As Filed Pursuant to Rule 424(b)(5)
Registration No. 333-109393
PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED OCTOBER 22, 2003)
6,000,000 SHARES
[LEXINGTON LOGO]
LEXINGTON CORPORATE PROPERTIES TRUST
COMMON SHARES OF BENEFICIAL INTEREST
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We are offering 6,000,000 common shares of beneficial interest. Our common
shares are traded on the New York Stock Exchange under the symbol "LXP". On
February 26, 2004, the last reported sale price of our common shares on the New
York Stock Exchange was $21.70 per share.
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INVESTING IN OUR COMMON SHARES INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE S-4 OF THIS PROSPECTUS SUPPLEMENT.
The underwriter has agreed to purchase the 6,000,000 common shares offered by
this prospectus supplement at a price of $20.92 per share, resulting in
aggregate proceeds to us, before deducting transaction costs payable by us, of
$125,520,000.
The underwriter proposes to offer the common shares from time to time for sale
in negotiated transactions or otherwise, at market prices prevailing at the time
of sale, at prices related to such market prices or at negotiated prices. The
common shares may be offered by the underwriter to purchasers directly, through
agents or through brokerage transactions on the New York Stock Exchange or to
dealers in negotiated transactions.
We have granted the underwriter a 30-day option to purchase up to an additional
900,000 common shares to cover over-allotments, if any, at a price of $20.92 per
share.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION,
NOR ANY OTHER REGULATORY BODY HAS APPROVED OR DISAPPROVED THESE SECURITIES OR
DETERMINED IF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS TO WHICH
IT RELATES IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Delivery of the common shares will be made on or about March 3, 2004.
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WACHOVIA SECURITIES
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS FEBRUARY 26, 2004.
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<Table>
About This Prospectus Supplement............................ S-ii
Cautionary Statements Concerning Forward-Looking
Information............................................... S-ii
Prospectus Supplement Summary............................... S-1
The Offering................................................ S-3
Risk Factors................................................ S-4
Use Of Proceeds............................................. S-12
Description Of Our Common Shares............................ S-13
Restrictions On Transfers Of Capital Shares And
Anti-Takeover Provisions.................................. S-13
Distribution Policy......................................... S-13
Price Range Of Our Common Shares And Distribution History... S-13
Federal Income Tax Considerations........................... S-15
Underwriting................................................ S-25
Legal Matters............................................... S-26
Experts..................................................... S-27
Available Information....................................... S-27
Incorporation Of Information We File With The SEC........... S-27
PROSPECTUS
Cautionary Statements Concerning Forward-Looking
Information............................................... i
About This Prospectus....................................... i
Our Company................................................. 1
Description Of Our Common Shares............................ 2
Description Of Our Preferred Shares......................... 4
Description Of Our Debt Securities.......................... 8
Restrictions On Transfers Of Capital Stock And Anti-Takeover
Provisions................................................ 20
Use Of Proceeds............................................. 23
Plan of Distribution........................................ 23
Ratios of Earnings to Combined Fixed Charges and Preferred
Share Dividends........................................... 24
Experts..................................................... 24
Legal Matters............................................... 25
Where You Can Find More Information......................... 25
Incorporation Of Certain Documents By Reference............. 25
</Table>
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YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS SUPPLEMENT
AND THE ACCOMPANYING PROSPECTUS. NEITHER WE NOR THE UNDERWRITER HAVE AUTHORIZED
ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION. WHEN YOU MAKE A DECISION ABOUT
WHETHER TO INVEST IN OUR COMMON SHARES, YOU SHOULD NOT RELY UPON ANY INFORMATION
OTHER THAN THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS
PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS IS ACCURATE AS OF ANY DATE
OTHER THAN THE DATE ON THE FRONT OF THIS PROSPECTUS SUPPLEMENT OR AS OF ANY DATE
SPECIFICALLY INDICATED IN THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS, AS APPLICABLE. THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY THESE COMMON SHARES IN ANY CIRCUMSTANCES UNDER WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL OR IN ANY STATE WHERE SUCH OFFER OR SOLICITATION IS NOT
PERMITTED.
S-i
ABOUT THIS PROSPECTUS SUPPLEMENT
All references to "we," "our" and "us" in this prospectus supplement means
Lexington Corporate Properties Trust and all entities owned or controlled by us
except where it is made clear that the term means only the parent company. The
term "you" refers to a prospective investor.
When used in this prospectus supplement, the phrase "funds from
operations," or FFO, which is a commonly used measurement of the performance of
an equity real estate investment trust, or REIT, as defined by the National
Association of Real Estate Investment Trusts, Inc., is net income (or loss)
computed in accordance with generally accepted accounting principles, excluding
gains or losses from sales of property, plus depreciation and amortization, and
after adjustments for unconsolidated partnerships and joint ventures.
Adjustments for unconsolidated partnerships and joint ventures will be
calculated to reflect FFO on the same basis. FFO does not represent cash
generated from operating activities in accordance with generally accepted
accounting principles and is not indicative of cash available to fund cash needs
and should not be considered as an alternative to net income as an indicator of
our operating performance or as an alternative to cash flow as a measure of
liquidity.
We have filed with the Securities and Exchange Commission, and the
Securities and Exchange Commission has declared effective, a Registration
Statement on Form S-3, of which the accompanying prospectus forms a part, under
the Securities Act of 1933, as amended. As permitted by the rules and
regulations of the Securities and Exchange Commission, and as stated in the
accompanying prospectus, this prospectus supplement sets forth the specific
terms of the common shares being offered and updates certain information
included in the accompanying prospectus. TO THE EXTENT THAT ANY SUBJECT MATTER
IS ADDRESSED IN BOTH THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS,
THE INFORMATION CONTAINED IN THIS PROSPECTUS SUPPLEMENT SUPERSEDES THE
INFORMATION CONTAINED IN THE ACCOMPANYING PROSPECTUS.
CAUTIONARY STATEMENTS CONCERNING FORWARD-LOOKING INFORMATION
Certain information included or incorporated by reference in this
prospectus supplement and the accompanying prospectus may contain
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended, and as such may involve known and unknown risks, uncertainties and
other factors which may cause our actual results, performance or achievements to
be materially different from future results, performance or achievements
expressed or implied by these forward-looking statements. Forward-looking
statements, which are based on certain assumptions and describe our future
plans, strategies and expectations, are generally identifiable by use of the
words "may," "will," "should," "expect," "anticipate," "estimate," "believe,"
"intend," "project," or the negative of these words or other similar words or
terms. Factors which could have a material adverse effect on our operations and
future prospects include, but are not limited to, changes in economic conditions
generally and the real estate market specifically, adverse developments with
respect to our tenants, legislative/regulatory changes including changes to laws
governing the taxation of REITs, availability of debt and equity capital,
changes in interest rates, competition, supply and demand for properties in our
current and proposed market areas, policies and guidelines applicable to REITs
and the other factors described under the heading "Risk Factors" beginning on
page S-4 of this prospectus supplement. These risks and uncertainties should be
considered in evaluating any forward-looking statements contained or
incorporated by reference in this prospectus supplement and the accompanying
prospectus.
We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
In light of these risks, uncertainties and assumptions, the forward-looking
events discussed or incorporated by reference in this prospectus supplement and
the accompanying prospectus may not occur and actual results could differ
materially from those anticipated or implied in the forward-looking statements.
S-ii
PROSPECTUS SUPPLEMENT SUMMARY
This summary highlights information contained elsewhere in this prospectus
supplement and the accompanying prospectus. Because this is a summary, it may
not contain all of the information that is important to you. Before making a
decision to invest in our common shares, you should read this entire prospectus
supplement and the accompanying prospectus carefully, especially "Risk Factors"
beginning on page S-4 of this prospectus supplement and "Available Information"
on page S-27 of this prospectus supplement, as well as the documents
incorporated by reference in this prospectus supplement and the accompanying
prospectus, as provided in "Incorporation of Information We File With the SEC"
on page S-27 of this prospectus supplement, before making an investment
decision. Unless otherwise indicated, all financial and property information is
presented as of December 31, 2003.
THE COMPANY
We are a self-managed and self-administered real estate investment trust,
commonly referred to as a REIT, formed under the laws of the State of Maryland.
Our common shares and preferred shares are traded on the New York Stock Exchange
under the symbols "LXP" and "LXP_pb", respectively. Our primary business is the
acquisition, ownership and management of a geographically diverse portfolio of
net leased office, industrial and retail properties. Substantially all of our
properties are subject to triple net leases, which are generally characterized
as leases in which the tenant bears all or substantially all of the costs and
cost increases for real estate taxes, utilities, insurance and ordinary repairs
and maintenance. As of December 31, 2003, we had ownership interests in 118
properties, located in 35 states and containing an aggregate of approximately
23.0 million net rentable square feet of space. Eighteen of these properties,
containing approximately 5.9 million net rentable square feet of space, were
held through joint ventures with third parties. Approximately 98.8% of the net
rentable square feet was leased.
We grow our portfolio primarily by acquiring properties from corporations
and other entities in sale-leaseback transactions and from developers of
newly-constructed properties built to suit the needs of a corporate tenant. We
have diversified our portfolio by geographical location, tenant industry
segment, lease term expiration and property type with the intention of providing
steady internal growth with low volatility. We believe that this diversification
should help insulate us from regional recession, industry specific downturns and
price fluctuations by property type. As part of our ongoing efforts, we expect
to continue to effect portfolio and individual property acquisitions and
dispositions, expand existing properties, attract investment grade quality
tenants, extend lease maturities in advance of expiration and refinance
outstanding indebtedness when advisable. Additionally, we enter into joint
ventures with third-party investors as a means of creating additional growth and
expanding the revenue realized from advisory and asset management activities.
Our principal executive offices are located at One Penn Plaza, Suite 4015,
New York, New York 10119, our telephone number is (212) 692-7260 and our
Internet address is http://www.lxp.com. None of the information on our website
that is not otherwise expressly set forth in or incorporated by reference in
this prospectus supplement or the accompanying base prospectus is a part of this
prospectus.
RECENT DEVELOPMENTS
On January 5, 2004, we announced that we had acquired a three-story,
157,511 square foot Class-A office property situated on a 22.1 acre site located
in Wall Township, New Jersey for a purchase price of $33.7 million. The Wall
Township, New Jersey property is 100% leased to New Jersey Natural Gas Company
under a net lease through June 2021, with average annual rent payments of $3.3
million. In connection with the acquisition, we assumed a non-recourse first
mortgage note of approximately $27.5 million, bearing interest at a fixed annual
rate of 7.32% and maturing January 2021.
On January 15, 2004, we announced that our board of trustees had declared a
dividend of $0.35 per common share payable February 13, 2004 to shareholders of
record as of January 30, 2004, representing an annualized dividend increase of
$0.06 per share. Our board of trustees also declared a dividend of
S-1
$0.503125 per share of our Series B Preferred Shares payable February 17, 2004
to preferred shareholders of record as of January 30, 2004.
On January 15, 2004, we announced that Lexington/Lion Venture L.P., or
Lexington/Lion, a joint venture between us and Clarion Lion Properties Fund, LLC
in which we hold a 30% ownership interest, had acquired a 693,000 square foot
distribution facility in New Lenox, Illinois situated on a 45.0 acre site for a
purchase price of $28.6 million. The New Lenox, Illinois property is 100% leased
to Michaels Stores Procurement Company, Inc. under a net lease through January
2024, with annual rent payments of approximately $1.9 million. The tenant's
lease obligations are guaranteed by Michaels Stores, Inc. The property is
encumbered by a non-recourse mortgage note of approximately $17.4 million,
bearing interest at a fixed annual rate of 5.51% and maturing February 2014.
On January 16, 2004, we announced that we had acquired a single-story,
75,016 square foot Class-A office property located in Mission, Texas for a
purchase price of $10.1 million. The Mission, Texas property is 100% leased to a
subsidiary of T-Mobile USA, Inc. under a net lease through June 2015, with
average annual rent payments of $1.0 million. T-Mobile USA, Inc. unconditionally
guarantees the tenant's lease obligations. The property is encumbered by a
non-recourse mortgage note of approximately $6.6 million, bearing interest at a
fixed annual rate of 5.78% and maturing June 2015.
In January 2004, we contributed an office and R&D facility located in
Arlington, Texas to Lexington Acquiport Company II, LLC, or LAC II, one of our
joint ventures with The Comptroller of the State of New York as trustee for The
Common Retirement Fund. We own a 25% ownership interest in LAC II. We acquired
the Arlington, Texas property in December 2003 for a purchase price of
approximately $30.3 million. The facility consists of two newly-constructed
adjacent but separate buildings: a three-story, 160,016 square foot office
building and a single-story, 73,767 square foot R&D facility. The property
serves as the headquarters of Siemens Dematic Postal Automation, L.P. and is
100% leased to Siemens under a net lease through January 2014 with average
annual rent payments of $2.5 million. The property is encumbered by a
non-recourse mortgage note of approximately $22.0 million, bearing interest at a
fixed annual rate of 5.81% and maturing February 2014.
In January 2004, we contributed a 290,133 square foot industrial property
situated on 18.4 acres in Plymouth, Michigan to Lexington/Lion. We acquired the
Plymouth, Michigan property in September 2003 for a purchase price of $20.7
million. The property is 100% leased to Tower Automotive Products Company under
a net lease through October 2012 with average annual rent payments of $1.9
million. The tenant's lease obligations are guaranteed by Tower Automotive, Inc.
On February 25, 2004, we announced that we had acquired a 77,484 square
foot office/customer care center situated on a 13.1 acre site located in
Redmond, Oregon for a purchase price of $16.4 million. The Redmond, Oregon
property is 100% leased to a subsidiary of T-Mobile USA, Inc. through January
2019, with average annual rent payments of $1.6 million. T-Mobile USA, Inc.
unconditionally guarantees the tenant's lease obligations. In connection with
the acquisition, we have arranged to obtain a non-recourse first mortgage note
of approximately $10.0 million, bearing interest at a fixed annual rate of 5.62%
and a 10-year maturity.
PROPERTY FINANCINGS
Subsequent to December 31, 2003, we obtained fixed rate, non-recourse
mortgage notes on three of our properties. The terms of these mortgages are as
follows:
<Table>
<Caption>
INTEREST
PROPERTY AMOUNT RATE MATURES
-------- -------- -------- --------------
($000'S)
Mechanicsburg, PA................................. $13,870 5.73% March 2014
Newport, OR....................................... $ 7,000 5.03% August 2011
Waterloo, IA...................................... $ 6,800 5.61% February 2013
</Table>
S-2
THE OFFERING
Common Shares offered by
Lexington Corporate Properties
Trust......................... 6,000,000 shares
Common Shares to be
outstanding after the
offering...................... 47,193,479 shares(1)
Use of Proceeds............... We intend to use the net proceeds of this
offering, which are estimated to be
approximately $125.4 million after deducting
offering expenses payable by us, (i) to repay
indebtedness, (ii) to fund future acquisitions,
and (iii) for general business purposes. See
"Use of Proceeds" on page S-12 of this
prospectus supplement.
Risk Factors.................. See "Risk Factors" beginning on page S-4 of
this prospectus supplement for a discussion of
factors you should carefully consider before
deciding to invest in our common shares.
New York Stock Exchange
Symbol........................ LXP
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(1) Does not include (a) 900,000 common shares issuable upon exercise by the
underwriter of its over-allotment option in full, and (b) an aggregate of
approximately 5,650,056 common shares issuable, as of the date of this
prospectus supplement, upon (i) the exchange of all outstanding units of
limited partnership interests in our operating partnership subsidiaries
(approximately 5,385,747 common shares) and (ii) the exercise of outstanding
options (including unvested options) under our equity-based award plans
(264,309 common shares).
S-3
RISK FACTORS
In evaluating an investment in our common shares, you should carefully
consider the following factors, in addition to other information set forth or
incorporated by reference in this prospectus supplement or in the accompanying
prospectus. See "Incorporation of Information We File With the SEC" on page S-27
of this prospectus supplement.
RISKS INVOLVED IN SINGLE TENANT LEASES. We focus our acquisition
activities on real properties that are net leased to single tenants. Therefore,
the financial failure of, or other default by, a single tenant under its lease
is likely to cause a significant reduction in the operating cash flow generated
by the property leased to that tenant and might decrease the value of that
property.
DEPENDENCE ON MAJOR TENANTS. Revenues from several of our tenants and/or
their guarantors constitute a significant percentage of our rental revenues. As
of December 31, 2003, our fifteen largest tenants/guarantors, which occupied 34
properties, represented $59.7 million, or 46.1%, of our rental revenue for the
twelve months ended December 31, 2003, including our proportionate share of
rental revenue from non-consolidated entities and rental revenue recognized from
properties sold through date of sale. The default, financial distress or
bankruptcy of any of the tenants of these properties could cause interruptions
in the receipt of lease revenues from these tenants and/or result in vacancies,
which would reduce our revenues and increase operating costs until the affected
property is re-let, and could decrease the ultimate sales value of that
property. Upon the expiration or other termination of the leases that are
currently in place with respect to these properties, we may not be able to
re-lease the vacant property at a comparable lease rate or without incurring
additional expenditures in connection with the re-leasing.
LEVERAGE. We have incurred, and expect to continue to incur, indebtedness
(secured and unsecured) in furtherance of our activities. Neither our
declaration of trust nor any policy statement formally adopted by our board of
trustees limits either the total amount of indebtedness or the specified
percentage of indebtedness that we may incur. Accordingly, we could become more
highly leveraged, resulting in increased risk of default on our obligations and
in an increase in debt service requirements which could adversely affect our
financial condition and results of operations and our ability to pay
distributions. Our current unsecured revolving credit facility contains various
covenants which limit the amount of secured, unsecured and variable-rate
indebtedness we may incur.
RISKS RELATING TO INTEREST RATE INCREASES. We have exposure to market
risks relating to increases in interest rates due to our variable-rate debt. An
increase in interest rates may increase our costs of borrowing on existing
variable-rate indebtedness, leading to a reduction in our net income.
Specifically, as of December 31, 2003, we had $94.0 million in outstanding
borrowings under our $100.0 million unsecured revolving credit facility and an
additional $15.7 million in variable-rate indebtedness.
As of December 31, 2003, our consolidated variable-rate indebtedness
represented 19.9% of total indebtedness and had a weighted average interest rate
of 2.9%. The level of our variable-rate indebtedness, along with the interest
rate associated with such variable-rate indebtedness, may change in the future
and materially affect our interest costs and net income.
In addition, our interest costs on our fixed-rate indebtedness can increase
if we are required to refinance our fixed-rate indebtedness at maturity at
higher interest rates.
RISKS ASSOCIATED WITH REFINANCING. A significant number of our properties
are subject to mortgage notes with balloon payments due at maturity. As of
December 31, 2003, the scheduled balloon payments, and balances due on our
unsecured revolving credit facility, for the next five calendar years are as
follows:
- 2004-$14.5 million;
- 2005-$0;
S-4
- 2006-$94.0 million;
- 2007-$0; and
- 2008-$70.5 million.
Our ability to make the scheduled balloon payments will depend upon the
amount available under our unsecured revolving credit facility and our ability
either to refinance the related mortgage debt or to sell the related property.
Our ability to accomplish these goals will be affected by various factors
existing at the relevant time, such as the state of the national and regional
economies, local real estate conditions, available mortgage rates, the lease
terms of the mortgaged properties, our equity in the mortgaged properties, our
financial condition, the operating history of the mortgaged properties and tax
laws. If we are unable to obtain sufficient financing to fund the scheduled
balloon payments or to sell the related property at a price that generates
sufficient proceeds to pay the scheduled balloon payments, we would lose our
entire investment in the related property.
UNCERTAINTIES RELATING TO LEASE RENEWALS AND RE-LETTING OF SPACE. Upon the
expiration of current leases for space located in our properties, we may not be
able to re-let all or a portion of that space, or the terms of re-letting
(including the cost of concessions to tenants) may be less favorable to us than
current lease terms. If we are unable to re-let promptly all or a substantial
portion of the space located in our properties or if the rental rates we receive
upon re-letting are significantly lower than current rates, our net income and
ability to make expected distributions to our shareholders will be adversely
affected due to the resulting reduction in rent receipts and increase in our
property operating costs. There can be no assurance that we will be able to
retain tenants in any of our properties upon the expiration of their leases. As
of the date of this prospectus supplement, our scheduled lease maturities,
including a 2008 lease maturing at a property owned by a non-consolidated
entity, for the next five years are as follows:
<Table>
<Caption>
CURRENT
NUMBER ANNUAL
OF RENT
LEASES MATURING IN: LEASES ($000)
- ------------------- ------ -------
2004....................................................... 2 $ 1,302
2005....................................................... 7 7,311
2006....................................................... 15 12,700
2007....................................................... 9 16,542
2008....................................................... 8 8,923
-- -------
Total.................................................... 41 $46,778
== =======
</Table>
DEFAULTS ON CROSS-COLLATERALIZED PROPERTIES. As of the date of this
prospectus supplement, the mortgages on two of our properties, in Canton, Ohio
and Spartansburg, South Carolina, are cross-collateralized. To the extent that
any of our properties are cross-collateralized, any default by us under the
mortgage note relating to one property will result in a default under the
financing arrangements relating to any other property that also provides
security for that mortgage note.
POSSIBLE LIABILITY RELATING TO ENVIRONMENTAL MATTERS. Under various
federal, state and local environmental laws, statutes, ordinances, rules and
regulations, as an owner of real property, we may be liable for the costs of
removal or remediation of certain hazardous or toxic substances at, on, in or
under our properties, as well as certain other potential costs relating to
hazardous or toxic substances (including government fines and penalties and
damages for injuries to persons and adjacent property). These laws may impose
liability without regard to whether we knew of, or were responsible for, the
presence or disposal of those substances. This liability may be imposed on us in
connection with the activities of an operator of, or tenant at, the property.
The cost of any required remediation, removal, fines or personal or property
damages and our liability therefor could exceed the value of the property and/or
our aggregate assets. In addition, the presence of those substances, or the
failure to properly dispose of or remove those substances, may adversely affect
our ability to sell or rent that property or to borrow using that property as
collateral, which, in turn, would reduce our revenues and ability to make
distributions.
S-5
A property can also be adversely affected either through physical
contamination or by virtue of an adverse effect upon value attributable to the
migration of hazardous or toxic substances, or other contaminants that have or
may have emanated from other properties. Although our tenants are primarily
responsible for any environmental damages and claims related to the leased
premises, in the event of the bankruptcy or inability of any of our tenants to
satisfy any obligations with respect to the property leased to that tenant, we
may be required to satisfy such obligations. In addition, we may be held
directly liable for any such damages or claims irrespective of the provisions of
any lease.
From time to time, in connection with the conduct of our business, and
prior to the acquisition of any property from a third party or as required by
our financing sources, we authorize the preparation of Phase I environmental
reports and, when necessary, Phase II environmental reports, with respect to our
properties. Based upon these environmental reports and our ongoing review of our
properties, as of the date of this prospectus supplement, we are not aware of
any environmental condition with respect to any of our properties that we
believe would be reasonably likely to have a material adverse effect on us.
There can be no assurance, however, that the environmental reports will reveal
all environmental conditions at our properties or that the following will not
expose us to material liability in the future:
- the discovery of previously unknown environmental conditions;
- changes in law;
- activities of tenants; or
- activities relating to properties in the vicinity of our properties.
Changes in laws increasing the potential liability for environmental
conditions existing on properties or increasing the restrictions on discharges
or other conditions may result in significant unanticipated expenditures or may
otherwise adversely affect the operations of our tenants, which could adversely
affect our financial condition or results of operations.
UNINSURED LOSS. We carry comprehensive liability, fire, extended coverage
and rent loss insurance on most of our properties, with policy specifications
and insured limits that we believe are customary for similar properties.
However, with respect to those properties where the leases do not provide for
abatement of rent under any circumstances, we generally do not maintain rent
loss insurance. In addition, there are certain types of losses, such as losses
resulting from wars, terrorism or certain acts of God that generally are not
insured because they are either uninsurable or not economically insurable.
Should an uninsured loss or a loss in excess of insured limits occur, we could
lose capital invested in a property, as well as the anticipated future revenues
from a property, while remaining obligated for any mortgage indebtedness or
other financial obligations related to the property. Any loss of these types
would adversely affect our financial condition.
RISKS RELATING TO TERRORISM. Future terrorist attacks such as those which
occurred in New York City, Pennsylvania and Washington, D.C. on September 11,
2001, and military conflicts such as the military actions taken by the United
States and its allies in Afghanistan and Iraq, could have a material adverse
effect on general economic conditions, consumer confidence and market liquidity.
Among other things, it is possible that interest rates may be affected by these
events. An increase in interest rates may increase our costs of borrowing on
existing variable-rate indebtedness, leading to a reduction in our net income.
These types of terrorist acts could also result in significant damages to, or
loss of, our properties.
We and our tenants may be unable to obtain adequate insurance coverage on
acceptable economic terms for losses resulting from acts of terrorism. Our
lenders may require that we carry terrorism insurance even if we do not believe
this insurance is necessary or cost effective. We may also be prohibited under
the applicable lease from passing all or a portion of the cost of such insurance
through to the tenant. Should an act of terrorism result in an uninsured loss or
a loss in excess of insured limits, we could lose capital invested in a
property, as well as the anticipated future revenues from a property, while
remaining obligated for any mortgage indebtedness or other financial obligations
related to the property. Any loss of these types would adversely affect our
financial condition.
S-6
COMPETITION. There are numerous commercial developers, real estate
companies, financial institutions and other investors with greater financial
resources than we have that compete with us in seeking properties for
acquisition and tenants who will lease space in our properties. Due to our focus
on net-lease properties located throughout the United States, and because most
competitors are locally and/or regionally focused, we do not encounter the same
competitors in each region of the United States. Our competitors include other
REITs, financial institutions, insurance companies, pension funds, private
companies and individuals. This competition may result in a higher cost for
properties that we wish to purchase.
FAILURE TO QUALIFY AS A REIT. We believe that we have met the requirements
for qualification as a REIT for federal income tax purposes beginning with our
taxable year ended December 31, 1993, and we intend to continue to meet these
requirements in the future. However, qualification as a REIT involves the
application of highly technical and complex provisions of the Internal Revenue
Code of 1986, as amended, which is referred to as the Code, for which there are
only limited judicial or administrative interpretations. No assurance can be
given that we have qualified or will remain qualified as a REIT. The Code
provisions and income tax regulations applicable to REITs are more complex than
those applicable to corporations. The determination of various factual matters
and circumstances not entirely within our control may affect our ability to
continue to qualify as a REIT. In addition, no assurance can be given that
legislation, regulations, administrative interpretations or court decisions will
not significantly change the requirements for qualification as a REIT or the
federal income tax consequences of such qualification. If we do not qualify as a
REIT, we would not be allowed a deduction for distributions to shareholders in
computing our net taxable income. In addition, our income would be subject to
tax at the regular corporate rates. We also could be disqualified from treatment
as a REIT for the four taxable years following the year during which
qualification was lost. Cash available for distribution to our shareholders
would be significantly reduced for each year in which we do not qualify as a
REIT. In that event, we would not be required to continue to make distributions.
Although we currently intend to continue to qualify as a REIT, it is possible
that future economic, market, legal, tax or other considerations may cause us,
without the consent of the shareholders, to revoke the REIT election or to
otherwise take action that would result in disqualification.
DISTRIBUTION REQUIREMENTS IMPOSED BY LAW LIMIT OUR FLEXIBILITY. To
maintain our status as a REIT for federal income tax purposes, we are generally
required to distribute to our shareholders at least 90% of our taxable income
for that calendar year. Our taxable income is determined without regard to any
deduction for dividends paid and by excluding net capital gains. To the extent
that we satisfy the distribution requirement, but distribute less than 100% of
our taxable income, we will be subject to federal corporate income tax on our
undistributed income. In addition, we will incur a 4% nondeductible excise tax
on the amount, if any, by which our distributions in any year are less than the
sum of (i) 85% of our ordinary income for that year, (ii) 95% of our capital
gain net income for that year and (iii) 100% of our undistributed taxable income
from prior years. We intend to continue to make distributions to our
shareholders to comply with the distribution requirements of the Code and to
reduce exposure to federal income and nondeductible excise taxes. Differences in
timing between the receipt of income and the payment of expenses in determining
our income and the effect of required debt amortization payments could require
us to borrow funds on a short-term basis in order to meet the distribution
requirements that are necessary to achieve the tax benefits associated with
qualifying as a REIT.
INTEREST RATE FLUCTUATIONS. It is likely that the public valuation of our
common shares will be based primarily on the earnings that we derive from rental
income with respect to our properties and not from the underlying appraised
value of the properties themselves. As a result, interest rate fluctuations and
capital market conditions can affect the market value of our common shares. For
instance, if interest rates rise, it is likely that the market price of our
common shares will decrease because potential investors may require a higher
dividend yield on our common shares as market rates on interest-bearing
securities, such as bonds, rise.
INABILITY TO CARRY OUT OUR GROWTH STRATEGY. Our growth strategy is based
on the acquisition and development of additional properties, including
acquisitions through co-investment programs such as joint ventures. In the
context of our business plan, "development" generally means an expansion or
renovation of an existing property or the acquisition of a newly constructed
property. We typically provide a
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developer with a commitment to acquire a property upon completion of
construction. Our plan to grow through the acquisition and development of new
properties could be adversely affected by trends in the real estate and
financing businesses. The consummation of any future acquisitions will be
subject to satisfactory completion of our extensive valuation analysis and due
diligence review and to the negotiation of definitive documentation. We cannot
be sure that we will be able to implement our strategy because we may have
difficulty finding new properties, negotiating with new or existing tenants or
securing acceptable financing. If we are unable to carry out our strategy, our
financial condition and results of operations could be adversely affected.
Acquisitions of additional properties entail the risk that investments will
fail to perform in accordance with expectations, including operating and leasing
expectations. Redevelopment and new project development are subject to numerous
risks, including risks of construction delays, cost overruns or force majeure
that may increase project costs, new project commencement risks such as the
receipt of zoning, occupancy and other required governmental approvals and
permits, and the incurrence of development costs in connection with projects
that are not pursued to completion.
We anticipate that some of our acquisitions and developments will be
financed using the proceeds of periodic equity or debt offerings, lines of
credit or other forms of secured or unsecured financing that will result in a
risk that permanent financing for newly acquired projects might not be available
or would be available only on disadvantageous terms. If permanent debt or equity
financing is not available on acceptable terms to refinance acquisitions
undertaken without permanent financing, further acquisitions may be curtailed or
cash available for distribution may be adversely affected.
DILUTION OF COMMON SHARES. Our future growth will depend in part on our
ability to raise additional capital. If we raise additional capital through the
issuance of equity securities, the interests of holders of our common shares,
including the common shares being offered by this prospectus supplement, could
be diluted. Likewise, our board of trustees is authorized to cause us to issue
preferred shares in one or more series, the holders of which would be entitled
to dividends and voting and other rights as our board of trustees determines,
and which could be senior to our common shares. Accordingly, an issuance by us
of preferred shares could be dilutive to or otherwise adversely affect the
interests of holders of our common shares.
OWNERSHIP LIMITATIONS. For us to qualify as a REIT for federal income tax
purposes, among other requirements, not more than 50% of the value of our
capital shares may be owned, directly or indirectly, by five or fewer
individuals (as defined for federal income tax purposes to include certain
entities) during the last half of each taxable year after 1993, and these
capital shares must be beneficially owned by 100 or more persons during at least
335 days of a taxable year of 12 months or during a proportionate part of a
shorter taxable year (in each case, other than the first such year). Our
declaration of trust includes certain restrictions regarding transfers of our
capital shares and ownership limits that are intended to assist us in satisfying
these limitations. These restrictions and limits may not be adequate in all
cases, however, to prevent the transfer of our capital shares in violation of
the ownership limitations. The ownership limit discussed above may have the
effect of delaying, deferring or preventing someone from taking control of our
company, even though a change of control could involve a premium price for your
common shares or otherwise be in your best interest.
RESTRICTIONS ON A POTENTIAL CHANGE OF CONTROL. Our board of trustees is
authorized by our declaration of trust to establish and issue one or more series
of preferred shares without shareholder approval. As of the date of this
prospectus supplement, we have only one series of preferred shares outstanding
which is the Series B Preferred Shares we issued in June 2003. The establishment
and issuance of shares of our existing preferred shares or a future series of
preferred shares could make more difficult a change of control of our company.
In addition, we have entered into employment agreements with seven of our
executive officers which provide that, upon the occurrence of a change in
control of our company (including a change in ownership of more than fifty
percent of the total combined voting power of our outstanding securities, the
sale of all or substantially all of our assets, dissolution of our company, the
acquisition, except from us, of
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20% or more of our voting shares or a change in the majority of our board of
trustees), those executive officers would be entitled to severance benefits
based on their current annual base salaries and recent annual bonuses, as
defined in the employment agreements. The provisions of these agreements could
deter a change of control.
CONCENTRATION OF OWNERSHIP BY CERTAIN INVESTORS. As of the date of this
prospectus supplement, E. Robert Roskind, the chairman of our board of trustees,
owned or controlled (including through trusts with respect to which he is a
beneficiary) 651,681 common shares, 1,608,995 operating partnership units which
are convertible into common shares, and options (including unvested options) to
purchase 12,500 common shares, representing 5.3% of our fully-diluted
outstanding voting securities.
In 1999, we entered into a joint venture agreement with The Comptroller of
the State of New York as trustee of The Common Retirement Fund, or "CRF", to
acquire properties in an aggregate amount of up to approximately $400 million.
As of the date of this prospectus supplement, this joint venture and a separate
partnership formed by the Company and CRF to purchase a specific property have
made investments in thirteen properties for $403.0 million. We have a 33 1/3%
equity interest in this joint venture and the separate partnership. In December
2001, we formed a separate joint venture with CRF to acquire additional
properties in an aggregate amount of up to approximately $560 million. We have a
25% equity interest in this joint venture. As of the date of the prospectus
supplement, this joint venture has made investments in one property for $30.3
million. Under these joint venture agreements, CRF has the right to sell its
equity position in the joint ventures to us, although as of the date of this
prospectus supplement, this right is only effective with respect to the first
joint venture, and becomes effective with respect to the second joint venture
upon the occurrence of certain conditions. In the event CRF exercises its right
to sell its equity interest in either joint venture to us, we may, at our
option, either issue our common shares to CRF for the fair market value of CRF's
equity position, based upon a formula contained in the operating agreement, or
pay cash to CRF equal to 110% of the fair market value of CRF's equity position.
We have the right to not accept any property in the joint ventures (thereby
reducing the fair market value of CRF's equity position) that does not meet
certain underwriting criteria. In addition, the joint venture agreements contain
a mutual buy-sell provision in which either CRF or we can force the sale of any
property.
In October 2003, we entered into a joint venture agreement with Clarion
Lion Properties Fund, LLC, or "Clarion", to acquire properties in an aggregate
amount of up to approximately $250 million. As of the date of this prospectus
supplement, this joint venture owns four properties for which it paid an
aggregate purchase price of $103.1 million. We have a 30% equity interest in
this joint venture. Under the joint venture agreement, Clarion has the right to
sell its equity position in the joint venture to us. This right becomes
effective upon the occurrence of certain conditions. In the event Clarion
exercises its right to sell its equity interest in the joint venture to us, we
may, at our option, either issue our common shares to Clarion for the fair
market value of Clarion's equity position, based upon a formula contained in the
partnership agreement, or pay cash to Clarion equal to 100% of the fair market
value of Clarion's equity position. We have the right not to accept any property
in the joint venture (thereby reducing the fair market value of Clarion's equity
position) that does not meet certain underwriting criteria. In addition, the
joint venture agreement contains a mutual buy-sell provision in which either
Clarion or we can force the sale of any property.
A significant concentration of ownership may allow an investor to exert a
greater influence over our management and affairs, and may have the effect of
delaying, deferring or preventing a change in control of our company, may
discourage bids for our common shares at a premium over the market price and may
adversely affect the market price of our common shares.
LIMITED CONTROL OVER JOINT VENTURE INVESTMENTS. Our joint venture
investments may involve risks not otherwise present for investments made solely
by us, including the possibility that our joint venture partner might, at any
time, become bankrupt, have different interests or goals than we do, or take
action
S-9
contrary to our instructions, requests, policies or objectives, including our
policy with respect to maintaining our qualification as a REIT. Other risks of
joint venture investments include impasse on decisions, such as a sale, because
neither we nor a joint venture partner would have full control over the joint
venture. Also, there is no limitation under our organizational documents as to
the amount of funds that may be invested in joint ventures. Our credit facility
restricts the amount of capital that we can invest in joint ventures.
Under the terms of our joint venture with CRF, we are required to first
offer to the joint venture all of our opportunities to acquire office and
industrial properties requiring a minimum investment of $10 million which are
net leased primarily to investment grade tenants for a minimum term of ten
years, are available for immediate delivery and satisfy other specified
investment criteria. Only if CRF elects not to approve the joint venture's
pursuit of an acquisition opportunity may we pursue the opportunity directly. As
a result, we may not be able to make attractive acquisitions directly and may
only receive a minority interest in such acquisitions through our minority
interest in this joint venture.
Under the terms of our joint venture with Clarion, we are required to first
offer to the joint venture all of our opportunities to acquire office,
industrial and retail properties requiring a minimum investment of $15.0 million
to $40.0 million which are net leased primarily to non-investment grade tenants
for a minimum term of at least five years, are available for immediate delivery
and satisfy other specified investment criteria. Only if Clarion elects not to
approve the joint venture's pursuit of an acquisition opportunity may we pursue
the opportunity directly. As a result, we may not be able to make attractive
acquisitions directly and may only receive a minority interest in such
acquisitions through our minority interest in this joint venture.
CONFLICTS OF INTEREST WITH RESPECT TO SALES AND REFINANCINGS. Two of our
trustees and officers own units of limited partnership interest in our operating
partnerships and, as a result, may face different and more adverse tax
consequences than you will if we sell our properties or reduce our mortgage
indebtedness on our properties. Those individuals may, therefore, have different
objectives than you regarding the appropriate pricing and timing of any sale of
such properties or reduction of mortgage debt. Accordingly, there may be
instances in which we may not sell a property or pay down the debt on a property
even though doing so would be advantageous to you.
OUR ABILITY TO CHANGE OUR PORTFOLIO IS LIMITED BECAUSE REAL ESTATE
INVESTMENTS ARE ILLIQUID. Equity investments in real estate are relatively
illiquid and, therefore, our ability to change our portfolio promptly in
response to changed conditions will be limited. Our board of trustees may
establish investment criteria or limitations as it deems appropriate, but
currently does not limit the number of properties in which we may seek to invest
or on the concentration of investments in any one geographic region. We could
change our investment, disposition and financing policies without a vote of our
shareholders.
OUR BOARD OF TRUSTEES MAY CHANGE OUR INVESTMENT POLICY WITHOUT
SHAREHOLDERS' APPROVAL. Subject to our fundamental investment policy to
maintain our qualification as a REIT, our board of trustees will determine our
investment and financing policies, our growth strategy and our debt,
capitalization, distribution, acquisition, disposition and operating policies.
Although our board of trustees has no present intention to revise or amend these
strategies and policies, it may do so at any time without a vote by our
shareholders. Accordingly, our shareholders' control over changes in our
strategies and policies is limited to the election of trustees, and changes made
by our board of trustees may not serve the interests of our shareholders and
could adversely affect our financial condition or results of operations,
including our ability to distribute cash to shareholders or qualify as a REIT.
LIMITS ON OWNERSHIP OF OUR CAPITAL SHARES. Actual or constructive
ownership of our capital shares in excess of the share ownership limits
contained in our declaration of trust would cause the violative transfer or
ownership to be void or cause the shares to be transferred to a charitable trust
and then sold to a person or entity who can own the shares without violating
these limits. As a result, if a violative transfer were made, the recipient of
the shares would not acquire any economic or voting rights attributable to the
transferred shares. Additionally, the constructive ownership rules for these
limits are
S-10
complex and groups of related individuals or entities may be deemed a single
owner and consequently in violation of the share ownership limits. We recommend
that you read "Description of Our Common Shares -- Restrictions on Ownership,"
"Description of Our Preferred Shares -- Restrictions on Ownership" and
"Restrictions on Transfers of Capital Stock and Anti-Takeover
Provisions -- Restrictions Relating to REIT Status" on pages 3, 6 and 20,
respectively, of the accompanying prospectus for a detailed description of the
share ownership limits.
ADVERSE LEGISLATIVE OR REGULATORY TAX CHANGES. At any time, the federal
income tax laws governing REITs or the administrative interpretations of those
laws may be amended. Any of those new laws or interpretations may take effect
retroactively and could adversely affect us or you as a shareholder. Recently
enacted legislation reduces individual tax rates applicable to certain corporate
dividends. REIT dividends generally would not be eligible for reduced rates
because a REIT's income generally is not subject to corporate level tax. As a
result, investment in non-REIT corporations may be relatively more attractive
than investment in REITs. This could adversely affect the market price of our
shares.
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USE OF PROCEEDS
We expect that the net proceeds from this offering will be approximately
$125.4 million, after deducting offering expenses payable by us and assuming the
underwriter does not exercise its over-allotment option to purchase up to an
additional 900,000 of our common shares. We intend to use the net proceeds (i)
to repay $64.0 million outstanding under our unsecured revolving credit facility
as of the date of this prospectus supplement which bears interest at an annual
rate of 2.6% and has a maturity date of August 19, 2006, (ii) to fund future
acquisitions, and (iii) for general business purposes.
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DESCRIPTION OF OUR COMMON SHARES
For a summary of the material terms and provisions of our common shares,
see "Description of Our Common Shares" beginning on page 2 of the accompanying
prospectus.
RESTRICTIONS ON TRANSFERS OF CAPITAL SHARES
AND ANTI-TAKEOVER PROVISIONS
For a summary of other restrictions on transfers of our capital shares, see
"Restrictions on Transfers of Capital Stock and Anti-Takeover Provisions"
beginning on page 20 of the accompanying prospectus.
DISTRIBUTION POLICY
We pay distributions to our shareholders on a quarterly basis if, as and
when declared by our board of trustees. In order to maintain our status as a
REIT, we are generally required to distribute annually to our shareholders at
least 90% of our REIT taxable income (determined as provided in the Internal
Revenue Code of 1986, as amended, which is referred to as the Code, without
regard to the deduction for dividends paid and excluding any net capital gain).
Future distributions on our common shares will be at the discretion of our
board of trustees and will depend on, among other things, our results of
operations, financial condition and capital requirements, the annual
distribution requirements under the REIT provisions of the Code, our debt
service requirements and other factors as our board of trustees may deem
relevant. In addition, our unsecured credit agreement imposes certain
restrictions on us with regard to dividends and incurring additional debt
obligations.
We do not believe that the financial covenants contained in our unsecured
revolving credit agreement and secured indebtedness will have a material adverse
impact on our ability to pay dividends in the normal course of business to our
shareholders or to distribute amounts necessary to maintain our qualifications
as a REIT.
Distributions on our common shares to the extent of our current and
accumulated earnings and profits for federal income tax purposes, and to the
extent not designated as a capital gain dividend, generally will be taxable to
shareholders as ordinary income. Distributions in excess of such earnings and
profits generally will be treated as a non-taxable reduction in a shareholder's
basis in its shares to the extent of such basis, and thereafter as gain from the
sale of such shares.
PRICE RANGE OF OUR COMMON SHARES AND DISTRIBUTION HISTORY
Our common shares have been traded on the New York Stock Exchange under the
symbol "LXP" since October 1993. The last reported sale price of our common
shares on the New York Stock Exchange on the date of this prospectus supplement
was $21.70 per share. The following table sets forth the
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quarterly high and low closing sales prices per share reported on the New York
Stock Exchange and the distributions paid per share during the periods
indicated.
<Table>
<Caption>
PRICE
---------------------
HIGH LOW DISTRIBUTION
-------- -------- ------------
2002
First Quarter.............................. $ 15.99 $ 14.25 $0.330
Second Quarter............................. 16.50 15.26 0.330
Third Quarter.............................. 16.75 15.35 0.330
Fourth Quarter............................. 16.25 15.01 0.330
2003
First Quarter.............................. $ 17.20 $ 15.63 $0.335
Second Quarter............................. 18.23 17.12 0.335
Third Quarter.............................. 19.94 17.49 0.335
Fourth Quarter............................. 20.85 19.06 0.335
2004
First Quarter(1)........................... $ 22.08 $ 20.26 $0.350
</Table>
- ---------------
(1) Through the date of this prospectus supplement.
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FEDERAL INCOME TAX CONSIDERATIONS
You are advised to assume that the information in this prospectus
supplement and the accompanying prospectus is accurate only as of their
respective dates.
The following discussion summarizes the material federal income tax
considerations to you as a prospective holder of our shares. The following
discussion is for general information purposes only, is not exhaustive of all
possible tax considerations and is not intended to be and should not be
construed as tax advice. For example, this summary does not give a detailed
discussion of any state, local or foreign tax considerations. In addition, this
discussion is intended to address only those federal income tax considerations
that are generally applicable to all our shareholders. It does not discuss all
of the aspects of federal income taxation that may be relevant to you in light
of your particular circumstances or to certain types of shareholders who are
subject to special treatment under the federal income tax laws including,
without limitation, insurance companies, tax-exempt entities, financial
institutions or broker-dealers, foreign corporations and persons who are not
citizens or residents of the United States.
The information in this section is based on the Internal Revenue Code of
1986, as amended, which is referred to as the Code, existing, temporary and
proposed regulations under the Code, the legislative history of the Code,
current administrative rulings and practices of the IRS and court decisions, all
as of the date hereof. No assurance can be given that future legislation,
regulations, administrative interpretations and court decisions will not
significantly change current law or adversely affect existing interpretations of
current law. Any such change could apply retroactively to transactions preceding
the date of the change. In addition, we have not received, and do not plan to
request, any rulings from the IRS concerning our tax treatment. Thus no
assurance can be provided that the statements set forth herein (which do not
bind the IRS or the courts) will not be challenged by the IRS or that such
statements will be sustained by a court if so challenged.
EACH PROSPECTIVE PURCHASER OF SHARES IS ADVISED TO CONSULT WITH HIS OR HER
OWN TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF THE
PURCHASE, OWNERSHIP AND SALE OF SHARES OF AN ENTITY ELECTING TO BE TAXED AS A
REIT, INCLUDING THE FEDERAL, STATE, LOCAL AND FOREIGN AND OTHER TAX CONSEQUENCES
OF SUCH PURCHASE, OWNERSHIP, SALE AND ELECTION AND OF POTENTIAL CHANGES IN
APPLICABLE TAX LAWS.
TAXATION OF THE COMPANY
GENERAL. We elected to be taxed as a REIT under Sections 856 through 860
of the Code, commencing with our taxable year ended December 31, 1993. We
believe that we have been organized, and have operated, in such a manner so as
to qualify for taxation as a REIT under the Code and intend to conduct our
operations so as to continue to qualify for taxation as a REIT. No assurance,
however, can be given that we have operated in a manner so as to qualify or will
be able to operate in such a manner so as to remain qualified as a REIT.
Qualification and taxation as a REIT depend upon our ability to meet on a
continuing basis, through actual annual operating results, the required
distribution levels, diversity of share ownership and the various qualification
tests imposed under the Code discussed below, the results of which will not be
reviewed by counsel. Given the highly complex nature of the rules governing
REITs, the ongoing importance of factual determinations, and the possibility of
future changes in our circumstances, no assurance can be given that the actual
results of our operations for any one taxable year have satisfied or will
continue to satisfy such requirements.
In the opinion of Paul, Hastings, Janofsky & Walker LLP, based on certain
assumptions and our factual representations that are described in this section
and in the officer's certificate, commencing with our taxable year ended
December 31, 1993, we have been organized and operated in conformity with the
requirements for qualification as a REIT and our current and proposed method of
operation will enable us to continue to meet the requirements for qualification
and taxation as a REIT. It must be emphasized that this opinion is based on
various assumptions and is conditioned upon certain representations made by us
as to factual matters including, but not limited to, those set forth herein and
in the discussion of "Federal
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Income Tax Considerations" contained in the accompanying prospectus, and those
concerning our business and properties as set forth in this prospectus
supplement and the accompanying prospectus. An opinion of counsel is not binding
on the Internal Revenue Service or the courts.
The following is a general summary of the Code provisions that govern the
federal income tax treatment of a REIT and its shareholders. These provisions of
the Code are highly technical and complex. This summary is qualified in its
entirety by the applicable Code provisions, Treasury Regulations and
administrative and judicial interpretations thereof, all of which are subject to
change prospectively or retroactively.
If we qualify for taxation as a REIT, we generally will not be subject to
federal corporate income taxes on our net income that is currently distributed
to shareholders. This treatment substantially eliminates the "double taxation"
(at the corporate and shareholder levels) that generally results from investment
in a corporation. However, we will be subject to federal income tax as follows:
- First, we will be taxed at regular corporate rates on any undistributed
REIT taxable income, including undistributed net capital gains.
- Second, under certain circumstances, we may be subject to the
"alternative minimum tax" on our items of tax preference.
- Third, if we have (a) net income from the sale or other disposition of
"foreclosure property", which is, in general, property acquired on
foreclosure or otherwise on default on a loan secured by such real
property or a lease of such property, which is held primarily for sale to
customers in the ordinary course of business or (b) other nonqualifying
income from foreclosure property, we will be subject to tax at the
highest corporate rate on such income.
- Fourth, if we have net income from "prohibited transactions" such income
will be subject to a 100% tax. Prohibited transactions are, in general,
certain sales or other dispositions of property held primarily for sale
to customers in the ordinary course of business other than foreclosure
property.
- Fifth, if we should fail to satisfy the 75% gross income test or the 95%
gross income test (as discussed below), but nonetheless maintain our
qualification as a REIT because certain other requirements have been met,
we will be subject to a 100% tax on an amount equal to (a) the gross
income attributable to the greater of the amount by which we fail the 75%
gross income test or the amount by which 90% of our gross income exceeds
the amount of income qualifying under the 95% gross income test
multiplied by (b) a fraction intended to reflect our profitability.
- Sixth, if we should fail to distribute during each calendar year at least
the sum of (a) 85% of our REIT ordinary income for such year, (b) 95% of
our REIT capital gain net income for such year, and (c) any undistributed
taxable income from prior periods, we would be subject to a nondeductible
4% excise tax on the excess of such required distribution over the
amounts actually distributed.
- Seventh, assuming we do not elect to instead be taxed at the time of the
acquisition, if we acquire any asset from a C corporation (i.e., a
corporation generally subject to full corporate level tax) in a
transaction in which the basis of the asset in our hands is determined by
reference to the basis of the asset (or any other property) in the hands
of the C corporation, we would be subject to tax at the highest corporate
rate if we dispose of such asset during the 10-year period beginning on
the date that we acquired that asset, to the extent of such property's
"built-in gain" (the excess of the fair market value of such property at
the time of our acquisition over the adjusted basis of such property at
such time).
- Eighth, we will incur a 100% excise tax on transactions with a taxable
REIT subsidiary that are not conducted on an arm's-length basis.
REQUIREMENTS FOR QUALIFICATION. A REIT is a corporation, trust or
association (1) that is managed by one or more trustees or directors, (2) the
beneficial ownership of which is evidenced by transferable shares, or by
transferable certificates of beneficial interest, (3) that would be taxable as a
domestic
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corporation, but for Sections 856 through 859 of the Code, (4) that is neither a
financial institution nor an insurance company subject to certain provisions of
the Code, (5) that has the calendar year as its taxable year, (6) the beneficial
ownership of which is held by 100 or more persons, (7) during the last half of
each taxable year not more than 50% in value of the outstanding stock of which
is owned, directly or indirectly, by five or fewer individuals (as defined in
the Code to include certain entities) (the "5/50 Rule"), and (8) that meets
certain other tests, described below, regarding the nature of its income and
assets. The Code provides that conditions (1) through (5), inclusive, must be
met during the entire taxable year and that condition (6) must be met during at
least 335 days of a taxable year of 12 months, or during a proportionate part of
a taxable year of less than 12 months. We expect to meet the ownership test
immediately after the transaction contemplated herein.
We may redeem, at our option, a sufficient number of shares or restrict the
transfer thereof to bring or maintain the ownership of the shares in conformity
with the requirements of the Code. In addition, our declaration of trust
includes restrictions regarding the transfer of our shares that are intended to
assist us in continuing to satisfy requirements (6) and (7). Moreover, if we
comply with regulatory rules pursuant to which we are required to send annual
letters to our shareholders requesting information regarding the actual
ownership of our shares, and we do not know, or exercising reasonable diligence
would not have known, whether we failed to meet requirement (7) above, we will
be treated as having met the requirement. See "Description of Common Shares,"
and "Restrictions on Transfers of Capital Stock and Anti-Takeover Provisions" in
the accompanying prospectus.
The Code allows a REIT to own wholly-owned subsidiaries which are
"qualified REIT subsidiaries." The Code provides that a qualified REIT
subsidiary is not treated as a separate corporation, and all of its assets,
liabilities and items of income, deduction and credit are treated as assets,
liabilities and items of income, deduction and credit of the REIT. Thus, in
applying the requirements described herein, our qualified REIT subsidiaries will
be ignored, and all assets, liabilities and items of income, deduction and
credit of such subsidiaries will be treated as our assets, liabilities and items
of income, deduction and credit.
A REIT may also hold any direct or indirect interest in a corporation that
qualifies as a "taxable REIT subsidiary", as long as the REIT's aggregate
holdings of taxable REIT subsidiary securities do not exceed 20% of the value of
the REIT's total assets. A taxable REIT subsidiary is a fully taxable
corporation that generally is permitted to engage in businesses, own assets, and
earn income that, if engaged in, owned, or earned by the REIT, might jeopardize
REIT status or result in the imposition of penalty taxes on the REIT. To qualify
as a taxable REIT subsidiary, the subsidiary and the REIT must make a joint
election to treat the subsidiary as a taxable REIT subsidiary. A taxable REIT
subsidiary also includes any corporation (other than a REIT or a qualified REIT
subsidiary) in which a taxable REIT subsidiary directly or indirectly owns more
than 35% of the total voting power or value. See "Asset Tests" below. A taxable
REIT subsidiary will pay tax at regular corporate income rates on any taxable
income it earns. Moreover, the Code contains rules, including rules requiring
the imposition of taxes on a REIT at the rate of 100% on certain reallocated
income and expenses, to ensure that contractual arrangements between a taxable
REIT subsidiary and its parent REIT are at arm's-length.
In the case of a REIT which is a partner in a partnership, Treasury
Regulations provide that the REIT will be deemed to own its proportionate share
of each of the assets of the partnership and will be deemed to be entitled to
the income of the partnership attributable to such share. In addition, the
character of the assets and items of gross income of the partnership will retain
the same character in the hands of the REIT for purposes of Section 856 of the
Code, including satisfying the gross income and assets tests (as discussed
below). Thus, our proportionate share of the assets, liabilities, and items of
gross income of the partnerships in which we own an interest are treated as our
assets, liabilities and items of gross income for purposes of applying the
requirements described herein.
INCOME TESTS. In order to maintain qualification as a REIT, we must
satisfy annually certain gross income requirements. First, at least 75% of our
gross income (excluding gross income from prohibited transactions) for each
taxable year must be derived directly or indirectly from investments relating to
real property or mortgages on real property (including "rents from real
property" and, in certain circumstances,
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interest) or from certain types of qualified temporary investments. Second, at
least 95% of our gross income (excluding gross income from prohibited
transactions) for each taxable year must be derived from such real property
investments, dividends, interest and gain from the sale or disposition of stock
or securities.
Rents received by us will qualify as "rents from real property" in
satisfying the gross income requirements for a REIT described above only if the
following conditions are met:
- First, the amount of rent must not be based in whole or in part on the
income or profits of any person. However, an amount received or accrued
generally will not be excluded from the term "rents from real property"
solely by reason of being based on a fixed percentage or percentages of
receipts or sales.
- Second, the Code provides that rents received from a tenant will not
qualify as "rents from real property" in satisfying the gross income
tests if we, or an owner of 10% or more of our shares, actually or
constructively own 10% or more of such tenant.
- Third, if rent attributable to personal property, leased in connection
with a lease of real property, is greater than 15% of the total rent
received under the lease, then the portion of rent attributable to such
personal property (based on the ratio of fair market value of personal
property to personal and real property) will not qualify as "rents from
real property."
- Finally, in order for rents received to qualify as "rents from real
property," we generally must not operate or manage the property (subject
to a de minimis exception as described below) or furnish or render
services to the tenants of such property, other than through an
independent contractor from whom we derive no revenue or through a
taxable REIT subsidiary. We may, however, directly perform certain
services that are "usually or customarily rendered" in connection with
the rental of space for occupancy only and are not otherwise considered
"rendered to the occupant" of the property ("Permissible Services").
Rents received generally will qualify as rents from real property
notwithstanding the fact that we provide services that are not Permissible
Services so long as the amount received for such services meets a de minimis
standard. The amount received for "impermissible services" with respect to a
property (or, if services are available only to certain tenants, possibly with
respect to such tenants) cannot exceed one percent of all amounts received,
directly or indirectly, by us with respect to such property (or, if services are
available only to certain tenants, possibly with respect to such tenants). The
amount that we will be deemed to have received for performing "impermissible
services" will be the greater of the actual amounts so received or 150% of the
direct cost to us of providing those services.
We believe that substantially all of our rental income will be qualifying
income under the gross income tests, and that our provision of services will not
cause the rental income to fail to be qualifying income under those tests.
If we fail to satisfy one or both of the 75% or 95% gross income tests for
any taxable year, we may nevertheless qualify as a REIT for such year if such
failure was due to reasonable cause and not willful neglect, we disclosed the
nature and amounts of our items of gross income in a schedule attached to our
return, and any incorrect information on the schedule was not due to fraud with
intent to evade tax. It is not possible, however, to state whether in all
circumstances we would be entitled to the benefit of this relief provision. Even
if this relief provision applied, a 100% penalty tax would be imposed on the
amount by which we failed the 75% gross income test or the amount by which 90%
of our gross income exceeds the amount of income qualifying under the 95% gross
income test (whichever amount is greater), multiplied by a fraction intended to
reflect our profitability.
Subject to certain safe harbor exceptions, any gain realized by us on the
sale of any property held as inventory or other property held primarily for sale
to customers in the ordinary course of business will be treated as income from a
prohibited transaction that is subject to a 100% penalty tax. Such prohibited
transaction income may also have an adverse effect upon our ability to qualify
as a REIT. Under existing law, whether property is held as inventory or
primarily for sale to customers in the ordinary course of a
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trade or business is a question of fact that depends on all the facts and
circumstances with respect to the particular transaction.
ASSET TESTS. At the close of each quarter of our taxable year, we must
also satisfy the following tests relating to the nature of our assets. At least
75% of the value of our total assets must be represented by real estate assets,
including our allocable share of real estate assets held by partnerships in
which we own an interest or held by our qualified REIT subsidiaries, stock or
debt instruments held for not more than one year purchased with the proceeds of
an offering of equity securities or a long-term (at least five years) debt
offering by us, cash, cash items (including certain receivables) and government
securities. In addition, not more than 25% of our total assets may be
represented by securities other than those in the 75% asset class. Not more than
20% of the value of our total assets may be represented by securities of one or
more taxable REIT subsidiaries (as defined above under "Requirements for
Qualification"). Except for investments included in the 75% asset class,
securities in a taxable REIT subsidiary or qualified REIT subsidiary and certain
partnership interests and debt obligations, (1) not more than 5% of the value of
our total assets may be represented by securities of any one issuer, (2) we may
not hold securities that possess more than 10% of the total voting power of the
outstanding securities of a single issuer and (3) we may not hold securities
(excluding certain "straight debt" securities) that have a value of more than
10% of the total value of the outstanding securities of any one issuer.
We believe that substantially all of our assets consist and, after the
offering, will consist of (1) real properties, (2) stock or debt investments
that earn qualified temporary investment income, (3) other qualified real estate
assets, and (4) cash, cash items and government securities. We may also invest
in securities of other entities, provided that such investments will not prevent
us from satisfying the asset and income tests for REIT qualification set forth
above.
After initially meeting the asset tests at the close of any quarter, we
will not lose our status as a REIT for failure to satisfy the asset tests at the
end of a later quarter solely by reason of changes in asset values. If we
inadvertently fail one or more of the asset tests at the end of a calendar
quarter because we acquire securities or other property during the quarter, we
can cure this failure by disposing of sufficient nonqualifying assets within 30
days after the close of the calendar quarter in which it arose.
ANNUAL DISTRIBUTION REQUIREMENT. With respect to each taxable year, we
must distribute to our shareholders as dividends (other than capital gain
dividends) at least 90% of our taxable income. Specifically, we must distribute
an amount equal to (1) 90% of the sum of our "REIT taxable income" (determined
without regard to the deduction for dividends paid and by excluding any net
capital gain) and any after-tax net income from foreclosure property, minus (2)
the sum of certain items of "excess noncash income" such as income attributable
to leveled stepped rents, cancellation of indebtedness and original issue
discount. REIT taxable income is generally computed in the same manner as
taxable income of ordinary corporations, with several adjustments, such as a
deduction allowed for dividends paid, but not for dividends received.
We will be subject to tax on amounts not distributed at regular United
States federal corporate income tax rates. In addition, a nondeductible 4%
excise tax is imposed on the excess of (1) 85% of our ordinary income for the
year plus 95% of capital gain net income for the year and the undistributed
portion of the required distribution for the prior year over (2) the actual
distribution to shareholders during the year (if any). Net operating losses
generated by us may be carried forward but not carried back and used by us for
15 years (or 20 years in the case of net operating losses generated in our tax
years commencing on or after January 1, 1998) to reduce REIT taxable income and
the amount that we will be required to distribute in order to remain qualified
as a REIT. As a REIT, our net capital losses may be carried forward for five
years (but not carried back) and used to reduce capital gains.
In general, a distribution must be made during the taxable year to which it
relates to satisfy the distribution test and to be deducted in computing REIT
taxable income. However, we may elect to treat a dividend declared and paid
after the end of the year (a "subsequent declared dividend") as paid during such
year for purposes of complying with the distribution test and computing REIT
taxable income, if the dividend is (1) declared before the regular or extended
due date of our tax return for such year and (2) paid not later than the date of
the first regular dividend payment made after the declaration, but in no
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case later than 12 months after the end of the year. For purposes of computing
the nondeductible 4% excise tax, a subsequent declared dividend is considered
paid when actually distributed. Furthermore, any dividend that is declared by us
in October, November or December of a calendar year, and payable to shareholders
of record as of a specified date in such quarter of such year will be deemed to
have been paid by us (and received by shareholders) on December 31 of such
calendar year, but only if such dividend is actually paid by us in January of
the following calendar year.
For purposes of complying with the distribution test for a taxable year as
a result of an adjustment in certain of our items of income, gain or deduction
by the IRS, we may be permitted to remedy such failure by paying a "deficiency
dividend" in a later year together with interest and a penalty. Such deficiency
dividend may be included in our deduction of dividends paid for the earlier year
for purposes of satisfying the distribution test. For purposes of the
nondeductible 4% excise tax, the deficiency dividend is taken into account when
paid, and any income giving rise to the deficiency adjustment is treated as
arising when the deficiency dividend is paid.
We believe that we have distributed and intend to continue to distribute to
our shareholders in a timely manner such amounts sufficient to satisfy the
annual distribution requirements. However, it is possible that timing
differences between the accrual of income and its actual collection, and the
need to make non-deductible expenditures (such as capital improvements or
principal payments on debt) may cause us to recognize taxable income in excess
of our net cash receipts, thus increasing the difficulty of compliance with the
distribution requirement. In order to meet the distribution requirement, we
might find it necessary to arrange for short-term, or possibly long-term,
borrowings.
FAILURE TO QUALIFY. If we fail to qualify as a REIT for any taxable year,
and if certain relief provisions of the Code do not apply, we would be subject
to federal income tax (including applicable alternative minimum tax) on our
taxable income at regular corporate rates. Distributions to shareholders in any
year in which we fail to qualify will not be deductible by us nor will they be
required to be made. As a result, our failure to qualify as a REIT would reduce
the cash available for distribution by us to our shareholders. In addition, if
we fail to qualify as a REIT, all distributions to shareholders will be taxable
as ordinary income, to the extent of our current and accumulated earnings and
profits. Subject to certain limitations of the Code, corporate distributees may
be eligible for the dividends-received deduction.
If our failure to qualify as a REIT is not due to reasonable cause but
results from willful neglect, we would not be permitted to elect REIT status for
the four taxable years after the taxable year for which such disqualification is
effective. In the event we were to fail to qualify as a REIT in one year and
subsequently requalify in a later year, we might be required to recognize
taxable income based on the net appreciation in value of our assets as a
condition to requalification. In the alternative, we may be taxed on the net
appreciation in value of our assets if we sell properties within ten years of
the date we requalify as a REIT under federal income tax laws.
TAXATION OF TAXABLE U.S. SHAREHOLDERS
As used herein, the term "U.S. shareholder" means a holder of shares who
(for United States federal income tax purposes) (1) is a citizen or resident of
the United States, (2) is a corporation, partnership, or other entity treated as
a corporation or partnership for federal income tax purposes created or
organized in or under the laws of the United States or of any political
subdivision thereof (unless, in the case of a partnership, Treasury regulations
are adopted that provide otherwise), (3) is an estate the income of which is
subject to United States federal income taxation regardless of its source or (4)
is a trust whose administration is subject to the primary supervision of a
United States court and which has one or more United States persons who have the
authority to control all substantial decisions of the trust or a trust that has
a valid election to be treated as a U.S. person in effect.
As long as we qualify as a REIT, distributions made to our U.S.
shareholders out of current or accumulated earnings and profits (and not
designated as capital gain dividends) will be taken into account by them as
ordinary income and corporate shareholders will not be eligible for the
dividends-received deduction as to such amounts. For purposes of computing our
earnings and profits, depreciation for depreciable real estate will be computed
on a straight-line basis over a 40-year period. For purposes of
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determining whether a distribution on the shares constitutes a dividend for tax
purposes, our earnings and profits will be allocated first to distributions with
respect to the Series B Preferred Shares and all other series of preferred
shares that are equal in rank as to distributions and upon liquidation with the
Series B Preferred Shares, and second to distributions with respect to our
common shares. There can be no assurance that we will have sufficient earnings
and profits to cover distributions on any common shares.
Distributions that are properly designated as capital gain dividends will
be taxed as gains from the sale or exchange of a capital asset held for more
than one year (to the extent they do not exceed our actual net capital gain for
the taxable year) without regard to the period for which the shareholder has
held its shares. However, corporate shareholders may be required to treat up to
20% of certain capital gain dividends as ordinary income under the Code. Capital
gain dividends, if any, will be allocated among different classes of shares in
proportion to the allocation of earnings and profits discussed above.
Distributions in excess of our current and accumulated earnings and profits
will constitute a non-taxable return of capital to a shareholder to the extent
that such distributions do not exceed the adjusted basis of the shareholder's
shares, and will result in a corresponding reduction in the shareholder's basis
in the shares. Any reduction in a shareholder's tax basis for its shares will
increase the amount of taxable gain or decrease the deductible loss that will be
realized upon the eventual disposition of the shares. We will notify
shareholders at the end of each year as to the portions of the distributions
which constitute ordinary income, capital gain or a return of capital. Any
portion of such distributions that exceed the adjusted basis of a U.S.
shareholder's shares will be taxed as capital gain from the disposition of
shares, provided that the shares are held as capital assets in the hands of the
U.S. shareholder.
Aside from the different income tax rates applicable to ordinary income and
capital gain dividends, regular and capital gain dividends from us will be
treated as dividend income for most other federal income tax purposes. In
particular, such dividends will be treated as "portfolio" income for purposes of
the passive activity loss limitation and shareholders generally will not be able
to offset any "passive losses" against such dividends. Dividends will be treated
as investment income for purposes of the investment interest limitation
contained in Section 163(d) of the Code, which limits the deductibility of
interest expense incurred by noncorporate taxpayers with respect to indebtedness
attributable to certain investment assets.
In general, dividends paid by us will be taxable to shareholders in the
year in which they are received, except in the case of dividends declared at the
end of the year, but paid in the following January, as discussed above.
In general, a domestic shareholder will realize capital gain or loss on the
disposition of shares equal to the difference between (1) the amount of cash and
the fair market value of any property received on such disposition and (2) the
shareholder's adjusted basis of such shares. Such gain or loss will generally be
short-term capital gain or loss if the shareholder has not held such shares for
more than one year and will be long-term capital gain or loss if such shares
have been held for more than one year. Loss upon the sale or exchange of shares
by a shareholder who has held such shares for six months or less (after applying
certain holding period rules) will be treated as long-term capital loss to the
extent of distributions from us required to be treated by such shareholder as
long-term capital gain.
We may elect to retain and pay income tax on net long-term capital gains.
If we make such an election, you, as a holder of shares, will (1) include in
your income as long-term capital gains your proportionate share of such
undistributed capital gains and (2) be deemed to have paid your proportionate
share of the tax paid by us on such undistributed capital gains and thereby
receive a credit or refund for such amount. As a holder of shares you will
increase the basis in your shares by the difference between the amount of
capital gain included in your income and the amount of tax you are deemed to
have paid. Our earnings and profits will be adjusted appropriately.
BACKUP WITHHOLDING
We will report to our U.S. shareholders and the IRS the amount of dividends
paid during each calendar year, and the amount of tax withheld, if any, with
respect thereto. Under the backup withholding rules, a shareholder may be
subject to backup withholding (currently at the rate of 28% for 2004) with
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respect to dividends paid unless such holder (a) is a corporation or comes
within certain other exempt categories and, when required, demonstrates this
fact, or (b) provides a taxpayer identification number, certifies as to no loss
of exemption from backup withholding and otherwise complies with the applicable
requirements of the backup withholding rules. Amounts withheld as backup
withholding will be creditable against the shareholder's income tax liability.
In addition, we may be required to withhold a portion of capital gain
distributions made to any shareholders who fail to certify their non-foreign
status to us. See "-- Taxation of Non-U.S. Shareholders" below. Additional
issues may arise pertaining to information reporting and backup withholding with
respect to non-U.S. shareholders (persons other than U.S. shareholders, also
further described below). Non-U.S. shareholders should consult their tax
advisors with respect to any such information and backup withholding
requirements.
TAXATION OF NON-U.S. SHAREHOLDERS
The following discussion is only a summary of the rules governing United
States federal income taxation of non-U.S. shareholders such as nonresident
alien individuals, foreign corporations, foreign partnerships or other foreign
estates or trusts. Prospective non-U.S. shareholders should consult with their
own tax advisors to determine the impact of federal, state and local income tax
laws with regard to an investment in shares, including any reporting
requirements.
Distributions that are not attributable to gain from sales or exchanges by
us of United States real property interests and not designated by us as capital
gains dividends will be treated as dividends of ordinary income to the extent
that they are made out of our current or accumulated earnings and profits. Such
distributions ordinarily will be subject to a withholding tax equal to 30% of
the gross amount of the distribution unless an applicable tax treaty reduces or
eliminates that tax. Certain tax treaties limit the extent to which dividends
paid by a REIT can qualify for a reduction of the withholding tax on dividends.
Distributions in excess of our current and accumulated earnings and profits will
not be taxable to a non-U.S. shareholder to the extent that they do not exceed
the adjusted basis of the shareholder's shares, but rather will reduce the
adjusted basis of such shares. To the extent that such distributions exceed the
adjusted basis of a non-U.S. shareholder's shares, they will give rise to tax
liability if the non-U.S. shareholder would otherwise be subject to tax on any
gain from the sale or disposition of his shares, as described below.
For withholding tax purposes, we are generally required to treat all
distributions as if made out of our current or accumulated earnings and profits
and thus intend to withhold at the rate of 30% (or a reduced treaty rate if
applicable) on the amount of any distribution (other than distributions
designated as capital gain dividends) made to a non-U.S. shareholder. We would
not be required to withhold at the 30% rate on distributions we reasonably
estimate to be in excess of our current and accumulated earnings and profits. If
it cannot be determined at the time a distribution is made whether such
distribution will be in excess of current and accumulated earnings and profits,
the distribution will be subject to withholding at the rate applicable to
ordinary dividends. However, the non-U.S. shareholder may seek from the IRS a
refund of such amounts from the IRS if it is subsequently determined that such
distribution was, in fact, in excess of our current or accumulated earnings and
profits, and the amount withheld exceeded the non-U.S. shareholder's United
States tax liability, if any, with respect to the distribution.
For any year in which we qualify as a REIT, distributions that are
attributable to gain from sales or exchanges by us of United States real
property interests will be taxed to a non-U.S. shareholder under the provisions
of the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). Under
FIRPTA, a non-U.S. shareholder is taxed as if such gain were effectively
connected with a United States business. Non-U.S. shareholders would thus be
taxed at the normal capital gain rates applicable to U.S. shareholders (subject
to applicable alternative minimum tax and a special alternative minimum tax in
the case of non-resident alien individuals). Also, distributions subject to
FIRPTA may be subject to a 30% branch profits tax in the hands of a corporate
non-U.S. shareholder not entitled to treaty relief or exemption. We are required
by applicable regulations to withhold 35% of any distribution that could be
designated by us as a capital gains dividend regardless of the amount actually
designated as a capital gain dividend. This amount is creditable against the
non-U.S. shareholder's FIRPTA tax liability.
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Gain recognized by a non-U.S. shareholder upon a sale of shares generally
will not be taxed under FIRPTA if we are a "domestically controlled REIT,"
defined generally as a REIT in which at all times during a specified testing
period less than 50% in value of the shares was held directly or indirectly by
foreign persons. It is anticipated that we will continue to be a "domestically
controlled REIT" after the offering. Therefore, the sale of shares will not be
subject to taxation under FIRPTA. However, because our common shares are
publicly traded, no assurance can be given that we will continue to qualify as a
"domestically controlled REIT." In addition, a non-U.S. shareholder that owns,
actually or constructively, 5% or less of a class of our shares through a
specified testing period will not recognize taxable gain on the sale of its
shares under FIRPTA if the shares are regularly traded on an established
securities market. If the gain on the sale of shares were to be subject to
taxation under FIRPTA, the non-U.S. shareholder would be subject to the same
treatment as U.S. shareholders with respect to such gain (subject to applicable
alternative minimum tax, special alternative minimum tax in the case of
nonresident alien individuals and possible application of the 30% branch profits
tax in the case of foreign corporations) and the purchaser would be required to
withhold and remit to the IRS 10% of the purchase price. Gain not subject to
FIRPTA will be taxable to a non-U.S. shareholder if (1) investment in the shares
is effectively connected with the non-U.S. shareholder's United States trade or
business, in which case the non-U.S. shareholder will be subject to the same
treatment as U.S. shareholders with respect to such gain, or (2) the non-U.S.
shareholder is a nonresident alien individual who was present in the United
States for 183 days or more during the taxable year and such nonresident alien
individual has a "tax home" in the United States, in which case the nonresident
alien individual will be subject to a 30% tax on the individual's capital gain.
TAXATION OF TAX-EXEMPT SHAREHOLDERS
Tax-exempt entities, including qualified employee pension and profit
sharing trusts and individual retirement accounts ("Exempt Organizations"),
generally are exempt from federal income taxation. However, they are subject to
taxation on their unrelated business taxable income ("UBTI"). While investments
in real estate may generate UBTI, the IRS has issued a published ruling to the
effect that dividend distributions by a REIT to an exempt employee pension trust
do not constitute UBTI, provided that the shares of the REIT are not otherwise
used in an unrelated trade or business of the exempt employee pension trust.
Based on that ruling and on our intention to invest our assets in a manner that
will avoid the recognition of UBTI, amounts distributed by us to Exempt
Organizations generally should not constitute UBTI. However, if an Exempt
Organization finances its acquisition of our shares with debt, a portion of its
income from us, if any, will constitute UBTI pursuant to the "debt-financed
property" rules. Furthermore, social clubs, voluntary employee benefit
associations, supplemental unemployment benefit trusts, and qualified group
legal services plans that are exempt from taxation under specified provisions of
the Code are subject to different UBTI rules, which generally will require them
to characterize distributions from us as UBTI.
In addition, a pension trust that owns more than 10% of our shares is
required to treat a percentage of the dividends from us as UBTI (the "UBTI
Percentage") in certain circumstances. The UBTI Percentage is our gross income
derived from an unrelated trade or business (determined as if we were a pension
trust) divided by our total gross income for the year in which the dividends are
paid. The UBTI rule applies only if (i) the UBTI Percentage is at least 5%, (ii)
we qualify as a REIT by reason of the modification of the 5/50 Rule that allows
the beneficiaries of the pension trust to be treated as holding our shares in
proportion to their actuarial interests in the pension trust, and (iii) either
(A) one pension trust owns more than 25% of the value of our shares or (B) a
group of pension trusts individually holding more than 10% of the value of our
capital shares collectively owns more than 50% of the value of our capital
shares.
TAXATION OF REINVESTED DIVIDENDS
Shareholders who elect to participate in our dividend reinvestment plan
will be deemed to have received the gross amount of dividends distributed on
their behalf by the plan agent as agent for the participants in such plan. Such
deemed dividends will be treated as actual dividends to such shareholders by us
and will retain their character and have the tax effects as described above.
Participants that are
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subject to federal income tax will thus be taxed as if they received such
dividends despite the fact that their distributions have been reinvested and, as
a result, they will not receive any cash with which to pay the resulting tax
liability.
OTHER TAX CONSIDERATIONS
ENTITY CLASSIFICATION. A significant number of our investments are held
through partnerships. If any such partnerships were treated as an association,
the entity would be taxable as a corporation and therefore would be subject to
an entity level tax on its income. In such a situation, the character of our
assets and items of gross income would change and might preclude us from
qualifying as a REIT.
We believe that each partnership in which we hold a material interest
(either directly or indirectly) is properly treated as a partnership for tax
purposes (and not as an association taxable as a corporation).
TAX ALLOCATIONS WITH RESPECT TO THE PROPERTIES. When property is
contributed to a partnership in exchange for an interest in the partnership, the
partnership generally takes a carryover basis in that property for tax purposes
equal to the adjusted basis of the contributing partner in the property, rather
than a basis equal to the fair market value of the property at the time of
contribution (this difference is referred to as "Book-Tax Difference"). Special
rules under Section 704(c) of the Code and the regulations thereunder require
special allocations of income, gain, loss and deduction with respect to
contributed property, which tend to eliminate the Book-Tax Difference over the
depreciable lives of such property, but which may not always entirely eliminate
the Book-Tax Difference on an annual basis or with respect to a specific taxable
transaction such as a sale. Thus, the carryover basis of the contributed
properties in the hands of the partnership could cause us (i) to be allocated
lower amounts of depreciation and other deductions for tax purposes than would
be allocated to us if all properties were to have a tax basis equal to their
fair market value at the time the properties were contributed to the
partnership, and (ii) possibly to be allocated taxable gain in the event of a
sale of such contributed properties in excess of the economic or book income
allocated to us as a result of such sale.
RECENT DEVELOPMENTS
The Jobs and Growth Tax Relief Reconciliation Act of 2003 (the "Act"),
which has been enacted into law, generally reduces the tax rates imposed on
dividends paid by C corporations to U.S. non-corporate taxpayers in order to
limit "double taxation" on dividends, and such reduced rates are effective from
January 1, 2003 through December 31, 2008. In addition, the capital gains tax
rates are also reduced, and such reduced rates are effective with respect to
transactions after May 5, 2003 through December 31, 2008.
A REIT's U.S. non-corporate shareholders generally would not benefit from
the Act with respect to dividends paid by a REIT because such dividends are
generally not subject to taxation at the REIT level. However, there are limited
circumstances in which a REIT U.S. non-corporate shareholder will be subject to
tax at the reduced rate with respect to REIT dividends. The reduced tax rates
would apply to an amount equal to the excess of a REIT's income subject to
corporate level income taxes (less such tax liability). This could occur, for
example, if a REIT did not distribute 100% of its taxable income as a dividend.
The reduced rates would also apply to capital gains dividends and to dividends
attributable to dividends a REIT receives from non-REIT corporations.
The Act could cause investors to view investments in common stock of REITs
less favorably in comparison to investments in common stock of C corporations,
the dividends for which would be subject to a reduced tax rate under the Act.
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UNDERWRITING
Subject to the terms and conditions stated in the underwriting agreement
dated the date of this prospectus supplement, Wachovia Capital Markets, LLC, as
underwriter, has agreed to purchase, and we have agreed to sell to the
underwriter, all of the common shares in this offering.
The underwriting agreement provides that the obligation of the underwriter
to purchase the shares included in this offering is subject to approval of
certain legal matters by counsel and to other conditions. The underwriter is
obligated to purchase the 6,000,000 common shares sold under the underwriting
agreement if it purchases any of the shares.
We have agreed to indemnify the underwriter against certain liabilities,
including liabilities under the Securities Act of 1933, as amended, or to
contribute to payments the underwriter may be required to make in respect of
those liabilities.
The underwriter will offer the common shares offered by this prospectus
supplement from time to time in one or more transactions (which may include
block transactions) to purchasers directly, through agents, or through brokers
in brokerage transactions on the New York Stock Exchange or to dealers in
negotiated transactions or otherwise, or in a combination of such methods of
sale, at market prices prevailing at the time of sale, at prices related to
prevailing market prices or at negotiated prices. The common shares will not be
sold on or through the facilities of a national securities exchange except
through a market maker. The underwriter may sell common shares to or through
broker-dealers who may receive compensation in the form of underwriting
discounts, concessions or commissions from the underwriter and/or the purchasers
of the common shares for whom they may act as agents. In connection with the
sale of the common shares, the underwriter may be deemed to have received
compensation from us in the form of underwriting discounts, and the underwriter
also may receive commissions from the purchasers of the common shares for whom
it acts as agent. The underwriter and any broker-dealers that participate with
the underwriter in the distribution of the common shares may be deemed to be
underwriters, and any discounts or commissions received by them and any profit
on the resale of the common shares by them may be deemed to be underwriting
discounts or commissions.
The underwriter has agreed to purchase the 6,000,000 common shares offered
by this prospectus supplement at a price of $20.92 per share, resulting in
aggregate proceeds to us, before deducting estimated transaction costs payable
by us, of $125,520,000.
We estimate that our portion of the total expenses of this offering will be
approximately $125,000.
We have granted the underwriter a 30-day option to purchase up to an
additional 900,000 common shares to cover over-allotments, if any, at the price
of $20.92 per share.
SALES OF SIMILAR SECURITIES
We, and our executive officers and trustees, have agreed not to pledge,
sell or otherwise transfer any common shares for 90 days after the date of this
prospectus supplement without first obtaining the written consent of Wachovia
Capital Markets, LLC, subject to the exceptions described below. Specifically,
we have each agreed not to directly or indirectly:
- offer, pledge, sell, or contract to sell any common shares;
- sell any option or contract to purchase any common shares;
- purchase any option or contract to sell any common shares;
- grant any option, right or warrant to purchase any common shares;
- otherwise dispose of or transfer any common shares; or
- enter into any swap or other agreement that transfers, in whole or in
part, the economic consequence of ownership of any common shares whether
any such swap or transaction is to be settled by delivery of shares or
other securities, in cash or otherwise.
S-25
This lock-up provision applies to common shares and to securities
convertible into or exchangeable or exercisable for or repayable with common
shares.
Our lock-up agreement contains an exception that permits us to issue common
shares in connection with acquisitions and in connection with joint ventures and
similar arrangements, so long as the recipients of those shares agree not to
sell or transfer those shares in a public market transaction for 90 days after
the date of this prospectus supplement. Our lock-up agreement also contains
exceptions that permit us to issue (i) common shares upon the exercise of
outstanding employee options, (ii) common shares and options pursuant to
employee benefit plans, (iii) common shares pursuant to non-employee director
stock plans, (iv) common shares pursuant to our dividend reinvestment plan, and
(v) common shares upon conversion of currently outstanding convertible
securities. The lock-up agreements between the underwriter and our executive
officers and trustees contain exceptions that permit our executive officers and
trustees to (i) exercise stock options so long as they remain bound by the
lock-up agreement with respect to the underlying common shares they receive upon
exercise of the options for the remainder of the 90-day lock-up period and (ii)
make bona fide gifts to family members or to others approved by the underwriter,
so long as the recipients agree to be bound by the lock-up agreement for the
remainder of the 90-day lock-up period.
STOCK EXCHANGE LISTING
Our common shares are currently listed on the New York Stock Exchange under
the symbol "LXP".
PRICE STABILIZATION AND SHORT POSITIONS
Until the distribution of the common shares is complete, rules of the
Securities and Exchange Commission may limit the ability of the underwriter to
bid for and purchase our common shares on the open market. In addition, if the
underwriter offers the common shares at other than a fixed price, it will be
prohibited from engaging in any of the stabilizing activities described below.
However, once the distribution of the common shares is completed, the
underwriter may engage in transactions that stabilize the price of our common
shares, such as bids or purchases to peg, fix or maintain that price.
If the underwriter creates a short position in our common shares in
connection with the offering, i.e., if it sells more common shares than are
listed on the cover of this prospectus supplement, the underwriter may reduce
that short position by purchasing common shares in the open market. Purchases of
our common shares to stabilize the price or reduce a short position may cause
the price of our common shares to be higher than it might be in the absence of
such purchases.
Neither we nor the underwriter makes any representation or prediction as to
the direction or magnitude of any effect that the transactions described above
may have on the price of our common shares. In addition, neither we nor the
underwriter makes any representation that the underwriter will engage in these
transactions or that these transactions, once commenced, will not be
discontinued without notice.
OTHER RELATIONSHIPS
The underwriter and its affiliates have engaged in, and may in the future
engage in, investment banking and other commercial dealings in the ordinary
course of business with us. The underwriter and its affiliates have received
customary fees and commissions for these transactions. An affiliate of the
underwriter, Wachovia Bank, National Association, is the syndication agent and a
lender under our unsecured revolving credit facility. To the extent that we use
the net proceeds of this offering to reduce outstanding indebtedness under our
unsecured revolving credit facility, such lender will receive its proportionate
share of the repayment.
LEGAL MATTERS
The validity of the common shares offered as well as the legal matters
described under "Federal Income Tax Considerations" beginning on page S-15 of
this prospectus supplement will be passed upon
S-26
for us by Paul, Hastings, Janofsky & Walker LLP, New York, New York. Seth M.
Zachary, a partner of Paul, Hastings, Janofsky & Walker LLP, is presently
serving on our board of trustees and will continue to do so at least until our
2004 Annual Meeting of Shareholders. As of the date of this prospectus
supplement, Mr. Zachary beneficially owns 44,931 common shares. Legal matters
relating to this offering will be passed upon for the underwriter by Hunton &
Williams LLP. Certain matters of Maryland law will be passed upon for us and for
the underwriter by Piper Rudnick LLP, Baltimore, Maryland.
EXPERTS
The consolidated financial statements and related financial statement
schedule included in our Annual Report on Form 10-K as of and for the year ended
December 31, 2003, incorporated by reference in this prospectus supplement and
the accompanying prospectus, have been incorporated herein by reference in
reliance on the report, also incorporated herein by reference, of KPMG LLP,
independent certified public accountants, and upon the authority of said firm as
experts in accounting and auditing.
AVAILABLE INFORMATION
We are subject to the informational requirements of the Securities Exchange
Act of 1934 which requires us to file reports and other information with the
Securities and Exchange Commission. You can inspect and copy reports, proxy
statements and other information filed by us at the public reference facility
maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549. You can
obtain copies of this material by mail from the Public Reference Section of the
SEC at 450 West Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
You can also obtain such reports, proxy statements and other information from
the web site that the SEC maintains at http://www.sec.gov.
Reports, proxy statements and other information concerning us may also be
obtained electronically at our website, http://www.lxp.com and through a variety
of databases, including, among others, the SEC's Electronic Data Gathering and
Retrieval ("EDGAR") program, Knight-Ridder Information Inc., Federal Filing/Dow
Jones and Lexis/Nexis.
INCORPORATION OF INFORMATION WE FILE WITH THE SEC
The SEC allows us to "incorporate by reference" the information we file
with them, which means:
- Incorporated documents are considered part of this prospectus supplement
and the accompanying prospectus;
- We can disclose important information to you by referring you to those
documents; and
- Information that we file with the SEC will automatically update and
supersede this prospectus supplement and the accompanying prospectus.
We incorporate by reference the documents listed below which were filed
with the SEC under the Securities Exchange Act of 1934 (the "Exchange Act"):
- Our Annual Report on Form 10-K (Commission File No. 1-12386) for the year
ended December 31, 2003.
- Our Current Report on Form 8-K (Commission File No. 1-12386), filed on
February 2, 2004 (with respect to Item 5 and Item 7 only).
If any statement in this prospectus supplement is inconsistent with a
statement in one of the incorporated documents referred to above, then the
statement in the incorporated document will be deemed to have been superseded by
the statement in this prospectus supplement.
S-27
We also incorporate by reference each of the following documents that we
may file with the SEC after the date of this prospectus supplement but before
the end of the offering:
- Reports filed under Sections 13(a) and (c) of the Exchange Act;
- Definitive proxy or information statements filed under Section 14 of the
Exchange Act in connection with any subsequent shareholders' meeting; and
- Any reports filed under Section 15(d) of the Exchange Act.
You may request a copy of any filings referred to above (excluding
exhibits), at no cost, by contacting us at the following address:
Lexington Corporate Properties Trust
Attention: Patrick Carroll, Chief Financial Officer
One Penn Plaza, Suite 4015
New York, NY 10119-4015
(212) 692-7260
S-28
- --------------------------------------------------------------------------------
$400,000,000.00
LEXINGTON CORPORATE PROPERTIES TRUST
COMMON SHARES OF BENEFICIAL INTEREST
PREFERRED SHARES OF BENEFICIAL INTEREST
DEBT SECURITIES
- --------------------------------------------------------------------------------
We are Lexington Corporate Properties Trust, a self-managed and
self-administered real estate investment trust formed under the laws of the
State of Maryland. This prospectus relates to the public offer and sale by us of
one or more series of (i) common shares of beneficial interest, par value
$0.0001 per share, (ii) preferred shares of beneficial interest, par value
$0.0001 per share, and (iii) senior or subordinated debt securities. The
aggregate public offering price of the common shares, preferred shares and debt
securities covered by this prospectus, which we refer to collectively as the
securities, will not exceed $400,000,000.00 (or its equivalent based on the
exchange rate at the time of sale). The securities may be offered, separately or
together, in separate classes or series, in amounts, at prices and on terms to
be determined at the time of the offering and set forth in one or more
supplements to this prospectus.
The specific terms of the securities will be set forth in the applicable
prospectus supplement and will include, where applicable: (i) in the case of
common shares, any public offering price; (ii) in the case of preferred shares,
the specific designation and stated value per share, any dividend, liquidation,
redemption, conversion, voting and other rights, and any public offering price;
and (iii) in the case of debt securities, the specific title, aggregate
principal amount, ranking, currency, form (which may be registered or bearer, or
certificated or global), authorized denominations, maturity, rate (or manner of
calculation thereof) and time of payment of interest, terms for redemption at
our option or repayment at the option of the holder thereof, terms for sinking
fund payments, terms for conversion into common or preferred shares, covenants
and any public offering price. In addition, such specific terms may include
limitations on direct or beneficial ownership and restrictions on transfer of
the securities, in each case as may be consistent with our declaration of trust
or otherwise appropriate to preserve our status as a real estate investment
trust for federal income tax purposes. See "RESTRICTIONS ON TRANSFERS OF CAPITAL
STOCK AND ANTI-TAKEOVER PROVISIONS" beginning on page 20 of this prospectus.
The applicable prospectus supplement will also contain information, where
appropriate, about the risk factors and federal income tax considerations
relating to, and any listing on a securities exchange of, the securities covered
by that prospectus supplement.
We may offer the securities directly, through agents designated by us from time
to time, or to or through underwriters or dealers. If any agents or underwriters
are involved in the sale of any of the securities, their names, and any
applicable purchase price, fee, commission or discount arrangement between or
among them will be set forth or will be calculable from the information set
forth in the applicable prospectus supplement. See "PLAN OF DISTRIBUTION." No
securities may be sold without delivery of a prospectus supplement describing
the method and terms of the offering of those securities.
Our common shares and 8.05% Series B Cumulative Redeemable Preferred Stock are
traded on the New York Stock Exchange under the symbols "LXP" and "LXP-pb,"
respectively.
- --------------------------------------------------------------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
THE DATE OF THIS PROSPECTUS IS OCTOBER 22, 2003.
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
Cautionary Statements Concerning Forward-Looking
Information............................................... i
About This Prospectus....................................... i
Our Company................................................. 1
Description Of Our Common Shares............................ 2
Description Of Our Preferred Shares......................... 4
Description Of Our Debt Securities.......................... 8
Restrictions On Transfers Of Capital Stock And Anti-Takeover
Provisions................................................ 20
Use Of Proceeds............................................. 23
Plan of Distribution........................................ 23
Ratios of Earnings to Combined Fixed Charges and Preferred
Share Dividends........................................... 24
Experts..................................................... 24
Legal Matters............................................... 25
Where You Can Find More Information......................... 25
Incorporation Of Certain Documents By Reference............. 25
</Table>
CAUTIONARY STATEMENTS CONCERNING FORWARD-LOOKING INFORMATION
Certain information included or incorporated by reference in this
prospectus and any applicable prospectus supplement may contain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, ("Securities Act") and Section 21E of the Securities Exchange Act of
1934, as amended, and as such may involve known and unknown risks, uncertainties
and other factors which may cause our actual results, performance or
achievements to be materially different from future results, performance or
achievements expressed or implied by these forward-looking statements. Forward-
looking statements, which are based on certain assumptions and describe our
future plans, strategies and expectations, are generally identifiable by use of
the words "may," "will," "should," "expect," "anticipate," "estimate,"
"believe," "intend," "project," or the negative of these words or other similar
words or terms. Factors which could have a material adverse effect on our
operations and future prospects include, but are not limited to, changes in
economic conditions generally and the real estate market specifically, adverse
developments with respect to our tenants, legislative/regulatory changes
including changes to laws governing the taxation of REITs, availability of debt
and equity capital, interest rates, competition, supply and demand for
properties in our current and proposed market areas, policies and guidelines
applicable to REITs and the other factors described under the heading "RISK
FACTORS" in any supplement to this prospectus. These risks and uncertainties
should be considered in evaluating any forward-looking statements contained or
incorporated by reference in this prospectus.
We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
In light of these risks, uncertainties and assumptions, the forward-looking
events discussed or incorporated by reference in this prospectus and any
applicable prospectus supplement may not occur and actual results could differ
materially from those anticipated or implied in the forward-looking statements.
ABOUT THIS PROSPECTUS
All references to "the Company," "we," "our" and "us" in this prospectus
mean Lexington Corporate Properties Trust and all entities owned or controlled
by us except where it is made clear that the term means only the parent company.
The term "you" refers to a prospective investor.
i
OUR COMPANY
We are a self-managed and self-administered real estate investment trust,
commonly referred to as a REIT, formed under the laws of the State of Maryland.
Our primary business is the acquisition, ownership and management of a
geographically diverse portfolio of net leased office, industrial and retail
properties. Substantially all of our properties are subject to triple net
leases, which are generally characterized as leases in which the tenant bears
all or substantially all of the costs and cost increases for real estate taxes,
utilities, insurance and ordinary repairs and maintenance.
We grow our portfolio primarily by acquiring properties from corporations
and other entities in sale-leaseback transactions and from developers of
newly-constructed properties built to suit the needs of a corporate tenant. We
have diversified our portfolio by geographical location, tenant industry
segment, lease term expiration and property type with the intention of providing
steady internal growth with low volatility. We believe that such diversification
should help insulate us from regional recession, industry specific downturns and
price fluctuations by property type. As part of our ongoing efforts, we expect
to continue to effect portfolio and individual property acquisitions and
dispositions, through joint ventures and for our own account, expand existing
properties, extend lease maturities in advance of expiration and refinance
outstanding indebtedness when advisable. We also expect to continue to enter
into joint ventures with third-party investors as a means of creating additional
growth and expanding the revenue realized from advisory and asset management
activities.
Our operating partnership structure enables us to acquire properties by
issuing to sellers, as a form of consideration, limited partnership interests in
any of our three operating partnership subsidiaries. We refer to these limited
partnership interests as OP units. The OP units are redeemable, after certain
dates, for our common shares. We believe that this structure facilitates our
ability to raise capital and to acquire portfolio and individual properties by
enabling us to structure transactions which may defer tax gains for a
contributor of property while preserving our available cash for other purposes,
including the payment of dividends and distributions.
Our principal executive offices are located at 355 Lexington Avenue, New
York, New York 10017, our telephone number is (212) 692-7260 and our Internet
address is www.lxp.com.
1
DESCRIPTION OF OUR COMMON SHARES
The following summary of the material terms and provisions of our common
shares does not purport to be complete and is subject to the detailed provisions
of our declaration of trust and our By-Laws, each of which is incorporated by
reference into this prospectus. You should carefully read each of these
documents in order to fully understand the terms and provisions of our common
shares. For information on incorporation by reference, and how to obtain copies
of these documents, see the sections entitled "WHERE YOU CAN FIND MORE
INFORMATION" on page 25 of this prospectus and "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE" on page 25 of this prospectus.
GENERAL
Under our declaration of trust, our board of trustees has authority to
issue 80,000,000 common shares. Under Maryland law, our shareholders generally
are not responsible for our debts or obligations as a result of their status as
shareholders.
TERMS
Subject to the preferential rights of any other shares or series of equity
securities and to the provisions of our declaration of trust regarding excess
shares, holders of our common shares are entitled to receive dividends on our
common shares if, as and when authorized and declared by our board of trustees
out of assets legally available therefor and to share ratably in those of our
assets legally available for distribution to our shareholders in the event that
we liquidate, dissolve or wind up, after payment of, or adequate provision for,
all of our known debts and liabilities and the amount to which holders of any
class of shares classified or reclassified or having a preference on
distributions in liquidation, dissolution or winding up have a right.
Subject to the provisions of our declaration of trust regarding excess
shares, each outstanding common share entitles the holder to one vote on all
matters submitted to a vote of shareholders, including the election of trustees
and, except as otherwise required by law or except as otherwise provided in our
declaration of trust with respect to any other class or series of shares, the
holders of our common shares will possess exclusive voting power. There is no
cumulative voting in the election of trustees, which means that the holders of a
majority of our outstanding common shares can elect all of the trustees then
standing for election, and the holders of the remaining common shares will not
be able to elect any trustees.
Holders of our common shares have no conversion, sinking fund or redemption
rights, or preemptive rights to subscribe for any of our securities.
We furnish our shareholders with annual reports containing audited
consolidated financial statements and an opinion thereon expressed by an
independent public accounting firm.
Subject to the provisions of our declaration of trust regarding excess
shares, all of our common shares will have equal dividend, distribution,
liquidation and other rights and will have no preference, appraisal or exchange
rights.
Pursuant to the Maryland REIT Law, a real estate investment trust generally
cannot amend its declaration of trust or merge unless approved by the
affirmative vote of shareholders holding at least two-thirds of the shares
entitled to vote on the matter unless a lesser percentage (but not less than a
majority of all of the votes to be cast on the matter) is set forth in our
declaration of trust. Our declaration of trust provides that those actions, with
the exception of certain amendments to our declaration of trust for which a
higher vote requirement has been set, will be valid and effective if authorized
by holders of a majority of the total number of shares of all classes
outstanding and entitled to vote thereon.
2
RESTRICTIONS ON OWNERSHIP
For the Company to qualify as a REIT under the Internal Revenue Code of
1986, as amended (which is commonly referred to as the Code), not more than 50%
in value of its outstanding capital shares may be owned, directly or indirectly,
by five or fewer individuals (as defined in the Code to include certain
entities) during the last half of a taxable year. To assist the Company in
meeting this requirement, the Company may take certain actions to limit the
beneficial ownership, directly or indirectly, by a single person of the
Company's outstanding equity securities. See "RESTRICTIONS ON TRANSFERS OF
CAPITAL STOCK AND ANTI-TAKEOVER PROVISIONS" beginning on page 20 of this
prospectus.
TRANSFER AGENT
The transfer agent and registrar for our common shares is Mellon Investor
Services, LLC.
3
DESCRIPTION OF OUR PREFERRED SHARES
The following summary of the material terms and provisions of our preferred
shares does not purport to be complete and is subject to the detailed provisions
of our declaration of trust (including any applicable articles supplementary,
amendment or annex to our declaration of trust designating the terms of a series
of preferred shares) and our By-Laws, each of which is incorporated by reference
into this prospectus. You should carefully read each of these documents in order
to fully understand the terms and provisions of our preferred shares. For
information on incorporation by reference, and how to obtain copies of these
documents, see the sections entitled "WHERE YOU CAN FIND MORE INFORMATION" on
page 25 of this prospectus and "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE"
on page 25 of this prospectus.
GENERAL
Under our declaration of trust, we have authority to issue 10,000,000
preferred shares from time to time, in one or more series, as authorized by our
board of trustees. As of the date of this prospectus, the only series of
preferred shares that are outstanding are our 8.05% Series B Cumulative
Redeemable Preferred Stock. See "-- Terms of Our 8.05% Series B Cumulative
Redeemable Preferred Stock" below; all of our Series A Senior Cumulative
Convertible Preferred Stock, par value $0.0001 per share, were converted into
our common shares in April 2002.
Subject to limitations prescribed by Maryland law and our declaration of
trust, our board of trustees is authorized to fix the number of shares
constituting each series of preferred shares and the terms, preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends or other distributions, qualifications and terms or conditions of
redemption. The preferred shares will, when issued against payment therefor, be
fully paid and nonassessable and will not be subject to preemptive rights. Our
board of trustees could authorize the issuance of preferred shares with terms
and conditions that could have the effect of discouraging a takeover or other
transaction that holders of common shares might believe to be in their best
interests or in which holders of common shares might receive a premium for their
common shares over the then-current market price of their shares.
TERMS
Reference is made to the applicable prospectus supplement relating to the
preferred shares offered thereby for specific terms, including:
(1) the title and stated value of the preferred shares;
(2) the number of preferred shares offered, the liquidation preference
per share and the offering price of the preferred shares;
(3) the dividend rate(s), period(s), and/or payment date(s) or
method(s) of calculation thereof applicable to the preferred shares;
(4) the date from which dividends on the preferred shares shall
accumulate, if applicable;
(5) the provisions for a sinking fund, if any, for the preferred
shares;
(6) the provisions for redemption, if applicable, of the preferred
shares;
(7) any listing of the preferred shares on any securities exchange;
(8) the terms and conditions, if applicable, upon which the preferred
shares will be convertible into common shares, including the conversion
price (or manner of calculation thereof);
(9) a discussion of federal income tax considerations applicable to the
preferred shares;
(10) the relative ranking and preferences of the preferred shares as to
dividend rights and rights upon our liquidation, dissolution or winding-up
of our affairs;
4
(11) any limitations on issuance of any series of preferred shares
ranking senior to or on a parity with the preferred shares as to dividend
rights and rights upon our liquidation, dissolution or winding-up of our
affairs;
(12) any limitations on direct or beneficial ownership of our
securities and restrictions on transfer of our securities, in each case as
may be appropriate to preserve our status as a REIT; and
(13) any other specific terms, preferences, rights, limitations or
restrictions of the preferred shares.
RANK
Unless otherwise specified in the applicable prospectus supplement, the
preferred shares rank, with respect to dividend rights and rights upon our
liquidation, dissolution or winding-up, and allocation of our earnings and
losses: (i) senior to all classes or series of our common shares, and to all
equity securities ranking junior to the preferred shares, (ii) on a parity with
all equity securities issued by us the terms of which specifically provide that
such equity securities rank on a parity with the preferred shares; and (iii)
junior to all equity securities issued by us the terms of which specifically
provide that such equity securities rank senior to the preferred shares. As used
in this prospectus, the term "equity securities" does not include convertible
debt securities.
DIVIDENDS
Subject to any preferential rights of any outstanding securities or series
of securities, the holders of preferred shares will be entitled to receive
dividends, when, as and if declared by our board of trustees, out of assets
legally available for payment. Dividends will be paid at such rates and on such
dates as will be set forth in the applicable prospectus supplement. Dividends
will be payable to the holders of record of preferred shares as they appear on
our share transfer books on the applicable record dates fixed by our board of
trustees. Dividends on any series of our preferred shares may be cumulative or
non-cumulative, as provided in the applicable prospectus supplement.
REDEMPTION
If so provided in the applicable prospectus supplement, the preferred
shares offered thereby will be subject to mandatory redemption or redemption at
our option, as a whole or in part, in each case upon the terms, at the times and
at the redemption prices set forth in such prospectus supplement.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding-up of
our affairs, and before any distribution or payment shall be made to the holders
of any common shares or any other class or series of shares ranking junior to
our preferred shares, the holders of our preferred shares shall be entitled to
receive, after payment or provision for payment of our debts and other
liabilities, out of our assets legally available for distribution to
shareholders, liquidating distributions in the amount of the liquidation
preference per share, if any, set forth in the applicable prospectus supplement,
plus an amount equal to all dividends accrued and unpaid thereon (which shall
not include any accumulation in respect of unpaid noncumulative dividends for
prior dividend periods). After payment of the full amount of the liquidating
distributions to which they are entitled, the holders of preferred shares will
have no right or claim to any of our remaining assets. In the event that, upon
any such voluntary or involuntary liquidation, dissolution or winding-up of our
affairs, the legally available assets are insufficient to pay the amount of the
liquidating distributions on all of our outstanding preferred shares and the
corresponding amounts payable on all of our other outstanding equity securities
ranking on a parity with the preferred shares in the distribution of assets upon
our liquidation, dissolution or winding-up of our affairs, then the holders of
our preferred shares and the holders of such other outstanding equity securities
shall share ratably in any such distribution of assets in proportion to the full
liquidating distributions to which they would otherwise be respectively
entitled.
5
If liquidating distributions are made in full to all holders of our
preferred shares, our remaining assets shall be distributed among the holders of
any other classes or series of equity securities ranking junior to the preferred
shares in the distribution of assets upon our liquidation, dissolution or
winding-up of our affairs, according to their respective rights and preferences
and in each case according to their respective number of shares.
If we consolidate or merge with or into, or sell, lease or convey all or
substantially all of our property or business to, any corporation, trust or
other entity, such transaction shall not be deemed to constitute a liquidation,
dissolution or winding-up of our affairs.
VOTING RIGHTS
Unless otherwise from time to time required by law, or as otherwise
indicated in the applicable prospectus supplement, holders of our preferred
shares will not have any voting rights.
CONVERSION RIGHTS
The terms and conditions, if any, upon which our preferred shares are
convertible into common shares will be set forth in the applicable prospectus
supplement. Such terms will include the number of common shares into which the
preferred shares are convertible, the conversion price (or manner of calculation
thereof), the conversion period, provisions as to whether conversion will be at
the option of the holders of the preferred shares or at our option, the events
requiring an adjustment of the conversion price and provisions affecting
conversion in the event of the redemption of such preferred shares.
RESTRICTIONS ON OWNERSHIP
For us to qualify as a REIT under the Code, not more than 50% in value of
our outstanding capital shares may be owned, directly or indirectly, by five or
fewer individuals (as defined in the Code to include certain entities) during
the last half of a taxable year. To assist us in meeting this requirement, we
may take certain actions to limit the beneficial ownership, directly or
indirectly, by a single person of our outstanding equity securities, including
any series of our preferred shares. Therefore, the applicable amendment or annex
to our declaration of trust designating the terms of a series of preferred
shares may contain provisions restricting the ownership and transfer of such
preferred shares. The applicable prospectus supplement will specify any
additional ownership limitation relating to the preferred shares being offered
thereby. See "RESTRICTIONS ON TRANSFERS OF CAPITAL STOCK AND ANTI-TAKEOVER
PROVISIONS" beginning on page 20 of this prospectus.
TRANSFER AGENT
The transfer agent and registrar for our preferred shares will be set forth
in the applicable prospectus supplement.
TERMS OF OUR 8.05% SERIES B CUMULATIVE REDEEMABLE PREFERRED STOCK
GENERAL. In June 2003, we sold 3,160,000 preferred shares of beneficial
interest classified as 8.05% Series B Cumulative Redeemable Preferred Stock,
which we refer to as the Series B Preferred Shares. The Series B Preferred
Shares are not convertible into our common shares and are listed on the New York
Stock Exchange under the symbol "LXP-pb."
DIVIDENDS. The holders of the Series B Shares are entitled to receive
cumulative cash dividends at a rate of 8.05% of the $25.00 liquidation
preference per year (equivalent to $2.0125 per year per share).
LIQUIDATION PREFERENCE. If we liquidate, dissolve or wind up, holders of
our Series B Preferred Shares will have the right to receive $25.00 per share,
plus accrued and unpaid dividends (whether or not declared) to and including the
date of payment before any payments are made to the holders of our common shares
and any other capital shares ranking junior to the Series B Preferred Shares as
to liquidation rights.
6
REDEMPTION. We may not redeem the Series B Preferred Shares prior to June
19, 2008, except in limited circumstances relating to the preservation of our
status as a REIT. On or after June 19, 2008, we may, at our option, redeem the
Series B Preferred Shares, in whole or in part, at any time and from time to
time, for cash equal to $25.00 per share, plus any accrued and unpaid dividends,
if any, to and including the date of redemption.
CONVERSION. The Series B Preferred Shares are not convertible into, or
exchangeable for, any other property or securities, except that we may exchange
shares of the Series B Preferred Shares for shares of excess stock in order to
ensure that we remain a qualified REIT for federal income tax purposes.
RANK. With respect to the payment of dividends and amounts upon
liquidation, dissolution or winding up, the Series B Preferred Share rank (i)
senior to all classes or series of our common shares and to all equity
securities ranking junior to our Series B Preferred Shares, (ii) on a parity
with all equity securities issued by us the terms of which specifically provide
that such equity securities rank on a parity with our Series B Preferred Shares,
and (iii) junior to all equity securities issued by us the terms of which
specifically provide that such equity securities rank senior to our Series B
Preferred Shares.
VOTING RIGHTS. Holders of the Series B Preferred Shares will generally
have no voting rights. However, if we do not pay dividends on the Series B
Preferred Shares for six or more quarterly periods (whether or not consecutive),
the holders of the Series B Preferred Shares voting together as a class with the
holders of all other classes or series of our equity securities ranking on
parity with the Series B Preferred Shares which are entitled to similar voting
rights, will be entitled to vote at the next annual meeting of our shareholders
for the election of two additional trustees to serve on our board of trustees
until all unpaid cumulative dividends have been paid or declared and set apart
for payment.
7
DESCRIPTION OF OUR DEBT SECURITIES
We will issue our debt securities under one or more separate indentures
between us and a trustee that we will name in the applicable supplement to this
prospectus. A form of the indenture is attached as an exhibit to the
registration statement of which this prospectus is a part. Following its
execution, the indenture will be filed with the SEC and incorporated by
reference in the registration statement of which this prospectus is a part.
The following summary describes certain material terms and provisions of
the indenture and our debt securities. This summary is not complete and is
subject to, and is qualified in its entirety by reference to, the provisions of
the indenture. When we offer to sell a particular series of debt securities, we
will describe the specific terms of the series in the applicable supplement to
this prospectus. You should read the indenture for more details regarding the
provisions we describe below and for other provisions that may be important to
you. For information on incorporation by reference, and how to obtain a copy of
the indenture, see the sections entitled "WHERE YOU CAN FIND MORE INFORMATION"
on page 25 of this prospectus and "INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE" on page 25 of this prospectus.
GENERAL
The debt securities will be direct obligations of the Company, which may be
secured or unsecured and may be either senior debt securities ("Senior
Securities") or subordinated debt securities ("Subordinated Securities"). The
debt securities will be issued under one or more indentures in the form filed as
an exhibit to the Registration Statement of which this prospectus is a part (the
"Form of Indenture"). As provided in the Form of Indenture, the specific terms
of any Debt Security issued pursuant to an indenture will be set forth in one or
more Supplemental Indentures, each dated as of a date of or prior to the
issuance of the debt securities to which it relates (the "Supplemental
Indentures" and each a "Supplemental Indenture"). Senior Securities and
Subordinated Securities may be issued pursuant to separate indentures
(respectively, a "Senior Indenture" and a "Subordinated Indenture"), in each
case between the Company and a trustee (an "Indenture Trustee"), which may be
the same Indenture Trustee, subject to such amendments or supplements as may be
adopted from time to time. The Senior Indenture and the Subordinated Indenture,
as amended or supplemented from time to time, are sometimes hereinafter referred
to collectively as the "Indentures." The Indentures will be subject to and
governed by the Trust Indenture Act of 1939, as amended. The statements made
under this heading relating to the debt securities and the Indentures are
summaries of the provisions thereof, do not purport to be complete and are
qualified in their entirety by reference to the Indentures and such debt
securities.
Capitalized terms used herein and not defined shall have the meanings
assigned to them in the applicable Indenture.
TERMS
The indebtedness represented by the Senior Securities will rank equally
with all other unsecured and unsubordinated indebtedness of the Company. The
indebtedness represented by Subordinated Securities will be subordinated in
right of payment to the prior payment in full of the Senior Debt of the Company
as described under "-- Subordination." The particular terms of the debt
securities offered by a prospectus supplement will be described in the
applicable prospectus supplement, along with any applicable federal income tax
considerations unique to such debt securities. Accordingly, for a description of
the terms of any series of debt securities, reference must be made to both the
prospectus supplement relating thereto and the description of the debt
securities set forth in this prospectus.
Except as set forth in any prospectus supplement, the debt securities may
be issued without limits as to aggregate principal amount, in one or more
series, in each case as established from time to time by the Company or as set
forth in the applicable Indenture or in one or more Supplemental Indentures. All
debt securities of one series need not be issued at the same time and, unless
otherwise provided, a series may be reopened, without the consent of the holders
of the debt securities of such series, for issuance of additional debt
securities of such series.
8
The Form of Indenture provides that the Company may, but need not,
designate more than one Indenture Trustee thereunder, each with respect to one
or more series of debt securities. Any Indenture Trustee under an Indenture may
resign or be removed with respect to one or more series of debt securities and a
successor Indenture Trustee may be appointed to act with respect to such series.
If two or more persons are acting as Indenture Trustee with respect to different
series of debt securities, each such Indenture Trustee shall be an Indenture
Trustee of a trust under the applicable Indenture separate and apart from the
trust administered by any other Indenture Trustee, and, except as otherwise
indicated herein, any action described herein to be taken by each Indenture
Trustee may be taken by each such Indenture Trustee with respect to, and only
with respect to, the one or more series of debt securities for which it is
Indenture Trustee under the applicable Indenture.
The following summaries set forth certain general terms and provisions of
the Indentures and the debt securities. The prospectus supplement relating to
the series of debt securities being offered will contain further terms of such
debt securities, including the following specific terms:
(1) The title of such debt securities and whether such debt securities
are secured or unsecured or Senior Securities or Subordinated Securities;
(2) The aggregate principal amount of such debt securities and any
limit on such aggregate principal amount;
(3) The price (expressed as a percentage of the principal amount
thereof) at which such debt securities will be issued and, if other than
the principal amount thereof, the portion of the principal amount thereof
payable upon declaration of the maturity thereof, or (if applicable) the
portion of the principal amount of such debt securities that is convertible
into common shares or preferred shares, or the method by which any such
portion shall be determined;
(4) If convertible, the terms on which such debt securities are
convertible, including the initial conversion price or rate and the
conversion period and any applicable limitations on the ownership or
transferability of the common shares or preferred shares receivable on
conversion;
(5) The date or dates, or the method for determining such date or
dates, on which the principal of such debt securities will be payable;
(6) The rate or rates (which may be fixed or variable), or the method
by which such rate or rates shall be determined, at which such debt
securities will bear interest, if any;
(7) The date or dates, or the method for determining such date or
dates, from which any such interest will accrue, the dates on which any
such interest will be payable, the record dates for such interest payment
dates, or the method by which such dates shall be determined, the persons
to whom such interest shall be payable, and the basis upon which interest
shall be calculated if other than that of a 360-day year of twelve 30-day
months;
(8) The place or places where the principal of (and premium, if any)
and interest, if any, on such debt securities will be payable, where such
debt securities may be surrendered for conversion or registration of
transfer or exchange and where notices or demands to or upon the Company
with respect to such debt securities and the applicable Indenture may be
served;
(9) The period or periods, if any, within which, the price or prices at
which and the other terms and conditions upon which such debt securities
may, pursuant to any optional or mandatory redemption provisions, be
redeemed, as a whole or in part, at the option of the Company;
(10) The obligation, if any, of the Company to redeem, repay or
purchase such debt securities pursuant to any sinking fund or analogous
provision or at the option of a holder thereof, and the period or periods
within which, the price or prices at which and the other terms and
conditions upon which such debt securities will be redeemed, repaid or
purchased, as a whole or in part, pursuant to such obligation;
9
(11) If other than U.S. dollars, the currency or currencies in which
such debt securities are denominated and payable, which may be a foreign
currency or units of two or more foreign currencies or a composite currency
or currencies, and the terms and conditions relating thereto;
(12) Whether the amount of payments of principal of (and premium, if
any) or interest, if any, on such debt securities may be determined with
reference to an index, formula or other method (which index, formula or
method may, but need not, be based on a currency, currencies, currency unit
or units, or composite currency or currencies) and the manner in which such
amounts shall be determined;
(13) Whether such debt securities will be issued in certificated or
book-entry form and, if so, the identity of the depository for such debt
securities;
(14) Whether such debt securities will be in registered or bearer form
or both and, if in registered form, the denominations thereof if other than
$1,000 and any integral multiple thereof and, if in bearer form, the
denominations thereof and terms and conditions relating thereto;
(15) The applicability, if any, of the defeasance and covenant
defeasance provisions described herein or set forth in the applicable
Indenture, or any modification thereof;
(16) Whether and under what circumstances the Company will pay any
additional amounts on such debt securities in respect of any tax,
assessment or governmental charge and, if so, whether the Company will have
the option to redeem such debt securities in lieu of making such payment;
(17) Any deletions from, modifications of or additions to the events of
default or covenants of the Company, to the extent different from those
described herein or set forth in the applicable Indenture with respect to
such debt securities, and any change in the right of any Trustee or any of
the holders to declare the principal amount of any of such debt securities
due and payable;
(18) The provisions, if any, relating to the security provided for such
debt securities; and
(19) Any other terms of such debt securities not inconsistent with the
provisions of the applicable Indenture.
If so provided in the applicable prospectus supplement, the debt securities
may be issued at a discount below their principal amount and provide for less
than the entire principal amount thereof to be payable upon declaration of
acceleration of the maturity thereof ("Original Issue Discount Securities"). In
such cases, any special U.S. federal income tax, accounting and other
considerations applicable to Original Issue Discount Securities will be
described in the applicable prospectus supplement.
Except as may be set forth in any prospectus supplement, neither the debt
securities nor the Indenture will contain any provisions that would limit the
ability of the Company to incur indebtedness or that would afford holders of
debt securities protection in the event of a highly leveraged or similar
transaction involving the Company or in the event of a change of control,
regardless of whether such indebtedness, transaction or change of control is
initiated or supported by the Company, any affiliate of the Company or any other
party. However, certain restrictions on ownership and transfers of the common
shares and preferred shares are designed to preserve the Company's status as a
REIT and, therefore, may act to prevent or hinder a change of control. See
"RESTRICTIONS ON TRANSFERS OF CAPITAL STOCK AND ANTI-TAKEOVER PROVISIONS"
beginning on page 20 of this prospectus. Reference is made to the applicable
prospectus supplement for information with respect to any deletions from,
modifications of, or additions to, the events of default or covenants of the
Company that are described below, including any addition of a covenant or other
provision providing event risk or similar protection.
DENOMINATION, INTEREST, REGISTRATION AND TRANSFER
Unless otherwise described in the applicable prospectus supplement, the
debt securities of any series will be issuable in denominations of $1,000 and
integral multiples thereof.
10
Unless otherwise specified in the applicable prospectus supplement, the
principal of (and applicable premium, if any) and interest on any series of debt
securities will be payable at the corporate trust office of the applicable
Indenture Trustee, the address of which will be stated in the applicable
prospectus supplement; provided, however, that, at the option of the Company,
payment of interest may be made by check mailed to the address of the person
entitled thereto as it appears in the applicable register for such debt
securities or by wire transfer of funds to such person at an account maintained
within the United States.
Subject to certain limitations imposed upon debt securities issued in
book-entry form, the debt securities of any series will be exchangeable for any
authorized denomination of other debt securities of the same series and of a
like aggregate principal amount and tenor upon surrender of such debt securities
at the corporate trust office of the applicable Indenture Trustee or at the
office of any transfer agent designated by the Company for such purpose. In
addition, subject to certain limitations imposed upon debt securities issued in
book-entry form, the debt securities of any series may be surrendered for
conversion or registration of transfer or exchange thereof at the corporate
trust office of the applicable Indenture Trustee or at the office of any
transfer agent designated by the Company for such purpose. Every Debt Security
surrendered for conversion, registration of transfer or exchange must be duly
endorsed or accompanied by a written instrument of transfer, and the person
requesting such action must provide evidence of title and identity satisfactory
to the applicable Indenture Trustee or transfer agent. No service charge will be
made for any registration of transfer or exchange of any debt securities, but
the Company may require payment of a sum sufficient to cover any tax or other
governmental charge payable in connection therewith. If the applicable
prospectus supplement refers to any transfer agent (in addition to the
applicable Indenture Trustee) initially designated by the Company with respect
to any series of debt securities, the Company may at any time rescind the
designation of any such transfer agent or approve a change in the location
through which any such transfer agent acts, except that the Company will be
required to maintain a transfer agent in each place of payment for such series.
The Company may at any time designate additional transfer agents with respect to
any series of debt securities.
Neither the Company nor any Indenture Trustee shall be required (i) to
issue, register the transfer of or exchange debt securities of any series during
a period beginning at the opening of business 15 days before the day of mailing
of a notice of redemption of any debt securities that may be selected for
redemption and ending at the close of business on the day of such mailing; (ii)
to register the transfer of or exchange any Debt Security, or portion thereof,
so selected for redemption, in whole or in part, except the unredeemed portion
of any Debt Security being redeemed in part; or (iii) to issue, register the
transfer of or exchange any Debt Security that has been surrendered for
repayment at the option of the holder, except the portion, if any, of such Debt
Security not to be so repaid.
MERGER, CONSOLIDATION OR SALE OF ASSETS
The Indentures will provide that the Company may, without the consent of
the holders of any outstanding debt securities, consolidate with, or sell, lease
or convey all or substantially all of its assets to, or merge with or into, any
other entity provided that (a) either the Company shall be the continuing
entity, or the successor entity (if other than the Company) formed by or
resulting from any such consolidation or merger or which shall have received the
transfer of such assets, is organized under the laws of any domestic
jurisdiction and assumes the Company's obligations to pay principal of (and
premium, if any) and interest on all of the debt securities and the due and
punctual performance and observance of all of the covenants and conditions
contained in each Indenture; (b) immediately after giving effect to such
transaction and treating any indebtedness that becomes an obligation of the
Company or any subsidiary as a result thereof as having been incurred by the
Company or such subsidiary at the time of such transaction, no event of default
under the Indentures, and no event which, after notice or the lapse of time, or
both, would become such an event of default, shall have occurred and be
continuing; and (c) an officers' certificate and legal opinion covering such
conditions shall be delivered to each Indenture Trustee.
11
CERTAIN COVENANTS
EXISTENCE. Except as permitted under "-- Merger, Consolidation or Sale of
Assets," the Indentures will require the Company to do or cause to be done all
things necessary to preserve and keep in full force and effect its corporate
existence, rights (by declaration of trust, by-laws and statute) and franchises;
provided, however, that the Company will not be required to preserve any right
or franchise if its board of trustees determines that the preservation thereof
is no longer desirable in the conduct of its business by appropriate
proceedings.
MAINTENANCE OF PROPERTIES. The Indentures will require the Company to
cause all of its material properties used or useful in the conduct of its
business or the business of any subsidiary to be maintained and kept in good
condition, repair and working order and supplied with all necessary equipment
and will cause to be made all necessary repairs, renewals, replacements,
betterments and improvements thereof, all as in the judgment of the Company may
be necessary so that the business carried on in connection therewith may be
properly and advantageously conducted at all times; provided, however, that the
Company and its subsidiaries shall not be prevented from selling or otherwise
disposing of their properties for value in the ordinary course of business.
INSURANCE. The Indentures will require the Company to cause each of its
and its subsidiaries' insurable properties to be insured against loss or damage
with insurers of recognized responsibility and, if described in the applicable
prospectus supplement, having a specified rating from a recognized insurance
rating service, in such amounts and covering all such risks as shall be
customary in the industry in accordance with prevailing market conditions and
availability.
PAYMENT OF TAXES AND OTHER CLAIMS. The Indentures will require the Company
to pay or discharge or cause to be paid or discharged, before the same shall
become delinquent, (i) all taxes, assessments and governmental charges levied or
imposed upon it or any subsidiary or upon the income, profits or property of the
Company or any subsidiary and (ii) all lawful claims for labor, materials and
supplies which, if unpaid, might by law become a lien upon the property of the
Company or any subsidiary; provided, however, that the Company shall not be
required to pay or discharge or cause to be paid or discharged any such tax,
assessment, charge or claim whose amount, applicability or validity is being
contested in good faith.
PROVISION OF FINANCIAL INFORMATION. Whether or not the Company is subject
to Section 13 or 15(d) of the Exchange Act, the Indentures will require the
Company, within 15 days of each of the respective dates by which the Company
would have been required to file annual reports, quarterly reports and other
documents with the Commission if the Company were so subject, (i) to file with
the applicable Indenture Trustee copies of the annual reports, quarterly reports
and other documents that the Company would have been required to file with the
Commission pursuant to Section 13 or 15(d) of the Exchange Act if the Company
were subject to such Sections and (ii) to supply, promptly upon written request
and payment of the reasonable cost of duplication and delivery, copies of such
documents to any prospective holder.
ADDITIONAL COVENANTS. Any additional covenants of the Company with respect
to any series of debt securities will be set forth in the prospectus supplement
relating thereto.
EVENTS OF DEFAULT, NOTICE AND WAIVER
Unless otherwise provided in the applicable prospectus supplement, each
Indenture will provide that the following events are "Events of Default" with
respect to any series of debt securities issued thereunder (i) default for 30
days in the payment of any installment of interest on any Debt Security of such
series; (ii) default in the payment of principal of (or premium, if any, on) any
Debt Security of such series at its maturity; (iii) default in making any
sinking fund payment as required for any Debt Security of such series; (iv)
default in the performance or breach of any other covenant or warranty of the
Company contained in the Indenture (other than a covenant added to the Indenture
solely for the benefit of a series of debt securities issued thereunder other
than such series), continued for 60 days after written notice as provided in the
applicable Indenture; (v) a default under any bond, debenture, note or other
evidence of
12
indebtedness for money borrowed by the Company or any of its subsidiaries
(including obligations under leases required to be capitalized on the balance
sheet of the lessee under generally accepted accounting principles but not
including any indebtedness or obligations for which recourse is limited to
property purchased) in an aggregate principal amount in excess of $30,000,000 or
under any mortgage, indenture or instrument under which there may be issued or
by which there may be secured or evidenced any indebtedness for money borrowed
by the Company or any its subsidiaries (including such leases, but not including
such indebtedness or obligations for which recourse is limited to property
purchased) in an aggregate principal amount in excess of $30,000,000, whether
such indebtedness exists on the date of such Indenture or shall thereafter be
created, with such obligations being accelerated and not rescinded or annulled;
(vi) certain events of bankruptcy, insolvency or reorganization, or court
appointment of a receiver, liquidator or trustee of the Company or any
Significant Subsidiary of the Company; and (vii) any other event of default
provided with respect to a particular series of debt securities. The term
"Significant Subsidiary" has the meaning ascribed to such term in Regulation S-X
promulgated under the Securities Act.
If an event of default under any Indenture with respect to debt securities
of any series at the time outstanding occurs and is continuing, then in every
such case the applicable Indenture Trustee or the holders of not less than 25%
in principal amount of the debt securities of that series will have the right to
declare the principal amount (or, if the debt securities of that series are
Original Issue Discount Securities or indexed securities, such portion of the
principal amount as may be specified in the terms thereof) of all the debt
securities of that series to be due and payable immediately by written notice
thereof to the Company (and to the applicable Indenture Trustee if given by the
holders). However, at any time after such a declaration of acceleration with
respect to debt securities of such series (or of all debt securities then
outstanding under any Indenture, as the case may be) has been made, but before a
judgment or decree for payment of the money due has been obtained by the
applicable Indenture Trustee, the holders of not less than a majority in
principal amount of outstanding debt securities of such series (or of all debt
securities then outstanding under the applicable Indenture, as the case may be)
may rescind and annul such declaration and its consequences if (i) the Company
shall have deposited with the applicable Indenture Trustee all required payments
of the principal of (and premium, if any) and interest on the debt securities of
such series (or of all debt securities than outstanding under the applicable
Indenture, as the case may be), plus certain fees, expenses, disbursements and
advances of the applicable Indenture Trustee and (ii) all events of default,
other than the non-payment of accelerated principal (or specified portion
thereof), with respect to debt securities of such series (or of all debt
securities then outstanding under the applicable Indenture, as the case may be)
have been cured or waived as provided in such Indenture. The Indentures will
also provide that the holders of not less than a majority in principal amount of
the outstanding debt securities of any series (or of all debt securities then
outstanding under the applicable Indenture, as the case may be) may waive any
past default with respect to such series and its consequences, except a default
(x) in the payment of the principal of (or premium, if any) or interest on any
Debt Security of such series or (y) in respect of a covenant or provision
contained in the applicable Indenture that cannot be modified or amended without
the consent of the holder of each outstanding Debt Security affected thereby.
The Indentures will require each Indenture Trustee to give notice to the
holders of debt securities within 90 days of a default under the applicable
Indenture unless such default shall have been cured or waived; provided,
however, that such Indenture Trustee may withhold notice to the holders of any
series of debt securities of any default with respect to such series (except a
default in the payment of the principal of (or premium, if any) or interest on
any Debt Security of such series or in the payment of any sinking fund
installment in respect to any Debt Security of such series) if specified
responsible officers of such Indenture Trustee consider such withholding to be
in the interest of such holders.
The Indentures will provide that no holder of debt securities of any series
may institute any proceeding, judicial or otherwise, with respect to such
Indenture or for any remedy thereunder, except in the case of failure of the
applicable Indenture Trustee, for 60 days, to act after it has received a
written request to institute proceedings in respect of an event of default from
the holders of not less than 25% in
13
principal amount of the outstanding debt securities of such series, as well as
an offer of indemnity reasonably satisfactory to it. This provision will not
prevent, however, any holder of debt securities from instituting suit for the
enforcement of payment of the principal of (and premium, if any) and interest on
such debt securities at the respective due dates thereof.
The Indentures will provide that, subject to provisions in each Indenture
relating to its duties in case of default, an Indenture Trustee will be under no
obligation to exercise any of its rights or powers under an Indenture at the
request or direction of any holders of any series of debt securities then
outstanding under such Indenture, unless such holders shall have offered to the
Indenture Trustee thereunder reasonable security or indemnity. The holders of
not less than a majority in principal amount of the outstanding debt securities
of any series (or of all debt securities then outstanding under an Indenture, as
the case may be) shall have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the applicable Indenture
Trustee, or of exercising any trust or power conferred upon such Indenture
Trustee. However, an Indenture Trustee may refuse to follow any direction which
is in conflict with any law or the applicable Indenture, which may involve such
Indenture Trustee in personal liability or which may be unduly prejudicial to
the holders of debt securities of such series not joining therein.
Within 120 days after the close of each fiscal year, the Company will be
required to deliver to each Indenture Trustee a certificate, signed by one of
several specified officers of the Company, stating whether or not such officer
has knowledge of any default under the applicable Indenture and, if so,
specifying each such default and the nature and status thereof.
MODIFICATION OF THE INDENTURES
Modifications and amendments of an Indenture will be permitted to be made
only with the consent of the holders of not less than a majority in principal
amount of all outstanding debt securities issued under such Indenture affected
by such modification or amendment; provided, however, that no such modification
or amendment may, without the consent of the holder of each such Debt Security
affected thereby, (i) change the stated maturity of the principal of, or any
installment of interest (or premium, if any) on, any such Debt Security; (ii)
reduce the principal amount of, or the rate or amount of interest on, or any
premium payable on redemption of, any such Debt Security, or reduce the amount
of principal of an Original Issue Discount Security that would be due and
payable upon declaration of acceleration of the maturity thereof or would be
provable in bankruptcy, or adversely affect any right of repayment of the holder
of any such Debt Security; (iii) change the place of payment, or the coin or
currency, for payment of principal of, premium, if any, or interest on any such
Debt Security; (iv) impair the right to institute suit for the enforcement of
any payment on or with respect to any such Debt Security; (v) reduce the
above-stated percentage of outstanding debt securities of any series necessary
to modify or amend the applicable Indenture, to waive compliance with certain
provisions thereof or certain defaults and consequences thereunder or to reduce
the quorum or voting requirements set forth in the applicable Indenture; or (vi)
modify any of the foregoing provisions or any of the provisions relating to the
waiver of certain past defaults or certain covenants, except to increase the
required percentage to effect such action or to provide that certain other
provisions may not be modified or waived without the consent of the holder of
such Debt Security.
The holders of a majority in aggregate principal amount of the outstanding
debt securities of each series may, on behalf of all holders of debt securities
of that series, waive, insofar as that series is concerned, compliance by the
Company with certain restrictive covenants of the applicable Indenture.
Modifications and amendments of an Indenture will be permitted to be made
by the Company and the respective Indenture Trustee thereunder without the
consent of any holder of debt securities for any of the following purposes: (i)
to evidence the succession of another person to the Company as obligor under
such Indenture; (ii) to add to the covenants of the Company for the benefit of
the holders of all or any series of debt securities or to surrender any right or
power conferred upon the Company in such Indenture; (iii) to add events of
default for the benefit of the holders of all or any series of debt securities;
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(iv) to add or change any provisions of an Indenture to facilitate the issuance
of, or to liberalize certain terms of, debt securities in bearer form, or to
permit or facilitate the issuance of debt securities in uncertificated form;
provided that such action shall not adversely affect the interest of the holders
of the debt securities of any series in any material respect; (v) to change or
eliminate any provisions of an Indenture; provided that any such change or
elimination shall be effective only when there are no debt securities
outstanding of any series created prior thereto which are entitled to the
benefit of such provision; (vi) to secure the debt securities; (vii) to
establish the form or terms of debt securities of any series, including the
provisions and procedures, if applicable, for the conversion of such debt
securities into common shares or preferred shares; (viii) to provide for the
acceptance of appointment by a successor Indenture Trustee or facilitate the
administration of the trusts under an Indenture by more than one Indenture
Trustee; (ix) to cure any ambiguity, defect or inconsistency in an Indenture;
provided that such action shall not adversely affect the interests of holders of
debt securities of any series issued under such Indenture; or (x) to supplement
any of the provisions of an Indenture to the extent necessary to permit or
facilitate defeasance and discharge of any series of such debt securities;
provided that such action shall not adversely affect the interests of the
holders of the outstanding debt securities of any series.
The Indentures will provide that, in determining whether the holders of the
requisite principal amount of outstanding debt securities of a series have given
any request, demand, authorization, direction, notice, consent or waiver
thereunder or whether a quorum is present at a meeting of holders of debt
securities, (i) the principal amount of an Original Issue Discount Security that
shall be deemed to be outstanding shall be the amount of the principal thereof
that would be due and payable as of the date of such determination upon
declaration of acceleration of the maturity thereof (ii) the principal amount of
any Debt Security denominated in a foreign currency that shall be deemed
outstanding shall be the U.S. dollar equivalent, determined on the issue date
for such Debt Security, of the principal amount (or, in the case of an Original
Issue Discount Security, the U.S. dollar equivalent on the issue date of such
debt securities of the amount determined as provided in (i) above), (iii) the
principal amount of an indexed security that shall be deemed outstanding shall
be the principal face amount of such indexed security at original issuance,
unless otherwise provided with respect to such indexed security pursuant to such
Indenture, and (iv) debt securities owned by the Company or any other obligor
upon the debt securities or an affiliate of the Company or of such other obligor
shall be disregarded.
The Indentures will contain provisions for convening meetings of the
holders of debt securities of a series issued thereunder. A meeting may be
called at any time by the applicable Indenture Trustee, and also, upon request
by the Company or the holders of at least 25% in principal amount of the
outstanding debt securities of such series, in any such case upon notice given
as provided in such Indenture. Except for any consent that must be given by the
holder of each Debt Security affected by certain modifications and amendments of
an Indenture, any resolution presented at a meeting or adjourned meeting duly
reconvened at which a quorum is present may be adopted by the affirmative vote
of the holders of a majority in principal amount of the outstanding debt
securities of that series; provided, however, that, except as referred to above,
any resolution with respect to any request, demand, authorization, direction,
notice, consent, waiver or other action that may be made, given or taken by the
holders of a specified percentage, which is less than a majority, in principal
amount of the outstanding debt securities of a series may be adopted at a
meeting or adjourned meeting duly reconvened at which a quorum is present by the
affirmative vote of the holders of such specified percentage in principal amount
of the outstanding debt securities of that series. Any resolution passed or
decision taken at any meeting of holders of debt securities of any series duly
held in accordance with an Indenture will be binding on all holders of debt
securities of that series. The quorum at any meeting called to adopt a
resolution, and at any reconvened meeting, will be persons holding or
representing a majority in principal amount of the outstanding debt securities
of a series; provided, however, that if any action is to be taken at such
meeting with respect to a consent or waiver which may be given by the holders of
not less than a specified percentage in principal amount of the outstanding debt
securities of a series, the persons holding or representing such specified
percentage in principal amount of the outstanding debt securities of such series
will constitute a quorum.
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Notwithstanding the foregoing provisions, the Indentures will provide that
if any action is to be taken at a meeting of holders of debt securities of any
series with respect to any request, demand, authorization, direction, notice,
consent, waiver and other action that such Indenture expressly provides may be
made, given or taken by the holders of a specified percentage in principal
amount of all outstanding debt securities affected thereby, or of the holders of
such series and one or more additional series; (i) there shall be no minimum
quorum requirement for such meeting, and (ii) the principal amount of the
outstanding debt securities of such series that vote in favor of such request,
demand, authorization, direction, notice, consent, waiver or other action shall
be taken into account in determining whether such request, demand,
authorization, direction, notice, consent, waiver or other action has been made,
given or taken under such Indenture.
SUBORDINATION
Unless otherwise provided in the applicable prospectus supplement,
Subordinated Securities will be subject to the following subordination
provisions.
Upon any distribution to creditors of the Company in a liquidation,
dissolution or reorganization, the payment of the principal of and interest on
any Subordinated Securities will be subordinated to the extent provided in the
applicable Indenture in right of payment to the prior payment in full of all
Senior Debt (as defined below), but the obligation of the Company to make
payments of the principal of and interest on such Subordinated Securities will
not otherwise be affected. No payment of principal or interest will be permitted
to be made on Subordinated Securities at any time if a default on Senior Debt
exists that permits the holders of such Senior Debt to accelerate its maturity
and the default is the subject of judicial proceedings or the Company receives
notice of the default. After all Senior Debt is paid in full and until the
Subordinated Securities are paid in full, holders will be subrogated to the
rights of holders of Senior Debt to the extent that distributions otherwise
payable to holders have been applied to the payment of Senior Debt. The
Subordinated Indenture will not restrict the amount of Senior Indebtedness or
other indebtedness of the Company and its subsidiaries. As a result of these
subordination provisions in the event of a distribution of assets upon
insolvency, holders of Subordinated Indebtedness may recover less, ratably, than
senior creditors of the Company.
Senior Debt will be defined in the applicable Indenture as the principal of
and interest on, or substantially similar payments to be made by the Company in
respect of, the following, whether outstanding at the date of execution of the
applicable Indenture or thereafter incurred, created or assumed: (i)
indebtedness of the Company for money borrowed or represented by purchase-money
obligations, (ii) indebtedness of the Company evidenced by notes, debentures, or
bonds, or other securities issued under the provisions of an indenture, fiscal
agency agreement or other agreement, (iii) obligations of the Company as lessee
under leases of property either made as part of any sale and leaseback
transaction to which the Company is a part or otherwise, (iv) indebtedness of
partnerships and joint ventures which is included in the consolidated financial
statements of the Company, (v) indebtedness obligations and liabilities of
others in respect of which the Company is liable contingently or otherwise to
pay or advance money or property or as guarantor, endorser or otherwise or which
the Company has agreed to purchase or otherwise acquire, and (vi) any binding
commitment of the real estate investment, in each case other than (a) any such
indebtedness, obligation or liability referred to in clauses (i) through (vi)
above as to which, in the instrument creating or evidencing the same pursuant to
which the same is outstanding, it is provided that such indebtedness, obligation
or liability is not superior in right of payment to the Subordinated Securities
or ranks pari passu with the Subordinated Securities, (b) any such indebtedness
obligation or liability which is subordinated to indebtedness of the Company to
substantially the same extent as or to a greater extent than the Subordinated
Securities are subordinated, and (c) the Subordinated Securities. There will not
be any restriction in any Indenture relating to Subordinated Securities upon the
creation of additional Senior Debt.
If this prospectus is being delivered in connection with a series of
Subordinated Securities, the accompanying prospectus supplement or the
information incorporated herein by reference will set forth
16
the approximate amount of Senior Debt outstanding as of the end of the Company's
most recent fiscal quarter.
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
Unless otherwise indicated in the applicable prospectus supplement, the
Company will be permitted, at its option, to discharge certain obligations to
holders of any series of debt securities issued under any Indenture that have
not already been delivered to the applicable Indenture Trustee for cancellation
and that either have become due and payable or will become due and payable
within one year (or scheduled for redemption within one year) by irrevocably
depositing with the applicable Indenture Trustee, in trust, funds in such
currency or currencies, currency unit or units or composite currency or
currencies in which such debt securities are payable in an amount sufficient to
pay the entire indebtedness on such debt securities with respect to principal
(and premium, if any) and interest to the date of such deposit (if such debt
securities have become due and payable) or to the stated maturity or redemption
date, as the case may be.
The Indentures will provide that, unless otherwise indicated in the
applicable prospectus supplement, the Company may elect either (i) to defease
and be discharged from any and all obligations (except for the obligation to pay
additional amounts, if any, upon the occurrence of certain events of tax
assessment or governmental charge with respect to payments on such debt
securities and the obligations to register the transfer or exchange of such debt
securities, to replace temporary or mutilated, destroyed, lost or stolen debt
securities, to maintain an office or agency in respect of such debt securities,
to hold moneys for payment in trust and, with respect to Subordinated debt
securities which are convertible or exchangeable, the right to convert or
exchange) with respect to such debt securities ("defeasance") or (ii) to be
released from its obligations with respect to such debt securities under the
applicable Indenture (being the restrictions described under "-- Certain
Covenants") or, if provided in the applicable prospectus supplement, its
obligations with respect to any other covenant, and any omission to comply with
such obligations shall not constitute an event of default with respect to such
debt securities ("covenant defeasance"), in either case upon the irrevocable
deposit by the Company with the applicable Indenture Trustee, in trust, of an
amount in such currency or currencies, currency unit or units or composite
currency or currencies in which such debt securities are payable at stated
maturity, or Government Obligations (as defined below), or both, applicable to
such debt securities, which through the scheduled payment of principal and
interest in accordance with their terms will provide money in an amount
sufficient to pay the principal of (and premium, if any) and interest on such
debt securities, and any mandatory sinking fund or analogous payments thereon,
on the scheduled due dates therefor.
Such a trust will only be permitted to be established if, among other
things, the Company has delivered to the applicable Indenture Trustee an opinion
of counsel (as specified in the applicable Indenture) to the effect that the
holders of such debt securities will not recognize income, gain or loss for U.S.
federal income tax purposes as a result of such defeasance or covenant
defeasance and will be subject to U.S. federal income tax on the same amounts,
in the same manner and at the same times as would have been the case if such
defeasance or covenant defeasance had not occurred, and such opinion of counsel,
in the case of defeasance, will be required to refer to and be based upon a
ruling received from or published by the Internal Revenue Service or a change in
applicable United States federal income tax law occurring after the date of the
Indenture. In the event of such defeasance, the holders of such debt securities
would thereafter be able to look only to such trust fund for payment of
principal (and premium, if any) and interest.
"Government Obligations" means securities that are (i) direct obligations
of the United States of America or the government which issued the foreign
currency in which the debt securities of a particular series are payable, for
the payment of which its full faith and credit is pledged, or (ii) obligations
of a person controlled or supervised by and acting as an agency or
instrumentality of the United States of America or such government which issued
the foreign currency in which the debt securities of such series are payable,
the payment of which is unconditionally guaranteed as a full faith and credit
obligation by the United States of America or such other government, which, in
either case, are not callable or
17
redeemable at the option of the issuer thereof, and shall also include a
depository receipt issued by a bank or trust company as custodian with respect
to any such Government Obligation or a specific payment of interest on or
principal of any such Government Obligation held by such custodian for the
account of the holder of a depository receipt; provided that (except as required
by law) such custodian is not authorized to make any deduction from the amount
payable to the holder of such depository receipt from any amount received by the
custodian in respect of the Government Obligation or the specific payment of
interest on or principal of the Government Obligation evidenced by such
depository receipt.
Unless otherwise provided in the applicable prospectus supplement, if after
the Company has deposited funds and/or Government Obligations to effect
defeasance or covenant defeasance with respect to debt securities of any series,
(i) the holder of a Debt Security of such series is entitled to, and does, elect
pursuant to the applicable Indenture or the terms of such Debt Security to
receive payment in a currency, currency unit or composite currency other than
that in which such deposit has been made in respect of such Debt Security, or
(ii) a Conversion Event (as defined below) occurs in respect of the currency,
currency unit or composite currency in which such deposit has been made, the
indebtedness represented by such Debt Security will be deemed to have been, and
will be, fully discharged and satisfied through the payment of the principal of
(and premium, if any) and interest on such Debt Security as they become due out
of the proceeds yielded by converting the amount so deposited in respect of such
Debt Security into the currency, currency unit or composite currency in which
such Debt Security becomes payable as a result of such election or such
cessation of usage based on the applicable market exchange rate. "Conversion
Event" means the cessation of use of (a) a currency, currency unit or composite
currency both by the government of the country which issued such currency and
for the settlement of transactions by a central bank or other public
institutions of or within the international banking community, (b) the ECU both
within the European Monetary System and for the settlement of transactions by
public institutions of or within the European Communities, or (c) any currency
unit or composite currency other than the ECU for the purposes for which it was
established. Unless otherwise provided in the applicable prospectus supplement,
all payments of principal of (and premium, if any) and interest on any Debt
Security that is payable in a foreign currency that ceases to be used by its
government of issuance shall be made in U.S. dollars.
If the Company effects covenant defeasance with respect to any debt
securities and such debt securities are declared due and payable because of the
occurrence of any event of default other than the event of default described in
clause (iv) under "-- Events of Default, Notice and Waiver" with respect to
specified sections of an Indenture (which sections would no longer be applicable
to such debt securities) or described in clause (vii) under "-- Events of
Default, Notice and Waiver" with respect to any other covenant as to which there
has been covenant defeasance, the amount in such currency, currency unit or
composite currency in which such debt securities are payable, and Government
Obligations on deposit with the applicable Indenture Trustee, will be sufficient
to pay amounts due on such debt securities at the time of their stated maturity
but may not be sufficient to pay amounts due on such debt securities at the time
of the acceleration resulting from such event of default. However, the Company
would remain liable to make payment of such amounts due at the time of
acceleration.
The applicable prospectus supplement may further describe the provisions,
if any, permitting such defeasance or covenant defeasance, including any
modifications to the provisions described above, with respect to the debt
securities of or within a particular series.
CONVERSION RIGHTS
The terms and conditions, if any, upon which the debt securities are
convertible into common shares or preferred shares will be set forth in the
applicable prospectus supplement relating thereto. Such terms will include
whether such debt securities are convertible into common shares or preferred
shares, the conversion price (or manner of calculation thereof), the conversion
period, provisions as to whether conversion will be at the option of the holders
or the Company, the events requiring an adjustment of the conversion price and
provisions affecting conversion in the event of the redemption of such debt
securities
18
and any restrictions on conversion, including restrictions directed at
maintaining the Company's REIT status.
PAYMENT
Unless otherwise specified in the applicable prospectus supplement, the
principal of (and applicable premium, if any) and interest on any series of debt
securities will be payable at the corporate trust office of the Indenture
Trustee, the address of which will be stated in the applicable prospectus
supplement; provided that, at the option of the Company, payment of interest may
be made by check mailed to the address of the person entitled thereto as it
appears in the applicable register for such debt securities or by wire transfer
of funds to such person at an account maintained within the United States.
All moneys paid by the Company to a paying agent or an Indenture Trustee
for the payment of the principal of or any premium or interest on any Debt
Security which remain unclaimed at the end of one year after such principal,
premium or interest has become due and payable will be repaid to the Company,
and the holder of such Debt Security thereafter may look only to the Company for
payment thereof.
GLOBAL SECURITIES
The debt securities of a series may be issued in whole or in part in the
form of one or more global securities (the "Global Securities") that will be
deposited with, or on behalf of, a depositary identified in the applicable
prospectus supplement relating to such series. Global Securities may be issued
in either registered or bearer form and in either temporary or permanent form.
The specific terms of the depositary arrangement with respect to a series of
debt securities will be described in the applicable prospectus supplement
relating to such series.
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RESTRICTIONS ON TRANSFERS OF CAPITAL STOCK AND ANTI-TAKEOVER PROVISIONS
RESTRICTIONS RELATING TO REIT STATUS
For us to qualify as a REIT under the Code, among other things, not more
than 50% in value of the outstanding shares of our capital stock may be owned,
directly or indirectly, by five or fewer individuals (defined in the Code to
include certain entities) during the last half of a taxable year, and such
shares of our capital stock must be beneficially owned by 100 or more persons
during at least 335 days of a taxable year of 12 months or during a
proportionate part of a shorter taxable year (in each case, other than the first
such year). To assist us in continuing to remain a qualified REIT, our
declaration of trust, subject to certain exceptions, provides that no holder may
own, or be deemed to own by virtue of the attribution provisions of the Code,
more than 9.8% of our equity shares, defined as common shares or preferred
shares. We refer to this restriction as the Ownership Limit. Our board of
trustees may waive the Ownership Limit if evidence satisfactory to our board of
trustees and our tax counsel is presented that the changes in ownership will not
then or in the future jeopardize our status as a REIT. Any transfer of equity
shares or any security convertible into equity shares that would create a direct
or indirect ownership of equity shares in excess of the Ownership Limit or that
would result in our disqualification as a REIT, including any transfer that
results in the equity shares being owned by fewer than 100 persons or results in
us being "closely held" within the meaning of Section 856(h) of the Code, will
be null and void, and the intended transferee will acquire no rights to such
equity shares. The foregoing restrictions on transferability and ownership will
not apply if our board of trustees determines that it is no longer in our best
interests to attempt to qualify, or to continue to qualify, as a REIT.
Equity shares owned, or deemed to be owned, or transferred to a shareholder
in excess of the Ownership Limit, will automatically be exchanged for excess
shares that will be transferred, by operation of law, to us as trustee of a
trust for the exclusive benefit of the transferees to whom such shares of our
capital stock may be ultimately transferred without violating the Ownership
Limit. While the excess shares are held in trust, they will not be entitled to
vote, they will not be considered for purposes of any shareholder vote or the
determination of a quorum for such vote and, except upon liquidation, they will
not be entitled to participate in dividends or other distributions. Any dividend
or distribution paid to a proposed transferee of excess shares prior to our
discovery that equity shares have been transferred in violation of the
provisions of our declaration of trust will be repaid to us upon demand. The
excess shares are not treasury shares, but rather constitute a separate class of
our issued and outstanding shares. The original transferee-shareholder may, at
any time the excess shares are held by us in trust, transfer the interest in the
trust representing the excess shares to any individual whose ownership of the
equity shares exchanged into such excess shares would be permitted under our
declaration of trust, at a price not in excess of the price paid by the original
transferee-shareholder for the equity shares that were exchanged into excess
shares, or, if the transferee-shareholder did not give value for such shares, a
price not in excess of the market price (as determined in the manner set forth
in our declaration of trust) on the date of the purported transfer. Immediately
upon the transfer to the permitted transferee, the excess shares will
automatically be exchanged for equity shares of the class from which they were
converted. If the foregoing transfer restrictions are determined to be void or
invalid by virtue of any legal decision, statute, rule or regulation, then the
intended transferee of any excess shares may be deemed, at our option, to have
acted as an agent on our behalf in acquiring the excess shares and to hold the
excess shares on our behalf.
In addition to the foregoing transfer restrictions, we will have the right,
for a period of 90 days during the time any excess shares are held by us in
trust, to purchase all or any portion of the excess shares from the original
transferee-shareholder for the lesser of the price paid for the equity shares by
the original transferee-shareholder or the market price (as determined in the
manner set forth in our declaration of trust) of the equity shares on the date
we exercise our option to purchase. The 90-day period begins on the date on
which we receive written notice of the transfer or other event resulting in the
exchange of equity shares for excess shares.
Each shareholder will be required, upon demand, to disclose to us in
writing any information with respect to the direct, indirect and constructive
ownership of beneficial interests as our board of trustees
20
deems necessary to comply with the provisions of the Code applicable to REITs,
to comply with the requirements of any taxing authority or governmental agency
or to determine any such compliance.
This Ownership Limit may have the effect of precluding an acquisition of
control unless our board of trustees determines that maintenance of REIT status
is no longer in our best interests.
AUTHORIZED CAPITAL
Under our declaration of trust, we have authority to issue up to
130,000,000 shares of beneficial interest par value $0.0001 per share, of which
80,000,000 shares are classified as common shares, 40,000,000 shares are
classified as excess shares and 10,000,000 shares are classified as preferred
shares. We may issue such shares (other than reserved shares) from time to time
in the discretion of our board of trustees to raise additional capital, acquire
assets, including additional real properties, redeem or retire debt or for any
other business purpose. In addition, the undesignated preferred shares may be
issued in one or more additional classes with such designations, preferences and
relative, participating, optional or other special rights including, without
limitation, preferential dividend or voting rights, and rights upon liquidation,
as will be fixed by our board of trustees. Our board of trustees is authorized
to classify and reclassify any unissued shares of our capital stock by setting
or changing, in any one or more respects, the preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends, qualifications
or terms or conditions of redemption of such shares. This authority includes,
without limitation, subject to the provisions of our declaration of trust,
authority to classify or reclassify any unissued shares into a class or classes
of preferred shares, preference shares, special shares or other shares, and to
divide and reclassify shares of any class into one or more series of that class.
In some circumstances, the issuance of preferred shares, or the exercise by
our board of trustees of its right to classify or reclassify shares, could have
the effect of deterring individuals or entities from making tender offers for
our common shares or seeking to change incumbent management.
MARYLAND LAW
Maryland law includes certain other provisions which may also discourage a
change in control of management. Maryland law provides that, unless an exemption
applies, we may not engage in any "business combination" with an "interested
stockholder" or any affiliate of an interested stockholder for a period of five
years after the interested stockholder became an interested stockholder, and
thereafter may not engage in a business combination with such interested
stockholder unless the combination is recommended by our board of trustees and
approved by the affirmative vote of at least (i) 80% of the votes entitled to be
cast by the holders of all of our outstanding voting shares, and (ii) 66 2/3% of
the votes entitled to be cast by all holders of outstanding voting shares other
than voting shares held by the interested stockholder. An "interested
stockholder" is defined, in essence, as any person owning beneficially, directly
or indirectly, 10% or more of the outstanding voting shares of a Maryland real
estate investment trust. The voting requirements do not apply at any time to
business combinations with an interested stockholder or its affiliates if
approved by our board of trustees prior to the time the interested stockholder
first became an interested stockholder. Additionally, if the business
combination involves the receipt of consideration by our shareholders in
exchange for common shares that satisfies certain "fair price" conditions, such
supermajority voting requirements do not apply.
Maryland law provides that "control shares" of a Maryland real estate
investment trust acquired in a "control share acquisition" have no voting rights
except to the extent approved by a vote of two-thirds of the votes entitled to
be cast on the matter, excluding shares owned by the acquiror or by officers or
trustees who are employees of the trust. "Control shares" are voting shares
that, if aggregated with all
21
other shares previously acquired by that person, would entitle the acquiror to
exercise voting power in electing trustees within one of the following ranges of
voting power:
- one-tenth or more but less than one-third;
- one-third or more but less than a majority; or
- a majority or more of all voting power.
Control shares do not include shares the acquiring person is then entitled
to vote as a result of having previously obtained shareholder approval.
A "control share acquisition" means the acquisition of ownership of or the
power to direct the exercise of voting power of issued and outstanding control
shares, subject to certain exceptions. A person who has made or proposes to make
a control share acquisition, upon satisfaction of certain conditions (including
an undertaking to pay expenses), may compel the trust's board of trustees to
call a special meeting of shareholders, to be held within 50 days of demand, to
consider the voting rights of the shares. If no request for a meeting is made,
the trust may itself present the question at any shareholders' meeting.
If voting rights are not approved at the meeting or if the acquiring person
does not deliver an "acquiring person statement" as permitted by the statute,
then, subject to certain conditions and limitations, the trust may redeem any or
all of the control shares (except those for which voting rights have previously
been approved) for fair value determined, without regard to the absence of
voting rights, as of the date of the last control share acquisition or of any
meeting of shareholders at which the voting rights of such shares were
considered and not approved. If voting rights for control shares are approved at
a shareholders' meeting and the acquiror becomes entitled to vote a majority of
the shares entitled to vote, all other shareholders may exercise appraisal
rights. The fair value of the shares as determined for purposes of the appraisal
rights may not be less than the highest price per share paid in the control
share acquisition, and certain limitations and restrictions otherwise applicable
to the exercise of dissenters' rights do not apply in the context of a control
share acquisition.
The control share acquisition statute does not apply to shares acquired in
a merger, consolidation or share exchange if the trust is a party to the
transaction, or to acquisitions approved or exempted by our declaration of trust
or by-laws prior to the control share acquisition. No such exemption appears in
our declaration of trust or by-laws. The control share acquisition statute could
have the effect of discouraging offers to acquire us and of increasing the
difficulty of consummating any such offer.
CERTAIN ELECTIVE PROVISIONS OF MARYLAND LAW
Publicly-held Maryland statutory real estate investment trusts ("REITs")
may elect to be governed by all or any part of Maryland law provisions relating
to extraordinary actions and unsolicited takeovers. The election to be governed
by one or more of these provisions can be made by a Maryland REIT in its
declaration of trust or bylaws ("charter documents") or by resolution adopted by
its board of trustees so long as the REIT has at least three trustees who, at
the time of electing to be subject to the provisions, are not:
- officers or employees of the REIT;
- persons seeking to acquire control of the REIT;
- trustees, officers, affiliates or associates of any person seeking to
acquire control; or
- nominated or designated as trustees by a person seeking to acquire
control.
Articles supplementary must be filed with the Maryland State Department of
Assessments and Taxation if a Maryland REIT elects to be subject to any or all
of the provisions by board resolution or bylaw amendment. Shareholder approval
is not required for the filing of these articles supplementary.
22
The Maryland law provides that a REIT can elect to be subject to all or any
portion of the following provisions, notwithstanding any contrary provisions
contained in that REIT's existing charter documents:
CLASSIFIED BOARD: The REIT may divide its board into three classes which,
to the extent possible, will have the same number of trustees, the terms of
which will expire at the third annual meeting of shareholders after the election
of each class;
TWO-THIRDS SHAREHOLDER VOTE TO REMOVE TRUSTEES ONLY FOR CAUSE: The
shareholders may remove any trustee only by the affirmative vote of at least
two-thirds of all votes entitled to be cast by the shareholders generally in the
election of trustees, but a trustee may not be removed without cause;
SIZE OF BOARD FIXED BY VOTE OF BOARD: The number of trustees will be fixed
only by resolution of the board;
BOARD VACANCIES FILLED BY THE BOARD FOR THE REMAINING TERM: Vacancies that
result from an increase in the size of the board, or the death, resignation, or
removal of a trustee, may be filled only by the affirmative vote of a majority
of the remaining trustees even if they do not constitute a quorum. Trustees
elected to fill vacancies will hold office for the remainder of the full term of
the class of trustees in which the vacancy occurred, as opposed to until the
next annual meeting of shareholders, and until a successor is elected and
qualified; and
SHAREHOLDER CALLS OF SPECIAL MEETINGS: Special meetings of shareholders
may be called by the secretary of the REIT only upon the written request of
shareholders entitled to cast at least a majority of all votes entitled to be
cast at the meeting and only in accordance with procedures set out in the
Maryland General Corporation Law.
We have not elected to be governed by these specific provisions. However,
our declaration of trust and/or bylaws, as applicable, already provide for an
80% vote to remove trustees only for cause, and that the number of trustees may
be determined by a resolution of our Board, subject to a minimum number. In
addition, we can elect to be governed by any or all of the provisions of the
Maryland law at any time in the future.
USE OF PROCEEDS
Unless otherwise described in the applicable prospectus supplement, we
intend to use the net proceeds from the sale of the securities for general
corporate purposes, which may include the acquisition of additional properties,
the repayment of outstanding indebtedness or the improvement of certain
properties already in our portfolio.
PLAN OF DISTRIBUTION
The Company may sell Securities through underwriters or dealers, directly
to one or more purchasers, through agents or through a combination of any such
methods of sale.
The distribution of the Securities may be effected from time to time in one
or more transactions at a fixed price or prices, which may be changed, at market
prices prevailing at the time of sale, at prices related to such prevailing
market prices, or at negotiated prices.
We may sell equity securities in an offering "at the market" as defined in
Rule 415 under the Securities Act or negotiated transactions. One or more of
A.G. Edwards & Sons, Inc., Bear, Stearns & Co. Inc., Cantor Fitzgerald & Co.,
Friedman, Billings, Ramsey & Co., Inc., Raymond James & Associates, Inc. and
Wachovia Capital Markets, LLC may act as underwriters in connection with such an
offering. None of the broker-dealers listed in the preceding sentence shall be
an underwriter in connection with any offering of our equity securities unless
such broker-dealer is named as an underwriter in the applicable prospectus
supplement. Unless the prospectus supplement states otherwise, our agent in "at
the market" or negotiated transactions will act on a best-efforts basis for the
period of its appointment.
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In connection with the sale of Securities, underwriters or agents may
receive compensation from the Company and/or from purchasers of Securities, for
whom they may act as agents, in the form of discounts, concessions or
commissions. Underwriters may sell Securities to or through dealers, and such
dealers may receive compensation in the form of discounts, concessions or
commissions from the underwriters and/or commissions from the purchasers for
whom they may act as agents. Underwriters, dealers, and agents that participate
in the distribution of Securities may be deemed to be underwriters under the
Securities Act, and any discounts or commissions they receive from the Company
and any profit on the resale of Securities they realize may be deemed to be
underwriting discounts and commissions under the Securities Act. Any such
underwriter or agent will be identified, and any such compensation received from
the Company will be described, in the applicable prospectus supplement.
Unless otherwise specified in the related prospectus supplement, each
series of Securities will be a new issue with no established trading market,
other than the common shares which are listed on the NYSE. Any common shares
sold pursuant to a prospectus supplement will be listed on the NYSE, subject to
official notice of issuance. The Company may elect to list any series of debt
securities or preferred shares on an exchange, but is not obligated to do so. It
is possible that one or more underwriters may make a market in a series of
Securities, but will not be obligated to do so and may discontinue any market
making at any time without notice. Therefore, no assurance can be given as to
the liquidity of, or the trading market for, the Securities.
Under agreements into which the Company may enter, underwriters, dealers
and agents who participate in the distribution of Securities may be entitled to
indemnification by the Company against certain liabilities, including
liabilities under the Securities Act.
Underwriters, dealers and agents may engage in transactions with, or
perform services for, or be tenants of, the Company in the ordinary course of
business.
In order to comply with the securities laws of certain states, if
applicable, the Securities offered hereby will be sold in such jurisdictions
only through registered or licensed brokers or dealers. In addition, in certain
states Securities may not be sold unless they have been registered or qualified
for sale in the applicable state or an exemption from the registration or
qualification requirement is available and is complied with.
RATIOS OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED SHARE DIVIDENDS
The following table sets forth our historical ratio of earnings to combined
fixed charges and preference dividends for the periods indicated:
<Table>
<Caption>
SIX
MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, --------------------------------
2003 2002 2001 2000 1999 1998
-------- ---- ---- ---- ---- ----
RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND
PREFERRED SHARE DIVIDENDS..................... 1.34 1.81 1.41 1.55 1.57 1.49
</Table>
The ratios of earnings to fixed charges were computed by dividing earnings
by charges. For this purpose, earnings consist of pre-tax income from continued
operations plus fixed charges (excluding capitalized interest). Fixed charges
consist of interest expense and the amortization of debt issuance costs.
EXPERTS
The consolidated financial statements and related financial statement
schedule included in our Annual Report on Form 10-K as of and for the year ended
December 31, 2002, as updated by the Current
24
Report on Form 8-K filed on September 30, 2003 and incorporated by reference
into this prospectus, have been incorporated herein by reference in reliance on
the report, also incorporated herein by reference, of KPMG LLP, independent
certified public accountants, and upon the authority of said firm as experts in
accounting and auditing.
LEGAL MATTERS
Certain legal matters will be passed upon for us by Paul, Hastings,
Janofsky & Walker LLP, New York, New York. Seth M. Zachary, a partner of Paul,
Hastings, Janofsky & Walker LLP, is presently serving on our board of trustees
and will continue to do so at least until the 2004 Annual Meeting of
Shareholders. As of September 4, 2003, Mr. Zachary beneficially owned 42,383
common shares. Certain legal matters under Maryland law, including the legality
of the Securities covered by this prospectus, will be passed on for us by Piper
Rudnick LLP, Baltimore, Maryland.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission. You may read and copy
any materials that we have filed with the SEC at the SEC's Public Reference Room
at 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain information on
the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
We file information electronically with the SEC. The SEC maintains an Internet
site that contains reports, proxy and information statements and other
information regarding issuers that file electronically with the SEC. The address
of the SEC's Internet site is http://www.sec.gov.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus, and information that we file later
with the SEC will automatically update and supersede this information. We
incorporate by reference the documents listed below and any future filings we
will make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934, as amended, which is commonly referred to as
the Exchange Act (although with respect to the Form 8-Ks listed below, we are
only incorporating by reference those portions of such Form 8-Ks that were
deemed "filed" with the SEC and not those portions that were deemed "furnished"
to the SEC):
1. Our Annual Report on Form 10-K (Commission File No. 1-12386) for the
year ended December 31, 2002.
2. Our Definitive Proxy Statement on Schedule 14-A (Commission File No.
1-12386), dated April 15, 2003.
3. Our Quarterly Report on Form 10-Q (Commission File No. 1-12386) for
the quarter ended March 31, 2003.
4. Our Quarterly Report on Form 10-Q (Commission File No. 1-12386) for
the quarter ended June 30, 2003.
5. Our Current Report on Form 8-K (Commission File No. 1-12386), filed
on April 28, 2003.
6. Our Current Report on Form 8-K (Commission File No. 1-12386), filed
on May 6, 2003.
7. Our Current Report on Form 8-K (Commission File No. 1-12386), filed
on June 11, 2003.
8. Our Current Report on Form 8-K (Commission File No. 1-12386), filed
on July 24, 2003.
9. Our Current Report on Form 8-K (Commission File No. 1-12386), filed
on September 9, 2003.
25
10. Our Current Report on Form 8-K (Commission File No. 1-12386), filed
on September 30, 2003.
You may request a copy of these filings, at no cost, by writing or
telephoning us at the following address:
Patrick Carroll, Chief Financial Officer
Lexington Corporate Properties Trust
355 Lexington Avenue
New York, New York 10017
(212) 692-7260
This prospectus is part of a registration statement we filed with the SEC.
You should rely only on the information or representations provided in this
prospectus. We have not authorized anyone else to provide you with different
information. You should not assume that the information in this prospectus or
any supplement is accurate as of any date other than the date on the front of
those documents.
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[LEXINGTON LOGO]
6,000,000 SHARES
COMMON SHARES OF BENEFICIAL INTEREST
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PROSPECTUS SUPPLEMENT
FEBRUARY 26, 2004
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WACHOVIA SECURITIES