Exhibit 1.1
$110,000,000
REALTY INCOME CORPORATION
7 3/4% Notes due 2007
PURCHASE AGREEMENT
May 1, 1997
TABLE OF CONTENTS
PURCHASE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . 3
(a) REPRESENTATIONS AND WARRANTIES BY THE COMPANY. . . . . 3
(i) Compliance with Registration Requirements . . . . 3
(ii) Incorporated Documents . . . . . . . . . . . . . 4
(iii) Independent Accountants . . . . . . . . . . . . 4
(iv) Financial Statements . . . . . . . . . . . . . . 4
(v) No Material Adverse Change in Business. . . . . . 5
(vi) Good Standing of the Company . . . . . . . . . . 5
(vii) Good Standing of Subsidiaries . . . . . . . . . 5
(viii) Capitalization . . . . . . . . . . . . . . . . 6
(ix) Authorization of Agreement . . . . . . . . . . . 6
(x) Authorization of Common Stock . . . . . . . . . . 6
(xi) Absence of Defaults and Conflicts. . . . . . . . 6
(xii) Absence of Labor Dispute. . . . . . . . . . . . 7
(xiii) Absence of Proceedings . . . . . . . . . . . . 7
(xiv) Accuracy of Exhibits. . . . . . . . . . . . . . 8
(xv) Possession of Intellectual Property. . . . . . . 8
(xvi) Absence of Further Requirements . . . . . . . . 8
(xvii) Possession of Licenses and Permits . . . . . . 8
(xviii) Compliance with Cuba Act. . . . . . . . . . . 9
(xix) Investment Company Act. . . . . . . . . . . . . 9
(xx) Partnership Agreements . . . . . . . . . . . . . 9
(xxi) Properties. . . . . . . . . . . . . . . . . . . 9
(xxii) Insurance. . . . . . . . . . . . . . . . . . . 10
(xxiii) Environmental Matters . . . . . . . . . . . . 11
(xxiv) Qualification as a Real Estate Investment Trust 12
(xxv) Registration Rights . . . . . . . . . . . . . . 12
(xxvi) Tax Treatment of Certain Entities. . . . . . . 13
(xxvii) Indenture . . . . . . . . . . . . . . . . . . 13
(xxviii) Securities . . . . . . . . . . . . . . . . . 13
(xxix) Description of Indenture and Securities. . . . 13
(xxx) Ranking of Securities . . . . . . . . . . . . . 13
(xxxi) Reincorporation. . . . . . . . . . . . . . . . 14
SECTION 2. SALE AND DELIVERY TO UNDERWRITERS; CLOSING . . . . . . . . . . 14
(a) SECURITIES . . . . . . . . . . . . . . . . . . . . . . 14
(b) PAYMENT. . . . . . . . . . . . . . . . . . . . . . . . 14
(c) DENOMINATIONS; REGISTRATION. . . . . . . . . . . . . . 14
SECTION 3. COVENANTS OF THE COMPANY . . . . . . . . . . . . . . . . . . . 15
(a) COMPLIANCE WITH SECURITIES REGULATIONS AND COMMISSION
REQUESTS . . . . . . . . . . . . . . . . . . . . . . . 15
(b) FILING OF AMENDMENTS.. . . . . . . . . . . . . . . . . 15
(c) RULE 434 . . . . . . . . . . . . . . . . . . . . . . . 15
(d) DELIVERY OF REGISTRATION STATEMENTS. . . . . . . . . . 15
(e) DELIVERY OF PROSPECTUSES . . . . . . . . . . . . . . . 16
(f) CONTINUED COMPLIANCE WITH SECURITIES LAWS. . . . . . . 16
(g) BLUE SKY QUALIFICATIONS. . . . . . . . . . . . . . . . 16
(h) RULE 158 . . . . . . . . . . . . . . . . . . . . . . . 17
(i) USE OF PROCEEDS. . . . . . . . . . . . . . . . . . . . 17
(j) REPORTING REQUIREMENTS . . . . . . . . . . . . . . . . 17
SECTION 4. PAYMENT OF EXPENSES. . . . . . . . . . . . . . . . . . . . . . 17
(a) EXPENSES . . . . . . . . . . . . . . . . . . . . . . . 17
(b) TERMINATION OF AGREEMENT . . . . . . . . . . . . . . . 17
SECTION 5. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. . . . . . . . . . . . 17
(a) EFFECTIVENESS OF REGISTRATION STATEMENT. . . . . . . . 18
(b) OPINIONS OF COUNSEL FOR COMPANY. . . . . . . . . . . . 18
(c) OPINION OF COUNSEL FOR UNDERWRITERS. . . . . . . . . . 18
(d) OFFICERS' CERTIFICATE. . . . . . . . . . . . . . . . . 18
(e) ACCOUNTANT'S COMFORT LETTER. . . . . . . . . . . . . . 19
(f) BRING-DOWN COMFORT LETTER. . . . . . . . . . . . . . . 19
(g) RATING REQUIREMENT. . . . . . . . . . . . . . . . . . 19
(h) FOURTH AMENDMENT TO ACQUISITION CREDIT AGREEMENT.. . . 19
(i) ADDITIONAL DOCUMENTS.. . . . . . . . . . . . . . . . . 19
(j) TERMINATION OF AGREEMENT . . . . . . . . . . . . . . . 19
SECTION 6. INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . . 20
(a) INDEMNIFICATION OF UNDERWRITERS. . . . . . . . . . . . 20
(b) INDEMNIFICATION OF COMPANY, DIRECTORS AND OFFICERS . . 21
(c) ACTIONS AGAINST PARTIES; NOTIFICATION. . . . . . . . . 21
(d) SETTLEMENT WITHOUT CONSENT IF FAILURE TO REIMBURSE . . 22
SECTION 7. CONTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 8. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE
DELIVERY . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 9. TERMINATION OF AGREEMENT.. . . . . . . . . . . . . . . . . . . 23
(a) TERMINATION; GENERAL . . . . . . . . . . . . . . . . . 23
(b) LIABILITIES. . . . . . . . . . . . . . . . . . . . . . 24
SECTION 10. DEFAULT BY ONE OR MORE OF THE UNDERWRITERS . . . . . . . . . . 24
SECTION 11. NOTICES 25
SECTION 12. PARTIES 25
SECTION 13. GOVERNING LAW AND TIME . . . . . . . . . . . . . . . . . . . . 25
SECTION 14. EFFECT OF HEADINGS AND TABLE OF CONTENTS . . . . . . . . . . . 25
$110,000,000
REALTY INCOME CORPORATION
(a Delaware corporation)
7 3/4% Notes due 2007
PURCHASE AGREEMENT
May 1, 1997
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
J.P. MORGAN SECURITIES INC.
SALOMON BROTHERS INC
as Representatives of the several Underwriters
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281-1209
Dear Sirs:
Realty Income Corporation, a Delaware corporation (the "Company"), confirms
its agreement with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") and each of the other Underwriters named in
Schedule A hereto (collectively, the "Underwriters," which term shall also
include any underwriter substituted as hereinafter provided in Section 10
hereof), for whom Merrill Lynch, Donaldson Lufkin & Jenrette Securities
Corporation, J.P. Morgan Securities Inc. and Salomon Brothers Inc are acting as
representatives (in such capacity, the "Representatives"), with respect to the
sale by the Company and the purchase by the Underwriters, acting severally and
not jointly, of $110,000,000 aggregate principal amount of the Company's 7 3/4%
Notes due 2007 (the "Securities"). The Securities are to be issued pursuant to
an indenture dated as of May 6, 1997 (the "Indenture") between the Company and
The Bank of New York, as trustee (the "Trustee").
The Company understands that the Underwriters propose to make a public
offering of the Securities as soon as the Representatives deem advisable after
this Agreement has been executed and delivered.
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The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-3 (No. 33-95374) and Amendment
No. 1 thereto covering the registration of, among other things, the Securities
under the Securities Act of 1933, as amended (the "1933 Act"), in each case
including the related preliminary prospectus or prospectuses. Promptly after
execution and delivery of this Agreement, the Company will either (i) prepare
and file a prospectus supplement and prospectus in accordance with the
provisions of Rule 415 ("Rule 415") of the rules and regulations of the
Commission under the 1933 Act (the "1933 Act Regulations") and paragraph (b) of
Rule 424 ("Rule 424(b)") of the 1933 Act Regulations or (ii) if the Company has
elected to rely upon Rule 434 ("Rule 434") of the 1933 Act Regulations, prepare
and file a term sheet (a "Term Sheet") in accordance with the provisions of Rule
434 and Rule 424(b). The information included in such Term Sheet that was
omitted from such registration statement at the time it became effective but
that is deemed to be part of such registration statement at the time the Term
Sheet is filed with the Commission pursuant to paragraph (d) of Rule 434 is
referred to as "Rule 434 Information." Each prospectus, together with any
related prospectus supplement, used before such registration statement became
effective, and each prospectus, together with the related prospectus supplement,
that omitted the Rule 434 Information or that was captioned "Subject to
Completion" that was used after such effectiveness and prior to the execution
and delivery of this Agreement, is herein called, together with the documents
incorporated by reference therein pursuant to Item 12 of Form S-3 under the 1933
Act, a "preliminary prospectus." Such registration statement, as amended and
including the exhibits thereto, schedules, if any, and the documents
incorporated by reference therein pursuant to Item 12 of Form S-3 under the 1933
Act, at the time it became effective and, if applicable, including the Rule 434
Information is herein called the "Original Registration Statement." Any
registration statement filed pursuant to Rule 462(b) of the 1933 Act Regulations
is herein referred to as the "Rule 462(b) Registration Statement," and the
Original Registration Statement and any Rule 462(b) Registration Statement are
herein referred to collectively as the "Registration Statement." The prospectus
dated April 18, 1997 and the final prospectus supplement relating to the
offering of the Securities, including the documents incorporated by reference
therein pursuant to Item 12 of Form S-3 under the 1933 Act, in the form first
furnished to the Underwriters for use in connection with the offering of the
Securities are herein called, collectively, the "Prospectus." If Rule 434 is
relied on, the term "Prospectus" shall refer to the preliminary prospectus
supplement dated April 18, 1997, together with the prospectus dated April 18,
1997 and the Term Sheet and all documents incorporated by reference therein
pursuant to Item 12 of Form S-3, and all references in this Agreement to the
date of the Prospectus shall mean the date of the Term Sheet. For purposes of
this Agreement, all references to the Registration Statement, any preliminary
prospectus, the Prospectus or any Term Sheet or any amendment or supplement to
any of the foregoing shall be deemed to include any copy filed with the
Commission pursuant to its Electronic Data Gathering, Analysis and Retrieval
system ("EDGAR").
All references in this Agreement to financial statements and schedules and
other information which is "described," "disclosed," "contained," "included" or
"stated" in the Registration Statement, any preliminary prospectus or the
Prospectus (or other references of like import) shall be deemed to mean and
include all such financial statements and schedules and other information which
is incorporated or deemed to be incorporated by reference in the
2
Registration Statement, any preliminary prospectus or the Prospectus, as the
case may be; and all references in this Agreement to amendments or supplements
to the Registration Statement, any preliminary prospectus or the Prospectus
shall be deemed to mean and include the filing of any document under the
Securities Exchange Act of 1934, as amended (the "1934 Act"), which is
incorporated or deemed to be incorporated by reference in the Registration
Statement, such preliminary prospectus or the Prospectus, as the case may be.
All references in this Agreement to properties or improvements "owned by"
or "of" the Company or any of its subsidiaries shall be deemed to mean and
include all properties and improvements which are leased by the Company or any
of its subsidiaries, as lessee.
As used in this Agreement, the term "Consolidation" means the merger of 25
limited partnerships (the "Partnerships") and RIC Properties Ltd., a California
limited partnership ("RIC Properties"), into the Company on August 15, 1994;
"Merger" means the merger of R.I.C. Advisor, Inc., a California corporation (the
"Advisor"), into the Company on August 17, 1995; and "Reincorporation" means the
proposed reincorporation of the Company in the State of Maryland, which is
proposed to be effectuated by merging the Company into Realty Income of
Maryland, Inc., a wholly-owned subsidiary of the Company that is a corporation
organized under the laws of the State of Maryland (the "Maryland Corporation"),
with the Maryland corporation as the surviving corporation of such merger.
SECTION 1. REPRESENTATIONS AND WARRANTIES.
(a) REPRESENTATIONS AND WARRANTIES BY THE COMPANY. The Company represents
and warrants to each Underwriter as of the date hereof and as of the Closing
Time referred to in Section 2(a) hereof, and agrees with each Underwriter, as
follows:
(i) COMPLIANCE WITH REGISTRATION REQUIREMENTS. The Company meets the
requirements for use of Form S-3 under the 1933 Act. Each of the Original
Registration Statement and any Rule 462(b) Registration Statement has
become effective under the 1933 Act and no stop order suspending the
effectiveness of the Original Registration Statement or any Rule 462(b)
Registration Statement has been issued under the 1933 Act and no
proceedings for that purpose have been instituted or are pending or, to the
knowledge of the Company, are threatened by the Commission, and any request
on the part of the Commission for additional information has been complied
with. The Indenture has been duly qualified under the Trust Indenture Act
of 1939, as amended (the "1939 Act"), and the Trustee has duly filed with
the Commission a Statement of Eligibility on Form T-1 as part of the
Registration Statement.
At the respective times the Original Registration Statement, any Rule
462(b) Registration Statement and any post-effective amendments thereto
became effective, at the date hereof and at the Closing Time, the Original
Registration Statement, any Rule 462(b) Registration Statement and any
amendments and supplements thereto complied and will comply in all material
respects with the applicable requirements of the 1933 Act and the 1933 Act
Regulations and the 1939 Act and the rules and regulations of
3
the Commission under the 1939 Act (the "1939 Act Regulations"), and did not
and will not contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading, and, at the date hereof and at the
Closing Time, neither the Prospectus nor any amendments or supplements
thereto contained or will contain any untrue statement of a material fact
or omitted or will omit to state a material fact necessary in order to make
the statements therein, in the light of the circumstances under which they
were made, not misleading; PROVIDED, HOWEVER, that the representations and
warranties in this paragraph shall not apply to statements in or omissions
from the Registration Statement or Prospectus made in reliance upon and in
conformity with information furnished to the Company in writing by any
Underwriter through Merrill Lynch expressly for use in the Registration
Statement or Prospectus.
Each preliminary prospectus and Prospectus filed as part of the
Registration Statement as originally filed or as part of any amendment
thereto, or filed pursuant to Rule 424 under the 1933 Act, complied when so
filed in all material respects with the 1933 Act and the 1933 Act
Regulations and, if applicable, each preliminary prospectus and the
Prospectus delivered to the Underwriters for use in connection with this
offering was identical to the electronically transmitted copies thereof
filed with the Commission pursuant to EDGAR except to the extent permitted
by Regulation S-T.
(ii) INCORPORATED DOCUMENTS. The documents incorporated or deemed to
be incorporated by reference in the Registration Statement and the
Prospectus, at the time they were or hereafter are filed with the
Commission, complied and will comply in all material respects with the
requirements of the 1934 Act and the rules and regulations of the
Commission thereunder (the "1934 Act Regulations"), and, when read together
with the other information in the Prospectus, at the date hereof and at the
Closing Time, did not and will not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading.
(iii) INDEPENDENT ACCOUNTANTS. The accountants who certified the
financial statements and supporting schedules included in the Registration
Statement are independent public accountants as required by the 1933 Act
and the 1933 Act Regulations.
(iv) FINANCIAL STATEMENTS. The consolidated financial statements of
the Company included in the Registration Statement and the Prospectus,
together with the related schedule and notes, present fairly the financial
position of the Company and its subsidiaries at the dates indicated and the
consolidated statements of income, stockholders' equity and cash flows of
the Company and its subsidiaries for the periods specified; said
consolidated financial statements have been prepared in conformity with
generally accepted accounting principles ("GAAP") applied on a consistent
basis throughout the periods involved. The supporting schedules included
in the Registration Statement present fairly in accordance with GAAP the
information
4
required to be stated therein. The selected financial information included
in the Prospectus present fairly the information shown therein and have
been compiled on a basis consistent with that of the audited financial
statements included in the Registration Statement. The Company's ratios of
earnings to fixed charges (actual and, if any, pro forma) included in the
Prospectus under the caption "Selected Financial Information" have been
calculated in compliance with Item 503(d) of Regulation S-K of the
Commission.
(v) NO MATERIAL ADVERSE CHANGE IN BUSINESS. Since the respective
dates as of which information is given in the Registration Statement and
the Prospectus, except as otherwise stated therein, (A) there has been no
material adverse change in the condition, financial or otherwise, or in the
earnings, business affairs or business prospects of the Company and its
subsidiaries considered as one enterprise (a "Material Adverse Effect"),
whether or not arising in the ordinary course of business, (B) there have
been no transactions entered into by the Company or any of its
subsidiaries, other than those in the ordinary course of business, which
are material with respect to the Company and its subsidiaries considered as
one enterprise, and (C) except for regular monthly distributions on the
Common Stock, par value $1.00 per share, of the Company (the "Common
Stock") in amounts per share that are consistent with past practice, there
has been no dividend or distribution of any kind declared, paid or made by
the Company on any class of its capital stock.
(vi) GOOD STANDING OF THE COMPANY. The Company has been duly
organized and is validly existing as a corporation in good standing under
the laws of the State of Delaware and has corporate power and authority to
own, lease and operate its properties and to conduct its business as
described in the Prospectus and to enter into and perform its obligations
under this Agreement; and the Company is duly qualified as a foreign
corporation to transact business and is in good standing in each other
jurisdiction in which such qualification is required, whether by reason of
the ownership or leasing of property or the conduct of business, except
where the failure so to qualify or to be in good standing would not result
in a Material Adverse Effect.
(vii) GOOD STANDING OF SUBSIDIARIES. The only subsidiaries of the
Company are Realty Income Texas Properties, L.P., a Delaware limited
partnership, Realty Income Texas Properties, Inc., a Delaware corporation,
and Realty Income of Maryland, Inc., a Maryland corporation, and the
Company does not hold any equity interest in any corporation, limited
liability company, partnership, joint venture or entity other than such
subsidiaries. Each subsidiary of the Company has been duly organized and
is validly existing as a partnership or corporation, as the case may be, in
good standing under the laws of the state of its organization and has power
and authority as a partnership or corporation, as the case may be, to own,
lease and operate its properties and to conduct its business as described
in the Prospectus; each such subsidiary is duly qualified as a foreign
partnership or corporation, as the case may be, to transact business and is
in good standing in each other jurisdiction in which such qualification is
required, whether by reason of the ownership or leasing of property or the
conduct of business, except where the failure so to qualify or to be in
good
5
standing would not result in a Material Adverse Effect; except as otherwise
disclosed in the Registration Statement, all of the issued and outstanding
partnership interests and shares of capital stock, as the case may be, of
each such subsidiary have been duly authorized (if applicable) and validly
issued and are fully paid and are non-assessable (except to the extent that
the general partners of subsidiaries which are partnerships may be liable
for the obligations of such partnerships) and are owned by the Company,
directly or through subsidiaries, free and clear of any security interest,
mortgage, pledge, lien, encumbrance, claim or equity; none of the
outstanding partnership interests or shares of capital stock, as the case
may be, of such subsidiaries were issued in violation of preemptive or
other similar rights arising by operation of law, under the partnership
agreement or charter or by-laws, as the case may be, of any such subsidiary
or under any agreement or instrument to which the Company or any such
subsidiary is a party.
(viii) CAPITALIZATION. The authorized capital stock of the Company
and the issued and outstanding capital stock of the Company are as set
forth in the line items "Preferred Stock" and "Common Stock" under the
caption "Capitalization" in the Prospectus (except for subsequent
issuances, if any, pursuant to this Agreement, pursuant to employee benefit
plans referred to in the Prospectus or pursuant to the exercise of options
referred to in the Prospectus).
(ix) AUTHORIZATION OF AGREEMENT. This Agreement has been duly
authorized, executed and delivered by the Company.
(x) AUTHORIZATION OF COMMON STOCK. The shares of issued and
outstanding Common Stock have been duly authorized and validly issued and
are fully paid and non-assessable; none of the outstanding shares of Common
Stock was issued in violation of the preemptive or other similar rights
arising by operation of law, under the charter or by-laws of the Company,
under any agreement or instrument to which the Company or any of its
subsidiaries is a party or otherwise.
(xi) ABSENCE OF DEFAULTS AND CONFLICTS. Neither the Company nor any
of its subsidiaries is in violation of its charter or by-laws or its
partnership agreement, as the case may be, or in default in the performance
or observance of any obligation, agreement, covenant or condition contained
in any contract, indenture, mortgage, deed of trust, loan or credit
agreement, note, lease or other agreement or instrument to which the
Company or any of its subsidiaries is a party or by which any of them may
be bound, or to which any of the respective properties or assets of the
Company or any subsidiary is subject (collectively, "Agreements and
Instruments"), except for such defaults that would not have a Material
Adverse Effect; and the execution, delivery and performance of this
Agreement, the Indenture and the Securities and the consummation of the
transactions contemplated herein and therein (including the use of the
proceeds from the sale of the Securities to repay borrowings under the
Revolving Credit Agreement dated as of November 29, 1994, among the
Company, the banks named therein and The Bank of New York, as agent, as
amended by the First Amendment to the Revolving Credit Agreement, dated as
of January 26, 1995, the
6
Second Amendment to the Revolving Credit Agreement, dated as of December 4,
1995, the Third Amendment to the Revolving Credit Agreement, dated as of
March 7, 1997, and the Fourth Amendment (the "Fourth Amendment") to the
Revolving Credit Agreement dated April 28, 1997 (as so amended, the
"Acquisition Credit Agreement"), as described in the Prospectus under the
caption "Use of Proceeds" but excluding any use of proceeds to fund any
property acquisitions or for other general corporate purposes for which
specific corporate authorization may be required) and compliance by the
Company with its obligations hereunder and thereunder have been duly
authorized by all necessary corporate action and do not and will not,
whether with or without the giving of notice or passage of time or both,
conflict with or constitute a breach of, or default or Repayment Event (as
defined below) under, or result in the creation or imposition of any lien,
charge or encumbrance upon any property or assets of the Company or any
subsidiary pursuant to, any Agreement or Instrument, except for such
conflicts, breaches or defaults or liens, charges or encumbrances that,
individually or in the aggregate, would not have a Material Adverse Effect,
nor will such action result in any violation of the provisions of the
charter or by-laws of the Company or any applicable law, rule, regulation,
or governmental or court judgment, order, writ or decree. As used herein,
a "Repayment Event" means any event or condition which gives the holder of
any note, debenture or other evidence of indebtedness (or any person acting
on such holder's behalf) the right to require the repurchase, redemption or
repayment of all or a portion of such indebtedness by the Company or any
subsidiary of the Company or any of its subsidiaries.
(xii) ABSENCE OF LABOR DISPUTE. No labor dispute with the employees
of the Company or any subsidiary of the Company exists or, to the best
knowledge of the Company, is imminent; and the Company is not aware of any
existing or imminent labor disturbance by the employees of any of its or
any subsidiary's tenants, which, in either case, could reasonably be
expected, individually or in the aggregate, to result in a Material Adverse
Effect.
(xii) ABSENCE OF PROCEEDINGS. The Company has not received any
notice of any action, suit, proceeding, inquiry or investigation before or
by any court or governmental agency or body, domestic or foreign, and, to
the best knowledge of the Company, there is no such proceeding now pending
or threatened, against or affecting the Company or any of its subsidiaries,
which is required to be disclosed in the Registration Statement (other than
as disclosed therein), or which could reasonably be expected to result in a
Material Adverse Effect, or which could reasonably be expected to
materially and adversely affect the consummation of this Agreement or the
performance by the Company of its obligations under this Agreement, the
Indenture or the Securities; the aggregate of all pending legal or
governmental proceedings to which the Company or any subsidiary is a party
or of which any of their respective property or assets is the subject which
are not described in the Registration Statement, including ordinary routine
litigation incidental to the business, could not reasonably be expected to
result in a Material Adverse Effect.
7
(xiv) ACCURACY OF EXHIBITS. There are no contracts or documents
which are required to be described in the Registration Statement, the
Prospectus or the documents incorporated by reference therein or to be
filed as exhibits thereto which have not been so described and filed as
required.
(xv) POSSESSION OF INTELLECTUAL PROPERTY. The Company and its
subsidiaries own or possess, or can acquire on reasonable terms, adequate
patents, patent rights, licenses, inventions, copyrights, know-how
(including trade secrets and other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures),
trademarks, service marks, trade names or other intellectual property
(collectively, "Intellectual Property") necessary to carry on the business
now operated by them, and neither the Company nor any of its subsidiaries
has received any notice or is otherwise aware of any infringement of or
conflict with asserted rights of others with respect to any Intellectual
Property or of any facts or circumstances which would render any
Intellectual Property invalid or inadequate to protect the interest of the
Company or any of its subsidiaries therein, and which infringement or
conflict (if the subject of any unfavorable decision, ruling or finding) or
invalidity or inadequacy, singly or in the aggregate, would result in a
Material Adverse Effect.
(xvi) ABSENCE OF FURTHER REQUIREMENTS. No filing with, or
authorization, approval, consent, license, order, registration,
qualification or decree of, any court or governmental authority or agency
is necessary or required for the performance by the Company of its
obligations under this Agreement, the Indenture or the Securities, in
connection with the offering, issuance or sale of the Securities hereunder
or the consummation of the other transactions contemplated by this
Agreement, the Indenture or the Securities, except such as have been
already made or obtained under the 1933 Act, the 1933 Act Regulations, the
1939 Act and the 1939 Act Regulations or as may be required under state
securities laws.
(xvii) POSSESSION OF LICENSES AND PERMITS. The Company and its
subsidiaries possess such permits, licenses, approvals, consents and other
authorizations (collectively, "Governmental Licenses") issued by the
appropriate federal, state, local or foreign regulatory agencies or bodies
necessary to conduct the business now operated by them and the Company and
its subsidiaries are in compliance with the terms and conditions of all
such Governmental Licenses, except where the failure so to possess or
comply would not, singly or in the aggregate, have a Material Adverse
Effect; all of the Governmental Licenses are valid and in full force and
effect, except where the invalidity of such Governmental Licenses or the
failure of such Governmental Licenses to be in full force and effect would
not, singly or in the aggregate, have a Material Adverse Effect; and
neither the Company nor any of its subsidiaries has received any notice of
proceedings relating to the revocation or modification of any such
Governmental Licenses which, singly or in the aggregate, if the subject of
an unfavorable decision, ruling or finding, would result in a Material
Adverse Effect.
8
(xvii) COMPLIANCE WITH CUBA ACT. To the extent applicable, the
Company has complied with, and is and will be in compliance with, the
provisions of that certain Florida act relating to disclosure of doing
business with Cuba, codified as Section 517.075 of the Florida statutes,
and the rules and regulations thereunder (collectively, the "Cuba Act") or
is exempt therefrom.
(xix) INVESTMENT COMPANY ACT. The Company is not, and upon the
issuance and sale of the Securities as herein contemplated and the
application of the net proceeds therefrom as described in the Prospectus
will not be, an "investment company" as such term is defined in the
Investment Company Act of 1940, as amended (the "1940 Act").
(xx) PARTNERSHIP AGREEMENTS. Each of the partnership and, if
applicable, joint venture agreements to which the Company or any of its
subsidiaries is a party has been duly authorized, executed and delivered by
the Company or the relevant subsidiary, as the case may be, and constitutes
the valid and binding agreement of the Company or such subsidiary, as the
case may be, enforceable in accordance with its terms, except as the
enforcement thereof may be limited by (A) the effect of bankruptcy,
insolvency or other similar laws now or hereafter in effect relating to or
affecting creditors' rights generally or (B) the effect of general
principles of equity, and the execution, delivery and performance of such
agreements did not, at the time of execution and delivery, and does not
constitute a breach of or default under the charter or by-laws or
partnership agreement, as the case may be, of the Company or any of its
subsidiaries or any of the Agreements and Instruments or any law,
administrative regulation or administrative or court order or decree.
(xxi) PROPERTIES. Except as otherwise disclosed in the Prospectus:
(i) the Company and its subsidiaries have good and marketable title (either
in fee simple or pursuant to a valid leasehold interest) to all properties
and assets described in the Prospectus as being owned or leased, as the
case may be, by them and to all properties reflected in the Company's most
recent consolidated financial statements included in the Prospectus, and
neither the Company nor any of its subsidiaries has received notice of any
claim that has been or may be asserted by anyone adverse to the rights of
the Company or any subsidiary with respect to any such properties or assets
(or any such lease) or affecting or questioning the rights of the Company
or any such subsidiary to the continued ownership, lease, possession or
occupancy of such property or assets, except for such claims that would
not, singly or in the aggregate, have a Material Adverse Effect; (ii) all
liens, charges, encumbrances, claims or restrictions on or affecting the
properties and assets of the Company or any of its subsidiaries which are
required to be disclosed in the Registration Statement or the Prospectus
are disclosed therein, and all such liens, charges, encumbrances, claims or
restrictions which are not disclosed in the Prospectus could not reasonably
be expected, singly or in the aggregate, to have a Material Adverse Effect;
(iii) no person or entity, including, without limitation, any tenant under
any of the leases pursuant to which the Company or any of its subsidiaries
leases (as lessor) any of its properties (whether directly or indirectly
through other partnerships, joint ventures or otherwise) has an option or
9
right of first refusal or any other right to purchase any of such
properties, except for such options, rights of first refusal or other
rights to purchase which, individually or in the aggregate, are not
material with respect to the Company and its subsidiaries considered as one
enterprise; (iv) to the Company's best knowledge, each of the properties of
the Company or any of its subsidiaries has access to public rights of way,
either directly or through insured easements; (v) to the Company's best
knowledge, each of the properties of the Company or any of its subsidiaries
is served by all public utilities necessary for the current operations on
such property in sufficient quantities for such operations; (vi) to the
best knowledge of the Company, each of the properties of the Company or any
of its subsidiaries complies with all applicable codes and zoning and
subdivision laws and regulations, except for such failures to comply which
would not, either individually or in the aggregate, have a Material Adverse
Effect; (vii) all of the leases under which the Company or any of its
subsidiaries holds or uses any real property or improvements or any
equipment relating to such real property or improvements are in full force
and effect, except where the failure to be in full force and effect would
not, singly or in the aggregate, have a Material Adverse Effect, and
neither the Company nor any of its subsidiaries is in default in the
payment of any amounts due under any such leases or in any other default
thereunder and the Company knows of no event which, with the passage of
time or the giving of notice or both, would constitute a default under any
such lease, except such defaults (other than defaults in the payment of
amounts due under any such lease) that would not, individually or in the
aggregate, have a Material Adverse Effect; (viii) to the best knowledge of
the Company, there is no pending or threatened condemnation, zoning change,
or other proceeding or action that could in any manner affect the size of,
use of, improvements on, construction on or access to the properties of the
Company or any of its subsidiaries, except such proceedings or actions
that, either singly or in the aggregate, would not have a Material Adverse
Effect; and (ix) neither the Company nor any of its subsidiaries nor any
lessee of any of the real property or improvements of the Company or any of
its subsidiaries is in default in the payment of any amounts due or in any
other default under any of the leases pursuant to which the Company or any
of its subsidiaries leases (as lessor) any of its real property or
improvements (whether directly or indirectly through partnerships, joint
ventures or otherwise), and the Company knows of no event which, with the
passage of time or the giving of notice or both, would constitute such a
default under any of such leases, except such defaults as would not,
individually or in the aggregate, have a Material Adverse Effect.
(xxii) INSURANCE. The Company and its subsidiaries have title
insurance on all real property and improvements described in the Prospectus
as being owned or leased under a ground lease, as the case may be, by them
and to all properties reflected in the Company's most recent consolidated
financial statements included in the Prospectus in an amount at least equal
to the original cost of acquisition and (if applicable) construction of
such property and improvements (except for certain properties for which the
aggregate amount of title insurance is no more than $800,000 less than the
aggregate original acquisition price of such properties and except that the
Company has not obtained leasehold title insurance with respect to two
ground leases relating to two properties with an aggregate appraised value
(based on appraisals obtained in
10
connection with the Consolidation) of less than $100,000) and the Company
and its subsidiaries are entitled to all benefits of the insured
thereunder, and each such property is insured by extended coverage hazard
and casualty insurance in an amount not less than 100% of the full
replacement cost of the improvements located thereon (exclusive of
excavation and foundations and subject to customary deductibles), and the
Company and its subsidiaries carry comprehensive general liability
insurance and such other insurance as is customarily carried by lessors of
properties similar to those owned by the Company and its subsidiaries in
amounts and on such terms as are customarily carried by lessors of
properties similar to those owned by the Company and its subsidiaries (in
the markets in which the Company's and its subsidiaries' respective
properties are located) and the Company or one of its subsidiaries is named
as an additional insured on all policies required under the leases for such
properties.
(xxiii) ENVIRONMENTAL MATTERS. Except as otherwise disclosed in the
Prospectus: (i) all real property and improvements owned or leased by the
Company or any of its subsidiaries, including, without limitation, the
Environment (as defined below) associated with such real property and
improvements, is free of any Contaminant (as defined below), except such
Contaminants which, individually or in the aggregate, would not have a
Material Adverse Effect; (ii) neither the Company, nor any of its
subsidiaries nor any Partnership has caused or suffered to exist or occur
any Release (as defined below) of any Contaminant into the Environment or
any other condition that, individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect or could result in
any violation of any Environmental Laws (as defined below) or constitute a
health, safety or environmental hazard to any person or property except for
such violations or hazards that could not reasonably be expected to have a
Material Adverse Effect; (iii) neither the Company nor any of its
subsidiaries is aware of any notice from any governmental body claiming any
violation of any Environmental Laws or requiring or calling attention to
the need for any work, repairs, construction, alterations, removal or
remedial action or installation on or in connection with such real property
or improvements, whether in connection with the presences of
asbestos-containing materials in such properties or otherwise, except for
such violations, work, repairs, construction, alterations, removal or
remedial actions or installations as would not, individually or in the
aggregate, have a Material Adverse Effect; (iv) any such work, repairs,
construction, alterations, removal or remedial action or installation, if
required, would not result in the incurrence of liabilities, which,
individually or in the aggregate, would have a Material Adverse Effect; (v)
neither the Company nor any of its subsidiaries has caused or suffered to
exist or occur any condition on any of the properties or improvements of
the Company or any of its subsidiaries that could give rise to the
imposition of any Lien (as defined below) under any Environmental Laws,
except such Liens which, individually or in the aggregate, would not have a
Material Adverse Effect; and (vi) to the Company's best knowledge, no real
property or improvements owned or leased by the Company or any of its
subsidiaries is being used or has been used for manufacturing or for any
other operations that involve or involved the use, handling,
transportation, storage, treatment or disposal of any Contaminant, where
such operations require or required permits or are or were otherwise
regulated pursuant to the Environmental Laws and where such
11
permits have not been or were not obtained or such regulations are not
being or were not complied with, except in all instances where any failure
to obtain a permit or comply with any regulation could not reasonably be
expected, singly or in the aggregate, to have a Material Adverse Effect.
"Contaminant" means any pollutant, hazardous substance, toxic substance,
hazardous waste, special waste, petroleum or petroleum-derived substance or
waste, asbestos or asbestos-containing materials, PCBs, lead, pesticides or
radioactive materials or any constituent of any such substance or waste,
including any such substance identified or regulated under any
Environmental Law. "Environmental Laws" means the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. 9601
ET SEQ., the Resource Conservation and Recovery Act, 42 U.S.C. 6901,
ET SEQ., the Clean Air Act, 42 U.S.C. 7401, ET SEQ., the Clean Water Act,
33 U.S.C. 1251, ET SEQ., the Toxic Substances Control Act, 15 U.S.C. 2601,
ET SEQ., the Occupational Safety and Health Act, 29 U.S.C. 651, ET SEQ.,
and all other federal, state and local laws, ordinances, regulations,
rules, orders, decisions, permits, and the like, which are directed at the
protection of human health or the Environment. "Lien" means, with respect
to any asset, any mortgage, deed of trust, lien, pledge, encumbrance,
charge or security interest in or on such asset. "Environment" means any
surface water, drinking water, ground water, land surface, subsurface
strata, river sediment, buildings, structures, and ambient, workplace and
indoor air. "Release" means any spilling, leaking, pumping, pouring,
emitting, emptying, discharging, injecting, escaping, leaching, dumping,
emanating or disposing of any Contaminant into the Environment, including,
without limitation, the abandonment or discard of barrels, containers,
tanks or other receptacles containing or previously containing any
Contaminant or any release, emission or discharge as those terms are
defined or used in any Environmental Law.
(xxiv) QUALIFICATION AS A REAL ESTATE INVESTMENT TRUST. The Company
was and is organized in conformity with the requirements for qualification
and taxation as a "real estate investment trust" under the Internal Revenue
Code of 1986, as amended (the "Code"); the Company at all times has met and
continues to meet all the requirements of the Code for qualification and
taxation as a "real estate investment trust"; the Company's method of
operation will enable it to meet the requirements for qualification and
taxation as a "real estate investment trust" under the Code; and the
Company is qualified as a "real estate investment trust" under the Code and
will be so qualified for the taxable year in which sales of the Securities
occur.
(xxv) REGISTRATION RIGHTS. There are no persons with registration or
other similar rights (including, without limitation, rights arising under
the Registration Rights Agreement dated as of April 28, 1995 (the "RRA")
among the Company and certain former shareholders of the Advisor party
thereto (the "Shareholders")) to have any securities included in the
offering contemplated hereby (assuming the Underwriters do not permit the
Shareholders to include any Registrable Securities (as defined below) in
the offering contemplated hereby). The names of the Shareholders and each
other person, if any, who holds any Registrable Securities (as defined in
the RRA) are set forth in Schedule C hereto, and each such person has been
notified, in accordance with the RRA, of the offering contemplated by this
Agreement and that the Underwriters
12
will not permit them to include any Registrable Securities in the offering
contemplated hereby.
(xxvi) TAX TREATMENT OF CERTAIN ENTITIES. Each of R.I.C. Trade
Center, Ltd., Empire Business Center, Ltd., and Silverton Business Center,
Ltd., each a California limited partnership (the "Sub-Limited
Partnerships"), was, from the time of the Consolidation through and
including the time of its merger into the Company, treated as a partnership
(rather than as an association taxable as a corporation) for federal income
tax purposes. The Company' ownership interests in three properties held
through tenancies in common with unrelated third parties (which are the
only properties which, since the Consolidation, have been held in tenancies
in common with unrelated third parties) have not been, since the
Consolidation, and will not be treated as ownership interests in
associations taxable as corporations for federal income tax purposes.
Realty Income Texas Properties, L.P., a Delaware limited partnership, is
not and has never been treated as an association taxable as a corporation
for federal income tax purposes. Realty Income Texas Properties, Inc., a
Delaware corporation, is and has been at all times treated as a "qualified
REIT subsidiary" within the meaning of Section 856(i) of the Code.
(xxvii) INDENTURE. The Indenture has been duly authorized by the
Company and duly qualified under the 1939 Act and, at the Closing Time,
will have been duly executed and delivered by the Company and will
constitute a valid and binding agreement of the Company, enforceable
against the Company in accordance with its terms, except as the enforcement
thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditor's rights
generally or by general equitable principles.
(xxviii) SECURITIES. The Securities have been duly authorized and,
at the Closing Time, will have been duly executed by the Company and, when
authenticated in the manner provided for in the Indenture and delivered
against payment of the purchase price therefor specified in this Agreement,
will constitute valid and binding obligations of the Company, enforceable
against the Company in accordance with their terms, except as the
enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally or by general equitable principles, and will be
entitled to the benefits of the Indenture.
(xxix) DESCRIPTION OF INDENTURE AND SECURITIES. The Securities and
the Indenture will conform in all material respects to the respective
statements relating thereto contained in the Prospectus and will be in
substantially the respective forms filed or incorporated by reference, as
the case may be, as exhibits to the Registration Statement.
(xxx) RANKING OF SECURITIES. The Securities rank and will rank on a
parity with all unsecured indebtedness of the Company (other than
subordinated indebtedness of the Company) that is outstanding on the date
hereof or that may be incurred
13
hereafter, and senior to all subordinated indebtedness of the Company that
is outstanding on the date hereof or that may be incurred hereafter.
(xxxi) REINCORPORATION. The Reincorporation will be treated as (a) a
reorganization under Section 368(a)(1)(F) of the Code or (b) a non-event
for federal income tax purposes, and no gain or loss will be recognized by
the Company for federal income tax purposes as a result of the
Reincorporation.
(b) OFFICER'S CERTIFICATES. Any certificate signed by any officer of the
Company and delivered to the Representatives or to counsel for the Underwriters
shall be deemed a representation and warranty by the Company to each Underwriter
as to the matters covered thereby.
SECTION 2. SALE AND DELIVERY TO UNDERWRITERS; CLOSING.
(a) SECURITIES. On the basis of the representations and warranties herein
contained and subject to the terms and conditions herein set forth, the Company
agrees to sell to each Underwriter, severally and not jointly, and each
Underwriter, severally and not jointly, agrees to purchase from the Company, at
the price set forth in Schedule B, the aggregate principal amount of Securities
set forth in Schedule A opposite the name of such Underwriter, plus any
additional principal amount of Securities which such Underwriter may become
obligated to purchase pursuant to the provisions of Section 10 hereof.
(b) PAYMENT. Payment of the purchase price for, and delivery of
certificates for, the Securities shall be made at the office of Latham &
Watkins, 650 Town Center Drive, 20th Floor, Costa Mesa, California 92626-1925,
or at such other place as shall be agreed upon by the Representatives and the
Company, at 6:00 A.M. (California time) on the third (fourth, if the pricing
occurs after 4:30 P.M., New York City time, on any given day) business day after
the date hereof (unless postponed in accordance with the provisions of
Section 10), or such other time not later than ten business days after such date
as shall be agreed upon by the Representatives and the Company (such time and
date of payment and delivery being herein called "Closing Time"). Payment shall
be made to the Company by wire transfer of immediately available funds to an
account at a bank designated by the Company, against delivery to the
Representatives for the respective accounts of the Underwriters of certificates
for the Securities to be purchased by them. It is understood that each
Underwriter has authorized the Representatives, for its account, to accept
delivery of, receipt for, and make payment of the purchase price for, the
Securities which it has agreed to purchase. Merrill Lynch, individually and not
as representative of the Underwriters, may (but shall not be obligated to) make
payment of the purchase price for the Securities to be purchased by any
Underwriter whose payment therefor has not been received by the Closing Time,
but such payment shall not relieve such Underwriter from its obligations
hereunder.
(c) DENOMINATIONS; REGISTRATION. Certificates for the Securities shall be
in such denominations and registered in such names as the Representatives may
request in writing at least one full business day before the Closing Time. The
certificates for the Securities will be made available for examination and
packaging by the Representatives in The City of New
14
York not later than 2:00 P.M. (New York City time) on the business day prior to
the Closing Time.
SECTION 3. COVENANTS OF THE COMPANY. The Company covenants with each
Underwriter as follows:
(a) COMPLIANCE WITH SECURITIES REGULATIONS AND COMMISSION REQUESTS.
The Company, subject to Section 3(b), will notify the Representatives
immediately, and confirm the notice in writing, (i) when any post-effective
amendment to the Registration Statement shall become effective or any
supplement to the Prospectus, any Term Sheet or any amended Prospectus
shall have been filed, (ii) of the receipt of any comments from the
Commission, (iii) of any request by the Commission for any amendment to the
Registration Statement or any amendment or supplement to the Prospectus or
for additional information, and (iv) of the issuance by the Commission of
any stop order suspending the effectiveness of the Registration Statement
or of any order preventing or suspending the use of any preliminary
prospectus, or of the suspension of the qualification of the Securities for
offering or sale in any jurisdiction, or of the initiation or threatening
of any proceedings for any of such purposes. The Company will promptly
effect the filings necessary pursuant to Rule 424(b) and, if applicable,
will take such steps as it deems necessary to ascertain promptly whether
the form of prospectus or term sheet transmitted for filing under Rule
424(b) was received for filing by the Commission and, in the event that it
was not, it will promptly file such prospectus or term sheet, as the case
may be. The Company will make every reasonable effort to prevent the
issuance of any stop order and, if any stop order is issued, to obtain the
lifting thereof at the earliest possible moment.
(b) FILING OF AMENDMENTS. The Company will give the Representatives
notice of its intention to file or prepare any amendment to the
Registration Statement (including any filing under Rule 462(b)), any Term
Sheet or any amendment, supplement or revision to either the prospectus
included in the Original Registration Statement at the time it became
effective or to the Prospectus, whether pursuant to the 1933 Act, the 1934
Act or otherwise, will furnish the Representatives with copies of any such
documents a reasonable amount of time prior to such proposed filing or use,
as the case may be, and will not file or use any such document to which the
Representatives or counsel for the Underwriters shall object.
(c) RULE 434. If the Company uses Rule 434, it will comply with the
requirements of such Rule.
(d) DELIVERY OF REGISTRATION STATEMENTS. The Company has furnished
or will deliver to the Representatives and counsel for the Underwriters,
without charge, as many signed and conformed copies of the Registration
Statement as originally filed and of each amendment thereto (including
exhibits filed therewith or incorporated by reference therein and documents
incorporated or deemed to be incorporated by reference therein) as the
Representatives and counsel for the Underwriters may reasonably request.
If applicable, the copies of the Registration Statement and each
15
amendment thereto furnished to the Underwriters will be identical to the
electronically transmitted copies thereof filed with the Commission
pursuant to EDGAR, if any, except to the extent permitted by Regulation
S-T.
(e) DELIVERY OF PROSPECTUSES. The Company has delivered to each
Underwriter, without charge, as many copies of each preliminary prospectus
as such Underwriter reasonably requested, and the Company hereby consents
to the use of such copies for purposes permitted by the 1933 Act. The
Company will furnish to each Underwriter, without charge, during the period
when the Prospectus is required to be delivered under the 1933 Act or the
1934 Act, such number of copies of the Prospectus (as amended or
supplemented) as such Underwriter may reasonably request. If applicable,
the Prospectus and any amendments or supplements thereto furnished to the
Underwriters will be identical to the electronically transmitted copies
thereof filed with the Commission pursuant to EDGAR, if any, except to the
extent permitted by Regulation S-T.
(f) CONTINUED COMPLIANCE WITH SECURITIES LAWS. The Company will
comply with the 1933 Act and the 1933 Act Regulations and the 1934 Act and
the 1934 Act Regulations so as to permit the completion of the distribution
of the Securities as contemplated in this Agreement and in the Prospectus.
If at any time when a prospectus is required by the 1933 Act to be
delivered in connection with sales of the Securities, any event shall occur
or condition shall exist as a result of which it is necessary, in the
opinion of counsel for the Underwriters or for the Company, to amend the
Registration Statement or amend or supplement the Prospectus in order that
the Prospectus will not include any untrue statements of a material fact or
omit to state a material fact necessary in order to make the statements
therein not misleading in the light of the circumstances existing at the
time it is delivered to a purchaser, or if it shall be necessary, in the
opinion of any such counsel, at any such time to amend the Registration
Statement or amend or supplement the Prospectus in order to comply with the
requirements of the 1933 Act or the 1933 Act Regulations, the Company will
promptly prepare and file with the Commission, subject to Section 3(b),
such amendment or supplement as may be necessary to correct such statement
or omission or to make the Registration Statement or the Prospectus comply
with such requirements, and the Company will furnish to the Underwriters
such number of copies of such amendment or supplement as the Underwriters
may reasonably request.
(g) BLUE SKY QUALIFICATIONS. The Company will use its best efforts,
in cooperation with the Underwriters, to qualify the Securities for
offering and sale under the applicable securities laws of such states and
other jurisdictions of the United States as the Representatives may
designate and to maintain such qualifications in effect for a period of not
less than one year from the date hereof; PROVIDED, HOWEVER, that the
Company shall not be obligated to file any general consent to service of
process or to qualify as a foreign corporation or as a dealer in securities
in any jurisdiction in which it is not so qualified or to subject itself to
taxation in respect of doing business in any jurisdiction in which it is
not otherwise so subject. In each jurisdiction in which the Securities
have been so qualified, the Company will file such statements and reports
as
16
may be required by the laws of such jurisdiction to continue such
qualification in effect for a period of not less than one year from the
date hereof.
(h) RULE 158. The Company will timely file such reports pursuant to
the 1934 Act as are necessary in order to make generally available to its
security holders as soon as practicable an earning statement for the
purposes of, and to provide the benefits contemplated by, the last
paragraph of Section 11(a) of the 1933 Act.
(i) USE OF PROCEEDS. The Company will use the net proceeds received
by it from the sale of the Securities in the manner specified in the
Prospectus under "Use of Proceeds."
(j) REPORTING REQUIREMENTS. The Company, during the period when the
Prospectus is required to be delivered under the 1933 Act or the 1934 Act,
will file all documents required to be filed with the Commission pursuant
to the 1934 Act within the time periods required by the 1934 Act and the
1934 Act Regulations.
SECTION 4. PAYMENT OF EXPENSES. (a) EXPENSES. The Company will pay all
expenses incident to the performance of its obligations under this Agreement,
including (i) the word processing, printing and filing of the Registration
Statement (including financial statements and exhibits) as originally filed and
of each amendment thereto, (ii) the printing and delivery to the Underwriters of
this Agreement, the Indenture, any Agreement among Underwriters and such other
documents as may be required in connection with the offering, purchase, sale and
delivery of the Securities, (iii) the preparation, issuance and delivery of the
certificates for the Securities to the Underwriters, including any transfer
taxes or duties payable upon the sale of the Securities to the Underwriters,
(iv) the fees and disbursements of the Company's counsel, accountants and other
advisors, (v) the qualification of the Securities under securities laws in
accordance with the provisions of Section 3(g) hereof, including filing fees and
the reasonable fees and disbursements of counsel for the Underwriters in
connection therewith and in connection with the preparation of the Blue Sky
Survey and any supplement thereto, (vi) the printing and delivery to the
Underwriters of copies of the Prospectus and any amendments or supplements
thereto, (vii) the preparation, printing and delivery to the Underwriters of
copies of the Blue Sky Survey and any supplement thereto, (viii) the fees and
expenses of any transfer agent or registrar for the Securities, (ix) if
required, the filing fees incident to, and the reasonable fees and disbursements
of counsel to the Underwriters (such fees and disbursements not to exceed
$10,000) in connection with, the review, if any, by the National Association of
Securities Dealers, Inc. (the "NASD") of the terms of the sale of the
Securities, (x) the fees and expenses of the Trustee, including, if required,
the fees and disbursements of counsel for the Trustee in connection with the
Indenture and the Securities, (xi) any fees payable in connection with the
rating of the Securities and (xii) and the fees and expenses of any depositary
in connection with holding the Securities in book-entry form.
(b) TERMINATION OF AGREEMENT. If this Agreement is terminated by the
Representatives in accordance with the provisions of Section 5 or
Section 9(a)(i) or 9(a)(v) hereof, the Company shall reimburse the Underwriters
for all of their out-of-pocket expenses, including the reasonable fees and
disbursements of counsel for the Underwriters.
17
SECTION 5. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of
the several Underwriters hereunder are subject to the accuracy of the
representations and warranties of the Company contained in Section 1 hereof or
in certificates of any officer of the Company or any subsidiary delivered
pursuant to the provisions hereof, to the performance by the Company of its
covenants and other obligations hereunder, and to the following further
conditions:
(a) EFFECTIVENESS OF REGISTRATION STATEMENT. The Registration
Statement, including any Rule 462(b) Registration Statement, has become
effective not later than 5:30 P.M. on the date hereof and at Closing Time
no stop order suspending the effectiveness of the Registration Statement
shall have been issued under the 1933 Act or proceedings therefor initiated
or threatened by the Commission, and any request on the part of the
Commission for additional information shall have been complied with to the
reasonable satisfaction of counsel to the Underwriters. If required by the
1933 Act or the 1933 Act Regulations, the Prospectus shall have been filed
with the Commission in accordance with Rule 424(b) and, if the Company has
elected to rely upon Rule 434, a Term Sheet shall have been filed with the
Commission in accordance with Rule 434 and Rule 424(b).
(b) OPINIONS OF COUNSEL FOR COMPANY. At Closing Time, the
Representatives shall have received the favorable opinions, dated as of
Closing Time, of Latham & Watkins, counsel for the Company, and of Michael
R. Pfeiffer, Vice President, General Counsel and Secretary of the Company,
each in form and substance satisfactory to counsel for the Underwriters, to
the effect set forth in Exhibits A and B hereto, respectively, and to such
further effect as counsel to the Underwriters may reasonably request
pursuant to Section 5(i).
(c) OPINION OF COUNSEL FOR UNDERWRITERS. At Closing Time the
Representatives shall have received the favorable opinion, dated as of
Closing Time, of Brown & Wood LLP, counsel for the Underwriters, with
respect to the matters set forth in (i), (v), (vi), (vii), (xv) to (xviii),
inclusive, and the antepenultimate paragraph of Exhibit A hereto. In
giving such opinion such counsel may rely, as to all matters governed by
the laws of jurisdictions other than the law of the State of New York and
the federal law of the United States and the General Corporation Law of the
State of Delaware, upon the opinions of counsel satisfactory to you. Such
counsel may also state that, insofar as such opinion involves factual
matters, they have relied, to the extent they deem proper, upon
certificates of officers of the Company and its subsidiaries and
certificates of public officials.
(d) OFFICERS' CERTIFICATE. At Closing Time there shall not have
been, since the date hereof or since the respective dates as of which
information is given in the Prospectus, any material adverse change in the
condition, financial or otherwise, or in the earnings, business affairs or
business prospects of the Company and its subsidiaries considered as one
enterprise, whether or not arising in the ordinary course of business, and
the Representatives shall have received a certificate of the Chairman or
the President of the Company and of the chief financial or chief accounting
officer of the
18
Company, dated as of Closing Time, to the effect that (i) there has been no
such material adverse change, (ii) the representations and warranties in
Section 1 hereof are true and correct with the same force and effect as
though expressly made at and as of Closing Time, (iii) the Company has
complied with all agreements and satisfied all conditions on its part to be
performed or satisfied at or prior to Closing Time, and (iv) no stop order
suspending the effectiveness of the Registration Statement has been issued
and no proceedings for that purpose have been initiated or, to the best of
their knowledge, threatened by the Commission.
(e) ACCOUNTANT'S COMFORT LETTER. At the time of the execution of
this Agreement, the Representatives shall have received from KPMG Peat
Marwick LLP a letter dated such date, in form and substance satisfactory to
the Representatives, together with signed or reproduced copies of such
letter for each of the other Underwriters, containing statements and
information of the type ordinarily included in accountants' "comfort
letter" to underwriters with respect to the financial statements, and
certain financial information contained in the Registration Statement and
the Prospectus.
(f) BRING-DOWN COMFORT LETTER. At Closing Time the Representatives
shall have received from KPMG Peat Marwick LLP a letter, dated as of
Closing Time, to the effect that they reaffirm the statements made in the
letter furnished pursuant to subsection (e) of this Section, except that
the specified date referred to shall be a date not more than three business
days prior to Closing Time.
(g) RATING REQUIREMENT. At the date of this Agreement and at the
Closing Time, the Securities shall be rated at least Baa3 by Moody's
Investor's Service Inc., BBB- by Standard & Poor's Corporation and BBB by
Duff & Phelps, and the Company shall have delivered to the Representatives
a letter, dated the Closing Time, from each such rating agency, or other
evidence satisfactory to the Representatives, confirming that the
Securities have such ratings.
(h) FOURTH AMENDMENT TO ACQUISITION CREDIT AGREEMENT. Prior to the
date of this Agreement, the Representatives shall have received a copy of
the Fourth Amendment, executed by the Company and the requisite banks party
to the Acquisition Credit Agreement and in form and substance satisfactory
to the Representatives.
(i) ADDITIONAL DOCUMENTS. At Closing Time counsel for the
Underwriters shall have been furnished with such documents and opinions as
they may reasonably require for the purpose of enabling them to pass upon
the issuance and sale of the Securities as herein contemplated, or in order
to evidence the accuracy of any of the representations or warranties, or
the fulfillment of any of the conditions, herein contained; and all
proceedings taken by the Company in connection with the issuance and sale
of the Securities as herein contemplated shall be satisfactory in form and
substance to the Representatives and counsel for the Underwriters.
19
(j) TERMINATION OF AGREEMENT. If any condition specified in this
Section shall not have been fulfilled when and as required to be fulfilled,
this Agreement may be terminated by the Representatives by notice to the
Company at any time at or prior to Closing Time, and such termination shall
be without liability of any party to any other party except as provided in
Section 4 and except that Sections 6 and 7 shall survive any such
termination and remain in full force and effect.
SECTION 6. INDEMNIFICATION.
(a) INDEMNIFICATION OF UNDERWRITERS. The Company agrees to indemnify and
hold harmless each Underwriter and each person, if any, who controls any
Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act as follows:
(i) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement
(or any amendment thereto), including the Rule 434 Information, if
applicable, or the omission or alleged omission therefrom of a material
fact required to be stated therein or necessary to make the statements
therein not misleading or arising out of any untrue statement or alleged
untrue statement of a material fact contained in any preliminary prospectus
or the Prospectus (or any amendment or supplement thereto), or the omission
or alleged omission therefrom of a material fact necessary in order to make
the statements therein, in the light of the circumstances under which they
were made, not misleading;
(ii) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission, provided that (subject to Section
6(d) below) any such settlement is effected with the written consent of the
Company; and
(iii) against any and all expense whatsoever, as incurred (including
the fees and disbursements of counsel chosen by Merrill Lynch), reasonably
incurred in investigating, preparing or defending against any litigation,
or any investigation or proceeding by any governmental agency or body,
commenced or threatened, or any claim whatsoever based upon any such untrue
statement or omission, or any such alleged untrue statement or omission, to
the extent that any such expense is not paid under (i) or (ii) above;
PROVIDED, HOWEVER, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Company by any
Underwriter through Merrill Lynch expressly for use in the Registration
Statement (or any amendment thereto) or any preliminary prospectus or the
Prospectus (or any amendment or supplement thereto); and PROVIDED FURTHER
20
that this indemnity agreement with respect to any preliminary prospectus shall
not inure to the benefit of any Underwriter from whom the person asserting any
such losses, liabilities, claims, damages or expenses purchased Securities, or
any person controlling such Underwriter, if a copy of the Prospectus (as then
amended or supplemented if the Company shall have furnished any such amendments
or supplements thereto, but excluding documents incorporated or deemed to be
incorporated by reference therein) was not sent or given by or on behalf of such
Underwriter to such person, if such is required by law, at or prior to the
written confirmation of the sale of such Securities to such person and if the
Prospectus (as so amended or supplemented, if applicable) would have corrected
the defect giving rise to such loss, liability, claim, damage or expense, except
that this proviso shall not be applicable if such defect shall have been
corrected in a document which is incorporated or deemed to be incorporated by
reference in the Prospectus.
(b) INDEMNIFICATION OF COMPANY, DIRECTORS AND OFFICERS. Each Underwriter
severally agrees to indemnify and hold harmless the Company, its directors, each
of its officers who signed the Registration Statement, and each person, if any,
who controls the Company within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act against any and all loss, liability, claim, damage
and expense described in the indemnity contained in subsection (a) of this
Section, as incurred, but only with respect to untrue statements or omissions,
or alleged untrue statements or omissions, made in the Registration Statement
(or any amendment thereto), including the Rule 434 Information, if applicable,
or any preliminary prospectus or the Prospectus (or any amendment or supplement
thereto) in reliance upon and in conformity with written information furnished
to the Company by such Underwriter through Merrill Lynch expressly for use in
the Registration Statement (or any amendment thereto) or such preliminary
prospectus or the Prospectus (or any amendment or supplement thereto).
(c) ACTIONS AGAINST PARTIES; NOTIFICATION. Each indemnified party shall
give notice as promptly as reasonably practicable to each indemnifying party of
any action commenced against it in respect of which indemnity may be sought
hereunder, but failure to so notify an indemnifying party shall not relieve such
indemnifying party from any liability hereunder to the extent it is not
materially prejudiced as a result thereof and in any event shall not relieve it
from any liability which it may have otherwise than on account of this indemnity
agreement. In the case of parties indemnified pursuant to Section 6(a) above,
counsel to the indemnified parties shall be selected by Merrill Lynch, and, in
the case of parties indemnified pursuant to Section 6(b) above, counsel to the
indemnified parties shall be selected by the Company. An indemnifying party may
participate at its own expense in the defense of any such action; PROVIDED,
HOWEVER, that counsel to the indemnifying party shall not (except with the
consent of the indemnified party) also be counsel to the indemnified party. In
no event shall the indemnifying parties be liable for fees and expenses of more
than one counsel (in addition to any local counsel) separate from their own
counsel for all indemnified parties in connection with any one action or
separate but similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances. No indemnifying party shall,
without the prior written consent of the indemnified parties, settle or
compromise or consent to the entry of any judgment with respect to any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim
21
whatsoever in respect of which indemnification or contribution could be sought
under this Section 6 or Section 7 hereof (whether or not the indemnified parties
are actual or potential parties thereto), unless such settlement, compromise or
consent (i) includes an unconditional release of each indemnified party from all
liability arising out of such litigation, investigation, proceeding or claim and
(ii) does not include a statement as to or an admission of fault, culpability or
a failure to act by or on behalf of any indemnified party.
(d) SETTLEMENT WITHOUT CONSENT IF FAILURE TO REIMBURSE. If at any time an
indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel, such indemnifying party
agrees that it shall be liable for any settlement of the nature contemplated by
Section 6(a)(ii) effected without its written consent if (i) such settlement is
entered into more than 60 days after receipt by such indemnifying party of the
aforesaid request, (ii) such indemnifying party shall have received notice of
the terms of such settlement at least 45 days prior to such settlement being
entered into and (iii) such indemnifying party shall not have reimbursed such
indemnified party in accordance with such request prior to the date of such
settlement.
SECTION 7. CONTRIBUTION. If the indemnification provided for in Section 6
hereof is for any reason unavailable to or insufficient to hold harmless an
indemnified party in respect of any losses, liabilities, claims, damages or
expenses referred to therein, then each indemnifying party shall contribute to
the aggregate amount of such losses, liabilities, claims, damages and expenses
incurred by such indemnified party, as incurred, (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company on the one
hand and the Underwriters on the other hand from the offering of the Securities
pursuant to this Agreement or (ii) if the allocation provided by clause (i) is
not permitted by applicable law, in such proportion as is appropriate to reflect
not only the relative benefits referred to in clause (i) above but also the
relative fault of the Company on the one hand and of the Underwriters on the
other hand in connection with the statements or omissions which resulted in such
losses, liabilities, claims, damages or expenses, as well as any other relevant
equitable considerations.
The relative benefits received by the Company on the one hand and the
Underwriters on the other hand in connection with the offering of the Securities
pursuant to this Agreement shall be deemed to be in the same respective
proportions as the total net proceeds from the offering of the Securities
pursuant to this Agreement (before deducting expenses) received by the Company
and the total underwriting discount received by the Underwriters, in each case
as set forth on the cover of the Prospectus (or, if Rule 434 is used, the
corresponding location on the Term Sheet) bear to the aggregate initial public
offering price of the Securities as set forth on such cover (or corresponding
location on the Term Sheet, as the case may be).
The relative fault of the Company on the one hand and the Underwriters on
the other hand shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Company or by the Underwriters and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission.
22
The Company and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 7 were determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above in this Section 7. The aggregate
amount of losses, liabilities, claims, damages and expenses incurred by an
indemnified party and referred to above in this Section 7 shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue or alleged untrue
statement or omission or alleged omission.
Notwithstanding the provisions of this Section 7, no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Securities underwritten by it and distributed to the public
were offered to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 7, each person, if any, who controls an
Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act shall have the same rights to contribution as such Underwriter, and
each director of the Company, each officer of the Company who signed the
Registration Statement, and each person, if any, who controls the Company within
the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall
have the same rights to contribution as the Company. The Underwriters'
respective obligations to contribute pursuant to this Section 7 are several in
proportion to the number of Securities set forth opposite their respective names
in Schedule A hereto and not joint.
SECTION 8. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE DELIVERY.
All representations, warranties and agreements contained in this Agreement or in
certificates of officers of the Company submitted pursuant hereto shall remain
operative and in full force and effect, regardless of any investigation made by
or on behalf of any Underwriter or controlling person, or by or on behalf of the
Company, and shall survive delivery of the Securities to the Underwriters.
SECTION 9. TERMINATION OF AGREEMENT.
(a) TERMINATION; GENERAL. The Representatives may terminate this
Agreement, by notice to the Company, at any time at or prior to Closing Time
(i) if there has been, since the time of execution of this Agreement or since
the respective dates as of which information is given in the Prospectus, any
material adverse change in the condition, financial or otherwise, or in the
earnings, business affairs or business prospects of the Company and its
subsidiaries considered as one enterprise, whether or not arising in the
ordinary course of business, or
23
(ii) if there has occurred any material adverse change in the financial markets
in the United States or the international financial markets, any outbreak of
hostilities or escalation thereof or other calamity or crisis or any change or
development involving a prospective change in national or international
political, financial or economic conditions, in each case the effect of which is
such as to make it, in the judgment of the Representatives, impracticable to
market the Securities or to enforce contracts for the sale of the Securities, or
(iii) if trading in any securities of the Company has been suspended or limited
by the Commission, the New York Stock Exchange or the National Association of
Securities Dealers National Market System, or if trading generally on the
American Stock Exchange or the New York Stock Exchange or in the
over-the-counter market has been suspended or limited, or minimum or maximum
prices for trading have been fixed, or maximum ranges for prices have been
required, by any of said exchanges or by such system or by order of the
Commission, the National Association of Securities Dealers, Inc. or any other
governmental authority, or (iv) if a banking moratorium has been declared by
either Federal, California or New York authorities, or (v) if since the date of
this Agreement, there has occurred a downgrading in the rating assigned to the
Securities or any of the Company's other debt securities by any nationally
recognized securities rating agency, or such securities rating agency has
publicly announced that it has under surveillance or review, with possible
negative implications, its rating of the Securities or any of the Company's
other debt securities.
(b) LIABILITIES. If this Agreement is terminated pursuant to this
Section, such termination shall be without liability of any party to any other
party except as provided in Section 4 hereof, and provided further that Sections
6 and 7 shall survive such termination and remain in full force and effect.
SECTION 10. DEFAULT BY ONE OR MORE OF THE UNDERWRITERS. If one or more of
the Underwriters shall fail at Closing Time to purchase the Securities which it
or they are obligated to purchase under this Agreement (the "Defaulted
Securities"), the Representatives shall have the right, within 24 hours
thereafter, to make arrangements for one or more of the non-defaulting
Underwriters, or any other underwriters, to purchase all, but not less than all,
of the Defaulted Securities in such amounts as may be agreed upon and upon the
terms herein set forth; if, however, the Representatives shall not have
completed such arrangements within such 24-hour period, then:
(a) if the aggregate principal amount of the Defaulted Securities
does not exceed 10% of the aggregate principal amount of the Securities,
each of the non-defaulting Underwriters shall be obligated, severally and
not jointly, to purchase the full amount thereof in the proportions that
their respective underwriting obligations hereunder bear to the
underwriting obligations of all non-defaulting Underwriters, or
(b) if the aggregate principal amount of the Defaulted Securities
exceeds 10% of the aggregate principal amount of the Securities, this
Agreement shall terminate without liability on the part of any
non-defaulting Underwriter.
No action taken pursuant to this Section shall relieve any defaulting
Underwriter from liability in respect of its default.
24
In the event of any such default which does not result in a termination of
this Agreement, either the Representatives or the Company shall have the right
to postpone the Closing Time for a period not exceeding seven days in order to
effect any required changes in the Registration Statement or Prospectus or in
any other documents or arrangements. As used herein, the term "Underwriter"
includes any person substituted for an Underwriter under this Section 10.
SECTION 11. NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the
Underwriters shall be directed to the Representatives at 10900 Wilshire
Boulevard, Suite 900, Los Angeles, California 90024, attention of Paul M.
Meurer; notices to the Company shall be directed to it at Realty Income
Corporation, 220 West Crest Street, Escondido, California 92025-1725, attention
of Legal Department.
SECTION 12. PARTIES. This Agreement shall inure to the benefit of and be
binding upon the Underwriters and the Company and their respective successors.
Nothing expressed or mentioned in this Agreement is intended or shall be
construed to give any person, firm or corporation, other than the Underwriters
and the Company and their respective successors and the controlling persons and
officers and directors referred to in Sections 6 and 7 and their heirs and legal
representatives, any legal or equitable right, remedy or claim under or in
respect of this Agreement or any provision herein contained. This Agreement and
all conditions and provisions hereof are intended to be for the sole and
exclusive benefit of the Underwriters and the Company and their respective
successors, and said controlling persons and officers and directors and their
heirs and legal representatives, and for the benefit of no other person, firm or
corporation. No purchaser of Securities from any Underwriter shall be deemed to
be a successor by reason merely of such purchase.
SECTION 13. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
AGREEMENTS MADE AND TO BE PERFORMED IN SAID STATE. EXCEPT AS OTHERWISE SET
FORTH HEREIN, SPECIFIED TIMES OF DAY REFER TO NEW YORK CITY TIME.
SECTION 14. EFFECT OF HEADINGS AND TABLE OF CONTENTS. The Article and
Section headings herein and the Table of Contents are for convenience only and
shall not affect the construction hereof.
25
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to the Company a counterpart hereof, whereupon this
instrument, along with all counterparts, will become a binding agreement between
the Underwriters and the Company in accordance with its terms.
Very truly yours,
REALTY INCOME CORPORATION
By: /s/ RICHARD J. VANDERHOFF
----------------------------------
Richard J. VanDerhoff
President and Chief Operating Officer
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
J.P. MORGAN SECURITIES INC.
SALOMON BROTHERS INC
By: MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By: /s/ PAUL M. MEURER
--------------------------------------
Authorized Signatory
For themselves and as Representatives of the
Underwriters named in Schedule A hereto.
26
SCHEDULE A
AGGREGATE
PRINCIPAL
AMOUNT
NAME OF UNDERWRITER OF SECURITIES
------------------- -------------
Merrill Lynch, Pierce, Fenner & Smith
Incorporated. . . . . . . . . . . . . . . . . $27,500,000
Donaldson, Lufkin & Jenrette Securities Corporation . . 27,500,000
J.P. Morgan Securities Inc. . . . . . . . . . . . . . . 27,500,000
Salomon Brothers Inc. . . . . . . . . . . . . . . . . . 27,500,000
------------
Total . . . . . . . . . . . . . . . . . . . . $110,000,000
------------
------------
Sch A - 1
SCHEDULE B
PRICE SCHEDULE
--------------
1. The initial public offering price for the Securities shall be 99.929%
of the principal amount thereof, plus accrued interest from the date of original
issuance.
2. Underwriting discounts and commissions for the Securities shall be .7%
of the principal amount thereof. Accordingly, the purchase price to be paid for
the Securities by the several Underwriters shall be 99.229% of the principal
amount thereof.
Sch B - 1
SCHEDULE C
Holders of Registrable Securities
William E. Clark and Evelyn J. Clark
Family Trust dated June 19, 1981
Thomas A. Lewis
Richard J. VanDerhoff
Gary M. Malino
John H. Wolfe
Donald K. Cooke
Robert Caffey
Lawrence Stephenson
Sch C - 1
Exhibit A
FORM OF OPINION OF LATHAM & WATKINS
TO BE DELIVERED PURSUANT TO SECTION 5(b)
(i) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the State of Delaware.
(ii) The Company has corporate power and corporate authority to own,
lease and operate its properties and to conduct its business as described in the
Registration Statement and to enter into and perform its obligations under the
Purchase Agreement, the Indenture and the Securities.
(iii) Based solely on certificates from public officials, the Company
is duly qualified as a foreign corporation to transact business and is in good
standing in the State of California.
(iv) The authorized, issued and outstanding capital stock of the
Company is as set forth in the line items "Preferred Stock" and "Common
Stock" under the caption "Capitalization" in the Prospectus (except for
subsequent issuances, if any, pursuant to reservations, agreements, employee
benefit plans or the exercise of options referred to in the Prospectus); the
shares of issued and outstanding Common Stock have been duly authorized and
validly issued and are fully paid and non-assessable; and none of the
outstanding shares of capital stock of the Company was issued in violation of
preemptive rights arising by operation of the General Corporation Law of the
State of Delaware (the "DGCL") or under the charter or by-laws of the Company
or, to the best of our knowledge and information, in violation of preemptive
or other similar rights arising under any agreement or instrument to which
the Company or any of its subsidiaries is a party.
(v) The Purchase Agreement has been duly authorized, executed and
delivered by the Company.
(vi) The Registration Statement, including any Rule 462(b)
Registration Statement, has been declared effective under the 1933 Act; to the
best of our knowledge and information, any required filing of the Prospectus
pursuant to Rule 424(b) has been made in the manner and within the time period
required by Rule 424(b); and, to the best of our knowledge and information, no
stop order suspending the effectiveness of the Registration Statement has been
issued under the 1933 Act or proceedings therefor initiated or threatened by the
Commission.
(vii) The Registration Statement (including any 462(b) Registration
Statement and the Rule 434 Information, as applicable), the Prospectus, and each
amendment or supplement to the Registration Statement or the Prospectus (in each
case excluding the documents incorporated or deemed to be incorporated by
reference therein and the financial statements,
A - 1
supporting schedules and other financial data included or incorporated by
reference therein and any trustee's Statement of Eligibility on Form T-1
(a "Form T-1"), as to which no opinion need be rendered), as of their respective
effective or issue dates (and, if the Company has relied upon Rule 434, the
Registration Statement at the time the Term Sheet was filed with the
Commission), complied as to form in all material respects with the applicable
requirements of the 1933 Act and the 1933 Act Regulations.
(viii) The documents incorporated or deemed to be incorporated by
reference in the Prospectus (other than the financial statements, supporting
schedules and other financial data therein, as to which no opinion need be
rendered), when they were filed with the Commission, complied as to form in
all material respects with the applicable requirements of the 1934 Act and
the 1934 Act Regulations.
(ix) (A) [omitted] (B) the information in the Prospectus under
"Certain Federal Income Tax Considerations" and the information in the
Company's 1996 Form 10-K under "Business--Other Items--Taxation of the
Company" and "Business--Other Items--Effect of Distribution Requirements," in
each case to the extent that it constitutes matters of law, summaries of
legal matters or legal conclusions, has been reviewed by them and is correct
in all material respects.
(x) No authorization, approval, consent or order of any federal or
Delaware or California state governmental authority or agency (other than under
the 1933 Act, the 1933 Act Regulations and the 1939 Act and 1939 Act
Regulations, which have been obtained, or as may be required under the
securities or blue sky laws of the various states, as to which we express no
opinion) is required in connection with the due authorization, execution or
delivery of the Purchase Agreement, the Indenture or the Securities or for the
offering, issuance or sale of the Securities;
(xi) The execution, delivery and performance of the Purchase
Agreement, the Indenture and the Securities by the Company (including the
issuance and sale of the Securities to the Underwriters and the use of the
proceeds from the sale of the Securities to repay borrowings under the
Acquisition Credit Agreement as described in the Prospectus under the caption
"Use of Proceeds") will not, whether with or without the giving of notice or
lapse of time or both, constitute a breach or violation of, or default or
Repayment Event under, or result in the creation or imposition of any lien,
charge or encumbrance upon any property or assets of the Company or any of
its subsidiaries pursuant to, the Acquisition Credit Agreement, nor will such
action result in any violation of the provisions of the charter or by-laws of
the Company or, to the best of our knowledge and information, any applicable
provision of the DGCL or any applicable provision of any federal or State of
California law, statute, administrative regulation or administrative or court
decree applicable to the Company.
A - 2
(xii) The Company is not an "investment company" or, to the best of our
knowledge and information, an entity "controlled" by an "investment company," as
any such terms are defined in the 1940 Act.
(xiii) Commencing with the Company's taxable year ended December 31,
1994, the Company has been organized in conformity with the requirements for
qualification and taxation as a "real estate investment trust" under the Code
and its proposed method of operation will enable the Company to meet the
requirements for qualification and taxation as a "real estate investment trust"
under the Code.
(xiv) Realty Income Texas Properties, L.P., a Delaware limited
partnership, is not and has never been treated as an association taxable as a
corporation for federal income tax purposes. Realty Income Texas Properties,
Inc., a Delaware corporation, is and has, at all times during its existence,
been treated as a "qualified REIT subsidiary" within the meaning of Section
856(i) of the Code.
(xv) The Indenture has been duly authorized, executed and delivered by
the Company and (assuming the due authorization, execution and delivery thereof
by the Trustee) constitutes a valid and binding agreement of the Company,
enforceable against the Company in accordance with its terms, except as the
enforcement thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditors' rights
generally or by general equitable principles.
(xvi) The Securities have been duly authorized by the Company and, when
duly executed by the Company and authenticated by the Trustee in the manner
provided in the Indenture (assuming the due authorization, execution and
delivery of the Indenture by the Trustee) and delivered against payment of the
purchase price therefor specified in the Purchase Agreement, will constitute
valid and binding obligations of the Company, enforceable against the Company in
accordance with their terms, except as the enforcement thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting creditor's rights generally or by general equitable
principles, and will be entitled to the benefits of the Indenture.
(xvii) The Indenture has been qualified under the 1939 Act.
(xviii) The Securities and the Indenture conform in all material respects
to the descriptions thereof contained in the Prospectus.
(xix) The Reincorporation will be treated as (a) a reorganization under
Section 368(a)(1)(F) of the Code or (b) a non-event for federal income tax
purposes, and no gain or loss will be recognized by the Company for federal
income tax purposes as a result of the Reincorporation.
Although we are not passing upon, and do not assume any responsibility for,
the accuracy, completeness or fairness of the statements contained in the
Registration Statement or the Prospectus and have not made any independent
judgment, check or verification thereof
A - 3
(except with respect to the opinion set forth in paragraphs (viii), (ix),
(xiii), (xiv) and (xviii) hereof), we have, however, participated in
conferences with certain officers and other representatives of the Company,
representatives of KPMG Peat Marwick LLP and your representatives at which
the Registration Statement and the Prospectus (including, in each case, the
documents incorporated or deemed to be incorporated by reference therein) and
related matters were discussed, and in the course of such conferences
(relying in connection with questions of materiality on representations of
factual matters of officers and other representatives of the Company),
nothing has come to our attention which has led us to believe that the
Registration Statement or any amendment thereto (except for the financial
statements, supporting schedules and other financial data included therein
and any Form T-1, as to which we express no belief), as of the time the
Registration Statement or any such amendment became effective, contained an
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or that the Prospectus or any amendment or supplement thereto
(except for the financial statements, supporting schedules and other
financial data included therein, as to which we express no belief), as of the
time the Prospectus was issued or as of the Closing Time, contained or
contains an untrue statement of a material fact or omitted or omits to state
a material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
In rendering such opinion, such counsel may rely insofar as such opinion
involves factual matters, to the extent they deem proper, on certificates of
responsible officers of the Company and public officials. Such opinion shall
not state that it is to be governed or qualified by, or that it is otherwise
subject to, any treatise, written policy or other document relating to legal
opinions, including, without limitation, the Legal Opinion Accord of the ABA
Section of Business Law (1991).
The matters set forth in (ix)(B), (xiii), (xiv) and (xix) above may be
covered in one or more separate legal opinions, which may be subject to such
assumptions, limitations and qualifications as shall be satisfactory to counsel
for the Underwriters. In particular, the opinions set forth in paragraphs
(ix)(B), (xiii), (xiv) and (xix) above (the "Tax Opinions") may be conditioned
upon certain representations made by the Company as to factual matters through a
certificate of an officer of the Company (the "Officer's Certificate"). In
addition, the Tax Opinions may be based upon the factual representations of the
Company concerning its business and properties as set forth in the Registration
Statement and Prospectus. The Tax Opinions may state that they relate only to
the federal income tax laws of the United States and such counsel need not
express any opinion with respect to the applicability thereto, or the effect
thereon, of other federal laws, the laws of any other jurisdiction or as to any
matters of municipal law or the laws of any other local agencies within any
state. The Tax Opinions may state that they are based on various statutory
provisions, regulations promulgated thereunder and interpretations thereof by
the Internal Revenue Service and the courts having jurisdiction over such
matters, all of which are subject to change either prospectively or
retroactively, and that any variation or difference in the facts from those set
forth in the Registration Statement, the Prospectus or the Officer's Certificate
may affect the conclusions stated therein. Moreover, the Tax Opinions may state
that the Company's qualification and taxation as a real estate investment trust
depends upon the Company's ability to meet (through actual annual
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operating results, distribution levels and diversity of stock ownership) the
various qualification tests imposed under the Code, the results of which have
not been and will not be reviewed by such counsel, and, accordingly, no
assurance can be given that the actual results of the Company's operation for
any one taxable year will satisfy such requirements.
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Exhibit B
FORM OF OPINION OF MICHAEL R. PFEIFFER
TO BE DELIVERED PURSUANT TO SECTION 5(b)
(i) The Company is duly qualified as a foreign corporation to
transact business and is in good standing in each jurisdiction in which such
qualification is required, whether by reason of the ownership or leasing of
property or the conduct of business, except where the failure so to qualify or
to be in good standing would not have a Material Adverse Effect.
(ii) The only subsidiaries of the Company are Realty Income Texas
Properties, L.P., a Delaware limited partnership, Realty Income Texas
Properties, Inc., a Delaware corporation, and Realty Income of Maryland, Inc., a
Maryland corporation. Each of Realty Income Texas Properties, L.P. and Realty
Income Texas Properties, Inc. has been duly organized and is validly existing as
a partnership or corporation, as the case may be, in good standing under the
laws of the State of Delaware, has power and authority as a partnership or
corporation, as the case may be, to own, lease and operate its properties and to
conduct its business as described in the Registration Statement and each such
subsidiary is duly qualified as a foreign partnership or corporation, as the
case may be, to transact business and is in good standing in each other
jurisdiction in which such qualification is required, whether by reason of the
ownership or leasing of property or the conduct of business, except where
failure so to qualify or to be in good standing would not result in a Material
Adverse Effect; and all of the issued and outstanding partnership interests and
shares of capital stock, as the case may be, of each of Realty Income Texas
Properties, L.P. and Realty Income Texas Properties, Inc. have been duly
authorized (if applicable) and validly issued, are fully paid and non-assessable
(except to the extent that the general partners of Realty Income Texas
Properties, L.P. may be liable for the obligations of such partnership) and, to
the best of my knowledge and information, are owned by the Company, directly or
through subsidiaries, free and clear of any security interest, mortgage, pledge,
lien, encumbrance, claim or equity.
(iii) The information in the Company's annual report on Form 10-K for
the fiscal year ended December 31, 1996 under "Business--Other Items--
Environmental Matters," to the extent that it constitutes matters of law,
summaries of legal matters, instruments or agreements or legal proceedings, or
legal conclusions, has been reviewed by me and is correct in all material
respects.
(iv) To the best of my knowledge and information, there is not pending
or threatened any action, suit, proceeding, inquiry or investigation to which
the Company or any subsidiary is a party, or to which the property of the
Company or any subsidiary is subject, before or brought by any court or
governmental agency or authority, which could reasonably be expected to result
in a Material Adverse Effect, or which could reasonably be expected to
materially and adversely affect the properties or assets thereof or the
consummation of the Purchase Agreement or the performance by the Company of its
obligations under the Purchase Agreement, the Indenture or the Securities.
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(v) All descriptions in the Prospectus of leases, contracts and other
documents to which the Company or any subsidiary is a party are accurate in all
material respects.
(vi) To the best of my knowledge and information, there are no
franchises, contracts, indentures, mortgages, loan agreements, notes, leases or
other instruments required to be described in the Registration Statement or to
be filed as exhibits thereto other than those described therein or filed or
incorporated by reference as exhibits thereto, and the descriptions thereof or
references thereto are correct in all material respects.
(vii) To the best of my knowledge and information, neither the
Company nor any of its subsidiaries is in violation of its charter or by-laws
or its partnership agreement, as applicable, and no default by the Company or
any of its subsidiaries exists in the due performance or observance of any
material obligation, agreement, covenant or condition contained in any
contract, indenture, mortgage, loan agreement, note, lease or other agreement
or instrument that is described or referred to in the Registration Statement
or the Prospectus or filed or incorporated by reference as an exhibit to the
Registration Statement.
(viii) The execution, delivery and performance of the Purchase Agreement,
the Indenture and the Securities (including the issuance and sale of the
Securities to the Underwriters and the use of the proceeds from the sale of the
Securities to repay borrowings under the Acquisition Credit Agreement as
described in the Prospectus under the caption "Use of Proceeds") and compliance
by the Company with its obligations under the Purchase Agreement, the Indenture
and the Securities will not, whether with or without the giving of notice or
lapse of time or both, constitute a breach or violation of, or default or
Repayment Event under, or result in the creation or imposition of any lien,
charge or encumbrance upon any property or assets of the Company or any of its
subsidiaries pursuant to, any contract, indenture, mortgage, deed of trust, loan
or credit agreement, note, lease or any other agreement or instrument, known to
me, to which the Company or any of its subsidiaries is a party or by which it or
any of them may be bound or to which any of the property or assets of the
Company or any of its subsidiaries is subject, except for such breaches,
violations or defaults or liens, charges or encumbrances that, individually or
in the aggregate, would not have a Material Adverse Effect, nor will such action
result in any violation of the provisions of the charter or by-laws of the
Company or the partnership agreement or charter or by-laws, as the case may be,
of any of its subsidiaries, or, to the best of my knowledge and information, any
applicable provision of any law, statute or administrative regulation of the
State of California, or, to the best of my knowledge and information, any
judgment, order, writ or decree of any government instrumentality or court,
domestic or foreign, applicable to the Company or any of its subsidiaries or any
of their respective properties, assets or operations.
In rendering such opinion, such counsel may rely as to matters of fact (but
not as to legal conclusions), to the extent he deems proper, on certificates of
responsible officers of the Company and public officials. Such opinion shall
not state that it is to be governed or qualified by, or that it is otherwise
subject to, any treatise, written policy or other document relating to legal
opinions, including, without limitation, the Legal Opinion Accord of the ABA
Section of Business Law (1991).
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