed
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any amended Return, settled any Tax claim or filed any amended Return,
settled any Tax claim or assessment or surrendered any right to claim a
refund of Taxes or obtained or entered into any Tax ruling, agreement,
contract, understanding, arrangement or plan.
5.12 BOOKS AND RECORDS.
(a) The books of account and other financial records of the
Trust are true, complete and correct in all material respects, have
been maintained in accordance with good business practices, and are
accurately reflected in all material respects in the financial
statements included in the Trust SEC Reports.
(b) Records of the Trust have been, or will be prior to the
Closing, made available to Lexington, and such records contain in all
material respects accurate minutes of all meetings and accurately
reflect in all material respects all other action of the shareholders
and trustees and any committees of the Board of Trustees of the Trust.
5.13 PROPERTIES. All of the real estate owned by the Trust (the "Trust
Properties") is set forth in Schedule 5.13. The Trust has made available to
Lexington for inspection title insurance policies obtained by the Trust in
connection with the acquisition of the Properties (the "Title Policies") and
surveys ("Surveys") relating to the Trust Properties. The Trust has no knowledge
of any encumbrance to title to any Trust Property or any survey matter affecting
any Trust Property other than (i) matters listed in the title reports obtained
by the Trust and delivered to Lexington with respect to such Trust Property (the
"Title Reports"), (ii) matters shown on the Survey with respect to such Trust
Property, (iii) customary ordinances and regulations, including zoning
ordinances and building codes, affecting building use or occupancy, none of
which are, to the knowledge of the Trust, violated by the present use of the
related Trust Property, (iv) matters listed in Schedule B of the Title Policies,
and (v) matters disclosed in Schedule 5.13. Schedule 5.13 sets forth all of the
Title Policies of the Trust relating to the Trust Properties and such policies
are, at the date hereof, in full force and effect and no claims have been made
against any such policies. To the knowledge of the Trust, except as set forth in
Schedule 5.13, the Trust has obtained all certificates, permits and licenses
from any governmental authority having jurisdiction over any of the Trust
Properties which are not the responsibility of tenants and no tenant, to the
knowledge of the Trust, has failed to obtain any such certificate, permit or
license. All agreements, easements and other rights which are necessary to
permit the lawful use and operation of all driveways, roads and other means of
egress and ingress to and from any of the Trust Properties, have been obtained
and are in full force and effect and the Trust has not received notice with
respect to the termination or breach of any such easements, agreements or other
rights. Each Trust Property is in full compliance with all governmental permits,
licenses and certificates except where the failure to be in compliance would not
be reasonably likely to have a Trust Material Adverse Effect. Except as set
forth in Schedule 5.13, no notice of any violation of any federal, state or
municipal law, ordinance, order, regulation or requirements affecting any
portion of any of the Trust Properties has been issued by any governmental
authority which has not been remedied or cured. There are no material structural
defects relating
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to any of the Trust Properties, except as set forth in the reports referred to
in Schedule 5.13. The building systems of each Trust Property are in working
order in all material respects, except as set forth in the reports referred to
Schedule 5.13. Except as set forth in Schedule 5.13, there is no physical damage
to any Trust Property in excess of $25,000 for which there is no insurance in
effect covering the full cost of the restoration. Except as set forth in
Schedule 5.13, there is no current renovation or restoration or tenant
improvements ongoing to any Trust Property or any portion thereof, nor is there
any renovation, restoration, or tenant improvement which the Trust has committed
to undertake, the cost of which exceeds, or would be likely to exceed, $25,000
individually. Except as disclosed in Schedule 5.13, the use and occupancy of
each Trust Property complies in all material respects with all applicable codes
and zoning laws and regulations and there is no pending or, to the knowledge of
the Trust, any threatened proceeding or action that will in any manner affect
the size of, use of, improvements on, construction on, or access to any of the
Trust Properties. The Trust has not received any notice to the effect that (A)
any betterment assessments have been levied against, or any condemnation or
rezoning proceedings are pending or threatened with respect to any of the Trust
Properties, or (B) any zoning, building or similar law, code, ordinance, order
or regulation is or will be violated by the continued maintenance, operation or
use of any buildings or other improvements on any of the Trust Properties or by
the continued maintenance, operation or use of the parking areas except as set
forth in Schedule 5.1(c). Except as disclosed on Schedule 5.13, there are no
contingent liabilities or amounts owed by the Trust to third parties (excluding
any obligations with respect to mortgage loans encumbering the Properties) with
respect to any Property including, without limitation, those for leasing
commissions, asset management fees or brokerage fees.
5.14 ENVIRONMENTAL MATTERS. Except as set forth in Schedule 5.14 and
any environmental assessment or report listed therein: (i) to the knowledge of
the Trust, no Hazardous Substances or Hazardous Wastes have been or are being
released into the environment, discharged into the environment or disposed of
from, at, or under the Trust Properties; (ii) to the knowledge of the Trust, no
Hazardous Substances or Hazardous Wastes have been or are being generated or
treated at the Trust Properties or discharged from the Trust Properties, except
in compliance with applicable Laws (defined below); (iii) to the knowledge of
the Trust, no Hazardous Wastes have been or are being stored for more than 90
days or handled at or on the Trust Properties, except in compliance with
applicable laws; (iv) none of the Trust Properties are listed on, and the Trust
has not received written or oral notice that any of the Trust Properties are
being considered for inclusion on, the National Priorities List ("NPL"), the
Comprehensive Environmental Response, Compensation and Liability Information
System ("CERCLIS"), or any State or local listing of sites which are known or
suspected to be contaminated by Hazardous Substances or Hazardous Wastes; (v) to
the knowledge of the Trust, there are no on-going, and there have been no,
violations of any federal, state, or local law, statute, ordinance, rule or
regulation ("Law") at any Trust Properties which could result in contamination
of the land, surface water or groundwater from, at, on or under any such
properties; and (vi) to the knowledge of the Trust, no federal, state or local
governmental board,
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body, department or agency (collectively "Government Agency") is investigating
any alleged or potential release, discharge, disposal or storage of Hazardous
Substances or Hazardous Wastes at, on, under or from any Trust Properties.
As used in this Agreement, the term "Hazardous Substance" shall mean
any hazardous or toxic chemical, waste, byproduct, pollutant, contaminant,
compound, product or substance, including without limitation asbestos,
polychlorinated biphenyl, petroleum (including crude oil or any fraction
thereof), radioactive substances and any material the manufacture, possession,
presence, use, generation, storage, transportation, treatment, release,
disposal, discharge, abatement, cleanup, removal, remediation or handling of
which is prohibited, controlled or regulated by any Government Agency pursuant
to any Law relating to protection of the environment or human health. The term
"Hazardous Waste" shall have the meaning set forth in the Resource Conservation
and Recovery Act, as amended, the regulations thereunder, and any similar or
implementing State or local law, statute, ordinance, rule or regulation.
The Trust has not received any notice from any Government Agency with
respect to alleged or potential liability relating in any way to Hazardous
Substances or Hazardous Wastes at, on, under or from any Trust Property.
5.15 NO FEES. The Trust has not entered into any contract, arrangement
or understanding with any person or firm other than the Trust Advisor which may
result in the obligation of such entity or Lexington to pay any finder's fees,
brokerage or agent's commissions or other like payments in connection with the
negotiations leading to this Agreement or the consummation of the transactions
contemplated hereby. Amounts due to the Trust Advisor will be paid in full at
Closing by the Trust and will not become the obligation of Lexington.
5.16 OPINION OF FINANCIAL ADVISOR. The Trust has received the opinion
of McFarland Dewey & Co., to the effect that, as of the date hereof, the Stock
Consideration and other consideration as described in Section 4.4 is fair to the
holders of the Trust Shares from a financial point of view, and has delivered a
true and correct copy of such opinion to Lexington, a copy of which may be
included, and referred to, in the Form S-4.
5.17 CONTRACTS AND COMMITMENTS. Schedule 5.17 sets forth (i) all notes,
debentures, bonds and other evidence of indebtedness which are secured or
collateralized by mortgages, deeds of trust or other security interests in the
Trust Properties or personal property of the Trust and (ii) each Commitment
entered into by the Trust which may result in total payments by or liability of
the Trust in excess of $10,000 in any calender year or $25,000 during the term
of any such Commitment and which may not be terminated within 90 days by the
Trust without payment of any penalty by the Trust. Copies of the foregoing are
listed in Schedule 5.17 and the copies of such documents, which have previously
been provided or made available to Lexington, are true and correct. Except as
set forth in Schedule 5.17, the Trust has not received any notice of a default
or breach under any of the documents described in the preceding sentence, and
any such default has been described in all material respects on Schedule 5.17
and has been cured to
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the satisfaction of the other party to such document. The Trust is not in
default respecting any payment obligations under any of the documents described
in the first sentence of this Section beyond any applicable grace periods.
Except as set forth on Schedule 5.17, the Merger will not require the payment of
any fees or other amounts by the Trust or Lexington under any of the documents
described in the first sentence of this Section and the Merger will not cause
the acceleration of, or a default under any of, such documents. To the knowledge
of the Trust, none of the other parties to any of the documents described in the
first sentence of this Section is in default under, or in breach of, any of such
documents and there has occurred no event, which the lapse of time or the giving
of notice, would be reasonably likely to result in a default or breach thereof.
There has been no payment default by any such other party to any of the
documents described in the first sentence of this Section.
5.18 LEASES. Each of the leases described in Item 2 of the Trust's Form
10-K for the year ended December 31, 1996, is valid and subsisting, in full
force and effect and binding upon the Trust and, to the knowledge of the Trust,
the other parties thereto. Each lessee thereunder has paid in full all amounts
due, and has satisfied in full all of its liabilities and obligations, under its
respective lease and there has not occurred any default under any such lease,
nor (to the knowledge of the Trust) does any condition exist that with notice or
lapse of time or both would constitute a default thereunder. No lessee has paid
rent under any of the leases more than one month in advance. All security
deposits specified under any such leases are held by the Trust and shall be
conveyed to Lexington upon consummation of the Merger. Except as disclosed in
Schedule 5.18, the Merger will not require the consent of any lessee, or require
any payment or undertaking by the Trust or Lexington under any of such leases.
5.19 AFFILIATED TRANSACTIONS. Except as described in Schedule 5.19 or
Item 13 of the Trust's Form 10-K for the year ended December 31, 1996, the Trust
has not engaged in any transactions with any affiliate and is not indebted to
any affiliate for any amounts. At Closing, the Advisory Services Agreement, and
any other agreement then in effect with any affiliate, will be terminated and
Lexington will not assume any responsibility for, or liability under, any such
agreements.
5.20 EMPLOYEES. The Trust has no employees and there are not, and have
not at any time been, any employment or similar agreements with any person to
which the Trust is a party, except the Advisory Services Agreement. The Trust
does not maintain or contribute to, and has never maintained or contributed to,
and is not, and has not, been a party to, any employee benefit plans, programs,
arrangements or practices, including any employee benefit plans within the
meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended, and all regulations thereunder.
5.21 DEFINITION OF THE TRUST'S KNOWLEDGE. As used in this Agreement,
the phrase "to the knowledge of the Trust" or any similar phrase means the
actual, not the constructive or imputed, knowledge of trustees of the Trust,
including any information contained in any written notice and correspondence
addressed to the Trust or any of its trustees.
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6
REPRESENTATIONS AND WARRANTIES OF LEXINGTON
Lexington represents and warrants to the Trust as follows:
6.1 EXISTENCE; GOOD STANDING; AUTHORITY; COMPLIANCE WITH LAW.
(a) Lexington is a corporation duly formed, validly existing
and in good standing under the laws of the State of Maryland. Lexington
is duly licensed or qualified to do business as a foreign corporation
and is in good standing under the laws of any other state of the United
States in which the character of the properties owned or leased by it
therein or in which the transaction of its business makes such
qualification necessary, except where the failure to be so licensed or
qualified would not have a material adverse effect on the business,
results of operations or financial condition of Lexington and the
Lexington Subsidiaries (as defined below) taken as a whole (a
"Lexington Material Adverse Effect"). Lexington has all requisite
corporate power and authority to own, operate, lease and encumber its
properties and carry on its business as now conducted.
(b) Schedule 6.1(b) lists each subsidiary required to be
listed by Lexington in Exhibit 21 to the Lexington SEC Reports (the
"Lexington Subsidiaries"). Each of the Lexington Subsidiaries set forth
on Schedule 6.1(b) is a corporation, partnership or trust, as the case
may be, duly formed, validly existing and in good standing under the
laws of its jurisdiction of organization, has the organizational power
and authority to own its properties and to carry on its business as it
is now being conducted, and is duly qualified to do business and is in
good standing in each jurisdiction in which the ownership of its
property or the conduct of its business requires such qualification,
except for jurisdictions in which such failure to be so qualified or to
be in good standing would not have a Lexington Material Adverse Effect.
(c) To the knowledge of Lexington, neither Lexington nor any
Lexington Subsidiary is in violation of any law, ordinance,
governmental rule or regulation to which Lexington or any Lexington
Subsidiary or any of their respective properties or assets is subject.
(d) Copies of the Articles of Incorporation or other charter
documents (and all amendments thereto) of Lexington are listed in
Schedule 6.1(d), and the copies of such documents, which have
previously been delivered or made available to the Trust or its
counsel, are true and correct copies.
6.2 AUTHORIZATION, VALIDITY AND EFFECT OF AGREEMENTS. Lexington has the
requisite corporate power and authority to enter into the transactions
contemplated hereby and to execute and deliver this Agreement. The Board of
Directors of Lexington has, by resolutions adopted by
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unanimous vote, approved this Agreement, the Merger and the other transactions
contemplated by this Agreement. The execution by Lexington of this Agreement,
and the consummation by Lexington of the transactions contemplated by this
Agreement have been duly authorized by all requisite corporate action on the
part of Lexington. This Agreement constitutes the valid and legally binding
obligations of Lexington, enforceable against Lexington in accordance with its
terms, subject to applicable bankruptcy, insolvency, moratorium or other similar
laws relating to creditors' rights and general principles of equity.
6.3 CAPITALIZATION. The authorized capital stock of Lexington consists
of: (i) 40,000,000 shares of Lexington Common Stock; (ii) 10,000,000 shares of
preferred stock, par value $.0001 per share (the "Preferred Stock"); and (iii)
40,000,000 shares of excess stock, par value $.0001 per share (the "Excess
Stock"). As of the date hereof, (i) 9,454,037, 1,325,000 and 0 shares of the
Lexington Common Stock, the Preferred Stock and the Excess Stock, respectively,
were validly issued and outstanding, fully paid and nonassessable; and (ii)
10,545,963, 0, and 0 shares of the Lexington Common Stock, the Preferred Stock
and the Excess Stock, respectively, were reserved for issuance as set forth on
Schedule 6.3 hereto. Except as set forth in the preceding sentence of this
Section 6.3, or as set forth on Schedule 6.3 hereto or contemplated by this
Agreement, as of the date hereof there are no other shares of capital stock of
Lexington outstanding and no other outstanding options, warrants, convertible or
exchangeable securities, subscriptions, rights (including preemptive rights),
stock appreciation rights, calls or commitments of any character whatsoever to
which Lexington is a party or may be bound requiring the issuance or sale of
shares of any capital stock of Lexington, and there are no contracts or other
agreements by which Lexington is or may become bound to issue additional shares
of its capital stock or any options, warrants, convertible or exchangeable
securities, subscriptions, rights (including preemptive rights), stock
appreciation rights, calls or commitments of any character whatsoever relating
to such shares.
6.4 REGISTRATION STATEMENT AND PROXY INFORMATION. None of the
information supplied or to be supplied by Lexington for inclusion in the Form
S-4 (as defined in Section 7.7), including any supplements or amendments
thereto, will, at the time it is mailed to the shareholders of the Trust, at the
time of the meeting of the Trust's shareholders or at the time that the Form S-4
is declared effective, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they
wee made, not misleading. Notwithstanding the foregoing, Lexington makes no
representation or warranty with respect to any information supplied or to be
supplied by the Trust which is contained in the Form S-4.
6.5 OTHER INTEREST. Since December 31, 1996, Lexington has not acquired
any interest or investment (whether equity or debt) in any corporation,
partnership, joint venture, business trust or other entity which is, or will be,
required to be reported by Lexington in a report to the SEC and which has not
been so reported.
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6.6 NO VIOLATION. Except as set forth in Schedule 6.6, neither the
execution and delivery by Lexington of this Agreement nor the consummation by
Lexington of the transactions contemplated by this Agreement in accordance with
its terms will: (i) conflict with or result in a breach of any provisions of the
Articles of Incorporation, Charter and other organizational documents,
partnership agreements or joint venture agreements of Lexington or any Lexington
Subsidiary; (ii) result in a breach or violation of, a default under, or the
triggering of any payment or other material obligations pursuant to, or
accelerate vesting under, any of Lexington's stock option plans, or any grant or
award under any of the foregoing; (iii) violate, or conflict with, or result in
a breach of any provision of, or constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default) under, or result in
the termination or in a right of termination or cancellation of, or accelerate
the performance required by, or result in the creation of any lien, security
interest, charge or encumbrance upon any of the properties of Lexington or any
of the Lexington Subsidiaries under, or result in being declared void, voidable,
or without further binding effect, any of the terms, conditions or provisions of
any note, bond, mortgage, indenture, deed of trust or any license, franchise,
permit, lease, contract, agreement or other instrument, commitment or obligation
to which Lexington or any of the Lexington Subsidiaries is a party, or by which
Lexington or any of the Lexington Subsidiaries or any of their properties is
bound or affected except for any of the foregoing matters which, individually or
in the aggregate, would not have a Lexington Material Adverse Effect; or (iv)
other than the Regulatory Rulings, require any consent, approval or
authorization of, or declaration, filing or registration with, any governmental
or regulatory authority except where the failure to obtain any such consent,
approval or authorization of, or declaration, filing or registration with, any
governmental or regulatory authority would not have a Lexington Material Adverse
Effect.
6.7 SEC DOCUMENTS. Lexington has filed all required forms, reports and
documents with the SEC since December 31, 1994 (collectively, the "Lexington SEC
Reports") all of which were prepared in accordance with the applicable
requirements of the Securities Laws. The Lexington SEC Reports were filed with
the SEC in a timely manner and constitute all forms, reports and documents
required to be filed by Lexington since December 31, 1994 under the Securities
Laws. As of their respective dates, the Lexington SEC Reports (i) complied as to
form in all material respects with the applicable requirements of the Securities
Laws and (ii) did not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements made therein, in the light of the circumstances under which they were
made, not misleading. Each of the consolidated balance sheets of Lexington
included in or incorporated by reference into the Lexington SEC Reports
(including the related notes and schedules) fairly presents the consolidated
financial position of Lexington and the Lexington Subsidiaries as of its date
and each of the consolidated statements of income, retained earnings and cash
flows of Lexington included in or incorporated by reference into the Lexington
SEC Reports (including any related notes and schedules) fairly presents the
results of operations, retained for the periods set forth therein (subject, in
the case of unaudited statements, to normal year-end audit adjustments which
would not be material in amount or effect), in each case in accordance with
generally accepted accounting principles consistently applied during
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the periods involved, except as may be noted therein and except, in the case of
the unaudited statements, as permitted by Form 10-Q pursuant to Section 13 or
15(d) of the Exchange Act.
6.8 LITIGATION. Except as set forth in Schedule 6.8 or in the Lexington
SEC Reports, there are (i) no continuing orders, injunctions or decrees of any
court, arbitrator or governmental authority to which Lexington or any Lexington
Subsidiary is a party or by which any of its properties or assets are bound, or,
to the knowledge of Lexington, to which any person who is now, or has been at
any time prior to the date hereof, a director, officer, employee or agent of
Lexington or any Lexington Subsidiary acting in such capacity is a party, and
(ii) no actions, suits or proceedings pending against Lexington or any Lexington
Subsidiary or, to the knowledge of Lexington, threatened against Lexington or
any Lexington Subsidiary or against any person who is now, or has been at any
time prior to the date hereof, a director, officer, employee or agent of
Lexington or any Lexington Subsidiary acting in such capacity, at law or in
equity, or before or by any federal or state commission, board, bureau, agency
or instrumentality, that in the case of clause (i) or (ii) are reasonably
likely, individually or in the aggregate, to have a Lexington Material Adverse
Effect. There are no written, nor to Lexington's knowledge threatened, claims
made against Lexington or any Lexington Subsidiary by any existing or former
joint venture partner or other partner of Lexington or any Lexington Subsidiary
that are reasonably likely, individually or in the aggregate, to have a
Lexington Material Adverse Effect.
6.9 ABSENCE OF CERTAIN CHANGES. Except as disclosed in the Lexington
SEC Reports filed with the SEC prior to the date hereof, since December 31,
1996, Lexington and the Lexington Subsidiaries have conducted their business
only in the ordinary course of such business and there has not been (i) any
Lexington Material Adverse Effect; (ii) as of the date hereof, any declaration,
setting aside or payment of any dividend or other distribution with respect to
the Lexington Common Stock, except for dividends declared in the ordinary course
of business; or (iii) any material change in Lexington's accounting principles,
practices or methods.
6.10 TAXES. Except as set forth in Schedule 6.10:
(a) Lexington and each of the Lexington Subsidiaries has
timely and fully paid or caused to be paid, or has adequately accrued
or reserved for, all Taxes required to be paid, accrued or reserved by
it through the date hereof;
(b) Lexington and each of the Lexington Subsidiaries has
timely filed, in accordance with all applicable laws, all federal,
state, local and foreign tax returns, reports, declaration estimates,
information returns and statements regarding Taxes (collectively
"Returns") required to be filed in respect of Lexington through the
date hereof, and all such Returns completely and accurately set forth
the facts regarding the income, properties, operations and status of
any entity required to be shown thereon and the amount of any Taxes
relating to the applicable period;
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(c) Lexington and each Lexington Subsidiary has timely and
fully withheld and paid to the appropriate governmental authority all
taxes required to have been withheld and paid in connection with
amounts paid or owing to any employee, independent contractor,
creditor, stockholder or other party;
(d) Neither the IRS nor any other governmental authority has
now asserted by written notice to Lexington or any Lexington Subsidiary
or, to the knowledge of Lexington, threatened to assert against
Lexington or any Lexington Subsidiary any deficiency or claim for
additional Taxes. There is no dispute or claim concerning any Tax
liability of Lexington or any Lexington Subsidiary either claimed or
raised in writing by the IRS or any other governmental authority, or,
to the knowledge of Lexington, which may be claimed or raised by the
IRS or any other governmental authority. No written claim has ever been
made by a taxing authority in a jurisdiction where Lexington does not
file Returns that Lexington is or may be subject to taxation by that
jurisdiction. There are no security interests, liens or other
encumbrances of any nature on any of the assets of Lexington or any
Lexington Subsidiary that arose in connection with any failure (or
alleged failure) to pay any Taxes when due. Lexington has never been a
party to any Tax sharing or similar agreement or entered into a closing
agreement pursuant to Section 7121 of the Code (or any comparable
provision of state, local or foreign law); and
(e) Lexington has not received notice of any audit of any Tax
Return filed by Lexington, and Lexington has not been notified by any
Tax authority that any such audit is contemplated or pending. Neither
Lexington nor any of the Lexington Subsidiaries has executed or filed
with the IRS or any other taxing authority, and no person has been
requested to so execute or file any agreement extending the period for
assessment or collection of any income or other Taxes, or the time to
file any Return. True, correct and complete copies of all federal,
state and local income or franchise tax returns required to be filed by
Lexington and each of the Lexington Subsidiaries and all written
communications relating thereto (including, without limitation, in
respect of any audits and examinations) have been delivered to the
Trust or made available to representatives of the Trust. Lexington has
not agreed, and is not required, to make any adjustment under Section
481(a) of the Code (or any comparable provision of state, local or
foreign law) by reason of a change in accounting method or otherwise.
Since the most recent Tax period for which Lexington has provided the
Trust with a copy of each of its federal, state and local income and
franchise tax returns, neither Lexington nor any person or entity on
its behalf has made or changed any election concerning Taxes or
Returns, changed an annual accounting period, adopted or changed any
accounting method, filed any amended Return, settled any Tax claim or
assessment or surrendered any right to claim a refund of Taxes or
obtained or entered into any Tax ruling, agreement, contract,
understanding, arrangement or plan.
6.11 ENVIRONMENTAL MATTERS. Except as set forth in the Lexington SEC
Reports or in Schedule 6.11 and any environmental assessment or report listed
therein: (i) to the knowledge of Lexington, no Hazardous Substances or Hazardous
Wastes have been or are being released into
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the environment, discharged into the environment or disposed of from, at, on or
under the Lexington Properties; (ii) to the knowledge of Lexington, no Hazardous
Substances or Hazardous Wastes have been or are being generated or treated at
the Lexington Properties or discharged from the Lexington Properties, except in
compliance with applicable Laws; (iii) to the knowledge of Lexington, no
Hazardous Wastes have been or are being stored for more than 90 days or handled
at or on the Lexington Properties, except in compliance with applicable Laws;
(iv) none of the Lexington Properties are listed on, and Lexington has not
received written or oral notice that any of the Lexington Properties are being
considered for inclusion on, NPL, CERCLIS, or any State or local listing of
sites which are known or suspected to be contaminated by Hazardous Substances or
Hazardous Wastes; (v) to the knowledge of Lexington, there are no on-going, and
there have been no violations of any Law at any Lexington Properties which could
result in contamination of the land, surface water or groundwater from, at, on
or under any such properties; and (vi) no Governmental Agency is investigating
or has provided written notice that it is considering investigating any alleged
or potential release, discharge, disposal or storage of Hazardous Substances or
Hazardous Wastes at, on, under or from any Lexington Properties.
With respect to properties previously owned, leased or in the
possession of Lexington or Lexington Subsidiaries ("Lexington Previous
Properties"), Lexington has no actual knowledge that any of the activities or
conditions described in clauses (i), (ii) or (iii) as not having taken place or
existed at the Lexington Properties took place or existed at the Lexington
Previous Properties during the period when Lexington or the Lexington
Subsidiaries owned, leased or possessed the properties. In addition, Lexington
has no actual knowledge that any of the Lexington Previous Properties are listed
or are being considered for listing on any of the lists described in clause (iv)
or are being investigated or considered for investigation as described in clause
(vi).
Except as disclosed in Schedule 6.11, neither Lexington nor any
Lexington Subsidiary has received any notice from any Government Agency with
respect to alleged or potential liability relating in any way to Hazardous
Substances or Hazardous Wastes at, on, under or from any Lexington Property or
Lexington Previous Properties.
6.12 NO FEES. Except for an arrangement with Antony E. Monk, whose fees
pursuant to such arrangement shall be the responsibility of Lexington, neither
Lexington nor any of the Lexington Subsidiaries has entered into any contract,
arrangement or understanding with any person or firm which may result in the
obligation of such entity or the Trust to pay any finder's fees, brokerage or
agent's commissions or other like payments in connection with the negotiations
leading to this Agreement or the consummation of the transactions contemplated
hereby. Other than the Trust's arrangements set forth in Section 5.15, and as
set forth in the preceding sentence, to the knowledge of Lexington, there is not
any claim for payment of any finder's fees, brokerage or agent's commissions or
other like payments in connection with the negotiations leading to this
Agreement or the consummation of the transactions contemplated hereby.
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6.13 BENEFICIAL SHARE OWNERSHIP. Neither Lexington nor any of the
Lexington Subsidiaries owns any shares of beneficial interest of the Trust or
other securities convertible into shares of beneficial interest of the Trust.
6.14 CONTRACTS AND COMMITMENTS. None of Lexington or any of the
Lexington Subsidiaries has received any written notice of a default that has not
been cured under any of the documents filed by Lexington as an exhibit to the
Lexington SEC Reports or is in default respecting any payment obligations
thereunder beyond any applicable grace periods, except where such default would
not have a Lexington Material Adverse Effect. To the knowledge of Lexington,
neither Lexington nor any of the Lexington Subsidiaries is in default with
respect to any obligations, which individually or in the aggregate are material,
under any joint venture agreements to which Lexington or any of the Lexington
Subsidiaries is a party.
6.15 LEXINGTON COMMON STOCK. The issuance and delivery by Lexington of
shares of Lexington Common Stock in connection with the Merger and this
Agreement have been duly and validly authorized by all necessary corporate
action on the part of Lexington. The shares of Lexington Common Stock to be
issued in connection with the Merger and this Agreement, when issued in
accordance with the terms of this Agreement, will be validly issued, fully paid,
nonassessable, free of preemptive rights and, assuming the effectiveness of the
Form S-4, registered under the Securities Act, subject to no restrictions on
transfer under applicable laws or imposed by Lexington, except as contemplated
by Section 7.10.
6.16 CONVERTIBLE SECURITIES. Except as described in the Lexington SEC
Reports, Lexington has no outstanding options, warrants or other securities
exercisable for, or convertible into, shares of Lexington Common Stock, the
terms of which would require any anti-dilution adjustments by reason of the
consummation of the transactions contemplated hereby.
6.17 DEFINITION OF LEXINGTON'S KNOWLEDGE. As used in this Agreement,
the phrase "to the knowledge of Lexington" or any similar phrase shall mean the
actual, not constructive or imputed, knowledge of officers of Lexington,
including any information contained in any written notice or correspondence
addressed to Lexington or any of its directors or officers.
7
COVENANTS
7.1 ACQUISITION PROPOSALS.
(a) Unless and until this Agreement shall have been terminated
in accordance with its terms, the Trust shall not, directly or
indirectly, through any officer, trustee, employee, representative or
agent of the Trust, (i) solicit or initiate any inquiries or proposals
regarding any merger, sale of substantial assets, sale of shares of
beneficial interest (including without limitation by way of a tender
offer for 15% or more of the outstanding Trust Shares) or similar
transactions involving the Trust other than the Merger
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(any of the foregoing inquiries or proposals being referred to herein
as an "Acquisition Proposal"), (ii) except as permitted under
subsection (e) below or as otherwise required by the Trust's
Declaration or applicable law, engage in negotiations concerning, or
provide any nonpublic information to any person relating to, any
Acquisition Proposal, or (iii) except as permitted under subsection (e)
below, agree to, approve, or recommend any Acquisition Proposal.
(b) The Trust shall immediately notify Lexington after receipt
of any Acquisition Proposal, or any modification of or amendment to any
Acquisition Proposal.
(c) The Trust shall immediately cease and cause to be
terminated any existing discussions or negotiations with any persons
(other than Lexington) conducted heretofore with respect to any of the
foregoing.
(d) The Trust shall ensure that the officers, trustees and
employees of the Trust and any investment banker or other advisor or
representative retained by the Trust are aware of the restrictions
described in this Section 7.1.
(e) Nothing contained in this Section 7.1 shall prevent the
Board of Trustees of the Trust from considering, negotiating,
discussing, approving and recommending to the shareholders of the Trust
a bona fide Acquisition Proposal not solicited in violation of this
Agreement, if, and only to the extent that, the Board of Trustees
determines in good faith (upon advice of outside counsel) that it is
required to do so in order to discharge properly its fiduciary duties.
Nothing contained in this Section 7.1 shall prohibit the Board of
Trustees from complying with Rules 14d-9 and 14e-2 promulgated under
the Exchange Act with regard to any Acquisition Proposal.
7.2 CONDUCT OF BUSINESSES.
(a) Until the earlier of the Effective Time or the date on
which this Agreement is terminated in accordance with its terms, except
as specifically permitted by this Agreement, unless Lexington has
consented in writing thereto, the Trust:
(i) Shall use its reasonable best efforts to preserve
intact its business organizations and goodwill;
(ii) Shall confer on a regular basis with one or more
representatives of Lexington to report operational matters of
materiality (except for operational matters in the ordinary
course of business) and, subject to Section 7.1, any proposals
to engage in material transactions;
(iii) Shall promptly notify Lexington of any material
emergency or other material change in the condition (financial
or otherwise), business, properties,
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assets, liabilities, prospects or the normal course of its
businesses or in the operation of its properties, any material
governmental complaints, investigations or hearings (or
communications indicating that the same may be contemplated),
or the breach in any material respect of any representation,
warranty or covenant contained on its part herein; and
(iv) Shall promptly deliver to Lexington true and
correct copies of any report, statement or schedule filed with
the SEC subsequent to the date of this Agreement.
(b) Until the earlier of the Effective Time or the date on
which this Agreement is terminated in accordance with its terms,
Lexington:
(i) Shall use its reasonable best efforts to preserve
intact its business organizations and goodwill;
(ii) Shall promptly notify the Trust in the event (x)
any of E. Robert Roskind, Richard R. Rouse, T. Wilson Eglin or
Antonia G. Trigiani (collectively, "Senior Management")
determines to resign, is terminated or for any other reason is
no longer employed by Lexington, (y) Lexington's ratio of debt
to total market capitalization is reasonably likely to exceed
60% and (z) subject to applicable laws, of (1) any material
and adverse change in its business, operations or financial
condition, or any fundamental change in the nature or
operation of its business, (2) the breach, in any material
respect, of any representation, warranty or covenant on its
part contained herein or (3) any Material Structural Change
(as hereinafter defined); and
(iii) Shall promptly deliver to the Trust true and
correct copies of any report, statement or schedule filed with
the SEC, or any press release issued by Lexington, subsequent
to the date of this Agreement.
(c) Until the earlier of the Effective Time or the date on
which this Agreement is terminated in accordance with its terms, unless
Lexington has consented thereto (and Lexington hereby agrees to give
good faith consideration to any such request for consent by the Trust
and to respond to any such request within five (5) business days and in
the event no response is received by the Trust by the expiration of
such five business day period, such consent shall be deemed given) the
Trust:
(i) Shall conduct its operations in the ordinary
course in substantially the same manner as heretofore
conducted, subject to clauses (ii)-(ix) below;
(ii) Shall not acquire, enter into an option to
acquire or exercise an option or contract to acquire
additional real property, incur additional indebtedness,
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encumber assets or commence construction of, or enter into any
agreement or commitment to develop or construct, any other
type of real estate projects;
(iii) Shall not amend the Trust's Declaration or its
other organizational documents except as contemplated by this
Agreement;
(iv) Shall not (A) issue any shares of its capital
stock, effect any stock split, reverse stock split, stock
dividend, recapitalization or other similar transaction; (B)
grant, confer or award any option, warrant, conversion right
or other right not existing on the date hereof to acquire any
shares of its capital stock, (C) increase any compensation or
enter into or amend any employment agreement with any of its
present or future officers or trustees or retain any person as
an employee, or (D) adopt any employee benefit plan (including
any stock option, stock benefit or stock purchase plan);
(v) Shall not, except in accordance with and as
permitted under Section 7.2(d), sell, lease or otherwise
dispose of or enter into an option or other commitment to
dispose of (A) any the Trust Properties or (B) except in the
ordinary course of business, any of its other assets;
(vi) Shall not make any loans, advances or capital
contributions to, or investments in, any other person or make
or declare any dividend or distribution except as permitted by
Section 7.2(e);
(vii) Shall not pay, discharge or satisfy any claims,
liabilities or obligations (absolute, accrued, asserted or
unasserted, contingent or otherwise), other than the payment,
discharge or satisfaction, in the ordinary course of business
consistent with past practice or in accordance with their
terms, of liabilities reflected or reserved against in, or
contemplated by, the most recent financial statements (or the
notes thereto) of the Trust included in the Trust SEC Reports
or incurred in the ordinary course of business consistent with
past practice;
(viii) Shall not enter into any Commitment which may
result in total payments or liability by or to it in excess of
$25,000 other than Commitments for expenses of attorneys,
accountants and investment bankers incurred in connection with
the Merger, but subject to Section 7.11; and
(ix) Shall not enter into any Commitment with any
officer, trustee, consultant or affiliate of the Trust.
(d) The Trust shall not, without the written consent of
Lexington, which consent may not be unreasonably withheld, (i) effect
any material change in any lease or occupancy agreement currently in
effect (together with such additional leases approved or permitted
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pursuant to this Agreement, the "Leases"), (ii) renew or extend the
term of any Lease, unless the same is an extension or expansion
permitted pursuant to the express terms of an existing Lease, or (iii)
enter into any new Lease or cancel or terminate any Lease. When seeking
consent to a new or modified Lease, the Trust shall provide notice of
the identity of the Tenant, a term sheet, letter of intent or proposed
lease containing material business terms (including, without
limitation, rent, expense base, concessions, tenant improvement
allowances, brokerage commissions, and expansion and extension options)
and whatever credit and background information, if any, the Trust then
possesses with respect to such tenant. Lexington shall be deemed to
have consented to any proposed Lease or Lease modification if it has
not responded to the Trust within five (5) business days after receipt
of such information. Upon Lexington's approval or deemed approval, the
Trust shall be entitled to enter into a Lease.
(e) The Trust may declare regular quarterly dividends
(provided that any such dividends do not exceed, on a per share basis,
the per share dividend for the Trust's most recent fiscal quarter ended
prior to the date of this Agreement) and any dividends as contemplated
under Section 7.15. In addition, the Trust may declare and pay a
special dividend within 30 days prior to the Effective Time in an
aggregate amount up to the amount of cash on hand at the time of such
declaration; provided, however, that the Trust may only make such
payment after reserving a sufficient amount of cash necessary to pay
those expenses for which it is responsible under this Agreement.
7.3 MEETING OF STOCKHOLDERS. The Trust will take all action necessary
in accordance with applicable law and its Declaration of Trust and other
organizational documents to convene a meeting of its shareholders as promptly as
practicable to consider and vote upon the approval of this Agreement and the
transactions contemplated hereby. The Board of Trustees of the Trust, subject to
Section 7.1, shall unanimously recommend that its shareholders approve this
Agreement and the transactions contemplated hereby and the adoption of an
amendment to its Declaration of Trust authorizing merger, and the Trust shall
use its reasonable best efforts to obtain such approval, including, without
limitation, by timely mailing the proxy statement/prospectus contained in the
Form S-4 (as defined in Section 7.7 hereof) to its shareholders and including
such recommendation within such Form S-4; provided, however, that nothing
contained in this Section 7.3 shall prohibit the Board of Trustees of the Trust
from failing to make or withdrawing such recommendation or using their
reasonable best efforts to obtain such approval if the Board of Trustees of the
Trust has determined in good faith, after consultation with and based upon the
advice of counsel, that such action is necessary for such Board of Trustees to
comply with its fiduciary duties to its stockholders under applicable law. It
shall be a condition to the mailing of the Form S-4 that (i) Lexington shall
have received a "comfort" letter from Ernst & Young, independent public
accountants for the Trust, dated as of a date within two business days before
the date on which the Form S-4 shall become effective, with respect to the
financial statements of the Trust included or incorporated in the Form S-4, in
form and substance reasonably satisfactory to Lexington, and customary in scope
and substance for "comfort" letters delivered by independent public accountants
in connection with registration
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statements and proxy statements similar to the Form S-4, and (ii) the Trust
shall have received a "comfort" letter from KPMG Peat Marwick, independent
public accountants for Lexington, dated as of a date within two business days
before the date on which the Form S-4 shall become effective, with respect to
the financial statements of Lexington included or incorporated in the Form S-4,
in form and substance reasonably satisfactory to the Trust, and customary in
scope and substance for "comfort" letters delivered by independent public
accountants in connection with registration statements and proxy statements
similar to the Form S-4.
7.4 FILINGS; OTHER ACTION. Subject to the terms and conditions herein
provided, the Trust and Lexington shall: (a) to the extent required, promptly
make their respective filings with respect to the Merger; (b) use all reasonable
best efforts to cooperate with one another in (i) determining which filings are
required to be made prior to the Effective Time with, and which consents,
approvals, permits or authorizations are required to be obtained prior to the
Effective Time from, governmental or regulatory authorities of the United
States, the several states and foreign jurisdictions and any third parties in
connection with the execution and delivery of this Agreement, the consummation
of the transactions contemplated by this Agreement and (ii) timely making all
such filings and timely seeking all such consents, approvals, permits or
authorization; (c) use all reasonably best efforts to obtain in writing any
consents required from third parties to effectuate the Merger, such consents to
be in reasonably satisfactory form to the Trust and Lexington; and (d) use all
reasonable efforts to take, or cause to be taken, all other actions and do, or
cause to be done, all other things necessary, proper or appropriate to
consummate and make effective the transactions contemplated by this Agreement.
If, at any time after the Effective Time, any further action is necessary or
desirable to carry out the purpose of this Agreement, the proper officers and
trustees or directors of Lexington and the Trust shall take all such necessary
action.
7.5 INSPECTION OF RECORDS. From the date hereof to the Effective Time,
each of the Trust and Lexington shall allow all designated officers, attorneys,
accountants and other representatives of the other access, at all reasonable
times, to the records and files, correspondence, audits and properties, as well
as to all information relating to commitments, contracts, title and financial
position, or otherwise pertaining to the business and affairs, of the Trust and
Lexington and its subsidiaries for purposes related to an evaluation of the
transactions contemplated hereby.
7.6 PUBLICITY. Lexington and the Trust shall consult with each other
before issuing any press release or otherwise making any public statements with
respect to this Agreement or any transaction contemplated herein and shall not
issue any such press release or make any such public statement without the prior
consent of the other party, which consent shall not be unreasonably withheld;
provided, however, that a party may, without the prior consent of the other
party, issue such press release or make such public statement as may be required
by law or the rules of the applicable stock exchange if it has used its
reasonable best efforts to consult with the other party and to obtain such
party's consent but has been unable to do so in a timely manner.
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7.7 REGISTRATION STATEMENT. Lexington and the Trust shall cooperate and
promptly prepare, and Lexington shall file with the SEC on or before June 20,
1997, a Registration Statement on Form S-4 under the Securities Act, with
respect to the shares of Lexington Common Stock issuable in the Merger, a
portion of which Form S-4 shall also serve as the proxy statement with respect
to the meetings of the stockholders of the Trust in connection with Merger (in
its entirety, the "Form S-4"). The parties will cause the Form S-4 to comply as
to form in all material respects with the applicable provisions of the
Securities Act, the Exchange Act and the rules and regulations thereunder. Each
of Lexington and the Trust shall furnish all information about itself and its
business and operation and all necessary financial information to the other as
the other may reasonably request in connection with the preparation of the Form
S-4. Lexington shall use its best efforts, and the Trust will cooperate with
Lexington, to have the Form S-4 declared effective by the SEC as promptly as
practicable. Lexington shall use its best efforts to obtain, prior to the
effective date of the Form S-4, all necessary state securities law or "blue sky"
permits or approvals required to carry out the transactions contemplated by this
Agreement and will pay all expenses incident thereto. Lexington agrees that the
Form S-4 and each amendment or supplement thereto at the time of mailing thereof
and at the time of the meeting of stockholders of the Trust, will not include an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; provided, however,
that the foregoing shall not apply to the extent that any such untrue statement
of a material fact or omission to state a material fact was made by Lexington in
reliance upon and in conformity with information concerning the Trust furnished
to Lexington by the Trust for use in the Form S-4. The Trust agrees that the
information provided by it for inclusion in the Form S-4 and each amendment or
supplement thereto, at the time of mailing thereof and at the time of the
meeting of shareholders of the Trust, will not include an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. Lexington will advise and deliver copies
to the Trust, promptly after it receives notice thereof, of the time when the
Form S-4 has become effective or any supplement or amendment has been filed, the
issuance of any stop order, the suspension of the qualification of the Lexington
Common Stock issuable in connection with the Merger for offering or sale in any
jurisdiction, or any request by the SEC for amendment of the Form S-4 or
comments thereon (which Lexington agrees to promptly respond to) and responses
thereto or requests by the SEC for additional information (which Lexington
agrees to promptly provide).
7.8 LISTING APPLICATION. Prior to the Effective Time, Lexington shall
prepare and submit to the New York Stock Exchange a listing application covering
the shares of Lexington Common Stock issuable in the Merger, and shall obtain
prior to the Effective Time approval for the listing of such Lexington Common
Stock, subject to official notice of issuance.
7.9 FURTHER ACTION. Each party hereto shall, subject to the fulfillment
at or before the Effective Time of each of the conditions of performance set
forth herein or the waiver thereof,
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perform such further acts and execute such documents as may reasonably be
required to effect the Merger. In connection with the Closing, the Trust shall
use its best efforts to deliver to Lexington such deeds, bills of sale,
assignments, certificates, affidavits and indemnities as are required to
effectuate the consummation of the transactions described herein.
7.10 AFFILIATES OF THE TRUST.
(a) At least 30 days prior to the effective date of the Form
S-4, the Trust shall deliver to Lexington a list of names and addresses
of those persons who were, in the Trust's reasonable judgment, at the
record date for its stockholders' meeting to approve the Merger,
"affiliates" (each such person, an "Affiliate") of the Trust within the
meaning of Rule 145. The Trust shall provide Lexington such information
and documents as Lexington shall reasonably request for purposes of
reviewing such list. The Trust shall use its reasonable best efforts to
deliver or cause to be delivered to Lexington, at least 30 days prior
to the Closing Date, from each of the Affiliates of the Trust
identified in the foregoing list, an Affiliate Letter in a form
satisfactory to the Trust and Lexington. Lexington shall be entitled to
place legends as specified in such Affiliate Letters on the
certificates evidencing any shares of Lexington Common Stock to be
received by such Affiliates pursuant to the terms of this Agreement,
and to issue appropriate stop transfer instructions to the transfer
agent for the shares of Lexington Common Stock, consistent with the
terms of such Affiliate Letters.
(b) Lexington shall file the reports required to be filed by
it under the Exchange Act and the rules and regulations adopted by the
SEC thereunder, to the extent required from time to time to enable such
Affiliate to sell shares of Lexington Common Stock received by such
Affiliate in the Merger with registration under the Securities act
pursuant to (i) Rule 145(d)(1) or (ii) any successor rule or regulation
hereafter adopted by the SEC.
7.11 EXPENSES. Subject to the provisions of Article 9, all costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses, except
that, in addition to its own costs and expenses, the Trust will be responsible
for and shall discharge prior to the Closing or from the proceeds of the Cash
Payment all costs associated with environmental audits of the Trust Properties,
which audits have been received and approved by Lexington, and all other closing
costs including, but not limited to, survey charges, third party and
governmental fees (except fees payable to the SEC and state "blue sky" fees,
which shall be paid by Lexington), charges and taxes, and the expenses of the
Trust's attorneys, accountants and investment bankers, except as provided below;
and, in addition to its own costs and expenses, Lexington shall be responsible
for the fees and expenses of its legal counsel, and engineering studies of the
Trust Properties with respect to the structural soundness of the Trust
Properties. The Trust and Lexington shall share equally (i) the printing costs
associated with the Form S-4, provided that the Trust's portion of such costs
shall not
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exceed $15,000; and (ii) restructuring or assumption or amendment fees payable
to the Trust's lenders, provided that Lexington's portion of such fees shall not
exceed $30,000.
7.12 INDEMNIFICATION AND INSURANCE.
(a) In the event of any threatened or actual claim, action,
suit, proceeding or investigation, whether civil, criminal or
administrative, including, without limitation, any such claim, action,
suit, proceeding or investigation in which any person who is now, or
has been at any time prior to the date hereof, or who becomes prior to
the Effective Time, a trustee, officer, employee, fiduciary or agent of
the Trust (the "Indemnified Parties") is, or is threatened to be, made
a party based in whole or in part on, or arising in whole or in part
out of, or pertaining to (i) the fact that he, she or it is or was a
trustee, officer, employee or agent of the Trust, or is or was serving
at the request of the Trust as a trustee, officer, employee or agent of
another corporation, partnership, joint venture, trust or other
enterprise, or (ii) this Agreement or any of the transactions
contemplated hereby, whether in any case asserted or arising before or
after the Effective Time, the parties hereto agree to cooperate and use
their reasonable best efforts to defend against and respond thereto. It
is understood and agreed that the Trust shall indemnify and hold
harmless, and after the Effective Time Lexington shall indemnify and
hold harmless, as and to the full extent permitted by applicable law or
the Declaration of Trust of the Trust, each Indemnified Party against
any losses, claims, damages, liabilities, costs, expenses (including
attorneys' fees and expenses, judgments, fines and amounts paid in
settlement in connection with any such threatened or actual claim,
action, suit, proceeding or investigation, and in the event of any such
threatened or actual claim, action, suit, proceeding or investigation
(whether asserted or arising before or after the Effective Time); (i)
the Trust, and the Lexington after the Effective Time, shall promptly
pay expenses in advance of the final disposition of any claim, suit,
proceeding or investigation to each Indemnified Party to the full
extent permitted by law, (ii) the Indemnified Parties may retain
counsel satisfactory to them, provided such counsel is reasonably
satisfactory to Lexington, and the Trust, and Lexington after the
Effective Time, shall promptly pay all fees and expenses of such
counsel for the Indemnified Parties after reasonably detailed
statements therefor are received, and (iii) the Trust and Lexington
will use their respective reasonable best efforts to assist in the
vigorous defense of any such matter; provided, that neither the Trust
nor Lexington shall be liable for any settlement effected without its
prior written consent (which consent shall not be unreasonably
withheld); and provided further that the Lexington shall have no
obligation hereunder to any Indemnified Party when and if a court of
competent jurisdiction shall ultimately determine, and such
determination shall have become final and non-appealable, that
indemnification of such Indemnified Party in the manner contemplated
hereby is prohibited by applicable law. The Indemnified Parties as a
group may retain only one law firm to represent them with respect to
any single action unless there is, under applicable standards of
professional conduct, a conflict on any significant issue between the
positions of any two or more Indemnified Parties. Any Indemnified Party
wishing to claim indemnification under this Section 7.12, upon learning
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of any such claim, action, suit, proceeding or investigation, shall
notify the Trust and, after the Effective Time, Lexington, thereof,
provided that the failure to so notify shall not affect the obligations
of the Trust or Lexington except to the extent such failure to notify
materially prejudices such party.
(b) Lexington agrees that all rights to indemnification
existing in favor, and all limitations on the personal liability, of
the Indemnified Parties provided for in the Trust's Declaration or
similar organizational documents as in effect as of the date hereof
with respect to matters occurring prior to the Effective Time shall
survive the Merger and shall continue in full force and effect for a
period of not less than six (6) years from the Effective Time;
provided, however, that all rights to indemnification in respect of any
claim (a "Claim") asserted or made within such period shall continue
until the disposition of such Claim.
(c) This Section 7.12 is intended for the irrevocable benefit
of, and to grant third party rights to, the Indemnified Parties and
shall be binding on all successors and assigns of Lexington and the
Trust. Each of the Indemnified Parties shall be entitled to enforce the
covenants contained in this Section 7.12 and Lexington acknowledges and
agrees that each Indemnified Party would suffer irreparable harm and
that no adequate remedy at law exists for a breach of such covenants.
(d) In the event Lexington or any of its successors or assigns
(i) consolidates with or merges into any other person or entity and
shall not be the continuing or surviving corporation or entity of such
consolidation or merger or (ii) transfers or conveys all or
substantially all of its properties and assets to any person or entity,
then, and in each such case, proper provision shall be made so that the
successors and assigns of Lexington assume the obligations set forth in
this Section 7.12.
7.13 REORGANIZATION. From and after the date hereof and until the
earlier of the Effective Time or the date on which this Agreement is terminated
in accordance with its terms, none of Lexington, the Trust or its affiliates
shall (i) knowingly take any action, or knowingly fail to take any action, that
would jeopardize qualification of the Merger as a reorganization within the
meaning of Section 368(a) of the Code or (ii) enter into any contract,
agreement, commitment or arrangement with respect to the foregoing. Following
the Effective Time, Lexington shall use its reasonable best efforts to conduct
its business in a manner that would not jeopardize the characterization of the
Merger as a reorganization within the meaning of Section 368(a) of the Code.
7.14 PAYMENT OF ADVISORY FEES AND TRANSACTION EXPENSES. Notwithstanding
anything to the contrary set forth in this Agreement, Lexington and the Trust
hereby agree that, immediately prior to, or upon, the Effective Time, the Trust
shall pay at Closing to the Trust Advisor the termination fee described in the
Advisory Services Agreement dated September 22, 1989 between the Trust and the
Advisor, to the extent not waived. The Trust will pay all its
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accrued and unpaid obligations and its costs relating to the Merger, so that
Lexington will assume no liabilities of the Trust other than the mortgages and
other obligations described on Schedule 4.4 and those expenses described in
Section 7.11.
7.15 REIT STATUS. Notwithstanding anything to the contrary set forth in
this Agreement, nothing in this Agreement shall prohibit the Trust from taking,
and the Trust hereby agrees to take, any action at any time or from time to time
that in the reasonable judgment of the Trust is legally necessary for the Trust
to maintain its qualification as a REIT within the meaning of Sections 856-860
of the Code for any period or portion thereof ending on or prior to the Merger
including without limitations, making dividend or distribution payments to
stockholders. To the extent that any dividends or distributions are paid to the
Trust shareholders other than the payments permitted to be made pursuant to
Section 7.2, the Share Value shall be reduced by the per share amount of such
dividend or distribution payments. Prior to the payment of any such dividend or
distribution contemplated by the preceding sentence, the Trust shall provide
written notice of its intention to make such dividend or distribution and the
reasons therefor to Lexington. Following the Merger, Lexington shall use its
best efforts to take any such actions as may be necessary to maintain the
Trust's status as a REIT for any period or portion thereof ending on or prior to
the Merger (including, without limitation, the mailing of stockholder demand
letters as required by Treasury Regulations sec. 1.857-8).
8
CONDITIONS PRECEDENT
8.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The
respective obligation of each party to effect the Merger and the other
transactions contemplated herein shall be subject to the fulfillment at or prior
to the Effective Time of the following conditions, any or all of which may be
waived, in whole or in part by the parties hereto, to the extent permitted by
applicable law:
(a) This Agreement and the transactions contemplated hereby
shall have been approved by the requisite vote of shareholders of the
Trust, and the Trust's shareholders shall have approved an amendment to
the Trust's Declaration of Trust authorizing the Merger.
(b) Neither of the parties hereto shall be subject to any
order, ruling or injunction of a court of competent jurisdiction which
prohibits the consummation of the transactions contemplated by this
Agreement. In the event any such order, ruling or injunction shall have
been issued, each party agrees to use its best efforts to have any such
order, ruling or inunction lifted, stayed or reversed.
(c) The Form S-4 shall have been declared effective by the SEC
under the Securities Act, and no stop order suspending the
effectiveness of the Form S-4 shall have
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been issued by the SEC, and no proceedings for that purpose shall have
been initiated or, to the knowledge of Lexington or the Trust,
threatened by the SEC.
(d) Lexington shall have obtained the approval for the listing
of the shares of Lexington Common Stock issuable in the Merger on the
New York Stock Exchange, subject to official notice of issuance.
(e) All consents, authorizations, orders and approvals of (or
filings or registrations with) any governmental commission, board,
other regulatory body or third parties required to be made or obtained
by Lexington, the Trust and any affiliated entities in connection with
the execution, delivery and performance of this Agreement shall have
been obtained or made, including obtaining any consents or approvals
which are required from any holders of mortgages affecting any Trust
Properties (the "Lender Consents"); provided, however, approvals or
consents are not required where the failure to have obtained or made
any such consent, authorization, order, approval, filing or
registration, would not have a Trust Material Adverse Effect or a
Lexington Material Adverse Effect, as the case may be.
8.2 CONDITIONS TO OBLIGATIONS OF THE TRUST TO EFFECT THE MERGER. The
obligation of the Trust to effect the Merger shall be subject to the fulfillment
at or prior to the Effective Time of the following conditions, unless waived by
the Trust:
(a) Each of the representations and warranties of Lexington
contained in this Agreement shall be true and correct in all material
respects as of the date of this Agreement and as of the Effective Time
as though made on and as of the Effective Time and the Trust shall have
received a certificate, dated the Closing Date, signed on behalf of
Lexington by the Chairman, Vice Chairman or President of Lexington to
the foregoing effect.
(b) Lexington shall have performed or complied in all material
respects with all agreements and covenants required by this Agreement
to be performed or complied with by it on or prior to the Effective
Time, and the Trust shall have received a certificate, dated the
Closing Date, signed on behalf of Lexington by the Chairman, Vice
Chairman or President of Lexington to the foregoing effect.
(c) The Trust shall have received the opinion of counsel,
reasonably acceptable to the Trust, and subject to customary conditions
and qualifications (including reliance, in part, on representations of
Lexington and the Trust), to the effect that the Merger will be treated
for federal income tax purposes as a tax-free reorganization qualifying
under the provisions of Sections 368(a) of the Code, which opinion
shall not have been withdrawn or modified in any material respect.
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Section 8.3 CONDITIONS TO OBLIGATION OF LEXINGTON TO EFFECT THE MERGER.
The obligations of Lexington to effect the Merger shall be subject to the
fulfillment at or prior to the Closing Date of the following conditions, unless
waived by Lexington:
(a) Each of the representations and warranties of the Trust
contained in this Agreement shall be true and correct in all material
respects as of the date of this Agreement and as of the Effective Time
as though made on and as of the Effective Time, and Lexington shall
have received a certificate, dated the Closing Date, signed on behalf
of the Trust by a trustee of the Trust to the foregoing effect.
(b) The Trust shall have performed or complied in all material
respects with all agreements and covenants required by this Agreement
to be performed or complied with by it on or prior to the Effective
Time, and Lexington shall have received a certificate, dated the
Closing Date, signed on behalf of the Trust by the a trustee of the
Trust to the foregoing effect.
(c) Lexington shall have received the opinion of counsel,
reasonably acceptable to Lexington, and subject to customary conditions
and qualifications (including reliance, in part, on representations of
Lexington and the Trust), to the effect that the Merger will be treated
for federal income tax purposes as a tax-free reorganization qualifying
under the provisions of Sections 368(a) of the Code, which opinion
shall not have been withdrawn or modified in any material respect.
(d) Estoppel certificates in form reasonably acceptable to
Lexington and otherwise indicating that all Leases are in full force
and effect and there are no defaults thereunder shall have been
obtained and delivered to Lexington.
(e) Lexington shall have received the letters from Affiliates
of the Trust referred to in Section 7.10, and such letters shall be in
full force and effect.
(f) None of the Properties shall have been encumbered by any
lien, easement, covenant, restriction or other title matter not
reflected on the Title Policies for the related property other than
those title matters set forth on Title Reports delivered to Lexington.
Lexington shall have received title reports (or, at its option, title
insurance policies) updated through the Effective Time confirming the
foregoing status of title to the Properties as of the Effective Time.
(g) The Trust shall have paid any real estate transfer or
similar taxes incurred in connection with the Merger which are payable
in connection with filing a certificate of merger or quitclaim deed,
but not otherwise.
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(h) Lexington shall have received evidence reasonably
satisfactory to it that the Trust's mortgage lenders have approved the
assumption by Lexington of the mortgages on each of the Trust's
Properties.
(i) Each guarantor of any lease relating to any of the Trust's
properties shall have agreed to the continuing effectiveness of such
guarantee upon confirmation of the Merger.
(j) Lexington shall have received with respect to the Trust
Property located in Virginia (A) a survey reasonably acceptable to
Lexington and its counsel showing Parcels 1, 2, and 3 as described in
the Ground Lease and Agreement dated as of February 28, 1990 between
CRA Acquisition Corp. and Circuit City Stores, Inc., and (B) back-up
documentation regarding the dedication for public use of such Parcels 2
and 3, as referenced in Lawyers Title Insurance Corporation title
commitment dated October 8, 1996, case number 1960836.
9
TERMINATION
9.1 TERMINATION. This Agreement may be terminated and abandoned at any
time prior to the Effective Time, whether before or after approval and adoption
of this Agreement by the stockholders of the Trust:
(a) by mutual written consent of Lexington and the Trust; or
(b) by either Lexington or the Trust if any United States
federal or state court of competent jurisdiction or other governmental
entity shall have issued an order, decree or ruling or taken any other
action permanently restraining, enjoining or otherwise prohibiting the
Merger and such order, decree, ruling or other action shall have become
final and non-appealable, provided that the party seeking to terminate
shall have used its best efforts to appeal such order, decree, ruling
or other action; or
(c) by Lexington upon a material breach of any representation,
warranty, covenant or agreement on the part of the Trust set forth in
this Agreement, or if any representation or warranty of the Trust shall
have become untrue, in either case such that the conditions set forth
in Section 8.3(a) or Section 8.3(b), as the case may be, would be
incapable of being satisfied by October 1, 1997; provided, however,
that, in any case, a willful breach shall be deemed to cause such
conditions to be incapable of being satisfied for purposes of this
Section 9.1(c); or
(d) by the Trust upon a material breach of any representation,
warranty, covenant or agreement on the part of Lexington set forth in
this Agreement, or if any representation or warranty of Lexington shall
have become untrue, in either case such that
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the conditions set forth in Section 8.2(a) or Section 8.2(b), as the
case may be, would be in capable of being satisfied by October 1, 1997;
provided, however, that, in any case, a willful breach shall be deemed
to cause such conditions to be incapable of being satisfied for
purposes of this Section 9.1(d); or
(e) by Lexington if (i) the Board of Trustees of the Trust
shall have withdrawn, amended, modified or changed its approval or
recommendation of this Agreement or any of the transactions
contemplated hereby in a manner adverse to Lexington or shall have
resolved to do so; (ii) the Trust shall have failed as soon as
practicable to mail the Form S-4 to its stockholders after the Form
S-4 has been declared effective by the SEC or to include the
recommendation of its Board of Trustees of this Agreement as
contemplated by this Agreement and the transactions contemplated hereby
in the Form S-4, or the requisite vote of shareholders shall not have
been obtained at a duly held meeting on or prior to October 1, 1997; or
(iii) the Board of Trustees of the Trust shall have recommended that
shareholders of the Trust accept or approve an Acquisition Proposal by
a person other than Lexington (or the Trust or its Board of Trustees
shall have resolved to do such) or a tender offer or exchange offer for
15% or more of the outstanding Trust Shares is commenced (other than by
Lexington) and the Board of Trustees recommends that the shareholders
of the Trust tender their shares in such tender or exchange offer; or
(f) by the Trust, (i) if the Board of Trustees recommends to
the Trust's shareholders approval or acceptance of an Acquisition
Proposal by a person other than Lexington, but only in the event that
the Board of Trustees of the Trust, after consultation with and based
upon the advice of Day, Berry & Howard or another nationally-recognized
law firm selected by the Board of Trustees of the Trust, has determined
in good faith that such action is necessary for the Board of Trustees
of the Trust to comply with its fiduciary duties to its shareholders
under applicable law or (ii) if the average closing sales price of
Lexington Common Stock on the New York Stock Exchange on twenty (20)
trading days ending on the fifth business day immediately preceding (A)
the date on which the Form S-4 is declared effective by the SEC, is
equal to or less than $10.50 or (B) the date on which the meeting of
the Trust shareholders is to be convened pursuant to Section 7.3
hereof, is equal to or less than $11.125, without any liability on the
part of the Trust; or
(g) by the Trust if (i) this Agreement and the transactions
contemplated hereby shall have failed to receive the requisite vote for
approval and adoption by the shareholders of the Trust upon the holding
of a duly convened shareholder meeting or (ii) within ten days after
receipt of notice from Lexington of any Material Structural Change; or
(h) by Lexington if (i) any tenant of the Trust shall have
filed a petition commencing a voluntary case concerning such tenant
under any chapter of Title 11 of the United States Code entitled
"Bankruptcy," or an involuntary case shall be commenced against such
tenant under any such chapter and relief is ordered against such tenant
or the petition is controverted but is not dismissed within sixty (60)
days after the commencement
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of the case, or (ii) any of the Trust Properties shall have been
substantially destroyed by fire or other casualty and the tenant under
the affected Trust Property shall not be required to apply the casualty
insurance proceeds to restore such Trust Property; or
(i) by either Lexington or the Trust, if the Merger shall not
have been consummated on or before October 1, 1997 (other than due to
the failure of the party seeking to terminate this Agreement to perform
its obligations under this Agreement required to be performed by it at
or prior to the Effective Time).
The right of any party hereto to terminate this Agreement pursuant to
this Section 9.1 shall remain operative and in full force and effect regardless
of any investigation made by or on behalf of any party hereto, any person
controlling any such party or any of their respective employees, officers,
trustees, directors, agents, representatives or advisors, whether prior to or
after the execution of this Agreement.
"Material Structural Change" shall mean (i) any event which will result
in an increase in the number of issued and outstanding shares of capital stock
of Lexington on a Fully Diluted Basis, in any single transaction, in excess of
50% of the number of issued and outstanding shares of capital stock of Lexington
on a Fully Diluted Basis immediately prior to the consummation of such event,
(ii) the date on which any two of the four members of Senior Management are no
longer serving as officers of Lexington, (iii) the date on which Lexington's
ratio of debt to total market capitalization exceeds 60%, or (iv) the first
public announcement of any transaction which will result in the acquisition of
Lexington, by way of merger, consolidation, sale of substantially all of
Lexington's assets or otherwise and in which Lexington will not be the surviving
entity.
"Fully Diluted Basis" shall mean the number of issued and outstanding
shares of capital stock of Lexington assuming conversion of all operating
partnership units and shares of convertible preferred stock, the exercise of all
warrants and options and the conversion of all other securities convertible
into, or exchangeable for, shares of Lexington capital stock.
9.2 EFFECT OF TERMINATION. In the event of the termination and
abandonment of this Agreement pursuant to Section 9.1 hereof, this Agreement
shall forthwith become void and have no effect, without any liability on the
part of any party hereto or its affiliates, trustees, directors, officers or
stockholders and all rights and obligations of any party hereto shall cease
except for the agreements contained in Section 9.3 and Section 10.5; provided,
however, that nothing contained in this Section 9.2 shall relieve any party from
liability for any breach of this Agreement.
9.3 FEES AND EXPENSES.
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(a) Except as set forth in Section 7.11, fees and expenses
incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses,
whether or not the Merger is consummated.
(b) The Trust shall pay Lexington a fee of $700,000 (the
"Fee") upon the termination of this Agreement by the Trust pursuant to
Section 9.1(f)(i) or Lexington pursuant to Section 9.1(e)(iii).
(c) The Trust shall pay Lexington the Fee if this Agreement is
terminated by Lexington pursuant to Section 9.1(e)(i) or Section
9.1(e)(ii) (if, in the case of Section 9.1(e)(ii), the Trust shall have
failed to mail the Form S-4 to its stockholders or shall have failed to
include its recommendation of this Agreement in such Form S-4), and
thereafter on or prior to the 60th day after the date of such
termination the Trust enters into a definitive agreement relating to
any merger, consolidation, share exchange, sale of a substantial
portion of its assets, liquidation or other similar extraordinary
corporate transaction.
(d) The Fee payable pursuant to Section 9.3(b) shall be paid
within five business days after the first to occur of any of the events
described in Section 9.3(b). The Fee payable pursuant to Section 9.3(c)
shall be paid within five business days following the consummation of
any such alternative transaction. The payment of the Fee under this
Section 9.3 shall constitute full satisfaction of any obligation of the
Trust or right of Lexington under this Agreement or otherwise, and upon
payment of the Fee, the Trust will have no further liability to
Lexington whatsoever under this Agreement or otherwise under any other
theory of recovery.
9.4 EXTENSION; WAIVER. At any time prior to the Effective Time, any
party hereby, by action taken by its Board of Trustees or Board of Directors,
may, to the extent legally allowed, (a) extend the time for the performance of
any of the obligations or other acts of the other parties hereto, (b) waive any
inaccuracies in the representations and warranties made to such party contained
herein or in any document delivered pursuant hereto and (c) waive compliance
with any of the agreements or conditions for the benefit of such party contained
herein. Any agreement on the part of a party hereto to any such extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party.
10
GENERAL PROVISIONS
10.1 NONSURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. All
representations, warranties and agreements in this Agreement or in any
instrument delivered pursuant to this Agreement shall terminate as of the
Effective Time and shall not survive the Merger, provided, however, that the
agreements contained in Article 4, the last sentence of Section 7.4 and Sections
7.10, 7.12 and 7.13 and this Article 10 shall survive the Merger.
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10.2 NOTICES. Any notice required to be given hereunder shall be in
writing and shall be sent by facsimile transmission (confirmed by any of the
methods that follow), courier service (with proof of service), hand delivery or
certified or registered mail (return receipt requested and first-class postage
prepaid) and addressed as follows:
If to Lexington: Lexington Corporate Properties, Inc.
355 Lexington Avenue
New York, New York 10017
Attention: T.W. Eglin, President
With copies to: Paul, Hastings, Janofsky & Walker LLP
399 Park Avenue, Thirty First Floor
New York, New York 10022
Attn: Barry A. Brooks and Scott M. Wornow
If to the Trust: Corporate Realty Advisors, Inc.
388 Greenwich Street, 33rd Floor
New York, NY 10013
Attn: James C. Cowles
With copies to: Day, Berry & Howard
260 Franklin Street
Boston, MA 02110
Attn: Lewis A. Burleigh, Esq.
or to such other address as any party shall specify by written notice so given,
and such notice shall be deemed to have been delivered as of the date so
delivered.
10.3 ASSIGNMENT; BINDING EFFECT; BENEFIT. Neither this Agreement nor
any of the rights, interests or obligations hereunder shall be assigned by any
of the parties hereto (whether by operation of law or otherwise) without the
prior written consent of the other parties; provided, however, that the Trust
has received a copy of Lexington's proxy statement dated April 25, 1997 which
sets forth a proposal to reorganize Lexington as a Maryland real estate
investment trust pursuant to a merger of Lexington with and into a newly-formed
Maryland real estate investment trust (the "MDREIT"), with such MDREIT to be the
surviving entity. Notwithstanding anything to the contrary, the Trust consents
to the reorganization described in such proxy and agrees that all rights and
obligations of Lexington under this Agreement shall be assumed by, and inure to
the benefit of, the MDREIT upon consummation of such reorganization to the same
extent as if the MDREIT had been a signatory hereto and Lexington shall cause
such MDREIT to assume all such rights and obligations as a condition to such
reorganization. Subject to the preceding sentence, this Agreement shall be
binding upon and shall inure to the benefit of the parties hereto
39
<PAGE> 148
and their respective successors and assigns. Notwithstanding anything contained
in this Agreement to the contrary, but subject to the first and second sentences
of this Section, except for the provisions of Article 4 and Sections 7.10, 7.12
and 7.13, nothing in this Agreement, expressed or implied, is intended to confer
on any person other than the parties hereto or their respective heirs,
successors, executors, administrators and assigns any rights, remedies,
obligations or liabilities under or by reason of this Agreement.
10.4 ENTIRE AGREEMENT. This Agreement, the Schedules and any documents
delivered by the parties in connection herewith constitute the entire agreement
among the parties with respect to the subject matter hereof and supersede all
prior agreements and understandings among the parties with respect thereto
except that the Confidentiality Agreement (as hereinafter defined) shall remain
in effect and shall be binding upon Lexington and the Trust in accordance with
its terms.
10.5 CONFIDENTIALITY. Each of Lexington and the Trust understands and
agrees that it is still bound by and subject to the terms of the Confidentiality
Agreement dated as of September 16, 1996, by and between Lexington and the Trust
(the "Confidentiality Agreement").
10.6 AMENDMENT. This Agreement may be amended by the parties hereto, by
action taken by their respective Board of Trustees and Board of Directors, at
any time before or after approval of matters presented in connection with the
Merger by the shareholders of the Trust, but after any such stockholder
approval, no amendment shall be made which by law requires the further approval
of stockholders without obtaining such further approval. This Agreement may not
be amended except by an instrument in writing signed on behalf of each of the
parties hereto.
10.7 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York without regard to its rules
of conflict of laws. Each of the Trust and Lexington hereby irrevocably and
unconditionally consents to submit to the exclusive jurisdiction of the courts
of the State of New York and of the United States of America located in the
State of New York (the "New York Courts") for any litigation arising out of or
relating to this Agreement and the transactions contemplated hereby (and agrees
not to commence any litigation relating thereto except in such courts), waives
any objection to the laying of venue of any such litigation in the New York
Courts and agrees not to plead or claim in any New York Court that such
litigation brought therein has been brought in any inconvenient forum.
10.8 COUNTERPARTS. This Agreement may be executed by the parties hereto
in separate counterparts, each of which so executed and delivered shall be an
original, but all such counterparts shall together constitute one and the same
instrument. Each counterpart may consist of a number of copies hereof each
signed by less than all, but together signed by all of the parties hereto.
40
<PAGE> 149
10.9 HEADINGS. Headings of the Articles and Sections of this Agreement
are for the convenience of the parties only, and shall be given no substantive
or interpretive effect whatsoever.
10.10 WAIVERS. Except as provided in this Agreement, no action taken
pursuant to this Agreement, including, without limitation, any investigation by
or on behalf of any party, shall be deemed to constitute a waiver by the party
taking such action of compliance with any representations, warranties, covenants
or agreements contained in this Agreement. The waiver by any party hereto of a
breach of any provision hereunder shall not operate or be construed as a waiver
of any prior or subsequent breach of the same or any other provision hereunder.
10.11 INCORPORATION. The Schedules attached hereto and referred to
herein are hereby incorporated herein and made a part hereof for all purposes as
if fully set forth herein.
10.12 SEVERABILITY. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
10.13 INTERPRETATION AND CERTAIN DEFINITIONS.
(a) In this Agreement, unless the context otherwise requires,
words describing the singular number shall include the plural and vice
versa, and words denoting any gender shall include all genders.
(b) As used in this Agreement, the word "Subsidiary" or
"Subsidiaries" when used with respect to any party means any
corporation, partnership, joint venture, business trust or other
entity, of which such party directly or indirectly owns or controls at
least a majority of the securities or other interests having by their
terms ordinary voting power to elect a majority of the board of
directors or others performing similar functions with respect to such
corporation or other organization.
(c) As used in this Agreement, the word "person" means an
individual, a corporation, a partnership, an association, a joint-stock
company, a trust, a limited liability company, any unincorporated
organization or any other entity.
(d) As used in this Agreement, the word "affiliate" shall have
the meaning set forth in Rule 12b-2 of the Exchange Act.
41
<PAGE> 150
10.14 SCHEDULES. Any fact or item disclosed in one section of any
schedule hereto ("Schedule") shall be deemed to be disclosed with respect to any
other section of such Schedule to the extent that the facts regarding the fact
or item disclosed is adequate so as to make reasonably clear or otherwise make
the other party to which such Schedule is delivered reasonably aware that such
fact or item (and description relating thereto) is applicable to such other
section of the Schedule, whether or not an explicit cross-reference appears.
10.15 LIMITATION OF LIABILITY. Reference is hereby made to the
Declaration of Trust establishing Corporate Realty Income Trust I dated June 27,
1989, as amended and restated as of October 3, 1989, and as further amended as
of December 27, 1995, copies of which Declaration of Trust and amendments are on
file in the office of the Secretary of the Commonwealth of Massachusetts. The
name "Corporate Realty Income Trust I" refers to the trustees under said
Declaration as trustees, and no trustee, shareholder, officer, employee or agent
of Corporate Realty Income Trust I shall be held to any personal liability in
connection with the affairs of Corporate Realty Income Trust I or under this
Agreement, but the trust estate only is liable.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
42
<PAGE> 151
IN WITNESS WHEREOF, the parties have executed this Agreement and caused
the same to be duly delivered on their behalf on the day and year first written
above.
ATTEST: CORPORATE REALTY INCOME TRUST I
By:______________________________ By:______________________________________
Title: Name:
Title:
ATTEST: LEXINGTON CORPORATE PROPERTIES, INC.
By:______________________________ By:______________________________________
Title: Name:
Title:
43
<PAGE> 152
ANNEX B
MCFARLAND DEWEY & CO.
230 PARK AVENUE
NEW YORK, NEW YORK 10167-1450
TELEPHONE: (212) 867-4949
FACSIMILE: (212) 867-0334
May 29, 1997
Board of Trustees
Corporate Realty Income Trust I
388 Greenwich Street, 33rd Floor
New York, NY 10013
Members of the Board:
We understand that Corporate Realty Income Trust I ("CRIT" or the
"Company"), a Massachusetts business trust, and Lexington Corporate Properties,
Inc. ("Lexington"), a Maryland corporation, have entered into an Agreement and
Plan of Merger, dated as of May 29, 1997 (the "Merger Agreement") which
provides, among other things, for the merger (the "Merger") of CRIT with and
into Lexington. Pursuant to the Merger, each issued and outstanding share of
beneficial interest, par value $.10 per share, of CRIT ("CRIT Shares") will be
converted into the right to receive, subject to certain adjustments and
limitations, common stock, par value $.0001 per share, of Lexington valued at
$17.4 million. The terms and conditions of the Merger are more fully set forth
in the Merger Agreement.
You have asked for our opinion as to whether the consideration to be
received by the holders of CRIT Shares pursuant to the Merger Agreement (the
"Merger Consideration") is fair from a financial point of view to such holders.
For purposes of the opinion set forth herein, we have:
i) reviewed certain publicly available financial statements and
other information of CRIT and Lexington, respectively;
ii) reviewed certain internal financial statements and other
financial and operating data concerning CRIT;
iii) analyzed certain financial projections prepared by the
management of CRIT;
iv) discussed the past and current operations and financial
condition and the prospects of CRIT and Lexington with senior
executives of CRIT and Lexington, respectively;
v) reviewed the reported prices and trading activity for the CRIT
Shares and the Lexington Common Stock;
vi) compared the financial performance of CRIT and Lexington and
the prices and trading activity of the CRIT Shares and the
Lexington Common Stock with that of certain other comparable
companies and their securities;
vii) reviewed and discussed with the senior management of CRIT and
Lexington the strategic objectives of the Merger and certain
other benefits of the Merger;
viii) analyzed certain pro forma financial projections for the
combined company;
<PAGE> 153
ix) reviewed the financial terms, to the extent publicly
available, of certain comparable merger transactions;
x) reviewed the Merger Agreement and certain related documents;
and
xi) performed such other analyses and considered such other
factors as we have deemed appropriate.
We have assumed and relied upon without independent verification of the
accuracy and completeness of the information reviewed by us for purposes of this
opinion. With respect to the financial projections, including the estimates of
synergies and other benefits expected to result from the Merger, we have assumed
that they have been reasonably prepared on bases reflecting the best currently
available estimates and judgements of the future financial performance of CRIT
and Lexington, respectively. We have not made any independent valuation or
appraisal of the assets or liabilities of CRIT and Lexington. We have been
furnished third party appraisals of the three CRIT properties dated March 12,
1997. Our opinion is necessarily based on economic, market and other conditions
as in effect on, and the information made available to us as of, the date
hereof.
We did not participate in discussions and negotiations among
representatives of CRIT and Lexington and their financial and legal advisors nor
did we review another business plan or opportunity that might have been
presented to CRIT.
It is understood that this letter is for the information of the Board
of Trustees of CRIT and may not be used for any other purpose without our prior
written consent, except that this opinion may be included in its entirety in any
filing made by CRIT with the Securities and Exchange Commission with respect to
the Merger. We express no opinion and make no recommendation as to how the
shareholders of CRIT should vote at the shareholders' meeting held in connection
with the Merger.
Based on and subject to the foregoing, we are of the opinion on the
date hereof that the Merger Consideration is fair from a financial point of view
to the holders of CRIT Shares.
Very truly yours,
/s/ McFarland Dewey & Co.
McFarland Dewey & Co.
2
<PAGE> 154
ANNEX C
REVOCABLE PROXY
CORPORATE REALTY INCOME TRUST I
[ X ] PLEASE MARK VOTES
AS IN THIS EXAMPLE
This Proxy is Solicited on Behalf of the Trustees of CRIT.
The undersigned hereby appoints JAMES C. COWLES and VALERIE A. ST.
JOHN, and each of them acting in the absence of the other, as Proxies, each with
the power to appoint his or her substitute, and hereby authorizes them to
represent and to vote, as designated herein, all the shares (the "CRIT Shares")
of beneficial interest of Corporate Realty Income Trust I ("CRIT") held of
record by the undersigned on ____________ at the Special Meeting of Shareholders
(the "Meeting") to be held on _________, __________, 1997 or any adjournment
thereof. This Proxy is revocable. The undersigned reserves the right to attend
and vote in person. The undersigned hereby acknowledges receipt of the Notice of
Meeting of Shareholders dated ________, 1997 and the Proxy Statement/Prospectus
accompanying the Notice.
1. MERGER
To approve the merger of CRIT into Lexington Corporate Properties, Inc.
as set forth in the Merger Agreement, and the consummation of the transactions
contemplated thereby (the "Merger Proposal").
[ ] FOR [ ] WITHHOLD [ ] ABSTAIN
2. AMENDMENT TO DECLARATION OF TRUST
To approve the amendment to the First Amended and Restated Declaration
of Trust to permit CRIT to merge into or consolidate with another entity (the
"Trust Amendment Proposal").
[ ] FOR [ ] WITHHOLD [ ] ABSTAIN
3. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
- --------------------------------------------------------------------------------
This proxy, when properly executed, will be voted in the manner
directed herein by the undersigned shareholder. If no direction is made, this
proxy will be voted (1) FOR approval of the Merger Proposal; (2) FOR approval of
the Trust Amendment Proposal; and (3) for or against such other business as may
properly come before the Meeting.
Please sign exactly as your name appears on this card. When shares are
held by joint tenants, both should sign, or if one signs, that shareholder's
vote binds both shareholders. When signing as attorney, executor, administrator,
agent, trustee or guardian, please give full
<PAGE> 155
title as such. If a corporation, please sign in full corporate name by President
or other authorized officer. If a partnership, please sign in partnership name
by authorized person.
Please be sure to sign and date this Proxy in the box
below.
Date _______________________________________
____________________________________________
Stockholder sign above
____________________________________________
Co-holder (if any) sign above
Detach above card, sign, date and mail in postage paid envelope provided.
CORPORATE REALTY INCOME TRUST I
388 Greenwich Street - 33rd Floor
New York, New York 10013
PLEASE ACT PROMPTLY
SIGN, DATE & MAIL YOUR PROXY CARD TODAY
<PAGE> 156
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Amended and Restated Articles of Incorporation of the Registrant
provide that any director or officer of the Registrant shall be indemnified by
the Registrant to the full extent that officers and directors are permitted to
be indemnified by the laws of the State of Maryland.
Reference is made to Section 2-418 of Maryland General Corporation
Law which provides for indemnification of officers and directors in certain
circumstances.
The foregoing reference is necessarily subject to the complete text
of the Amended and Restated Articles of Incorporation and the statute referred
to above and is qualified in its entirety by reference thereto.
ITEM 21. EXHIBITS AND FINANCIAL SCHEDULES.
EXHIBIT NO. DESCRIPTION
2.1 Agreement and Plan of Merger.
3.1 Amended and Restated Articles of Incorporation.*
3.2 Amended and Restated By-laws.*
5.1 Opinion of Paul, Hastings, Janofsky & Walker LLP as to the
validity of securities being registered.+ 8.1 Opinion of Paul,
Hastings, Janofsky & Walker LLP as to tax matters.+
8.2 Opinion of Day, Berry & Howard as to tax matters.+
10.1 Opinion of McFarland Dewey & Co. as to the terms of the
Merger.
23.1 Consent of KPMG Peat Marwick LLP.
23.2 Consent of Ernst & Young LLP
23.3 Consent of Paul Hastings, Janofsky & Walker LLP. (included in
Exhibit 5.1).+
24.1 Power of Attorney (included in Part II of this Registration
Statement).
- ---------------------------
* Incorporated by reference to the Registrant's Registration Statement on
Form S-3, filed with the Commission on November 6, 1995.
+ To be filed by amendment.
ITEM 22. UNDERTAKINGS.
a. The undersigned Registrant hereby undertakes:
(1) The undersigned Registrant hereby undertakes that,
for purposes of determining any liability under the Securities Act,
each filing of the Registrant's annual report pursuant to Section 13(a)
or 15(d) of the Exchange Act (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Exchange Act) that is incorporated by reference in the Registration
Statement shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
(2) The undersigned Registrant hereby undertakes to
deliver or cause to be delivered with the prospectus, to each person to
whom the prospectus is sent or given, the latest annual report to
security holders that is incorporated by reference in the prospectus
and furnished pursuant to and meeting the requirements of Rule 14a-3 or
Rule 14c-3 under the Exchange Act; and, where interim financial
information required to be presented by Article 3 of the Regulation S-X
is not set forth in the prospectus, to
II-1
<PAGE> 157
deliver, or cause to be delivered to each person to whom the prospectus is
sent or given, the latest quarterly report that is specifically
incorporated by reference in the prospectus to provide such interim
financial information.
(3) The undersigned Registrant hereby undertakes as follows: that
prior to any public reoffering of the securities registered hereunder
through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter
within the meaning of Rule 145(c), the issuer undertakes that such
reoffering prospectus will contain the information called for by the
applicable registration form with respect to reofferings by persons who
may be deemed underwriters, in addition to the information called for by
the other items of the applicable form.
(4) The Registrant undertakes that every prospectus: (i) that is
filed pursuant to paragraph (3) immediately preceding, or (ii) that
purports to meet the requirements of Section 10(a)(3) of the Act and is
used in connection with an offering of securities subject to Rule 415,
will be filed as a part of an amendment to the registration statement and
will not be used until such amendment is effective, and that, for purposes
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 therein, and the offering of
such securities at the time shall be deemed to be the initial bona fide
offering thereof.
(5) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in the
opinion of the Securities Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in
the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit
to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(6) The undersigned Registrant hereby undertakes to respond to
requests for information that is incorporated by reference into the
Prospectus pursuant to Item 4, 10(b), 11, or 13 of this Form, within one
business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date
of the Registration Statement through the date of responding to the
request.
(7) The undersigned Registrant hereby undertakes to supply by means
of a post-effective amendment all information concerning a transaction,
and the Company being acquired involved therein, that was not the subject
of and included in the Registration Statement when it became effective.
II-2
<PAGE> 158
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on June 27, 1997.
LEXINGTON CORPORATE PROPERTIES, INC.
/s/ E. Robert Roskind
--------------------------------
E. Robert Roskind
Chairman of the Board and Co-Chief Executive
Officer
KNOW ALL MEN BY THESE PRESENTS, that we, the undersigned officers and
directors of Lexington Corporate Properties, Inc. hereby severally constitute E.
Robert Roskind, T. Wilson Eglin and Antonia E. Trigiani, and each of them
singly, our true and lawful attorneys with full power to them, and each of them
singly, to sign for us and in our names in the capacities indicated below, the
Registration Statement filed herewith and any and all amendments to said
Registration Statement, and generally to do all such things in our names and in
our capacities as officers and directors to enable Lexington Corporate
Properties, Inc. to comply with the provisions of the Securities Act and all
requirements of the Commission, hereby ratifying and confirming our signatures
as they may be signed by our said attorneys, or any of them, to said
Registration Statement and any and all amendments thereto.
Pursuant to the requirements of the Securities Act this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
<S> <C> <C>
/s/ E. Robert Roskind Chairman of the Board, Co-Chief June 27, 1997
- ---------------------------- Executive Officer and Director (Principal
E. Robert Roskind Executive Officer)
/s/ Richard J. Rouse Vice Chairman, Co-Chief Executive June 27, 1997
- ---------------------------- Officer and Director
Richard J. Rouse
/s/ T. Wilson Eglin President, Chief Operating Officer and June 27, 1997
- ---------------------------- Director
T. Wilson Eglin
/s/ Antonia G. Trigiani Chief Financial Officer and Treasurer June 27, 1997
- ----------------------------
Antonia G. Trigiani
/s/ Paul R. Wood Vice President, Chief Accounting Officer June 27, 1997
- ---------------------------- and Secretary
Paul R. Wood
/s/ Carl D. Glickman Director June 27, 1997
- ----------------------------
Carl D. Glickman
/s/ Kevin W. Lynch Director June 27, 1997
- ----------------------------
Kevin W. Lynch
/s/ John D. McGurk Director June 27, 1997
- ----------------------------
John D. McGurk
/s/ Seth M. Zachary Director June 27, 1997
- ----------------------------
Seth M. Zachary
</TABLE>
II-3
<PAGE> 159
EXHIBIT INDEX
EXHIBIT SEQUENTIAL
NO. DESCRIPTION PAGE NO.
------- ------------ -------
2.1 Agreement and Plan of Merger.
3.1 Amended and Restated Articles of Incorporation.*
3.2 Amended and Restated Bylaws.*
5.1 Opinion of Paul, Hastings, Janofsky & Walker LLP as
to the validity of securities being registered.+
8.1 Opinion of Paul, Hastings, Janofsky & Walker LLP as
to tax matters.+
8.2 Opinion of Day, Berry & Howard as to tax matters.+
10.1 Opinion of McFarland Dewey & Co. as to the terms of
the Merger.
23.1 Consent of KPMG Peat Marwick LLP.
23.2 Consent of Ernst & Young LLP
23.3 Consent of Paul, Hastings, Janofsky & Walker LLP
(included in Exhibit 5.1).+
24.1 Power of Attorney (included in Part II of this
Registration Statement).
- ---------------------------
* INCORPORATED BY REFERENCE TO THE REGISTRANT'S REGISTRATION STATEMENT ON
FORM S-3, FILED WITH THE COMMISSION ON NOVEMBER 6, 1995.
+ TO BE FILED BY AMENDMENT.
<PAGE> 1
EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
<PAGE> 2
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
between
CORPORATE REALTY INCOME TRUST I
and
LEXINGTON CORPORATE PROPERTIES, INC.
- --------------------------------------------------------------------------------
Dated as of May 29, 1997
- --------------------------------------------------------------------------------
<PAGE> 3
TABLE OF CONTENTS
ARTICLE 1 THE MERGER...........................................................1
Section 1.1 THE MERGER...................................................1
Section 1.2 THE CLOSING..................................................2
Section 1.3 EFFECTIVE TIME...............................................2
ARTICLE 2 ARTICLES OF INCORPORATION AND BY-LAWS OF THE SURVIVING
CORPORATION..........................................................2
ARTICLE 3 DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION..................2
ARTICLE 4 EXCHANGE OF STOCK, ASSUMPTION OF MORTGAGE AND OTHER
CONSIDERATION........................................................2
Section 4.1 CONVERSION AND REDEMPTION OF STOCK...........................2
Section 4.2 EXCHANGE OF CERTIFICATES REPRESENTING TRUST SHARES...........4
Section 4.3 RETURN OF EXCHANGE FUND......................................6
Section 4.4 CASH PAYMENT; CONTINUANCE OF MORTGAGES.......................6
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF THE TRUST..........................6
Section 5.1 EXISTENCE; GOOD STANDING; AUTHORITY; COMPLIANCE WITH LAW.....7
Section 5.2 AUTHORIZATION, VALIDITY AND EFFECT OF AGREEMENTS.............7
Section 5.3 CAPITALIZATION...............................................8
Section 5.4 SUBSIDIARIES AND OTHER INTERESTS.............................8
Section 5.5 NO VIOLATION.................................................8
Section 5.6 SEC DOCUMENTS................................................9
Section 5.7 LITIGATION...................................................9
Section 5.8 ABSENCE OF CERTAIN CHANGES...................................9
Section 5.9 ABSENCE OF UNDISCLOSED LIABILITIES..........................10
Section 5.10 REGISTRATION STATEMENT AND PROXY INFORMATION................10
Section 5.11 TAXES.......................................................10
Section 5.12 BOOKS AND RECORDS...........................................12
Section 5.13 PROPERTIES..................................................12
Section 5.14 ENVIRONMENTAL MATTERS.......................................13
Section 5.15 NO FEES.....................................................14
Section 5.16 OPINION OF FINANCIAL ADVISOR................................14
Section 5.17 CONTRACTS AND COMMITMENTS...................................14
Section 5.18 LEASES......................................................15
Section 5.19 AFFILIATED TRANSACTIONS.....................................15
Section 5.20 EMPLOYEES...................................................15
Section 5.21 DEFINITION OF THE TRUST'S KNOWLEDGE.........................16
ARTICLE 6 REPRESENTATIONS AND WARRANTIES OF LEXINGTON.........................16
Section 6.1 EXISTENCE; GOOD STANDING; AUTHORITY; COMPLIANCE WITH LAW....16
<PAGE> 4
Section 6.2 AUTHORIZATION, VALIDITY AND EFFECT OF AGREEMENTS............17
Section 6.3 CAPITALIZATION..............................................17
Section 6.4 REGISTRATION STATEMENT AND PROXY INFORMATION................17
Section 6.5 OTHER INTEREST..............................................17
Section 6.6 NO VIOLATION................................................18
Section 6.7 SEC DOCUMENTS...............................................18
Section 6.8 LITIGATION..................................................19
Section 6.9 ABSENCE OF CERTAIN CHANGES..................................19
Section 6.10 TAXES.......................................................19
Section 6.11 ENVIRONMENTAL MATTERS.......................................21
Section 6.12 NO FEES.....................................................21
Section 6.13 BENEFICIAL SHARE OWNERSHIP..................................22
Section 6.14 CONTRACTS AND COMMITMENTS...................................22
Section 6.15 LEXINGTON COMMON STOCK......................................22
Section 6.16 CONVERTIBLE SECURITIES......................................22
Section 6.17 DEFINITION OF LEXINGTON'S KNOWLEDGE.........................22
ARTICLE 7 COVENANTS...........................................................23
Section 7.1 ACQUISITION PROPOSALS.......................................23
Section 7.2 CONDUCT OF BUSINESSES.......................................23
Section 7.3 MEETING OF STOCKHOLDERS.....................................26
Section 7.4 FILINGS; OTHER ACTION.......................................27
Section 7.5 INSPECTION OF RECORDS.......................................27
Section 7.6 PUBLICITY...................................................28
Section 7.7 REGISTRATION STATEMENT......................................28
Section 7.8 LISTING APPLICATION.........................................29
Section 7.9 FURTHER ACTION..............................................29
Section 7.10 AFFILIATES OF THE TRUST.....................................29
Section 7.11 EXPENSES....................................................29
Section 7.12 INDEMNIFICATION AND INSURANCE...............................30
Section 7.13 REORGANIZATION..............................................31
Section 7.14 PAYMENT OF ADVISORY FEES AND TRANSACTION EXPENSES...........32
Section 7.15 REIT STATUS.................................................32
ARTICLE 8 CONDITIONS PRECEDENT................................................32
Section 8.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER..32
Section 8.2 CONDITIONS TO OBLIGATIONS OF THE TRUST TO EFFECT THE MERGER.33
Section 8.3 CONDITIONS TO OBLIGATION OF LEXINGTON TO EFFECT THE MERGER..34
ARTICLE 9 TERMINATION.........................................................35
Section 9.1 TERMINATION.................................................35
Section 9.2 EFFECT OF TERMINATION.......................................37
Section 9.3 FEES AND EXPENSES...........................................38
ii
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Section 9.4 EXTENSION; WAIVER...........................................38
ARTICLE 10 GENERAL PROVISIONS.................................................39
Section 10.1 NONSURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS...39
Section 10.2 NOTICES.....................................................39
Section 10.3 ASSIGNMENT; BINDING EFFECT; BENEFIT.........................39
Section 10.4 ENTIRE AGREEMENT............................................40
Section 10.5 CONFIDENTIALITY.............................................40
Section 10.6 AMENDMENT...................................................40
Section 10.7 GOVERNING LAW...............................................40
Section 10.8 COUNTERPARTS................................................41
Section 10.9 HEADINGS....................................................41
Section 10.10 WAIVERS.....................................................41
Section 10.11 INCORPORATION...............................................41
Section 10.12 SEVERABILITY................................................41
Section 10.13 INTERPRETATION AND CERTAIN DEFINITIONS......................41
Section 10.14 SCHEDULES...................................................42
Section 10.15 LIMITATION OF LIABILITY.....................................42
iii
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SCHEDULES
Schedule 4.4 - Trust Obligations
Schedule 5.1(c) - Trust Organizational Documents
Schedule 5.5 - Trust Conflicts or Breaches
Schedule 5.9 - Trust Liabilities
Schedule 5.11 - Trust Taxes
Schedule 5.13 - Trust Properties
Schedule 5.14 - Trust Environmental Matters
Schedule 5.17 - Trust Contracts and Commitments
Schedule 5.18 - Trust Consents
Schedule 5.19 - Trust Affiliated Transactions
Schedule 6.1(b) - Lexington Subsidiaries
Schedule 6.1(d) - Lexington Charter Documents
Schedule 6.3 - Lexington Reserved Shares
Schedule 6.6 - Lexington Conflicts or Violations
Schedule 6.8 - Lexington Litigation
Schedule 6.10 - Lexington Taxes
Schedule 6.11 - Lexington Environmental Matters
iv
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AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (the "Agreement") is made and entered
into as of May 29, 1997 between CORPORATE REALTY INCOME TRUST I, a Massachusetts
business trust having an office at 388 Greenwich Street, New York, New York
10013 (the "Trust"), and LEXINGTON CORPORATE PROPERTIES, INC., a Maryland
corporation having its offices at 355 Lexington Avenue, New York, New York 10017
("Lexington").
RECITALS
A. The Board of Trustees of the Trust and the Board of Directors of
Lexington each have determined that a business combination between the Trust and
Lexington is in the best interests of their respective companies and
stockholders, and accordingly have agreed to effect the merger provided for
herein upon the terms and subject to the conditions set forth herein.
B. It is intended that the merger provided for herein, for federal
income tax purposes, shall qualify as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code").
C. The Trust has received a fairness opinion from its financial advisor
relating to the transactions contemplated hereby as more fully described herein.
D. The Trust and Lexington desire to make certain representations,
warranties and agreements in connection with the merger.
NOW, THEREFORE, in consideration of the foregoing, and of the
representations, warranties, covenants and agreements contained herein, the
parties hereto hereby agree as follows:
1
THE MERGER
1.1 THE MERGER. Subject to the terms and conditions of this Agreement,
at the Effective Time (as defined in Section 1.3 hereof), the Trust shall be
merged with and into Lexington in accordance with this Agreement and the
separate corporate existence of the Trust shall thereupon cease (the "Merger").
Lexington shall be the surviving corporation in the Merger (sometimes
hereinafter referred to as the "Surviving Corporation"). The Merger shall be
completed pursuant to Chapter 182 of the Massachusetts General Laws (the "MGL")
and Section 3-114 of the Maryland General Corporation Law (the "MGCL").
<PAGE> 8
1.2 THE CLOSING. Subject to the terms and conditions of this Agreement,
the closing of the Merger (the "Closing") shall take place at the offices of
Paul, Hastings, Janofsky & Walker LLP in New York, New York, at 1:00 p.m., local
time, on the later of (a) September 4, 1997 or (b) the second business day after
the last condition set forth in Article 8 shall have been satisfied or waived by
the party entitled to effect such waiver (but in any event no later than October
1, 1997), or at such other time, date or place as the parties hereto may agree.
The date on which the Closing occurs is hereinafter referred to as the "Closing
Date".
1.3 EFFECTIVE TIME. If all the conditions to the Merger set forth in
Article 8 shall have been fulfilled or waived in accordance herewith and this
Agreement shall not have been terminated as provided in Article 9, the parties
hereto shall cause Articles of Merger satisfying the requirements of the MGCL
Law to be properly executed, verified and delivered for filing in accordance
with the MGCL Law on the Closing Date. The Merger shall become effective upon
the acceptance for record of the Articles of Merger by the State Department of
Assessments and Taxation of Maryland in accordance with the MGCL Law or at such
later time which the parties hereto shall have agreed upon and designated in
such filing in accordance with applicable law as the effective time of the
Merger (the "Effective Time").
2
ARTICLES OF INCORPORATION AND BY-LAWS OF THE SURVIVING CORPORATION
The articles of incorporation, as amended (the "Articles of
Incorporation") and by-laws of Lexington in effect immediately prior to the
Effective Time shall be the Articles of Incorporation and by-laws of the
Surviving Corporation:
3
DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION
The directors and officers of Lexington immediately prior to the
Effective Time shall be the directors and officers of the Surviving Corporation
as of the Effective Time.
4
EXCHANGE OF STOCK, ASSUMPTION OF MORTGAGE AND OTHER
CONSIDERATION
4.1 CONVERSION AND REDEMPTION OF STOCK.
(a) At the Effective Time, each outstanding share of common
stock, par value .0001 per share, of Lexington ("Lexington Common
Stock") and each outstanding share of Class A Senior Cumulative
Convertible Preferred Stock, par value $.0001 per share, of Lexington
("Lexington Preferred Stock") immediately prior to the Effective Time
shall remain outstanding and shall continue to represent one share of
Lexington Common Stock
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<PAGE> 9
or Lexington Preferred Stock, as the case may be, of the Surviving
Corporation. At the Effective Time, Lexington shall issue shares of
Lexington Common Stock as contemplated by Section 4.1(b) and shall
deliver $1,000,000 cash (the "Cash Payment") to Corporate Realty
Advisors, Inc., the Trust's advisor, as contemplated by Section 4.4.
(b) At the Effective Time, each share of beneficial interest,
par value $.10 per share, of the Trust (the "Trust Shares") issued and
outstanding immediately prior to the Effective Time shall, by virtue of
the Merger and without any action on the part of the Trust, Lexington
or the holders of any of the securities of either of these entities, be
converted into a number of shares of Lexington Common Stock equal to a
fraction, the numerator of which is the Share Value and the denominator
of which is the Lexington Common Stock Price (collectively, the "Stock
Consideration"); provided, however, that in the event the Lexington
Common Stock Price is (i) greater than $14.125, then, for purposes of
determining the Stock Consideration, the Lexington Common Stock Price
shall be deemed to be $14.125, and (ii) in the event the Lexington
Common Stock Price is less than $12.125, then, for purposes of
determining the Stock Consideration, the Lexington Common Stock Price
shall be deemed to be $12.125. The "Lexington Common Stock Price" means
an amount equal to the average of the closing sales prices of Lexington
Common Stock on the New York Stock Exchange, Inc. during the twenty
consecutive trading days ending on the fifth business day immediately
preceding the Trust's meeting of shareholders referred to in Section
7.3. The "Share Value" shall equal the quotient obtained by dividing
(A) an amount equal to (y) $18.15 million minus (z) the amount of cash
which the Trust shall elect to receive from Lexington and apply toward
the payment of Trust obligations as provided in Section 4.4, by (B) the
total number of Trust Shares issued and outstanding immediately prior
to the Effective Time (subject to the adjustments as described in
Section 7.15). The Stock Consideration shall be appropriately adjusted
to reflect the effect of any stock split, reverse stock split, stock
dividend, reorganization, recapitalization or other like change with
respect to the Lexington Common Stock occurring after the date hereof
and prior to the Effective Time, or to reflect the effect of any
merger, consolidation or other transaction involving Lexington which
shall affect the Lexington Common Stock or its listing on the New York
Stock Exchange, Inc. Subject to the right of the Trust to terminate as
set forth in Section 9.1(g), the Trust and Lexington shall agree in
good faith on the specific adjustments required to be made pursuant to
the preceding sentence.
(c) As a result of the Merger and without any action on the
part of the holders thereof, all Trust Shares shall cease to be
outstanding, shall be canceled and retired and shall cease to exist and
each holder of a certificate (a "Certificate") representing any Trust
Shares shall thereafter cease to have any rights with respect to such
Trust Shares, except the right to receive, without interest, shares of
Lexington Common Stock, dividends payable in accordance with Section
4.2(c), any unspent portion of the Cash Payment and cash in lieu of
fractional shares of Lexington Common Stock in accordance with Section
4.2(e) upon the surrender of such Certificate.
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<PAGE> 10
(d) Each Trust Share issued and held in the Trust's treasury
and each Trust Share held by Lexington or any of the Lexington
Subsidiaries immediately prior to the Effective Time, if any, by virtue
of the Merger, shall cease to be outstanding, shall be canceled and
retired and shall cease to exist and no payment of any consideration
shall be made with respect thereto.
4.2 EXCHANGE OF CERTIFICATES REPRESENTING TRUST SHARES.
(a) At the Effective Time, Lexington shall deposit, or shall
cause to be deposited, with Chase Mellon Shareholder Services LLC (the
"Exchange Agent"), for the benefit of the holders of Trust Shares, for
exchange in accordance with this Article 4, certificates representing
the shares of Lexington Common Stock and the cash in lieu of fractional
shares (such cash and certificates for shares of Lexington Common Stock
being hereinafter referred to as the "Exchange Fund") to be issued
pursuant to Section 4.1 and paid pursuant to this Section 4.2,
respectively, in exchange for outstanding Trust Shares. After payment
by the Trust of its accrued expenses, any remaining portion of the Cash
Payment will be delivered to the Exchange Agent by the Trust's advisor,
Corporate Realty Advisors, Inc. (the "Trust Advisor") at such time as
shall be determined by the Trust Advisor, for distribution to the
former shareholders of the Trust; provided that in the event any such
distribution shall occur on any date other than the date on which
certificates representing shares of Lexington Common Stock are
distributed to the former stockholders of the Trust, then, in such
event, the Trust Advisor shall pay any and all fees and expenses to be
charged by the Exchange Agent for effecting such distribution prior to
the date of such distribution by the Exchange Agent.
(b) Promptly after the Effective Time, Lexington shall cause
the Exchange Agent to mail to each holder of record of a Certificate or
Certificates (i) a letter of transmittal which shall specify that
delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the
Exchange Agent and shall be in such form and have such other provisions
as Lexington may reasonably specify and (ii) instructions for use in
effecting the surrender of the Certificates in exchange for
certificates representing shares of Lexington Common Stock, cash in
lieu of fractional shares and the portion, if any, of the Cash Payment
distributable to the Trust's shareholders. Upon surrender of a
Certificate for cancellation to the Exchange Agent together with such
letter of transmittal, duly executed and completed in accordance with
the instructions thereto, the holder of such Certificate shall be
entitled to receive in exchange therefor (x) a certificate representing
the number of whole shares of Lexington Common Stock to which such
holder shall be entitled and (y) a check representing the amount of
cash in lieu of fractional shares, if any, plus the amount of any
dividends or distributions, if any, pursuant to paragraph (c) below,
after giving effect to any required withholding tax, and the
Certificate so surrendered shall forthwith be canceled. No interest
will be paid or accrued on the cash in lieu of fractional shares or on
the dividend or distribution, if any,
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<PAGE> 11
payable to holders of Certificates, pursuant to this Section 4.2 or on
the portion of the Cash Payment distributable to the Trust's
shareholders. In the event of a transfer of ownership of Trust Shares
which is not registered in the transfer records of the Trust, a
Certificate representing the proper number of shares of Lexington
Common Stock, together with a check, for the Cash Payment, and the cash
to be paid in lieu of fractional shares plus, to the extent applicable,
the amount of any dividend or distribution, if any, payable pursuant to
paragraph (c) below, may be issued to such a transferee if the
Certificate representing shares of such Trust Shares is presented to
the Exchange Agent, accompanied by all documents required to evidence
and effect such transfer and to evidence that any applicable stock
transfer taxes have been paid.
(c) Notwithstanding any other provisions of this Agreement, no
dividends or other distributions on Lexington Common Stock shall be
paid with respect to any Trust Shares represented by a Certificate
until such Certificate is surrendered for exchange as provided herein;
provided, however, that subject to the effect of applicable laws,
following surrender of any such Certificate, there shall be paid by the
Surviving Corporation to the holder of the certificates representing
whole shares of Lexington Common Stock issued in exchange therefor,
without interest, (i) at the time of such surrender, the amount of
dividends or other distributions with a record date after the Effective
Time theretofore payable with respect to such whole shares of Lexington
Common Stock and not paid, less the amount of any withholding taxes
which may be required thereon, and (ii) at the appropriate payment
date, the amount of dividends or other distributions with a record date
after the Effective Time but prior to surrender and a payment date
subsequent to surrender payable with respect to such whole shares of
Lexington Common Stock, less the amount of any withholding taxes which
may be required thereon.
(d) At and after the Effective Time, there shall be no
transfers on the stock transfer books of the Trust of the Trust Shares
which were outstanding immediately prior to the Effective Time. If,
after the Effective Time, Certificates are presented to the Surviving
Corporation, they shall be canceled and exchanged for certificates for
shares of Lexington Common Stock, dividends, if any, the Cash Payment,
and cash in lieu of fractional shares, if any, in accordance with this
Section 4.2. Certificates surrendered for exchange by any person
constituting an "affiliate" of the Trust for purposes of Rule 145, as
such rule may be amended from time to time ("Rule 145"), of the rules
and regulations promulgated under the Securities Act of 1933, as
amended (the "Securities Act") shall not be exchanged until Lexington
has received an Affiliate Letter in a form satisfactory to the Trust
and Lexington from such person as provided in Section 7.10.
(e) No fractional shares of Lexington Common Stock shall be
issued pursuant hereto. In lieu of the issuance of any fractional share
of Lexington Common Stock pursuant to this Agreement, each holder of
the Trust Shares upon surrender of a Certificate for exchange shall be
paid an amount in cash (without interest), rounded to the nearest cent,
determined by multiplying (i) the Lexington Common Stock Price, by (ii)
the fraction of a
5
<PAGE> 12
share of Lexington Common Stock which such holder would otherwise be
entitled to receive under this Article 4.
4.3 RETURN OF EXCHANGE FUND. Any portion of the Exchange Fund
(including the proceeds of any investments thereof and any shares of Lexington
Common Stock) that remains unclaimed by the former shareholders of the Trust one
year after the Effective Time shall be delivered to the Surviving Corporation.
Any remaining amount of the Cash Payment that remains unclaimed by the former
shareholders of the Trust one year after the Effective Time shall be delivered
to the Trust Advisor. Any former shareholders of the Trust who have not
theretofore complied with this Article 4 shall thereafter look only to (i) the
Surviving Corporation for payment of their shares of Lexington Common Stock, and
cash in lieu of fractional shares (plus dividends and distributions to the
extent set forth in Section 4.2(c), if any), as determined pursuant to this
Agreement, and (ii) the Trust Advisor for payment of their allocable share of
any remaining portion of the Cash Payment, in each case without any interest
thereon. None of Lexington, the Trust, the Exchange Agent or any other person
shall be liable to any former holder of Trust Shares for any amount properly
delivered to a public official pursuant to applicable abandoned property,
escheat or similar laws. In the event any Certificate shall have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed and, if required by
the Surviving Corporation, the posting by such person of a bond in such
reasonable amount as the Surviving Corporation may direct as indemnity against
any claim that may be made against it with respect to such Certificate, the
Exchange Agent or the Surviving Corporation or the Trust Advisor, as the case
may be, will issue in exchange for such lost, stolen or destroyed Certificate
the shares of Lexington Common Stock, the Cash Payment, and cash in lieu of
fractional shares (and to the extent applicable, dividends and distributions
payable pursuant to Section 4.2(c)).
4.4 CASH PAYMENT; CONTINUANCE OF MORTGAGES.
At the Effective Time, at the option of the Trust and if so requested
by the Trust, Lexington shall pay to the Trust Advisor, in immediately available
funds up to $1,000,000, which shall be used by the Trust and such advisor to pay
and discharge in full all of the Trust's obligations other than the mortgages
and other obligations described on Schedule 4.4. In the event any such amount is
requested by the Trust and applied toward the payment of Trust obligations as
aforesaid, any unexpended balance shall be paid to the Trust's former
stockholders in accordance with Section 4.2(a), at such time as the Trust
Advisor shall, in its sole discretion, determine, and Lexington shall have no
responsibility or liability for any such monies or the application thereof.
5
REPRESENTATIONS AND WARRANTIES OF THE TRUST
The Trust represents and warrants as follows:
6
<PAGE> 13
5.1 EXISTENCE; GOOD STANDING; AUTHORITY; COMPLIANCE WITH LAW.
(a) The Trust is a Massachusetts business trust duly formed,
validly existing and in good standing under the laws of Massachusetts.
The Trust is duly licensed or qualified to do business as a foreign
corporation and is in good standing under the laws of any other state
of the United States in which the character of the properties owned or
leased by it therein or in which the transaction of its business makes
such qualification necessary, except where the failure to be so
licensed or qualified would not have a material adverse effect on the
business, results of operations or financial condition of the Trust
taken as a whole (a "Trust Material Adverse Effect"). The Trust has all
requisite corporate power and authority to own, operate, lease and
encumber its properties and carry on its business as now conducted.
(b) The Trust is not in violation of any order of any court,
governmental authority or arbitration board or tribunal, or to the
knowledge of the Trust, any law, ordinance, governmental rule or
regulation to which the Trust or any of its respective properties or
assets is subject.
(c) Copies of the Declaration of Trust (the "Declaration") and
other organizational documents (and all amendments thereto) of the
Trust are listed in Schedule 5.1(c), and the copies of such documents,
which have previously been delivered or made available to Lexington,
are true and correct.
5.2 AUTHORIZATION, VALIDITY AND EFFECT OF AGREEMENTS. Upon shareholder
approval of an amendment to the Trust's Declaration of Trust, the Trust will
have the requisite power and authority to enter into the transactions
contemplated hereby. The Board of Trustees of the Trust has unanimously approved
this Agreement, the Merger, and the transactions contemplated by this Agreement
and declared such transactions advisable and in the best interest of the
shareholders and the Trust, and shall recommend that the holders of Trust Shares
adopt and approve this Agreement, the Merger, and the transactions contemplated
by this Agreement at the Trust shareholders' meeting which will be held in
accordance with the provisions of Section 7.3 hereof. Subject only to (i) the
approval by the holders of a majority of the outstanding Trust Shares of an
amendment to the Trust's Declaration of Trust authorizing the Trust to merge,
and (ii) the approval of this Agreement, the Merger and the transactions
contemplated hereby by the holders of a majority of the outstanding Trust
Shares, the execution by the Trust of this Agreement and the consummation of the
Merger and the transactions contemplated by this Agreement, have been duly and
validly authorized by all requisite action on the part of the Trust and no other
authorization by the Trust is required. This Agreement has been duly and validly
executed and delivered by the Trust and constitutes the valid and legally
binding obligations of the Trust, enforceable against the Trust in accordance
with its terms, subject to applicable bankruptcy, insolvency, moratorium or
other similar laws relating to creditors' rights and general principles of
equity.
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<PAGE> 14
5.3 CAPITALIZATION. The authorized capital of the Trust consists of
20,000,000 Trust Shares. As of the date hereof, there are 1,010,776 Trust Shares
issued and outstanding and no Trust Shares are held in treasury or otherwise
reserved for issuance for any reason. All such Trust Shares are duly authorized,
validly issued, fully paid, nonassessable and free of preemptive rights. The
Trust has no outstanding bonds, debentures, notes or other obligations the
holders of which have the right to vote (or which are convertible into or
exercisable for securities having the right to vote) with the shareholders of
the Trust on any matter. There are not at the date of this Agreement any
existing options, warrants, calls, subscriptions, convertible securities, or
other rights, agreements or commitments which obligate the Trust to issue,
transfer or sell any Trust Shares. There are no agreements or understandings to
which the Trust is a party with respect to the voting of any Trust Shares or
which restrict the transfer of any such shares, nor does the Trust have
knowledge of any such agreements or understandings with respect to the voting of
any such shares or which restrict the transfer of any such shares other than
those set forth in the Trust's Declaration of Trust with respect to the
maintenance of the Trust as a real estate investment trust ("REIT"). There are
no outstanding contractual obligations of the Trust to repurchase, redeem or
otherwise acquire any Trust Shares or any other securities of the Trust. The
Trust is not under any obligation, contingent or otherwise, by reason of any
agreement to register any of its securities under the Securities Act.
5.4 SUBSIDIARIES AND OTHER INTERESTS. The Trust does not own directly
or indirectly any interest or investment (whether equity or debt) in any
corporation, partnership, joint venture, business trust or other entity (other
than investments in short-term investment securities).
5.5 NO VIOLATION. Neither the execution and delivery by the Trust of
this Agreement nor the consummation by the Trust of the transactions
contemplated by this Agreement in accordance with its terms, will: (i) conflict
with or result in a breach of any provisions of the Trust's Declaration or other
organizational documents, if they are amended as contemplated in Section 7.3;
(ii) except as set forth in Schedule 5.5, violate, or conflict with, or result
in a breach of any provision of, or constitute a default (or an event which,
with notice or lapse of time or both, would constitute a default) under, or
result in the termination or in a right of termination or cancellation of, or
accelerate the performance required by, or result in the creation of any lien,
security interest, charge or encumbrance upon any of the properties of the Trust
under, or result in being declared void, voidable or without further binding
effect, any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, deed of trust or any license, franchise, permit, lease, contract,
agreement or other instrument, commitment or obligation to which the Trust is a
party, or by which the Trust or any of its properties is bound or affected; or
(iii) other than the filings provided for in Article 1 of this Agreement, the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Securities
Act or applicable state securities and "Blue Sky" laws (collectively, the
"Regulatory Filings"), filings as may be required in the registries of deeds or
similar governmental offices in those states where the Trust Properties (as
hereinafter defined) are located or filings necessary to qualify Lexington to do
8
<PAGE> 15
business as a foreign corporation in such states, require any consent, approval
or authorization of, or declaration, filing or registration with, any
governmental or regulatory authority.
5.6 SEC DOCUMENTS. The Trust has filed all required forms, reports and
documents with the Securities and Exchange Commission ("SEC") since December 31,
1994 (collectively, the "Trust SEC Reports"), all of which were prepared in
accordance with the applicable requirements of the Exchange Act and the
Securities Act. The Trust SEC Reports were filed with the SEC in a timely manner
and constitute all forms, reports and documents required to be filed by the
Trust since December 31, 1994 under the Securities Act, the Exchange Act and the
rules and regulations promulgated thereunder (the "Securities Laws"). As of
their respective dates, the Trust SEC Reports (i) complied as to form in all
material respects with the applicable requirements of the Securities Laws and
(ii) did not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
made therein, in the light of the circumstances under which they were made, not
misleading. Each of the balance sheets of the Trust included in or incorporated
by reference into the Trust SEC Reports (including the related notes and
schedules) fairly presents the financial position of the Trust as of its date
and each of the statement of income, retained earnings and cash flows of the
Trust included in or incorporated by reference into the Trust SEC Reports
(including any related notes and schedules) fairly presents the results of
operations, retained earnings or cash flows, as the case may be, of the Trust
for the periods set forth therein (subject, in the case of unaudited statements,
to normal year-end audit adjustments which would not be material in amount or
effect), in each case in accordance with generally accepted accounting
principles consistently applied during the periods involved, except as may be
noted therein and except, in the case of the unaudited statements, as permitted
by Form 10-Q pursuant to Section 13 or 15(d) of the Exchange Act.
5.7 LITIGATION. There are (i) no continuing orders, injunctions or
decrees of any court, arbitrator or governmental authority to which the Trust is
a party or by which any of its properties or assets are bound, or, to which any
person who is now, or, to the knowledge of the Trust, has been at any time prior
to the date hereof, a trustee, officer, employee or agent of the Trust acting in
such capacity is a party, and (ii) no actions, suits or proceedings pending
against the Trust or, to the knowledge of the Trust, threatened against the
Trust or against any person who is now, or has been at any time prior to the
date hereof, a trustee, officer, employee or agent of the Trust acting in such
capacity, at law or in equity, or before or by any federal or state commission,
board, bureau, agency or instrumentality.
5.8 ABSENCE OF CERTAIN CHANGES. Except as disclosed in the Trust SEC
Reports filed with the SEC prior to the date hereof, since December 31, 1996,
the Trust has conducted its business only in the ordinary course of such
business and there has not been (i) any Trust Material Adverse Effect; (ii) any
declaration, setting aside or payment of any dividend or other distribution with
respect to Trust Shares except as disclosed in writing to Lexington; (iii) any
material commitment, contractual obligation, borrowing, capital expenditure or
transaction (each, a "Commitment") entered into by the Trust, inside or outside
the ordinary course of business
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<PAGE> 16
except for Commitments for expenses of environmental engineers, attorneys,
accountants and investment bankers incurred in connection with the Merger; or
(iv) any change in the Trust's accounting principles, practices or methods,
except as disclosed in writing to Lexington.
5.9 ABSENCE OF UNDISCLOSED LIABILITIES. Except as set forth on Schedule
5.9 or in the Trust SEC Reports and for liabilities incurred in the ordinary
course of business since December 31, 1996, and in connection with the
transactions contemplated hereby, to the knowledge of the Trust, the Trust does
not have any material liabilities, claims, losses, damages, deficiencies or
obligations (whether absolute, contingent, accrued or otherwise) of any nature
whatsoever.
5.10 REGISTRATION STATEMENT AND PROXY INFORMATION. None of the
information supplied or to be supplied by the Trust for inclusion in the Form
S-4 (as defined in Section 7.7), including any supplements or amendments
thereto, will, at the time it is mailed to the shareholders of the Trust, at the
time of the meeting of the Trust's shareholders or at the time that the Form S-4
is declared effective, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they
were made, not misleading. Notwithstanding the foregoing, the Trust makes no
representation or warranty with respect to any information supplied or to be
supplied by Lexington which is contained in the Form S-4.
5.11 TAXES. Except as set forth in Schedule 5.11:
(a) The Trust has timely and fully paid or caused to be paid,
or has adequately accrued or reserved for, all federal, state, local,
foreign, and other taxes (including without limitation, income taxes,
estimated taxes, alternative minimum taxes, excise taxes, sales taxes,
use taxes, value-added taxes, gross receipts taxes, franchise taxes,
capital stock taxes, employment and payroll-related taxes, withholding
taxes, stamp taxes, transfer taxes, windfall profit taxes, property
taxes and environmental taxes, whether or not measured in whole or in
part by net income), fees, duties, assessments, withholdings or
governmental charges of any kind whatsoever, and all deficiencies, or
other additions to tax, additional amounts, interest, fines and
penalties with respect to any of the foregoing (collectively, "Taxes"),
required to be paid, accrued or reserved by it through the date hereof;
(b) The Trust has timely filed, in accordance with all
applicable laws, all federal, state, local and foreign tax returns,
reports, declarations, estimates, informational returns and statements
regarding Taxes (collectively "Returns") required to be filed in
respect of the Trust through the date hereof, and all such Returns
completely and accurately set forth the facts regarding the income,
properties, operations and status of any entity required to be shown
thereon and the amount of any Taxes relating to the applicable period;
(c) The Trust has timely and fully withheld and paid to the
appropriate governmental authority all taxes required to have been
withheld and paid in connection
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with amounts paid or owing to any employee, independent contractor,
creditor, stockholder or other party;
(d) For its taxable year ended December 31, 1996, for all of
its prior taxable years beginning with the taxable year ended December
31, 1990 and at all times thereafter up to and including the date
hereof, the Trust has qualified to be treated as a REIT within the
meaning of Sections 856-860 of the Code, including, without limitation,
the requirements of Sections 856 and 857 of the Code. For the periods
described in the preceding sentence, the Trust has satisfied all
requirements necessary to be treated as a REIT for purposes of the
income tax provisions of those states in which the Trust is subject to
income tax and which provide for the taxation of a REIT in a manner
similar to the treatment of REITS under Sections 856-860 of the Code;
(e) Neither the Internal Revenue Service ("IRS") nor any other
governmental authority has asserted by written notice to the Trust or,
to the knowledge of the Trust, threatened to assert against the Trust
any deficiency or claim for additional Taxes. There is no dispute or
claim concerning any Tax liability of the Trust either claimed or
raised in writing by the IRS or any other governmental authority, or,
to the knowledge of the Trust, which, at some future date, may be
claimed or raised by the IRS or any other governmental authority. No
written claim has ever been made by a taxing authority in a
jurisdiction where the Trust does not file Returns that the Trust is or
may be subject to taxation by that jurisdiction. There are no security
interests, liens or other encumbrances of any nature on any of the
assets of the Trust that arose in connection with any failure (or
alleged failure) to pay any Taxes when due. The Trust has never been a
party to any Tax sharing or similar agreement or entered into a closing
agreement pursuant to Section 7121 of the Code (or any comparable
provision of state, local or foreign law); and
(f) The Trust has not received notice of any audit of any Tax
Return filed by the Trust, and the Trust has not been notified by any
Tax authority that any such audit is contemplated or pending. The Trust
has not executed or filed with the IRS or any other taxing authority,
and no person has been requested to so execute or file any agreement
extending the period for assessment or collection of any income or
other Taxes, or the time to file any Return other than routine
extensions. True, correct and complete copies of all federal, state and
local income or franchise tax returns required to be filed by the Trust
and all written communications relating thereto (including, without
limitation, in respect of any audits and examinations) have been
delivered to Lexington or made available to representatives of
Lexington. The Trust has not agreed, and is not required, to make any
adjustments under Section 481(a) of the Code (or any comparable
provision of state, local or foreign law) by reason of a change in
accounting method or otherwise. Since the most recent Tax period for
which the Trust has provided Lexington with a copy of each of its
federal, state and local income and franchise tax returns, neither the
Trust nor any person or entity on its behalf has made or changed any
election concerning Taxes or Returns, changed an annual accounting
period, adopted or changed any accounting method, filed
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any amended Return, settled any Tax claim or filed any amended Return,
settled any Tax claim or assessment or surrendered any right to claim a
refund of Taxes or obtained or entered into any Tax ruling, agreement,
contract, understanding, arrangement or plan.
5.12 BOOKS AND RECORDS.
(a) The books of account and other financial records of the
Trust are true, complete and correct in all material respects, have
been maintained in accordance with good business practices, and are
accurately reflected in all material respects in the financial
statements included in the Trust SEC Reports.
(b) Records of the Trust have been, or will be prior to the
Closing, made available to Lexington, and such records contain in all
material respects accurate minutes of all meetings and accurately
reflect in all material respects all other action of the shareholders
and trustees and any committees of the Board of Trustees of the Trust.
5.13 PROPERTIES. All of the real estate owned by the Trust (the "Trust
Properties") is set forth in Schedule 5.13. The Trust has made available to
Lexington for inspection title insurance policies obtained by the Trust in
connection with the acquisition of the Properties (the "Title Policies") and
surveys ("Surveys") relating to the Trust Properties. The Trust has no knowledge
of any encumbrance to title to any Trust Property or any survey matter affecting
any Trust Property other than (i) matters listed in the title reports obtained
by the Trust and delivered to Lexington with respect to such Trust Property (the
"Title Reports"), (ii) matters shown on the Survey with respect to such Trust
Property, (iii) customary ordinances and regulations, including zoning
ordinances and building codes, affecting building use or occupancy, none of
which are, to the knowledge of the Trust, violated by the present use of the
related Trust Property, (iv) matters listed in Schedule B of the Title Policies,
and (v) matters disclosed in Schedule 5.13. Schedule 5.13 sets forth all of the
Title Policies of the Trust relating to the Trust Properties and such policies
are, at the date hereof, in full force and effect and no claims have been made
against any such policies. To the knowledge of the Trust, except as set forth in
Schedule 5.13, the Trust has obtained all certificates, permits and licenses
from any governmental authority having jurisdiction over any of the Trust
Properties which are not the responsibility of tenants and no tenant, to the
knowledge of the Trust, has failed to obtain any such certificate, permit or
license. All agreements, easements and other rights which are necessary to
permit the lawful use and operation of all driveways, roads and other means of
egress and ingress to and from any of the Trust Properties, have been obtained
and are in full force and effect and the Trust has not received notice with
respect to the termination or breach of any such easements, agreements or other
rights. Each Trust Property is in full compliance with all governmental permits,
licenses and certificates except where the failure to be in compliance would not
be reasonably likely to have a Trust Material Adverse Effect. Except as set
forth in Schedule 5.13, no notice of any violation of any federal, state or
municipal law, ordinance, order, regulation or requirements affecting any
portion of any of the Trust Properties has been issued by any governmental
authority which has not been remedied or cured. There are no material structural
defects relating
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to any of the Trust Properties, except as set forth in the reports referred to
in Schedule 5.13. The building systems of each Trust Property are in working
order in all material respects, except as set forth in the reports referred to
Schedule 5.13. Except as set forth in Schedule 5.13, there is no physical damage
to any Trust Property in excess of $25,000 for which there is no insurance in
effect covering the full cost of the restoration. Except as set forth in
Schedule 5.13, there is no current renovation or restoration or tenant
improvements ongoing to any Trust Property or any portion thereof, nor is there
any renovation, restoration, or tenant improvement which the Trust has committed
to undertake, the cost of which exceeds, or would be likely to exceed, $25,000
individually. Except as disclosed in Schedule 5.13, the use and occupancy of
each Trust Property complies in all material respects with all applicable codes
and zoning laws and regulations and there is no pending or, to the knowledge of
the Trust, any threatened proceeding or action that will in any manner affect
the size of, use of, improvements on, construction on, or access to any of the
Trust Properties. The Trust has not received any notice to the effect that (A)
any betterment assessments have been levied against, or any condemnation or
rezoning proceedings are pending or threatened with respect to any of the Trust
Properties, or (B) any zoning, building or similar law, code, ordinance, order
or regulation is or will be violated by the continued maintenance, operation or
use of any buildings or other improvements on any of the Trust Properties or by
the continued maintenance, operation or use of the parking areas except as set
forth in Schedule 5.1(c). Except as disclosed on Schedule 5.13, there are no
contingent liabilities or amounts owed by the Trust to third parties (excluding
any obligations with respect to mortgage loans encumbering the Properties) with
respect to any Property including, without limitation, those for leasing
commissions, asset management fees or brokerage fees.
5.14 ENVIRONMENTAL MATTERS. Except as set forth in Schedule 5.14 and
any environmental assessment or report listed therein: (i) to the knowledge of
the Trust, no Hazardous Substances or Hazardous Wastes have been or are being
released into the environment, discharged into the environment or disposed of
from, at, or under the Trust Properties; (ii) to the knowledge of the Trust, no
Hazardous Substances or Hazardous Wastes have been or are being generated or
treated at the Trust Properties or discharged from the Trust Properties, except
in compliance with applicable Laws (defined below); (iii) to the knowledge of
the Trust, no Hazardous Wastes have been or are being stored for more than 90
days or handled at or on the Trust Properties, except in compliance with
applicable laws; (iv) none of the Trust Properties are listed on, and the Trust
has not received written or oral notice that any of the Trust Properties are
being considered for inclusion on, the National Priorities List ("NPL"), the
Comprehensive Environmental Response, Compensation and Liability Information
System ("CERCLIS"), or any State or local listing of sites which are known or
suspected to be contaminated by Hazardous Substances or Hazardous Wastes; (v) to
the knowledge of the Trust, there are no on-going, and there have been no,
violations of any federal, state, or local law, statute, ordinance, rule or
regulation ("Law") at any Trust Properties which could result in contamination
of the land, surface water or groundwater from, at, on or under any such
properties; and (vi) to the knowledge of the Trust, no federal, state or local
governmental board,
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body, department or agency (collectively "Government Agency") is investigating
any alleged or potential release, discharge, disposal or storage of Hazardous
Substances or Hazardous Wastes at, on, under or from any Trust Properties.
As used in this Agreement, the term "Hazardous Substance" shall mean
any hazardous or toxic chemical, waste, byproduct, pollutant, contaminant,
compound, product or substance, including without limitation asbestos,
polychlorinated biphenyl, petroleum (including crude oil or any fraction
thereof), radioactive substances and any material the manufacture, possession,
presence, use, generation, storage, transportation, treatment, release,
disposal, discharge, abatement, cleanup, removal, remediation or handling of
which is prohibited, controlled or regulated by any Government Agency pursuant
to any Law relating to protection of the environment or human health. The term
"Hazardous Waste" shall have the meaning set forth in the Resource Conservation
and Recovery Act, as amended, the regulations thereunder, and any similar or
implementing State or local law, statute, ordinance, rule or regulation.
The Trust has not received any notice from any Government Agency with
respect to alleged or potential liability relating in any way to Hazardous
Substances or Hazardous Wastes at, on, under or from any Trust Property.
5.15 NO FEES. The Trust has not entered into any contract, arrangement
or understanding with any person or firm other than the Trust Advisor which may
result in the obligation of such entity or Lexington to pay any finder's fees,
brokerage or agent's commissions or other like payments in connection with the
negotiations leading to this Agreement or the consummation of the transactions
contemplated hereby. Amounts due to the Trust Advisor will be paid in full at
Closing by the Trust and will not become the obligation of Lexington.
5.16 OPINION OF FINANCIAL ADVISOR. The Trust has received the opinion
of McFarland Dewey & Co., to the effect that, as of the date hereof, the Stock
Consideration and other consideration as described in Section 4.4 is fair to the
holders of the Trust Shares from a financial point of view, and has delivered a
true and correct copy of such opinion to Lexington, a copy of which may be
included, and referred to, in the Form S-4.
5.17 CONTRACTS AND COMMITMENTS. Schedule 5.17 sets forth (i) all notes,
debentures, bonds and other evidence of indebtedness which are secured or
collateralized by mortgages, deeds of trust or other security interests in the
Trust Properties or personal property of the Trust and (ii) each Commitment
entered into by the Trust which may result in total payments by or liability of
the Trust in excess of $10,000 in any calender year or $25,000 during the term
of any such Commitment and which may not be terminated within 90 days by the
Trust without payment of any penalty by the Trust. Copies of the foregoing are
listed in Schedule 5.17 and the copies of such documents, which have previously
been provided or made available to Lexington, are true and correct. Except as
set forth in Schedule 5.17, the Trust has not received any notice of a default
or breach under any of the documents described in the preceding sentence, and
any such default has been described in all material respects on Schedule 5.17
and has been cured to
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the satisfaction of the other party to such document. The Trust is not in
default respecting any payment obligations under any of the documents described
in the first sentence of this Section beyond any applicable grace periods.
Except as set forth on Schedule 5.17, the Merger will not require the payment of
any fees or other amounts by the Trust or Lexington under any of the documents
described in the first sentence of this Section and the Merger will not cause
the acceleration of, or a default under any of, such documents. To the knowledge
of the Trust, none of the other parties to any of the documents described in the
first sentence of this Section is in default under, or in breach of, any of such
documents and there has occurred no event, which the lapse of time or the giving
of notice, would be reasonably likely to result in a default or breach thereof.
There has been no payment default by any such other party to any of the
documents described in the first sentence of this Section.
5.18 LEASES. Each of the leases described in Item 2 of the Trust's Form
10-K for the year ended December 31, 1996, is valid and subsisting, in full
force and effect and binding upon the Trust and, to the knowledge of the Trust,
the other parties thereto. Each lessee thereunder has paid in full all amounts
due, and has satisfied in full all of its liabilities and obligations, under its
respective lease and there has not occurred any default under any such lease,
nor (to the knowledge of the Trust) does any condition exist that with notice or
lapse of time or both would constitute a default thereunder. No lessee has paid
rent under any of the leases more than one month in advance. All security
deposits specified under any such leases are held by the Trust and shall be
conveyed to Lexington upon consummation of the Merger. Except as disclosed in
Schedule 5.18, the Merger will not require the consent of any lessee, or require
any payment or undertaking by the Trust or Lexington under any of such leases.
5.19 AFFILIATED TRANSACTIONS. Except as described in Schedule 5.19 or
Item 13 of the Trust's Form 10-K for the year ended December 31, 1996, the Trust
has not engaged in any transactions with any affiliate and is not indebted to
any affiliate for any amounts. At Closing, the Advisory Services Agreement, and
any other agreement then in effect with any affiliate, will be terminated and
Lexington will not assume any responsibility for, or liability under, any such
agreements.
5.20 EMPLOYEES. The Trust has no employees and there are not, and have
not at any time been, any employment or similar agreements with any person to
which the Trust is a party, except the Advisory Services Agreement. The Trust
does not maintain or contribute to, and has never maintained or contributed to,
and is not, and has not, been a party to, any employee benefit plans, programs,
arrangements or practices, including any employee benefit plans within the
meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended, and all regulations thereunder.
5.21 DEFINITION OF THE TRUST'S KNOWLEDGE. As used in this Agreement,
the phrase "to the knowledge of the Trust" or any similar phrase means the
actual, not the constructive or imputed, knowledge of trustees of the Trust,
including any information contained in any written notice and correspondence
addressed to the Trust or any of its trustees.
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6
REPRESENTATIONS AND WARRANTIES OF LEXINGTON
Lexington represents and warrants to the Trust as follows:
6.1 EXISTENCE; GOOD STANDING; AUTHORITY; COMPLIANCE WITH LAW.
(a) Lexington is a corporation duly formed, validly existing
and in good standing under the laws of the State of Maryland. Lexington
is duly licensed or qualified to do business as a foreign corporation
and is in good standing under the laws of any other state of the United
States in which the character of the properties owned or leased by it
therein or in which the transaction of its business makes such
qualification necessary, except where the failure to be so licensed or
qualified would not have a material adverse effect on the business,
results of operations or financial condition of Lexington and the
Lexington Subsidiaries (as defined below) taken as a whole (a
"Lexington Material Adverse Effect"). Lexington has all requisite
corporate power and authority to own, operate, lease and encumber its
properties and carry on its business as now conducted.
(b) Schedule 6.1(b) lists each subsidiary required to be
listed by Lexington in Exhibit 21 to the Lexington SEC Reports (the
"Lexington Subsidiaries"). Each of the Lexington Subsidiaries set forth
on Schedule 6.1(b) is a corporation, partnership or trust, as the case
may be, duly formed, validly existing and in good standing under the
laws of its jurisdiction of organization, has the organizational power
and authority to own its properties and to carry on its business as it
is now being conducted, and is duly qualified to do business and is in
good standing in each jurisdiction in which the ownership of its
property or the conduct of its business requires such qualification,
except for jurisdictions in which such failure to be so qualified or to
be in good standing would not have a Lexington Material Adverse Effect.
(c) To the knowledge of Lexington, neither Lexington nor any
Lexington Subsidiary is in violation of any law, ordinance,
governmental rule or regulation to which Lexington or any Lexington
Subsidiary or any of their respective properties or assets is subject.
(d) Copies of the Articles of Incorporation or other charter
documents (and all amendments thereto) of Lexington are listed in
Schedule 6.1(d), and the copies of such documents, which have
previously been delivered or made available to the Trust or its
counsel, are true and correct copies.
6.2 AUTHORIZATION, VALIDITY AND EFFECT OF AGREEMENTS. Lexington has the
requisite corporate power and authority to enter into the transactions
contemplated hereby and to execute and deliver this Agreement. The Board of
Directors of Lexington has, by resolutions adopted by
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unanimous vote, approved this Agreement, the Merger and the other transactions
contemplated by this Agreement. The execution by Lexington of this Agreement,
and the consummation by Lexington of the transactions contemplated by this
Agreement have been duly authorized by all requisite corporate action on the
part of Lexington. This Agreement constitutes the valid and legally binding
obligations of Lexington, enforceable against Lexington in accordance with its
terms, subject to applicable bankruptcy, insolvency, moratorium or other similar
laws relating to creditors' rights and general principles of equity.
6.3 CAPITALIZATION. The authorized capital stock of Lexington consists
of: (i) 40,000,000 shares of Lexington Common Stock; (ii) 10,000,000 shares of
preferred stock, par value $.0001 per share (the "Preferred Stock"); and (iii)
40,000,000 shares of excess stock, par value $.0001 per share (the "Excess
Stock"). As of the date hereof, (i) 9,454,037, 1,325,000 and 0 shares of the
Lexington Common Stock, the Preferred Stock and the Excess Stock, respectively,
were validly issued and outstanding, fully paid and nonassessable; and (ii)
10,545,963, 0, and 0 shares of the Lexington Common Stock, the Preferred Stock
and the Excess Stock, respectively, were reserved for issuance as set forth on
Schedule 6.3 hereto. Except as set forth in the preceding sentence of this
Section 6.3, or as set forth on Schedule 6.3 hereto or contemplated by this
Agreement, as of the date hereof there are no other shares of capital stock of
Lexington outstanding and no other outstanding options, warrants, convertible or
exchangeable securities, subscriptions, rights (including preemptive rights),
stock appreciation rights, calls or commitments of any character whatsoever to
which Lexington is a party or may be bound requiring the issuance or sale of
shares of any capital stock of Lexington, and there are no contracts or other
agreements by which Lexington is or may become bound to issue additional shares
of its capital stock or any options, warrants, convertible or exchangeable
securities, subscriptions, rights (including preemptive rights), stock
appreciation rights, calls or commitments of any character whatsoever relating
to such shares.
6.4 REGISTRATION STATEMENT AND PROXY INFORMATION. None of the
information supplied or to be supplied by Lexington for inclusion in the Form
S-4 (as defined in Section 7.7), including any supplements or amendments
thereto, will, at the time it is mailed to the shareholders of the Trust, at the
time of the meeting of the Trust's shareholders or at the time that the Form S-4
is declared effective, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they
wee made, not misleading. Notwithstanding the foregoing, Lexington makes no
representation or warranty with respect to any information supplied or to be
supplied by the Trust which is contained in the Form S-4.
6.5 OTHER INTEREST. Since December 31, 1996, Lexington has not acquired
any interest or investment (whether equity or debt) in any corporation,
partnership, joint venture, business trust or other entity which is, or will be,
required to be reported by Lexington in a report to the SEC and which has not
been so reported.
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6.6 NO VIOLATION. Except as set forth in Schedule 6.6, neither the
execution and delivery by Lexington of this Agreement nor the consummation by
Lexington of the transactions contemplated by this Agreement in accordance with
its terms will: (i) conflict with or result in a breach of any provisions of the
Articles of Incorporation, Charter and other organizational documents,
partnership agreements or joint venture agreements of Lexington or any Lexington
Subsidiary; (ii) result in a breach or violation of, a default under, or the
triggering of any payment or other material obligations pursuant to, or
accelerate vesting under, any of Lexington's stock option plans, or any grant or
award under any of the foregoing; (iii) violate, or conflict with, or result in
a breach of any provision of, or constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default) under, or result in
the termination or in a right of termination or cancellation of, or accelerate
the performance required by, or result in the creation of any lien, security
interest, charge or encumbrance upon any of the properties of Lexington or any
of the Lexington Subsidiaries under, or result in being declared void, voidable,
or without further binding effect, any of the terms, conditions or provisions of
any note, bond, mortgage, indenture, deed of trust or any license, franchise,
permit, lease, contract, agreement or other instrument, commitment or obligation
to which Lexington or any of the Lexington Subsidiaries is a party, or by which
Lexington or any of the Lexington Subsidiaries or any of their properties is
bound or affected except for any of the foregoing matters which, individually or
in the aggregate, would not have a Lexington Material Adverse Effect; or (iv)
other than the Regulatory Rulings, require any consent, approval or
authorization of, or declaration, filing or registration with, any governmental
or regulatory authority except where the failure to obtain any such consent,
approval or authorization of, or declaration, filing or registration with, any
governmental or regulatory authority would not have a Lexington Material Adverse
Effect.
6.7 SEC DOCUMENTS. Lexington has filed all required forms, reports and
documents with the SEC since December 31, 1994 (collectively, the "Lexington SEC
Reports") all of which were prepared in accordance with the applicable
requirements of the Securities Laws. The Lexington SEC Reports were filed with
the SEC in a timely manner and constitute all forms, reports and documents
required to be filed by Lexington since December 31, 1994 under the Securities
Laws. As of their respective dates, the Lexington SEC Reports (i) complied as to
form in all material respects with the applicable requirements of the Securities
Laws and (ii) did not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements made therein, in the light of the circumstances under which they were
made, not misleading. Each of the consolidated balance sheets of Lexington
included in or incorporated by reference into the Lexington SEC Reports
(including the related notes and schedules) fairly presents the consolidated
financial position of Lexington and the Lexington Subsidiaries as of its date
and each of the consolidated statements of income, retained earnings and cash
flows of Lexington included in or incorporated by reference into the Lexington
SEC Reports (including any related notes and schedules) fairly presents the
results of operations, retained for the periods set forth therein (subject, in
the case of unaudited statements, to normal year-end audit adjustments which
would not be material in amount or effect), in each case in accordance with
generally accepted accounting principles consistently applied during
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the periods involved, except as may be noted therein and except, in the case of
the unaudited statements, as permitted by Form 10-Q pursuant to Section 13 or
15(d) of the Exchange Act.
6.8 LITIGATION. Except as set forth in Schedule 6.8 or in the Lexington
SEC Reports, there are (i) no continuing orders, injunctions or decrees of any
court, arbitrator or governmental authority to which Lexington or any Lexington
Subsidiary is a party or by which any of its properties or assets are bound, or,
to the knowledge of Lexington, to which any person who is now, or has been at
any time prior to the date hereof, a director, officer, employee or agent of
Lexington or any Lexington Subsidiary acting in such capacity is a party, and
(ii) no actions, suits or proceedings pending against Lexington or any Lexington
Subsidiary or, to the knowledge of Lexington, threatened against Lexington or
any Lexington Subsidiary or against any person who is now, or has been at any
time prior to the date hereof, a director, officer, employee or agent of
Lexington or any Lexington Subsidiary acting in such capacity, at law or in
equity, or before or by any federal or state commission, board, bureau, agency
or instrumentality, that in the case of clause (i) or (ii) are reasonably
likely, individually or in the aggregate, to have a Lexington Material Adverse
Effect. There are no written, nor to Lexington's knowledge threatened, claims
made against Lexington or any Lexington Subsidiary by any existing or former
joint venture partner or other partner of Lexington or any Lexington Subsidiary
that are reasonably likely, individually or in the aggregate, to have a
Lexington Material Adverse Effect.
6.9 ABSENCE OF CERTAIN CHANGES. Except as disclosed in the Lexington
SEC Reports filed with the SEC prior to the date hereof, since December 31,
1996, Lexington and the Lexington Subsidiaries have conducted their business
only in the ordinary course of such business and there has not been (i) any
Lexington Material Adverse Effect; (ii) as of the date hereof, any declaration,
setting aside or payment of any dividend or other distribution with respect to
the Lexington Common Stock, except for dividends declared in the ordinary course
of business; or (iii) any material change in Lexington's accounting principles,
practices or methods.
6.10 TAXES. Except as set forth in Schedule 6.10:
(a) Lexington and each of the Lexington Subsidiaries has
timely and fully paid or caused to be paid, or has adequately accrued
or reserved for, all Taxes required to be paid, accrued or reserved by
it through the date hereof;
(b) Lexington and each of the Lexington Subsidiaries has
timely filed, in accordance with all applicable laws, all federal,
state, local and foreign tax returns, reports, declaration estimates,
information returns and statements regarding Taxes (collectively
"Returns") required to be filed in respect of Lexington through the
date hereof, and all such Returns completely and accurately set forth
the facts regarding the income, properties, operations and status of
any entity required to be shown thereon and the amount of any Taxes
relating to the applicable period;
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(c) Lexington and each Lexington Subsidiary has timely and
fully withheld and paid to the appropriate governmental authority all
taxes required to have been withheld and paid in connection with
amounts paid or owing to any employee, independent contractor,
creditor, stockholder or other party;
(d) Neither the IRS nor any other governmental authority has
now asserted by written notice to Lexington or any Lexington Subsidiary
or, to the knowledge of Lexington, threatened to assert against
Lexington or any Lexington Subsidiary any deficiency or claim for
additional Taxes. There is no dispute or claim concerning any Tax
liability of Lexington or any Lexington Subsidiary either claimed or
raised in writing by the IRS or any other governmental authority, or,
to the knowledge of Lexington, which may be claimed or raised by the
IRS or any other governmental authority. No written claim has ever been
made by a taxing authority in a jurisdiction where Lexington does not
file Returns that Lexington is or may be subject to taxation by that
jurisdiction. There are no security interests, liens or other
encumbrances of any nature on any of the assets of Lexington or any
Lexington Subsidiary that arose in connection with any failure (or
alleged failure) to pay any Taxes when due. Lexington has never been a
party to any Tax sharing or similar agreement or entered into a closing
agreement pursuant to Section 7121 of the Code (or any comparable
provision of state, local or foreign law); and
(e) Lexington has not received notice of any audit of any Tax
Return filed by Lexington, and Lexington has not been notified by any
Tax authority that any such audit is contemplated or pending. Neither
Lexington nor any of the Lexington Subsidiaries has executed or filed
with the IRS or any other taxing authority, and no person has been
requested to so execute or file any agreement extending the period for
assessment or collection of any income or other Taxes, or the time to
file any Return. True, correct and complete copies of all federal,
state and local income or franchise tax returns required to be filed by
Lexington and each of the Lexington Subsidiaries and all written
communications relating thereto (including, without limitation, in
respect of any audits and examinations) have been delivered to the
Trust or made available to representatives of the Trust. Lexington has
not agreed, and is not required, to make any adjustment under Section
481(a) of the Code (or any comparable provision of state, local or
foreign law) by reason of a change in accounting method or otherwise.
Since the most recent Tax period for which Lexington has provided the
Trust with a copy of each of its federal, state and local income and
franchise tax returns, neither Lexington nor any person or entity on
its behalf has made or changed any election concerning Taxes or
Returns, changed an annual accounting period, adopted or changed any
accounting method, filed any amended Return, settled any Tax claim or
assessment or surrendered any right to claim a refund of Taxes or
obtained or entered into any Tax ruling, agreement, contract,
understanding, arrangement or plan.
6.11 ENVIRONMENTAL MATTERS. Except as set forth in the Lexington SEC
Reports or in Schedule 6.11 and any environmental assessment or report listed
therein: (i) to the knowledge of Lexington, no Hazardous Substances or Hazardous
Wastes have been or are being released into
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the environment, discharged into the environment or disposed of from, at, on or
under the Lexington Properties; (ii) to the knowledge of Lexington, no Hazardous
Substances or Hazardous Wastes have been or are being generated or treated at
the Lexington Properties or discharged from the Lexington Properties, except in
compliance with applicable Laws; (iii) to the knowledge of Lexington, no
Hazardous Wastes have been or are being stored for more than 90 days or handled
at or on the Lexington Properties, except in compliance with applicable Laws;
(iv) none of the Lexington Properties are listed on, and Lexington has not
received written or oral notice that any of the Lexington Properties are being
considered for inclusion on, NPL, CERCLIS, or any State or local listing of
sites which are known or suspected to be contaminated by Hazardous Substances or
Hazardous Wastes; (v) to the knowledge of Lexington, there are no on-going, and
there have been no violations of any Law at any Lexington Properties which could
result in contamination of the land, surface water or groundwater from, at, on
or under any such properties; and (vi) no Governmental Agency is investigating
or has provided written notice that it is considering investigating any alleged
or potential release, discharge, disposal or storage of Hazardous Substances or
Hazardous Wastes at, on, under or from any Lexington Properties.
With respect to properties previously owned, leased or in the
possession of Lexington or Lexington Subsidiaries ("Lexington Previous
Properties"), Lexington has no actual knowledge that any of the activities or
conditions described in clauses (i), (ii) or (iii) as not having taken place or
existed at the Lexington Properties took place or existed at the Lexington
Previous Properties during the period when Lexington or the Lexington
Subsidiaries owned, leased or possessed the properties. In addition, Lexington
has no actual knowledge that any of the Lexington Previous Properties are listed
or are being considered for listing on any of the lists described in clause (iv)
or are being investigated or considered for investigation as described in clause
(vi).
Except as disclosed in Schedule 6.11, neither Lexington nor any
Lexington Subsidiary has received any notice from any Government Agency with
respect to alleged or potential liability relating in any way to Hazardous
Substances or Hazardous Wastes at, on, under or from any Lexington Property or
Lexington Previous Properties.
6.12 NO FEES. Except for an arrangement with Antony E. Monk, whose fees
pursuant to such arrangement shall be the responsibility of Lexington, neither
Lexington nor any of the Lexington Subsidiaries has entered into any contract,
arrangement or understanding with any person or firm which may result in the
obligation of such entity or the Trust to pay any finder's fees, brokerage or
agent's commissions or other like payments in connection with the negotiations
leading to this Agreement or the consummation of the transactions contemplated
hereby. Other than the Trust's arrangements set forth in Section 5.15, and as
set forth in the preceding sentence, to the knowledge of Lexington, there is not
any claim for payment of any finder's fees, brokerage or agent's commissions or
other like payments in connection with the negotiations leading to this
Agreement or the consummation of the transactions contemplated hereby.
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6.13 BENEFICIAL SHARE OWNERSHIP. Neither Lexington nor any of the
Lexington Subsidiaries owns any shares of beneficial interest of the Trust or
other securities convertible into shares of beneficial interest of the Trust.
6.14 CONTRACTS AND COMMITMENTS. None of Lexington or any of the
Lexington Subsidiaries has received any written notice of a default that has not
been cured under any of the documents filed by Lexington as an exhibit to the
Lexington SEC Reports or is in default respecting any payment obligations
thereunder beyond any applicable grace periods, except where such default would
not have a Lexington Material Adverse Effect. To the knowledge of Lexington,
neither Lexington nor any of the Lexington Subsidiaries is in default with
respect to any obligations, which individually or in the aggregate are material,
under any joint venture agreements to which Lexington or any of the Lexington
Subsidiaries is a party.
6.15 LEXINGTON COMMON STOCK. The issuance and delivery by Lexington of
shares of Lexington Common Stock in connection with the Merger and this
Agreement have been duly and validly authorized by all necessary corporate
action on the part of Lexington. The shares of Lexington Common Stock to be
issued in connection with the Merger and this Agreement, when issued in
accordance with the terms of this Agreement, will be validly issued, fully paid,
nonassessable, free of preemptive rights and, assuming the effectiveness of the
Form S-4, registered under the Securities Act, subject to no restrictions on
transfer under applicable laws or imposed by Lexington, except as contemplated
by Section 7.10.
6.16 CONVERTIBLE SECURITIES. Except as described in the Lexington SEC
Reports, Lexington has no outstanding options, warrants or other securities
exercisable for, or convertible into, shares of Lexington Common Stock, the
terms of which would require any anti-dilution adjustments by reason of the
consummation of the transactions contemplated hereby.
6.17 DEFINITION OF LEXINGTON'S KNOWLEDGE. As used in this Agreement,
the phrase "to the knowledge of Lexington" or any similar phrase shall mean the
actual, not constructive or imputed, knowledge of officers of Lexington,
including any information contained in any written notice or correspondence
addressed to Lexington or any of its directors or officers.
7
COVENANTS
7.1 ACQUISITION PROPOSALS.
(a) Unless and until this Agreement shall have been terminated
in accordance with its terms, the Trust shall not, directly or
indirectly, through any officer, trustee, employee, representative or
agent of the Trust, (i) solicit or initiate any inquiries or proposals
regarding any merger, sale of substantial assets, sale of shares of
beneficial interest (including without limitation by way of a tender
offer for 15% or more of the outstanding Trust Shares) or similar
transactions involving the Trust other than the Merger
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(any of the foregoing inquiries or proposals being referred to herein
as an "Acquisition Proposal"), (ii) except as permitted under
subsection (e) below or as otherwise required by the Trust's
Declaration or applicable law, engage in negotiations concerning, or
provide any nonpublic information to any person relating to, any
Acquisition Proposal, or (iii) except as permitted under subsection (e)
below, agree to, approve, or recommend any Acquisition Proposal.
(b) The Trust shall immediately notify Lexington after receipt
of any Acquisition Proposal, or any modification of or amendment to any
Acquisition Proposal.
(c) The Trust shall immediately cease and cause to be
terminated any existing discussions or negotiations with any persons
(other than Lexington) conducted heretofore with respect to any of the
foregoing.
(d) The Trust shall ensure that the officers, trustees and
employees of the Trust and any investment banker or other advisor or
representative retained by the Trust are aware of the restrictions
described in this Section 7.1.
(e) Nothing contained in this Section 7.1 shall prevent the
Board of Trustees of the Trust from considering, negotiating,
discussing, approving and recommending to the shareholders of the Trust
a bona fide Acquisition Proposal not solicited in violation of this
Agreement, if, and only to the extent that, the Board of Trustees
determines in good faith (upon advice of outside counsel) that it is
required to do so in order to discharge properly its fiduciary duties.
Nothing contained in this Section 7.1 shall prohibit the Board of
Trustees from complying with Rules 14d-9 and 14e-2 promulgated under
the Exchange Act with regard to any Acquisition Proposal.
7.2 CONDUCT OF BUSINESSES.
(a) Until the earlier of the Effective Time or the date on
which this Agreement is terminated in accordance with its terms, except
as specifically permitted by this Agreement, unless Lexington has
consented in writing thereto, the Trust:
(i) Shall use its reasonable best efforts to preserve
intact its business organizations and goodwill;
(ii) Shall confer on a regular basis with one or more
representatives of Lexington to report operational matters of
materiality (except for operational matters in the ordinary
course of business) and, subject to Section 7.1, any proposals
to engage in material transactions;
(iii) Shall promptly notify Lexington of any material
emergency or other material change in the condition (financial
or otherwise), business, properties,
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assets, liabilities, prospects or the normal course of its
businesses or in the operation of its properties, any material
governmental complaints, investigations or hearings (or
communications indicating that the same may be contemplated),
or the breach in any material respect of any representation,
warranty or covenant contained on its part herein; and
(iv) Shall promptly deliver to Lexington true and
correct copies of any report, statement or schedule filed with
the SEC subsequent to the date of this Agreement.
(b) Until the earlier of the Effective Time or the date on
which this Agreement is terminated in accordance with its terms,
Lexington:
(i) Shall use its reasonable best efforts to preserve
intact its business organizations and goodwill;
(ii) Shall promptly notify the Trust in the event (x)
any of E. Robert Roskind, Richard R. Rouse, T. Wilson Eglin or
Antonia G. Trigiani (collectively, "Senior Management")
determines to resign, is terminated or for any other reason is
no longer employed by Lexington, (y) Lexington's ratio of debt
to total market capitalization is reasonably likely to exceed
60% and (z) subject to applicable laws, of (1) any material
and adverse change in its business, operations or financial
condition, or any fundamental change in the nature or
operation of its business, (2) the breach, in any material
respect, of any representation, warranty or covenant on its
part contained herein or (3) any Material Structural Change
(as hereinafter defined); and
(iii) Shall promptly deliver to the Trust true and
correct copies of any report, statement or schedule filed with
the SEC, or any press release issued by Lexington, subsequent
to the date of this Agreement.
(c) Until the earlier of the Effective Time or the date on
which this Agreement is terminated in accordance with its terms, unless
Lexington has consented thereto (and Lexington hereby agrees to give
good faith consideration to any such request for consent by the Trust
and to respond to any such request within five (5) business days and in
the event no response is received by the Trust by the expiration of
such five business day period, such consent shall be deemed given) the
Trust:
(i) Shall conduct its operations in the ordinary
course in substantially the same manner as heretofore
conducted, subject to clauses (ii)-(ix) below;
(ii) Shall not acquire, enter into an option to
acquire or exercise an option or contract to acquire
additional real property, incur additional indebtedness,
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encumber assets or commence construction of, or enter into any
agreement or commitment to develop or construct, any other
type of real estate projects;
(iii) Shall not amend the Trust's Declaration or its
other organizational documents except as contemplated by this
Agreement;
(iv) Shall not (A) issue any shares of its capital
stock, effect any stock split, reverse stock split, stock
dividend, recapitalization or other similar transaction; (B)
grant, confer or award any option, warrant, conversion right
or other right not existing on the date hereof to acquire any
shares of its capital stock, (C) increase any compensation or
enter into or amend any employment agreement with any of its
present or future officers or trustees or retain any person as
an employee, or (D) adopt any employee benefit plan (including
any stock option, stock benefit or stock purchase plan);
(v) Shall not, except in accordance with and as
permitted under Section 7.2(d), sell, lease or otherwise
dispose of or enter into an option or other commitment to
dispose of (A) any the Trust Properties or (B) except in the
ordinary course of business, any of its other assets;
(vi) Shall not make any loans, advances or capital
contributions to, or investments in, any other person or make
or declare any dividend or distribution except as permitted by
Section 7.2(e);
(vii) Shall not pay, discharge or satisfy any claims,
liabilities or obligations (absolute, accrued, asserted or
unasserted, contingent or otherwise), other than the payment,
discharge or satisfaction, in the ordinary course of business
consistent with past practice or in accordance with their
terms, of liabilities reflected or reserved against in, or
contemplated by, the most recent financial statements (or the
notes thereto) of the Trust included in the Trust SEC Reports
or incurred in the ordinary course of business consistent with
past practice;
(viii) Shall not enter into any Commitment which may
result in total payments or liability by or to it in excess of
$25,000 other than Commitments for expenses of attorneys,
accountants and investment bankers incurred in connection with
the Merger, but subject to Section 7.11; and
(ix) Shall not enter into any Commitment with any
officer, trustee, consultant or affiliate of the Trust.
(d) The Trust shall not, without the written consent of
Lexington, which consent may not be unreasonably withheld, (i) effect
any material change in any lease or occupancy agreement currently in
effect (together with such additional leases approved or permitted
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pursuant to this Agreement, the "Leases"), (ii) renew or extend the
term of any Lease, unless the same is an extension or expansion
permitted pursuant to the express terms of an existing Lease, or (iii)
enter into any new Lease or cancel or terminate any Lease. When seeking
consent to a new or modified Lease, the Trust shall provide notice of
the identity of the Tenant, a term sheet, letter of intent or proposed
lease containing material business terms (including, without
limitation, rent, expense base, concessions, tenant improvement
allowances, brokerage commissions, and expansion and extension options)
and whatever credit and background information, if any, the Trust then
possesses with respect to such tenant. Lexington shall be deemed to
have consented to any proposed Lease or Lease modification if it has
not responded to the Trust within five (5) business days after receipt
of such information. Upon Lexington's approval or deemed approval, the
Trust shall be entitled to enter into a Lease.
(e) The Trust may declare regular quarterly dividends
(provided that any such dividends do not exceed, on a per share basis,
the per share dividend for the Trust's most recent fiscal quarter ended
prior to the date of this Agreement) and any dividends as contemplated
under Section 7.15. In addition, the Trust may declare and pay a
special dividend within 30 days prior to the Effective Time in an
aggregate amount up to the amount of cash on hand at the time of such
declaration; provided, however, that the Trust may only make such
payment after reserving a sufficient amount of cash necessary to pay
those expenses for which it is responsible under this Agreement.
7.3 MEETING OF STOCKHOLDERS. The Trust will take all action necessary
in accordance with applicable law and its Declaration of Trust and other
organizational documents to convene a meeting of its shareholders as promptly as
practicable to consider and vote upon the approval of this Agreement and the
transactions contemplated hereby. The Board of Trustees of the Trust, subject to
Section 7.1, shall unanimously recommend that its shareholders approve this
Agreement and the transactions contemplated hereby and the adoption of an
amendment to its Declaration of Trust authorizing merger, and the Trust shall
use its reasonable best efforts to obtain such approval, including, without
limitation, by timely mailing the proxy statement/prospectus contained in the
Form S-4 (as defined in Section 7.7 hereof) to its shareholders and including
such recommendation within such Form S-4; provided, however, that nothing
contained in this Section 7.3 shall prohibit the Board of Trustees of the Trust
from failing to make or withdrawing such recommendation or using their
reasonable best efforts to obtain such approval if the Board of Trustees of the
Trust has determined in good faith, after consultation with and based upon the
advice of counsel, that such action is necessary for such Board of Trustees to
comply with its fiduciary duties to its stockholders under applicable law. It
shall be a condition to the mailing of the Form S-4 that (i) Lexington shall
have received a "comfort" letter from Ernst & Young, independent public
accountants for the Trust, dated as of a date within two business days before
the date on which the Form S-4 shall become effective, with respect to the
financial statements of the Trust included or incorporated in the Form S-4, in
form and substance reasonably satisfactory to Lexington, and customary in scope
and substance for "comfort" letters delivered by independent public accountants
in connection with registration
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statements and proxy statements similar to the Form S-4, and (ii) the Trust
shall have received a "comfort" letter from KPMG Peat Marwick, independent
public accountants for Lexington, dated as of a date within two business days
before the date on which the Form S-4 shall become effective, with respect to
the financial statements of Lexington included or incorporated in the Form S-4,
in form and substance reasonably satisfactory to the Trust, and customary in
scope and substance for "comfort" letters delivered by independent public
accountants in connection with registration statements and proxy statements
similar to the Form S-4.
7.4 FILINGS; OTHER ACTION. Subject to the terms and conditions herein
provided, the Trust and Lexington shall: (a) to the extent required, promptly
make their respective filings with respect to the Merger; (b) use all reasonable
best efforts to cooperate with one another in (i) determining which filings are
required to be made prior to the Effective Time with, and which consents,
approvals, permits or authorizations are required to be obtained prior to the
Effective Time from, governmental or regulatory authorities of the United
States, the several states and foreign jurisdictions and any third parties in
connection with the execution and delivery of this Agreement, the consummation
of the transactions contemplated by this Agreement and (ii) timely making all
such filings and timely seeking all such consents, approvals, permits or
authorization; (c) use all reasonably best efforts to obtain in writing any
consents required from third parties to effectuate the Merger, such consents to
be in reasonably satisfactory form to the Trust and Lexington; and (d) use all
reasonable efforts to take, or cause to be taken, all other actions and do, or
cause to be done, all other things necessary, proper or appropriate to
consummate and make effective the transactions contemplated by this Agreement.
If, at any time after the Effective Time, any further action is necessary or
desirable to carry out the purpose of this Agreement, the proper officers and
trustees or directors of Lexington and the Trust shall take all such necessary
action.
7.5 INSPECTION OF RECORDS. From the date hereof to the Effective Time,
each of the Trust and Lexington shall allow all designated officers, attorneys,
accountants and other representatives of the other access, at all reasonable
times, to the records and files, correspondence, audits and properties, as well
as to all information relating to commitments, contracts, title and financial
position, or otherwise pertaining to the business and affairs, of the Trust and
Lexington and its subsidiaries for purposes related to an evaluation of the
transactions contemplated hereby.
7.6 PUBLICITY. Lexington and the Trust shall consult with each other
before issuing any press release or otherwise making any public statements with
respect to this Agreement or any transaction contemplated herein and shall not
issue any such press release or make any such public statement without the prior
consent of the other party, which consent shall not be unreasonably withheld;
provided, however, that a party may, without the prior consent of the other
party, issue such press release or make such public statement as may be required
by law or the rules of the applicable stock exchange if it has used its
reasonable best efforts to consult with the other party and to obtain such
party's consent but has been unable to do so in a timely manner.
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7.7 REGISTRATION STATEMENT. Lexington and the Trust shall cooperate and
promptly prepare, and Lexington shall file with the SEC on or before June 20,
1997, a Registration Statement on Form S-4 under the Securities Act, with
respect to the shares of Lexington Common Stock issuable in the Merger, a
portion of which Form S-4 shall also serve as the proxy statement with respect
to the meetings of the stockholders of the Trust in connection with Merger (in
its entirety, the "Form S-4"). The parties will cause the Form S-4 to comply as
to form in all material respects with the applicable provisions of the
Securities Act, the Exchange Act and the rules and regulations thereunder. Each
of Lexington and the Trust shall furnish all information about itself and its
business and operation and all necessary financial information to the other as
the other may reasonably request in connection with the preparation of the Form
S-4. Lexington shall use its best efforts, and the Trust will cooperate with
Lexington, to have the Form S-4 declared effective by the SEC as promptly as
practicable. Lexington shall use its best efforts to obtain, prior to the
effective date of the Form S-4, all necessary state securities law or "blue sky"
permits or approvals required to carry out the transactions contemplated by this
Agreement and will pay all expenses incident thereto. Lexington agrees that the
Form S-4 and each amendment or supplement thereto at the time of mailing thereof
and at the time of the meeting of stockholders of the Trust, will not include an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; provided, however,
that the foregoing shall not apply to the extent that any such untrue statement
of a material fact or omission to state a material fact was made by Lexington in
reliance upon and in conformity with information concerning the Trust furnished
to Lexington by the Trust for use in the Form S-4. The Trust agrees that the
information provided by it for inclusion in the Form S-4 and each amendment or
supplement thereto, at the time of mailing thereof and at the time of the
meeting of shareholders of the Trust, will not include an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. Lexington will advise and deliver copies
to the Trust, promptly after it receives notice thereof, of the time when the
Form S-4 has become effective or any supplement or amendment has been filed, the
issuance of any stop order, the suspension of the qualification of the Lexington
Common Stock issuable in connection with the Merger for offering or sale in any
jurisdiction, or any request by the SEC for amendment of the Form S-4 or
comments thereon (which Lexington agrees to promptly respond to) and responses
thereto or requests by the SEC for additional information (which Lexington
agrees to promptly provide).
7.8 LISTING APPLICATION. Prior to the Effective Time, Lexington shall
prepare and submit to the New York Stock Exchange a listing application covering
the shares of Lexington Common Stock issuable in the Merger, and shall obtain
prior to the Effective Time approval for the listing of such Lexington Common
Stock, subject to official notice of issuance.
7.9 FURTHER ACTION. Each party hereto shall, subject to the fulfillment
at or before the Effective Time of each of the conditions of performance set
forth herein or the waiver thereof,
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perform such further acts and execute such documents as may reasonably be
required to effect the Merger. In connection with the Closing, the Trust shall
use its best efforts to deliver to Lexington such deeds, bills of sale,
assignments, certificates, affidavits and indemnities as are required to
effectuate the consummation of the transactions described herein.
7.10 AFFILIATES OF THE TRUST.
(a) At least 30 days prior to the effective date of the Form
S-4, the Trust shall deliver to Lexington a list of names and addresses
of those persons who were, in the Trust's reasonable judgment, at the
record date for its stockholders' meeting to approve the Merger,
"affiliates" (each such person, an "Affiliate") of the Trust within the
meaning of Rule 145. The Trust shall provide Lexington such information
and documents as Lexington shall reasonably request for purposes of
reviewing such list. The Trust shall use its reasonable best efforts to
deliver or cause to be delivered to Lexington, at least 30 days prior
to the Closing Date, from each of the Affiliates of the Trust
identified in the foregoing list, an Affiliate Letter in a form
satisfactory to the Trust and Lexington. Lexington shall be entitled to
place legends as specified in such Affiliate Letters on the
certificates evidencing any shares of Lexington Common Stock to be
received by such Affiliates pursuant to the terms of this Agreement,
and to issue appropriate stop transfer instructions to the transfer
agent for the shares of Lexington Common Stock, consistent with the
terms of such Affiliate Letters.
(b) Lexington shall file the reports required to be filed by
it under the Exchange Act and the rules and regulations adopted by the
SEC thereunder, to the extent required from time to time to enable such
Affiliate to sell shares of Lexington Common Stock received by such
Affiliate in the Merger with registration under the Securities act
pursuant to (i) Rule 145(d)(1) or (ii) any successor rule or regulation
hereafter adopted by the SEC.
7.11 EXPENSES. Subject to the provisions of Article 9, all costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses, except
that, in addition to its own costs and expenses, the Trust will be responsible
for and shall discharge prior to the Closing or from the proceeds of the Cash
Payment all costs associated with environmental audits of the Trust Properties,
which audits have been received and approved by Lexington, and all other closing
costs including, but not limited to, survey charges, third party and
governmental fees (except fees payable to the SEC and state "blue sky" fees,
which shall be paid by Lexington), charges and taxes, and the expenses of the
Trust's attorneys, accountants and investment bankers, except as provided below;
and, in addition to its own costs and expenses, Lexington shall be responsible
for the fees and expenses of its legal counsel, and engineering studies of the
Trust Properties with respect to the structural soundness of the Trust
Properties. The Trust and Lexington shall share equally (i) the printing costs
associated with the Form S-4, provided that the Trust's portion of such costs
shall not
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exceed $15,000; and (ii) restructuring or assumption or amendment fees payable
to the Trust's lenders, provided that Lexington's portion of such fees shall not
exceed $30,000.
7.12 INDEMNIFICATION AND INSURANCE.
(a) In the event of any threatened or actual claim, action,
suit, proceeding or investigation, whether civil, criminal or
administrative, including, without limitation, any such claim, action,
suit, proceeding or investigation in which any person who is now, or
has been at any time prior to the date hereof, or who becomes prior to
the Effective Time, a trustee, officer, employee, fiduciary or agent of
the Trust (the "Indemnified Parties") is, or is threatened to be, made
a party based in whole or in part on, or arising in whole or in part
out of, or pertaining to (i) the fact that he, she or it is or was a
trustee, officer, employee or agent of the Trust, or is or was serving
at the request of the Trust as a trustee, officer, employee or agent of
another corporation, partnership, joint venture, trust or other
enterprise, or (ii) this Agreement or any of the transactions
contemplated hereby, whether in any case asserted or arising before or
after the Effective Time, the parties hereto agree to cooperate and use
their reasonable best efforts to defend against and respond thereto. It
is understood and agreed that the Trust shall indemnify and hold
harmless, and after the Effective Time Lexington shall indemnify and
hold harmless, as and to the full extent permitted by applicable law or
the Declaration of Trust of the Trust, each Indemnified Party against
any losses, claims, damages, liabilities, costs, expenses (including
attorneys' fees and expenses, judgments, fines and amounts paid in
settlement in connection with any such threatened or actual claim,
action, suit, proceeding or investigation, and in the event of any such
threatened or actual claim, action, suit, proceeding or investigation
(whether asserted or arising before or after the Effective Time); (i)
the Trust, and the Lexington after the Effective Time, shall promptly
pay expenses in advance of the final disposition of any claim, suit,
proceeding or investigation to each Indemnified Party to the full
extent permitted by law, (ii) the Indemnified Parties may retain
counsel satisfactory to them, provided such counsel is reasonably
satisfactory to Lexington, and the Trust, and Lexington after the
Effective Time, shall promptly pay all fees and expenses of such
counsel for the Indemnified Parties after reasonably detailed
statements therefor are received, and (iii) the Trust and Lexington
will use their respective reasonable best efforts to assist in the
vigorous defense of any such matter; provided, that neither the Trust
nor Lexington shall be liable for any settlement effected without its
prior written consent (which consent shall not be unreasonably
withheld); and provided further that the Lexington shall have no
obligation hereunder to any Indemnified Party when and if a court of
competent jurisdiction shall ultimately determine, and such
determination shall have become final and non-appealable, that
indemnification of such Indemnified Party in the manner contemplated
hereby is prohibited by applicable law. The Indemnified Parties as a
group may retain only one law firm to represent them with respect to
any single action unless there is, under applicable standards of
professional conduct, a conflict on any significant issue between the
positions of any two or more Indemnified Parties. Any Indemnified Party
wishing to claim indemnification under this Section 7.12, upon learning
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of any such claim, action, suit, proceeding or investigation, shall
notify the Trust and, after the Effective Time, Lexington, thereof,
provided that the failure to so notify shall not affect the obligations
of the Trust or Lexington except to the extent such failure to notify
materially prejudices such party.
(b) Lexington agrees that all rights to indemnification
existing in favor, and all limitations on the personal liability, of
the Indemnified Parties provided for in the Trust's Declaration or
similar organizational documents as in effect as of the date hereof
with respect to matters occurring prior to the Effective Time shall
survive the Merger and shall continue in full force and effect for a
period of not less than six (6) years from the Effective Time;
provided, however, that all rights to indemnification in respect of any
claim (a "Claim") asserted or made within such period shall continue
until the disposition of such Claim.
(c) This Section 7.12 is intended for the irrevocable benefit
of, and to grant third party rights to, the Indemnified Parties and
shall be binding on all successors and assigns of Lexington and the
Trust. Each of the Indemnified Parties shall be entitled to enforce the
covenants contained in this Section 7.12 and Lexington acknowledges and
agrees that each Indemnified Party would suffer irreparable harm and
that no adequate remedy at law exists for a breach of such covenants.
(d) In the event Lexington or any of its successors or assigns
(i) consolidates with or merges into any other person or entity and
shall not be the continuing or surviving corporation or entity of such
consolidation or merger or (ii) transfers or conveys all or
substantially all of its properties and assets to any person or entity,
then, and in each such case, proper provision shall be made so that the
successors and assigns of Lexington assume the obligations set forth in
this Section 7.12.
7.13 REORGANIZATION. From and after the date hereof and until the
earlier of the Effective Time or the date on which this Agreement is terminated
in accordance with its terms, none of Lexington, the Trust or its affiliates
shall (i) knowingly take any action, or knowingly fail to take any action, that
would jeopardize qualification of the Merger as a reorganization within the
meaning of Section 368(a) of the Code or (ii) enter into any contract,
agreement, commitment or arrangement with respect to the foregoing. Following
the Effective Time, Lexington shall use its reasonable best efforts to conduct
its business in a manner that would not jeopardize the characterization of the
Merger as a reorganization within the meaning of Section 368(a) of the Code.
7.14 PAYMENT OF ADVISORY FEES AND TRANSACTION EXPENSES. Notwithstanding
anything to the contrary set forth in this Agreement, Lexington and the Trust
hereby agree that, immediately prior to, or upon, the Effective Time, the Trust
shall pay at Closing to the Trust Advisor the termination fee described in the
Advisory Services Agreement dated September 22, 1989 between the Trust and the
Advisor, to the extent not waived. The Trust will pay all its
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accrued and unpaid obligations and its costs relating to the Merger, so that
Lexington will assume no liabilities of the Trust other than the mortgages and
other obligations described on Schedule 4.4 and those expenses described in
Section 7.11.
7.15 REIT STATUS. Notwithstanding anything to the contrary set forth in
this Agreement, nothing in this Agreement shall prohibit the Trust from taking,
and the Trust hereby agrees to take, any action at any time or from time to time
that in the reasonable judgment of the Trust is legally necessary for the Trust
to maintain its qualification as a REIT within the meaning of Sections 856-860
of the Code for any period or portion thereof ending on or prior to the Merger
including without limitations, making dividend or distribution payments to
stockholders. To the extent that any dividends or distributions are paid to the
Trust shareholders other than the payments permitted to be made pursuant to
Section 7.2, the Share Value shall be reduced by the per share amount of such
dividend or distribution payments. Prior to the payment of any such dividend or
distribution contemplated by the preceding sentence, the Trust shall provide
written notice of its intention to make such dividend or distribution and the
reasons therefor to Lexington. Following the Merger, Lexington shall use its
best efforts to take any such actions as may be necessary to maintain the
Trust's status as a REIT for any period or portion thereof ending on or prior to
the Merger (including, without limitation, the mailing of stockholder demand
letters as required by Treasury Regulations sec. 1.857-8).
8
CONDITIONS PRECEDENT
8.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The
respective obligation of each party to effect the Merger and the other
transactions contemplated herein shall be subject to the fulfillment at or prior
to the Effective Time of the following conditions, any or all of which may be
waived, in whole or in part by the parties hereto, to the extent permitted by
applicable law:
(a) This Agreement and the transactions contemplated hereby
shall have been approved by the requisite vote of shareholders of the
Trust, and the Trust's shareholders shall have approved an amendment to
the Trust's Declaration of Trust authorizing the Merger.
(b) Neither of the parties hereto shall be subject to any
order, ruling or injunction of a court of competent jurisdiction which
prohibits the consummation of the transactions contemplated by this
Agreement. In the event any such order, ruling or injunction shall have
been issued, each party agrees to use its best efforts to have any such
order, ruling or inunction lifted, stayed or reversed.
(c) The Form S-4 shall have been declared effective by the SEC
under the Securities Act, and no stop order suspending the
effectiveness of the Form S-4 shall have
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been issued by the SEC, and no proceedings for that purpose shall have
been initiated or, to the knowledge of Lexington or the Trust,
threatened by the SEC.
(d) Lexington shall have obtained the approval for the listing
of the shares of Lexington Common Stock issuable in the Merger on the
New York Stock Exchange, subject to official notice of issuance.
(e) All consents, authorizations, orders and approvals of (or
filings or registrations with) any governmental commission, board,
other regulatory body or third parties required to be made or obtained
by Lexington, the Trust and any affiliated entities in connection with
the execution, delivery and performance of this Agreement shall have
been obtained or made, including obtaining any consents or approvals
which are required from any holders of mortgages affecting any Trust
Properties (the "Lender Consents"); provided, however, approvals or
consents are not required where the failure to have obtained or made
any such consent, authorization, order, approval, filing or
registration, would not have a Trust Material Adverse Effect or a
Lexington Material Adverse Effect, as the case may be.
8.2 CONDITIONS TO OBLIGATIONS OF THE TRUST TO EFFECT THE MERGER. The
obligation of the Trust to effect the Merger shall be subject to the fulfillment
at or prior to the Effective Time of the following conditions, unless waived by
the Trust:
(a) Each of the representations and warranties of Lexington
contained in this Agreement shall be true and correct in all material
respects as of the date of this Agreement and as of the Effective Time
as though made on and as of the Effective Time and the Trust shall have
received a certificate, dated the Closing Date, signed on behalf of
Lexington by the Chairman, Vice Chairman or President of Lexington to
the foregoing effect.
(b) Lexington shall have performed or complied in all material
respects with all agreements and covenants required by this Agreement
to be performed or complied with by it on or prior to the Effective
Time, and the Trust shall have received a certificate, dated the
Closing Date, signed on behalf of Lexington by the Chairman, Vice
Chairman or President of Lexington to the foregoing effect.
(c) The Trust shall have received the opinion of counsel,
reasonably acceptable to the Trust, and subject to customary conditions
and qualifications (including reliance, in part, on representations of
Lexington and the Trust), to the effect that the Merger will be treated
for federal income tax purposes as a tax-free reorganization qualifying
under the provisions of Sections 368(a) of the Code, which opinion
shall not have been withdrawn or modified in any material respect.
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Section 8.3 CONDITIONS TO OBLIGATION OF LEXINGTON TO EFFECT THE MERGER.
The obligations of Lexington to effect the Merger shall be subject to the
fulfillment at or prior to the Closing Date of the following conditions, unless
waived by Lexington:
(a) Each of the representations and warranties of the Trust
contained in this Agreement shall be true and correct in all material
respects as of the date of this Agreement and as of the Effective Time
as though made on and as of the Effective Time, and Lexington shall
have received a certificate, dated the Closing Date, signed on behalf
of the Trust by a trustee of the Trust to the foregoing effect.
(b) The Trust shall have performed or complied in all material
respects with all agreements and covenants required by this Agreement
to be performed or complied with by it on or prior to the Effective
Time, and Lexington shall have received a certificate, dated the
Closing Date, signed on behalf of the Trust by the a trustee of the
Trust to the foregoing effect.
(c) Lexington shall have received the opinion of counsel,
reasonably acceptable to Lexington, and subject to customary conditions
and qualifications (including reliance, in part, on representations of
Lexington and the Trust), to the effect that the Merger will be treated
for federal income tax purposes as a tax-free reorganization qualifying
under the provisions of Sections 368(a) of the Code, which opinion
shall not have been withdrawn or modified in any material respect.
(d) Estoppel certificates in form reasonably acceptable to
Lexington and otherwise indicating that all Leases are in full force
and effect and there are no defaults thereunder shall have been
obtained and delivered to Lexington.
(e) Lexington shall have received the letters from Affiliates
of the Trust referred to in Section 7.10, and such letters shall be in
full force and effect.
(f) None of the Properties shall have been encumbered by any
lien, easement, covenant, restriction or other title matter not
reflected on the Title Policies for the related property other than
those title matters set forth on Title Reports delivered to Lexington.
Lexington shall have received title reports (or, at its option, title
insurance policies) updated through the Effective Time confirming the
foregoing status of title to the Properties as of the Effective Time.
(g) The Trust shall have paid any real estate transfer or
similar taxes incurred in connection with the Merger which are payable
in connection with filing a certificate of merger or quitclaim deed,
but not otherwise.
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(h) Lexington shall have received evidence reasonably
satisfactory to it that the Trust's mortgage lenders have approved the
assumption by Lexington of the mortgages on each of the Trust's
Properties.
(i) Each guarantor of any lease relating to any of the Trust's
properties shall have agreed to the continuing effectiveness of such
guarantee upon confirmation of the Merger.
(j) Lexington shall have received with respect to the Trust
Property located in Virginia (A) a survey reasonably acceptable to
Lexington and its counsel showing Parcels 1, 2, and 3 as described in
the Ground Lease and Agreement dated as of February 28, 1990 between
CRA Acquisition Corp. and Circuit City Stores, Inc., and (B) back-up
documentation regarding the dedication for public use of such Parcels 2
and 3, as referenced in Lawyers Title Insurance Corporation title
commitment dated October 8, 1996, case number 1960836.
9
TERMINATION
9.1 TERMINATION. This Agreement may be terminated and abandoned at any
time prior to the Effective Time, whether before or after approval and adoption
of this Agreement by the stockholders of the Trust:
(a) by mutual written consent of Lexington and the Trust; or
(b) by either Lexington or the Trust if any United States
federal or state court of competent jurisdiction or other governmental
entity shall have issued an order, decree or ruling or taken any other
action permanently restraining, enjoining or otherwise prohibiting the
Merger and such order, decree, ruling or other action shall have become
final and non-appealable, provided that the party seeking to terminate
shall have used its best efforts to appeal such order, decree, ruling
or other action; or
(c) by Lexington upon a material breach of any representation,
warranty, covenant or agreement on the part of the Trust set forth in
this Agreement, or if any representation or warranty of the Trust shall
have become untrue, in either case such that the conditions set forth
in Section 8.3(a) or Section 8.3(b), as the case may be, would be
incapable of being satisfied by October 1, 1997; provided, however,
that, in any case, a willful breach shall be deemed to cause such
conditions to be incapable of being satisfied for purposes of this
Section 9.1(c); or
(d) by the Trust upon a material breach of any representation,
warranty, covenant or agreement on the part of Lexington set forth in
this Agreement, or if any representation or warranty of Lexington shall
have become untrue, in either case such that
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the conditions set forth in Section 8.2(a) or Section 8.2(b), as the
case may be, would be in capable of being satisfied by October 1, 1997;
provided, however, that, in any case, a willful breach shall be deemed
to cause such conditions to be incapable of being satisfied for
purposes of this Section 9.1(d); or
(e) by Lexington if (i) the Board of Trustees of the Trust
shall have withdrawn, amended, modified or changed its approval or
recommendation of this Agreement or any of the transactions
contemplated hereby in a manner adverse to Lexington or shall have
resolved to do so; (ii) the Trust shall have failed as soon as
practicable to mail the Form S-4 to its stockholders after the Form
S-4 has been declared effective by the SEC or to include the
recommendation of its Board of Trustees of this Agreement as
contemplated by this Agreement and the transactions contemplated hereby
in the Form S-4, or the requisite vote of shareholders shall not have
been obtained at a duly held meeting on or prior to October 1, 1997; or
(iii) the Board of Trustees of the Trust shall have recommended that
shareholders of the Trust accept or approve an Acquisition Proposal by
a person other than Lexington (or the Trust or its Board of Trustees
shall have resolved to do such) or a tender offer or exchange offer for
15% or more of the outstanding Trust Shares is commenced (other than by
Lexington) and the Board of Trustees recommends that the shareholders
of the Trust tender their shares in such tender or exchange offer; or
(f) by the Trust, (i) if the Board of Trustees recommends to
the Trust's shareholders approval or acceptance of an Acquisition
Proposal by a person other than Lexington, but only in the event that
the Board of Trustees of the Trust, after consultation with and based
upon the advice of Day, Berry & Howard or another nationally-recognized
law firm selected by the Board of Trustees of the Trust, has determined
in good faith that such action is necessary for the Board of Trustees
of the Trust to comply with its fiduciary duties to its shareholders
under applicable law or (ii) if the average closing sales price of
Lexington Common Stock on the New York Stock Exchange on twenty (20)
trading days ending on the fifth business day immediately preceding (A)
the date on which the Form S-4 is declared effective by the SEC, is
equal to or less than $10.50 or (B) the date on which the meeting of
the Trust shareholders is to be convened pursuant to Section 7.3
hereof, is equal to or less than $11.125, without any liability on the
part of the Trust; or
(g) by the Trust if (i) this Agreement and the transactions
contemplated hereby shall have failed to receive the requisite vote for
approval and adoption by the shareholders of the Trust upon the holding
of a duly convened shareholder meeting or (ii) within ten days after
receipt of notice from Lexington of any Material Structural Change; or
(h) by Lexington if (i) any tenant of the Trust shall have
filed a petition commencing a voluntary case concerning such tenant
under any chapter of Title 11 of the United States Code entitled
"Bankruptcy," or an involuntary case shall be commenced against such
tenant under any such chapter and relief is ordered against such tenant
or the petition is controverted but is not dismissed within sixty (60)
days after the commencement
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of the case, or (ii) any of the Trust Properties shall have been
substantially destroyed by fire or other casualty and the tenant under
the affected Trust Property shall not be required to apply the casualty
insurance proceeds to restore such Trust Property; or
(i) by either Lexington or the Trust, if the Merger shall not
have been consummated on or before October 1, 1997 (other than due to
the failure of the party seeking to terminate this Agreement to perform
its obligations under this Agreement required to be performed by it at
or prior to the Effective Time).
The right of any party hereto to terminate this Agreement pursuant to
this Section 9.1 shall remain operative and in full force and effect regardless
of any investigation made by or on behalf of any party hereto, any person
controlling any such party or any of their respective employees, officers,
trustees, directors, agents, representatives or advisors, whether prior to or
after the execution of this Agreement.
"Material Structural Change" shall mean (i) any event which will result
in an increase in the number of issued and outstanding shares of capital stock
of Lexington on a Fully Diluted Basis, in any single transaction, in excess of
50% of the number of issued and outstanding shares of capital stock of Lexington
on a Fully Diluted Basis immediately prior to the consummation of such event,
(ii) the date on which any two of the four members of Senior Management are no
longer serving as officers of Lexington, (iii) the date on which Lexington's
ratio of debt to total market capitalization exceeds 60%, or (iv) the first
public announcement of any transaction which will result in the acquisition of
Lexington, by way of merger, consolidation, sale of substantially all of
Lexington's assets or otherwise and in which Lexington will not be the surviving
entity.
"Fully Diluted Basis" shall mean the number of issued and outstanding
shares of capital stock of Lexington assuming conversion of all operating
partnership units and shares of convertible preferred stock, the exercise of all
warrants and options and the conversion of all other securities convertible
into, or exchangeable for, shares of Lexington capital stock.
9.2 EFFECT OF TERMINATION. In the event of the termination and
abandonment of this Agreement pursuant to Section 9.1 hereof, this Agreement
shall forthwith become void and have no effect, without any liability on the
part of any party hereto or its affiliates, trustees, directors, officers or
stockholders and all rights and obligations of any party hereto shall cease
except for the agreements contained in Section 9.3 and Section 10.5; provided,
however, that nothing contained in this Section 9.2 shall relieve any party from
liability for any breach of this Agreement.
9.3 FEES AND EXPENSES.
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(a) Except as set forth in Section 7.11, fees and expenses
incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses,
whether or not the Merger is consummated.
(b) The Trust shall pay Lexington a fee of $700,000 (the
"Fee") upon the termination of this Agreement by the Trust pursuant to
Section 9.1(f)(i) or Lexington pursuant to Section 9.1(e)(iii).
(c) The Trust shall pay Lexington the Fee if this Agreement is
terminated by Lexington pursuant to Section 9.1(e)(i) or Section
9.1(e)(ii) (if, in the case of Section 9.1(e)(ii), the Trust shall have
failed to mail the Form S-4 to its stockholders or shall have failed to
include its recommendation of this Agreement in such Form S-4), and
thereafter on or prior to the 60th day after the date of such
termination the Trust enters into a definitive agreement relating to
any merger, consolidation, share exchange, sale of a substantial
portion of its assets, liquidation or other similar extraordinary
corporate transaction.
(d) The Fee payable pursuant to Section 9.3(b) shall be paid
within five business days after the first to occur of any of the events
described in Section 9.3(b). The Fee payable pursuant to Section 9.3(c)
shall be paid within five business days following the consummation of
any such alternative transaction. The payment of the Fee under this
Section 9.3 shall constitute full satisfaction of any obligation of the
Trust or right of Lexington under this Agreement or otherwise, and upon
payment of the Fee, the Trust will have no further liability to
Lexington whatsoever under this Agreement or otherwise under any other
theory of recovery.
9.4 EXTENSION; WAIVER. At any time prior to the Effective Time, any
party hereby, by action taken by its Board of Trustees or Board of Directors,
may, to the extent legally allowed, (a) extend the time for the performance of
any of the obligations or other acts of the other parties hereto, (b) waive any
inaccuracies in the representations and warranties made to such party contained
herein or in any document delivered pursuant hereto and (c) waive compliance
with any of the agreements or conditions for the benefit of such party contained
herein. Any agreement on the part of a party hereto to any such extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party.
10
GENERAL PROVISIONS
10.1 NONSURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. All
representations, warranties and agreements in this Agreement or in any
instrument delivered pursuant to this Agreement shall terminate as of the
Effective Time and shall not survive the Merger, provided, however, that the
agreements contained in Article 4, the last sentence of Section 7.4 and Sections
7.10, 7.12 and 7.13 and this Article 10 shall survive the Merger.
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10.2 NOTICES. Any notice required to be given hereunder shall be in
writing and shall be sent by facsimile transmission (confirmed by any of the
methods that follow), courier service (with proof of service), hand delivery or
certified or registered mail (return receipt requested and first-class postage
prepaid) and addressed as follows:
If to Lexington: Lexington Corporate Properties, Inc.
355 Lexington Avenue
New York, New York 10017
Attention: T.W. Eglin, President
With copies to: Paul, Hastings, Janofsky & Walker LLP
399 Park Avenue, Thirty First Floor
New York, New York 10022
Attn: Barry A. Brooks and Scott M. Wornow
If to the Trust: Corporate Realty Advisors, Inc.
388 Greenwich Street, 33rd Floor
New York, NY 10013
Attn: James C. Cowles
With copies to: Day, Berry & Howard
260 Franklin Street
Boston, MA 02110
Attn: Lewis A. Burleigh, Esq.
or to such other address as any party shall specify by written notice so given,
and such notice shall be deemed to have been delivered as of the date so
delivered.
10.3 ASSIGNMENT; BINDING EFFECT; BENEFIT. Neither this Agreement nor
any of the rights, interests or obligations hereunder shall be assigned by any
of the parties hereto (whether by operation of law or otherwise) without the
prior written consent of the other parties; provided, however, that the Trust
has received a copy of Lexington's proxy statement dated April 25, 1997 which
sets forth a proposal to reorganize Lexington as a Maryland real estate
investment trust pursuant to a merger of Lexington with and into a newly-formed
Maryland real estate investment trust (the "MDREIT"), with such MDREIT to be the
surviving entity. Notwithstanding anything to the contrary, the Trust consents
to the reorganization described in such proxy and agrees that all rights and
obligations of Lexington under this Agreement shall be assumed by, and inure to
the benefit of, the MDREIT upon consummation of such reorganization to the same
extent as if the MDREIT had been a signatory hereto and Lexington shall cause
such MDREIT to assume all such rights and obligations as a condition to such
reorganization. Subject to the preceding sentence, this Agreement shall be
binding upon and shall inure to the benefit of the parties hereto
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and their respective successors and assigns. Notwithstanding anything contained
in this Agreement to the contrary, but subject to the first and second sentences
of this Section, except for the provisions of Article 4 and Sections 7.10, 7.12
and 7.13, nothing in this Agreement, expressed or implied, is intended to confer
on any person other than the parties hereto or their respective heirs,
successors, executors, administrators and assigns any rights, remedies,
obligations or liabilities under or by reason of this Agreement.
10.4 ENTIRE AGREEMENT. This Agreement, the Schedules and any documents
delivered by the parties in connection herewith constitute the entire agreement
among the parties with respect to the subject matter hereof and supersede all
prior agreements and understandings among the parties with respect thereto
except that the Confidentiality Agreement (as hereinafter defined) shall remain
in effect and shall be binding upon Lexington and the Trust in accordance with
its terms.
10.5 CONFIDENTIALITY. Each of Lexington and the Trust understands and
agrees that it is still bound by and subject to the terms of the Confidentiality
Agreement dated as of September 16, 1996, by and between Lexington and the Trust
(the "Confidentiality Agreement").
10.6 AMENDMENT. This Agreement may be amended by the parties hereto, by
action taken by their respective Board of Trustees and Board of Directors, at
any time before or after approval of matters presented in connection with the
Merger by the shareholders of the Trust, but after any such stockholder
approval, no amendment shall be made which by law requires the further approval
of stockholders without obtaining such further approval. This Agreement may not
be amended except by an instrument in writing signed on behalf of each of the
parties hereto.
10.7 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York without regard to its rules
of conflict of laws. Each of the Trust and Lexington hereby irrevocably and
unconditionally consents to submit to the exclusive jurisdiction of the courts
of the State of New York and of the United States of America located in the
State of New York (the "New York Courts") for any litigation arising out of or
relating to this Agreement and the transactions contemplated hereby (and agrees
not to commence any litigation relating thereto except in such courts), waives
any objection to the laying of venue of any such litigation in the New York
Courts and agrees not to plead or claim in any New York Court that such
litigation brought therein has been brought in any inconvenient forum.
10.8 COUNTERPARTS. This Agreement may be executed by the parties hereto
in separate counterparts, each of which so executed and delivered shall be an
original, but all such counterparts shall together constitute one and the same
instrument. Each counterpart may consist of a number of copies hereof each
signed by less than all, but together signed by all of the parties hereto.
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10.9 HEADINGS. Headings of the Articles and Sections of this Agreement
are for the convenience of the parties only, and shall be given no substantive
or interpretive effect whatsoever.
10.10 WAIVERS. Except as provided in this Agreement, no action taken
pursuant to this Agreement, including, without limitation, any investigation by
or on behalf of any party, shall be deemed to constitute a waiver by the party
taking such action of compliance with any representations, warranties, covenants
or agreements contained in this Agreement. The waiver by any party hereto of a
breach of any provision hereunder shall not operate or be construed as a waiver
of any prior or subsequent breach of the same or any other provision hereunder.
10.11 INCORPORATION. The Schedules attached hereto and referred to
herein are hereby incorporated herein and made a part hereof for all purposes as
if fully set forth herein.
10.12 SEVERABILITY. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
10.13 INTERPRETATION AND CERTAIN DEFINITIONS.
(a) In this Agreement, unless the context otherwise requires,
words describing the singular number shall include the plural and vice
versa, and words denoting any gender shall include all genders.
(b) As used in this Agreement, the word "Subsidiary" or
"Subsidiaries" when used with respect to any party means any
corporation, partnership, joint venture, business trust or other
entity, of which such party directly or indirectly owns or controls at
least a majority of the securities or other interests having by their
terms ordinary voting power to elect a majority of the board of
directors or others performing similar functions with respect to such
corporation or other organization.
(c) As used in this Agreement, the word "person" means an
individual, a corporation, a partnership, an association, a joint-stock
company, a trust, a limited liability company, any unincorporated
organization or any other entity.
(d) As used in this Agreement, the word "affiliate" shall have
the meaning set forth in Rule 12b-2 of the Exchange Act.
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10.14 SCHEDULES. Any fact or item disclosed in one section of any
schedule hereto ("Schedule") shall be deemed to be disclosed with respect to any
other section of such Schedule to the extent that the facts regarding the fact
or item disclosed is adequate so as to make reasonably clear or otherwise make
the other party to which such Schedule is delivered reasonably aware that such
fact or item (and description relating thereto) is applicable to such other
section of the Schedule, whether or not an explicit cross-reference appears.
10.15 LIMITATION OF LIABILITY. Reference is hereby made to the
Declaration of Trust establishing Corporate Realty Income Trust I dated June 27,
1989, as amended and restated as of October 3, 1989, and as further amended as
of December 27, 1995, copies of which Declaration of Trust and amendments are on
file in the office of the Secretary of the Commonwealth of Massachusetts. The
name "Corporate Realty Income Trust I" refers to the trustees under said
Declaration as trustees, and no trustee, shareholder, officer, employee or agent
of Corporate Realty Income Trust I shall be held to any personal liability in
connection with the affairs of Corporate Realty Income Trust I or under this
Agreement, but the trust estate only is liable.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties have executed this Agreement and caused
the same to be duly delivered on their behalf on the day and year first written
above.
ATTEST: CORPORATE REALTY INCOME TRUST I
By:______________________________ By:______________________________________
Title: Name:
Title:
ATTEST: LEXINGTON CORPORATE PROPERTIES, INC.
By:______________________________ By:______________________________________
Title: Name:
Title:
43
<PAGE> 1
Exhibit 10.1
MCFARLAND DEWEY & CO.
230 PARK AVENUE
NEW YORK, NEW YORK 10167-1450
TELEPHONE: (212) 867-4949
FACSIMILE: (212) 867-0334
May 29, 1997
Board of Trustees
Corporate Realty Income Trust I
388 Greenwich Street, 33rd Floor
New York, NY 10013
Members of the Board:
We understand that Corporate Realty Income Trust I ("CRIT" or the
"Company"), a Massachusetts business trust, and Lexington Corporate Properties,
Inc. ("Lexington"), a Maryland corporation, have entered into an Agreement and
Plan of Merger, dated as of May 29, 1997 (the "Merger Agreement") which
provides, among other things, for the merger (the "Merger") of CRIT with and
into Lexington. Pursuant to the Merger, each issued and outstanding share of
beneficial interest, par value $.10 per share, of CRIT ("CRIT Shares") will be
converted into the right to receive, subject to certain adjustments and
limitations, common stock, par value $.0001 per share, of Lexington valued at
$17.4 million. The terms and conditions of the Merger are more fully set forth
in the Merger Agreement.
You have asked for our opinion as to whether the consideration to be
received by the holders of CRIT Shares pursuant to the Merger Agreement (the
"Merger Consideration") is fair from a financial point of view to such holders.
For purposes of the opinion set forth herein, we have:
i) reviewed certain publicly available financial statements and
other information of CRIT and Lexington, respectively;
ii) reviewed certain internal financial statements and other
financial and operating data concerning CRIT;
iii) analyzed certain financial projections prepared by the
management of CRIT;
iv) discussed the past and current operations and financial
condition and the prospects of CRIT and Lexington with senior
executives of CRIT and Lexington, respectively;
v) reviewed the reported prices and trading activity for the CRIT
Shares and the Lexington Common Stock;
vi) compared the financial performance of CRIT and Lexington and
the prices and trading activity of the CRIT Shares and the
Lexington Common Stock with that of certain other comparable
companies and their securities;
vii) reviewed and discussed with the senior management of CRIT and
Lexington the strategic objectives of the Merger and certain
other benefits of the Merger;
<PAGE> 2
viii) analyzed certain pro forma financial projections for the
combined company;
ix) reviewed the financial terms, to the extent publicly
available, of certain comparable merger transactions;
x) reviewed the Merger Agreement and certain related documents;
and
xi) performed such other analyses and considered such other
factors as we have deemed appropriate.
We have assumed and relied upon without independent verification of the
accuracy and completeness of the information reviewed by us for purposes of this
opinion. With respect to the financial projections, including the estimates of
synergies and other benefits expected to result from the Merger, we have assumed
that they have been reasonably prepared on bases reflecting the best currently
available estimates and judgements of the future financial performance of CRIT
and Lexington, respectively. We have not made any independent valuation or
appraisal of the assets or liabilities of CRIT and Lexington. We have been
furnished third party appraisals of the three CRIT properties dated March 12,
1997. Our opinion is necessarily based on economic, market and other conditions
as in effect on, and the information made available to us as of, the date
hereof.
We did not participate in discussions and negotiations among
representatives of CRIT and Lexington and their financial and legal advisors nor
did we review another business plan or opportunity that might have been
presented to CRIT.
It is understood that this letter is for the information of the Board
of Trustees of CRIT and may not be used for any other purpose without our prior
written consent, except that this opinion may be included in its entirety in any
filing made by CRIT with the Securities and Exchange Commission with respect to
the Merger. We express no opinion and make no recommendation as to how the
shareholders of CRIT should vote at the shareholders' meeting held in connection
with the Merger.
Based on and subject to the foregoing, we are of the opinion on the
date hereof that the Merger Consideration is fair from a financial point of view
to the holders of CRIT Shares.
Very truly yours,
/s/ McFarland Dewey & Co.
McFarland Dewey & Co.
<PAGE> 1
Exhibit 23.1
ACCOUNTANTS' CONSENT
The Board of Directors
Lexington Corporate Properties, Inc.
We consent to the use of our report incorporated herein by reference
and to the reference to our firm under the heading "Experts" in the
registration statement.
/s/ KPMG PEAT MARWICK LLP
-------------------------
KPMG PEAT MARWICK LLP
New York, New York
June 27, 1997
<PAGE> 1
Exhibit No. 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Experts",
"CRIT Historical Financial Data", and "Selected Financial Data" in the
Registration Statement (Form S-4 No. 333- ) and related Proxy
Statement/Prospectus of Lexington Corporate Properties, Inc. for the
registration of 1,496,907 shares of its common stock and to the incorporation by
reference therein of our report dated January 29, 1997, with respect to the
financial statements and schedule of Corporate Realty Income Trust I included in
its Form 10-K for the year ended December 31, 1996, filed with the Securities
and Exchange Commission.
/s/ ERNST & YOUNG LLP
---------------------
ERNST & YOUNG LLP
New York, New York
June 26, 1997
