Filed Pursuant to Rule 424(b)(5)
Registration No. 333-109393
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED OCTOBER 22, 2003)
2,700,000 SHARES
[LEXINGTON LOGO]
LEXINGTON CORPORATE PROPERTIES TRUST
6.50% SERIES C CUMULATIVE CONVERTIBLE PREFERRED STOCK
LIQUIDATION PREFERENCE $50.00 PER SHARE
We are offering 2,700,000 preferred shares of beneficial interest,
classified as 6.50% Series C Cumulative Convertible Preferred Stock, par value
$0.0001 per share ("Series C Preferred Shares"). We will pay cumulative
dividends on the Series C Preferred Shares from and including the date of
original issuance in the amount of $3.25 per share each year, which is
equivalent to 6.50% of the $50.00 liquidation preference per share. Dividends on
the Series C Preferred Shares will be payable quarterly in arrears, beginning on
February 15, 2005. Our only other preferred shares of beneficial interest
outstanding as of the date of this prospectus supplement are 3,160,000 shares of
our 8.05% Series B Cumulative Redeemable Preferred Stock, par value $0.0001 per
share ("Series B Preferred Shares") with a liquidation preference of $25.00 per
share. The Series B Preferred Shares rank on parity with the Series C Preferred
Shares.
Holders may convert the Series C Preferred Shares into our common shares
subject to certain conditions. The conversion rate will initially be 1.8643
common shares per Series C Preferred Share, which is equivalent to an initial
conversion price of $26.82 per common share. The conversion rate will be subject
to adjustment upon the occurrence of specified events. Upon conversion (pursuant
to a voluntary conversion or the Company Conversion Option) of the Series C
Preferred Shares, we may choose to deliver the conversion value, as defined, to
investors in cash, our common shares, or a combination of cash and our common
shares.
If certain fundamental changes occur, holders may require us in certain
circumstances to repurchase all or part of their Series C Preferred Shares. In
addition, upon the occurrence of certain fundamental changes, we will under
certain circumstances increase the conversion rate by a number of additional
common shares or, in lieu thereof, we may in certain circumstances elect to
adjust the conversion rate upon the Series C Preferred Shares becoming
convertible into shares of the public acquiring or surviving company, in each
case described herein.
On or after November 16, 2009, we may, at our option, cause the Series C
Preferred Shares to be automatically converted into that number of common shares
that are issuable at the then prevailing conversion rate. We may exercise our
conversion right only if, for twenty (20) trading days within any period of
thirty (30) consecutive trading days (including the last trading day of such
period), the closing price of our common shares equals or exceeds 125% of the
then prevailing conversion price of the Series C Preferred Shares.
Investors in our Series C Preferred Shares will generally have no voting
rights, but will have limited voting rights if we fail to pay dividends for six
(6) or more quarters and under certain other circumstances.
Our Series C Preferred Shares are subject to certain restrictions on
ownership designed to preserve our qualification as a real estate investment
trust for federal income tax purposes. See "Description of Series C Preferred
Shares -- Restrictions on Ownership" beginning on page S-39 of this prospectus
supplement and "Restrictions on Transfers of Capital Stock and Anti-Takeover
Provisions" beginning on page 20 of the accompanying prospectus for more
information about these restrictions.
No market currently exists for our Series C Preferred Shares. We have
applied to list our Series C Preferred Shares on the New York Stock Exchange
(the "NYSE") under the symbol "LXP-----pc," subject to official notice of
issuance. We expect trading on the NYSE to commence within thirty (30) days
after the initial delivery of the Series C Preferred Shares. Our common shares
of beneficial interest currently trade on the NYSE under the symbol "LXP." Our
Series B Preferred Shares trade on the NYSE under the symbol "LXP-----pb." On
December 2, 2004, the last reported sale price of our common shares on the NYSE
was $22.35 per share.
The underwriter has an option to purchase up to an additional 400,000 Series
C Preferred Shares from us within thirty (30) days from the date of this
prospectus supplement to cover over-allotments, if any.
Investing in our Series C Preferred Shares involves certain risks. See "Risk
Factors" beginning on page S-10 of this prospectus supplement.
PER SHARE TOTAL
--------- ------------
Public offering price....................................... $50.0000 $135,000,000
Underwriting discount....................................... $ 1.3125 $ 3,543,750
Proceeds, before expenses to us............................. $48.6875 $131,456,250
The underwriter expects that the Series C Preferred Shares will be ready for
delivery solely in book-entry form through The Depository Trust Company on or
about December 8, 2004.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------
Sole Manager
BEAR, STEARNS & CO. INC.
The date of this prospectus supplement is December 3, 2004.
ABOUT THIS PROSPECTUS SUPPLEMENT
All references to "we," "our" and "us" in this prospectus supplement means
Lexington Corporate Properties Trust and all entities owned or controlled by us
except where it is made clear that the term means only the parent company. The
term "you" refers to a prospective investor.
When used in this prospectus supplement, the phrase "funds from
operations," or FFO, which is a commonly used measurement of the performance of
an equity real estate investment trust, or REIT, as defined by the National
Association of Real Estate Investment Trusts, Inc., is net income (or loss)
computed in accordance with generally accepted accounting principles, excluding
gains or losses from sales of property, plus depreciation and amortization, and
after adjustments for unconsolidated partnerships and joint ventures.
Adjustments for unconsolidated partnerships and joint ventures will be
calculated to reflect FFO on the same basis. FFO does not represent cash
generated from operating activities in accordance with generally accepted
accounting principles and is not necessarily indicative of cash available to
fund cash needs and should not be considered as an alternative to net income as
an indicator of our operating performance or as an alternative to cash flow as a
measure of liquidity.
We have filed with the Securities and Exchange Commission a Registration
Statement on Form S-3, of which the accompanying prospectus forms a part, under
the Securities Act of 1933, as amended. As permitted by the rules and
regulations of the Commission, and as stated in the accompanying prospectus,
this prospectus supplement sets forth the specific terms of the Series C
Preferred Shares being offered and updates certain information included in the
accompanying prospectus. TO THE EXTENT THAT ANY SUBJECT MATTER IS ADDRESSED IN
BOTH THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS, THE INFORMATION
CONTAINED IN THIS PROSPECTUS SUPPLEMENT SUPERSEDES THE INFORMATION CONTAINED IN
THE ACCOMPANYING PROSPECTUS.
CAUTIONARY STATEMENTS CONCERNING FORWARD-LOOKING INFORMATION
Certain information included or incorporated by reference in this
prospectus supplement and the accompanying prospectus may contain
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended, and as such may involve known and unknown risks, uncertainties and
other factors which may cause our actual results, performance or achievements to
be materially different from future results, performance or achievements
expressed or implied by these forward-looking statements. Forward-looking
statements, which are based on certain assumptions and describe our future
plans, strategies and expectations, are generally identifiable by use of the
words "may," "will," "should," "expect," "anticipate," "estimate," "believe,"
"intend," "project," or the negative of these words or other similar words or
terms. Factors which could have a material adverse effect on our operations and
future prospects include, but are not limited to, changes in economic conditions
generally and the real estate market specifically, adverse developments with
respect to our tenants, legislative/regulatory changes including changes to laws
governing the taxation of REITs, availability of debt and equity capital,
changes in interest rates, competition, supply and demand for properties in our
current and proposed market areas, policies and guidelines applicable to REITs
and the other factors described under the heading "Risk Factors" beginning on
page S-10 of this prospectus supplement. These risks and uncertainties should be
considered in evaluating any forward-looking statements contained or
incorporated by reference in this prospectus supplement.
We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
In light of these risks, uncertainties and assumptions, the forward-looking
events discussed or incorporated by reference in this prospectus supplement and
the accompanying prospectus may not occur and actual results could differ
materially from those anticipated or implied in the forward-looking statements.
i
PROSPECTUS SUPPLEMENT SUMMARY
This summary highlights information contained elsewhere in this prospectus
supplement and the accompanying prospectus. Because this is a summary, it may
not contain all of the information that is important to you. Before making a
decision to invest in our Series C Preferred Shares, you should read this entire
prospectus supplement and the accompanying prospectus carefully, especially
"Risk Factors" beginning on page S-10 of this prospectus supplement and
"Available Information" beginning on page S-55 of this prospectus supplement, as
well as the documents incorporated by reference in this prospectus supplement
and the accompanying prospectus, as provided in "Incorporation of Information We
File with the SEC" beginning on page S-57 of this prospectus supplement. Unless
otherwise indicated, (i) all financial and property information is presented as
of September 30, 2004 and (ii) we assume the underwriter's over-allotment option
to purchase up to an additional 400,000 Series C Preferred Shares is not
exercised.
THE COMPANY
We are a self-managed and self-administered real estate investment trust,
commonly referred to as a REIT, formed under the laws of the State of Maryland.
Our common shares and Series B Preferred Shares are traded on the New York Stock
Exchange under the symbols "LXP" and "LXP-----pb," respectively. Our primary
business is the acquisition, ownership and management of a geographically
diverse portfolio of net leased office, industrial and retail properties.
Substantially all of our properties are subject to triple net leases, which are
generally characterized as leases in which the tenant bears all or substantially
all of the costs and cost increases for real estate taxes, utilities, insurance
and ordinary repairs and maintenance. As of September 30, 2004, we had ownership
interests in 138 properties, located in 34 states and containing an aggregate of
approximately 30.0 million net rentable square feet of space. Thirty-three of
these properties, containing approximately 10.1 million net rentable square feet
of space, were held through joint ventures with third parties. Approximately
98.8% of the net rentable square feet was leased.
We grow our portfolio primarily by acquiring properties that are already
subject to a net lease. We have diversified our portfolio by geographical
location, tenant industry segment, lease term expiration and property type with
the intention of providing steady internal growth with low volatility. We
believe that this diversification should help insulate us from regional
recession, industry specific downturns and price fluctuations by property type.
As part of our ongoing efforts, we expect to continue to effect portfolio and
individual property acquisitions and dispositions, expand existing properties,
attract investment grade and other quality tenants, extend lease maturities in
advance of expiration and refinance outstanding indebtedness when advisable.
Additionally, we enter into joint ventures with third-party investors as a means
of creating additional growth and expanding the revenue realized from advisory
and asset management activities.
Our principal executive offices are located at One Penn Plaza, Suite 4015,
New York, New York 10119, our telephone number is (212) 692-7200 and our
Internet address is http://www.lxp.com. NONE OF THE INFORMATION ON OUR WEBSITE
THAT IS NOT OTHERWISE EXPRESSLY SET FORTH IN OR INCORPORATED BY REFERENCE IN
THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING BASE PROSPECTUS IS A PART OF THIS
PROSPECTUS.
RECENT DEVELOPMENTS
GENERAL DEVELOPMENTS (ON AND SUBSEQUENT TO SEPTEMBER 30, 2004)
Lexington/Lion Joint Venture. On September 30, 2004, we expanded our joint
venture with Clarion Lion Properties Fund, LLC, or "Clarion," by obtaining
additional capital commitments of $25.7 million and $60.0 million from us and
Clarion, respectively. The new commitments bring the total equity committed to
the joint venture ("Lexington/Lion") to $185.7 million and increase its
acquisition capacity by approximately $210 million, assuming 60% mortgage
financing.
Dividend Declaration. On October 14, 2004, we announced that our board of
trustees had declared a dividend of $0.35 per common share payable November 15,
2004 to common shareholders of record as of
S-1
October 29, 2004. Our board of trustees also declared a dividend of $0.503125
per Series B Preferred Share payable November 15, 2004 to Series B Preferred
shareholders of record as of October 29, 2004.
VarTec Telecom, Inc. Bankruptcy. On November 1, 2004, the tenant in our
Dallas, Texas property, VarTec Telcom, Inc., filed for Chapter 11 bankruptcy.
The lease, which expires September 2015 and covers 249,452 square feet, or
approximately 0.8% of our total square footage as of September 30, 2004,
provides for approximately $3.5 million in annual rental revenue, which
represented approximately 2.7% of our consolidated rental revenue for twelve
months ended September 30, 2004. As of September 30, 2004, the property had a
net book value of $28.9 million and we had deferred rent receivable and deferred
loan and lease costs of approximately $1.6 million and $1.5 million,
respectively. As of the date of this prospectus supplement, the property is
encumbered by a $21.0 million non-recourse mortgage which bears a fixed annual
interest at 7.49%, provides for annual debt service of approximately $2.0
million and matures in December 2012 when a balloon payment of approximately
$16.0 million is due. In addition, we have issued a $2.5 million letter of
credit to the lender as additional collateral for the loan.
On November 24, 2004, VarTec Telcom, Inc. filed a motion in the U.S.
Bankruptcy Court in the Northern District of Texas to reject the lease for the
property. A hearing on the motion has been set for December 17, 2004. As a
result of the rejection of the lease, we will incur a fourth quarter non-cash
charge of approximately $2.8 million due to the write-off of deferred rent
receivable and unamortized lease costs. However, based on the information
currently available, we do not expect to record an impairment charge relating to
the real estate.
PROPERTY ACQUISITIONS AND DISPOSITIONS (SUBSEQUENT TO SEPTEMBER 30, 2004)
ACQUISITIONS
Los Angeles, California. On December 1, 2004, we acquired an 83,252 square
foot single-story office/flex facility on a 4.4 acre site in Los Angeles,
California for approximately $17.9 million. Playboy Enterprises, Inc. net leases
63,049 square feet of space in the facility through October, 2012. Sony
Electronics, Inc. leases 20,203 square feet of space in the facility through
August, 2009. The purchase price was paid entirely with cash.
Rancho Cordova, California. On October 20, 2004, we announced that
Lexington/Lion acquired a 158,582 square foot two-story facility located on an
11-acre site in Rancho Cordova, California for approximately $31.8 million. The
facility is leased to Progressive Casualty Insurance Company under a net lease
through July, 2012, with average annual rent of $2.8 million. The facility is
encumbered by a non-recourse mortgage of approximately $17.4 million, bearing
interest at a fixed annual rate of 7.28%, and maturing September 2014.
Lenexa, Kansas. On November 11, 2004, we announced that our joint venture
with the New York Common Retirement Fund, Lexington Acquiport Company II, LLC,
acquired a 77,484 square foot office facility in Lenexa, Kansas for a purchase
price of approximately $13.8 million. The Lenexa, Kansas facility is leased to
Voicestream PCS II Corporation under a net lease through October 2019, with
average annual rent of $1.4 million. T-Mobil USA, Inc. unconditionally
guarantees the tenant's lease obligations. The facility is encumbered by a
non-recourse mortgage of approximately $10.5 million, bearing interest at a
fixed annual rate of 6.27%, and maturing December, 2019.
Olive Branch, Mississippi. On November 22, 2004, we announced that we
acquired a single-story 168,104 square foot distribution facility located in
Olive Branch, Mississippi for a purchase price of approximately $7.0 million.
The Olive Branch, Mississippi facility is leased to Dana Corporation under a net
lease through June, 2012 with average annual rent of $0.6 million. The purchase
price was paid entirely with cash.
Chicago, Illinois. On November 23, 2004, we announced that Lexington/Lion
acquired an air lot (which is similar to a condominium unit) containing the top
13 floors of an office building in Chicago, Illinois for approximately $49.7
million. The air lot contains approximately 224,565 square feet, or 70% of the
office building's 321,995 square feet. Foote, Cone & Belding ("FCB") net leases
203,376 square feet of space in the
S-2
air lot through March, 2014. The rental obligations of FCB under the lease are
guaranteed by the Interpublic Group of Companies, Inc. Higgins Development
Partners net leases 19,089 square feet of space in the air lot through March,
2014. The remaining 2,100 square feet of space in the air lot is currently not
leased. In connection with the acquisition, Lexington/Lion arranged to obtain
non-recourse first mortgage financing of $29.9 million. The loan bears interest
at a fixed annual rate of 5.11% and has a ten-year term.
DISPOSITIONS/TRANSFERS
Mission, Texas. October 5, 2004, we sold, at cost, a 75,016 square foot
office facility in Mission, Texas for $10.2 million to Triple Net Investment
Company LLC, our joint venture with the Utah State Retirement Investment Fund.
The facility is leased to Voicestream PCS II LLC under a net lease through June,
2015. T-Mobile USA, Inc. unconditionally guarantees the tenant's lease
obligations. The facility is encumbered by a non-recourse mortgage of
approximately $6.5 million, bearing interest at a rate of 5.78%, and maturing
June, 2015.
Jacksonville, Alabama. On October 5, 2004, we sold a 56,132 square foot
retail facility in Jacksonville, Alabama for $1.5 million, which approximated
carrying cost, to an unrelated party. The facility was leased to Wal-Mart.
S-3
THE OFFERING
The following is a brief summary of certain terms of this offering. For a
more complete description of the terms of our Series C Preferred Shares, see
"Description of Series C Preferred Shares" beginning on page S-23 of this
prospectus supplement.
Issuer........................ Lexington Corporate Properties Trust
Securities Offered............ 2,700,000 preferred shares of beneficial
interest classified as 6.50% Series C
Cumulative Convertible Preferred Stock (the
"Series C Preferred Shares") (3,100,000 Series
C Preferred Shares if the underwriter exercises
its over-allotment option in full).
Dividends..................... Investors will be entitled to receive
cumulative cash dividends on the Series C
Preferred Shares at a rate of 6.50% of the
$50.00 liquidation preference per year
(equivalent to $3.25 per year per share).
Beginning on February 15, 2005, dividends on
the Series C Preferred Shares will be payable
quarterly in arrears on each of February 15,
May 15, August 15, and November 15 of each year
or, if not a business day, the next succeeding
business day. Dividends on the Series C
Preferred Shares will be cumulative from and
including the date of original issuance, which
is expected to be December 8, 2004. The first
dividend payable on the Series C Preferred
Shares, on February 15, 2005, will be for less
than a full quarter.
Liquidation Preference........ If we liquidate, dissolve or wind up, holders
of our Series C Preferred Shares will have the
right to receive $50.00 per share, plus accrued
and unpaid dividends (whether or not declared)
to and including the date of payment before any
payments are made to the holders of our common
shares and any other capital shares ranking
junior to the Series C Preferred Shares as to
liquidation rights. The rights of the holders
of the Series C Preferred Shares to receive
their liquidation preference will be subject to
the proportionate rights of the Series B
Preferred Shares and each other series or class
of our capital shares ranking, as to
liquidation rights, on a parity with the Series
C Preferred Shares.
Ranking....................... The Series C Preferred Shares will, with
respect to the payment of dividends and amounts
upon liquidation, dissolution or winding up,
rank (i) senior to all classes or series of our
common shares and to all equity securities
ranking junior to our Series C Preferred
Shares, (ii) on a parity with our Series B
Preferred Shares and all equity securities
issued by us the terms of which specifically
provide that such equity securities rank on a
parity with our Series C Preferred Shares, and
(iii) junior to all equity securities issued by
us the terms of which specifically provide that
such equity securities rank senior to our
Series C Preferred Shares. As of the date of
this prospectus supplement, our only
outstanding equity securities are our common
shares and our Series B Preferred Shares.
Redemption.................... The Series C Preferred Shares will not be
redeemable by us except as necessary to
preserve our status as a REIT. However, on or
after November 16, 2009, we have the right to
require the holder to convert its Series C
Preferred Shares. See "-- Company Conversion
Option" below.
S-4
Conversion Rights............. The Series C Preferred Shares may be converted
by the holder, at its option, into our common
shares initially at a conversion rate of 1.8643
common shares per $50.00 liquidation
preference, which is equivalent to an initial
conversion price of approximately $26.82 per
common share (subject to adjustment in certain
events).
Company Conversion Option..... On or after November 16, 2009, we may, at our
option, cause the Series C Preferred Shares to
be automatically converted into that number of
common shares that are issuable at the then
prevailing conversion rate. We may exercise our
conversion right only if, for twenty (20)
trading days within any period of thirty (30)
consecutive trading days (including the last
trading day of such period), the closing price
of our common shares equals or exceeds 125% of
the then prevailing conversion price of the
Series C Preferred Shares.
Settlement.................... Upon conversion (pursuant to a voluntary
conversion or the Company Conversion Option) we
may choose to deliver the conversion value to
investors in cash, our common shares, or a
combination of cash and our common shares.
We can elect at any time to obligate ourselves
to satisfy solely in cash the portion of the
conversion value that is equal to 100% of the
liquidation preference amount of the Series C
Preferred Shares, with any remaining amount of
the conversion value to be satisfied in cash,
common shares or a combination of cash and
common shares. If we elect to do so, we will
notify holders at any time that we intend to
settle in cash the portion of the conversion
value that is equal to the liquidation
preference amount of the Series C Preferred
Shares (referred to as the "liquidation
preference conversion settlement election").
This notification, once provided to holders,
will be irrevocable and will apply to future
conversions of the Series C Preferred Shares
even if the shares cease to be convertible but
subsequently become convertible again.
Payments of Dividends Upon
Conversion.................... Upon any conversion, you will not receive any
cash payment representing accrued and unpaid
dividends on the Series C Preferred Shares,
whether or not in arrears, except in certain
circumstances, including upon the exercise of
the Company Conversion Option if the conversion
date in connection therewith is after the
record date for payment of dividends and before
the corresponding dividend payment date. Upon
the exercise of the Company Conversion Option,
you will receive a cash payment for all unpaid
dividends in arrears.
Conversion Rate Adjustments... The conversion rate is subject to adjustment
upon the occurrence of certain events,
including if we distribute in any quarter to
all or substantially all holders of our common
shares, any cash, including quarterly cash
dividends (subject to adjustment), in excess
of:
$0.36 PER COMMON SHARE THROUGH AND INCLUDING
NOVEMBER 15, 2005
$0.37 PER COMMON SHARE FROM NOVEMBER 16, 2005
THROUGH AND INCLUDING NOVEMBER 15, 2006
$0.38 PER COMMON SHARE THEREAFTER
S-5
Fundamental Change............ Upon the occurrence of a fundamental change, as
described in this prospectus supplement, a
holder may require us to purchase for cash all
or part of its Series C Preferred Shares at a
price equal to 100% of their liquidation
preference plus accrued and unpaid dividends,
if any, up to, but not including, the
fundamental change purchase date.
If you elect to convert your Series C Preferred
Shares in connection with certain fundamental
changes that occur on or prior to November 16,
2014, we will in certain circumstances increase
the conversion rate by a number of additional
common shares upon conversion or, in lieu
thereof, we may in certain circumstances elect
to adjust the conversion rate and related
conversion obligation so that the Series C
Preferred Shares are convertible into shares of
the acquiring or surviving company.
Voting Rights................. Holders of the Series C Preferred Shares will
generally have no voting rights. However, if we
do not pay dividends on the Series C Preferred
Shares for six (6) or more quarterly periods
(whether or not consecutive), the holders of
the Series C Preferred Shares, voting together
as a class with the holders of our Series B
Preferred Shares and all other classes or
series of our equity securities ranking on
parity with the Series C Preferred Shares which
are entitled to similar voting rights (referred
to as "parity securities"), will be entitled to
vote at the next annual meeting of our
shareholders for the election of two (2)
additional trustees to serve on our board of
trustees until all unpaid cumulative dividends
have been paid or declared and set apart for
payment. In addition, the affirmative vote of
at least two-thirds of the Series C Preferred
Shares, voting together as a class with the
holders of our parity securities, is required
for us to authorize, create or increase capital
shares ranking senior to the Series C Preferred
Shares or to amend our declaration of trust in
a manner that materially and adversely affects
the rights of the holders of the Series C
Preferred Shares. Holders of the Series C
Preferred Shares and Series B Preferred Shares
will vote in proportion to the liquidation
preference of $25.00 (i.e., two votes for each
Series C Preferred Share; one vote for each
Series B Preferred Share).
Form, Denomination and
Registration.................. The Series C Preferred Shares will be issued in
fully registered form, in denominations of
$50.00 and will be represented by one or more
global securities, deposited with the trustee
as custodian for The Depository Trust Company
("DTC"). Beneficial interests in the global
securities will be shown on, and any transfers
will be effected only through, records
maintained by DTC and its participants. See
"Description of Series C Preferred
Shares -- Form" beginning on page S-39 of this
prospectus supplement.
Trading....................... We have applied to list our Series C Preferred
Shares on the New York Stock Exchange under the
symbol "LXP-----pc." The Series C Preferred
Shares will be new securities for which no
market currently exists. While the underwriter
has informed us that it intends to make a
market in the Series C Preferred Shares, it is
under no obligation to do so and may
discontinue such market making activities at
any time without notice. Accordingly, we
S-6
cannot assure you that any active or liquid
trading market will develop for the Series C
Preferred Shares.
Common Shares and Series B
Preferred Shares.............. Our common shares are listed on the New York
Stock Exchange under the symbol "LXP." Our
Series B Preferred Shares are listed on the New
York Stock Exchange under the symbol
"LXP-----pb."
Settlement Date............... Delivery of the Series C Preferred Shares will
be made against payment therefor on or about
December 8, 2004.
Restrictions on Ownership..... For us to maintain our qualification as a REIT
under the Internal Revenue Code, not more than
50% in value of our outstanding capital shares,
which includes the Series C Preferred Shares,
may be owned, directly or constructively, by
five (5) or fewer individuals, as defined in
the Internal Revenue Code. Our declaration of
trust provides that no person or persons acting
as a group may own, or be deemed to own by
virtue of the attribution rules of the Internal
Revenue Code, subject to limited exceptions,
more than 9.8% of the value of our outstanding
capital shares. See "Description of Series C
Preferred Shares -- Restrictions on Ownership"
in this prospectus supplement and "Restrictions
on Transfers of Capital Stock and Anti-
Takeover Provisions" beginning on page 20 of
the accompanying prospectus.
Use of Proceeds............... We expect that the net proceeds from this
offering will be approximately $131,241,250
after deducting underwriting discounts and
commissions and our expenses (or approximately
$150,716,250, if the underwriter exercises the
over-allotment option in full). We expect to
use the net proceeds (i) to fund future
acquisitions, and (ii) for general business
purposes. See "Use of Proceeds" beginning on
page S-22 of this prospectus supplement.
Risk Factors.................. See "Risk Factors" beginning on page S-10 of
this prospectus supplement and other
information contained herein for a discussion
of factors you should carefully consider before
deciding to invest in the Series C Preferred
Shares.
For additional information regarding the terms of the Series C Preferred
Shares, see "Description of Series C Preferred Shares" beginning on page S-23 of
this prospectus supplement.
S-7
RATIOS OF EBITDA AND EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED SHARE
DIVIDENDS
RATIO OF EBITDA TO COMBINED FIXED CHARGES AND PREFERRED SHARE DIVIDENDS
HISTORICAL
------------------------------------------------
NINE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
2004 2003 2002 2001 2000 1999
------------- ---- ---- ---- ---- ----
RATIO OF EBITDA TO COMBINED FIXED
CHARGES AND PREFERRED SHARE
DIVIDENDS............................ 2.46 2.12 2.31 1.84 2.05 2.07
---- ---- ---- ---- ---- ----
EBITDA (defined as income from continuing operations before interest,
taxes, depreciation, amortization and debt satisfaction charges) is a widely
used performance measure. We compute EBITDA as the sum of income from continuing
operations before interest and amortization expense, depreciation and
amortization, provision for income taxes and debt satisfaction charges. Given
the nature of our business as a real estate owner and operator, we believe that
the ratio of EBITDA to combined fixed charges and preferred share dividends, as
opposed to the ratio of earnings to combined fixed charges and preferred share
dividends, is helpful to investors as a measure of our operational performance
because the EBITDA ratio excludes various items included in the earnings ratio
that do not relate to, or are not indicative of, our operating performance, such
as gains and losses on sales of real estate and real estate related depreciation
and amortization. Accordingly, we believe EBITDA provides a meaningful
performance measure particularly as it relates to our ability to meet our fixed
charges and preferred share dividend requirements for the stated period.
EBITDA should not be considered as an alternative to net income as an
indicator of our financial performance, or as an alternative to cash flow from
operating activities as a measure of our liquidity. Our computation of EBITDA
may differ from the methodology utilized by other companies to calculate EBITDA.
RECONCILIATION OF INCOME FROM CONTINUING OPERATIONS TO EBITDA
HISTORICAL
---------------------------------------------------------------
NINE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
2004 2003 2002 2001 2000 1999
------------- ------- ------- ------- ------- -------
(IN THOUSANDS)
INCOME FROM CONTINUING
OPERATIONS............ $31,952 $28,147 $25,844 $15,995 $19,945 $19,348
DEPRECIATION AND
AMORTIZATION.......... 28,264 27,538 21,001 17,564 16,911 16,838
INTEREST AND
AMORTIZATION.......... 34,254 35,873 34,126 29,675 29,616 28,974
DEBT SATISFACTION
CHARGES............... -- 7,459 345 3,993 -- --
PROVISION FOR INCOME
TAXES................. 1,497 259 136 174 126 29
------- ------- ------- ------- ------- -------
EBITDA.................. $95,967 $99,276 $81,452 $67,401 $66,598 $65,189
======= ======= ======= ======= ======= =======
S-8
RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED SHARE DIVIDENDS
The following table sets forth the ratio of earnings to combined fixed
charges and preferred share dividends for the periods indicated:
HISTORICAL
------------------------------------------------
NINE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
2004 2003 2002 2001 2000 1999
------------- ---- ---- ---- ---- ----
RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND
PREFERRED SHARE DIVIDENDS.................... 1.63 1.57 1.75 1.38 1.51 1.53
---- ---- ---- ---- ---- ----
S-9
RISK FACTORS
In evaluating an investment in our Series C Preferred Shares, you should
carefully consider the following factors, in addition to other information set
forth or incorporated by reference in this prospectus supplement or in the
accompanying prospectus. See "Incorporation of Information We File with the SEC"
on page S-57 of this prospectus supplement.
RISKS RELATED TO THE SERIES C PREFERRED SHARES
NO ESTABLISHED TRADING MARKET FOR THE SERIES C PREFERRED SHARES.
The Series C Preferred Shares are a new issue of securities with no
established trading market. Since the securities have no stated maturity date,
investors seeking liquidity will be limited to selling their Series C Preferred
Shares in the secondary market. We have applied to list our Series C Preferred
Shares on the New York Stock Exchange (the "NYSE") under the symbol
"LXP-----pc," subject to official notice of issuance. However, an active and
liquid trading market on the NYSE for the shares may not develop or, even if it
develops, may not last, in which case the trading price of the shares could be
adversely affected and your ability to transfer your Series C Preferred Shares
will be limited. We have been advised by the underwriter that prior to
acceptance of the Series C Preferred Shares for listing on the NYSE, it intends
to make a market in the Series C Preferred Shares, but it is not obligated to do
so and may discontinue market-making activities at any time without notice.
FACTORS AFFECTING TRADING PRICE OF THE SERIES C PREFERRED SHARES.
The trading price of the Series C Preferred Shares may depend on many
factors, including:
- prevailing interest rates;
- the market price of our common stock
- the market for similar securities;
- additional issuances by us of common shares;
- additional issuances by us of other series or classes of preferred
shares;
- general economic conditions; and
- our financial condition, performance and prospects.
SERIES C PREFERRED SHARES HAVE NOT BEEN RATED AND ARE SUBORDINATED TO EXISTING
AND FUTURE DEBT; NO RESTRICTIONS ON ISSUANCE OF PARITY PREFERRED SECURITIES.
The Series C Preferred Shares have not been rated by any nationally
recognized statistical rating organization. Furthermore, payment of amounts due
on the Series C Preferred Shares will be subordinated to all of our existing and
future debt and will be structurally subordinate to the payment of our
third-party joint venture partners of distributions from such third-party joint
ventures in which we invest. In addition, we may issue additional Series C
Preferred Shares and/or shares of another class or series of preferred shares
ranking on a parity with (or, upon the affirmative vote or consent of the
holders of two-thirds of the outstanding Series C Preferred Shares, voting
together as a class with the holders of the Series B Preferred Shares and all
other parity securities, senior to) the Series C Preferred Shares with respect
to the payment of dividends and the distribution of assets upon liquidation,
dissolution or winding up. These factors may affect the trading price of the
Series C Preferred Shares.
S-10
WE MAY NOT HAVE THE ABILITY TO RAISE THE FUNDS NECESSARY TO PURCHASE THE SERIES
C PREFERRED SHARES UPON A FUNDAMENTAL CHANGE.
Following a fundamental change as described under "Description of Series C
Preferred Shares -- Purchase of Series C Preferred Shares Upon a Fundamental
Change," holders of Series C Preferred Shares may require us to purchase their
Series C Preferred Shares. We cannot assure you that we will have sufficient
financial resources, or be able to arrange financing, to pay the purchase price
in cash with respect to any Series C Preferred Shares tendered by holders for
purchase upon a fundamental change. In addition, our then existing indebtedness
could provide that a fundamental change would constitute an event of default or
prepayment event under, and result in the acceleration of the maturity of, such
indebtedness or could otherwise contain restrictions which would not allow us to
purchase the Series C Preferred Shares.
YOU SHOULD CONSIDER THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF OWNING
THE SERIES C PREFERRED SHARES.
The principal U.S. federal income tax consequences of purchasing, owning
and disposing of the Series C Preferred Shares and any common shares received
upon their conversion are summarized under "Federal Income Tax Considerations."
Certain of our actions, including an increase in the cash dividend on our common
shares in excess of the dividend threshold amount, may result in an adjustment
to the conversion rate that could cause you to be deemed to receive a taxable
dividend subject to U.S. federal income tax without the receipt of any cash. If
you are a non-U.S. Holder (as defined in "Federal Income Tax Considerations"),
such deemed dividend may subject you to U.S. federal withholding tax at a 30%
rate or such lower rate as may be specified by an applicable treaty. See
"Federal Income Tax Considerations."
IF YOU HOLD SERIES C PREFERRED SHARES, YOU WILL NOT BE ENTITLED TO ANY RIGHTS
WITH RESPECT TO OUR COMMON SHARES, BUT YOU WILL BE SUBJECT TO ALL CHANGES MADE
WITH RESPECT TO OUR COMMON SHARES.
If you hold Series C Preferred Shares, you will not be entitled to any
rights with respect to our common shares (including, without limitation, voting
rights and rights to receive any dividends or other distributions on our common
shares), but you will be subject to all changes affecting the common shares. You
will have rights with respect to our common shares only if and when we deliver
common shares to you upon conversion of your Series C Preferred Shares and, in
certain cases, under the conversion rate adjustments applicable to the Series C
Preferred Shares. For example, in the event that an amendment is proposed to our
declaration of trust or bylaws requiring shareholder approval and the record
date for determining the shareholders of record entitled to vote on the
amendment occurs prior to the delivery of common shares to you following a
conversion, you will not be entitled to vote on the amendment, although you will
nevertheless be subject to any changes in the powers, preferences or special
rights of our common shares.
THE ADJUSTMENT TO THE CONVERSION RATE OF SERIES C PREFERRED SHARES UPON A
CONVERSION IN CONNECTION WITH CERTAIN FUNDAMENTAL CHANGES MAY NOT ADEQUATELY
COMPENSATE HOLDERS FOR THE LOST OPTION VALUE OF THE SERIES C PREFERRED SHARES AS
A RESULT OF THAT FUNDAMENTAL CHANGE.
If certain fundamental changes occur on or prior to November 15, 2014, we
will under certain circumstances adjust the conversion rate to provide for the
issuance of additional common shares upon any conversion of Series C Preferred
Shares in connection with such fundamental change. The number of additional
shares delivered depends on the date on which the fundamental change becomes
effective and the price paid per common share in the transaction constituting
the fundamental change. See "Description of Series C Preferred
Shares -- Adjustment to Conversion Rate Upon Certain Fundamental Changes."
Although the adjustment to the conversion rate of Series C Preferred Shares that
are converted is designed to compensate holders for the lost option value of the
Series C Preferred Shares as a result of the fundamental change, this adjustment
to the conversion rate is only an approximation of the lost value and may not
adequately compensate holders for the loss. In addition, if a fundamental change
occurs after November 15, 2014, or if the applicable price is less than or equal
to $22.35 per share or greater than $75.00 per share (in each case, subject to
adjustment), we will not make an adjustment to the conversion rate. Also, a
holder may not receive an adjustment to the conversion rate of Series C
Preferred Shares that are converted until the
S-11
fundamental change repurchase date relating to the applicable fundamental
change, or even later, which could be a significant period of time after the
date the holder has tendered its Series C Preferred Shares for conversion.
UPON CONVERSION OF THE SERIES C PREFERRED SHARES WE WILL HAVE THE RIGHT TO PAY
CASH IN LIEU OF ISSUING OUR COMMON SHARES.
We may satisfy our conversion obligation to holders by delivering common
shares, cash, or a combination of common shares and cash. Accordingly, upon
conversion of Series C Preferred Shares, holders might not receive any of our
common shares, or they might receive few common shares relative to the
conversion value of the Series C Preferred Shares. Our liquidity may also be
reduced to the extent we are required to deliver cash rather than common shares
such as the right of holders to compel a repurchase of its Series C Preferred
Shares when there is a fundamental change. In addition, if we elect to settle
upon conversion of the Series C Preferred Shares in cash or a combination of
cash and our common shares, settlement may be delayed until as much as the 28th
trading day following our receipt of the holder's conversion notice, unless the
cash settlement average period is extended under certain circumstances. In
addition, because the amount of cash or common shares that a holder will receive
in these circumstances will be based on the sale price of our common shares for
an extended period between the conversion date and such settlement date, holders
will bear the market risk with respect to the value of the common shares for
such extended period. See "Description of Series C Preferred
Shares -- Settlement Upon Conversion."
THE CONVERSION RATE OF THE SERIES C PREFERRED SHARES MAY NOT BE ADJUSTED FOR ALL
DILUTIVE EVENTS.
The conversion rate of the Series C Preferred Shares is subject to
adjustments for certain events, including the issuance of share dividends on our
common shares in excess of certain dividend thresholds; the issuance of rights
or warrants; subdivisions or combinations of our common shares; distributions of
capital stock, indebtedness, or assets; cash dividends; and issuer tender or
exchange offers as described under "Description of Series C Preferred
Shares -- Conversion Rate Adjustments." The conversion rate may not be adjusted
for other events that may adversely affect the trading price of the Series C
Preferred Shares or the common shares into which such Series C Preferred Shares
may be convertible.
WHILE WE HAVE THE RIGHT TO SETTLE YOUR CONVERSION IN CASH, IT IS UNLIKELY WE
WILL EVER MAKE A LIQUIDATION PREFERENCE CONVERSION SETTLEMENT ELECTION, AND
THEREFORE EARNINGS PER SHARE ON A DILUTED BASIS MAY REFLECT THE INCLUSION OF ALL
THE SHARES INTO WHICH THE SERIES C PREFERRED SHARES ARE CONVERTIBLE IN THE
CALCULATION OF FUNDS FROM OPERATIONS AND, THEREFORE, EARNINGS PER SHARE MAY
DECREASE.
We may elect to satisfy our obligations upon conversion of the Series C
Preferred Shares by delivering to holders of our common shares, cash, or a
combination of cash and common shares as described under "Description of Series
C Preferred Shares -- Conversion Procedures -- Settlement Upon Conversion." If a
liquidation preference conversion settlement election is not made, we may be
required to increase the number of our outstanding shares in accordance with
generally accepted accounting principles. In such event, for reporting on a
diluted basis, our funds from operations could decrease as a result of the
inclusion of all the shares into which the Series C Preferred Shares are
convertible in accordance with generally accepted accounting principles.
GENERAL RISKS RELATED TO AN INVESTMENT IN OUR COMPANY
RISKS INVOLVED IN SINGLE TENANT LEASES.
We focus our acquisition activities on real properties that are net leased
to single tenants. Therefore, the financial failure of, or other default by, a
single tenant under its lease is likely to cause a significant reduction in the
operating cash flow generated by the property leased to that tenant and might
decrease the value of that property.
S-12
DEPENDENCE ON MAJOR TENANTS.
GENERAL.
Revenues from several of our tenants and/or their guarantors constitute a
significant percentage of our rental revenues. As of September 30, 2004, our
fifteen (15) largest tenants/guarantors, which occupied 38 properties,
represented $54.9 million, or 44.1%, of our rental revenue for the nine months
ended September 30, 2004, including our proportionate share of rental revenue
from non-consolidated entities and rental revenue recognized from properties
sold through date of sale. The default, financial distress or bankruptcy of any
of the tenants of these properties could cause interruptions in the receipt of
lease revenues from these tenants and/or result in vacancies, which would reduce
our revenues and increase operating costs until the affected property is re-let,
and could decrease the ultimate sales value of that property. Upon the
expiration or other termination of the leases that are currently in place with
respect to these properties, we may not be able to re-lease the vacant property
at a comparable lease rate or without incurring additional expenditures in
connection with the re-leasing.
VARTEC.
VarTec Telecom, Inc., one of our largest tenants based upon rental
revenues, filed for Chapter 11 bankruptcy protection on November 1, 2004. VarTec
leases a 249,452 square foot office property in Dallas, Texas representing 0.8%
of our total square footage. The VarTec lease expires in September, 2015. As of
September 30, 2004, current annual net cash rents are approximately $3.5 million
and annual net rents on a straight-line basis are $3.5 million, which
represented approximately 2.7% of our consolidated rental revenue for the twelve
months ended September 30, 2004. Rent is payable in advance on the 1st day of
each month.
VarTec made its required November monthly rental payment. However, on
November 24, 2004, VarTec filed a motion in the U.S. Bankruptcy Court in the
Northern District of Texas to reject the lease for the property. A hearing on
the motion has been set for December 17, 2004. As a result of the rejection of
the lease, we will incur a fourth quarter non-cash charge of approximately $2.8
million due to the write-off of deferred rent receivable and unamortized lease
costs. In addition, as a result of the rejection of the lease, we will have an
unsecured claim for any damages resulting from the breach of the lease,
including rent for the period from the rejection date through the remainder of
the lease term, subject to a cap under applicable bankruptcy law. We may not be
able to collect all or any portion of these unsecured claims. In addition, we
may not be able to collect all or any portion of VarTec's rental and other
obligations to us, including rent for the period from the bankruptcy filing date
through the rejection date if VarTec becomes insolvent prior to the satisfaction
of any such obligations.
The VarTec property is subject to a non-recourse mortgage with an
outstanding balance of $21.0 million as of the date of this prospectus. The note
has a fixed interest rate of 7.49%, requires annual debt service of $2.0 million
and is scheduled to mature in December, 2012, when a balloon payment of $16.0
million is due. The lender holds a $2.5 million letter of credit issued by us as
collateral against the mortgage. In addition, the property had a net book value
of $28.9 million and we had a deferred rent receivable, deferred loan costs and
deferred lease costs of $1.6 million, $0.2 million and $1.3 million,
respectively.
Should the motion to reject the VarTec lease be approved in connection with
its bankruptcy and the property is vacant, it would result in a significant
decrease in our rental revenue, funds from operations and funds available for
distribution to shareholders, and we cannot predict if or when we would be able
to re-lease the property or negotiate the terms of any new lease.
If we are unable to re-lease promptly or if any new rental rates are
significantly lower than VarTec's current rent, our revenue, funds from
operations and funds available for distribution to shareholders may decrease
significantly. We would also risk loss of the property to lender foreclosure in
the event we do not continue to make all required debt service payments with
respect to the mortgage debt on the property.
S-13
LIMITED CONTROL OVER JOINT VENTURE INVESTMENTS.
Our joint venture investments are a significant portion of our assets and
are also a significant component of our growth strategy. In particular, as of
September 30, 2004, 33 of our 138 properties representing approximately 10.1
million of our total of approximately 30.0 million net rentable square feet of
space were owned by joint ventures in which we have an ownership interest
ranging from 25% to 40%. For the nine months ended September 30, 2004, our joint
venture investments accounted for approximately $5.4 million of equity in
earnings, while our gross revenues totaled approximately $109 million
(approximately $3.1 million of which represents advisory fees earned from our
management of the joint ventures). As of September 30, 2004, we had
approximately $1.5 billion in consolidated total assets of which $124 million
was investments in joint ventures.
Our joint venture investments may involve risks not otherwise present for
investments made solely by us, including the possibility that our joint venture
partner might, at any time, become bankrupt, have different interests or goals
than we do, or take action contrary to our instructions, requests, policies or
objectives, including our policy with respect to maintaining our qualification
as a REIT. Other risks of joint venture investments include impasse on
decisions, such as a sale of assets, because neither we nor a joint venture
partner would have full control over the joint venture. Also, there is no
limitation under our organizational documents as to the amount of funds that may
be invested in joint ventures. Our credit facility restricts the amount of
capital that we can invest in joint ventures.
Under the terms of our joint venture with the New York Common Retirement
Fund, or "CRF," we are required to first offer to the joint venture all of our
opportunities to acquire office and industrial properties requiring a minimum
investment of $10 million which are net leased primarily to investment grade
tenants for a minimum term of ten (10) years, are available for immediate
delivery and satisfy other specified investment criteria.
Similarly, under the terms of our joint venture with the Clarion Lion
Properties Fund, LLC, or "Clarion," we are required to first offer to the joint
venture all of our opportunities to acquire office, industrial and retail
properties requiring a minimum investment of $15.0 million to $40.0 million
which are net leased primarily to non-investment grade tenants for a minimum
term of at least five (5) years, are available for immediate delivery and
satisfy other specified investment criteria, subject also to our obligation to
first offer such opportunity to our joint venture with CRF.
Finally, under the terms of our joint venture with the Utah State
Retirement Investment Fund, or "Utah," we are required to first offer to the
joint venture all of our opportunities to acquire certain office, bulk warehouse
and distribution properties requiring a minimum investment of $8.0 million to
$30.0 million which are net leased primarily to non-investment grade tenants for
a minimum term of at least nine (9) years, are available for immediate delivery
and satisfy other specified investment criteria, subject also to our obligation
to first offer such opportunity to our joint venture with CRF or our joint
venture with Clarion.
Only if our joint venture partner elects not to approve the applicable
joint venture's pursuit of an acquisition opportunity may we pursue the
opportunity directly. As a result of the forgoing rights of first offer, we may
not be able to make attractive acquisitions directly and may only receive a
minority interest in such acquisitions through our minority interest in these
joint ventures.
LEVERAGE.
We have incurred, and expect to continue to incur, indebtedness (secured
and unsecured) in furtherance of our activities. Neither our declaration of
trust nor any policy statement formally adopted by our board of trustees limits
either the total amount of indebtedness or the specified percentage of
indebtedness that we may incur. Accordingly, we could become more highly
leveraged, resulting in increased risk of default on our obligations and in an
increase in debt service requirements which could adversely affect our financial
condition and results of operations and our ability to pay distributions. Our
current unsecured revolving credit facility contains various covenants which
limit the amount of secured, unsecured and variable-rate indebtedness we may
incur.
S-14
RISKS RELATING TO INTEREST RATE INCREASES.
We have exposure to market risks relating to increases in interest rates
due to our variable-rate debt. An increase in interest rates may increase our
costs of borrowing on existing variable-rate indebtedness, leading to a
reduction in our net income. As of September 30, 2004, we had outstanding $14.1
million in variable-rate indebtedness. Such consolidated variable-rate
indebtedness represented 2.0% of total indebtedness and had a weighted average
interest rate of 5.2%. The level of our variable-rate indebtedness, along with
the interest rate associated with such variable-rate indebtedness, may change in
the future and materially affect our interest costs and net income. For example,
our revolving credit facility provides for variable rate financing; as of
September 30, 2004, we had no amounts outstanding under this facility.
In addition, our interest costs on our fixed-rate indebtedness can increase
if we are required to refinance our fixed-rate indebtedness at maturity at
higher interest rates.
RISKS ASSOCIATED WITH REFINANCING.
A significant number of our properties are subject to mortgage notes with
balloon payments due at maturity. As of September 30, 2004, the scheduled
balloon payments, and balances due on our unsecured revolving credit facility,
for the remainder of 2004 and the next five (5) calendar years are as follows:
- 2004 -- $0;
- 2005 -- $12.6 million;
- 2006 -- $0;
- 2007 -- $0;
- 2008 -- $70.5 million; and
- 2009 -- $47.7 million.
As of September 30, 2004, none of our mortgage debt on our joint venture
properties requires a balloon payment prior to 2009, at which time $69.0 million
(of which our proportionate share is $23.6 million) will become due.
Our ability to make the scheduled balloon payments will depend upon the
amount available under our unsecured revolving credit facility and our ability
either to refinance the related mortgage debt or to sell the related property.
Our ability to accomplish these 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 lease
terms of the mortgaged properties, our equity in the mortgaged properties, our
financial condition, the operating history of the mortgaged properties and tax
laws. If we are unable to obtain sufficient financing to fund the scheduled
non-recourse balloon payments or to sell the related property at a price that
generates sufficient proceeds to pay the scheduled balloon payments, we would
lose our entire investment in the related property.
UNCERTAINTIES RELATING TO LEASE RENEWALS AND RE-LETTING OF SPACE.
Upon the expiration of current leases for space located in our properties,
we may not be able to re-let all or a portion of that space, or the terms of
re-letting (including the cost of concessions to tenants) may be less favorable
to us than current lease terms. If we are unable to re-let promptly all or a
substantial portion of the space located in our properties or if the rental
rates we receive upon re-letting are significantly lower than current rates, our
net income and ability to make expected distributions to our shareholders will
be adversely affected due to the resulting reduction in rent receipts and
increase in our property operating costs. There can be no assurance that we will
be able to retain tenants in any of our properties upon the expiration of their
S-15
leases. As of September 30, 2004, our scheduled lease expiration for the
remainder of 2004 and the next five (5) calendar years are as follows:
CURRENT
NUMBER OF ANNUAL RENT
LEASES EXPIRING IN: LEASES ($000)
------------------- --------- -----------
2004........................................................ -- $ --
2005........................................................ 6 7,341
2006........................................................ 12 11,306
2007........................................................ 5 13,813
2008........................................................ 6 7,777
2009........................................................ 9 11,419
-- -------
Total..................................................... 38 $51,656
== =======
As of September 30, 2004, none of our joint venture properties have
scheduled lease expirations prior to 2009, at which time six (6) such leases,
totaling approximately $22.7 million of the current annual rent (of which our
proportionate share is approximately $8.0 million) are scheduled to expire.
POSSIBLE LIABILITY RELATING TO ENVIRONMENTAL MATTERS.
Under various federal, state and local environmental laws, statutes,
ordinances, rules and regulations, as an owner of real property, we may be
liable for the costs of removal or remediation of certain hazardous or toxic
substances at, on, in or under our properties, 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).
These laws may impose liability without regard to whether we knew of, or were
responsible for, the presence or disposal of those substances. This liability
may be imposed on us 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 our liability therefor could exceed the value
of the property and/or our aggregate assets. In addition, the presence of those
substances, or the failure to properly dispose of or remove those substances,
may adversely affect our ability to sell or rent that property or to borrow
using that property as collateral, which, in turn, would reduce our 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 our tenants are primarily
responsible for any environmental damages and claims related to the leased
premises, in the event of the bankruptcy or inability of any of our tenants to
satisfy any obligations with respect to the property leased to that tenant, we
may be required to satisfy such obligations. In addition, we 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 our business, and
prior to the acquisition of any property from a third party or as required by
our financing sources, we authorize the preparation of Phase I environmental
reports and, when necessary, Phase II environmental reports, with respect to our
properties. Based upon these environmental reports and our ongoing review of our
properties, as of the date of this prospectus supplement, we are not aware of
any environmental condition with respect to any of our properties that we
believe would be reasonably likely to have a material adverse effect on us.
There can be no assurance, however, that the environmental reports will reveal
all environmental conditions at our properties or that the following will not
expose us to material liability in the future:
- the discovery of previously unknown environmental conditions;
- changes in law;
- activities of tenants; or
S-16
- activities relating to properties in the vicinity of our properties.
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 our tenants, which could adversely
affect our financial condition or results of operations.
FAILURE TO ACHIEVE AND MAINTAIN EFFECTIVE INTERNAL CONTROLS COULD HAVE A
MATERIAL ADVERSE EFFECT ON OUR BUSINESS, OPERATING RESULTS AND SHARE PRICE.
We are in the process of documenting and testing our internal control
procedures in order to satisfy the requirements of Section 404 of the
Sarbanes-Oxley Act, which requires annual management assessments of the
effectiveness of our internal controls over financial reporting and a report by
our Independent Auditors addressing these assessments. During the course of our
testing we may identify deficiencies which we may not be able to remediate in
time to meet the deadline imposed by the Sarbanes-Oxley Act for compliance with
the requirements of Section 404. In addition, if we fail to achieve and maintain
the adequacy of our internal controls, as such standards are modified,
supplemented or amended from time to time, we may not be able to ensure that we
can conclude on an ongoing basis that we have effective internal controls over
financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act.
Moreover, effective internal controls, particularly those related to revenue
recognition, are necessary for us to produce reliable financial reports and are
important to helping prevent financial fraud. If we cannot provide reliable
financial reports or prevent fraud, our business and operating results could be
harmed, investors could lose confidence in our reported financial information,
and the trading price of our shares could drop significantly.
UNINSURED LOSS.
We carry comprehensive liability, fire, extended coverage and rent loss
insurance on most of our properties, with policy specifications and insured
limits that we believe are customary for similar properties. However, with
respect to those properties where the leases do not provide for abatement of
rent under any circumstances, we generally do not maintain rent loss insurance.
In addition, there are certain types of losses, such as losses resulting from
wars, terrorism or certain 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, we could lose capital invested
in a property, as well as the anticipated future revenues from a property, while
remaining obligated for any mortgage indebtedness or other financial obligations
related to the property. Any loss of these types would adversely affect our
financial condition.
RISKS RELATING TO TERRORISM.
Future terrorist attacks such as those which occurred in New York City,
Pennsylvania and Washington, D.C. on September 11, 2001, and military conflicts
such as the military actions taken by the United States and its allies in
Afghanistan and Iraq, could have a material adverse effect on general economic
conditions, consumer confidence and market liquidity. Among other things, it is
possible that interest rates may be affected by these events. An increase in
interest rates may increase our costs of borrowing on existing variable-rate
indebtedness, leading to a reduction in our net income. These types of terrorist
acts could also result in significant damages to, or loss of, our properties.
We and our tenants may be unable to obtain adequate insurance coverage on
acceptable economic terms for losses resulting from acts of terrorism. Our
lenders may require that we carry terrorism insurance even if we do not believe
this insurance is necessary or cost effective. We may also be prohibited under
the applicable lease from passing all or a portion of the cost of such insurance
through to the tenant. Should an act of terrorism result in an uninsured loss or
a loss in excess of insured limits, we could lose capital invested in a
property, as well as the anticipated future revenues from a property, while
remaining obligated for any mortgage indebtedness or other financial obligations
related to the property. Any loss of these types would adversely affect our
financial condition.
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COMPETITION.
There are numerous commercial developers, real estate companies, financial
institutions and other investors with greater financial resources than we have
that compete with us in seeking properties for acquisition and tenants who will
lease space in our properties. Due to our focus on net-lease properties located
throughout the United States, and because most competitors are locally and/or
regionally focused, we do not encounter the same competitors in each region of
the United States. Our competitors include other REITs, financial institutions,
insurance companies, pension funds, private companies and individuals. This
competition may result in a higher cost for properties that we wish to purchase.
FAILURE TO QUALIFY AS A REIT.
We believe that we have met the requirements for qualification as a REIT
for federal income tax purposes beginning with our taxable year ended December
31, 1993, and we intend to continue to meet these 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, which
is referred to as the Code, for which there are only limited judicial or
administrative interpretations. No assurance can be given that we have qualified
or 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 our control may affect our ability to continue 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 federal income tax
consequences of such qualification. If we do not qualify as a REIT, we would not
be allowed a deduction for distributions to shareholders in computing our net
taxable income. In addition, our income would be subject to tax at the regular
corporate rates. We also could be disqualified from treatment as a REIT for the
four (4) taxable years following the year during which qualification was lost.
Cash available for distribution to our shareholders would be significantly
reduced for each year in which we do not qualify as a REIT. In that event, we
would not be required to continue to make distributions. Although we currently
intend to continue to qualify as a REIT, it is possible that future economic,
market, legal, tax or other considerations may cause us, without the consent of
the shareholders, to revoke the REIT election or to otherwise take action that
would result in disqualification.
DISTRIBUTION REQUIREMENTS IMPOSED BY LAW LIMIT OUR FLEXIBILITY.
To maintain our status as a REIT for federal income tax purposes, we are
generally required to distribute to our shareholders at least 90% of our taxable
income for that calendar year. Our taxable income is determined without regard
to any deduction for dividends paid and by excluding net capital gains. To the
extent that we satisfy the distribution requirement, but distribute less than
100% of our taxable income, we will be subject to federal corporate income tax
on our undistributed income. In addition, we will incur a 4% nondeductible
excise tax on the amount, if any, by which our distributions in any year are
less than the sum of (i) 85% of our ordinary income for that year, (ii) 95% of
our capital gain net income for that year and (iii) 100% of our undistributed
taxable income from prior years. We intend to continue to make distributions to
our shareholders to comply with the distribution requirements of the Code and to
reduce exposure to federal income and nondeductible excise taxes. Differences in
timing between the receipt of income and the payment of expenses in determining
our income and the effect of required debt amortization payments could require
us to borrow funds on a short-term basis in order to meet the distribution
requirements that are necessary to achieve the tax benefits associated with
qualifying as a REIT.
INTEREST RATE FLUCTUATIONS.
It is likely that the public valuation of our preferred shares will be
based primarily on the earnings that we derive from rental income with respect
to our properties and not from the underlying appraised value of the properties
themselves. As a result, interest rate fluctuations and capital market
conditions can affect the market value of our preferred shares.
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INABILITY TO CARRY OUT OUR GROWTH STRATEGY.
Our growth strategy is based on the acquisition and development of
additional properties, including acquisitions through co-investment programs
such as joint ventures. In the context of our business plan, "development"
generally means an expansion or renovation of an existing property or the
acquisition of a newly constructed property. We typically provide a developer
with a commitment to acquire a property upon completion of construction. Our
plan to grow through the acquisition and development of new properties could be
adversely affected by trends in the real estate and financing businesses. The
consummation of any future acquisitions will be subject to satisfactory
completion of our extensive valuation analysis and due diligence review and to
the negotiation of definitive documentation. We cannot be sure that we will be
able to implement our strategy because we may have difficulty finding new
properties, negotiating with new or existing tenants or securing acceptable
financing. If we are unable to carry out our strategy, our financial condition
and results of operations could be adversely affected.
Acquisitions of additional properties entail the risk that investments will
fail to perform in accordance with expectations, including operating and leasing
expectations. Redevelopment and new project development are subject to numerous
risks, including risks of construction delays, cost overruns or force majeure
that may increase project costs, new project commencement risks such as the
receipt of zoning, occupancy and other required governmental approvals and
permits, and the incurrence of development costs in connection with projects
that are not pursued to completion.
We anticipate that some of our acquisitions and developments will be
financed using the proceeds of periodic equity or debt offerings, lines of
credit or other forms of secured or unsecured financing that will result in a
risk that permanent financing for newly acquired projects might not be available
or would be available only on disadvantageous terms. If permanent debt or equity
financing is not available on acceptable terms to refinance acquisitions
undertaken without permanent financing, further acquisitions may be curtailed or
cash available for distribution may be adversely affected.
OWNERSHIP LIMITATIONS.
For us to qualify as a REIT for federal income tax purposes, among other
requirements, not more than 50% of the value of our capital shares may be owned,
directly or indirectly, by five (5) or fewer individuals (as defined for federal
income tax purposes to include certain entities) during the last half of each
taxable year after 1993, and these capital shares must be beneficially owned by
100 or more persons during at least 335 days of a taxable year of twelve (12)
months or during a proportionate part of a shorter taxable year (in each case,
other than the first such year). Our declaration of trust includes certain
restrictions regarding transfers of our capital shares and ownership limits that
are intended to assist us in satisfying these limitations. These restrictions
and limits may not be adequate in all cases, however, to prevent the transfer of
our capital shares in violation of the ownership limitations. The ownership
limit discussed above may have the effect of delaying, deferring or preventing
someone from taking control of our company, even though a change of control
could involve a premium price for your preferred shares or otherwise be in your
best interest.
RESTRICTIONS ON A POTENTIAL CHANGE OF CONTROL.
Our board of trustees is authorized by our declaration of trust to
establish and issue one or more series of preferred shares without shareholder
approval. As of the date of this prospectus supplement, we have only one series
of preferred shares outstanding which is the Series B Preferred Shares we issued
in June 2003. The establishment and issuance of shares of our existing preferred
shares or a future series of preferred shares could make more difficult a change
of control of our company.
In addition, we have entered into employment agreements with six (6) of our
executive officers which provide that, upon the occurrence of a change in
control of our company (including a change in ownership of more than fifty
percent of the total combined voting power of our outstanding securities, the
sale of all or substantially all of our assets, dissolution of our company, the
acquisition, except from us, of 20% or more of our voting shares or a change in
the majority of our board of trustees), those executive officers would be
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entitled to severance benefits based on their current annual base salaries and
recent annual bonuses, as defined in the employment agreements. The provisions
of these agreements could deter a change of control.
CONCENTRATION OF OWNERSHIP BY CERTAIN INVESTORS.
As of the date of this prospectus supplement, E. Robert Roskind, the
chairman of our board of trustees, owned or controlled (including through trusts
with respect to which he is a beneficiary) 651,681 common shares, 1,633,986
operating partnership units which are convertible into common shares, and
options (including unvested options) to purchase 12,500 common shares,
representing 4.6% of our common shares on a fully-diluted basis.
In 1999, we entered into a joint venture agreement with The Comptroller of
the State of New York as trustee of The Common Retirement Fund, or "CRF," to
acquire properties in an aggregate amount of up to approximately $400.0 million.
As of the date of this prospectus supplement, this joint venture has made
investments in thirteen properties for $403.0 million. We have a 33 1/3% equity
interest in this joint venture. In December 2001, we formed a separate joint
venture with CRF to acquire additional properties in an aggregate amount of up
to approximately $560 million. We have a 25% equity interest in this joint
venture. As of the date of the prospectus supplement, this joint venture has
made investments in six (6) properties for $167.1 million. Under these joint
venture agreements, CRF has the right to sell its equity position in the joint
ventures to us, although as of the date of this prospectus supplement, this
right is only effective with respect to the first joint venture with CRF, and
becomes effective with respect to the second joint venture with CRF upon the
occurrence of certain conditions. In the event CRF exercises its right to sell
its equity interest in either joint venture to us, we may, at our option, either
issue our common shares to CRF for the fair market value of CRF's equity
position, based upon a formula contained in the operating agreement, or pay cash
to CRF equal to 110% of the fair market value of CRF's equity position. We have
the right to not accept any property in the joint ventures (thereby reducing the
fair market value of CRF's equity position) that does not meet certain
underwriting criteria. In addition, the joint venture agreements contain a
mutual buy-sell provision in which either CRF or we can force the sale of any
property.
In October 2003, we entered into a joint venture agreement with Clarion
Lion Properties Fund, LLC, or "Clarion," which was expanded in September of
2004, to acquire properties in an aggregate amount of up to approximately $460.0
million. As of the date of this prospectus supplement, this joint venture owns
thirteen (13) properties for which it paid an aggregate purchase price of $363.4
million. We have a 30% equity interest in this joint venture. Under the joint
venture agreement, Clarion has the right to sell its equity position in the
joint venture to us. This right becomes effective upon the occurrence of certain
conditions. In the event Clarion exercises its right to sell its equity interest
in the joint venture to us, we may, at our option, either issue our common
shares to Clarion for the fair market value of Clarion's equity position, based
upon a formula contained in the partnership agreement, or pay cash to Clarion
equal to 100% of the fair market value of Clarion's equity position. We have the
right not to accept any property in the joint venture (thereby reducing the fair
market value of Clarion's equity position) that does not meet certain
underwriting criteria. In addition, the joint venture agreement contains a
mutual buy-sell provision in which either Clarion or we can force the sale of
any property.
In June 2004, we entered into a joint venture agreement, known as Triple
Net Investment Company, LLC, with the Utah State Retirement Investment Fund, or
"Utah," to acquire properties in an aggregate amount of up to approximately
$125.0 million. As of the date of this prospectus supplement, this joint venture
owns four (4) properties for which it paid an aggregate purchase price of $71.4
million. We have a 30% equity interest in this joint venture. Under the joint
venture agreement, Utah has the right to sell its equity position in the joint
venture to us. This right becomes effective upon the occurrence of certain
conditions. In the event Utah exercises its right to sell its equity interest in
the joint venture to us, we may, at our option, either issue our common shares
to Utah for the fair market value of Utah's equity position, based upon a
formula contained in the partnership agreement, or pay cash to Utah equal to
100% of the fair market value of Utah's equity position. We have the right not
to accept any property in the joint venture (thereby reducing the fair market
value of Utah's equity position) that does not meet certain underwriting
criteria. In addition, the joint venture agreement contains a mutual buy-sell
provision in which either Utah or we can force the sale of any property.
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A significant concentration of ownership may allow an investor to exert a
greater influence over our management and affairs, and may have the effect of
delaying, deferring or preventing a change in control of our company, may
discourage bids for our common and preferred shares at a premium over the market
price and may adversely affect the market price of our preferred shares.
CONFLICTS OF INTEREST WITH RESPECT TO SALES AND REFINANCINGS.
Two of our trustees and officers own units of limited partnership interest
in our operating partnerships and, as a result, may face different and more
adverse tax consequences than you will if we sell our properties or reduce our
mortgage indebtedness on our properties. Those individuals may, therefore, have
different objectives than you regarding the appropriate pricing and timing of
any sale of such properties or reduction of mortgage debt. Accordingly, there
may be instances in which we may not sell a property or pay down the debt on a
property even though doing so would be advantageous to you.
OUR ABILITY TO CHANGE OUR PORTFOLIO IS LIMITED BECAUSE REAL ESTATE INVESTMENTS
ARE ILLIQUID.
Equity investments in real estate are relatively illiquid and, therefore,
our ability to change our portfolio promptly in response to changed conditions
will be limited. Our board of trustees may establish investment criteria or
limitations as it deems appropriate, but currently does not limit the number of
properties in which we may seek to invest or on the concentration of investments
in any one geographic region. We could change our investment, disposition and
financing policies without a vote of our shareholders.
OUR BOARD OF TRUSTEES MAY CHANGE OUR INVESTMENT POLICY WITHOUT SHAREHOLDERS'
APPROVAL.
Subject to our fundamental investment policy to maintain our qualification
as a REIT, our board of trustees will determine our investment and financing
policies, our growth strategy and our debt, capitalization, distribution,
acquisition, disposition and operating policies. Although our board of trustees
has no present intention to revise or amend these strategies and policies, it
may do so at any time without a vote by our shareholders. Accordingly, our
shareholders' control over changes in our strategies and policies is limited to
the election of trustees, and changes made by our board of trustees may not
serve the interests of our shareholders and could adversely affect our financial
condition or results of operations, including our ability to distribute cash to
shareholders or qualify as a REIT.
LIMITS ON OWNERSHIP OF OUR CAPITAL SHARES.
Actual or constructive ownership of our capital shares in excess of the
share ownership limits contained in our declaration of trust would cause the
violative transfer or ownership to be void or cause the shares to be transferred
to a charitable trust and then sold to a person or entity who can own the shares
without violating these limits. As a result, if a violative transfer were made,
the recipient of the shares would not acquire any economic or voting rights
attributable to the transferred shares. Additionally, the constructive ownership
rules for these limits are complex and groups of related individuals or entities
may be deemed a single owner and consequently in violation of the share
ownership limits. We recommend that you read "Description of Our Common
Shares -- Restrictions on Ownership," "Description of our Preferred Shares --
Restrictions on Ownership" and "Restrictions on Transfers of Capital Stock and
Anti-Takeover Provisions -- Restrictions Relating to REIT Status" on pages 3, 6
and 20, respectively, of the accompanying prospectus for a detailed description
of the share ownership limits.
ADVERSE LEGISLATIVE OR REGULATORY TAX CHANGES.
At any time, the federal income tax laws governing REITs or the
administrative interpretations of those laws may be amended. Any of those new
laws or interpretations may take effect retroactively and could adversely affect
us or you as a shareholder. Recently enacted legislation reduces individual tax
rates applicable to certain corporate dividends. REIT dividends generally would
not be eligible for reduced rates because a REIT's income generally is not
subject to corporate level tax. As a result, investment in non-REIT corporations
may be relatively more attractive than investment in REITs. This could adversely
affect the market price of our shares.
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USE OF PROCEEDS
We expect that the net proceeds from this offering will be approximately
$131,241,250, after deducting offering expenses payable by us and assuming the
underwriter does not exercise its over-allotment option to purchase up to an
additional 400,000 of our Series C Preferred Shares. We expect to use the net
proceeds (i) to fund future acquisitions, and (ii) for general business
purposes.
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DESCRIPTION OF SERIES C PREFERRED SHARES
The following description of the material terms and provisions of the
Series C Preferred Shares is only a summary and is qualified in its entirety by
reference to our declaration of trust, the articles supplementary to our
declaration of trust establishing the Series C Preferred Shares and our by-laws,
each of which is incorporated by reference in this prospectus supplement and the
accompanying prospectus.
As used in this "Description of Series C Preferred Shares" section,
references to "our company," "we," or "us" refer solely to Lexington Corporate
Property Trust and not to our subsidiaries, unless the context otherwise
requires.
GENERAL
Under our declaration of trust, we have authority to issue up to
130,000,000 shares of beneficial interest, par value $0.0001 per share, of which
80,000,000 shares are classified as common shares, 40,000,000 shares are
classified as excess shares and 10,000,000 shares are classified as preferred
shares. Our board of trustees may classify and re-classify any unissued shares
of beneficial interest 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 beneficial interest.
Prior to the closing of this offering, our board of trustees will adopt
articles supplementary to our declaration of trust establishing the number and
fixing the terms, designations, powers, preferences, rights, limitations and
restrictions of a series of our preferred shares classified as 6.50% Series C
Cumulative Convertible Preferred Shares. Our board of trustees has authorized up
to 3,100,000 Series C Preferred Shares. We will issue 2,700,000 Series C
Preferred Shares in this offering (3,100,000 shares if the underwriter exercises
its over-allotment option in full). As of the closing of this offering, the
Series B Preferred Shares will be the only other class or series of preferred
shares authorized, issued and outstanding; all of our Series A Senior Cumulative
Convertible Preferred Shares, par value $0.0001 per share, were converted into
our common shares in April, 2002. We have reclassified the authorized shares of
our Series A Senior Cumulative Convertible Preferred Shares into preferred
shares.
Our Series C Preferred Shares will be new securities for which no market
currently exists. We have applied to list our Series C Preferred Shares on the
New York Stock Exchange under the symbol "LXP-----pc," subject to official
notice of issuance. While the underwriter has informed us that it intends to
make a market in the Series C Preferred Shares, it is under no obligation to do
so and may discontinue such market-making activities at any time without notice.
We cannot assure you that any active or liquid market will develop for the
Series C Preferred Shares.
We own a substantial portion of our properties through our three (3)
operating partnership subsidiaries of which we wholly own the sole general
partner and the holder of a majority of the operating partnership units and in
which the minority limited partners are generally entitled to (i) receive
distributions which are in the same or lesser amounts than the dividends we pay
on our common shares and (ii) convert their minority operating partnership units
on a one for one basis into our common shares. These operating partnership
subsidiaries are jointly and severally obligated to pay to us an amount, which,
when taken together with other funds we have available, will be equal to the
declared and unpaid dividends on the Series C Preferred Shares before paying any
distributions (from operations or upon liquidation) on account of their
outstanding operating partnership units.
DIVIDENDS
Subject to the preferential rights of the holders of any class or series of
our capital shares ranking senior to the Series C Preferred Shares as to
dividends, the holders of our Series C Preferred Shares will be entitled to
receive, when, as and if declared by our board of trustees, out of funds legally
available for the payment of dividends, cumulative cash dividends at a rate of
6.50% of the $50.00 liquidation preference per year (equivalent to $3.25 per
year per share). These dividends will accrue and be cumulative from and
including the date of original issuance of the Series C Preferred Shares and,
beginning February 15, 2005, will be
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payable quarterly in arrears on each of February 15, May 15, August 15, and
November 15 of each year (or, if not a business day, the next succeeding
business day) in respect of the quarterly distribution periods ending on
December 31, March 31, June 30, and September 30, respectively. The dividend
payable on the Series C Preferred Shares on February 15, 2005 will be a pro rata
dividend from the original issue date to December 31, 2004 in the amount of
approximately $0.2167 per share. Future dividends payable on the Series C
Preferred Shares for any partial dividend period will be computed on the basis
of a 360-day year consisting of twelve (12) thirty-day months. Dividends will be
payable to holders of record as they appear in our shareholder records at the
close of business on the applicable record date, which will be a date designated
by our board of trustees for the payment of dividends that is not more than
thirty (30) days nor less than ten (10) days before the dividend payment date.
We will not declare dividends on the Series C Preferred Shares, or pay or
set apart for payment dividends on the Series C Preferred Shares, at any time if
the terms and provisions of any of our agreements, including any agreement
relating to our indebtedness, prohibits the declaration, payment or setting
apart for payment or provides that the declaration, payment or setting apart for
payment would constitute a breach of or a default under the agreement, or if the
declaration, payment or setting apart for payment is restricted or prohibited by
law.
Notwithstanding the foregoing, dividends on the Series C Preferred Shares
will accrue whether or not we have earnings, whether or not there are funds
legally available for the payment of those dividends and whether or not those
dividends are declared. Except as described in the next paragraph, unless full
cumulative dividends on the Series C Preferred Shares have been or
contemporaneously are declared and paid in cash or declared and a sum sufficient
for the payment thereof is set apart for payment for all past dividend periods
and the then current dividend period:
- no dividends, other than distributions in kind of our common shares or
other capital shares ranking junior to our Series C Preferred Shares as
to distributions and upon liquidation, may be declared or paid or set
aside for payment, and no other dividend may be declared or made upon,
our common shares, our Series B Preferred Shares or any other capital
shares ranking junior to or on a parity with our Series C Preferred
Shares as to distributions or upon liquidation (other than pro rata
dividends on Series B Preferred Shares or other preferred shares ranking
on a parity as to distributions with the Series C Preferred Shares); and
- no common shares, Series B Preferred Shares or any other capital shares
ranking junior to or on a parity with our Series C Preferred Shares as to
distributions or upon liquidation may be redeemed, purchased or otherwise
acquired for any consideration (or any moneys be paid to or made
available for a sinking fund for the redemption of any such shares) by
us, except (i) by conversion into or exchange for other capital shares
ranking junior to the Series C Preferred Shares as to distributions and
amounts upon liquidation and (ii) in accordance with certain provisions
of our declaration of trust, under which Series C Preferred Shares owned
by a shareholder in excess of the ownership limit discussed under
"-- Restrictions on Ownership" herein and under "Restrictions on
Transfers of Capital Stock and Anti-Takeover Provisions" beginning on
page 20 of the accompanying prospectus will be transferred to a trust for
the exclusive benefit of one or more charitable beneficiaries and may be
purchased by us under certain circumstances.
When we do not pay dividends in full (or we do not set apart a sum
sufficient to pay them in full) upon the Series C Preferred Shares, the Series B
Preferred Shares and the shares of any other class or series of capital shares
ranking, as to dividends, on a parity with the Series C Preferred Shares, we
will declare any dividends upon the Series C Preferred Shares, the Series B
Preferred Shares and each such other class or series of capital shares ranking,
as to dividends, on a parity with the Series C Preferred Shares in proportion to
their respective accrued dividends (other than accruals for prior periods). No
interest, or sum of money in lieu of interest, will be payable in respect of any
dividend payment or payments on the Series C Preferred Shares which may be in
arrears.
Holders of Series C Preferred Shares are not entitled to any dividend,
whether payable in cash, property or capital shares, in excess of full
cumulative dividends on the Series C Preferred Shares as described above.
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Any dividend payment made on the Series C Preferred Shares will first be
credited against the earliest accrued but unpaid dividends due with respect to
those shares which remain payable. Accrued but unpaid dividends on the Series C
Preferred Shares will accumulate as of the due date for the dividend payment on
which they first become payable.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding-up of
our affairs, the holders of our Series C Preferred Shares will be entitled to be
paid out of our assets legally available for distribution to our shareholders a
liquidation preference of $50.00 per share, plus an amount equal to any accrued
and unpaid dividends to the date of payment (whether or not declared), before
any distribution or payment may be made to holders of our common shares or any
other class or series of our capital shares ranking, as to liquidation rights,
junior to the Series C Preferred Shares. If, upon our voluntary or involuntary
liquidation, dissolution or winding up, our available assets are insufficient to
pay the full amount of the liquidating distributions on all outstanding Series C
Preferred Shares and the corresponding amounts payable on Series B Preferred
Shares and all shares of each other class or series of capital shares ranking,
as to liquidation rights, on a parity with the Series C Preferred Shares, then
all such shares will share proportionately in any distribution of assets in
proportion to the full liquidating distributions to which they would otherwise
be respectively entitled. Holders of Series C Preferred Shares will be entitled
to written notice of any liquidation. After payment of the full amount of the
liquidating distributions to which they are entitled, the holders of Series C
Preferred Shares will have no right or claim to any of our remaining assets. For
these purposes, our consolidation or merger with or into any other corporation,
trust or other entity, or the sale, lease, transfer or conveyance of all or
substantially all of our property or business, will not be deemed to constitute
our liquidation, dissolution or winding-up.
VOTING RIGHTS
Holders of the Series C Preferred Shares will not have any voting rights,
except as provided by applicable law and as described below.
If we do not pay dividends on the Series C Preferred Shares for six (6) or
more quarterly periods (whether or not consecutive), a preferred dividend
default will exist, and the holders of the Series C Preferred Shares, voting
together as a class with the holders of the Series B Preferred Shares and all
other classes or series of our equity securities ranking on parity with the
Series C Preferred Shares which are entitled to similar voting rights ("parity
shares"), will be entitled to vote at the next annual meeting of our
shareholders and at each subsequent meeting for the election of two (2)
additional trustees to serve on our board of trustees. Notwithstanding the
foregoing, if, prior to the election of any additional trustees in the manner
described in this paragraph, all accumulated dividends are paid on the Series C
Preferred Shares, the Series B Preferred Shares and all other parity shares, no
such additional trustees will be so elected. Any such additional trustees so
elected will serve until all unpaid cumulative dividends on the Series C
Preferred Shares, the Series B Preferred Shares, and all other parity shares
have been paid or declared and set apart for payment. Upon such election, the
size of our board of trustees will be increased by two (2) trustees. If and when
all such accumulated dividends shall have been paid on the Series C Preferred
Shares, the Series B Preferred Shares and all other parity shares, the term of
office of each of the additional trustees so elected will terminate and the size
of our board of trustees will be reduced accordingly. So long as the relevant
dividend default continues, any vacancy in the office of additional trustees
elected under this paragraph may be filled by written consent of the other
additional trustee who remains in office, or if no additional trustee remains in
office, by a vote of the holders of a majority of the outstanding Series C
Preferred Shares, Series B Preferred Shares and all other parity shares when
they have the voting rights described above (voting as a single class with the
holders of the Series B Preferred Shares and all other parity shares). Each of
the trustees elected as described in this paragraph will be entitled to one vote
on any matter.
The affirmative vote or consent of the holders of two-thirds of the
outstanding Series C Preferred Shares, the Series B Preferred Shares and each
other class or series of our equity securities ranking on parity with the Series
C Preferred Shares ranking on a parity with respect to the payment of dividends
or the distribution of
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assets upon our liquidation, dissolution or winding up, voting as a single
class, will be required to (i) authorize or create, or increase the authorized
or issued amount of, any class or series of capital shares ranking senior to the
Series C Preferred Shares with respect to payment of dividends or the
distribution of assets upon our liquidation, dissolution or winding-up or
reclassify any of our authorized shares into capital shares of that kind, or
create, authorize or issue any obligation or security convertible into or
evidencing the right to purchase any such capital shares; or (ii) amend, alter
or repeal the provisions of the declaration of trust or articles supplementary,
whether by merger, consolidation, transfer or conveyance of substantially all of
its assets or otherwise, so as to materially and adversely affect any right,
preference, privilege or voting power of the Series C Preferred Shares or its
holders; except that with respect to the occurrence of any of the events
described in (ii) above, so long as the Series C Preferred Shares remain
outstanding with the terms of the Series C Preferred Shares materially
unchanged, taking into account that, upon the occurrence of an event described
in (ii) above, we may not be the surviving entity, the occurrence of such event
will not be deemed to materially and adversely affect the rights, preferences,
privileges or voting power of holders of Series C Preferred Shares, and in such
case such holders shall not have any voting rights with respect to the events
described in (ii) above.
Holders of Series C Preferred Shares shall not be entitled to vote with
respect to (A) any increase, decrease or issuance of any class or series of
capital shares including the Series C Preferred Shares, or (B) the creation or
issuance of any other class or series of capital shares, in each case ranking on
a parity with or junior to the Series C Preferred Shares with respect to the
payment of dividends and the distribution of assets upon liquidation,
dissolution or winding up.
The foregoing voting provisions will not apply if, at or before the time
when the act with respect to which the vote would otherwise be required is
effected, all outstanding Series C Preferred Shares are subject to the Company
Conversion Option upon proper notice and we deposit sufficient common shares (or
if we elected to make settlement in cash, funds, in cash) in trust to effect the
conversion.
In any matter in which the Series C Preferred Shares may vote (as expressly
provided in the articles supplementary or as may be required by law), holders of
Series C Preferred Shares shall be entitled to one vote per $25.00 of
liquidation preference (i.e. two (2) votes for each Series C Preferred Share).
REDEMPTION
The Series C Preferred Shares will not be redeemable by us except as
necessary to preserve our status as a REIT.
RANKING
The Series C Preferred Shares will, with respect to rights to the payment
of dividends and the distribution of assets in the event of our liquidation,
dissolution or winding up, rank: (i) senior to all classes or series of our
common shares and to all equity securities ranking junior to our Series C
Preferred Shares with respect to dividend rights and rights upon our
liquidation, dissolution or winding-up, (ii) on a parity with our Series B
Preferred Shares and all other equity securities issued by us the terms of which
specifically provide that such equity securities rank on a parity with our
Series C Preferred Shares with respect to dividend rights and rights upon our
liquidation, dissolution or winding-up, and (iii) junior to all equity
securities issued by us the terms of which specifically provide that such equity
securities rank senior to our Series C Preferred Shares a with respect to
dividend rights and rights upon our liquidation, dissolution or winding-up. For
these purposes, the term "equity securities" does not include convertible debt
securities.
CONVERSION RIGHTS
A holder may, at its option, convert all or any portion of such holder's
outstanding Series C Preferred Shares initially at a conversion rate of 1.8643
common shares per $50.00 liquidation preference (the "conversion rate"), which
is equivalent to an initial conversion price of approximately $26.82 per common
share (subject to adjustment in certain events). Upon conversion, we will have
the right to deliver, in lieu of
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our common shares, cash or a combination of cash and our common shares, as
described below under "-- Conversion Procedures -- Settlement Upon Conversion."
We will not issue fractional common shares upon the conversion of Series C
Preferred Shares. Instead, we will pay the cash value of such fractional shares
based upon the closing sale price of our common shares on the trading day
immediately prior to the conversion date.
A holder of Series C Preferred Shares is not entitled to any rights of a
holder of common shares until that holder has converted its Series C Preferred
Shares, and only to the extent the Series C Preferred Shares are deemed to have
been converted to common shares under our articles supplementary.
COMPANY CONVERSION OPTION
On or after November 16, 2009, we may, at our option, cause the Series C
Preferred Shares to be automatically converted into that number of common shares
that are issuable at the then prevailing conversion rate (as adjusted) (the
"Company Conversion Option"). We may exercise our Company Conversion Option only
if, our common share price equals or exceeds 125% of the then prevailing
conversion price of the Series C Preferred Shares for at least twenty (20)
trading days in a period of thirty (30) consecutive trading days (including the
last trading day of such period), ending on the trading day immediately prior to
our issuance of a press release announcing the exercise of our Company
Conversion Option as described below.
To exercise our Company Conversion Option described above, we must issue a
press release for publication on the Dow Jones & Company, Inc., Business Wire or
Bloomberg Business News (or, if such organizations are not in existence at the
time of issuance of such press release, such other news or press organization as
is reasonably calculated to broadly disseminate the relevant information to the
public) prior to the opening of business on the first trading day following any
date on which the conditions described in the preceding paragraph are met,
announcing such conversion. We will also give notice by mail or by publication
(with subsequent prompt notice by mail) to the holders of the Series C Preferred
Shares (not more than four (4) trading days after the date of the press release)
of the exercise of our Company Conversion Option announcing our intention to
convert the Series C Preferred Shares. The conversion date will be a date
selected by us (which we will refer to as the "Company Conversion Option Date")
and will be no more than five (5) days after the date on which we issue such
press release.
In addition to any information required by applicable law or regulation,
the press release and notice of the exercise of our Company Conversion Option
will state, as appropriate:
- the Company Conversion Option Date;
- the number of common shares to be issued upon conversion of each Series C
Preferred Share;
- the number of Series C Preferred Shares to be converted; and
- that dividends on the Series C Preferred Shares to be converted will
cease to accrue on the Company Conversion Option Date.
In addition to the Company Conversion Option provision described above, if
there are fewer than 25,000 shares of Series C Preferred Shares outstanding, we
may, at any time on or after November 16, 2009, at our option, cause the Series
C Preferred Shares to be automatically converted into that number of common
shares equal to $50.00 (the liquidation preference per share of Series C
Preferred Shares) divided by the lesser of the then prevailing conversion price
and the market value of the common shares for the five (5) trading day period
ending on the second trading day immediately prior to the Company Conversion
Option Date. The provisions of the immediately preceding three (3) paragraphs
shall apply to any Company Conversion Option; provided, however, that (1) the
Company Conversion Option Date will not be less than fifteen (15) days nor more
than thirty (30) days after the date on which we issue a press release
announcing the Company Conversion Option and (2) the press release and notice of
the Company Conversion Option will not state the number of common shares to be
issued upon conversion of each share of the Series C Preferred Shares.
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We may choose to deliver the conversion value in connection with a Company
Conversion Option to investors in cash, our common shares, or a combination of
cash and our common shares.
CONVERSION PROCEDURES
GENERAL
A holder of the Series C Preferred Shares may convert any or all of such
shares by surrendering to us at our principal office or at the office of our
transfer agent, as may be designated by our board of trustees, the certificate
or certificates for the Series C Preferred Shares to be converted accompanied by
a written notice stating that the holder elects to convert all or a specified
whole number of those shares in accordance with the provisions described in this
prospectus supplement and specifying the name or names in which the holder
wishes the certificate or certificates for the common shares to be issued. In
case the notice specifies a name or names other than that of the holder, the
notice will be accompanied by payment of all transfer taxes payable upon the
issuance of common shares in that name or names. Other than those taxes, we will
pay any documentary, stamp or similar issue or transfer taxes that may be
payable in respect of any issuance or delivery of common shares upon conversion
of the Series C Preferred Shares. As promptly as practicable after the surrender
of that certificate or certificates and the receipt of the notice relating to
the conversion and payment of all required transfer taxes, if any, or the
demonstration to our satisfaction that those taxes have been paid, we will
deliver or cause to be delivered (a) certificates representing the number of
validly issued, fully paid and non-assessable full common shares to which the
holder of the Series C Preferred Shares being converted, or the holder's
transferee, will be entitled and (b) if less than the full number of Series C
Preferred Shares evidenced by the surrendered certificate or certificates is
being converted, a new certificate or certificates, of like tenor, for the
number of shares evidenced by the surrendered certificate or certificates, less
the number of shares being converted. This conversion will be deemed to have
been made at the close of business on the date of giving the notice and of
surrendering the certificate or certificates representing the shares of the
Series C Preferred Shares to be converted (the "conversion date") so that the
rights of the holder thereof as to the shares being converted will cease except
for the right to receive the conversion value, and, if applicable, the person
entitled to receive common shares will be treated for all purposes as having
become the record holder of those common shares at that time.
In lieu of the foregoing procedures, if the Series C Preferred Shares are
held in global form, you must comply with the procedures of The Depository Trust
Company ("DTC") to convert your beneficial interest in respect of the Series C
Preferred Shares evidenced by a global share of the Series C Preferred Shares.
A holder of Series C Preferred Shares is not eligible to any rights of a
holder of common shares until such holder has converted its Series C Preferred
Shares into common shares.
In case any Series C Preferred Shares are to be converted pursuant to our
Company Conversion Option, a holder's right to voluntarily convert those Series
C Preferred Shares will terminate if we have not received such holder's
conversion notice by 5:00 p.m., New York City time, on the trading day
immediately preceding the date fixed for conversion pursuant to our Company
Conversion Option.
In connection with the conversion of any Series C Preferred Shares, no
fractional common shares will be issued, but we will pay a cash adjustment in
respect of any fractional interest in an amount equal to the fractional interest
multiplied by the closing sale price of our common shares on the date the Series
C Preferred Shares are surrendered for conversion. If more than one Series C
Preferred Share will be surrendered for conversion by the same holder at the
same time, the number of full common shares issuable on conversion of those
Series C Preferred Shares will be computed on the basis of the total number of
Series C Preferred Shares so surrendered.
We will at all times reserve and keep available, free from preemptive
rights out of our authorized but unissued shares or treasury shares, for
issuance upon the conversion of Series C Preferred Shares, a number of our
authorized but unissued common shares that will from time to time be sufficient
to permit the conversion of all outstanding Series C Preferred Shares.
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Before the delivery of any securities that we will be obligated to deliver
upon conversion of the Series C Preferred Shares, we will comply with all
applicable federal and state laws and regulations that require action to be
taken by us. All common shares delivered upon conversion of the Series C
Preferred Shares will upon delivery be duly and validly issued, fully paid and
non-assessable, free of all liens and charges and not subject to any preemptive
rights.
If a holder of Series C Preferred Shares has exercised its right to require
us to repurchase shares of Series C Preferred Shares as described under
"-- Purchase of Series C Preferred Shares Upon a Fundamental Change," such
holder's conversion rights with respect to the Series C Preferred Shares so
subject to repurchase will expire if we have not received such holder's
conversion notice by 5:00 p.m., New York City time, on the trading day
immediately preceding the repurchase date, unless we default on the payment of
the purchase price. If a holder of Series C Preferred Shares has submitted any
such share for repurchase, such share may be converted only if such holder
submits a notice of withdrawal or complies with applicable DTC procedures.
SETTLEMENT UPON CONVERSION
Pursuant to the procedures described below, upon a conversion, we will have
the right to deliver the conversion value, as defined below, in lieu of our
common shares, in cash or a combination of cash and our common shares.
"Conversion value" means an amount equal to the product of the applicable
conversion rate (as adjusted) multiplied by the arithmetic average of the
closing sale prices of our common shares during the cash settlement averaging
period (as defined below).
We can elect at any time to obligate ourselves to satisfy solely in cash
the portion of the conversion value that is equal to 100% of the liquidation
preference amount of the Series C Preferred Shares, with any remaining amount of
the conversion value to be satisfied in cash, common shares or a combination of
cash and common shares, at our election. If we elect to do so with respect to
the liquidation preference amount, we will notify holders at any time that we
intend to settle in cash the portion of the conversion value that is equal to
the liquidation preference amount of the Series C Preferred Shares (referred to
as the "liquidation preference conversion settlement election"). This
notification, once provided to holders, will be irrevocable and will apply to
future conversions of the Series C Preferred Shares even if the shares cease to
be convertible but subsequently become convertible again.
Except to the extent we make a liquidation preference conversion settlement
election, we will not be required to notify holders of our method for settling
our conversion obligation relating to the conversion value or, if we have made a
liquidation preference conversion settlement election, the excess of our
conversion obligation relating to the portion of the conversion value above the
liquidation preference amount, if any, until the Series C Preferred Shares are
submitted for conversion.
If we receive a holder's conversion notice, the following procedures will
apply:
- Settlement of our conversion obligation that is equal to 100% of the
liquidation preference amount of the Series C Preferred Shares will be
according to the liquidation preference conversion settlement election,
if any, already made.
- Any portion of the conversion value which we have not decided to settle
in cash will be settled in our common shares (except that we will pay
cash in lieu of issuing any fractional shares). We will notify any
holders of Series C Preferred Shares exercising a conversion right, at
any time on the date that is three (3) trading days following receipt of
the holder's conversion notice (the "settlement notice period"), if we
choose to settle any portion of our conversion obligation in whole or in
part in cash or, if we have made a liquidation preference conversion
settlement election, if we choose to settle the excess conversion value,
in whole or in part, in cash. If we elect to settle the conversion value
in a combination of cash and common shares, we will specify the
percentage of the conversion value relating to the Series C Preferred
Shares surrendered for conversion that we will pay in cash. We will treat
all holders converting on the same trading day in the same manner. We
will not, however, have any obligation to settle the conversion value,
except to the extent we have made a liquidation
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preference conversion settlement election, arising on different trading
days in the same manner. That is, we may choose on one trading day to
settle in common shares only and choose on another trading day to settle
in cash or a combination of common shares and cash.
- Settlement of a conversion solely in common shares will occur as soon as
practicable, but in any event not more than three (3) trading days
following receipt of the holder's conversion notice.
- If we timely elect to pay cash for any portion of the conversion value,
the holder may retract the conversion notice at any time during the two
(2) trading day period beginning on the trading day after the final day
of the settlement notice period (the "conversion retraction period"); no
such retraction may be made (and a conversion notice shall be
irrevocable) if we do not elect to deliver cash in lieu of common shares
(other than cash in lieu of fractional shares) or if we have previously
made a liquidation preference conversion settlement election.
- Settlement of any portion of the conversion value, including the portion
of the conversion value that is equal to 100% of the liquidation
preference amount or the excess conversion value, in cash or in a
combination of cash and common shares will occur on the third trading day
following the final day of the cash settlement averaging period. The
"cash settlement averaging period" shall mean the 20-trading day period
beginning on the trading day following the final trading day of the
conversion retraction period.
- Settlement amounts will be computed as follows:
1. If we elect to satisfy a conversion, including the conversion value
that is equal to 100% of the liquidation preference amount and the
excess conversion obligation, solely in common shares (other than
with respect to fractional shares), we will deliver to the holder,
for each Series C Preferred Share, a number of common shares equal to
the conversion rate (as adjusted).
2. If we elect to satisfy a conversion, including the conversion value
that is equal to 100% of the liquidation preference amount and the
excess conversion obligation, solely in cash, we will deliver to the
holder, for each Series C Preferred Share, cash in an amount equal to
the product of the conversion rate (as adjusted) multiplied by the
arithmetic average of the closing sale prices of our common shares
during the cash settlement averaging period.
3. If we elect to satisfy the conversion obligation, including the
conversion value that is equal to 100% of the liquidation preference
amount and the excess conversion obligation, in a combination of cash
and common shares, we will deliver to the holder, for each Series C
Preferred Share:
(a) a cash amount (the "cash amount") (excluding any cash paid for
fractional shares) equal to the sum of:
- the product of $50.00 multiplied by the percentage of the
liquidation preference amount to be satisfied in cash; plus
- if greater than zero, the product of (i) the amount of cash
that would be paid pursuant to paragraph 2 above minus $50.00
and (ii) the percentage of the excess conversion obligation
above the liquidation preference amount to be satisfied in
cash;
and
(b) a number of common shares equal to the difference between:
- the number of common shares that would be issued pursuant to
paragraph number 1 above; minus
- the number of common shares equal to the quotient of (i) the
cash amount pursuant to 3(a) above divided by (ii) the
arithmetic average of the closing sale prices of our common
shares during the cash settlement averaging period.
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If any trading day during a cash settlement averaging period is not an
undisrupted trading day, then determination of the price for that day will be
delayed until the next undisrupted trading day on which a pricing is not
otherwise observed; that is, such day will not count as one of the twenty (20)
trading days that constitute the cash settlement averaging period. If this would
result in a price being observed later than the eighth trading day after the
last of the original twenty (20) trading days in the cash settlement averaging
period, then our board of trustees will determine all prices for all delayed and
undetermined prices on that eighth trading day based on its good faith estimate
of the common shares' value on that date.
An "undisrupted trading day" means a trading day on which our common shares
do not experience any of the following during the one hour period ending at the
conclusion of the regular trading day:
- any suspension of or limitation imposed on the trading of our common
shares on any national or regional securities exchange or association or
over-the-counter market;
- any event (other than an event listed in the third bullet below) that
disrupts or impairs the ability of market participants in general to (i)
effect transactions in or obtain market values for our common shares on
any relevant national or regional securities exchange or association or
over-the-counter market or (ii) effect transactions in or obtain market
values for futures or options contracts relating to the common shares on
any relevant national or regional securities exchange or association or
over-the-counter market; or
- any relevant national or regional securities exchange or association or
over-the-counter market on which our common shares trade closes on any
exchange trading day prior to its scheduled closing time unless such
earlier closing time is announced by the exchange at least one hour prior
to the earlier of (i) the actual closing time for the regular trading
session on such exchange and (ii) the submission deadline for orders to
be entered into the exchange for execution on such trading day,
if, in the case of the first and second bullet point above, our board of
trustees determines that the effect of such suspension, limitation, disruption
or impairment is material.
PAYMENT OF DIVIDENDS UPON CONVERSION
Optional Conversion
General. If a holder of Series C Preferred Shares exercises conversion
rights, upon delivery of the Series C Preferred Shares for conversion, those
Series C Preferred Shares will cease to cumulate dividends as of the end of the
day immediately preceding the conversion date and the holder will not receive
any cash payment representing accrued and unpaid dividends on the Series C
Preferred Shares, except in those limited circumstances discussed below. Except
as provided below, we will make no payment for accrued and unpaid dividends,
whether or not in arrears, on Series C Preferred Shares converted at a holder's
election, or for dividends on the common shares issued upon such conversion.
Conversion On or Before Record Date. If we receive a conversion notice
before the close of business on a dividend record date, the holder will not be
entitled to receive any portion of the dividend payable on such converted shares
on the corresponding dividend payment date.
Conversion After Record Date and Prior to Payment Date. If we receive a
conversion notice after the dividend record date but prior to the corresponding
dividend payment date, the holder on the record date will receive on that
dividend payment date accrued dividends on those Series C Preferred Shares,
notwithstanding the conversion of those Series C Preferred Shares prior to that
dividend payment date, because that holder will have been the holder of record
on the corresponding record date. However, at the time that such holder
surrenders Series C Preferred Shares for conversion, the holder must pay to us
an amount equal to the dividend that has accrued and that will be paid on the
related dividend payment date.
Conversion On or After Payment Date. A holder of Series C Preferred Shares
on a dividend payment record date who converts such Series C Preferred Shares
into common shares on or after the corresponding dividend payment date will be
entitled to receive the dividend payable on such Series C Preferred Shares on
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such dividend payment date, and the converting holder need not include payment
of the amount of such dividend upon surrender for conversion of shares of the
Series C Preferred Shares.
Dividends on Common Shares Issued Upon Conversion. If we receive a
conversion notice on or before the close of business on a dividend record date
or following such record date but before the dividend payment date therefor, and
the settlement date for any common shares to be issued upon such conversion is
after the close of business on the record date for the payment of dividends for
the corresponding period on such common shares, such holder will be entitled to
receive such common share dividends upon the next payment date of dividends on
our common shares as if he were the holder of such common shares on such record
date.
Company Conversion Option
General. If we call the Series C Preferred Shares pursuant to our Company
Conversion Option, whether prior to, on or after the record date for the current
period, all unpaid dividends which are in arrears as of the Company Conversion
Option Date will be payable to the holder of the converted shares.
Conversion Before Record Date. If we exercise our Company Conversion
Option and the effective date of the conversion of the Series C Preferred Shares
is a date that is prior to the close of business on any dividend record date,
the holder will not be entitled to receive any portion of the dividend payable
for such period on such converted shares on the corresponding dividend payment
date.
Conversion On or After Record Date and Prior to Payment Date. If we
exercise our Company Conversion Option and the effective date of the conversion
of the Series C Preferred Shares is a date that is on, or after the close of
business on, any dividend record date and prior the close of business on the
corresponding dividend payment date, all dividends, including accrued and unpaid
dividends, whether or not in arrears, with respect to the Series C Preferred
Shares called for a conversion on such date, will be payable on such dividend
payment date to the record holder of such shares on such record date.
CONVERSION RATE ADJUSTMENTS
GENERAL
We will adjust the conversion rate if any of the following events occur:
1. We issue our common shares as a dividend or distribution to all or
substantially all holders of our common shares;
2. We subdivide, combine or reclassify our common shares;
3. We distribute, to all or substantially all holders of our common shares,
certain rights or warrants to subscribe for or purchase, for a period
expiring within sixty (60) days, common shares, or securities
convertible into or exchangeable or exercisable for our common shares,
at less than the closing sale price of our common shares on the trading
day immediately preceding the date of the announcement of such
distribution, provided that the conversion rate will be readjusted to
the extent that such rights or warrants are not exercised prior to the
expiration;
4. We distribute, to all or substantially all holders of our common shares,
shares of our capital stock or evidence of our indebtedness or assets,
including securities, but excluding:
- dividends or distributions referred to in 1 above;
- rights or warrants referred to in 3 above;
- dividends and distributions in connection with a reclassification,
change, consolidation, merger, combination, sale or conveyance
resulting in a change in the conversion consideration described below;
and
- cash dividends or cash distributions referred to in 6 below;
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5. We distribute, to all or substantially all holders of our common shares,
capital shares of one of our subsidiaries, with such adjustment, if any,
based on the market value of the subsidiary capital shares so
distributed relative to the market value of our common shares, in each
case over a measurement period following the distribution;
6. We pay any cash dividend or cash distribution during any quarterly
fiscal period to all or substantially all holders of our common shares,
in an aggregate amount that, together with other cash dividends or cash
distributions made during such quarterly fiscal period, is in excess of
the "dividend threshold amounts" defined below.
QUARTERLY DIVIDEND THRESHOLD AMOUNTS
------------------------------------------------------------------------
$0.36 per common share from the date of this prospectus supplement
through and including November 15, 2005
$0.37 per common share from November 16, 2005 through and including
November 15, 2006
$0.38 per common share thereafter
------------------------------------------------------------------------
The dividend threshold amounts defined above are subject to adjustment
from time to time for any share dividends on or subdivisions or
combinations of our common shares.
The conversion rate will be adjusted based on the following formula:
CR(1) = CRo x (SP / (SP - DI))
where,
CRo = the conversion rate in effect immediately prior to the record
date for such distribution
CR(1) = the conversion rate in effect immediately after the record
date for such distribution
SP = the average of the closing sale price per common share over the
ten (10) consecutive trading day period prior to the trading day
immediately preceding the earlier of the record date or the
ex-dividend date of such cash excess dividend or distribution
DI = the amount in cash per share we distribute to holders of our
common shares that exceeds the dividend threshold amounts
described above (with such threshold amounts appropriately
adjusted from time to time as provided under "Conversion Rate
Adjustments").
7. We or one of our subsidiaries make purchases of our common shares
pursuant to a tender offer or exchange offer that involves an aggregate
consideration that exceeds ten percent (10%) of the aggregate market
value of our common shares on the expiration of such tender offer or
exchange offer.
To the extent we have a rights plan in effect upon conversion of the Series
C Preferred Shares into common shares, the holder will receive (except to the
extent we settle our conversion obligations in cash), in addition to the common
shares, the rights under the rights plan unless the rights have separated from
the common shares prior to the time of conversion, in which case the conversion
rate will be adjusted at the time of separation as if we made a distribution
referred to in 4 above (without regard to any of the exceptions there).
In the event of any:
- reclassification or change of our common shares;
- consolidation, merger or binding share exchange involving our company; or
- sale or conveyance to another person or entity of all or substantially
all of our property or assets;
in each case in which holders of our common shares would be entitled to receive
shares, other securities, other property, assets or cash for their common
shares, upon conversion of a holder's Series C Preferred
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Shares, such preferred holder will be entitled to receive the same type of
consideration which such preferred holder would have been entitled to receive if
such preferred holder had converted its Series C Preferred Shares into our
common shares immediately prior to any of these events.
To the extent permitted by law, we may, from time to time, increase the
conversion rate for a period of at least twenty (20) days if our board of
trustees determines that such an increase would be in our best interests. Any
such determination by our board of trustees will be conclusive. We will give
holders at least fifteen (15) trading days' notice of any increase in the
conversion rate. In addition, we may increase the conversion rate if our board
of trustees deems it advisable to avoid or diminish any income tax to holders of
common shares resulting from any distribution of common shares or similar event.
We will not adjust the conversion rate pursuant to these provisions to the
extent that the adjustments would reduce the conversion price below $0.0001. Nor
will we be required to make an adjustment in the conversion rate unless the
adjustment would require a change of at least one percent (1%) in the conversion
rate. However, any adjustments that are not required to be made because they
would have required an increase or decrease of less than one percent (1%) will
be carried forward and taken into account in any subsequent adjustment of the
conversion rate. Except as described above in this section, we will not adjust
the conversion rate for any issuance of our common shares or any securities
convertible into or exchangeable or exercisable for our common shares or rights
to purchase our common shares or such convertible, exchangeable or exercisable
securities.
A holder may, in some circumstances, including the distribution of cash
dividends to shareholders, be deemed to have received a distribution or dividend
subject to United States federal income tax as a result of an adjustment or the
nonoccurrence of an adjustment to the conversion rate. See "Federal Income Tax
Considerations -- Other Tax Considerations -- Conversion or Redemption of Series
C Preferred Shares."
ADJUSTMENT TO CONVERSION RATE UPON CERTAIN FUNDAMENTAL CHANGES
General
If and only to the extent a holder elects to convert its Series C Preferred
Shares in connection with a transaction described in clause (1) of the
definition of fundamental change as described below under "Purchase of
Convertible Preferred Upon a Fundamental Change" (or in connection with a
transaction that would have been a fundamental change under such clause (1) but
for the application of the 105% trading price exception (as defined below)) that
occurs on or prior to November 15, 2014, pursuant to which 10% or more of the
consideration for our common shares (other than cash payments for fractional
shares and cash payments made in respect of dissenters' appraisal rights) in
such fundamental change transaction consists of cash or securities (or other
property) that are not traded or scheduled to be traded immediately following
such transaction on a U.S. national securities exchange or the Nasdaq National
Market, we will increase the conversion rate for the Series C Preferred Shares
surrendered for conversion by a number of additional shares (the "additional
shares") as described below.
The number of additional shares will be determined by reference to the
table below, based on the date on which such fundamental change transaction
becomes effective (the "effective date") and the price (the "share price") paid
per share for our common shares in such fundamental change transaction. If
holders of our common shares receive only cash in such fundamental change
transaction, the share price shall be the cash amount paid per share. Otherwise,
the share price shall be the average of the closing sale prices of our common
shares on the five (5) trading days prior to but not including the effective
date of such fundamental change transaction.
The share prices set forth in the first row of the table below (i.e., the
column headers) will be adjusted as of any date on which the conversion rate of
the Series C Preferred Shares is adjusted, as described above under
"-- Conversion Rate Adjustments -- General." The adjusted share prices will
equal the product of the share prices applicable immediately prior to such
adjustment multiplied by a fraction, the numerator of which is the conversion
rate immediately prior to the adjustment giving rise to the share price
adjustment and the denominator of which is the conversion rate as so adjusted.
The number of additional shares will be adjusted in the same manner as the
conversion rate as set forth under "-- Conversion Rate Adjustments -- General."
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The following table sets forth the hypothetical share price and number of
additional shares to be issuable per $50.00 liquidation preference of Series C
Preferred Shares:
SHARE PRICE
---------------------------------------------------------------------------------------------------------
EFFECTIVE DATE $22.35 $25.00 $27.50 $30.00 $32.50 $35.00 $37.50 $40.00 $45.00 $50.00 $55.00 $60.00
-------------- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
December 2, 2004..... 0.373 0.289 0.222 0.171 0.133 0.102 0.081 0.064 0.044 0.032 0.025 0.020
November 15, 2005.... 0.373 0.289 0.211 0.157 0.117 0.087 0.066 0.053 0.033 0.024 0.018 0.015
November 15, 2006.... 0.342 0.258 0.191 0.143 0.107 0.081 0.063 0.050 0.035 0.027 0.022 0.019
November 15, 2007.... 0.362 0.261 0.184 0.130 0.093 0.066 0.049 0.038 0.026 0.021 0.018 0.016
November 15, 2008.... 0.347 0.245 0.162 0.103 0.062 0.034 0.019 0.010 0.005 0.003 0.002 0.002
November 15, 2009.... 0.340 0.237 0.153 0.085 0.030 0.000 0.000 0.000 0.000 0.000 0.000 0.000
November 15, 2010.... 0.310 0.222 0.145 0.082 0.029 0.000 0.000 0.000 0.000 0.000 0.000 0.000
November 15, 2011.... 0.332 0.230 0.147 0.082 0.028 0.000 0.000 0.000 0.000 0.000 0.000 0.000
November 15, 2012.... 0.326 0.225 0.143 0.079 0.027 0.000 0.000 0.000 0.000 0.000 0.000 0.000
November 15, 2013.... 0.325 0.223 0.141 0.078 0.026 0.000 0.000 0.000 0.000 0.000 0.000 0.000
November 15, 2014.... 0.304 0.214 0.138 0.077 0.026 0.000 0.000 0.000 0.000 0.000 0.000 0.000
SHARE PRICE
------------------------
EFFECTIVE DATE $65.00 $70.00 $75.00
-------------- ------ ------ ------
December 2, 2004..... 0.017 0.014 0.012
November 15, 2005.... 0.012 0.010 0.008
November 15, 2006.... 0.017 0.015 0.013
November 15, 2007.... 0.014 0.012 0.011
November 15, 2008.... 0.001 0.001 0.001
November 15, 2009.... 0.000 0.000 0.000
November 15, 2010.... 0.000 0.000 0.000
November 15, 2011.... 0.000 0.000 0.000
November 15, 2012.... 0.000 0.000 0.000
November 15, 2013.... 0.000 0.000 0.000
November 15, 2014.... 0.000 0.000 0.000
The share prices and additional share amounts set forth above are based
upon a common share price of $22.35 on December 2, 2004 and an initial
conversion price of $26.82.
The exact share prices and effective dates may not be set forth in the
table above, in which case:
- If the share price is between two share price amounts in the table or the
effective date is between two effective dates in the table, the number of
additional shares will be determined by a straight-line interpolation
between the number of additional shares set forth for the higher and
lower share price amounts and the two dates, as applicable, based on a
365-day year.
- If the share price is in excess of $75.00 per share (subject to
adjustment), no additional shares will be issuable upon conversion.
- If the share price is less than $22.35 per share (subject to adjustment),
no additional shares will be issuable upon conversion.
Our obligation to satisfy the additional shares requirement could be
considered a penalty, in which case the enforceability thereof would be subject
to general principles of reasonableness of economic remedies.
CONVERSION AFTER A PUBLIC ACQUIRER CHANGE OF CONTROL
Notwithstanding the foregoing, in the event of a public acquirer change of
control (as defined below), we may, in lieu of issuing additional shares as
described above, elect to adjust the conversion rate and the related conversion
obligation such that, from and after the effective time of such public acquirer
change of control, holders of Series C Preferred Shares will be entitled to
convert their Series C Preferred Shares (subject to satisfaction of the
conditions to conversion described under "-- Conversion Rights" above) into a
number of shares of public acquirer common stock (as defined below) by
multiplying the conversion rate in effect immediately before effective time of
the public acquirer change of control by a fraction:
- the numerator of which will be (i) in the case of a share exchange,
consolidation, merger or binding share exchange, pursuant to which our
common shares are converted into cash, securities or other property, the
value of all cash, securities and other property (as determined by our
board of trustees) paid or payable per common share or (ii) in the case
of any other public acquirer change of control, the average of the
closing sale price of our common shares for the five (5) consecutive
trading days prior to but excluding the effective date of such public
acquirer change of control; and
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- the denominator of which will be the average of the closing sale prices
of the public acquirer common stock for the five (5) consecutive trading
days commencing on the trading day next succeeding the effective date of
such public acquirer change of control.
A "public acquirer change of control" means any event constituting a
fundamental change (or that would otherwise constitute a fundamental change but
for the application of the 105% trading price exception) that would otherwise
obligate us to increase the conversion rate as described above under
"-- Adjustment to Conversion Rate Upon Certain Fundamental Changes" and the
acquirer (or any entity that is a directly or indirectly wholly-owned subsidiary
of the acquirer) has a class of common stock traded on a national securities
exchange or quoted on the Nasdaq National Market or which will be so traded or
quoted when issued or exchanged in connection with such fundamental change or
other event (the "public acquirer common stock").
Upon a fundamental change which is a public acquirer change of control, if
we so elect, holders may convert their Series C Preferred Shares at the adjusted
conversion rate described in the second preceding paragraph but will not be
entitled to the increased conversion rate described under "-- Adjustment to
Conversion Rate Upon Certain Fundamental Changes." We are required to notify
holders of our election in the notice to holders of such transaction. As
described under "-- Conversion Rights," subject to our election right under the
first paragraph of this section, holders may convert their Series C Preferred
Shares upon a public acquirer change of control during the period specified
therein. In addition, a holder may also, subject to certain conditions, require
us to repurchase all or a portion of our Series C Preferred Shares as described
under "-- Purchase of Convertible Preferred Upon a Fundamental Change."
PURCHASE OF SERIES C PREFERRED SHARES UPON A FUNDAMENTAL CHANGE
In the event of a fundamental change described below, a holder will have
the right to require us to purchase for cash all or any part of such holder's
Series C Preferred Shares at a purchase price equal to 100% of the liquidation
preference of the Series C Preferred Shares to be purchased plus accrued and
unpaid dividends (including additional dividends, if any) to, but not including,
the fundamental change purchase date.
On or before the tenth trading day after the occurrence of a fundamental
change, we will provide to all holders of Series C Preferred Shares and the
transfer agent a notice of the occurrence of the fundamental change and of the
resulting repurchase right. Such notice shall state:
- the events constituting the fundamental change;
- the date of the fundamental change;
- the last date on which a holder may exercise the repurchase right;
- the repurchase price;
- the repurchase date;
- the name and address of the paying agent and the conversion agent;
- the conversion rate and any adjustment to the conversion rate that will
result from the fundamental change;
- that Series C Preferred Shares with respect to which a repurchase notice
is given by the holder may be converted, if otherwise convertible, only
if the repurchase notice has been properly withdrawn; and
- the procedures that a holder must follow to exercise the repurchase
rights.
Simultaneously with providing such notice, we will publish a notice
containing this information in a newspaper of general circulation in the City of
New York or through such other public medium as we may use at that time and
publish such information on our corporate website.
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To exercise the purchase right, a holder must deliver, on or before the
twentieth trading day after the date of our notice of a fundamental change
(subject to extension to comply with applicable law), the Series C Preferred
Shares to be purchased, duly endorsed for transfer, together with a written
purchase notice and the form entitled "Form of Fundamental Change Purchase
Notice" on the reverse side of the Series C Preferred Shares duly completed, to
the paying agent. The purchase notice must state:
- the relevant purchase date;
- the portion of the liquidation preference of Series C Preferred Shares to
be purchased, in integral multiples of $50.00; and
- that the Series C Preferred Shares are to be purchased by us pursuant to
the applicable provisions of the Series C Preferred Shares.
If the Series C Preferred Shares are not in certificated form, a holder's
purchase notice must comply with applicable Depository Trust Company procedures.
A holder may withdraw any purchase notice (in whole or in part) by a
written notice of withdrawal delivered to the paying agent prior to the close of
business on the trading day prior to the fundamental change purchase date. The
notice of withdrawal shall state:
- the liquidation preference of the withdrawn Series C Preferred Shares, in
integral multiples of $50;
- if certificated Series C Preferred Shares have been issued, the
certificate numbers of the withdrawn Series C Preferred Shares; and
- the liquidation preference, if any, which remains subject to the purchase
notice.
If the Series C Preferred Shares are not in certificated form, a holder's notice
of withdrawal must comply with applicable Depository Trust Company procedures.
We will be required to purchase the Series C Preferred Shares no later than
35 trading days after the date of our notice of the occurrence of the relevant
fundamental change, subject to extension to comply with applicable law. A holder
will receive payment of the fundamental change purchase price promptly following
the later of the fundamental change purchase date or the time of book-entry
transfer or delivery of the Series C Preferred Shares. If the paying agent holds
cash sufficient to pay the fundamental change purchase price of the Series C
Preferred Shares on the trading day following the fundamental change purchase
date, then:
- the Series C Preferred Shares will cease to be outstanding and dividends
(including additional dividends, if any) will cease to accrue (whether or
not book-entry transfer of the Series C Preferred Shares is made or
whether or not the Series C Preferred Share Certificate is delivered to
the paying agent); and
- all other rights of the holder will terminate (other than the right to
receive the fundamental change purchase price upon delivery or transfer
of the Series C Preferred Shares).
A "fundamental change" will be deemed to have occurred if any of the
following occurs:
1. we consolidate with or merge with or into any person or convey,
transfer, sell or otherwise dispose of or lease all or substantially all
of our assets to any person, or any corporation consolidates with or
merges into or with us, in any such event pursuant to a transaction in
which our outstanding voting shares are changed into or exchanged for
cash, securities or other property, other than (a) any such transaction
where our outstanding voting shares are not changed or exchanged at all
(except to the extent necessary to reflect a change in our jurisdiction
of formation), or (b) where (i) our outstanding voting shares are
changed into or exchanged for cash, securities and other property (other
than equity interests of the surviving corporation) and (ii) our
shareholders immediately before such transaction
S-37
own, directly or indirectly, immediately following such transaction,
more than 50% of the total outstanding voting stock of the surviving
corporation; or
2. we are liquidated or dissolved or adopt a plan of liquidation or
dissolution.
However, notwithstanding the foregoing, a fundamental change will not be
deemed to have occurred if either:
1. the closing sales price of our common shares for each of at least five
(5) trading days within:
- the period of ten (10) consecutive trading days immediately after the
later of the fundamental change or the public announcement of the
fundamental change, in the case of a fundamental change described in
clause (1) above; or
- the period of ten (10) consecutive trading days immediately preceding
the fundamental change described in clause (2) above;
is at least equal to 105% of the quotient of the liquidation preference
of the Series C Preferred Shares divided by the conversion rate in
effect on each of those five (5) trading days (the "105% trading price
exception"); or
2. in the case of a merger or consolidation described in clause (1) above,
at least 90% of the consideration, excluding cash payments for
fractional shares and cash payments pursuant to dissenters' appraisal
rights, consists of common shares traded on a U.S. national securities
exchange or quoted on the Nasdaq National Market (or which will be so
traded or quoted when issued or exchanged in connection with such
fundamental change) and as a result of such transaction or transactions
the Series C Preferred Shares become convertible solely into such common
shares, excluding cash payments for fractional shares.
For purposes of the foregoing, "voting shares" means shares of the class or
classes pursuant to which the holders thereof have the general voting power
under ordinary circumstances to elect at least a majority of the board of
trustees of a corporation (irrespective of whether or not at the time shares of
any other class or classes shall have or might have voting power by reason of
the happening of any contingency).
The definition of fundamental change includes a phrase relating to the
conveyance, transfer, sale, lease or other disposition of "all or substantially
all" of our assets. There is no precise, established definition of the phrase
"substantially all" under the laws of the State of Maryland, which govern the
Series C Preferred Shares, and our formation. Accordingly, a holder's ability to
require us to repurchase our Series C Preferred Shares as a result of a
conveyance, transfer, sale, lease or other disposition of less than all of our
assets may be uncertain.
In connection with a fundamental change purchase, we will comply with all
U.S. federal and state securities laws in connection with any offer by us to
purchase the Series C Preferred Shares upon a fundamental change.
This fundamental change purchase feature may make more difficult or
discourage a party from taking over our company and removing incumbent
management. However, we are not aware of any specific effort to accumulate our
capital shares with the intent to obtain control of our company by means of a
merger, tender offer, solicitation or otherwise. In addition, the fundamental
change purchase feature is not part of a plan by management to adopt a series of
anti-takeover provisions. Instead, the fundamental change purchase feature is a
result of negotiations between our company and Bear, Stearns & Co. Inc.
We could, in the future, enter into certain transactions, including
recapitalizations, that would not constitute a fundamental change but would
increase the amount of debt outstanding or otherwise adversely affect a holder
of Series C Preferred Shares. The incurrence of significant amounts of
additional debt could adversely affect our ability to service our debt, and to
satisfy our obligation to repurchase the Series C Preferred Shares upon a
fundamental change.
S-38
Our ability to repurchase Series C Preferred Shares upon the occurrence of
a fundamental change is subject to important limitations. If a fundamental
change were to occur, we may not have sufficient funds, or be able to arrange
financing, to pay the fundamental change purchase price for the Series C
Preferred Shares tendered by holders. In addition, we may in the future incur
debt that has similar fundamental change provisions that permit holders of such
debt to accelerate or require us to purchase such debt upon the occurrence of
events similar to a fundamental change. In addition, our ability to repurchase
Series C Preferred Shares for cash may be limited by restrictions on our ability
to obtain funds.
We will not be required to make an offer to purchase the Series C Preferred
Shares upon a fundamental change if a third party (1) makes an offer to purchase
the Series C Preferred Shares in the manner, at the times and otherwise in
compliance with the requirements applicable to an offer made by us to purchase
Series C Preferred Shares upon a fundamental change and (2) purchases all of the
Series C Preferred Shares validly delivered and not withdrawn under such offer
to purchase Series C Preferred Shares.
RESTRICTIONS ON OWNERSHIP
As discussed under "Restrictions on Transfers of Capital Stock and
Anti-Takeover Provisions" beginning on page 20 of the accompanying prospectus,
for us to qualify as a REIT under the Internal Revenue Code, the transfer of our
capital shares, which includes the Series C Preferred Shares, is restricted and
not more than 50% in value of our outstanding capital shares may be owned,
directly or constructively, by five (5) or fewer individuals, as defined in the
Internal Revenue Code to include certain entities, during the last half of any
taxable year. Our declaration of trust provides that, no person or persons
acting as a group may own, or be deemed to own by virtue of the attribution
rules of the Internal Revenue Code, subject to limited exceptions, more than
9.8% in value of the outstanding shares of each class or series of our capital
shares.
EXCESS STOCK
The provisions of our declaration of trust relating to the excess stock
which apply to our common shares also applies to the Series C Preferred Shares
separately and without regard to any other series or class of our capital
shares. See "Restrictions on Transfers of Capital Stock and Anti-Takeover
Provisions" beginning on page 20 of the accompanying prospectus.
FORM
The Series C Preferred Shares will be issued and maintained in book-entry
form registered in the name of the nominee of DTC.
TRANSFER AGENT
The transfer agent, registrar and dividend disbursing agent for the Series
C Preferred Shares will be Mellon Investor Services LLC.
BOOK-ENTRY SYSTEM
The Series C Preferred Shares will only be issued in the form of global
securities held in book-entry form. DTC or its nominee will be the sole
registered holder of the Series C Preferred Shares. Owners of beneficial
interests in the Series C Preferred Shares represented by the global securities
will hold their interests pursuant to the procedures and practices of DTC. As a
result, beneficial interests in any such securities will be shown on, and
transfers will be effected only through, records maintained by DTC and its
direct and indirect participants and any such interest may not be exchanged for
certificated securities, except in limited circumstances. Owners of beneficial
interests must exercise any rights in respect of their interests, including any
right to convert or require repurchase of their interests in the Series C
Preferred Shares, in accordance with the procedures and practices of DTC.
Beneficial owners will not be holders and will not be entitled to any rights
provided to the holders of the Series C Preferred Shares under the global
securities or the articles supplementary. Our company and any of our agents may
treat DTC as the sole holder and registered owner of the global securities.
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DTC has advised us as follows: DTC is a limited-purpose trust company
organized under the New York Banking Law, a "banking organization" within the
meaning of the New York Uniformed Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
facilitates the settlement of transactions among its participants through
electronic computerized book-entry changes in participants' accounts,
eliminating the need for physical movement of securities certificates. DTC's
participants include securities brokers and dealers, including the underwriter,
banks, trust companies, clearing corporations and other organizations, some of
whom and/or their representatives own DTC. Access to DTC's book-entry system is
also available to others, such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a participant,
either directly or indirectly.
EXCHANGE OF GLOBAL SECURITIES
The Series C Preferred Shares, represented by one or more global
securities, will be exchangeable for certificated securities with the same terms
only if:
- DTC is unwilling or unable to continue as depositary or if DTC ceases to
be a clearing agency registered under the Exchange Act and a successor
depositary is not appointed by us within ninety (90) days; or
- we decide to discontinue use of the system of book-entry transfer through
DTC (or any successor depositary).
RESTRICTIONS ON TRANSFERS OF CAPITAL STOCK AND ANTI-TAKEOVER PROVISIONS
For a summary of other restrictions on transfers of our capital shares, see
"Restrictions on Transfers of Capital Stock and Anti-Takeover Provisions"
beginning on page 20 of the accompanying prospectus.
FEDERAL INCOME TAX CONSIDERATIONS
You are advised to assume that the information in this prospectus
supplement and the accompanying prospectus is accurate only as of their
respective dates.
The following discussion summarizes the material federal income tax
considerations to you as a prospective holder of our shares. The following
discussion is for general information purposes only, is not exhaustive of all
possible tax considerations and is not intended to be and should not be
construed as tax advice. For example, this summary does not give a detailed
discussion of any state, local or foreign tax considerations. In addition, this
discussion is intended to address only those federal income tax considerations
that are generally applicable to all our shareholders. It does not discuss all
of the aspects of federal income taxation that may be relevant to you in light
of your particular circumstances or to certain types of shareholders who are
subject to special treatment under the federal income tax laws including,
without limitation, insurance companies, tax-exempt entities, financial
institutions or broker-dealers, foreign corporations and persons who are not
citizens or residents of the United States.
The information in this section is based on the Internal Revenue Code of
1986, as amended, which is referred to as the Code, existing, temporary and
proposed regulations under the Code, the legislative history of the Code,
current administrative rulings and practices of the IRS and court decisions, all
as of the date hereof. No assurance can be given that future legislation,
regulations, administrative interpretations and court decisions will not
significantly change current law or adversely affect existing interpretations of
current law. Any such change could apply retroactively to transactions preceding
the date of the change. In addition, we have not received, and do not plan to
request, any rulings from the IRS concerning our tax treatment. Thus no
assurance can be provided that the statements set forth herein (which do not
bind the IRS or the courts) will not be challenged by the IRS or that such
statements will be sustained by a court if so challenged.
On October 22, 2004, President Bush signed into law the American Jobs
Creation Act of 2004 (the "American Jobs Creation Act of 2004"). The legislation
makes a number of changes to the REIT rules in the Code, generally taking effect
in our taxable year beginning January 1, 2005.
S-40
EACH PROSPECTIVE PURCHASER OF SHARES IS ADVISED TO CONSULT WITH HIS OR HER
OWN TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF THE
PURCHASE, OWNERSHIP AND SALE OF SHARES OF AN ENTITY ELECTING TO BE TAXED AS A
REIT, INCLUDING THE FEDERAL, STATE, LOCAL AND FOREIGN AND OTHER TAX CONSEQUENCES
OF SUCH PURCHASE, OWNERSHIP, SALE AND ELECTION AND OF POTENTIAL CHANGES IN
APPLICABLE TAX LAWS.
TAXATION OF THE COMPANY
General. We elected to be taxed as a REIT under Sections 856 through 860
of the Code, commencing with our taxable year ended December 31, 1993. We
believe that we have been organized, and have operated, in such a manner so as
to qualify for taxation as a REIT under the Code and intend to conduct our
operations so as to continue to qualify for taxation as a REIT. No assurance,
however, can be given that we have operated in a manner so as to qualify or will
be able to operate in such a manner so as to remain qualified as a REIT.
Qualification and taxation as a REIT depend upon our ability to meet on a
continuing basis, through actual annual operating results, the required
distribution levels, diversity of share ownership and the various qualification
tests imposed under the Code discussed below, the results of which will not be
reviewed by counsel. Given the highly complex nature of the rules governing
REITs, the ongoing importance of factual determinations, and the possibility of
future changes in our circumstances, no assurance can be given that the actual
results of our operations for any one taxable year have satisfied or will
continue to satisfy such requirements.
In the opinion of Paul, Hastings, Janofsky & Walker LLP, based on certain
assumptions and our factual representations that are described in this section
and in the officer's certificate, commencing with our taxable year ended
December 31, 1993, we have been organized and operated in conformity with the
requirements for qualification as a REIT and our current and proposed method of
operation will enable us to continue to meet the requirements for qualification
and taxation as a REIT. It must be emphasized that this opinion is based on
various assumptions and is conditioned upon certain representations made by us
as to factual matters including, but not limited to, those set forth herein and
in the discussion of "Federal Income Tax Considerations" contained in the
accompanying prospectus, and those concerning our business and properties as set
forth in this prospectus supplement and the accompanying prospectus. An opinion
of counsel is not binding on the Internal Revenue Service or the courts.
The following is a general summary of the Code provisions that govern the
federal income tax treatment of a REIT and its shareholders. These provisions of
the Code are highly technical and complex. This summary is qualified in its
entirety by the applicable Code provisions, Treasury Regulations and
administrative and judicial interpretations thereof, all of which are subject to
change prospectively or retroactively.
If we qualify for taxation as a REIT, we generally will not be subject to
federal corporate income taxes on our 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, we will be subject to federal income tax as follows:
- First, we will be taxed at regular corporate rates on any undistributed
REIT taxable income, including undistributed net capital gains.
- Second, under certain circumstances, we may be subject to the
"alternative minimum tax" on our items of tax preference.
- Third, if we have (a) net income from the sale or other disposition of
"foreclosure property," which is, in general, property acquired on
foreclosure or otherwise on default on a loan secured by such real
property or a lease of such property, which is held primarily for sale to
customers in the ordinary course of business or (b) other nonqualifying
income from foreclosure property, we will be subject to tax at the
highest corporate rate on such income.
S-41
- Fourth, if we have net income from "prohibited transactions" such income
will be subject to a 100% tax. Prohibited transactions 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.
- Fifth, if we should fail to satisfy the 75% gross income test or the 95%
gross income test (as discussed below), but nonetheless maintain our
qualification as a REIT because certain other requirements have been met,
we 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 we fail the 75%
gross income test or the amount by which 90% (95% for taxable years
beginning on or after January 1, 2005) of our gross income exceeds the
amount of income qualifying under the 95% gross income test multiplied by
(b) a fraction intended to reflect our profitability.
- Sixth, if we should fail to satisfy the asset test (as discussed below)
but nonetheless maintain our qualification as a REIT because certain
other requirements have been met, we may be subject to a tax that would
be the greater of (a) $50,000; or (b) an amount determined by multiplying
the highest rate of tax for corporations by the net income generated by
the assets for the period beginning on the first date of the failure and
ending on the day we dispose of the assets (or otherwise satisfy the
requirements for maintaining REIT qualification).
- Seventh, if we should fail to satisfy one or more requirements for REIT
qualification, other than the 95% and 75% gross income tests and other
than the asset test, but nonetheless maintain our qualification as a REIT
because certain other requirements have been met, we may be subject to a
$50,000 penalty for each failure.
- Eighth, if we should fail to distribute during each calendar year at
least the sum of (a) 85% of our REIT ordinary income for such year, (b)
95% of our REIT capital gain net income for such year, and (c) any
undistributed taxable income from prior periods, we would be subject to a
nondeductible 4% excise tax on the excess of such required distribution
over the amounts actually distributed.
- Ninth, assuming we do not elect to instead be taxed at the time of the
acquisition, if we acquire 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 our hands is determined by
reference to the basis of the asset (or any other property) in the hands
of the C corporation, we would be subject to tax at the highest corporate
rate if we dispose of such asset during the 10-year period beginning on
the date that we acquired that asset, to the extent of such property's
"built-in gain" (the excess of the fair market value of such property at
the time of our acquisition over the adjusted basis of such property at
such time). We refer to this tax as the "Built-in Gains Tax."
- Tenth, we will incur a 100% excise tax on transactions with a taxable
REIT subsidiary that are not conducted on an arm's-length basis.
Requirements for Qualification. A REIT is a corporation, trust or
association (1) that is managed by one or more trustees or directors, (2) the
beneficial ownership of which is evidenced by transferable shares, or by
transferable certificates of beneficial interest, (3) that would be taxable as a
domestic corporation, but for Sections 856 through 859 of the Code, (4) that is
neither a financial institution nor an insurance company subject to certain
provisions of the Code, (5) that has the calendar year as its taxable year, (6)
the beneficial ownership of which is held by 100 or more persons, (7) 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) (the "5/50 Rule"), and (8)
that meets certain other tests, described below, regarding the nature of its
income and assets. The Code provides that conditions (1) through (5), inclusive,
must be met during the entire taxable year and that condition (6) must be met
during at least 335 days of a taxable year of twelve (12) months, or during a
proportionate part of a taxable year of less than twelve (12) months. We expect
to meet the ownership test immediately after the transaction contemplated
herein.
We may redeem, at our 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 addition, our
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declaration of trust includes restrictions regarding the transfer of our shares
that are intended to assist us in continuing to satisfy requirements (6) and
(7). Moreover, if we comply with regulatory rules pursuant to which we are
required to send annual letters to our shareholders requesting information
regarding the actual ownership of our shares, and we do not know, or exercising
reasonable diligence would not have known, whether we failed to meet requirement
(7) above, we will be treated as having met the requirement. See "Description of
Series C Preferred Shares" beginning on page S-23 of this prospectus supplement
and "Description of Common Shares," and "Restrictions on Transfers of Capital
Stock and Anti-Takeover Provisions" in the accompanying prospectus.
The Code allows a REIT to own wholly-owned subsidiaries which are
"qualified REIT subsidiaries." The Code provides that a qualified REIT
subsidiary is not treated as a separate corporation, and all of its assets,
liabilities and items of income, deduction and credit are treated as assets,
liabilities and items of income, deduction and credit of the REIT. Thus, in
applying the requirements described herein, our qualified REIT subsidiaries will
be ignored, and all assets, liabilities and items of income, deduction and
credit of such subsidiaries will be treated as our assets, liabilities and items
of income, deduction and credit.
A REIT may also hold any direct or indirect interest in a corporation that
qualifies as a "taxable REIT subsidiary," as long as the REIT's aggregate
holdings of taxable REIT subsidiary securities do not exceed 20% of the value of
the REIT's total assets. A taxable REIT subsidiary is a fully taxable
corporation that generally is permitted to engage in businesses, own assets, and
earn income that, if engaged in, owned, or earned by the REIT, might jeopardize
REIT status or result in the imposition of penalty taxes on the REIT. To qualify
as a taxable REIT subsidiary, the subsidiary and the REIT must make a joint
election to treat the subsidiary as a taxable REIT subsidiary. A taxable REIT
subsidiary also includes any corporation (other than a REIT or a qualified REIT
subsidiary) in which a taxable REIT subsidiary directly or indirectly owns more
than 35% of the total voting power or value. See "-- Asset Tests" below. A
taxable REIT subsidiary will pay tax at regular corporate income rates on any
taxable income it earns. Moreover, the Code contains rules, including rules
requiring the imposition of taxes on a REIT at the rate of 100% on certain
reallocated income and expenses, to ensure that contractual arrangements between
a taxable REIT subsidiary and its parent REIT are at arm's-length.
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 and assets tests (as discussed
below). Thus, our proportionate share of the assets, liabilities, and items of
gross income of the partnerships in which we own an interest are treated as our
assets, liabilities and items of gross income for purposes of applying the
requirements described herein.
Income Tests. In order to maintain qualification as a REIT, we must
satisfy annually certain gross income requirements. First, at least 75% of our
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
qualified temporary investments. Second, at least 95% of our 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. For taxable years beginning
on or after January 1, 2005, the American Jobs Creation Act of 2004 clarifies
the types of transactions that are hedging transactions for purposes of the 95%
gross income test and states that any income from a hedging transaction that is
clearly and timely identified and hedges indebtedness incurred or to be incurred
to acquire or carry real estate assets will not constitute gross income, rather
than being treated as qualifying or nonqualifying income, for purposes of the
95% gross income test.
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Rents received by us will qualify as "rents from real property" in
satisfying the gross income requirements for a REIT described above only if the
following 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 we, or an owner of 10% or more of our shares, actually or
constructively own 10% or more of such 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 (based on the ratio of fair market value of personal
property to personal and real property) will not qualify as "rents from
real property."
- Finally, in order for rents received to qualify as "rents from real
property," we generally must not operate or manage the property (subject
to a de minimis exception as described below) or furnish or render
services to the tenants of such property, other than through an
independent contractor from whom we derive no revenue or through a
taxable REIT subsidiary. We may, however, directly perform certain
services that are "usually or customarily rendered" in connection with
the rental of space for occupancy only and are not otherwise considered
"rendered to the occupant" of the property ("Permissible Services").
Rents received generally will qualify as rents from real property
notwithstanding the fact that we provide services that are not Permissible
Services so long as the amount received for such services meets a de minimis
standard. The amount received for "impermissible services" with respect to a
property (or, if services are available only to certain tenants, possibly with
respect to such tenants) cannot exceed one percent of all amounts received,
directly or indirectly, by us with respect to such property (or, if services are
available only to certain tenants, possibly with respect to such tenants). The
amount that we will be deemed to have received for performing "impermissible
services" will be the greater of the actual amounts so received or 150% of the
direct cost to us of providing those services.
We believe that substantially all of our rental income will be qualifying
income under the gross income tests, and that our provision of services will not
cause the rental income to fail to be qualifying income under those tests.
If we fail to satisfy one or both of the 75% or 95% gross income tests for
any taxable year, we may nevertheless qualify as a REIT for such year if such
failure was due to reasonable cause and not willful neglect, we disclosed the
nature and amounts of our items of gross income in a schedule attached to our
return, and any incorrect information on the schedule was not due to fraud with
intent to evade tax. It is not possible, however, to state whether in all
circumstances we would be entitled to the benefit of this relief provision. Even
if this relief provision applied, a 100% penalty tax would be imposed on the
amount by which we failed the 75% gross income test or the amount by which 90%
(95% for taxable years beginning on or after January 1, 2005) of our gross
income exceeds the amount of income qualifying under the 95% gross income test
(whichever amount is greater), multiplied by a fraction intended to reflect our
profitability.
Subject to certain safe harbor exceptions, any gain realized by us 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 effect upon our ability to qualify
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.
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Asset Tests. At the close of each quarter of our taxable year, we must
also satisfy the following tests relating to the nature of our assets. At least
75% of the value of our total assets must be represented by real estate assets,
including our allocable share of real estate assets held by partnerships in
which we own an interest or held by our qualified REIT subsidiaries, stock or
debt instruments held for not more than one year purchased with the proceeds of
an offering of equity securities or a long-term (at least five (5) years) debt
offering by us, cash, cash items (including certain receivables) and government
securities. In addition, not more than 25% of our total assets may be
represented by securities other than those in the 75% asset class. Not more than
20% of the value of our total assets may be represented by securities of one or
more taxable REIT subsidiaries (as defined above under "-- Requirements for
Qualification"). Except for investments included in the 75% asset class,
securities in a taxable REIT subsidiary or qualified REIT subsidiary and certain
partnership interests and debt obligations, (1) not more than 5% of the value of
our total assets may be represented by securities of any one issuer (the "5%
asset test"), (2) we may not hold securities that possess more than 10% of the
total voting power of the outstanding securities of a single issuer (the "10%
voting securities test") and (3) we may not hold securities (excluding certain
"straight debt" securities or other excluded securities) that have a value of
more than 10% of the total value of the outstanding securities of any one issuer
(the "10% value test").
The following assets are not treated as "securities" held by us for
purposes of the 10% value test (i) "straight debt" meeting certain requirements,
unless we hold (either directly or through our "controlled" taxable REIT
subsidiaries) certain other securities of the same corporate or partnership
issuer that have an aggregate value greater than 1% of such issuer's outstanding
securities; (ii) loans to individuals or estates; (iii) certain rental
agreements calling for deferred rents or increasing rents that are subject to
Section 467 of the Code, other than with certain related persons; (iv)
obligations to pay us amounts qualifying as "rents from real property" under the
75% and 95% gross income tests; (v) securities issued by a state or any
political subdivision of a state, the District of Columbia, a foreign
government, any political subdivision of a foreign government, or the
Commonwealth of Puerto Rico, but only if the determination of any payment
received or accrued under the security does not depend in whole or in part on
the profits of any person not described in this category, or payments on any
obligation issued by such an entity; (vi) securities issued by another
qualifying REIT; and (vii) other arrangements identified in Treasury regulations
(which have not yet been issued or proposed). In addition, any debt instrument
issued by a partnership will not be treated as a "security" under the 10% value
test if at least 75% of the partnership's gross income (excluding gross income
from prohibited transactions) is derived from sources meeting the requirements
of the 75% gross income test. If the partnership fails to meet the 75% gross
income test. If the partnership fails to meet the 75% gross income test, then
the debt instrument issued by the partnership nevertheless will not be treated
as a "security" to the extent of our interest as a partner in the partnership.
Also, in looking through any partnership to determine our allocable share of any
securities owned by the partnership, our share of the assets of the partnership,
solely for purposes of applying the 10% value test in taxable years beginning on
or after January 1, 2005, will correspond not only to our interest as a partner
in the partnership but also to our proportionate interest in certain debt
securities issued by the partnership.
We believe that substantially all of our assets consist and, after the
offering, will consist of (1) real properties, (2) stock or debt investments
that earn qualified temporary investment income, (3) other qualified real estate
assets, and (4) cash, cash items and government securities. We may also invest
in securities of other entities, provided that such investments will not prevent
us from satisfying the asset and income tests for REIT qualification set forth
above.
After initially meeting the asset tests at the close of any quarter, we
will not lose our status as a REIT for failure to satisfy the asset tests at the
end of a later quarter solely by reason of changes in asset values. If we
inadvertently fail one or more of the asset tests at the end of a calendar
quarter because we acquire securities or other property during the quarter, we
can cure this failure by disposing of sufficient nonqualifying assets within
thirty (30) days after the close of the calendar quarter in which it arose. If
we were to fail any of the asset tests at the end of any quarter without curing
such failure within 30 days after the end of such quarter, we would fail to
qualify as a REIT, unless we were to qualify under certain relief provisions
enacted as part of the American Jobs Creation Act of 2004. Under one of these
relief provisions, if we were to fail the 5% asset
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test, the 10% voting securities test, or the 10% value test, we nevertheless
would continue to qualify as a REIT if the failure was due to the ownership of
assets having a total value not exceeding the lesser of 1% of our assets at the
end of the relevant quarter or $10,000,000, and we were to dispose of such
assets (or otherwise meet such asset tests) within six months after the end of
the quarter in which the failure was identified. If we were to fail to meet any
of the REIT asset tests for a particular quarter, but we did not qualify for the
relief for de minimis failures that is described in the preceding sentence, then
we would be deemed to have satisfied the relevant asset test if: (i) following
our identification of the failure, we were to file a schedule with a description
of each asset that caused the failure; (ii) the failure was due to reasonable
cause and not due to willful neglect; (iii) we were to dispose of the
non-qualifying asset (or otherwise meet the relevant asset test) within six
months after the last day of the quarter in which the failure was identified,
and (iv) we were to pay a penalty tax equal to the greater of $50,000, or the
highest corporate tax rate multiplied by the net income generated by the
non-qualifying asset during the period beginning on the first date of the
failure and ending on the date we dispose of the asset (or otherwise cure the
asset test failure). These relief provisions will be available to us in our
taxable years beginning on or after January 1, 2005, although it is not possible
to predict whether in all circumstances we would be entitled to the benefit of
these relief provisions.
Annual Distributions Requirement. With respect to each taxable year, we
must distribute to our shareholders as dividends (other than capital gain
dividends) at least 90% of our taxable income. Specifically, we must distribute
an amount equal to (1) 90% of the sum of our "REIT taxable income" (determined
without regard to the deduction for dividends paid and by excluding any net
capital gain) and any after-tax net income from foreclosure property, minus (2)
the sum of certain items of "excess noncash income" such as income attributable
to leveled stepped rents, cancellation of indebtedness and original issue
discount. 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.
We will be subject to tax on amounts not distributed at regular United
States federal corporate income tax rates. In addition, a nondeductible 4%
excise tax is imposed on the excess of (1) 85% of our 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 (2) the actual
distribution to shareholders during the year (if any). Net operating losses
generated by us may be carried forward but not carried back and used by us for
fifteen (15) years (or twenty (20) years in the case of net operating losses
generated in our tax years commencing on or after January 1, 1998) to reduce
REIT taxable income and the amount that we will be required to distribute in
order to remain qualified as a REIT. As a REIT, our net capital losses may be
carried forward for five (5) 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, we 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 (1) declared before the regular or extended
due date of our tax return for such year and (2) paid not later than the date of
the first regular dividend payment made after the declaration, but in no case
later than twelve (12) months after the end of the year. For purposes of
computing the nondeductible 4% excise tax, a subsequent declared dividend is
considered paid when actually distributed. Furthermore, any dividend that is
declared by us in October, November or December of a calendar year, and payable
to shareholders of record as of a specified date in such quarter of such year
will be deemed to have been paid by us (and received by shareholders) on
December 31 of such calendar year, but only if such dividend is actually paid by
us 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 our items of income, gain or deduction
by the IRS, we 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 our deduction of dividends paid for the earlier year
for purposes of satisfying the distribution test. For purposes of the
nondeductible 4% excise tax, the deficiency dividend is taken into
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account when paid, and any income giving rise to the deficiency adjustment is
treated as arising when the deficiency dividend is paid.
We believe that we have distributed and intend to continue to distribute to
our shareholders in a timely manner such amounts sufficient to satisfy the
annual distribution requirements. However, it is possible that timing
differences between the accrual of income and its actual collection, and the
need to make non-deductible expenditures (such as capital improvements or
principal payments on debt) may cause us to recognize taxable income in excess
of our net cash receipts, thus increasing the difficulty of compliance with the
distribution requirement. In order to meet the distribution requirement, we
might find it necessary to arrange for short-term, or possibly long-term,
borrowings.
Failure to Qualify. Under a new relief provision enacted as part of the
American Jobs Creation Act of 2004, if we were to fail to satisfy one or more
requirements for REIT qualification, other than an asset or income test
violation of a type for which relief is otherwise available as described above,
we would retain our REIT qualification if the failure was due to reasonable
cause and not willful neglect, and if we were to pay a penalty of $50,000 for
each such failure. This new relief provision will be available to us in our
taxable years beginning on or after January 1, 2005, although it is not possible
to predict whether in all circumstances we would be entitled to the benefit of
this relief provision.
If we fail to qualify as a REIT for any taxable year, and if certain relief
provisions of the Code do not apply, we would be subject to federal income tax
(including applicable alternative minimum tax) on our taxable income at regular
corporate rates. Distributions to shareholders in any year in which we fail to
qualify will not be deductible from our taxable income nor will they be required
to be made. As a result, our failure to qualify as a REIT would reduce the cash
available for distribution by us to our shareholders. In addition, if we fail to
qualify as a REIT, all distributions to shareholders will be taxable as ordinary
income, to the extent of our current and accumulated earnings and profits.
Subject to certain limitations of the Code, corporate distributees may be
eligible for the dividends-received deduction and individual shareholders may be
eligible for a reduced tax rate on "qualified dividend income" received from
regular C corporations.
If our failure to qualify as a REIT is not due to reasonable cause but
results from willful neglect, we would not be permitted to elect REIT status for
the four (4) taxable years after the taxable year for which such
disqualification is effective. In the event we were to fail to qualify as a REIT
in one year and subsequently requalify in a later year, we might be required to
recognize taxable income based on the net appreciation in value of our assets as
a condition to requalification. In the alternative, we may be taxed on the net
appreciation in value of our assets if we sell properties within ten (10) years
of the date we requalify as a REIT under federal income tax laws.
TAXATION OF TAXABLE U.S. SHAREHOLDERS
As used herein, the term "U.S. shareholder" means a holder of shares who
(for United States federal income tax purposes) (1) is a citizen or resident of
the United States, (2) is a corporation, partnership, or other entity treated as
a corporation or partnership for federal income tax purposes created or
organized in or under the laws of the United States or of any political
subdivision thereof (unless, in the case of a partnership, Treasury regulations
are adopted that provide otherwise), (3) is an estate the income of which is
subject to United States federal income taxation regardless of its source or (4)
is a trust whose administration is subject to the primary supervision of a
United States court and which has one or more United States persons who have the
authority to control all substantial decisions of the trust or a trust that has
a valid election to be treated as a U.S. person in effect.
As long as we qualify as a REIT, distributions made to our 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 corporate shareholders will not be eligible for the
dividends-received deduction as to such amounts. For purposes of computing our
earnings and profits, depreciation for depreciable real estate will be computed
on a straight-line basis over a 40-year period. For purposes of determining
whether a distribution on the shares constitutes a dividend for tax purposes,
our earnings and profits will be allocated first to distributions with respect
to the Series C Preferred Shares and all other series of preferred shares that
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are equal in rank as to distributions and upon liquidation with the Series C
Preferred Shares, and second to distributions with respect to our common shares.
There can be no assurance that we will have sufficient earnings and profits to
cover distributions on any common shares.
Under the Jobs Growth Tax Relief Reconciliation Act of 2003, certain
"qualified dividend income" received by domestic non-corporate shareholders in
taxable years 2003 through 2008 is subject to tax at the same tax rates as
long-term capital gain (generally, under the legislation, a maximum rate of 15%
for such taxable years). Dividends received from REITs, however, generally are
not eligible for these reduced tax rates and, therefore, will continue to be
subject to tax at ordinary income rates (generally, a maximum rate of 35% for
taxable years 2003-2008), subject to two narrow exceptions. Under the first
exception, dividends received from a REIT may be treated as "qualified dividend
income" eligible for the reduced tax rates to the extent that the REIT itself
has received qualified dividend income from other corporations (such as taxable
REIT subsidiaries) in which the REIT has invested. Under the second exception,
dividends paid by a REIT in a taxable year may be treated as qualified dividend
income in an amount equal to the sum of (i) the excess of the REIT's "REIT
taxable income" for the preceding taxable year over the corporate-level federal
income tax payable by the REIT for such preceding taxable year and (ii) the
excess of the REIT's income that was subject to the Built-in Gains Tax (as
described above) in the preceding taxable year over the tax payable by the REIT
on such income for such preceding taxable year. We do not anticipate that a
material portion of our distributions will be treated as qualified dividend
income.
Distributions that are properly designated as capital gain dividends will
be taxed as gains from the sale or exchange of a capital asset held for more
than one year (to the extent they do not exceed our actual net capital gain for
the taxable year) without regard to the period for which the shareholder has
held its shares. However, corporate shareholders may be required to treat up to
20% of certain capital gain dividends as ordinary income under the Code. Capital
gain dividends, if any, will be allocated among different classes of shares in
proportion to the allocation of earnings and profits discussed above.
Distributions in excess of our 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. We 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 U.S.
shareholder's shares will be taxed as capital gain from the disposition of
shares, provided that the shares are held as capital assets in the hands of the
U.S. shareholder.
Aside from the different income tax rates applicable to ordinary income and
capital gain dividends, regular and capital gain dividends from us will be
treated as dividend income for most other federal income tax purposes. In
particular, such dividends will be treated as "portfolio" income for purposes of
the passive activity loss limitation and shareholders generally will not be able
to offset any "passive losses" against such dividends. Dividends will be treated
as investment income for purposes of the investment interest limitation
contained in Section 163(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 us 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, a domestic shareholder will realize capital gain or loss on the
disposition of shares equal to the difference between (1) the amount of cash and
the fair market value of any property received on such disposition and (2) the
shareholder's adjusted basis of such shares. Such gain or loss will generally be
short-term capital gain or loss if the shareholder has not held such shares for
more than one year and will be long-term capital gain or loss if such shares
have been held for more than one year. Loss upon the sale or exchange of shares
by a shareholder who has held such shares for six (6) months or less (after
applying
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certain holding period rules) will be treated as long-term capital loss to the
extent of distributions from us required to be treated by such shareholder as
long-term capital gain.
We may elect to retain and pay income tax on net long-term capital gains.
If we make such an election, you, as a holder of shares, will (1) include in
your income as long-term capital gains your proportionate share of such
undistributed capital gains and (2) be deemed to have paid your proportionate
share of the tax paid by us on such undistributed capital gains and thereby
receive a credit or refund for such amount. As a holder of shares you will
increase the basis in your shares by the difference between the amount of
capital gain included in your income and the amount of tax you are deemed to
have paid. Our earnings and profits will be adjusted appropriately.
BACKUP WITHHOLDING
We will report to our U.S. shareholders and the IRS the amount of dividends
paid during each calendar year, and the amount of tax withheld, if any, with
respect thereto. Under the backup withholding rules, a shareholder may be
subject to backup withholding (currently at the rate of 28% for 2004) with
respect to dividends paid unless such holder (a) is a corporation or comes
within certain other exempt categories and, when required, demonstrates this
fact, or (b) provides a taxpayer identification number, certifies as to no loss
of exemption from backup withholding and otherwise complies with the applicable
requirements of the backup withholding rules. Amounts withheld as backup
withholding will be creditable against the shareholder's income tax liability.
In addition, we may be required to withhold a portion of capital gain
distributions made to any shareholders who fail to certify their non-foreign
status to us. See "-- Taxation of Non-U.S. Shareholders" below. Additional
issues may arise pertaining to information reporting and backup withholding with
respect to non-U.S. shareholders (persons other than U.S. shareholders, also
further described below). Non-U.S. shareholders should consult their tax
advisors with respect to any such information and backup withholding
requirements.
TAXATION OF NON-U.S. SHAREHOLDERS
The following discussion is only a summary of the rules governing United
States federal income taxation of non-U.S. shareholders such as nonresident
alien individuals, foreign corporations, foreign partnerships or other foreign
estates or trusts. Prospective non-U.S. shareholders should consult with their
own tax advisors to determine the impact of federal, state and local income tax
laws with regard to an investment in shares, including any reporting
requirements.
Distributions that are not attributable to gain from sales or exchanges by
us of United States real property interests and not designated by us as capital
gains dividends will be treated as dividends of ordinary income to the extent
that they are made out of our current or accumulated earnings and profits. Such
distributions ordinarily will be subject to a withholding tax equal to 30% of
the gross amount 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.
Distributions in excess of our current and accumulated earnings and profits will
not be taxable to a non-U.S. shareholder to the extent that they do not exceed
the adjusted basis of the 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, as described below.
For withholding tax purposes, we are generally required to treat all
distributions as if made out of our current or accumulated earnings and profits
and thus intend to withhold at the rate of 30% (or a reduced treaty rate if
applicable) on the amount of any distribution (other than distributions
designated as capital gain dividends) made to a non-U.S. shareholder. We would
not be required to withhold at the 30% rate on distributions we reasonably
estimate to be in excess of our current and accumulated earnings and profits. If
it cannot be determined at the time a distribution is made whether such
distribution will be in excess of current and accumulated earnings and profits,
the distribution will be subject to withholding at the rate applicable to
ordinary dividends. However, the non-U.S. shareholder may seek from the IRS a
refund of such amounts
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from the IRS if it is subsequently determined that such distribution was, in
fact, in excess of our current or accumulated earnings and profits, and the
amount withheld exceeded the non-U.S. shareholder's United States tax liability,
if any, with respect to the distribution.
For any year in which we qualify as a REIT, distributions to non-U.S.
shareholders that own more than 5% of our shares and that are attributable to
gain from sales or exchanges by us 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 that own more than 5% of our shares 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 made to
non-U.S shareholders who own more than 5% of our shares may be subject to a 30%
branch profits tax in the hands of a corporate non-U.S. shareholder not entitled
to treaty relief or exemption. We are required by applicable regulations to
withhold 35% of any distribution that could be designated by us as a capital
gains 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.
If a non-U.S. shareholder does not own more than 5% of our shares during
the tax year within which the distribution is received, the gain will not be
considered to be effectively connected with a U.S. business. As such, a non-U.S.
shareholder who does not own more than 5% of our shares would not be required to
file a U.S. Federal income tax return by reason of receiving such a
distribution. In this case, the distribution will be treated as a REIT dividend
to that non-U.S. shareholder and taxed as a REIT dividend that is not a capital
gain as described above. In addition, the branch profits tax will not apply to
such distributions.
Gain recognized by a non-U.S. shareholder upon a sale of shares generally
will not be taxed under FIRPTA if we are a "domestically controlled REIT,"
defined generally as a REIT in which at all times during a specified testing
period less than 50% in value of the shares was held directly or indirectly by
foreign persons. It is anticipated that we will continue to be a "domestically
controlled REIT" after the offering. Therefore, the sale of shares will not be
subject to taxation under FIRPTA. However, because our common shares are
publicly traded, no assurance can be given that we will continue to qualify as a
"domestically controlled REIT." In addition, a non-U.S. shareholder that owns,
actually or constructively, 5% or less of a class of our shares through a
specified testing period will not recognize taxable gain on the sale of its
shares under FIRPTA if the shares are regularly traded on an established
securities market. If the gain on the sale of shares were to be subject to
taxation under FIRPTA, the non-U.S. shareholder would 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. Gain not subject to
FIRPTA will be taxable to a non-U.S. shareholder if (1) 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 (2) 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 nonresident alien
individual has a "tax home" in the United States, in which case the nonresident
alien individual will be subject to a 30% tax on the individual's capital gain.
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 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 IRS 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 our intention to invest our assets in a manner that
will avoid the recognition of UBTI, amounts distributed by us to Exempt
Organizations generally should not constitute UBTI. However, if an Exempt
S-50
Organization finances its acquisition of our shares with debt, a portion of its
income from us, if any, will constitute UBTI pursuant to the "debt-financed
property" rules. Furthermore, social clubs, voluntary employee benefit
associations, supplemental unemployment benefit trusts, and qualified group
legal services plans that are exempt from taxation under specified provisions of
the Code are subject to different UBTI rules, which generally will require them
to characterize distributions from us as UBTI.
In addition, a pension trust that owns more than 10% of our shares is
required to treat a percentage of the dividends from us as UBTI (the "UBTI
Percentage") in certain circumstances. The UBTI Percentage is our gross income
derived from an unrelated trade or business (determined as if we were a pension
trust) divided by our total gross income for the year in which the dividends are
paid. The UBTI rule applies only if (i) the UBTI Percentage is at least 5%, (ii)
we qualify 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 our shares 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 our shares or (B) a
group of pension trusts individually holding more than 10% of the value of our
capital shares collectively owns more than 50% of the value of our capital
shares.
OTHER TAX CONSIDERATIONS
Entity Classification. A significant number of our 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 our
assets and items of gross income would change and might preclude us from
qualifying as a REIT.
We believe that each partnership in which we hold a ten percent (10%) or
more 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 Section 704(c) of the Code and the regulations thereunder require
special allocations of income, gain, loss and deduction with respect to
contributed property, which tend to eliminate the Book-Tax Difference over the
depreciable lives of such property, but which may not always entirely 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 us (i) to be allocated
lower amounts of depreciation and other deductions for tax purposes than would
be allocated to us 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 us as a result of such sale.
Conversion or Redemption of Series C Preferred Shares. If you convert your
Series C Preferred Shares into common shares and receive solely common shares in
the conversion, you will generally not recognize gain or loss, except with
respect to cash received in lieu of fractional shares. Your tax basis in the
common shares received upon conversion generally should equal your tax basis in
your Series C Preferred Shares tendered for conversion, less the tax basis
allocated to any fractional share for which cash is received. Your holding
period in the common shares received upon conversion or exchange of your Series
C Preferred Shares will include the holding period of the Series C Preferred
Shares so converted or exchanged.
If you convert your Series C Preferred Shares and we elect to satisfy the
amount of the conversion value in cash or a combination of cash and common
shares, then to the extent that your receive cash from us in exchange for some
or all of your shares, the transaction will be treated as a redemption, the tax
consequences of which are described below.
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Holders of Series C Preferred Shares may, in certain circumstances, be
deemed to have received constructive distributions of common shares if the
conversion rate for the Series C Preferred Shares is adjusted. Adjustments to
the conversion price made pursuant to a bona fide reasonable adjustment formula
which has the effect of preventing the dilution of the interest of the holders
of Series C Preferred Shares, however, generally will not be considered to
result in a constructive distribution of common shares. Certain of the possible
adjustments provided in the Conversion Rate Adjustments section, including but
not limited to adjustments with respect to share dividends or the distribution
of rights to subscribe for common shares, should qualify as being pursuant to a
bona fide, reasonable adjustment formula and should not result in a constructive
distribution. In contrast, adjustments in respect of distributions of our
indebtedness, cash, or assets to our shareholders (including cash distributions
to common shareholders in excess of the dividend threshold amount), for example,
will not qualify as being pursuant to a bona fide, reasonable adjustment
formula. If such adjustments are made, you will be deemed to have received
constructive distributions in amounts based upon the value of your increased
interest in our equity resulting from such adjustments.
If, upon the occurrence of a fundamental change, you elect to require us to
redeem for cash your Series C Preferred Shares, you will recognize capital gain
or loss measured by the difference between the amount of cash that you receive
upon the redemption and your adjusted basis in your Series C Preferred Shares
redeemed (provided that the shares are held as a capital asset) if such
redemption (i) results in a "complete termination" of your interest in all
classes of our shares under Section 302(b)(3) of the Code or (ii) is "not
essentially equivalent to a dividend" with respect to you under Section
302(b)(1) of the Code. In applying these tests, there must be taken into account
not only any Series C Preferred Shares owned by you, but also your ownership of
our common shares, other series of preferred shares and any options (including
share purchase rights) to acquire any of the foregoing. You must also take into
account any securities (including options) which are considered to be owned by
you by reason of the constructive ownership rules set forth in Sections 318 and
302(c) of the Code. The treatment accorded to any redemption by us (as
distinguished from a sale, exchange or other disposition) of Series C Preferred
Shares can only be determined on the basis of particular facts as to each holder
of the Series C Preferred Shares at the time of redemption. Accordingly, you
should consult your tax advisor to determine your tax treatment.
If the redemption does not meet any of the tests under Section 302 of the
Code that are described above, then the redemption proceeds received for your
Series C Preferred Shares will be treated as a distribution on your Series C
Preferred Shares, with the consequences described under "Taxation of Taxable
U.S. Shareholders", "Taxation of non-U.S. Shareholders" and "Taxation of
Tax-Exempt Shareholders". If the redemption is taxed as a dividend, your tax
basis in your Series C Preferred Shares redeemed will be transferred to any of
your other holdings of our shares. If you no longer own any of our shares, under
certain circumstances, such basis may be transferred to a related person, or it
may be lost in its entirety.
S-52
UNDERWRITING
We and Bear, Stearns & Co. Inc, the underwriter for this offering, have
entered into an underwriting agreement concerning the Series C Preferred Shares
being offered.
The underwriting agreement provides that the obligations of the underwriter
are conditional and may be terminated at its discretion based on its assessment
of the state of the financial markets. The obligations of the underwriter may
also be terminated upon the occurrence of the events specified in the
underwriting agreement. The underwriter is committed to purchase all of the
Series C Preferred Shares being offered if any such shares are purchased, other
than those shares covered by the over-allotment option described below.
We have granted the underwriter an option, which may be exercised within
thirty (30) days from the date of this prospectus supplement, to purchase up to
400,000 additional Series C Preferred Shares to be sold in this offering at the
public offering price, less the underwriting discounts and commissions described
on the cover page of this prospectus supplement, to cover over-allotments, if
any.
The following table provides information regarding the per share and total
underwriting discounts and commissions that we will pay to the underwriter in
connection with this offering.
TOTAL
-------------------------------
PER SERIES C WITHOUT WITH
PREFERRED SHARE OVER-ALLOTMENT OVER-ALLOTMENT
--------------- -------------- --------------
Underwriting discounts and commissions
payable by us............................. $1.3125 $3,543,750 $4,068,750
------- ---------- ----------
We estimate that the total expenses of this offering payable by us,
excluding underwriting discounts and commissions, will be approximately
$215,000.
The underwriter proposes to offer the Series C Preferred Shares directly to
the public initially at the public offering price set forth on the cover page of
this prospectus supplement and to selected dealers at such price less a
concession not to exceed $0.825 per share. The underwriter may allow, and such
selected dealers may reallow, a concession not to exceed $0.05 per share. The
Series C Preferred Shares will be available for delivery when, as and if
accepted by the underwriter and subject to prior sale and to withdrawal,
cancellation or modification of this offering without notice. The underwriter
reserves the right to reject any order for purchase of Series C Preferred Shares
in whole or in part. After the commencement of this offering, the underwriter
may change the public offering price and other selling terms.
We have agreed in the underwriting agreement to indemnify the underwriter
against certain liabilities, including liabilities under the Securities Act of
1933, as amended, and, where such indemnification is unavailable, to contribute
to payments that the underwriter may be required to make in respect of such
liabilities.
Prior to acceptance of the Series C Preferred Shares for listing on the
NYSE, there will be no established trading market for the Series C Preferred
Shares. We have applied to list our Series C Preferred Shares on the NYSE under
the symbol "LXP-----pc," subject to official notice of issuance. We expect that
trading will commence on the NYSE within thirty (30) days after the initial
delivery of the Series C Preferred Shares. In order to meet the requirements for
listing the Series C Preferred Shares on the NYSE, the underwriter has
undertaken to sell (i) Series C Preferred Shares to ensure a minimum of 100
beneficial holders with a minimum of 100,000 Series C Preferred Shares
outstanding in the aggregate and (ii) sufficient Series C Preferred Shares so
that following this offering, the Series C Preferred Shares have a minimum
aggregate market value of $2.0 million. The underwriter has advised us that
prior to the commencement of listing on the NYSE, it intends to make a market in
the Series C Preferred Shares, but it is not obligated to do so and may
discontinue such market-making activities at any time without notice. No
assurance can be given as to the liquidity of any trading market for the Series
C Preferred Shares.
In order to facilitate this offering of the Series C Preferred Shares, the
underwriter may engage in transactions that stabilize, maintain or otherwise
affect the market price of the Series C Preferred Shares in accordance with
Regulation M under the Securities Exchange Act of 1934, as amended.
S-53
The underwriter may over-allot the Series C Preferred Shares in connection
with this offering, thus creating a short position for its own account. Short
sales involve the sale by the underwriter of a greater number of shares than it
is committed to purchase in this offering. A short position may involve either
"covered" short sales or "naked" short sales. Covered short sales are sales made
in an amount not greater than the underwriter's over-allotment option to
purchase additional Series C Preferred Shares as described above. The
underwriter may close out any covered short position by either exercising its
over-allotment option or purchasing shares in the open market. In determining
the source of shares to close the covered short position, the underwriter will
consider, among other things, the price of shares available for purchase in the
open market as compared to the price at which it may purchase shares from us
through the over-allotment option. Naked short sales are sales in excess of the
over-allotment option. The underwriter must close out any naked short position
by purchasing shares in the open market. A naked short position is more likely
to be created if the underwriter is concerned that there may be downward
pressure on the price of the Series C Preferred Shares in the open market after
pricing that could adversely affect investors who purchase in this offering.
Accordingly, to cover these short sales positions or to stabilize the
market price of the Series C Preferred Shares, the underwriter may bid for, and
purchase, Series C Preferred Shares in the open market. These transactions may
be effected on the NYSE or otherwise. Similar to other purchase transactions,
the underwriter's purchases to cover the syndicate short sales or to stabilize
the market price of our Series C Preferred Shares may have the effect of raising
or maintaining the market price of our Series C Preferred Shares or preventing
or mitigating a decline in the market price of our Series C Preferred Shares. As
a result, the price of the Series C Preferred Shares may be higher than the
price that might otherwise exist in the open market. No representation is made
as to the magnitude or effect of any such stabilization or other activities. The
underwriter is not required to engage in these activities and, if commenced, may
discontinue any of these activities at any time.
From time to time, the underwriter and/or its affiliates have engaged in,
and may in the future engage in, investment banking and other commercial
dealings in the ordinary course of business with us and our affiliates for which
it has received, and expects to receive, customary fees and commissions for
these transactions.
We expect that delivery of the Series C Preferred Shares will be made
against payment thereof on or about December 8, 2004. Delivery will be made
solely in book-entry from through DTC.
We, and our executive officers and trustees, have agreed not to pledge,
sell or otherwise transfer any preferred shares for sixty (60) days after the
date of this prospectus supplement without first obtaining the written consent
of Bear, Stearns & Co. Inc., subject to the exceptions described below.
Specifically, we have each agreed not to directly or indirectly:
- issue, offer, pledge, sell, or contract to sell any common shares, Series
C Preferred Shares or any securities convertible into or exchangeable or
exercisable for common shares or Series C Preferred Shares (the "relevant
securities");
- sell any option or contract to purchase any relevant securities;
- purchase any option or contract to sell any relevant securities;
- pledge, borrow or dispose of any relevant securities;
- grant any option, right or warrant to purchase any relevant securities;
- establish or increase any "put equivalent position" or liquidate or
decrease any "call equivalent position";
- otherwise dispose of or transfer any relevant securities; or
- enter into any swap, derivate or other agreement that transfers, in whole
or in part, the economic consequence of ownership of any Relevant
Securities whether any such swap or transaction is to be settled by
delivery of shares or other securities, in cash or otherwise.
S-54
Our lock-up agreement contains exceptions that permit us to issue (i)
common shares upon conversion of the Series C Preferred Shares, (ii) common
shares upon the exercise of currently outstanding options, (iii) common shares
and options pursuant to employee benefit plans, (iv) common shares upon grant or
exercise of options or issuance or sale of shares pursuant to employee stock
option, stock purchase or incentive plans currently in effect, (v) common shares
pursuant to our dividend reinvestment plan, (vi) common shares upon conversion
of currently outstanding convertible securities, (vii) operating partnership
units of Lepercq Corporate Income Fund L.P., Lepercq Corporate Income Fund II
L.P. and Net 3 Acquisition L.P. (collectively, "OP Units") in connection with
acquisitions, joint ventures and similar arrangements so long as each recipient
of such OP Units executes and delivers to the underwriter a lock-up agreement in
form and substance satisfactory to the underwriter pursuant to which each such
recipient agrees not to sell or transfer those OP Units (or common shares issued
upon the exchange of such OP Units) in a public market transaction for the
remainder of the sixty (60) day period commencing on the date of this prospectus
supplement and (viii) common shares upon the exchange of OP Units. The lock-up
agreements between the underwriter and our executive officers and trustees
contain exceptions that permit our executive officers and trustees to (i) make
gifts; (ii) make transfers to affiliates; (iii) exercise share options granted
pursuant to our share option plans; (iv) exchange OP Units for our common
shares; (v) make transfers to family members; (vi) transfer OP Units in certain
charitable donations and exchange such OP Units for our common shares in
connection with such charitable donations; and (vii) make other charitable
donations; provided that with respect to any transfer pursuant to the foregoing
clause (i), (ii), (v), or (vii), each transferee must agree to be bound by the
lock-up agreement for the remainder of the 60-day lock-up period.
Carl D. Glickman, a director of Bear, Stearns & Co. Inc., is presently
serving on our board of trustees and will continue to do so at least until the
2005 Annual Meeting of Shareholders. As of the date of this prospectus
supplement, Mr. Glickman beneficially owns 161,954 common shares and holds
options to purchase an additional 25,000 common shares.
LEGAL MATTERS
The legal matters described under "Federal Income Tax Considerations"
beginning on page S-40 of this prospectus supplement will be passed upon for us
by Paul, Hastings, Janofsky & Walker LLP, New York, New York. Seth M. Zachary, a
partner of Paul, Hastings, Janofsky & Walker LLP, is presently serving on our
board of trustees and will continue to do so at least until the 2005 Annual
Meeting of Shareholders. As of the date of this prospectus supplement, Mr.
Zachary beneficially owns 46,619 common shares. Legal matters relating to this
offering will be passed upon for the underwriter by Willkie Farr & Gallagher.
Certain matters of Maryland law will be passed upon for us and for the
underwriter by Piper Rudnick LLP, Baltimore, Maryland.
EXPERTS
The consolidated financial statements and the related financial statement
schedule included in our Annual Report on Form 10-K as of and for the year ended
December 31, 2003, as updated by our Current Report on Form 8-K dated December
1, 2004, and incorporated by reference in this prospectus supplement and the
accompanying prospectus, have been incorporated herein by reference in reliance
on the report, also incorporated herein by reference, of KPMG LLP, independent
registered public accounting firm and upon the authority of said firm as experts
in accounting and auditing.
AVAILABLE INFORMATION
We are subject to the informational requirements of the Securities Exchange
Act of 1934 which requires us to file reports and other information with the
Securities and Exchange Commission. You can inspect and copy reports, proxy
statements and other information filed by us at the Public Reference Room
maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549. You can
obtain information on the operation of the Public Reference Room by calling the
SEC at 1-800-SEC-0330. You can obtain copies of this material by mail from the
Public Reference Room of the SEC at 450 Fifth Street, N.W., Washington, D.C.
20549, at
S-55
prescribed rates. You can also obtain such reports, proxy statements and other
information from the web site that the SEC maintains at http://www.sec.gov.
Reports, proxy statements and other information concerning us may also be
obtained electronically at our website, http://www.lxp.com and through a variety
of databases, including, among others, the SEC's Electronic Data Gathering and
Retrieval ("EDGAR") program, Knight-Ridder Information Inc., Federal Filing/Dow
Jones and Lexis/Nexis.
S-56
INCORPORATION OF INFORMATION WE FILE WITH THE SEC
The SEC allows us to "incorporate by reference" the information we file
with them, which means:
- Incorporated documents are considered part of this prospectus supplement
and the accompanying prospectus;
- We can disclose important information to you by referring you to those
documents; and
- Information that we file with the SEC will automatically update and
supersede this prospectus supplement and the accompanying prospectus.
We incorporate by reference the documents listed below which were filed
with the SEC under the Securities Exchange Act of 1934, as amended:
- Annual Report on Form 10-K for the year ended December 31, 2003;
- Quarterly Report on Form 10-Q for the quarter ended March 31, 2004;
- Quarterly Report on Form 10-Q for the quarter ended June 30, 2004;
- Quarterly Report on Form 10-Q/A for the quarter ended June 30, 2004;
- Quarterly Report on Form 10-Q for the quarter ended September 30, 2004;
- Current Report on Form 8-K filed February 2, 2004 (except any information
furnished under Items 5 (to the extent Item 12 applies), 9, and 12);
- Current Report on Form 8-K filed March 1, 2004;
- Current Report on Form 8-K filed April 1, 2004;
- Current Report on Form 8-K filed May 4, 2004 (except any information
furnished under Items 5 (to the extent Item 12 applies), 9, and 12);
- Current Report on Form 8-K filed June 15, 2004;
- Current Report on Form 8-K filed July 30, 2004 (except any information
furnished under Items 5 (to the extent Item 12 applies), 9, and 12);
- Current Report on Form 8-K filed October 5, 2004;
- Current Report on Form 8-K filed November 2, 2004 (except any information
furnished under Items 2.02 and 7.01);
- Current Report on Form 8-K filed November 4, 2004;
- Current Report of Form 8-K filed December 1, 2004; and
- Our Definitive Proxy Statement on Schedule 14A dated April 14, 2004.
If any statement in this prospectus supplement is inconsistent with a
statement in one of the incorporated documents referred to above, then the
statement in the incorporated document will be deemed to have been superseded by
the statement in this prospectus supplement.
We also incorporate by reference each of the following documents that we
will file with the SEC after the date of this prospectus supplement but before
the end of the offering:
- Reports filed under Sections 13(a) and (c) of the Exchange Act;
- Definitive proxy or information statements filed under Section 14 of the
Exchange Act in connection with any subsequent shareholders' meeting; and
- Any reports filed under Section 15(d) of the Exchange Act.
S-57
You may request a copy, by telephone or in writing, of any filings referred
to above (excluding exhibits), at no cost, by contacting us at the following
address:
Lexington Corporate Properties Trust
Attention: T. Wilson Eglin, Chief Executive Officer
One Penn Plaza
Suite 4015
New York, NY 10119-4015
(212) 692-7200
S-58
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$400,000,000.00
LEXINGTON CORPORATE PROPERTIES TRUST
COMMON SHARES OF BENEFICIAL INTEREST
PREFERRED SHARES OF BENEFICIAL INTEREST
DEBT SECURITIES
--------------------------------------------------------------------------------
We are Lexington Corporate Properties Trust, a self-managed and
self-administered real estate investment trust formed under the laws of the
State of Maryland. This prospectus relates to the public offer and sale by us of
one or more series of (i) common shares of beneficial interest, par value
$0.0001 per share, (ii) preferred shares of beneficial interest, par value
$0.0001 per share, and (iii) senior or subordinated debt securities. The
aggregate public offering price of the common shares, preferred shares and debt
securities covered by this prospectus, which we refer to collectively as the
securities, will not exceed $400,000,000.00 (or its equivalent based on the
exchange rate at the time of sale). The securities may be offered, separately or
together, in separate classes or series, in amounts, at prices and on terms to
be determined at the time of the offering and set forth in one or more
supplements to this prospectus.
The specific terms of the securities will be set forth in the applicable
prospectus supplement and will include, where applicable: (i) in the case of
common shares, any public offering price; (ii) in the case of preferred shares,
the specific designation and stated value per share, any dividend, liquidation,
redemption, conversion, voting and other rights, and any public offering price;
and (iii) in the case of debt securities, the specific title, aggregate
principal amount, ranking, currency, form (which may be registered or bearer, or
certificated or global), authorized denominations, maturity, rate (or manner of
calculation thereof) and time of payment of interest, terms for redemption at
our option or repayment at the option of the holder thereof, terms for sinking
fund payments, terms for conversion into common or preferred shares, covenants
and any public offering price. In addition, such specific terms may include
limitations on direct or beneficial ownership and restrictions on transfer of
the securities, in each case as may be consistent with our declaration of trust
or otherwise appropriate to preserve our status as a real estate investment
trust for federal income tax purposes. See "RESTRICTIONS ON TRANSFERS OF CAPITAL
STOCK AND ANTI-TAKEOVER PROVISIONS" beginning on page 20 of this prospectus.
The applicable prospectus supplement will also contain information, where
appropriate, about the risk factors and federal income tax considerations
relating to, and any listing on a securities exchange of, the securities covered
by that prospectus supplement.
We may offer the securities directly, through agents designated by us from time
to time, or to or through underwriters or dealers. If any agents or underwriters
are involved in the sale of any of the securities, their names, and any
applicable purchase price, fee, commission or discount arrangement between or
among them will be set forth or will be calculable from the information set
forth in the applicable prospectus supplement. See "PLAN OF DISTRIBUTION." No
securities may be sold without delivery of a prospectus supplement describing
the method and terms of the offering of those securities.
Our common shares and 8.05% Series B Cumulative Redeemable Preferred Stock are
traded on the New York Stock Exchange under the symbols "LXP" and "LXP-pb,"
respectively.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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THE DATE OF THIS PROSPECTUS IS OCTOBER 22, 2003.
TABLE OF CONTENTS
PAGE
----
Cautionary Statements Concerning Forward-Looking
Information............................................... i
About This Prospectus....................................... i
Our Company................................................. 1
Description Of Our Common Shares............................ 2
Description Of Our Preferred Shares......................... 4
Description Of Our Debt Securities.......................... 8
Restrictions On Transfers Of Capital Stock And Anti-Takeover
Provisions................................................ 20
Use Of Proceeds............................................. 23
Plan of Distribution........................................ 23
Ratios of Earnings to Combined Fixed Charges and Preferred
Share Dividends........................................... 24
Experts..................................................... 24
Legal Matters............................................... 25
Where You Can Find More Information......................... 25
Incorporation Of Certain Documents By Reference............. 25
CAUTIONARY STATEMENTS CONCERNING FORWARD-LOOKING INFORMATION
Certain information included or incorporated by reference in this
prospectus and any applicable prospectus supplement may contain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, ("Securities Act") and Section 21E of the Securities Exchange Act of
1934, as amended, and as such may involve known and unknown risks, uncertainties
and other factors which may cause our actual results, performance or
achievements to be materially different from future results, performance or
achievements expressed or implied by these forward-looking statements. Forward-
looking statements, which are based on certain assumptions and describe our
future plans, strategies and expectations, are generally identifiable by use of
the words "may," "will," "should," "expect," "anticipate," "estimate,"
"believe," "intend," "project," or the negative of these words or other similar
words or terms. Factors which could have a material adverse effect on our
operations and future prospects include, but are not limited to, changes in
economic conditions generally and the real estate market specifically, adverse
developments with respect to our tenants, legislative/regulatory changes
including changes to laws governing the taxation of REITs, availability of debt
and equity capital, interest rates, competition, supply and demand for
properties in our current and proposed market areas, policies and guidelines
applicable to REITs and the other factors described under the heading "RISK
FACTORS" in any supplement to this prospectus. These risks and uncertainties
should be considered in evaluating any forward-looking statements contained or
incorporated by reference in this prospectus.
We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
In light of these risks, uncertainties and assumptions, the forward-looking
events discussed or incorporated by reference in this prospectus and any
applicable prospectus supplement may not occur and actual results could differ
materially from those anticipated or implied in the forward-looking statements.
ABOUT THIS PROSPECTUS
All references to "the Company," "we," "our" and "us" in this prospectus
mean Lexington Corporate Properties Trust and all entities owned or controlled
by us except where it is made clear that the term means only the parent company.
The term "you" refers to a prospective investor.
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OUR COMPANY
We are a self-managed and self-administered real estate investment trust,
commonly referred to as a REIT, formed under the laws of the State of Maryland.
Our primary business is the acquisition, ownership and management of a
geographically diverse portfolio of net leased office, industrial and retail
properties. Substantially all of our properties are subject to triple net
leases, which are generally characterized as leases in which the tenant bears
all or substantially all of the costs and cost increases for real estate taxes,
utilities, insurance and ordinary repairs and maintenance.
We grow our portfolio primarily by acquiring properties from corporations
and other entities in sale-leaseback transactions and from developers of
newly-constructed properties built to suit the needs of a corporate tenant. We
have diversified our portfolio by geographical location, tenant industry
segment, lease term expiration and property type with the intention of providing
steady internal growth with low volatility. We believe that such diversification
should help insulate us from regional recession, industry specific downturns and
price fluctuations by property type. As part of our ongoing efforts, we expect
to continue to effect portfolio and individual property acquisitions and
dispositions, through joint ventures and for our own account, expand existing
properties, extend lease maturities in advance of expiration and refinance
outstanding indebtedness when advisable. We also expect to continue to enter
into joint ventures with third-party investors as a means of creating additional
growth and expanding the revenue realized from advisory and asset management
activities.
Our operating partnership structure enables us to acquire properties by
issuing to sellers, as a form of consideration, limited partnership interests in
any of our three operating partnership subsidiaries. We refer to these limited
partnership interests as OP units. The OP units are redeemable, after certain
dates, for our common shares. We believe that this structure facilitates our
ability to raise capital and to acquire portfolio and individual properties by
enabling us to structure transactions which may defer tax gains for a
contributor of property while preserving our available cash for other purposes,
including the payment of dividends and distributions.
Our principal executive offices are located at 355 Lexington Avenue, New
York, New York 10017, our telephone number is (212) 692-7260 and our Internet
address is www.lxp.com.
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DESCRIPTION OF OUR COMMON SHARES
The following summary of the material terms and provisions of our common
shares does not purport to be complete and is subject to the detailed provisions
of our declaration of trust and our By-Laws, each of which is incorporated by
reference into this prospectus. You should carefully read each of these
documents in order to fully understand the terms and provisions of our common
shares. For information on incorporation by reference, and how to obtain copies
of these documents, see the sections entitled "WHERE YOU CAN FIND MORE
INFORMATION" on page 25 of this prospectus and "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE" on page 25 of this prospectus.
GENERAL
Under our declaration of trust, our board of trustees has authority to
issue 80,000,000 common shares. Under Maryland law, our shareholders generally
are not responsible for our debts or obligations as a result of their status as
shareholders.
TERMS
Subject to the preferential rights of any other shares or series of equity
securities and to the provisions of our declaration of trust regarding excess
shares, holders of our common shares are entitled to receive dividends on our
common shares if, as and when authorized and declared by our board of trustees
out of assets legally available therefor and to share ratably in those of our
assets legally available for distribution to our shareholders in the event that
we liquidate, dissolve or wind up, after payment of, or adequate provision for,
all of our known debts and liabilities and the amount to which holders of any
class of shares classified or reclassified or having a preference on
distributions in liquidation, dissolution or winding up have a right.
Subject to the provisions of our declaration of trust regarding excess
shares, each outstanding common share entitles the holder to one vote on all
matters submitted to a vote of shareholders, including the election of trustees
and, except as otherwise required by law or except as otherwise provided in our
declaration of trust with respect to any other class or series of shares, the
holders of our common shares will possess exclusive voting power. There is no
cumulative voting in the election of trustees, which means that the holders of a
majority of our outstanding common shares can elect all of the trustees then
standing for election, and the holders of the remaining common shares will not
be able to elect any trustees.
Holders of our common shares have no conversion, sinking fund or redemption
rights, or preemptive rights to subscribe for any of our securities.
We furnish our shareholders with annual reports containing audited
consolidated financial statements and an opinion thereon expressed by an
independent public accounting firm.
Subject to the provisions of our declaration of trust regarding excess
shares, all of our common shares will have equal dividend, distribution,
liquidation and other rights and will have no preference, appraisal or exchange
rights.
Pursuant to the Maryland REIT Law, a real estate investment trust generally
cannot amend its declaration of trust or merge unless approved by the
affirmative vote of shareholders 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 our
declaration of trust. Our declaration of trust provides that those actions, with
the exception of certain amendments to our declaration of trust for which a
higher vote requirement has been set, will 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.
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RESTRICTIONS ON OWNERSHIP
For the Company to qualify as a REIT under the Internal Revenue Code of
1986, as amended (which is commonly referred to as the Code), not more than 50%
in value of its outstanding capital shares 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" beginning on page 20 of this
prospectus.
TRANSFER AGENT
The transfer agent and registrar for our common shares is Mellon Investor
Services, LLC.
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DESCRIPTION OF OUR PREFERRED SHARES
The following summary of the material terms and provisions of our preferred
shares does not purport to be complete and is subject to the detailed provisions
of our declaration of trust (including any applicable articles supplementary,
amendment or annex to our declaration of trust designating the terms of a series
of preferred shares) and our By-Laws, each of which is incorporated by reference
into this prospectus. You should carefully read each of these documents in order
to fully understand the terms and provisions of our preferred shares. For
information on incorporation by reference, and how to obtain copies of these
documents, see the sections entitled "WHERE YOU CAN FIND MORE INFORMATION" on
page 25 of this prospectus and "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE"
on page 25 of this prospectus.
GENERAL
Under our declaration of trust, we have authority to issue 10,000,000
preferred shares from time to time, in one or more series, as authorized by our
board of trustees. As of the date of this prospectus, the only series of
preferred shares that are outstanding are our 8.05% Series B Cumulative
Redeemable Preferred Stock. See "-- Terms of Our 8.05% Series B Cumulative
Redeemable Preferred Stock" below; all of our Series A Senior Cumulative
Convertible Preferred Stock, par value $0.0001 per share, were converted into
our common shares in April 2002.
Subject to limitations prescribed by Maryland law and our declaration of
trust, our board of trustees is authorized to fix the number of shares
constituting each series of preferred shares and the terms, preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends or other distributions, qualifications and terms or conditions of
redemption. The preferred shares will, when issued against payment therefor, be
fully paid and nonassessable and will not be subject to preemptive rights. Our
board of trustees could authorize the issuance of preferred shares with terms
and conditions that could have the effect of discouraging a takeover or other
transaction that holders of common shares might believe to be in their best
interests or in which holders of common shares might receive a premium for their
common shares over the then-current market price of their shares.
TERMS
Reference is made to the applicable prospectus supplement relating to the
preferred shares offered thereby for specific terms, including:
(1) the title and stated value of the preferred shares;
(2) the number of preferred shares offered, the liquidation preference
per share and the offering price of the preferred shares;
(3) the dividend rate(s), period(s), and/or payment date(s) or
method(s) of calculation thereof applicable to the preferred shares;
(4) the date from which dividends on the preferred shares shall
accumulate, if applicable;
(5) the provisions for a sinking fund, if any, for the preferred
shares;
(6) the provisions for redemption, if applicable, of the preferred
shares;
(7) any listing of the preferred shares on any securities exchange;
(8) the terms and conditions, if applicable, upon which the preferred
shares will be convertible into common shares, including the conversion
price (or manner of calculation thereof);
(9) a discussion of federal income tax considerations applicable to the
preferred shares;
(10) the relative ranking and preferences of the preferred shares as to
dividend rights and rights upon our liquidation, dissolution or winding-up
of our affairs;
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(11) any limitations on issuance of any series of preferred shares
ranking senior to or on a parity with the preferred shares as to dividend
rights and rights upon our liquidation, dissolution or winding-up of our
affairs;
(12) any limitations on direct or beneficial ownership of our
securities and restrictions on transfer of our securities, in each case as
may be appropriate to preserve our status as a REIT; and
(13) any other specific terms, preferences, rights, limitations or
restrictions of the preferred shares.
RANK
Unless otherwise specified in the applicable prospectus supplement, the
preferred shares rank, with respect to dividend rights and rights upon our
liquidation, dissolution or winding-up, and allocation of our earnings and
losses: (i) senior to all classes or series of our common shares, and to all
equity securities ranking junior to the preferred shares, (ii) on a parity with
all equity securities issued by us the terms of which specifically provide that
such equity securities rank on a parity with the preferred shares; and (iii)
junior to all equity securities issued by us the terms of which specifically
provide that such equity securities rank senior to the preferred shares. As used
in this prospectus, the term "equity securities" does not include convertible
debt securities.
DIVIDENDS
Subject to any preferential rights of any outstanding securities or series
of securities, the holders of preferred shares will be entitled to receive
dividends, when, as and if declared by our board of trustees, out of assets
legally available for payment. Dividends will be paid at such rates and on such
dates as will be set forth in the applicable prospectus supplement. Dividends
will be payable to the holders of record of preferred shares as they appear on
our share transfer books on the applicable record dates fixed by our board of
trustees. Dividends on any series of our preferred shares may be cumulative or
non-cumulative, as provided in the applicable prospectus supplement.
REDEMPTION
If so provided in the applicable prospectus supplement, the preferred
shares offered thereby will be subject to mandatory redemption or redemption at
our option, as a whole or in part, in each case upon the terms, at the times and
at the redemption prices set forth in such prospectus supplement.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding-up of
our affairs, and before any distribution or payment shall be made to the holders
of any common shares or any other class or series of shares ranking junior to
our preferred shares, the holders of our preferred shares shall be entitled to
receive, after payment or provision for payment of our debts and other
liabilities, out of our assets legally available for distribution to
shareholders, liquidating distributions in the amount of the liquidation
preference per share, if any, set forth in the applicable prospectus supplement,
plus an amount equal to all dividends accrued and unpaid thereon (which shall
not include any accumulation in respect of unpaid noncumulative dividends for
prior dividend periods). After payment of the full amount of the liquidating
distributions to which they are entitled, the holders of preferred shares will
have no right or claim to any of our remaining assets. In the event that, upon
any such voluntary or involuntary liquidation, dissolution or winding-up of our
affairs, the legally available assets are insufficient to pay the amount of the
liquidating distributions on all of our outstanding preferred shares and the
corresponding amounts payable on all of our other outstanding equity securities
ranking on a parity with the preferred shares in the distribution of assets upon
our liquidation, dissolution or winding-up of our affairs, then the holders of
our preferred shares and the holders of such other outstanding equity securities
shall share ratably in any such distribution of assets in proportion to the full
liquidating distributions to which they would otherwise be respectively
entitled.
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If liquidating distributions are made in full to all holders of our
preferred shares, our remaining assets shall be distributed among the holders of
any other classes or series of equity securities ranking junior to the preferred
shares in the distribution of assets upon our liquidation, dissolution or
winding-up of our affairs, according to their respective rights and preferences
and in each case according to their respective number of shares.
If we consolidate or merge with or into, or sell, lease or convey all or
substantially all of our property or business to, any corporation, trust or
other entity, such transaction shall not be deemed to constitute a liquidation,
dissolution or winding-up of our affairs.
VOTING RIGHTS
Unless otherwise from time to time required by law, or as otherwise
indicated in the applicable prospectus supplement, holders of our preferred
shares will not have any voting rights.
CONVERSION RIGHTS
The terms and conditions, if any, upon which our preferred shares are
convertible into common shares will be set forth in the applicable prospectus
supplement. Such terms will include the number of common shares into which the
preferred shares are convertible, the conversion price (or manner of calculation
thereof), the conversion period, provisions as to whether conversion will be at
the option of the holders of the preferred shares or at our option, the events
requiring an adjustment of the conversion price and provisions affecting
conversion in the event of the redemption of such preferred shares.
RESTRICTIONS ON OWNERSHIP
For us to qualify as a REIT under the Code, not more than 50% in value of
our outstanding capital shares 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 us in meeting this requirement, we
may take certain actions to limit the beneficial ownership, directly or
indirectly, by a single person of our outstanding equity securities, including
any series of our preferred shares. Therefore, the applicable amendment or annex
to our declaration of trust designating the terms of a series of preferred
shares may contain provisions restricting the ownership and transfer of such
preferred shares. The applicable prospectus supplement will specify any
additional ownership limitation relating to the preferred shares being offered
thereby. See "RESTRICTIONS ON TRANSFERS OF CAPITAL STOCK AND ANTI-TAKEOVER
PROVISIONS" beginning on page 20 of this prospectus.
TRANSFER AGENT
The transfer agent and registrar for our preferred shares will be set forth
in the applicable prospectus supplement.
TERMS OF OUR 8.05% SERIES B CUMULATIVE REDEEMABLE PREFERRED STOCK
GENERAL. In June 2003, we sold 3,160,000 preferred shares of beneficial
interest classified as 8.05% Series B Cumulative Redeemable Preferred Stock,
which we refer to as the Series B Preferred Shares. The Series B Preferred
Shares are not convertible into our common shares and are listed on the New York
Stock Exchange under the symbol "LXP-pb."
DIVIDENDS. The holders of the Series B Shares are entitled to receive
cumulative cash dividends at a rate of 8.05% of the $25.00 liquidation
preference per year (equivalent to $2.0125 per year per share).
LIQUIDATION PREFERENCE. If we liquidate, dissolve or wind up, holders of
our Series B Preferred Shares will have the right to receive $25.00 per share,
plus accrued and unpaid dividends (whether or not declared) to and including the
date of payment before any payments are made to the holders of our common shares
and any other capital shares ranking junior to the Series B Preferred Shares as
to liquidation rights.
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REDEMPTION. We may not redeem the Series B Preferred Shares prior to June
19, 2008, except in limited circumstances relating to the preservation of our
status as a REIT. On or after June 19, 2008, we may, at our option, redeem the
Series B Preferred Shares, in whole or in part, at any time and from time to
time, for cash equal to $25.00 per share, plus any accrued and unpaid dividends,
if any, to and including the date of redemption.
CONVERSION. The Series B Preferred Shares are not convertible into, or
exchangeable for, any other property or securities, except that we may exchange
shares of the Series B Preferred Shares for shares of excess stock in order to
ensure that we remain a qualified REIT for federal income tax purposes.
RANK. With respect to the payment of dividends and amounts upon
liquidation, dissolution or winding up, the Series B Preferred Share rank (i)
senior to all classes or series of our common shares and to all equity
securities ranking junior to our Series B Preferred Shares, (ii) on a parity
with all equity securities issued by us the terms of which specifically provide
that such equity securities rank on a parity with our Series B Preferred Shares,
and (iii) junior to all equity securities issued by us the terms of which
specifically provide that such equity securities rank senior to our Series B
Preferred Shares.
VOTING RIGHTS. Holders of the Series B Preferred Shares will generally
have no voting rights. However, if we do not pay dividends on the Series B
Preferred Shares for six or more quarterly periods (whether or not consecutive),
the holders of the Series B Preferred Shares voting together as a class with the
holders of all other classes or series of our equity securities ranking on
parity with the Series B Preferred Shares which are entitled to similar voting
rights, will be entitled to vote at the next annual meeting of our shareholders
for the election of two additional trustees to serve on our board of trustees
until all unpaid cumulative dividends have been paid or declared and set apart
for payment.
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DESCRIPTION OF OUR DEBT SECURITIES
We will issue our debt securities under one or more separate indentures
between us and a trustee that we will name in the applicable supplement to this
prospectus. A form of the indenture is attached as an exhibit to the
registration statement of which this prospectus is a part. Following its
execution, the indenture will be filed with the SEC and incorporated by
reference in the registration statement of which this prospectus is a part.
The following summary describes certain material terms and provisions of
the indenture and our debt securities. This summary is not complete and is
subject to, and is qualified in its entirety by reference to, the provisions of
the indenture. When we offer to sell a particular series of debt securities, we
will describe the specific terms of the series in the applicable supplement to
this prospectus. You should read the indenture for more details regarding the
provisions we describe below and for other provisions that may be important to
you. For information on incorporation by reference, and how to obtain a copy of
the indenture, see the sections entitled "WHERE YOU CAN FIND MORE INFORMATION"
on page 25 of this prospectus and "INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE" on page 25 of this prospectus.
GENERAL
The debt securities will be direct obligations of the Company, which may be
secured or unsecured and may be either senior debt securities ("Senior
Securities") or subordinated debt securities ("Subordinated Securities"). The
debt securities will be issued under one or more indentures in the form filed as
an exhibit to the Registration Statement of which this prospectus is a part (the
"Form of Indenture"). As provided in the Form of Indenture, the specific terms
of any Debt Security issued pursuant to an indenture will be set forth in one or
more Supplemental Indentures, each dated as of a date of or prior to the
issuance of the debt securities to which it relates (the "Supplemental
Indentures" and each a "Supplemental Indenture"). Senior Securities and
Subordinated Securities may be issued pursuant to separate indentures
(respectively, a "Senior Indenture" and a "Subordinated Indenture"), in each
case between the Company and a trustee (an "Indenture Trustee"), which may be
the same Indenture Trustee, subject to such amendments or supplements as may be
adopted from time to time. The Senior Indenture and the Subordinated Indenture,
as amended or supplemented from time to time, are sometimes hereinafter referred
to collectively as the "Indentures." The Indentures will be subject to and
governed by the Trust Indenture Act of 1939, as amended. The statements made
under this heading relating to the debt securities and the Indentures are
summaries of the provisions thereof, do not purport to be complete and are
qualified in their entirety by reference to the Indentures and such debt
securities.
Capitalized terms used herein and not defined shall have the meanings
assigned to them in the applicable Indenture.
TERMS
The indebtedness represented by the Senior Securities will rank equally
with all other unsecured and unsubordinated indebtedness of the Company. The
indebtedness represented by Subordinated Securities will be subordinated in
right of payment to the prior payment in full of the Senior Debt of the Company
as described under "-- Subordination." The particular terms of the debt
securities offered by a prospectus supplement will be described in the
applicable prospectus supplement, along with any applicable federal income tax
considerations unique to such debt securities. Accordingly, for a description of
the terms of any series of debt securities, reference must be made to both the
prospectus supplement relating thereto and the description of the debt
securities set forth in this prospectus.
Except as set forth in any prospectus supplement, the debt securities may
be issued without limits as to aggregate principal amount, in one or more
series, in each case as established from time to time by the Company or as set
forth in the applicable Indenture or in one or more Supplemental Indentures. All
debt securities of one series need not be issued at the same time and, unless
otherwise provided, a series may be reopened, without the consent of the holders
of the debt securities of such series, for issuance of additional debt
securities of such series.
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The Form of Indenture provides that the Company may, but need not,
designate more than one Indenture Trustee thereunder, each with respect to one
or more series of debt securities. Any Indenture Trustee under an Indenture may
resign or be removed with respect to one or more series of debt securities and a
successor Indenture Trustee may be appointed to act with respect to such series.
If two or more persons are acting as Indenture Trustee with respect to different
series of debt securities, each such Indenture Trustee shall be an Indenture
Trustee of a trust under the applicable Indenture separate and apart from the
trust administered by any other Indenture Trustee, and, except as otherwise
indicated herein, any action described herein to be taken by each Indenture
Trustee may be taken by each such Indenture Trustee with respect to, and only
with respect to, the one or more series of debt securities for which it is
Indenture Trustee under the applicable Indenture.
The following summaries set forth certain general terms and provisions of
the Indentures and the debt securities. The prospectus supplement relating to
the series of debt securities being offered will contain further terms of such
debt securities, including the following specific terms:
(1) The title of such debt securities and whether such debt securities
are secured or unsecured or Senior Securities or Subordinated Securities;
(2) The aggregate principal amount of such debt securities and any
limit on such aggregate principal amount;
(3) The price (expressed as a percentage of the principal amount
thereof) at which such debt securities will be issued and, if other than
the principal amount thereof, the portion of the principal amount thereof
payable upon declaration of the maturity thereof, or (if applicable) the
portion of the principal amount of such debt securities that is convertible
into common shares or preferred shares, or the method by which any such
portion shall be determined;
(4) If convertible, the terms on which such debt securities are
convertible, including the initial conversion price or rate and the
conversion period and any applicable limitations on the ownership or
transferability of the common shares or preferred shares receivable on
conversion;
(5) The date or dates, or the method for determining such date or
dates, on which the principal of such debt securities will be payable;
(6) The rate or rates (which may be fixed or variable), or the method
by which such rate or rates shall be determined, at which such debt
securities will bear interest, if any;
(7) The date or dates, or the method for determining such date or
dates, from which any such interest will accrue, the dates on which any
such interest will be payable, the record dates for such interest payment
dates, or the method by which such dates shall be determined, the persons
to whom such interest shall be payable, and the basis upon which interest
shall be calculated if other than that of a 360-day year of twelve 30-day
months;
(8) The place or places where the principal of (and premium, if any)
and interest, if any, on such debt securities will be payable, where such
debt securities may be surrendered for conversion or registration of
transfer or exchange and where notices or demands to or upon the Company
with respect to such debt securities and the applicable Indenture may be
served;
(9) The period or periods, if any, within which, the price or prices at
which and the other terms and conditions upon which such debt securities
may, pursuant to any optional or mandatory redemption provisions, be
redeemed, as a whole or in part, at the option of the Company;
(10) The obligation, if any, of the Company to redeem, repay or
purchase such debt securities pursuant to any sinking fund or analogous
provision or at the option of a holder thereof, and the period or periods
within which, the price or prices at which and the other terms and
conditions upon which such debt securities will be redeemed, repaid or
purchased, as a whole or in part, pursuant to such obligation;
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(11) If other than U.S. dollars, the currency or currencies in which
such debt securities are denominated and payable, which may be a foreign
currency or units of two or more foreign currencies or a composite currency
or currencies, and the terms and conditions relating thereto;
(12) Whether the amount of payments of principal of (and premium, if
any) or interest, if any, on such debt securities may be determined with
reference to an index, formula or other method (which index, formula or
method may, but need not, be based on a currency, currencies, currency unit
or units, or composite currency or currencies) and the manner in which such
amounts shall be determined;
(13) Whether such debt securities will be issued in certificated or
book-entry form and, if so, the identity of the depository for such debt
securities;
(14) Whether such debt securities will be in registered or bearer form
or both and, if in registered form, the denominations thereof if other than
$1,000 and any integral multiple thereof and, if in bearer form, the
denominations thereof and terms and conditions relating thereto;
(15) The applicability, if any, of the defeasance and covenant
defeasance provisions described herein or set forth in the applicable
Indenture, or any modification thereof;
(16) Whether and under what circumstances the Company will pay any
additional amounts on such debt securities in respect of any tax,
assessment or governmental charge and, if so, whether the Company will have
the option to redeem such debt securities in lieu of making such payment;
(17) Any deletions from, modifications of or additions to the events of
default or covenants of the Company, to the extent different from those
described herein or set forth in the applicable Indenture with respect to
such debt securities, and any change in the right of any Trustee or any of
the holders to declare the principal amount of any of such debt securities
due and payable;
(18) The provisions, if any, relating to the security provided for such
debt securities; and
(19) Any other terms of such debt securities not inconsistent with the
provisions of the applicable Indenture.
If so provided in the applicable prospectus supplement, the debt securities
may be issued at a discount below their principal amount and provide for less
than the entire principal amount thereof to be payable upon declaration of
acceleration of the maturity thereof ("Original Issue Discount Securities"). In
such cases, any special U.S. federal income tax, accounting and other
considerations applicable to Original Issue Discount Securities will be
described in the applicable prospectus supplement.
Except as may be set forth in any prospectus supplement, neither the debt
securities nor the Indenture will contain any provisions that would limit the
ability of the Company to incur indebtedness or that would afford holders of
debt securities protection in the event of a highly leveraged or similar
transaction involving the Company or in the event of a change of control,
regardless of whether such indebtedness, transaction or change of control is
initiated or supported by the Company, any affiliate of the Company or any other
party. However, certain restrictions on ownership and transfers of the common
shares and preferred shares are designed to preserve the Company's status as a
REIT and, therefore, may act to prevent or hinder a change of control. See
"RESTRICTIONS ON TRANSFERS OF CAPITAL STOCK AND ANTI-TAKEOVER PROVISIONS"
beginning on page 20 of this prospectus. Reference is made to the applicable
prospectus supplement for information with respect to any deletions from,
modifications of, or additions to, the events of default or covenants of the
Company that are described below, including any addition of a covenant or other
provision providing event risk or similar protection.
DENOMINATION, INTEREST, REGISTRATION AND TRANSFER
Unless otherwise described in the applicable prospectus supplement, the
debt securities of any series will be issuable in denominations of $1,000 and
integral multiples thereof.
10
Unless otherwise specified in the applicable prospectus supplement, the
principal of (and applicable premium, if any) and interest on any series of debt
securities will be payable at the corporate trust office of the applicable
Indenture Trustee, the address of which will be stated in the applicable
prospectus supplement; provided, however, that, at the option of the Company,
payment of interest may be made by check mailed to the address of the person
entitled thereto as it appears in the applicable register for such debt
securities or by wire transfer of funds to such person at an account maintained
within the United States.
Subject to certain limitations imposed upon debt securities issued in
book-entry form, the debt securities of any series will be exchangeable for any
authorized denomination of other debt securities of the same series and of a
like aggregate principal amount and tenor upon surrender of such debt securities
at the corporate trust office of the applicable Indenture Trustee or at the
office of any transfer agent designated by the Company for such purpose. In
addition, subject to certain limitations imposed upon debt securities issued in
book-entry form, the debt securities of any series may be surrendered for
conversion or registration of transfer or exchange thereof at the corporate
trust office of the applicable Indenture Trustee or at the office of any
transfer agent designated by the Company for such purpose. Every Debt Security
surrendered for conversion, registration of transfer or exchange must be duly
endorsed or accompanied by a written instrument of transfer, and the person
requesting such action must provide evidence of title and identity satisfactory
to the applicable Indenture Trustee or transfer agent. No service charge will be
made for any registration of transfer or exchange of any debt securities, but
the Company may require payment of a sum sufficient to cover any tax or other
governmental charge payable in connection therewith. If the applicable
prospectus supplement refers to any transfer agent (in addition to the
applicable Indenture Trustee) initially designated by the Company with respect
to any series of debt securities, the Company may at any time rescind the
designation of any such transfer agent or approve a change in the location
through which any such transfer agent acts, except that the Company will be
required to maintain a transfer agent in each place of payment for such series.
The Company may at any time designate additional transfer agents with respect to
any series of debt securities.
Neither the Company nor any Indenture Trustee shall be required (i) to
issue, register the transfer of or exchange debt securities of any series during
a period beginning at the opening of business 15 days before the day of mailing
of a notice of redemption of any debt securities that may be selected for
redemption and ending at the close of business on the day of such mailing; (ii)
to register the transfer of or exchange any Debt Security, or portion thereof,
so selected for redemption, in whole or in part, except the unredeemed portion
of any Debt Security being redeemed in part; or (iii) to issue, register the
transfer of or exchange any Debt Security that has been surrendered for
repayment at the option of the holder, except the portion, if any, of such Debt
Security not to be so repaid.
MERGER, CONSOLIDATION OR SALE OF ASSETS
The Indentures will provide that the Company may, without the consent of
the holders of any outstanding debt securities, consolidate with, or sell, lease
or convey all or substantially all of its assets to, or merge with or into, any
other entity provided that (a) either the Company shall be the continuing
entity, or the successor entity (if other than the Company) formed by or
resulting from any such consolidation or merger or which shall have received the
transfer of such assets, is organized under the laws of any domestic
jurisdiction and assumes the Company's obligations to pay principal of (and
premium, if any) and interest on all of the debt securities and the due and
punctual performance and observance of all of the covenants and conditions
contained in each Indenture; (b) immediately after giving effect to such
transaction and treating any indebtedness that becomes an obligation of the
Company or any subsidiary as a result thereof as having been incurred by the
Company or such subsidiary at the time of such transaction, no event of default
under the Indentures, and no event which, after notice or the lapse of time, or
both, would become such an event of default, shall have occurred and be
continuing; and (c) an officers' certificate and legal opinion covering such
conditions shall be delivered to each Indenture Trustee.
11
CERTAIN COVENANTS
EXISTENCE. Except as permitted under "-- Merger, Consolidation or Sale of
Assets," the Indentures will require the Company to do or cause to be done all
things necessary to preserve and keep in full force and effect its corporate
existence, rights (by declaration of trust, by-laws and statute) and franchises;
provided, however, that the Company will not be required to preserve any right
or franchise if its board of trustees determines that the preservation thereof
is no longer desirable in the conduct of its business by appropriate
proceedings.
MAINTENANCE OF PROPERTIES. The Indentures will require the Company to
cause all of its material properties used or useful in the conduct of its
business or the business of any subsidiary to be maintained and kept in good
condition, repair and working order and supplied with all necessary equipment
and will cause to be made all necessary repairs, renewals, replacements,
betterments and improvements thereof, all as in the judgment of the Company may
be necessary so that the business carried on in connection therewith may be
properly and advantageously conducted at all times; provided, however, that the
Company and its subsidiaries shall not be prevented from selling or otherwise
disposing of their properties for value in the ordinary course of business.
INSURANCE. The Indentures will require the Company to cause each of its
and its subsidiaries' insurable properties to be insured against loss or damage
with insurers of recognized responsibility and, if described in the applicable
prospectus supplement, having a specified rating from a recognized insurance
rating service, in such amounts and covering all such risks as shall be
customary in the industry in accordance with prevailing market conditions and
availability.
PAYMENT OF TAXES AND OTHER CLAIMS. The Indentures will require the Company
to pay or discharge or cause to be paid or discharged, before the same shall
become delinquent, (i) all taxes, assessments and governmental charges levied or
imposed upon it or any subsidiary or upon the income, profits or property of the
Company or any subsidiary and (ii) all lawful claims for labor, materials and
supplies which, if unpaid, might by law become a lien upon the property of the
Company or any subsidiary; provided, however, that the Company shall not be
required to pay or discharge or cause to be paid or discharged any such tax,
assessment, charge or claim whose amount, applicability or validity is being
contested in good faith.
PROVISION OF FINANCIAL INFORMATION. Whether or not the Company is subject
to Section 13 or 15(d) of the Exchange Act, the Indentures will require the
Company, within 15 days of each of the respective dates by which the Company
would have been required to file annual reports, quarterly reports and other
documents with the Commission if the Company were so subject, (i) to file with
the applicable Indenture Trustee copies of the annual reports, quarterly reports
and other documents that the Company would have been required to file with the
Commission pursuant to Section 13 or 15(d) of the Exchange Act if the Company
were subject to such Sections and (ii) to supply, promptly upon written request
and payment of the reasonable cost of duplication and delivery, copies of such
documents to any prospective holder.
ADDITIONAL COVENANTS. Any additional covenants of the Company with respect
to any series of debt securities will be set forth in the prospectus supplement
relating thereto.
EVENTS OF DEFAULT, NOTICE AND WAIVER
Unless otherwise provided in the applicable prospectus supplement, each
Indenture will provide that the following events are "Events of Default" with
respect to any series of debt securities issued thereunder (i) default for 30
days in the payment of any installment of interest on any Debt Security of such
series; (ii) default in the payment of principal of (or premium, if any, on) any
Debt Security of such series at its maturity; (iii) default in making any
sinking fund payment as required for any Debt Security of such series; (iv)
default in the performance or breach of any other covenant or warranty of the
Company contained in the Indenture (other than a covenant added to the Indenture
solely for the benefit of a series of debt securities issued thereunder other
than such series), continued for 60 days after written notice as provided in the
applicable Indenture; (v) a default under any bond, debenture, note or other
evidence of
12
indebtedness for money borrowed by the Company or any of its subsidiaries
(including obligations under leases required to be capitalized on the balance
sheet of the lessee under generally accepted accounting principles but not
including any indebtedness or obligations for which recourse is limited to
property purchased) in an aggregate principal amount in excess of $30,000,000 or
under any mortgage, indenture or instrument under which there may be issued or
by which there may be secured or evidenced any indebtedness for money borrowed
by the Company or any its subsidiaries (including such leases, but not including
such indebtedness or obligations for which recourse is limited to property
purchased) in an aggregate principal amount in excess of $30,000,000, whether
such indebtedness exists on the date of such Indenture or shall thereafter be
created, with such obligations being accelerated and not rescinded or annulled;
(vi) certain events of bankruptcy, insolvency or reorganization, or court
appointment of a receiver, liquidator or trustee of the Company or any
Significant Subsidiary of the Company; and (vii) any other event of default
provided with respect to a particular series of debt securities. The term
"Significant Subsidiary" has the meaning ascribed to such term in Regulation S-X
promulgated under the Securities Act.
If an event of default under any Indenture with respect to debt securities
of any series at the time outstanding occurs and is continuing, then in every
such case the applicable Indenture Trustee or the holders of not less than 25%
in principal amount of the debt securities of that series will have the right to
declare the principal amount (or, if the debt securities of that series are
Original Issue Discount Securities or indexed securities, such portion of the
principal amount as may be specified in the terms thereof) of all the debt
securities of that series to be due and payable immediately by written notice
thereof to the Company (and to the applicable Indenture Trustee if given by the
holders). However, at any time after such a declaration of acceleration with
respect to debt securities of such series (or of all debt securities then
outstanding under any Indenture, as the case may be) has been made, but before a
judgment or decree for payment of the money due has been obtained by the
applicable Indenture Trustee, the holders of not less than a majority in
principal amount of outstanding debt securities of such series (or of all debt
securities then outstanding under the applicable Indenture, as the case may be)
may rescind and annul such declaration and its consequences if (i) the Company
shall have deposited with the applicable Indenture Trustee all required payments
of the principal of (and premium, if any) and interest on the debt securities of
such series (or of all debt securities than outstanding under the applicable
Indenture, as the case may be), plus certain fees, expenses, disbursements and
advances of the applicable Indenture Trustee and (ii) all events of default,
other than the non-payment of accelerated principal (or specified portion
thereof), with respect to debt securities of such series (or of all debt
securities then outstanding under the applicable Indenture, as the case may be)
have been cured or waived as provided in such Indenture. The Indentures will
also provide that the holders of not less than a majority in principal amount of
the outstanding debt securities of any series (or of all debt securities then
outstanding under the applicable Indenture, as the case may be) may waive any
past default with respect to such series and its consequences, except a default
(x) in the payment of the principal of (or premium, if any) or interest on any
Debt Security of such series or (y) in respect of a covenant or provision
contained in the applicable Indenture that cannot be modified or amended without
the consent of the holder of each outstanding Debt Security affected thereby.
The Indentures will require each Indenture Trustee to give notice to the
holders of debt securities within 90 days of a default under the applicable
Indenture unless such default shall have been cured or waived; provided,
however, that such Indenture Trustee may withhold notice to the holders of any
series of debt securities of any default with respect to such series (except a
default in the payment of the principal of (or premium, if any) or interest on
any Debt Security of such series or in the payment of any sinking fund
installment in respect to any Debt Security of such series) if specified
responsible officers of such Indenture Trustee consider such withholding to be
in the interest of such holders.
The Indentures will provide that no holder of debt securities of any series
may institute any proceeding, judicial or otherwise, with respect to such
Indenture or for any remedy thereunder, except in the case of failure of the
applicable Indenture Trustee, for 60 days, to act after it has received a
written request to institute proceedings in respect of an event of default from
the holders of not less than 25% in
13
principal amount of the outstanding debt securities of such series, as well as
an offer of indemnity reasonably satisfactory to it. This provision will not
prevent, however, any holder of debt securities from instituting suit for the
enforcement of payment of the principal of (and premium, if any) and interest on
such debt securities at the respective due dates thereof.
The Indentures will provide that, subject to provisions in each Indenture
relating to its duties in case of default, an Indenture Trustee will be under no
obligation to exercise any of its rights or powers under an Indenture at the
request or direction of any holders of any series of debt securities then
outstanding under such Indenture, unless such holders shall have offered to the
Indenture Trustee thereunder reasonable security or indemnity. The holders of
not less than a majority in principal amount of the outstanding debt securities
of any series (or of all debt securities then outstanding under an Indenture, as
the case may be) shall have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the applicable Indenture
Trustee, or of exercising any trust or power conferred upon such Indenture
Trustee. However, an Indenture Trustee may refuse to follow any direction which
is in conflict with any law or the applicable Indenture, which may involve such
Indenture Trustee in personal liability or which may be unduly prejudicial to
the holders of debt securities of such series not joining therein.
Within 120 days after the close of each fiscal year, the Company will be
required to deliver to each Indenture Trustee a certificate, signed by one of
several specified officers of the Company, stating whether or not such officer
has knowledge of any default under the applicable Indenture and, if so,
specifying each such default and the nature and status thereof.
MODIFICATION OF THE INDENTURES
Modifications and amendments of an Indenture will be permitted to be made
only with the consent of the holders of not less than a majority in principal
amount of all outstanding debt securities issued under such Indenture affected
by such modification or amendment; provided, however, that no such modification
or amendment may, without the consent of the holder of each such Debt Security
affected thereby, (i) change the stated maturity of the principal of, or any
installment of interest (or premium, if any) on, any such Debt Security; (ii)
reduce the principal amount of, or the rate or amount of interest on, or any
premium payable on redemption of, any such Debt Security, or reduce the amount
of principal of an Original Issue Discount Security that would be due and
payable upon declaration of acceleration of the maturity thereof or would be
provable in bankruptcy, or adversely affect any right of repayment of the holder
of any such Debt Security; (iii) change the place of payment, or the coin or
currency, for payment of principal of, premium, if any, or interest on any such
Debt Security; (iv) impair the right to institute suit for the enforcement of
any payment on or with respect to any such Debt Security; (v) reduce the
above-stated percentage of outstanding debt securities of any series necessary
to modify or amend the applicable Indenture, to waive compliance with certain
provisions thereof or certain defaults and consequences thereunder or to reduce
the quorum or voting requirements set forth in the applicable Indenture; or (vi)
modify any of the foregoing provisions or any of the provisions relating to the
waiver of certain past defaults or certain covenants, except to increase the
required percentage to effect such action or to provide that certain other
provisions may not be modified or waived without the consent of the holder of
such Debt Security.
The holders of a majority in aggregate principal amount of the outstanding
debt securities of each series may, on behalf of all holders of debt securities
of that series, waive, insofar as that series is concerned, compliance by the
Company with certain restrictive covenants of the applicable Indenture.
Modifications and amendments of an Indenture will be permitted to be made
by the Company and the respective Indenture Trustee thereunder without the
consent of any holder of debt securities for any of the following purposes: (i)
to evidence the succession of another person to the Company as obligor under
such Indenture; (ii) to add to the covenants of the Company for the benefit of
the holders of all or any series of debt securities or to surrender any right or
power conferred upon the Company in such Indenture; (iii) to add events of
default for the benefit of the holders of all or any series of debt securities;
14
(iv) to add or change any provisions of an Indenture to facilitate the issuance
of, or to liberalize certain terms of, debt securities in bearer form, or to
permit or facilitate the issuance of debt securities in uncertificated form;
provided that such action shall not adversely affect the interest of the holders
of the debt securities of any series in any material respect; (v) to change or
eliminate any provisions of an Indenture; provided that any such change or
elimination shall be effective only when there are no debt securities
outstanding of any series created prior thereto which are entitled to the
benefit of such provision; (vi) to secure the debt securities; (vii) to
establish the form or terms of debt securities of any series, including the
provisions and procedures, if applicable, for the conversion of such debt
securities into common shares or preferred shares; (viii) to provide for the
acceptance of appointment by a successor Indenture Trustee or facilitate the
administration of the trusts under an Indenture by more than one Indenture
Trustee; (ix) to cure any ambiguity, defect or inconsistency in an Indenture;
provided that such action shall not adversely affect the interests of holders of
debt securities of any series issued under such Indenture; or (x) to supplement
any of the provisions of an Indenture to the extent necessary to permit or
facilitate defeasance and discharge of any series of such debt securities;
provided that such action shall not adversely affect the interests of the
holders of the outstanding debt securities of any series.
The Indentures will provide that, in determining whether the holders of the
requisite principal amount of outstanding debt securities of a series have given
any request, demand, authorization, direction, notice, consent or waiver
thereunder or whether a quorum is present at a meeting of holders of debt
securities, (i) the principal amount of an Original Issue Discount Security that
shall be deemed to be outstanding shall be the amount of the principal thereof
that would be due and payable as of the date of such determination upon
declaration of acceleration of the maturity thereof (ii) the principal amount of
any Debt Security denominated in a foreign currency that shall be deemed
outstanding shall be the U.S. dollar equivalent, determined on the issue date
for such Debt Security, of the principal amount (or, in the case of an Original
Issue Discount Security, the U.S. dollar equivalent on the issue date of such
debt securities of the amount determined as provided in (i) above), (iii) the
principal amount of an indexed security that shall be deemed outstanding shall
be the principal face amount of such indexed security at original issuance,
unless otherwise provided with respect to such indexed security pursuant to such
Indenture, and (iv) debt securities owned by the Company or any other obligor
upon the debt securities or an affiliate of the Company or of such other obligor
shall be disregarded.
The Indentures will contain provisions for convening meetings of the
holders of debt securities of a series issued thereunder. A meeting may be
called at any time by the applicable Indenture Trustee, and also, upon request
by the Company or the holders of at least 25% in principal amount of the
outstanding debt securities of such series, in any such case upon notice given
as provided in such Indenture. Except for any consent that must be given by the
holder of each Debt Security affected by certain modifications and amendments of
an Indenture, any resolution presented at a meeting or adjourned meeting duly
reconvened at which a quorum is present may be adopted by the affirmative vote
of the holders of a majority in principal amount of the outstanding debt
securities of that series; provided, however, that, except as referred to above,
any resolution with respect to any request, demand, authorization, direction,
notice, consent, waiver or other action that may be made, given or taken by the
holders of a specified percentage, which is less than a majority, in principal
amount of the outstanding debt securities of a series may be adopted at a
meeting or adjourned meeting duly reconvened at which a quorum is present by the
affirmative vote of the holders of such specified percentage in principal amount
of the outstanding debt securities of that series. Any resolution passed or
decision taken at any meeting of holders of debt securities of any series duly
held in accordance with an Indenture will be binding on all holders of debt
securities of that series. The quorum at any meeting called to adopt a
resolution, and at any reconvened meeting, will be persons holding or
representing a majority in principal amount of the outstanding debt securities
of a series; provided, however, that if any action is to be taken at such
meeting with respect to a consent or waiver which may be given by the holders of
not less than a specified percentage in principal amount of the outstanding debt
securities of a series, the persons holding or representing such specified
percentage in principal amount of the outstanding debt securities of such series
will constitute a quorum.
15
Notwithstanding the foregoing provisions, the Indentures will provide that
if any action is to be taken at a meeting of holders of debt securities of any
series with respect to any request, demand, authorization, direction, notice,
consent, waiver and other action that such Indenture expressly provides may be
made, given or taken by the holders of a specified percentage in principal
amount of all outstanding debt securities affected thereby, or of the holders of
such series and one or more additional series; (i) there shall be no minimum
quorum requirement for such meeting, and (ii) the principal amount of the
outstanding debt securities of such series that vote in favor of such request,
demand, authorization, direction, notice, consent, waiver or other action shall
be taken into account in determining whether such request, demand,
authorization, direction, notice, consent, waiver or other action has been made,
given or taken under such Indenture.
SUBORDINATION
Unless otherwise provided in the applicable prospectus supplement,
Subordinated Securities will be subject to the following subordination
provisions.
Upon any distribution to creditors of the Company in a liquidation,
dissolution or reorganization, the payment of the principal of and interest on
any Subordinated Securities will be subordinated to the extent provided in the
applicable Indenture in right of payment to the prior payment in full of all
Senior Debt (as defined below), but the obligation of the Company to make
payments of the principal of and interest on such Subordinated Securities will
not otherwise be affected. No payment of principal or interest will be permitted
to be made on Subordinated Securities at any time if a default on Senior Debt
exists that permits the holders of such Senior Debt to accelerate its maturity
and the default is the subject of judicial proceedings or the Company receives
notice of the default. After all Senior Debt is paid in full and until the
Subordinated Securities are paid in full, holders will be subrogated to the
rights of holders of Senior Debt to the extent that distributions otherwise
payable to holders have been applied to the payment of Senior Debt. The
Subordinated Indenture will not restrict the amount of Senior Indebtedness or
other indebtedness of the Company and its subsidiaries. As a result of these
subordination provisions in the event of a distribution of assets upon
insolvency, holders of Subordinated Indebtedness may recover less, ratably, than
senior creditors of the Company.
Senior Debt will be defined in the applicable Indenture as the principal of
and interest on, or substantially similar payments to be made by the Company in
respect of, the following, whether outstanding at the date of execution of the
applicable Indenture or thereafter incurred, created or assumed: (i)
indebtedness of the Company for money borrowed or represented by purchase-money
obligations, (ii) indebtedness of the Company evidenced by notes, debentures, or
bonds, or other securities issued under the provisions of an indenture, fiscal
agency agreement or other agreement, (iii) obligations of the Company as lessee
under leases of property either made as part of any sale and leaseback
transaction to which the Company is a part or otherwise, (iv) indebtedness of
partnerships and joint ventures which is included in the consolidated financial
statements of the Company, (v) indebtedness obligations and liabilities of
others in respect of which the Company is liable contingently or otherwise to
pay or advance money or property or as guarantor, endorser or otherwise or which
the Company has agreed to purchase or otherwise acquire, and (vi) any binding
commitment of the real estate investment, in each case other than (a) any such
indebtedness, obligation or liability referred to in clauses (i) through (vi)
above as to which, in the instrument creating or evidencing the same pursuant to
which the same is outstanding, it is provided that such indebtedness, obligation
or liability is not superior in right of payment to the Subordinated Securities
or ranks pari passu with the Subordinated Securities, (b) any such indebtedness
obligation or liability which is subordinated to indebtedness of the Company to
substantially the same extent as or to a greater extent than the Subordinated
Securities are subordinated, and (c) the Subordinated Securities. There will not
be any restriction in any Indenture relating to Subordinated Securities upon the
creation of additional Senior Debt.
If this prospectus is being delivered in connection with a series of
Subordinated Securities, the accompanying prospectus supplement or the
information incorporated herein by reference will set forth
16
the approximate amount of Senior Debt outstanding as of the end of the Company's
most recent fiscal quarter.
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
Unless otherwise indicated in the applicable prospectus supplement, the
Company will be permitted, at its option, to discharge certain obligations to
holders of any series of debt securities issued under any Indenture that have
not already been delivered to the applicable Indenture Trustee for cancellation
and that either have become due and payable or will become due and payable
within one year (or scheduled for redemption within one year) by irrevocably
depositing with the applicable Indenture Trustee, in trust, funds in such
currency or currencies, currency unit or units or composite currency or
currencies in which such debt securities are payable in an amount sufficient to
pay the entire indebtedness on such debt securities with respect to principal
(and premium, if any) and interest to the date of such deposit (if such debt
securities have become due and payable) or to the stated maturity or redemption
date, as the case may be.
The Indentures will provide that, unless otherwise indicated in the
applicable prospectus supplement, the Company may elect either (i) to defease
and be discharged from any and all obligations (except for the obligation to pay
additional amounts, if any, upon the occurrence of certain events of tax
assessment or governmental charge with respect to payments on such debt
securities and the obligations to register the transfer or exchange of such debt
securities, to replace temporary or mutilated, destroyed, lost or stolen debt
securities, to maintain an office or agency in respect of such debt securities,
to hold moneys for payment in trust and, with respect to Subordinated debt
securities which are convertible or exchangeable, the right to convert or
exchange) with respect to such debt securities ("defeasance") or (ii) to be
released from its obligations with respect to such debt securities under the
applicable Indenture (being the restrictions described under "-- Certain
Covenants") or, if provided in the applicable prospectus supplement, its
obligations with respect to any other covenant, and any omission to comply with
such obligations shall not constitute an event of default with respect to such
debt securities ("covenant defeasance"), in either case upon the irrevocable
deposit by the Company with the applicable Indenture Trustee, in trust, of an
amount in such currency or currencies, currency unit or units or composite
currency or currencies in which such debt securities are payable at stated
maturity, or Government Obligations (as defined below), or both, applicable to
such debt securities, which through the scheduled payment of principal and
interest in accordance with their terms will provide money in an amount
sufficient to pay the principal of (and premium, if any) and interest on such
debt securities, and any mandatory sinking fund or analogous payments thereon,
on the scheduled due dates therefor.
Such a trust will only be permitted to be established if, among other
things, the Company has delivered to the applicable Indenture Trustee an opinion
of counsel (as specified in the applicable Indenture) to the effect that the
holders of such debt securities will not recognize income, gain or loss for U.S.
federal income tax purposes as a result of such defeasance or covenant
defeasance and will be subject to U.S. federal income tax on the same amounts,
in the same manner and at the same times as would have been the case if such
defeasance or covenant defeasance had not occurred, and such opinion of counsel,
in the case of defeasance, will be required to refer to and be based upon a
ruling received from or published by the Internal Revenue Service or a change in
applicable United States federal income tax law occurring after the date of the
Indenture. In the event of such defeasance, the holders of such debt securities
would thereafter be able to look only to such trust fund for payment of
principal (and premium, if any) and interest.
"Government Obligations" means securities that are (i) direct obligations
of the United States of America or the government which issued the foreign
currency in which the debt securities of a particular series are payable, for
the payment of which its full faith and credit is pledged, or (ii) obligations
of a person controlled or supervised by and acting as an agency or
instrumentality of the United States of America or such government which issued
the foreign currency in which the debt securities of such series are payable,
the payment of which is unconditionally guaranteed as a full faith and credit
obligation by the United States of America or such other government, which, in
either case, are not callable or
17
redeemable at the option of the issuer thereof, and shall also include a
depository receipt issued by a bank or trust company as custodian with respect
to any such Government Obligation or a specific payment of interest on or
principal of any such Government Obligation held by such custodian for the
account of the holder of a depository receipt; provided that (except as required
by law) such custodian is not authorized to make any deduction from the amount
payable to the holder of such depository receipt from any amount received by the
custodian in respect of the Government Obligation or the specific payment of
interest on or principal of the Government Obligation evidenced by such
depository receipt.
Unless otherwise provided in the applicable prospectus supplement, if after
the Company has deposited funds and/or Government Obligations to effect
defeasance or covenant defeasance with respect to debt securities of any series,
(i) the holder of a Debt Security of such series is entitled to, and does, elect
pursuant to the applicable Indenture or the terms of such Debt Security to
receive payment in a currency, currency unit or composite currency other than
that in which such deposit has been made in respect of such Debt Security, or
(ii) a Conversion Event (as defined below) occurs in respect of the currency,
currency unit or composite currency in which such deposit has been made, the
indebtedness represented by such Debt Security will be deemed to have been, and
will be, fully discharged and satisfied through the payment of the principal of
(and premium, if any) and interest on such Debt Security as they become due out
of the proceeds yielded by converting the amount so deposited in respect of such
Debt Security into the currency, currency unit or composite currency in which
such Debt Security becomes payable as a result of such election or such
cessation of usage based on the applicable market exchange rate. "Conversion
Event" means the cessation of use of (a) a currency, currency unit or composite
currency both by the government of the country which issued such currency and
for the settlement of transactions by a central bank or other public
institutions of or within the international banking community, (b) the ECU both
within the European Monetary System and for the settlement of transactions by
public institutions of or within the European Communities, or (c) any currency
unit or composite currency other than the ECU for the purposes for which it was
established. Unless otherwise provided in the applicable prospectus supplement,
all payments of principal of (and premium, if any) and interest on any Debt
Security that is payable in a foreign currency that ceases to be used by its
government of issuance shall be made in U.S. dollars.
If the Company effects covenant defeasance with respect to any debt
securities and such debt securities are declared due and payable because of the
occurrence of any event of default other than the event of default described in
clause (iv) under "-- Events of Default, Notice and Waiver" with respect to
specified sections of an Indenture (which sections would no longer be applicable
to such debt securities) or described in clause (vii) under "-- Events of
Default, Notice and Waiver" with respect to any other covenant as to which there
has been covenant defeasance, the amount in such currency, currency unit or
composite currency in which such debt securities are payable, and Government
Obligations on deposit with the applicable Indenture Trustee, will be sufficient
to pay amounts due on such debt securities at the time of their stated maturity
but may not be sufficient to pay amounts due on such debt securities at the time
of the acceleration resulting from such event of default. However, the Company
would remain liable to make payment of such amounts due at the time of
acceleration.
The applicable prospectus supplement may further describe the provisions,
if any, permitting such defeasance or covenant defeasance, including any
modifications to the provisions described above, with respect to the debt
securities of or within a particular series.
CONVERSION RIGHTS
The terms and conditions, if any, upon which the debt securities are
convertible into common shares or preferred shares will be set forth in the
applicable prospectus supplement relating thereto. Such terms will include
whether such debt securities are convertible into common shares or preferred
shares, the conversion price (or manner of calculation thereof), the conversion
period, provisions as to whether conversion will be at the option of the holders
or the Company, the events requiring an adjustment of the conversion price and
provisions affecting conversion in the event of the redemption of such debt
securities
18
and any restrictions on conversion, including restrictions directed at
maintaining the Company's REIT status.
PAYMENT
Unless otherwise specified in the applicable prospectus supplement, the
principal of (and applicable premium, if any) and interest on any series of debt
securities will be payable at the corporate trust office of the Indenture
Trustee, the address of which will be stated in the applicable prospectus
supplement; provided that, at the option of the Company, payment of interest may
be made by check mailed to the address of the person entitled thereto as it
appears in the applicable register for such debt securities or by wire transfer
of funds to such person at an account maintained within the United States.
All moneys paid by the Company to a paying agent or an Indenture Trustee
for the payment of the principal of or any premium or interest on any Debt
Security which remain unclaimed at the end of one year after such principal,
premium or interest has become due and payable will be repaid to the Company,
and the holder of such Debt Security thereafter may look only to the Company for
payment thereof.
GLOBAL SECURITIES
The debt securities of a series may be issued in whole or in part in the
form of one or more global securities (the "Global Securities") that will be
deposited with, or on behalf of, a depositary identified in the applicable
prospectus supplement relating to such series. Global Securities may be issued
in either registered or bearer form and in either temporary or permanent form.
The specific terms of the depositary arrangement with respect to a series of
debt securities will be described in the applicable prospectus supplement
relating to such series.
19
RESTRICTIONS ON TRANSFERS OF CAPITAL STOCK AND ANTI-TAKEOVER PROVISIONS
RESTRICTIONS RELATING TO REIT STATUS
For us to qualify as a REIT under the Code, among other things, not more
than 50% in value of the outstanding shares of our 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
shares of our 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 us in continuing to remain a qualified REIT, our
declaration of trust, subject to certain exceptions, provides that no holder may
own, or be deemed to own by virtue of the attribution provisions of the Code,
more than 9.8% of our equity shares, defined as common shares or preferred
shares. We refer to this restriction as the Ownership Limit. Our board of
trustees may waive the Ownership Limit if evidence satisfactory to our board of
trustees and our tax counsel is presented that the changes in ownership will not
then or in the future jeopardize our status as a REIT. Any transfer of equity
shares or any security convertible into equity shares that would create a direct
or indirect ownership of equity shares in excess of the Ownership Limit or that
would result in our disqualification as a REIT, including any transfer that
results in the equity shares being owned by fewer than 100 persons or results in
us being "closely held" within the meaning of Section 856(h) of the Code, will
be null and void, and the intended transferee will acquire no rights to such
equity shares. The foregoing restrictions on transferability and ownership will
not apply if our board of trustees determines that it is no longer in our best
interests to attempt to qualify, or to continue to qualify, as a REIT.
Equity shares owned, or deemed to be owned, or transferred to a shareholder
in excess of the Ownership Limit, will automatically be exchanged for excess
shares that will be transferred, by operation of law, to us as trustee of a
trust for the exclusive benefit of the transferees to whom such shares of our
capital stock may be ultimately transferred without violating the Ownership
Limit. While the excess shares are held in trust, they will not be entitled to
vote, they will not be considered for purposes of any shareholder vote or the
determination of a quorum for such vote and, except upon liquidation, they will
not be entitled to participate in dividends or other distributions. Any dividend
or distribution paid to a proposed transferee of excess shares prior to our
discovery that equity shares have been transferred in violation of the
provisions of our declaration of trust will be repaid to us upon demand. The
excess shares are not treasury shares, but rather constitute a separate class of
our issued and outstanding shares. The original transferee-shareholder may, at
any time the excess shares are held by us in trust, transfer the interest in the
trust representing the excess shares to any individual whose ownership of the
equity shares exchanged into such excess shares would be permitted under our
declaration of trust, at a price not in excess of the price paid by the original
transferee-shareholder for the equity shares that were exchanged into excess
shares, or, if the transferee-shareholder did not give value for such shares, a
price not in excess of the market price (as determined in the manner set forth
in our declaration of trust) on the date of the purported transfer. Immediately
upon the transfer to the permitted transferee, the excess shares will
automatically be exchanged for equity shares of the class from which they were
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 shares may be deemed, at our option, to have
acted as an agent on our behalf in acquiring the excess shares and to hold the
excess shares on our behalf.
In addition to the foregoing transfer restrictions, we will have the right,
for a period of 90 days during the time any excess shares are held by us in
trust, to purchase all or any portion of the excess shares from the original
transferee-shareholder for the lesser of the price paid for the equity shares by
the original transferee-shareholder or the market price (as determined in the
manner set forth in our declaration of trust) of the equity shares on the date
we exercise our option to purchase. The 90-day period begins on the date on
which we receive written notice of the transfer or other event resulting in the
exchange of equity shares for excess shares.
Each shareholder will be required, upon demand, to disclose to us in
writing any information with respect to the direct, indirect and constructive
ownership of beneficial interests as our board of trustees
20
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 Limit may have the effect of precluding an acquisition of
control unless our board of trustees determines that maintenance of REIT status
is no longer in our best interests.
AUTHORIZED CAPITAL
Under our declaration of trust, we have authority to issue up to
130,000,000 shares of beneficial interest par value $0.0001 per share, of which
80,000,000 shares are classified as common shares, 40,000,000 shares are
classified as excess shares and 10,000,000 shares are classified as preferred
shares. We may issue such shares (other than reserved shares) from time to time
in the discretion of our board of trustees to raise additional capital, acquire
assets, including additional real properties, redeem or retire debt or for any
other business purpose. In addition, the undesignated preferred shares 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 will be fixed by our board of trustees. Our board of trustees is authorized
to classify and reclassify any unissued shares of our 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. This authority includes,
without limitation, subject to the provisions of our declaration of trust,
authority to classify or reclassify any unissued shares into a class or classes
of preferred shares, preference shares, special shares or other shares, and to
divide and reclassify shares of any class into one or more series of that class.
In some circumstances, the issuance of preferred shares, or the exercise by
our board of trustees of its right to classify or reclassify shares, could have
the effect of deterring individuals or entities from making tender offers for
our common shares or seeking to change incumbent management.
MARYLAND LAW
Maryland law includes certain other provisions which may also discourage a
change in control of management. Maryland law provides that, unless an exemption
applies, we may not engage in any "business combination" with an "interested
stockholder" or any affiliate of an interested stockholder for a period of five
years after the interested stockholder became an interested stockholder, and
thereafter may not engage in a business combination with such interested
stockholder unless the combination is recommended by our board of trustees and
approved by the affirmative vote of at least (i) 80% of the votes entitled to be
cast by the holders of all of our outstanding voting shares, and (ii) 66 2/3% of
the votes entitled to be cast by all holders of outstanding voting shares other
than voting shares held by the interested stockholder. An "interested
stockholder" is defined, in essence, as any person owning beneficially, directly
or indirectly, 10% or more of the outstanding voting shares of a Maryland real
estate investment trust. The voting requirements do not apply at any time to
business combinations with an interested stockholder or its affiliates if
approved by our board of trustees prior to the time the interested stockholder
first became an interested stockholder. Additionally, if the business
combination involves the receipt of consideration by our shareholders in
exchange for common shares that satisfies certain "fair price" conditions, such
supermajority voting requirements do not apply.
Maryland law provides that "control shares" of a Maryland real estate
investment trust acquired in a "control share acquisition" have no voting rights
except to the extent approved by a vote of two-thirds of the votes entitled to
be cast on the matter, excluding shares owned by the acquiror or by officers or
trustees who are employees of the trust. "Control shares" are voting shares
that, if aggregated with all
21
other shares previously acquired by that person, would entitle the acquiror to
exercise voting power in electing trustees within one of the following ranges of
voting power:
- one-tenth or more but less than one-third;
- one-third or more but less than a majority; or
- a majority or more of all voting power.
Control shares do not include shares the acquiring person is then entitled
to vote as a result of having previously obtained shareholder approval.
A "control share acquisition" means the acquisition of ownership of or the
power to direct the exercise of voting power of issued and outstanding control
shares, subject to certain exceptions. A person who has made or proposes to make
a control share acquisition, upon satisfaction of certain conditions (including
an undertaking to pay expenses), may compel the trust's board of trustees to
call a special meeting of shareholders, 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 trust may itself present the question at any shareholders' 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 trust 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 the absence of
voting rights, as of the date of the last control share acquisition or of any
meeting of shareholders at which the voting rights of such shares were
considered and not approved. If voting rights for control shares are approved at
a shareholders' meeting and the acquiror becomes entitled to vote a majority of
the shares entitled to vote, all other shareholders may exercise appraisal
rights. The fair value of the shares as determined for purposes of the 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 shares acquired in
a merger, consolidation or share exchange if the trust is a party to the
transaction, or to acquisitions approved or exempted by our declaration of trust
or by-laws prior to the control share acquisition. No such exemption appears in
our declaration of trust or by-laws. The control share acquisition statute could
have the effect of discouraging offers to acquire us and of increasing the
difficulty of consummating any such offer.
CERTAIN ELECTIVE PROVISIONS OF MARYLAND LAW
Publicly-held Maryland statutory real estate investment trusts ("REITs")
may elect to be governed by all or any part of Maryland law provisions relating
to extraordinary actions and unsolicited takeovers. The election to be governed
by one or more of these provisions can be made by a Maryland REIT in its
declaration of trust or bylaws ("charter documents") or by resolution adopted by
its board of trustees so long as the REIT has at least three trustees who, at
the time of electing to be subject to the provisions, are not:
- officers or employees of the REIT;
- persons seeking to acquire control of the REIT;
- trustees, officers, affiliates or associates of any person seeking to
acquire control; or
- nominated or designated as trustees by a person seeking to acquire
control.
Articles supplementary must be filed with the Maryland State Department of
Assessments and Taxation if a Maryland REIT elects to be subject to any or all
of the provisions by board resolution or bylaw amendment. Shareholder approval
is not required for the filing of these articles supplementary.
22
The Maryland law provides that a REIT can elect to be subject to all or any
portion of the following provisions, notwithstanding any contrary provisions
contained in that REIT's existing charter documents:
CLASSIFIED BOARD: The REIT may divide its board into three classes which,
to the extent possible, will have the same number of trustees, the terms of
which will expire at the third annual meeting of shareholders after the election
of each class;
TWO-THIRDS SHAREHOLDER VOTE TO REMOVE TRUSTEES ONLY FOR CAUSE: The
shareholders may remove any trustee only by the affirmative vote of at least
two-thirds of all votes entitled to be cast by the shareholders generally in the
election of trustees, but a trustee may not be removed without cause;
SIZE OF BOARD FIXED BY VOTE OF BOARD: The number of trustees will be fixed
only by resolution of the board;
BOARD VACANCIES FILLED BY THE BOARD FOR THE REMAINING TERM: Vacancies that
result from an increase in the size of the board, or the death, resignation, or
removal of a trustee, may be filled only by the affirmative vote of a majority
of the remaining trustees even if they do not constitute a quorum. Trustees
elected to fill vacancies will hold office for the remainder of the full term of
the class of trustees in which the vacancy occurred, as opposed to until the
next annual meeting of shareholders, and until a successor is elected and
qualified; and
SHAREHOLDER CALLS OF SPECIAL MEETINGS: Special meetings of shareholders
may be called by the secretary of the REIT only upon the written request of
shareholders entitled to cast at least a majority of all votes entitled to be
cast at the meeting and only in accordance with procedures set out in the
Maryland General Corporation Law.
We have not elected to be governed by these specific provisions. However,
our declaration of trust and/or bylaws, as applicable, already provide for an
80% vote to remove trustees only for cause, and that the number of trustees may
be determined by a resolution of our Board, subject to a minimum number. In
addition, we can elect to be governed by any or all of the provisions of the
Maryland law at any time in the future.
USE OF PROCEEDS
Unless otherwise described in the applicable prospectus supplement, we
intend to use the net proceeds from the sale of the securities for general
corporate purposes, which may include the acquisition of additional properties,
the repayment of outstanding indebtedness or the improvement of certain
properties already in our portfolio.
PLAN OF DISTRIBUTION
The Company may sell Securities through underwriters or dealers, directly
to one or more purchasers, through agents or through a combination of any such
methods of sale.
The distribution of the Securities may be effected from time to time in one
or more transactions at a fixed price or prices, which may be changed, at market
prices prevailing at the time of sale, at prices related to such prevailing
market prices, or at negotiated prices.
We may sell equity securities in an offering "at the market" as defined in
Rule 415 under the Securities Act or negotiated transactions. One or more of
A.G. Edwards & Sons, Inc., Bear, Stearns & Co. Inc., Cantor Fitzgerald & Co.,
Friedman, Billings, Ramsey & Co., Inc., Raymond James & Associates, Inc. and
Wachovia Capital Markets, LLC may act as underwriters in connection with such an
offering. None of the broker-dealers listed in the preceding sentence shall be
an underwriter in connection with any offering of our equity securities unless
such broker-dealer is named as an underwriter in the applicable prospectus
supplement. Unless the prospectus supplement states otherwise, our agent in "at
the market" or negotiated transactions will act on a best-efforts basis for the
period of its appointment.
23
In connection with the sale of Securities, underwriters or agents may
receive compensation from the Company and/or from purchasers of Securities, for
whom they may act as agents, in the form of discounts, concessions or
commissions. Underwriters may sell Securities to or through dealers, and such
dealers may receive compensation in the form of discounts, concessions or
commissions from the underwriters and/or commissions from the purchasers for
whom they may act as agents. Underwriters, dealers, and agents that participate
in the distribution of Securities may be deemed to be underwriters under the
Securities Act, and any discounts or commissions they receive from the Company
and any profit on the resale of Securities they realize may be deemed to be
underwriting discounts and commissions under the Securities Act. Any such
underwriter or agent will be identified, and any such compensation received from
the Company will be described, in the applicable prospectus supplement.
Unless otherwise specified in the related prospectus supplement, each
series of Securities will be a new issue with no established trading market,
other than the common shares which are listed on the NYSE. Any common shares
sold pursuant to a prospectus supplement will be listed on the NYSE, subject to
official notice of issuance. The Company may elect to list any series of debt
securities or preferred shares on an exchange, but is not obligated to do so. It
is possible that one or more underwriters may make a market in a series of
Securities, but will not be obligated to do so and may discontinue any market
making at any time without notice. Therefore, no assurance can be given as to
the liquidity of, or the trading market for, the Securities.
Under agreements into which the Company may enter, underwriters, dealers
and agents who participate in the distribution of Securities may be entitled to
indemnification by the Company against certain liabilities, including
liabilities under the Securities Act.
Underwriters, dealers and agents may engage in transactions with, or
perform services for, or be tenants of, the Company in the ordinary course of
business.
In order to comply with the securities laws of certain states, if
applicable, the Securities offered hereby will be sold in such jurisdictions
only through registered or licensed brokers or dealers. In addition, in certain
states Securities may not be sold unless they have been registered or qualified
for sale in the applicable state or an exemption from the registration or
qualification requirement is available and is complied with.
RATIOS OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED SHARE DIVIDENDS
The following table sets forth our historical ratio of earnings to combined
fixed charges and preference dividends for the periods indicated:
SIX
MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, --------------------------------
2003 2002 2001 2000 1999 1998
-------- ---- ---- ---- ---- ----
RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND
PREFERRED SHARE DIVIDENDS..................... 1.34 1.81 1.41 1.55 1.57 1.49
The ratios of earnings to fixed charges were computed by dividing earnings
by charges. For this purpose, earnings consist of pre-tax income from continued
operations plus fixed charges (excluding capitalized interest). Fixed charges
consist of interest expense and the amortization of debt issuance costs.
EXPERTS
The consolidated financial statements and related financial statement
schedule included in our Annual Report on Form 10-K as of and for the year ended
December 31, 2002, as updated by the Current
24
Report on Form 8-K filed on September 30, 2003 and incorporated by reference
into this prospectus, have been incorporated herein by reference in reliance on
the report, also incorporated herein by reference, of KPMG LLP, independent
certified public accountants, and upon the authority of said firm as experts in
accounting and auditing.
LEGAL MATTERS
Certain legal matters will be passed upon for us by Paul, Hastings,
Janofsky & Walker LLP, New York, New York. Seth M. Zachary, a partner of Paul,
Hastings, Janofsky & Walker LLP, is presently serving on our board of trustees
and will continue to do so at least until the 2004 Annual Meeting of
Shareholders. As of September 4, 2003, Mr. Zachary beneficially owned 42,383
common shares. Certain legal matters under Maryland law, including the legality
of the Securities covered by this prospectus, will be passed on for us by Piper
Rudnick LLP, Baltimore, Maryland.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission. You may read and copy
any materials that we have filed with the SEC at the SEC's Public Reference Room
at 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain information on
the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
We file information electronically with the SEC. The SEC maintains an Internet
site that contains reports, proxy and information statements and other
information regarding issuers that file electronically with the SEC. The address
of the SEC's Internet site is http://www.sec.gov.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus, and information that we file later
with the SEC will automatically update and supersede this information. We
incorporate by reference the documents listed below and any future filings we
will make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934, as amended, which is commonly referred to as
the Exchange Act (although with respect to the Form 8-Ks listed below, we are
only incorporating by reference those portions of such Form 8-Ks that were
deemed "filed" with the SEC and not those portions that were deemed "furnished"
to the SEC):
1. Our Annual Report on Form 10-K (Commission File No. 1-12386) for the
year ended December 31, 2002.
2. Our Definitive Proxy Statement on Schedule 14-A (Commission File No.
1-12386), dated April 15, 2003.
3. Our Quarterly Report on Form 10-Q (Commission File No. 1-12386) for
the quarter ended March 31, 2003.
4. Our Quarterly Report on Form 10-Q (Commission File No. 1-12386) for
the quarter ended June 30, 2003.
5. Our Current Report on Form 8-K (Commission File No. 1-12386), filed
on April 28, 2003.
6. Our Current Report on Form 8-K (Commission File No. 1-12386), filed
on May 6, 2003.
7. Our Current Report on Form 8-K (Commission File No. 1-12386), filed
on June 11, 2003.
8. Our Current Report on Form 8-K (Commission File No. 1-12386), filed
on July 24, 2003.
9. Our Current Report on Form 8-K (Commission File No. 1-12386), filed
on September 9, 2003.
25
10. Our Current Report on Form 8-K (Commission File No. 1-12386), filed
on September 30, 2003.
You may request a copy of these filings, at no cost, by writing or
telephoning us at the following address:
Patrick Carroll, Chief Financial Officer
Lexington Corporate Properties Trust
355 Lexington Avenue
New York, New York 10017
(212) 692-7260
This prospectus is part of a registration statement we filed with the SEC.
You should rely only on the information or representations provided in this
prospectus. We have not authorized anyone else to provide you with different
information. You should not assume that the information in this prospectus or
any supplement is accurate as of any date other than the date on the front of
those documents.
26
You should rely only on the information contained or incorporated by
reference in this prospectus supplement and the accompanying prospectus. Neither
we nor the underwriter has authorized any person to provide you with different
or additional information. If anyone provides you with different or additional
information, you should not rely on it. We are not, and the underwriter is not,
making an offer to sell these securities in any jurisdiction where the offer or
sale is not permitted. The information appearing in this prospectus supplement,
the accompanying prospectus and the documents incorporated by reference herein
and therein is accurate only as of their respective dates or on other dates
which are specified in those documents. Our business, financial condition,
results of operations and prospects may have changed since those dates.
TABLE OF CONTENTS
PAGE
----
PROSPECTUS SUPPLEMENT
About This Prospectus Supplement...... i
Cautionary Statements Concerning
Forward-Looking Information......... i
Prospectus Supplement Summary......... S-1
Risk Factors.......................... S-10
Use Of Proceeds....................... S-22
Description Of Series C Preferred
Shares.............................. S-23
Restrictions On Transfers Of Capital
Stock And Anti-Takeover
Provisions.......................... S-40
Federal Income Tax Considerations..... S-40
Underwriting.......................... S-53
Legal Matters......................... S-55
Experts............................... S-55
Available Information................. S-55
Incorporation Of Information We File
With The SEC........................ S-57
PROSPECTUS
Cautionary Statements Concerning
Forward-Looking Information......... i
About This Prospectus................. i
Our Company........................... 1
Description Of Our Common Shares...... 2
Description Of Our Preferred Shares... 4
Description Of Our Debt Securities.... 8
Restrictions On Transfers Of Capital
Stock And Anti-Takeover
Provisions.......................... 20
Use Of Proceeds....................... 23
Plan of Distribution.................. 23
Ratios of Earnings to Combined Fixed
Charges and Preferred Share
Dividends........................... 24
Experts............................... 24
Legal Matters......................... 25
Where You Can Find More Information... 25
Incorporation Of Certain Documents By
Reference........................... 25
2,700,000 SHARES
[LEXINGTON LOGO]
LEXINGTON CORPORATE PROPERTIES TRUST
6.50% SERIES C CUMULATIVE
CONVERTIBLE PREFERRED STOCK
LIQUIDATION PREFERENCE
$50.00 PER SHARE
----------------------------------------------
PROSPECTUS SUPPLEMENT
------------------------------------------------
BEAR, STEARNS & CO. INC.
DECEMBER 3, 2004