As filed
with the Securities and Exchange Commission on March 11, 2009
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
S-3
REGISTRATION
STATEMENT
UNDER
THE SECURITIES ACT OF 1933
LEXINGTON
REALTY TRUST
(Exact
name of Company as specified in its charter)
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Maryland
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13-3717318
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(State
of Organization)
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(I.R.S.
Employer Identification No.)
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One
Penn Plaza, Suite 4015
New
York, NY 10019
(212)
692-7000
(Address,
including zip code, and telephone number, including area code, of Company’s
principal executive offices)
T.
Wilson Eglin
President
and Chief Executive Officer
One
Penn Plaza, Suite 4015
New
York, NY 10119-4015
(212)
692-7200
(Name,
address, including zip code, and telephone number, including area code, of agent
for service):
Copies
to:
Mark
Schonberger, Esq.
Paul,
Hastings, Janofsky & Walker LLP
75
East 55th Street
New
York, NY 10022
(212)
318-6000
Approximate Date of Commencement of
Proposed Sale to the Public: From time to time after the Registration
Statement becomes effective.
If the
only securities being registered on this form are being offered pursuant to
dividend or interest reinvestment plans, please check the following box: o
If any of
the securities being registered on this form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, check
the following box: x
If this
form is filed to register additional securities for an offering pursuant to Rule
462(b) under the Securities Act of 1933, please check the following box and list
the Securities Act of 1933 registration statement number of the earlier
effective registration statement for the same offering. o
If this
form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act of 1933, check the following box and list the Securities Act of
1933 registration statement number of the earlier effective registration
statement for the same offering. o
If this
form is a registration statement pursuant to General Instruction I.D or a
post-effective amendment thereto that shall become effective upon filing with
the Commission pursuant to Rule 462(e) under the Securities Act, check the
following box. o
If this
Form is a post-effective amendment to a registration statement filed pursuant to
General Instruction I.D filed to register additional securities or additional
classes of securities pursuant to Rule 413(b) under the Securities Act, check
the following box. o
CALCULATION
OF REGISTRATION FEE
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Title
of Each Class of
Securities
to be Registered
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Amount
to be Registered (2)
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Proposed
Maximum Offering Price Per Share (1)
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Proposed
Maximum Aggregate Offering Price (3)
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Amount
of Registration Fee(3)
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Shares
of beneficial interest classified as common stock, par value $.0001 per
share
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17,232,003
shares
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$2.145
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$1.00
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$0
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(1)
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Estimated
pursuant to Rule 457(c) under the Securities Act solely for the purpose of
calculating the registration fee based upon the average of the high and
low reported sale prices of the Common Shares on The New York Stock
Exchange on March 6, 2009.
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(2)
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Pursuant
to Rule 416 under the Securities Act of 1933, this Registration Statement
also covers such number of additional securities as may be issued to
prevent dilution from stock splits, stock dividends or similar
transactions.
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(3)
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In
accordance with Rule 415(a)(6) under the Securities Act, the registrant is
potentially including (i) 431,161 shares of beneficial interest,
classified as common stock, unsold on its Registration Statement, under
its former name Lexington Corporate Properties Trust, on Form S-3 (No.
333-131347) filed on January 27, 2006; (ii) 416,230 shares of beneficial
interest, classified as common stock, unsold on its Registration
Statement, under its former name Lexington Corporate Properties Trust, on
Form S-3 (No. 333-138774) filed on November 16, 2006; (iii) 8,158,593
shares of beneficial interest, classified as common stock , unsold on its
Registration Statement on Form S-3 (No. 333-140073) filed on January 18,
2007; (iv) 104,000 shares of beneficial interest, classified as common
stock, unsold on its Registration Statement on Form S-3 (No. 333-151319)
filed on May 16, 2008; (v) 75,733 shares of beneficial interest,
classified as common stock unsold on its Registration Statement on Form
S-3 (No. 333-151321) filed on May 16, 2008; and (vi) 8,000,000 shares of
beneficial interest, classified as common stock unsold on its Registration
Statement on Form S-3 (No. 333-155586) filed on November 21,
2008. The registrant will identify in a pre-effective amendment
to this registration statement the exact amount of the unsold securities
to be included pursuant to Rule 415(a)(6) and the amount of any new
securities to be registered.
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The registrant hereby amends this
Registration Statement on such date or dates as may be necessary to delay its
effective date until the registrant will file a further amendment which
specifically states that this Registration Statement will thereafter become
effective in accordance with Section 8(a) of the Securities Act of 1933 or until
this Registration Statement will become effective on such date as the
Commission, acting pursuant to said Section 8(a), may
determine.
The
information contained in this prospectus is not complete and may be changed. We
may not sell these securities offered by this prospectus until the registration
statement filed with the Securities and Exchange Commission is effective. This
prospectus does not constitute an offer to sell or a solicitation of an offer to
buy any securities in any state where an offer or solicitation is not
permitted.
PRELIMINARY — SUBJECT TO COMPLETION — DATED
MARCH 11, 2009
PROSPECTUS
Lexington Realty Trust
17,232,003
Common Shares of Beneficial Interest
We are
Lexington Realty Trust, a self-managed and self-administered real estate
investment trust, or REIT, that acquires, owns and manages a geographically
diversified portfolio of net leased office, industrial and retail properties.
Our executive offices are located at One Penn Plaza, Suite 4015, New
York, New York 10119-4015, and our telephone number is (212)
692-7200.
Issuance
of Common Shares upon Redemption of OP units
We may
issue up to 878,266 shares of beneficial interest classified as common stock,
par value $0.0001 per share, which we refer to as our Common Shares, in exchange
for the redemption of an equal number of units of limited partnership, which we
refer to as OP units, issued by one of our operating partnership subsidiaries,
Lepercq Corporate Income Fund L.P., which we refer to as LCIF.
We may
further issue up to 44,858 of our Common Shares in exchange for the redemption
of an equal number of OP units of another one of our operating partnership
subsidiaries, Net 3 Acquisition L.P., which we refer to as Net 3. We refer to OP
units of LCIF as LCIF units and OP units of Net 3 as Net 3 units.
Of the
878,266 LCIF units covered by this prospectus, (i) 28,230 were issued on August
1, 1995, and are redeemable on February 1, 2006, and each February 1st
thereafter; (ii) 171,168 were issued on December 31, 1996, and are redeemable on
January 15, 2006, and each January 15th thereafter; (iii) 231,763 were issued as
of December 31, 2003, and are redeemable on January 15, 2006, and each January
15th, April 15th, July 15th and October 15th thereafter; (iv) 352,244 were
issued on November 2, 2005, and were redeemable on November 2, 2006, and will
continue to be redeemable on each May 2nd and November 2nd thereafter; (v)
19,128 were issued on August 1, 1995, were redeemable on November 2, 2004 and
will continue to be redeemable on each November 2nd thereafter; (vi) 9,368 were
issued on August 1, 1995, which were redeemable on May 1, 2006 and every May 1st
thereafter; and (vii) 66,365 were issued on October 24, 2004, which were
redeemable on May 1, 2006 and each August 1st, November 1st, February 1st and
May 1st thereafter. The 44,858 Net 3 units covered by this prospectus were
issued on November 28, 2001, and are redeemable on November 28, 2006 or any time
thereafter.
Offering
by Selling Shareholders
This
prospectus also relates to the proposed resale from time to time of (i) up to
1,428 of our Common Shares issuable upon redemption of an equal number of LCIF
units by certain holders identified in this prospectus under “Selling
Shareholders”; (ii) up to 44,858 of our Common Shares issuable upon redemption
of an equal number of Net 3 units and 9,000 of our Common Shares held by a
certain holder identified in this prospectus under “Selling Shareholders”; (iii)
up to 104,000 of our Common Shares held by Michael L. Ashner, who was our former
Executive Chairman and Director of Strategic Acquisitions; and (iv) up to
16,149,593 of our Common Shares held by Vornado LXP LLC (and/or its permitted
transferees). Such Common Shares may be offered for resale from time
to time in one or more transactions at prevailing prices on the New York Stock
Exchange, as described in more detail in this prospectus. See “Plan
of Distribution.”
_________________________
We will
not receive proceeds from any issuance of Common Shares in exchange for OP units
but will acquire the OP units submitted for redemption. We are not being
assisted by any underwriter in connection with any issuance of Common Shares in
exchange for OP units.
We are
registering the offerings covered by this prospectus in order to permit the
recipient thereof to sell such shares generally without restriction, in the open
market or otherwise. However, the registration of such Common Shares does not
necessarily mean that any of the OP units will be submitted for redemption or
that any of the Common Shares to be issued upon such redemption will be offered
or sold by the recipient thereof.
To ensure
that we maintain our qualification as a real estate investment trust, or “REIT,”
under the applicable provisions of the Internal Revenue Code of 1986, as
amended, ownership of our equity securities by any person is subject to certain
limitations. See “Certain Provisions of Maryland Law and of our Declaration of
Trust and Bylaws—Restrictions Relating to REIT Status.”
Our
Common Shares trade on the New York Stock Exchange under the symbol “LXP.” On
March 10, 2009, the last reported sale price of our Common Shares, as reported
on the New York Stock Exchange, was $2.33 per share.
Investing in our Common Shares involves risks. See “Risk Factors” referred to on page 5 of this prospectus.
Neither
the Securities and Exchange Commission nor any state securities commission has
approved or disapproved of these securities or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal
offense.
The date
of this prospectus is
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ABOUT
THIS PROSPECTUS
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FORWARD-LOOKING
STATEMENTS
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1
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SUMMARY
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2
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SECURITIES
THAT MAY BE OFFERED
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2
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RISK
FACTORS
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3
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USE
OF PROCEEDS
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3
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DESCRIPTION
OF COMMON SHARES
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3
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CERTAIN
PROVISIONS OF MARYLAND LAW AND OF OUR DECLARATION OF TRUST AND
BYLAWS
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5
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DESCRIPTION
OF LCIF UNITS
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8
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DESCRIPTION
OF NET 3 UNITS
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12
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REDEMPTION
OF OP UNITS
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15
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REGISTRATION
RIGHTS
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17
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COMPARISON
OF OWNERSHIP OF OP UNITS AND COMMON SHARES
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17
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SELLING
SHAREHOLDERS
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26
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UNITED
STATES FEDERAL INCOME TAX CONSIDERATIONS
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27
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PLAN
OF DISTRIBUTION
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41
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EXPERTS
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44
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LEGAL
MATTERS
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44
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WHERE
YOU CAN FIND MORE INFORMATION
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44
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You
should rely only on the information contained in this prospectus or incorporated
by reference herein. We have not authorized anyone to provide you with
information or make any representation that is different. If anyone provides you
with different or inconsistent information, you should not rely on it. This
prospectus does not constitute an offer to sell or a solicitation of an offer to
buy any securities other than the registered securities to which it relates, and
this prospectus does not constitute an offer to sell or the solicitation of an
offer to buy securities in any jurisdiction where, or to any person to whom, it
is unlawful to make such an offer or solicitation. You should not assume that
the information contained in this prospectus is correct on any date after the
date of the prospectus, even though this prospectus is delivered or Common
Shares are sold pursuant to the prospectus at a later date. Since the
date of the prospectus contained in this Registration Statement, our business,
financial condition, results of operations and prospects may have
changed.
ABOUT
THIS PROSPECTUS
This
prospectus is part of a registration statement that we filed with the Securities
and Exchange Commission, which we refer to as the Commission. This
prospectus and any accompanying prospectus supplement do not contain all of the
information included in the registration statement. For further information, we
refer you to the registration statement and any amendments to such registration
statement, including its exhibits. Statements contained in this prospectus and
any accompanying prospectus supplement about the provisions or contents of any
agreement or other document are not necessarily complete. If the Commission’s
rules and regulations require that an agreement or document be filed as an
exhibit to the registration statement, please see that agreement or document for
a complete description of these matters.
You
should read both this prospectus and any prospectus supplement together with
additional information described below under the heading “Where You Can Find
More Information.” Information incorporated by reference with the Commission
after the date of this prospectus, or information included in any prospectus
supplement or an amendment to the registration statement of which this
prospectus forms a part, may add, update or change information in this
prospectus or any prospectus supplement. If information in these subsequent
filings, prospectus supplements or amendments is inconsistent with this
prospectus or any prospectus supplement, the information incorporated by
reference or included in the subsequent prospectus supplement or amendment will
supersede the information in this prospectus or any earlier prospectus
supplement. You should not assume that the information in this prospectus or any
prospectus supplement is accurate as of any date other than the date on the
front of each document.
All
references to the “Company,” “we,” “us” and “LXP” in this prospectus means
Lexington Realty Trust and all entities owned or controlled by us except where
it is clear that the term means only the parent company. The term “you” refers
to a prospective investor.
FORWARD-LOOKING
STATEMENTS
This
prospectus and the information incorporated by reference in this prospectus
include “forward-looking statements” within the meaning of Section 27A of the
Securities Act of 1933, as amended, or the “Securities Act,” and Section 21E of
the Securities Exchange Act of 1934, as amended, or the “Exchange Act,” 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:
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changes
in general business and economic
conditions;
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increases
in real estate construction costs;
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changes
in interest rates;
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changes
in accessibility of debt and equity capital markets;
and
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the
other risk factors set forth in our Annual Report on Form 10-K filed
on March 2, 2009 and the other documents incorporated by reference in this
prospectus, including without limitation any updated risks included in our
subsequent periodic reports.
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These
risks and uncertainties should be considered in evaluating any forward-looking
statements contained or incorporated by reference in this prospectus. We caution
you that any forward-looking statement reflects only our belief at the time the
statement is made. Although we believe that the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee our future
results, levels of activity, performance or achievements. Except as required by
law, we undertake no obligation to update any of the forward-looking statements
to reflect events or developments after the date of this
prospectus.
SUMMARY
The
information below is only a summary of the information included elsewhere in
this prospectus and the documents incorporated herein by reference. This summary
does not contain all the information that may be important to you or that you
should consider before investing in our Common Shares. As a result, you should
carefully read this entire prospectus, as well as the information incorporated
herein by reference.
We are a
self-managed and self-administered real estate investment trust, or 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 and industrial 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
elected to be taxed as a REIT under Sections 856 through 860 of the Internal
Revenue Code of 1986, as amended, or the “Code,” commencing with our taxable
year ended December 31, 1993. 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.
Our
principal executive offices are located at One Penn Plaza, Suite 4015, New York,
New York 10119-4015 and our telephone number is (212) 692-7200.
SECURITIES
THAT MAY BE OFFERED
This
prospectus relates to and covers two separate offerings.
We are
registering the offerings covered by this prospectus in order to permit the
holders to sell such shares generally without restriction in the open market or
otherwise, but the registration of such offerings does not necessarily mean that
any of such OP units which may be redeemed in exchange for our Common Shares
will be tendered for redemption or that any of such shares will be offered or
sold by the holders thereof. We will not receive any proceeds from the issuance
of our Common Shares or the resale of our Common Shares covered by this
prospectus but will acquire the OP units submitted for redemption.
Issuance
of Common Shares Upon Redemption of OP Units
We may
issue up to 878,266 of our Common Shares, if and to the extent that certain
holders elect to tender up to an equal number of LCIF units for redemption, and
we may further issue up to 44,858 of our Common Shares, if and to the extent
that a certain holder elects to tender up to an equal number of Net 3 units for
redemption.
Of the
878,266 LCIF units covered by this prospectus, (i) 28,230 were issued on August
1, 1995, and are redeemable on February 1, 2006, and each February 1st
thereafter; (ii) 171,168 were issued on December 31, 1996, and are redeemable on
January 15, 2006, and each January 15th thereafter; (iii) 231,763 were issued as
of December 31, 2003, and are redeemable on January 15, 2006, and each January
15th, April 15th, July 15th and October 15th thereafter; (iv) 352,244 were
issued on November 2, 2005, and were redeemable on November 2, 2006, and will
continue to be redeemable on each May 2nd and November 2nd thereafter; (v)
19,128 were issued on August 1, 1995, were redeemable on November 2, 2004 and
will continue to be redeemable on each November 2nd thereafter; (vi) 9,368 were
issued on August 1, 1995, which were redeemable on May 1, 2006 and every May 1st
thereafter; and (vii) 66,365 were issued on October 24, 2004, which were
redeemable on May 1, 2006 and each August 1st, November 1st, February 1st and
May 1st thereafter.
The
44,858 Net 3 units covered by this prospectus were issued on November 28, 2001,
and are redeemable on November 28, 2006 or any time thereafter.
Offering
by Selling Shareholders
This
prospectus also relates to the proposed resale from time to time of (i) up to
1,428 of our Common Shares issuable upon redemption of an equal number of LCIF
units by certain holders identified in this prospectus under “Selling
Shareholders”; (ii) up to 44,858 of our Common Shares issuable upon redemption
of an equal number of Net 3 units and 9,000 of our Common Shares by a certain
holder identified in this prospectus under “Selling Shareholders”; (iii) up to
104,000 of our Common Shares held by Michael L. Ashner, who was our former
Executive Chairman and Director of Strategic Acquisitions; and (iv) up to
16,149,594 of our Common Shares held by Vornado Realty Trust and certain of its
wholly-owned subsidiaries (and/or their permitted transferees). Such
Common Shares may be offered for resale from time to time in one or more
transactions at prevailing prices on the New York Stock Exchange, as described
in more detail in this prospectus. See “Plan of
Distribution.”
RISK
FACTORS
Investing
in our securities involves risks and uncertainties that could affect us and our
business as well as the real estate industry generally. You should carefully
consider the risks described and discussed under the caption “Risk Factors”
included in our Annual Report on Form 10-K filed on March 2, 2009, and in any
other documents incorporated by reference in this prospectus, including without
limitation any updated risks included in our subsequent periodic reports. These
risk factors may be amended, supplemented or superseded from time to time by
risk factors contained in any prospectus supplement or post-effective amendment
we may file or in other reports we file with the Commission in the future. In
addition, new risks may emerge at any time and we cannot predict such risks or
estimate the extent to which they may affect our financial
performance.
USE
OF PROCEEDS
We will
not receive any proceeds from (1) the issuance of our Common Shares to the
holders of OP units upon redemption of their units, but will acquire the OP
units submitted for redemption or (2) the sale of any of our Common Shares by
the selling shareholders, and the selling shareholders will receive all of the
proceeds from the sale of our Common Shares.
DESCRIPTION
OF COMMON SHARES
The
following is a summary of provisions of our Common Shares as of the date of this
prospectus. This summary does not purport to be complete and is qualified in its
entirety by reference to our declaration of trust and bylaws, each as
supplemented, amended, or restated, and to Maryland law. See “Where You Can Find
More Information” in this prospectus.
Authorized
Capital
Under our
declaration of trust, we have the authority to issue up to 1,000,000,000 shares
of beneficial interest, par value $0.0001 per share, of which 400,000,000 shares
are classified as Common Shares, 500,000,000 shares are classified as excess
stock and 100,000,000 shares are classified as preferred stock, which we refer
to as preferred shares, of which 3,160,000 shares are classified as 8.05% Series
B Cumulative Redeemable Preferred Stock, 3,100,000 shares are classified as
6.50% Series C Cumulative Convertible Preferred Stock, and 8,000,000 shares are
classified as 7.55% Series D Cumulative Redeemable Preferred Stock. Under
Maryland law, our shareholders generally are not responsible for our debts or
obligations as a result of their status as shareholders.
Power
to Issue and Classify Our Shares
We may
issue our shares from time to time at 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 or
series 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 beneficial interest by setting or changing, in any one or
more respects, the preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications or terms or conditions
of redemption of such shares of beneficial interest. 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.
Terms
Subject
to the preferential rights of any other shares or class or series of equity
securities and to the provisions of our declaration of trust regarding excess
stock, holders of our Common Shares are entitled to receive dividends on the
Common Shares if, as and when authorized by our board of trustees and declared
by us 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 or series 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 stock, 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,
including our special voting preferred stock, 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 and special voting preferred stock entitled to cast a
majority of the votes in the election of trustees can elect all of the trustees
then standing for election, and the holders of our remaining Common Shares or
special voting preferred stock will not be able to elect any
trustees.
Holders
of our Common Shares have no conversion, sinking fund, 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 generally have no preference, appraisal or exchange
rights.
Pursuant
to Maryland statutory law governing real estate investment trusts organized
under Maryland 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 entitled 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.
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. See “Certain Provisions of
Maryland Law and Our Declaration of Trust and Bylaws” elsewhere in this
prospectus.
Transfer
Agent
The
transfer agent and registrar for our Common Shares is BNY Mellon Shareowner
Services.
CERTAIN
PROVISIONS OF MARYLAND LAW AND OF OUR DECLARATION OF TRUST AND
BYLAWS
This
summary does not purport to be complete and is qualified in its entirety by
reference to our declaration of trust and bylaws, each as supplemented, amended
or restated, and Maryland law. See “Where You Can Find More
Information” in this prospectus.
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 exempt a person
from the Ownership Limit if evidence satisfactory to our board of trustees 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 an equal number of
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 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 interest.
Maryland
Law
Business
Combinations.
Under Maryland law, “business combinations” between a Maryland real estate
investment trust and an interested shareholder or an affiliate of an interested
shareholder are prohibited for five years after the most recent date on which
the interested shareholder becomes an interested shareholder. These business
combinations include a merger, consolidation, share exchange, or, in
circumstances specified in the statute, an asset transfer or issuance or
reclassification of equity securities. An interested shareholder is defined
as:
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any
person who beneficially owns ten percent or more of the voting power of
the trust’s shares; or
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an
affiliate or associate of the trust who, at any time within the two-year
period prior to the date in question, was the beneficial owner of ten
percent or more of the voting power of the then outstanding voting shares
of the trust.
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A person
is not an interested shareholder under the statute if the board of trustees
approved in advance the transaction by which he otherwise would have become an
interested shareholder. However, in approving a transaction, the board of
trustees may provide that its approval is subject to compliance, at or after the
time of approval, with any terms or conditions determined by the
board.
After the
five-year prohibition, any business combination between the Maryland real estate
investment trust and an interested shareholder generally must be recommended by
the board of trustees of the trust and approved by the affirmative vote of at
least:
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eighty
percent of the votes entitled to be cast by holders of outstanding voting
shares of the trust; and
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two-thirds
of the votes entitled to be cast by holders of voting shares of the trust
other than shares held by the interested shareholder with whom or with
whose affiliate the business combination is to be effected or held by an
affiliate or associate of the interested
shareholder.
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These
super-majority vote requirements do not apply if the trust’s common shareholders
receive a minimum price, as defined under Maryland law, for their shares in the
form of cash or other consideration in the same form as previously paid by the
interested shareholder for its shares.
The
statute permits various exemptions from its provisions, including business
combinations that are exempted by the board of trustees prior to the time that
the interested shareholder becomes an interested shareholder.
Our board
of trustees has exempted Vornado Realty Trust and its affiliates, to a limited
extent, from these restrictions.
The
business combination statute may discourage others from trying to acquire
control of us and increase the difficulty of consummating any
offer.
Control Share
Acquisitions. 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. Shares
owned by the acquirer, by officers or by employees who are trustees of the trust
are excluded from shares entitled to vote on the matter. Control shares are
voting shares which, if aggregated with all other shares owned by the acquirer
or in respect of which the acquirer is able to exercise or direct the exercise
of voting power (except solely by virtue of a revocable proxy), would entitle
the acquirer to exercise voting power in electing trustees within one of the
following ranges of voting power:
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one-tenth
or more but less than one-third,
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one-third
or more but less than a majority,
or
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a
majority or more of all voting
power.
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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 control shares, subject to certain
exceptions.
A person
who has made or proposes to make a control share acquisition may compel the
board of trustees of the trust to call a special meeting of shareholders to be
held within 50 days of demand to consider the voting rights of the shares. The
right to compel the calling of a special meeting is subject to the satisfaction
of certain conditions, including an undertaking to pay the expenses of the
meeting. 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 required by the statute, then the trust
may redeem for fair value any or all of the control shares, except those for
which voting rights have previously been approved. The right of the trust to
redeem control shares is subject to certain conditions and limitations. Fair
value is determined, without regard to the absence of voting rights for the
control shares, as of the date of the last control share acquisition by the
acquirer or of any meeting of shareholders at which the voting rights of the
shares are considered and not approved. If voting rights for control shares are
approved at a shareholders meeting and the acquirer 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
appraisal rights may not be less than the highest price per share paid by the
acquirer in the control share acquisition.
The
control share acquisition statute does not apply (a) to shares acquired in a
merger, consolidation or share exchange if the trust is a party to the
transaction, or (b) to acquisitions approved or exempted by the declaration of
trust or bylaws of the trust.
Our
bylaws contain a provision exempting from the control share acquisition statute
any and all acquisitions by any person of our shares. There can be no assurance
that this provision will not be amended or eliminated at any time in the
future.
Certain Elective
Provisions of Maryland Law.
Publicly-held Maryland statutory real estate investment trusts, which we refer
to as Maryland 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 Maryland REIT has at
least three trustees who, at the time of electing to be subject to the
provisions, are not:
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officers
or employees of the Maryland REIT;
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persons
seeking to acquire control of the Maryland
REIT;
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trustees,
officers, affiliates or associates of any person seeking to acquire
control of the Maryland REIT; or
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nominated
or designated as trustees by a person seeking to acquire control of the
Maryland REIT.
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Articles
supplementary must be filed with the Maryland State Department of Assessments
and Taxation of Maryland 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.
Maryland
law provides that a Maryland REIT can elect to be subject to all or any portion
of the following provisions, notwithstanding any contrary provisions contained
in that Maryland REIT’s existing charter documents:
Classified Board: The
Maryland 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: 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;
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 qualifies; and
Shareholder Calls of Special
Meetings: Special meetings of shareholders may be called by the
secretary of the Maryland 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 certain 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%
shareholder vote to remove trustees (and then only for cause), that the number
of trustees may be determined by a resolution of our board of trustees, subject
to a minimum number, and that special meetings of the shareholders may be called
by the chairman of the board of trustees or the president or by a majority of
the board of trustees and as may be required by law. In addition, we can elect
to be governed by any or all of the foregoing provisions of the Maryland law at
any time in the future.
DESCRIPTION
OF LCIF UNITS
The
material terms of the LCIF units covered by this prospectus, including a summary
of certain provisions of the LCIF Partnership Agreement, as in effect as of the
date of this prospectus, are set forth below. The following description does not
purport to be complete and is subject to and qualified in its entirety by
reference to applicable provisions of Delaware law and the LCIF Partnership
Agreement. For a comparison of the voting and other rights of holders of LCIF
units, whom we refer to as LCIF unitholders or limited partners, and our
shareholders, see “Comparison of Ownership of LCIF Units and Common Shares”
elsewhere in this prospectus.
General
We are
the sole equity owner of Lex GP-1 Trust, or Lex GP-1, a Delaware statutory
trust, which is the general partner of LCIF and holds, as of the date of this
prospectus, a 1% interest in LCIF. We are also the sole equity owner of Lex LP-1
Trust, or Lex LP-1, a Delaware statutory trust, which holds, as of the date of
this prospectus, approximately 86.1% of the LCIF units.
Issuance
of LCIF Units
Our
operating partnership structure enables us to acquire property by issuing equity
partnership units, including LCIF units, to a direct or indirect property owner
as a form of consideration. All of the LCIF units which have been issued as of
the date of this prospectus are redeemable, at the option of the holders
thereof, on a one-for-one basis (subject to certain anti-dilution adjustments)
for Common Shares at various times, and certain LCIF units require us to pay
distributions to the holders thereof (although certain LCIF units currently
outstanding do not require the payment of distributions). As a result, our cash
available for distribution to shareholders is reduced by the amount of the
distributions required by the terms of such LCIF units, and the number of Common
Shares that will be outstanding in the future is expected to increase, from time
to time, as such LCIF units are redeemed for Common Shares. Lex GP-1 has the
right to redeem the LCIF units held by all, but not less than all, of the LCIF
unitholders (other than those LCIF unitholders identified as the “Special
Limited Partners” in the LCIF Partnership Agreement) under certain
circumstances, including but not limited to a merger, sale of assets,
consolidation, share issuance, share redemption or other similar transaction by
us or LCIF which would result in a change of beneficial ownership in us or LCIF
by 50% or more.
LCIF
unitholders hold LCIF units and all LCIF unitholders are entitled to share in
the profits and losses of LCIF.
LCIF
unitholders have the rights to which limited partners are entitled under the
LCIF Partnership Agreement and the Delaware Revised Uniform Limited Partnership
Act, which we refer to as the Delaware Act. The LCIF units have not been
registered pursuant to the federal or state securities laws and are not listed
on any exchange or quoted on any national market system.
As of the
date of this prospectus, there are approximately 3,884,020 LCIF units
outstanding that are not held by us, all which are currently redeemable for
Common Shares, including the 878,266 LCIF units to which this prospectus
relates. The average annualized distribution per LCIF unit is currently
$0.67928. Of the total LCIF units, 787,144 LCIF units are beneficially owned by
E. Robert Roskind, the chairman of our board of trustees.
Purposes,
Business and Management
The
purpose of LCIF includes the conduct of any business that may be conducted
lawfully by a limited partnership organized under the Delaware Act, except that
the LCIF Partnership Agreement requires the business of LCIF to be conducted in
such a manner that will permit us to continue to be classified as a REIT under
Sections 856 through 860 of the Code, unless we cease to qualify as a REIT for
reasons other than the conduct of the business of LCIF. Subject to the foregoing
limitation, LCIF may enter into partnerships, joint ventures or similar
arrangements and may own interests in any other entity.
We, as
sole equity owner of Lex GP-1, which is the sole general partner of LCIF, have
exclusive power and authority to conduct the business of LCIF, subject to the
consent of the limited partners in certain limited circumstances discussed
below. No limited partner may take part in the operation, management or control
of the business of LCIF by virtue of being a LCIF unitholder.
Ability
to Engage in Other Businesses; Conflicts of Interest
Lex GP-1
may not, without the consent of the holders of a majority of the LCIF units held
by the Special Limited Partners, engage in any business other than to hold and
own LCIF units. The holders of a majority of the LCIF units held by the Special
Limited Partners have consented to Lex GP-1’s holding and ownership of units of
limited partnership of our other operating partnerships and acting as the
general partner thereof and of another one of our partnership subsidiaries.
Neither LXP nor other persons (including our officers, trustees, employees,
agents and other affiliates) are prohibited under the LCIF Partnership Agreement
from engaging in other business activities or are required to present any
business opportunities to LCIF.
Distributions;
Allocations of Income and Loss
Generally,
LCIF unitholders are allocated and distributed amounts with respect to their
LCIF units which approximate the amount of distributions made with respect to
the same number of our Common Shares, as determined in the manner provided in
the LCIF Partnership Agreement and subject to certain restrictions and
exceptions for certain limited partners. Remaining amounts available for
distribution are generally allocated to Lex GP-1.
Borrowing
by LCIF
Lex GP-1
has full power and authority to cause LCIF to borrow money and to assume and
guarantee debt.
Reimbursement
of Expenses; Transactions with the General Partner and its
Affiliates
Neither
we nor Lex GP-1 receives any compensation for Lex GP-1’s services as general
partner of LCIF. Lex GP-1 and Lex LP-1, however, as partners in LCIF, have the
same right to allocations and distributions as other partners of LCIF. In
addition, LCIF will reimburse Lex GP-1 and us for all expenses incurred by them
related to the ownership and operation of, or for the benefit of, LCIF. In the
event that certain expenses are incurred for the benefit of LCIF and other
entities (including us), such expenses are allocated by us, as sole equity owner
of the general partner of LCIF, to LCIF and such other entities in a manner as
we, as sole equity owner of the general partner of LCIF, in our sole and
absolute discretion deem fair and reasonable. We have guaranteed the obligations
of LCIF in connection with the redemption of LCIF units pursuant to the LCIF
Partnership Agreement.
We and
our affiliates may engage in any transactions with LCIF subject to the fiduciary
duties established under applicable law.
Funding
Agreement
We and
our three Operating Partnerships, including LCIF, entered into a funding
agreement. Pursuant to the funding agreement, the parties agreed, jointly and
severally, that, if any of the Operating Partnerships does not have sufficient
cash available to make a quarterly distribution to its limited partners in an
amount equal to whichever is applicable of (i) a specified distribution set
forth in its partnership agreement or (ii) the cash dividend payable with
respect to whole or fractional Common Shares into which such partnership’s
common units would be converted if they were redeemed for our Common Shares in
accordance with its partnership agreement, we and the other Operating
Partnerships, each a “funding partnership,” will fund their pro rata share of
the shortfall. The pro rata share of each funding partnership and our pro rata
share, respectively, will be determined based on the number of units in each
funding partnership and, for the Company, by the amount by which our total
outstanding Common Shares exceeds the number of units in each funding
partnership not owned by us, with appropriate adjustments being made if units
are not redeemable on a one-for-one basis. Payments under the funding agreement
will be made in the form of loans to the partnership experiencing a shortfall
and will bear interest at prevailing rates as determined by us in our discretion
but no less than the applicable federal rate.
Liability
of General Partner and Limited Partners
Lex GP-1,
as the general partner of LCIF, is ultimately liable for all general recourse
obligations of LCIF to the extent not paid by LCIF. Lex GP-1 is not liable for
the nonrecourse obligations of LCIF. The limited partners of LCIF are not
required to make additional capital contributions to LCIF. Assuming that a
limited partner does not take part in the control of the business of LCIF in its
capacity as a limited partner thereof and otherwise acts in conformity with the
provisions of the LCIF Partnership Agreement, the liability of the limited
partner for obligations of LCIF under the LCIF Partnership Agreement and the
Delaware Act is generally limited, subject to certain limited exceptions, to the
loss of the limited partner’s investment in LCIF. LCIF will operate in a manner
the general partner deems reasonable, necessary and appropriate to preserve the
limited liability of the limited partners.
Exculpation
and Indemnification of the General Partner
Generally,
Lex GP-1, as general partner of LCIF (and us as the sole equity owner of the
general partner of LCIF) will incur no liability to LCIF or any limited partner
for losses sustained or liabilities incurred as a result of errors in judgment
or of any act or omission if we carried out our duties in good faith. In
addition, neither Lex GP-1 nor us are responsible for any misconduct or
negligence on the part of their agents, provided such agents were appointed in
good faith. Lex GP-1 and the Company may consult with legal counsel,
accountants, appraisers, management consultants, investment bankers and other
consultants and advisors, and any action it takes or omits to take in reliance
upon the opinion of such persons, as to matters that Lex GP-1 and the Company
reasonably believe to be within their professional or expert competence, shall
be conclusively presumed to have been done or omitted in good faith and in
accordance with such opinion.
The LCIF
Partnership Agreement also provides that LCIF will indemnify Lex GP-1 and us,
our respective directors, trustees and officers, and such other persons as Lex
GP-1 and the Company may from time to time designate to the fullest extent
permitted under the Delaware Act.
Sales
of Assets
Under the
LCIF Partnership Agreement, Lex GP-1 generally has the exclusive authority to
determine whether, when and on what terms the assets of LCIF will be sold. LCIF,
however, is prohibited under the LCIF Partnership Agreement and certain
contractual agreements from selling certain assets, except in certain limited
circumstances. Lex GP-1 may not consent to a sale of all or substantially all of
the assets of LCIF, or a merger of LCIF with another entity, without the consent
of a majority in interest of the Special Limited Partners.
Lex GP-1
has the right to redeem the LCIF units held by all, but not less than all, of
the LCIF unitholders (other than those LCIF unitholders identified as the
“Special Limited Partners” in the LCIF Partnership Agreement) under certain
circumstances, including but not limited to a merger, sale of assets,
consolidation, share issuance, share redemption or other similar transaction by
us or LCIF which would result in a change of beneficial ownership in us or LCIF
by 50% or more.
Removal
of the General Partner; Restrictions on Transfer by the General Partner or
Us
The LCIF
Partnership Agreement provides that the limited partners may not remove Lex GP-1
as general partner of LCIF. Lex GP-1 may not transfer any of its interests as
the general partner of LCIF, and Lex LP-1 may not transfer any of its interests
as a limited partner in LCIF, except to each other or to us.
Restrictions
on Transfer of LCIF Units by LCIF Unitholders
LCIF
unitholders may not transfer their LCIF units without the consent of Lex GP-1,
which may be withheld in its sole and absolute discretion, provided that LCIF
unitholders may transfer all or a portion of their LCIF units to (i) immediate
family members, (ii) certain 501(c)(3) organizations, (iii) a partner in such
LCIF unitholder in a distribution to all of its partners or (iv) a lender as
security for a loan to be made or guaranteed by such LCIF unitholder. However, a
LCIF unitholder may assign the economic rights associated with its LCIF units,
without the consent of Lex GP-1, but such assignee will not be (i) admitted to
LCIF as a substituted limited partner or (ii) entitled to the same rights as a
substituted limited partner. In addition, LCIF unitholders may dispose of their
LCIF units by exercising their rights to have their LCIF units redeemed for
Common Shares. See “Redemption of LCIF Units” below.
Issuance
of Additional Limited Partnership Interests
Lex GP-1
is authorized, in its sole and absolute discretion and without the consent of
the limited partners, to cause LCIF to issue additional LCIF units to any
limited partners or any other persons for such consideration and on such terms
and conditions as Lex GP-1 deems appropriate. In addition, Lex GP-1 may cause
LCIF to issue additional partnership interests in different series or classes,
which may be senior to the LCIF units. Subject to certain exceptions, no
additional LCIF units may be issued to us, Lex GP-1 or Lex LP-1.
Meetings;
Voting
The LCIF
Partnership Agreement provides that limited partners may not take part in the
operation, management or control of LCIF’s business. The LCIF Partnership
Agreement does not provide for annual meetings of the limited partners, and LCIF
does not anticipate calling such meetings.
Amendment
of the LCIF Partnership Agreement
The LCIF
Partnership Agreement may be amended with the consent of Lex GP-1, Lex LP-1 and
a majority in interest of the Special Limited Partners. Notwithstanding the
foregoing, Lex GP-1 has the power, without the consent of limited partners, to
amend the LCIF Partnership Agreement in certain limited
circumstances.
Dissolution,
Winding Up and Termination
LCIF will
continue indefinitely, unless sooner dissolved and terminated. LCIF will be
dissolved, and its affairs wound up upon the occurrence of the earliest of: (1)
the withdrawal of Lex GP-1 as general partner (except in certain limited
circumstances); (2) the sale of all or substantially all of LCIF’s assets and
properties; or (3) the entry of a decree of judicial dissolution of LCIF
pursuant to the provisions of the Delaware Act. Upon dissolution, Lex GP-1, as
general partner, or any person elected as liquidator by a majority in interest
of the limited partners, will proceed to liquidate the assets of LCIF and apply
the proceeds therefrom in the order of priority set forth in the LCIF
Partnership Agreement.
DESCRIPTION
OF NET 3 UNITS
The
material terms of the Net 3 units covered by this prospectus, including a
summary of certain provisions of the Amended and Restated Agreement of Limited
Partnership of Net 3, as amended and supplemented, which we refer to as the Net
3 Partnership Agreement, as in effect as of the date of this prospectus, are set
forth below. The following description does not purport to be complete and is
subject to and qualified in its entirety by reference to applicable provisions
of Delaware law and the Net 3 Partnership Agreement. For a comparison of the
voting and other rights of holders of Net 3 units, whom we refer to as the Net 3
unitholders or limited partners, and our shareholders, see “Comparison of
Ownership of OP Units and Common Shares” elsewhere in this prospectus. The Net 3
unitholders currently comprise solely of the holder identified as the “Special
Limited Partner” in the Net 3 Partnership Agreement, whom we refer to as the Net
3 special unitholder or limited partner.
General
We are
the sole equity owner of Lex GP-1 Trust, or Lex GP-1, a Delaware statutory
trust, which is the general partner of Net 3 and holds, as of the date of this
prospectus, a 1% interest in Net 3. We are also the sole equity owner of Lex
LP-1 Trust, or Lex LP-1, a Delaware statutory trust, which holds, as of the date
of this prospectus, approximately 98.2% of the Net 3 units. The remaining 0.8%
of the interest is held by The LCP Group, L.P., the Net 3 special
unitholder.
Issuance
of Net 3 Units
Our
operating partnership structure enables us to acquire property by issuing Net 3
units to a direct or indirect property owner as a form of consideration. All of
the Net 3 units which have been issued to the Net 3 special unitholder as of the
date of this prospectus are redeemable, at the option of the Net 3 special
unitholder, on a one-for-one basis for Common Shares or for an equivalent price
in cash thereof (subject to certain anti-dilution adjustments) at any time
commencing on November 28, 2006 and such Net 3 units require us to pay
distributions to the Net 3 special unitholder. As a result, our cash available
for distribution to shareholders is reduced by the amount of the distributions
required by the terms of such Net 3 units, and the number of Common Shares that
will be outstanding in the future is expected to increase, from time to time, as
such Net 3 units are redeemed for Common Shares. Lex GP-1 has the right to
redeem the Net 3 units held by all, but not less than all, of the holders
identified as the “Additional Limited Partners” (including the Net 3 special
unitholder) in the Net 3 Partnership Agreement under certain circumstances,
including but not limited to a merger, sale of assets, consolidation, share
issuance, share redemption or other similar transaction by us or Net 3 which
would result in a change of beneficial ownership in us or in Net 3 by 50% or
more.
Net 3
unitholders hold Net 3 units, and all Net 3 unitholders, including the Net 3
special unitholder, are entitled to share in the profits and losses of Net
3.
The Net 3
special unitholder has the rights to which limited partners are entitled under
the Net 3 Partnership Agreement and the Delaware Act. The Net 3 units have not
been registered pursuant to the federal or state securities laws and are not
listed on any exchange or quoted on any national market system.
As of the
date of this prospectus, the 44,858 Net 3 units, to which this prospectus
relates, are the only Net 3 units outstanding that are not held by us. The
annualized distribution per Net 3 unit is currently $1.46. The 44,858 Net 3
units, to which this prospectus relates, are beneficially owned by E. Robert
Roskind, the chairman of our board of trustees.
Purposes,
Business and Management
The
purpose of Net 3 includes the conduct of any business that may be conducted
lawfully by a limited partnership organized under the Delaware Act, except that
the Net 3 Partnership Agreement requires the business of Net 3 to be conducted
in such a manner that will permit us to continue to be classified as a REIT
under Sections 856 through 860 of the Code, unless we cease to qualify as a REIT
for reasons other than the conduct of the business of Net 3. Subject to the
foregoing limitation, Net 3 may enter into partnerships, joint ventures or
similar arrangements and may own interests in any other entity.
We, as
sole equity owner of Lex GP-1, which is the sole general partner of Net 3, have
exclusive power and authority to conduct the business of Net 3. No limited
partner (including the Net 3 special limited partner) may take part in the
operation, management or control of the business of Net 3 by virtue of being a
Net 3 unitholder.
Ability
to Engage in Other Businesses; Conflicts of Interest
Lex GP-1
may not, without the consent of the holders of a majority of the Net 3 units
held by the Net 3 special limited partners, engage in any business other than to
hold and own Net 3 units. The holders of a majority of the Net 3 units held by
the Net 3 special limited partners have consented to Lex GP-1’s holding and
ownership of units of limited partnership of our other operating partnerships
and acting as the general partner thereof and of another one of our partnership
subsidiaries. Neither LXP nor other persons (including our officers, trustees,
employees, agents and other affiliates) are prohibited under the Net 3
Partnership Agreement from engaging in other business activities or are required
to present any business opportunities to Net 3.
Distributions;
Allocations of Income and Loss
Generally,
Net 3 unitholders are allocated and distributed amounts with respect to their
Net 3 units in accordance with their respective percentage interest in Net 3,
from time to time, but not less than semi-annually, as determined in the manner
provided in the Net 3 Partnership Agreement. Nonetheless, each Net 3 special
unitholder is entitled to only its share of operating cash flow in an amount
equal to the amount of distributions made in respect of one Common Share
outstanding multiplied by the conversion ratio, which may be adjusted from time
to time. Remaining amounts available for distribution are generally allocated to
Lex GP-1.
Borrowing
by the Partnership
Lex GP-1
has full power and authority to cause Net 3 to borrow money and to assume and
guarantee debt.
Reimbursement
of Expenses; Transactions with the General Partner and its
Affiliates
Neither
we nor Lex GP-1 receives any compensation for Lex GP-1’s services as general
partner of Net 3. Lex GP-1 and Lex LP-1, however, as partners in Net 3, have the
same right to allocations and distributions as other partners of Net 3, subject
to the distribution rights of the Net 3 special unitholder as discussed above.
In addition, Net 3 will reimburse Lex GP-1 and us for all expenses incurred by
them related to the formation and organization of Net 3, Lex GP-1 and Lex
LP-1.
We and
our affiliates may engage in any transactions with Net 3 subject to the
fiduciary duties established under applicable law.
Funding
Agreement
We and
our three Operating Partnerships, including Net 3, entered into a funding
agreement. Pursuant to the funding agreement, the parties agreed, jointly and
severally, that, if any of the Operating Partnerships does not have sufficient
cash available to make a quarterly distribution to its limited partners in an
amount equal to whichever is applicable of (i) a specified distribution set
forth in its partnership agreement or (ii) the cash dividend payable with
respect to whole or fractional Common Shares into which such partnership’s
common units would be converted if they were redeemed for our Common Shares in
accordance with its partnership agreement, we and the other Operating
Partnerships, each a “funding partnership,” will fund their pro rata share of
the shortfall. The pro rata share of each funding partnership and our pro rata
share, respectively, will be determined based on the number of units in each
funding partnership and, for the Company, by the amount by which our total
outstanding Common Shares exceeds the number of units in each funding
partnership not owned by us, with appropriate adjustments being made if units
are not redeemable on a one-for-one basis. Payments under the funding agreement
will be made in the form of loans to the partnership experiencing a shortfall
and will bear interest at prevailing rates as determined by us in our discretion
but no less than the applicable federal rate.
Liability
of General Partner and Limited Partners
Lex GP-1,
as the general partner of Net 3, is ultimately liable for all general recourse
obligations of Net 3 to the extent not paid by Net 3. Lex GP-1 is not liable for
the nonrecourse obligations of Net 3. The limited partners of Net 3, including
the Net 3 special unitholder, are not required to make additional capital
contributions to Net 3. Assuming that a limited partner does not take part in
the control of the business of Net 3 in its capacity as a limited partner
thereof and otherwise acts in conformity with the provisions of the Net 3
Partnership Agreement, the liability of the limited partner for obligations of
Net 3 under the Net 3 Partnership Agreement and the Delaware Act is generally
limited, subject to certain limited exceptions, to the loss of the limited
partner’s investment in Net 3. Net 3 will operate in a manner the general
partner deems reasonable, necessary and appropriate to preserve the limited
liability of the limited partners.
Exculpation
and Indemnification of the General Partner
Generally,
Lex GP-1, as general partner of Net 3 (and us as the sole equity owner of the
general partner of Net 3), will incur no liability to Net 3 or the Net 3 special
unitholder, for losses sustained or liabilities incurred as a result of errors
in judgment or of any act or omission if we carried out our duties in good
faith. In addition, neither Lex GP-1 nor us are responsible for any misconduct
or negligence on the part of their agents, provided such agents were appointed
in good faith. Lex GP-1 and the Company may consult with legal counsel,
accountants, appraisers, management consultants, investment bankers and other
consultants and advisors, and any action it takes or omits to take in reliance
upon the opinion of such persons, as to matters that Lex GP-1 and the Company
reasonably believe to be within their professional or expert competence, shall
be conclusively presumed to have been done or omitted in good faith and in
accordance with such opinion.
The Net 3
Partnership Agreement also provides that Net 3 will indemnify Lex GP-1 and us,
our respective directors, trustees and officers, and such other persons as Lex
GP-1 and the Company may from time to time designate to the fullest extent
permitted under the Delaware Act.
Sales
of Assets
Under the
Net 3 Partnership Agreement, Lex GP-1 generally has the exclusive authority to
determine whether, when and on what terms the assets of Net 3 will be sold. Lex
GP-1 may consent to a sale of all or substantially all of the assets of Net 3,
or a merger of Net 3 with another entity, without the consent of the special
limited partners.
Lex GP-1
has the right to redeem the Net 3 units held by all, but not less than all, of
the Net 3 unitholders identified as the “Additional Limited Partners” (which
includes the Net 3 special limited partner) in the Net 3 Partnership Agreement
under certain circumstances, including but not limited to a merger, sale of
assets, consolidation, share issuance, share redemption or other similar
transaction by us or Net 3 which would result in a change of beneficial
ownership in us or in Net 3 by 50% or more.
Removal
of the General Partner; Restrictions on Transfer by the General Partner or
Us
The Net 3
Partnership Agreement provides that the limited partners may not remove Lex GP-1
as general partner of Net 3. Lex GP-1 may not transfer any of its interests as
the general partner of Net 3, and Lex LP-1 may not transfer any of its interests
as a limited partner in Net 3, except to each other or to us.
Restrictions
on Transfer of Net 3 Units by Net 3 Unitholders
The Net 3
special unitholder may not transfer its Net 3 units without the consent of Lex
GP-1, which may be withheld in its sole and absolute discretion; provided, however, that any
additional limited partner shall not have the right to consummate more than one
such transfer in any calendar quarter period without the prior written consent
of Lex GP-1. Notwithstanding the above, the Net 3 special unitholder may
transfer all or a portion of its Net 3 units to (i) immediate family members,
(ii) certain 501(c)(3) organizations, (iii) in the case of an additional partner
that is a partnership, such partner in such Net 3 special unitholder in a
distribution to all of its partners or (iv) a lender as security for a loan to
be made or guaranteed by such Net 3 unitholder. However, a Net 3 special
unitholder may assign the economic rights associated with its Net 3 units,
without the consent of Lex GP-1, but such assignee will not be (i) admitted to
Net 3 as a substituted limited partner or (ii) entitled to the same rights as a
substituted limited partner. In addition, the Net 3 special unitholder may
dispose of its Net 3 units by exercising its rights to have its Net 3 units
redeemed for common shares. See “Redemption of Net 3 Units” below.
Issuance
of Additional Limited Partnership Interests
Lex GP-1
is authorized, in its sole and absolute discretion and without the consent of
the limited partners, including the Net 3 special unitholder, to cause Net 3 to
issue additional Net 3 units to any limited partners or any other persons for
such consideration and on such terms and conditions as Lex GP-1 deems
appropriate. In addition, Lex GP-1 may cause Net 3 to issue additional
partnership interests in different series or classes, which may be senior to the
Net 3 units. Subject to certain exceptions, no additional Net 3 units may be
issued to us, Lex GP-1 or Lex LP-1.
Meetings;
Voting
The Net 3
Partnership Agreement provides that limited partners, including the Net 3
special unitholder, may not take part in the operation, management or control of
Net 3’s business. The Net 3 Partnership Agreement does not provide for annual
meetings of the limited partners, and Net 3 does not anticipate calling such
meetings.
Amendment
of the Net 3 Partnership Agreement
The Net 3
Partnership Agreement may be amended with the consent of Lex GP-1, Lex LP-1 and
a majority in interest of the special limited partners. Notwithstanding the
foregoing, Lex GP-1 has the power, without the consent of limited partners,
including the Net 3 special unitholder, to amend the Net 3 Partnership Agreement
in certain limited circumstances.
Dissolution,
Winding Up and Termination
Net 3
will continue indefinitely, unless sooner dissolved and terminated. Net 3 will
be dissolved, and its affairs wound up upon the occurrence of the earliest of:
(1) the withdrawal of Lex GP-1 as general partner (except in certain limited
circumstances); (2) the sale of all or substantially all of Net 3’s assets and
properties; or (3) the entry of a decree of judicial dissolution of Net 3
pursuant to the provisions of the Delaware Act. Upon dissolution, Lex GP-1, as
general partner, or any person elected as liquidator by a majority in interest
of the limited partners, will proceed to liquidate the assets of Net 3 and apply
the proceeds therefrom in the order of priority set forth in the Net 3
Partnership Agreement.
REDEMPTION
OF OP UNITS
General
Each LCIF
unitholder and Net 3 special unitholder may, subject to certain limitations,
require that LCIF or Net 3, as applicable, redeem its OP units, by delivering a
notice to LCIF or Net 3, as applicable. We have guaranteed the obligation of
LCIF and Net 3 to redeem OP units covered by any such notice. Upon redemption,
such unitholder will receive one Common Share, or in the case of Net 3 units,
one Common Share or the equivalent price in cash thereof (subject to certain
anti-dilution adjustments) in exchange for each OP unit held by such
unitholder.
LCIF, Net
3 and the Company will satisfy any redemption right exercised by a unitholder
through our issuance of Common Shares, whether pursuant to this prospectus or
otherwise, whereupon we will acquire, and become the owner of, the OP units
being redeemed. Each acquisition of OP units by us will be treated as a sale of
the OP units by the redeeming unitholders to us for federal income tax purposes.
See “— Tax Treatment of Redemption of OP Units” below. Upon redemption, the
former unitholder’s right to receive distributions from LCIF or Net 3, as
applicable, with respect to the OP units redeemed will cease. The unitholder
will have rights to dividend distributions as one of our shareholders from the
time of its acquisition of our Common Shares in exchange for the redemption of
its OP units.
A
unitholder must notify Lex GP-1 and us of its desire to require LCIF or Net 3,
as applicable, to redeem OP units by sending a notice in the form attached as an
exhibit to the LCIF Partnership Agreement or the Net 3 Partnership Agreement, as
applicable, a copy of each of which is available from us. A unitholder must
request the redemption of at least 1,000 OP units, or, if the unitholder holds
fewer than 1,000 OP units, all OP units held by such holder. No redemption can
occur if the delivery of Common Shares would be prohibited under the provisions
of the declaration of trust designed to protect our qualification as a
REIT.
Tax
Treatment of Redemption of OP Units
The
following discussion summarizes certain federal income tax considerations that
may be relevant to a unitholder that exercises its right to cause a redemption
of its OP units.
Each of
the LCIF Partnership Agreement and the Net 3 Partnership Agreement provides that
the redemption of OP units will be treated by us, and LCIF or Net 3, as
applicable, and the redeeming unitholder as a sale of OP units by the unitholder
to us at the time of the redemption. The sale will be fully taxable to the
redeeming unitholder.
The
determination of gain or loss from the sale or other disposition will be based
on the difference between the unitholder’s amount realized for tax purposes and
his tax basis in such OP units. The amount realized will be measured by the fair
market value of property received (e.g., the Common Shares) plus the portion of
the liabilities of LCIF or Net 3, as applicable, allocable to the OP units sold.
In general, a unitholder’s tax basis is based on the cost of the OP units,
adjusted for the unitholder’s allocable share of the income, loss, distributions
and liabilities of LCIF or Net 3, as applicable, and can be determined by
reference to Schedule K-1’s of LCIF or Net 3, as applicable. To the extent that
the amount realized exceeds the unitholder’s basis for the OP units disposed of,
such unitholder will recognize gain. It is possible that the amount of gain
recognized or even the tax liability resulting from such gain could exceed the
fair market value of the Common Shares received upon such disposition. EACH UNITHOLDER SHOULD CONSULT WITH
ITS OWN TAX ADVISOR FOR THE SPECIFIC TAX CONSEQUENCES RESULTING FROM A
REDEMPTION OF ITS OP UNITS.
Generally,
any gain recognized upon a sale or other disposition of OP units will be treated
as gain attributable to the sale or disposition of a capital asset. To the
extent, however, that the amount realized upon the sale of OP units attributable
to a unitholder’s share of “unrealized receivables” of LCIF or Net 3, as
applicable, (as defined in Section 751 of the Code) exceeds the basis
attributable to those assets, such excess will be treated as ordinary income.
Unrealized receivables include, to the extent not previously included in the
income of LCIF or Net 3, as applicable, any rights to payment for services
rendered or to be rendered. Unrealized receivables also include amounts that
would be subject to recapture as ordinary income if LCIF or Net 3, as
applicable, had sold its assets at their fair market value at the time of the
transfer of OP units.
Generally,
any loss recognized upon a sale or other disposition of OP units will be treated
as loss attributable to the sale or disposition of a capital asset. Capital
losses in any year are generally deductible only to the extent of capital gains
plus, in the case of a non-corporate taxpayer, $3,000 of ordinary income ($1,500
for married individuals filing separately). The passive activity loss
rules of the Code limit the use of losses by individuals, estates, trusts and
certain closely held corporations and personal service corporations derived from
certain passive activities, which generally include investments in limited
partnership interests such as the OP units. Previously-suspended and unused
passive losses of a holder of OP units generally may be deducted in full in the
taxable year when such holder completely disposes of its OP
units. Each holder of OP units subject to the passive activity loss
rules should consult its own tax advisor concerning whether, and the extent to
which, it has available suspended passive activity losses that may be used to
offset the gain, if any, resulting from a redemption of its OP
units.
For
individuals, trusts and estates, the maximum rate of tax on the net capital gain
(i.e., long-term capital gain less short-term capital loss) from a sale or
exchange of a long-term capital asset (i.e., a capital asset held for more than
12 months) is 15% (through 2010). The maximum rate for net capital gains
attributable to the sale of depreciable real property held for more than 12
months is 25% to the extent of the prior depreciation deductions for
“unrecaptured Section 1250 gain” (that is, depreciation deductions not otherwise
recaptured as ordinary income under the existing depreciation recapture rules).
Treasury Regulations provide that individuals, trusts and estates are subject to
a 25% tax to the extent of their allocable share of unrecaptured Section 1250
gain immediately prior to their sale or disposition of the OP units (the “25%
Amount”). Provided that the OP units are held as a long-term capital asset, such
unitholders would be subject to a maximum rate of tax of 15% of the difference,
if any, between any gain on the sale or disposition of the OP units and the 25%
Amount.
There is
a possible risk that a redemption by LCIF or Net 3, as applicable, of OP units
issued in exchange for a contribution of property to LCIF may cause the original
transfer of property to LCIF or Net 3, as applicable, in exchange for OP units
to be treated as a “disguised sale” of property. Section 707 of the Code and the
Treasury Regulations thereunder (the “Disguised Sale Regulations”) generally
provide that, unless one of the prescribed exceptions is applicable, a partner’s
contribution of property to a partnership and a simultaneous or subsequent
transfer of money or other consideration (which may include the assumption of or
taking subject to a liability) from the partnership to the partner will be
presumed to be a sale, in whole or in part, of such property by the partner to
the partnership. Further, the Disguised Sale Regulations provide generally that,
in the absence of an applicable exception, if money or other consideration is
transferred by a partnership to a partner within two years of the partner’s
contribution of property, the transactions are presumed to be a sale of the
contributed property unless the facts and circumstances clearly establish that
the transfers do not constitute a sale. The Disguised Sale Regulations also
provide that if two years have passed between the transfer of money or other
consideration and the contribution of property, the transactions will be
presumed not to be a sale unless the facts and circumstances clearly establish
that the transfers constitute a sale. Given the amount of time that has passed
since the original transfers of properties to LCIF and Net 3, respectively, by
current holders of LCIF units and Net 3 units other than the Company, it is
unlikely, though still possible, that the redemption of OP units by a unitholder
could cause such original transfers to be treated as disguised sales of property
under the Disguised Sale Regulations. EACH UNITHOLDER SHOULD CONSULT WITH
ITS OWN TAX ADVISOR TO DETERMINE WHETHER A REDEMPTION OF OP UNITS COULD BE
SUBJECT TO THE DISGUISED SALE REGULATIONS.
REGISTRATION
RIGHTS
We have
filed the registration statement of which this prospectus is a part pursuant to
our obligations under the LCIF Partnership Agreement and the Net 3 Partnership
Agreement in conjunction with certain agreements entered into in connection with
the acquisition of certain properties. Under these agreements, executed in
conjunction with the parties listed therein, we are obligated to use our
reasonable efforts to keep the registration statement continuously effective for
a period expiring on the date on which all of the OP units covered by these
agreements have been redeemed pursuant to the registration statement. Any Common
Shares that have been sold pursuant to such agreements, or have been otherwise
transferred and new certificates for them have been issued without legal
restriction on further transfer of such shares, will no longer be entitled to
the benefits of those agreements.
We have
no obligation under these agreements to retain any underwriter to effect the
sale of the shares covered thereby and the registration statement will not be
available for use for an underwritten public offering of such
shares.
Pursuant
to these agreements, we agreed to pay all expenses of effecting the registration
of the Common Shares covered by this prospectus (other than underwriting
discounts and commissions, fees and disbursements of counsel, and transfer
taxes, if any) pursuant to the registration statement.
COMPARISON
OF OWNERSHIP OF OP UNITS AND COMMON SHARES
The
information below highlights a number of the significant differences among LCIF,
Net 3 and us relating to, among other things, form of organization, permitted
investments, policies and restrictions, management structure, compensation and
fees, investor rights and federal income taxation, and compares certain legal
rights associated with the ownership of LCIF units, Net 3 units and our common
shares, respectively. These comparisons are intended to assist unitholders in
understanding how their investment will be changed if their OP units are
redeemed for common shares. This discussion is summary in nature and does not
constitute a complete discussion of these matters, and unitholders should
carefully review the balance of this prospectus and the registration statement
of which this prospectus is a part for additional important information about
us.
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LCIF
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NET
3
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THE
COMPANY
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FORM OF ORGANIZATION AND ASSETS
OWNED
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LCIF
is organized as a Delaware limited partnership. LCIF owns interests
(directly and indirectly through subsidiaries) in
properties.
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Net
3 is organized as a Delaware limited partnership. Net 3 owns interests
(directly and indirectly through subsidiaries) in
properties.
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We
are a Maryland statutory real estate investment trust. We believe that we
have operated so as to qualify as a REIT under the Code, commencing with
our taxable year ended December 31, 1993, and intend to continue to so
operate. Our indirect interest in LCIF and Net 3 gives us an indirect
investment in the properties owned by LCIF and Net 3. In addition, we own
(either directly or indirectly through interests in subsidiaries other
than LCIF and Net 3) interests in other properties.
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LENGTH OF INVESTMENT
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LCIF
has a perpetual term, unless sooner dissolved and
terminated.
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Net
3 has a perpetual term, unless sooner dissolved and
terminated.
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We
have a perpetual term and intend to continue our operations for an
indefinite time period.
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PURPOSE AND PERMITTED
INVESTMENTS
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LCIF’s
purpose is to conduct any business that may be lawfully conducted by a
limited partnership organized pursuant to the Delaware Act, provided that
such business is to be conducted in a manner that permits us to be
qualified as a REIT unless we cease to qualify as a REIT for reasons other
than the conduct of LCIF’s business. LCIF may not take, or refrain from
taking, any action which, in the judgment of the general partner (which is
wholly owned by us) (i) could adversely affect our ability to continue to
qualify as a REIT, (ii) could subject us to any additional taxes under
Section 857 or Section 4981 of the Code, or any other Section of the Code,
or (iii) could violate any law or regulation of any governmental body
(unless such action, or inaction, is specifically consented to by
us).
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Net
3’s purpose is to conduct any business that may be lawfully conducted by a
limited partnership organized pursuant to the Delaware Act, provided that
such business is to be conducted in such a manner that permits us to be
qualified as a REIT unless we cease to qualify as a REIT for reasons other
than the conduct of Net 3’s business. Net 3 may not take, or refrain from
taking, any action which, in the judgment of LXP, in its sole and absolute
discretion, (i) could adversely affect our ability to continue to qualify
as a REIT, (ii) could subject us to any additional taxes under any
Section 857 or Section 4981, or any other section of the Code,
or (iii) could violate any law or regulation of any governmental body
(unless such action, or inaction, is specifically consented to by us in
writing).
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Our
purposes are to engage in the real estate business, and lawful activities
incidental thereto, and to engage in any lawful act or activity for which
real estate investment trusts may be organized under the applicable laws
of the State of Maryland. We are permitted by the LCIF Partnership
Agreement and the Net 3 Partnership Agreement, as applicable, to engage in
activities not related to the business of LCIF or Net 3, including
activities in direct or indirect competition with LCIF or Net 3, and may
own assets other than our interests in LCIF or Net 3, and such other
assets necessary to carry out our responsibilities under the applicable
Partnership Agreement, and our declaration of trust. In addition, we have
no obligation to present opportunities to LCIF or Net 3 and the
unitholders have no rights by virtue of the applicable Partnership
Agreement in any of our outside business
ventures.
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ADDITIONAL EQUITY
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LCIF
is authorized to issue LCIF units and other partnership interests
(including partnership interests of different series or classes that may
be senior to LCIF units) as determined by the general partner, in its sole
discretion.
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Net
3 is authorized to issue Net 3 units and other partnership interests
(including partnership interests of different series or classes that may
be senior to Net 3 units) as determined by the general partner in its sole
discretion.
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Our
board of trustees may issue, in its discretion, additional equity
securities consisting of common shares and/or preferred shares. However,
the total number of shares issued may not exceed the authorized number of
capital shares set forth in our declaration of trust. The proceeds of
equity capital raised by us are not required to be contributed to LCIF or
Net 3; provided, however, that if we desire to increase our ownership of
LCIF units or Net 3 units, we may only do so by contributing the proceeds
of equity capital raised by us.
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BORROWING POLICIES
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LCIF
has no restrictions on borrowings, and the general partner has full power
and authority to borrow money on behalf of LCIF.
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Net
3 has no restrictions on borrowings, and the general partner has full
power and authority to borrow money on behalf of Net 3.
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Neither
our declaration of trust nor our bylaws impose any restrictions on our
ability to borrow money. We are not required to incur our indebtedness
through LCIF or Net 3.
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OTHER INVESTMENT RESTRICTIONS
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Other
than restrictions precluding investments by LCIF that would adversely
affect our qualification as a REIT, there are no restrictions upon LCIF’s
authority to enter into certain transactions, including among others,
making investments, lending LCIF funds, or reinvesting LCIF’s cash flow
and net sale or refinancing proceeds.
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Other
than restrictions precluding investments by Net 3 that would adversely
affect our qualification as a REIT, there are no restrictions upon Net 3’s
authority to enter into certain transactions, including among others,
making investments, lending Net 3 funds, or reinvesting Net 3’s cash flow
and net sale or refinancing proceeds.
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Neither
our declaration of trust nor our bylaws impose any restrictions upon the
types of investments made by us. However, contractual obligations my
inhibit our ability to invest in certain asset types.
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MANAGEMENT CONTROL
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All
management powers over the business and affairs of LCIF are vested in the
general partner of LCIF, and no limited partner of LCIF has any right to
participate in or exercise control or management power over the business
and affairs of LCIF except that (1) the general partner of LCIF may not
consent to the participation of LCIF in any merger, consolidation or other
combination with or into another person or entity, or a sale of all or
substantially all of LCIF’s assets without the consent of a majority in
interest of the Special Limited Partners, and (2) there are certain
limitations on the ability of the general partner of LCIF to cause or
permit LCIF to dissolve. See “—Voting Rights —Vote Required to Dissolve
the Operating Partnership or Us” below. The general partner may not be
removed by the limited partners of LCIF with or without
cause.
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All
management powers over the business and affairs of Net 3 are vested in the
general partner of Net 3, and no limited partner of Net 3 has any right to
participate in or exercise control or management power over the business
and affairs of Net 3 except that there are certain limitations on the
ability of the general partner of Net 3 to cause or permit Net 3 to
dissolve. See “—Voting Rights —Vote Required to Dissolve the Operating
Partnership or Us” below. The general partner may not be removed by the
limited partners of Net 3 with or without cause.
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Our
board of trustees has exclusive control over our business and affairs
subject only to the restrictions in our declaration of trust and bylaws.
Our board of trustees consists of nine trustees, which will be increased
to eleven in connection with our merger with Newkirk, which number may be
increased or decreased by vote of at least a majority of the entire board
of trustees pursuant to our bylaws. The trustees are elected at each
annual meeting of our shareholders. The policies adopted by the board of
trustees may be altered or eliminated without a vote of the shareholders.
Accordingly, except for their vote in the elections of trustees,
shareholders have no control over our ordinary business
policies.
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DUTIES
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Under
Delaware law, the general partner of LCIF is accountable to LCIF as a
fiduciary and, consequently, is required to exercise good faith and
integrity in all of its dealings with respect to partnership affairs.
However, under the LCIF Partnership Agreement, the general partner may,
but is under no obligation to, take into account the tax consequences to
any partner of any action taken by it, and the general partner is not
liable for monetary damages for losses sustained or liabilities incurred
by partners as a result of errors of judgment or of any act or omission,
provided that the general partner has acted in good faith.
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Under
Delaware law, the general partner of Net 3 is accountable to Net 3 as a
fiduciary and, consequently, is required to exercise good faith and
integrity in all of its dealings with respect to partnership affairs.
However, under the Net 3 Partnership Agreement, the general partner may,
but is under no obligation to, take into account the tax consequences to
any partner, including the Net 3 special unitholder, of any action taken
by it, and the general partner is not liable for monetary damages for
losses sustained or liabilities incurred by partners as a result of errors
of judgment or of any act or omission, provided that the general partner
has acted in good faith.
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Under
Maryland law, our trustees must perform their duties in good faith, in a
manner that they reasonably believe to be in our best interests and with
the care that an ordinarily prudent person in a like position would use
under similar circumstances. Trustees who act in such a manner generally
will not be liable to us for monetary damages arising from their
activities.
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MANAGEMENT LIABILITY AND
INDEMNIFICATION
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Under
Delaware law, the general partner has liability for the payment of the
obligations and debts of LCIF unless limitations upon such liability are
stated in the document or instrument evidencing the obligation. Under the
LCIF Partnership Agreement, LCIF has agreed to indemnify Lex GP-1 and us,
and any director, trustee or officer of Lex GP-1 or us to the fullest
extent permitted under the Delaware Act. The reasonable expenses incurred
by an indemnitee may be reimbursed by LCIF in advance of the final
disposition of the proceeding upon receipt by LCIF of a written
affirmation by such indemnitee of his, her or its good faith belief that
the standard of conduct necessary for indemnification has been met and a
written undertaking by such indemnitee to repay the amount if it is
ultimately determined that such standard was not met.
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Under
Delaware law, the general partner has liability for the payment of the
obligations and debts of Net 3 unless limitations upon such liability are
stated in the document or instrument evidencing the obligation. Under the
Net 3 Partnership Agreement, Net 3 has agreed to indemnify Lex GP-1 and
us, and any director, trustee or officer of Lex LP-1, Net 3 or us to the
fullest extent permitted under the Delaware Act. The reasonable expenses
incurred by an indemnitee may be reimbursed by Net 3 in advance of the
final disposition of the proceeding upon receipt by Net 3 of a written
affirmation by such indemnitee of his, her or its good faith belief that
the standard of conduct necessary for indemnification has been met and a
written undertaking by such indemnitee to repay the amount if it is
ultimately determined that such standard was not met.
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Under
our declaration of trust, the liability of our trustees and officers to us
and our shareholders for money damages is limited to the fullest extent
permitted under Maryland law. Under our declaration of trust we have
agreed to indemnify our trustees and officers, to the fullest extent
permitted under Maryland law and to indemnify our other employees and
agents to such extent as authorized by our board of trustees or our
bylaws, but only to the extent permitted under applicable
law.
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ANTI-TAKEOVER PROVISIONS
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Except
in limited circumstances (see “—Voting Rights” below), the general partner
of LCIF has exclusive management power over the business and affairs of
LCIF. The general partner may not be removed by the limited partners with
or without cause. Under the LCIF Partnership Agreement, a limited partner
may transfer his or her interest as a limited partner (subject to certain
limited exceptions set forth in the LCIF Partnership Agreement), without
obtaining the approval of the general partner. However, without the
consent of the general partner, a transferee will not be (i) admitted to
LCIF as a substituted limited partner or (ii) entitled to the same rights
as a substituted limited partner.
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Except
in limited circumstances (see “—Voting Rights” below), the general partner
of Net 3 has exclusive management power over the business and affairs of
Net 3. The general partner may not be removed by the limited partners,
including the Net 3 special unitholder. Under the Net 3 Partnership
Agreement, Lex LP-1 may not transfer any of its partnership interests,
except to Lex GP-1 or us. However, without the consent of the general
partner, a transferee will not be (i) admitted to Net 3 as a substituted
limited partner or (ii) entitled to the same rights as a substituted
limited partner.`
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Our
declaration of trust and bylaws contain a number of provisions that may
have the effect of delaying or discouraging an unsolicited proposal for
the acquisition of us or the removal of incumbent management. These
provisions include, among others: (1) authorized capital shares that may
be issued as preferred shares in the discretion of the board of trustees,
with superior voting rights to the common shares; (2) a requirement that
trustees may be removed only for cause and then only by the affirmative
vote of the holders of at least 80% of the combined voting power of all
classes of shares of beneficial interest entitled to vote in the election
of trustees; and (3) provisions designed to, among other things, avoid
concentration of share ownership in a manner that would jeopardize our
status as a REIT under the Code.
Furthermore,
under Maryland law, “business combinations” between a Maryland real estate
investment trust and an interested shareholder or an affiliate of an
interested shareholder are prohibited for five years after the most recent
date on which the interested shareholder becomes an interested
shareholder. See “Certain Provisions of Maryland Law and Our Declaration
of Trust and Bylaws – Maryland Law,” elsewhere in this
prospectus.
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VOTING RIGHTS
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All
decisions relating to the operation and management of LCIF are made by the
general partner. See “Description of OP Units” elsewhere in this
prospectus. As of the date of this prospectus, we held, through Lex GP-1
and Lex LP-1, approximately 87.1% of the outstanding LCIF units. As LCIF
units are redeemed by unitholders, our percentage ownership of LCIF will
increase.
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All
decisions relating to the operation and management of Net 3 are made by
the general partner. See “Description of Net 3 Units” elsewhere in this
prospectus. As of the date of this prospectus, we held, through Lex GP-1
and Lex LP-1, 99.2% of the Net 3 units. As of the date of this prospectus,
the Net 3 special unitholder, identified in “Selling Shareholders”
elsewhere in this prospectus, held 0.8% of the Net 3 units. As Net 3 units
are redeemed by such Net 3 unitholder, our percentage ownership of Net 3
will increase.
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We
are managed and controlled by a board of trustees presently consisting of
nine members. Each trustee is elected by the shareholders at annual
meetings of our shareholders. Maryland law requires that certain major
corporate transactions, including most amendments to the declaration of
trust, may not be consummated without the approval of shareholders as set
forth below. All common shares have one vote, and the declaration of trust
permits the board of trustees to classify and issue preferred shares in
one or more series having voting power which may differ from that of the
common shares. See “Description of Our Common Shares” elsewhere in this
prospectus.
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The
following is a comparison of the voting rights of the limited partners of LCIF
and Net 3 and our shareholders as they relate to certain major
transactions:
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A. AMENDMENT
OF THE PARTNERSHIP AGREEMENT OR THE DECLARATION OF
TRUST.
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The
LCIF Partnership Agreement may be amended with the consent of Lex GP-1,
Lex LP-1 and a majority in interest of the Special Limited Partners.
Certain amendments that affect the fundamental rights of a limited partner
must be approved by each affected limited partner. In addition, the
general partner may, without the consent of the limited partners, amend
the LCIF Partnership Agreement as to certain ministerial
matters.
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The
Net 3 Partnership Agreement may be amended with the consent of Lex GP-1,
Lex LP-1, and a majority in interest of the special limited partners
(including the Net 3 special unitholder), representing a majority of
partnership units held by such special limited partners. Certain
amendments that affect the fundamental rights of a limited partner,
including the Net 3 special unitholder, must be approved by each affected
limited partner. In addition, the general partner may, without the consent
of the limited partners, amend the LCIF Partnership Agreement as to
certain ministerial matters.
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Amendments
to our declaration of trust must be advised by our board of trustees and
approved generally by at least a majority of the votes entitled to be cast
on that matter at a meeting of shareholders. Amendments to certain
provisions on termination require the affirmative vote of two-thirds of
the votes entitled to be cast and amendments to certain provisions in our
declaration relating to amendments to our declaration or our bylaws,
relating to our board or relating to obligations under written
instruments, require the affirmative vote of 80% of the votes entitled to
be cast. In addition, our declaration may be amended by a two-thirds
majority of our trustees, without shareholder approval, in order to
preserve our qualification as a REIT under the Code.
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B. VOTE
REQUIRED TO DISSOLVE OR TERMINATE THE OPERATING PARTNERSHIP OR
US.
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LCIF
may be dissolved upon the occurrence of certain events, none of which
require the consent of the limited partners.
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Net
3 may be dissolved upon the occurrence of certain events, none of which
require the consent of the limited partners.
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We
may be terminated only upon the affirmative vote of the holders of
two-thirds of the outstanding shares entitled to vote
thereon.
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C. VOTE
REQUIRED TO SELL ASSETS OR MERGE.
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Under
the LCIF Partnership Agreement, the sale, exchange, transfer or other
disposition of all or substantially all of LCIF’s assets, or a merger or
consolidation of LCIF, requires the consent of a majority in interest of
the Special Limited Partners. The general partner of LCIF has the
exclusive authority to sell individual assets of LCIF.
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Under
the Net 3 Partnership Agreement, the sale, exchange, transfer or other
disposition of all or substantially all of Net 3’s assets, or a merger or
consolidation of Net 3 does not require the consent of a majority in
interest of the special limited partners.
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Under
Maryland law and our declaration of trust, the sale of all or
substantially all of our assets, or a merger or consolidation of us,
requires the approval of our board of trustees and generally require the
approval of the holders of a majority of the outstanding shares entitled
to vote thereon. No approval of the shareholders is required for the sale
of less than all or substantially all of our
assets.
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COMPENSATION, FEES AND
DISTRIBUTIONS
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The
general partner does not receive any compensation for its services as
general partner of LCIF. As a partner in LCIF, however, the general
partner has the same right to allocations and distributions as other
partners of LCIF. In addition, LCIF will reimburse Lex GP-1 (and us) for
all expenses incurred relating to the ownership and operation of LCIF and
any other offering of additional partnership interests in
LCIF.
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The
general partner does not receive any compensation for its services as
general partner of Net 3. As a partner in Net 3, however, the general
partner and the limited partner Lex GP-1 and Lex LP-1 have the same right
to allocations and distributions as other partners of Net 3, subject to
the distribution rights of the Net 3 special unitholders. In addition, Net
3 will reimburse Lex GP-1 (and us) for all expenses incurred relating to
the formation and organization of Net 3, Lex GP-1, and Lex
LP-1.
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Our
non-employee trustees and our officers receive compensation for their
services.
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LIABILITY OF INVESTORS
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Under
the LCIF Partnership Agreement and applicable state law, the liability of
the limited partners for LCIF’s debts and obligations is generally limited
to the amount of their investment in LCIF.
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Under
the Net 3 Partnership Agreement and applicable state law, the liability of
limited partners for Net 3’s debts and obligations is generally limited to
the amount of their investment in Net 3.
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Under
Maryland law, our shareholders are generally not personally liable for our
debts or obligations.
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NATURE OF INVESTMENT
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The
LCIF units constitute equity interests in LCIF. Generally, unitholders are
allocated and distributed amounts with respect to their LCIF units which
approximate the amount of distributions made with respect to the same
number of our common shares, as determined in the manner provided in the
LCIF Partnership Agreement and subject to certain restrictions and
exceptions for certain limited partners. LCIF generally intends to retain
and reinvest proceeds of the sale of property or excess refinancing
proceeds in its business.
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The
Net 3 units constitute equity interests in Net 3. Generally, unitholders
are allocated and distributed amounts in accordance with their respective
percentage interest in Net 3, from time to time, but not less than
semi-annually, as determined in the manner provided in the Net 3
Partnership Agreement and subject to certain restrictions and exceptions
for certain limited partners. Nonetheless, each Net 3 special unitholder
is entitled to its share of operating cash flow in an amount equal to the
amount of distributions made in respect of one common share outstanding
multiplied by the conversion ratio, which may be adjusted from time to
time. Net 3 generally intends to retain and reinvest proceeds of the sale
of property or excess refinancing proceeds in its business.
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Common
Shares constitute equity interests in us. We are entitled to receive our
pro rata share of distributions made by LCIF and Net 3 with respect to the
LCIF units or Net 3 units, as applicable, held by us, and by our other
direct subsidiaries. Each shareholder will be entitled to his pro rata
share of any dividends or distributions paid with respect to the Common
Shares. The dividends payable to the shareholders are not fixed in amount
and are only paid if, when and as authorized by our board of trustees and
declared by us. In order to continue to qualify as a REIT, we generally
must distribute at least 90% of our net taxable income (excluding capital
gains), and any taxable income (including capital gains) not distributed
will be subject to corporate income
tax.
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POTENTIAL DILUTION OF RIGHTS
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Lex
GP-1 is authorized, in its sole discretion and without limited partner
approval, to cause LCIF to issue additional LCIF units and other equity
securities for any partnership purpose at any time to the limited partners
or to other persons (including the general partner under certain
circumstances set forth in the LCIF Partnership
Agreement).
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Lex
GP-1 is authorized, in its sole discretion and without limited partner
approval, to cause Net 3 to issue additional Net 3 units and other equity
securities for any partnership purpose at any time to the limited partners
or to other persons (including the general partner, the limited partner or
us under certain circumstances set forth in the Net 3
Agreement).
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Our
board of trustees may authorize us to issue, in its discretion, additional
shares, and has the authority to cause us to issue from authorized capital
a variety of other equity securities with such powers, preferences and
rights as the board of trustees may designate at the time. The issuance of
either additional common shares or other similar equity securities may
result in the dilution of the interests of the
shareholders.
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LIQUIDITY
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Limited
partners may generally transfer their LCIF units without the general
partner’s consent. However, without the consent of the general partner, a
transferee will not be (i) admitted to LCIF as a substituted limited
partner or (ii) entitled to the same rights as a substituted limited
partner. Certain limited partners have the right to tender their LCIF
units for redemption by LCIF at certain times, as specified in the LCIF
Partnership Agreement. See “Redemption of OP Units” elsewhere in this
prospectus.
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The
Net 3 special unitholder may not transfer its Net 3 units without the
general partner’s consent. However, an additional limited partner shall
not have the right to consummate more than one such transfer in any
calendar quarter period without the prior written consent of the general
partner.
Without
the consent of the general partner, a transferee will not be (i) admitted
to Net 3 as a substituted limited partner or (ii) entitled to the same
rights as a substituted limited partner. Special limited partners have the
right to tender their Net 3 units for redemption by Net 3 at certain
times, as specified in the Net 3 Partnership Agreement. See “Redemption of
OP Units” elsewhere in this prospectus.
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The
Common Shares covered by this prospectus will be freely transferable as
registered securities under the Securities Act. Our Common Shares are
listed on the New York Stock Exchange. The breadth and strength of this
secondary market will depend, among other things, upon the number of
shares outstanding, our financial results and prospects, the general
interest in the Company and other real estate investments, and our
dividend yield compared to that of other debt and equity
securities.
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FEDERAL INCOME TAXATION
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LCIF
is not subject to federal income taxes. Instead, each unitholder includes
its allocable share of LCIF’s taxable income or loss in determining its
individual federal income tax liability. The maximum federal income tax
rate for individuals under current law is 35%.
A
unitholder’s share of income and loss generated by LCIF generally is
subject to the “passive activity” limitations. Under the “passive
activity” rules, income and loss from LCIF that are considered “passive
income” generally can be offset against income and loss from other
investments that constitute “passive activities.” Cash distributions from
LCIF are not taxable to a unitholder except to the extent such
distributions exceed such unitholder’s basis in its interest in LCIF
(which will include such holder’s allocable share of LCIF’s taxable income
and nonrecourse debt).
Each
year, unitholders will receive a Schedule K-1 containing detailed tax
information for inclusion in preparing their federal income tax
returns.
Unitholders
are required, in some cases, to file state income tax returns and/or pay
state income taxes in the states in which LCIF owns property, even if they
are not residents of those states.
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Net
3 is not subject to federal income taxes. Instead, each unitholder
includes its allocable share of Net 3’s taxable income or loss in
determining its individual federal income tax liability. The maximum
federal income tax rate for individuals under current law is
35%.
A
unitholder’s share of income and loss generated by Net 3 generally is
subject to the “passive activity” limitations. Under the “passive
activity” rules, income and loss from Net 3 that are considered “passive
income” generally can be offset against income and loss from other
investments that constitute “passive activities.” Cash distributions from
Net 3 are not taxable to a unitholder except to the extent such
distributions exceed such unitholder’s basis in its interest in Net 3
(which will include such holder’s allocable share of Net 3’s taxable
income and nonrecourse debt).
Each
year, unitholders will receive a Schedule K-1 containing detailed tax
information for inclusion in preparing their federal income tax
returns.
Unitholders
are required, in some cases, to file state income tax returns and/or pay
state income taxes in the states in which Net 3 owns property, even if
they are not residents of those states.
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We
have elected to be taxed as a REIT. So long as we qualify as a REIT, we
will be permitted to deduct distributions paid to our shareholders, which
effectively will reduce the “double taxation” that typically results when
a corporation earns income and distributes that income to its shareholders
in the form of dividends. A qualified REIT, however, is subject to federal
income tax on income that is not distributed and also may be subject to
federal income and excise taxes in certain circumstances. The maximum
federal income tax rate for corporations under current law is
35%.
Dividends
paid by us will be treated as “portfolio” income and cannot be offset with
losses from “passive activities.” The maximum federal income tax rate for
individuals under current law is 35%. Distributions made by us to our
taxable domestic shareholders out of current or accumulated earnings and
profits will be taken into account by them as ordinary income.
Distributions that are designated as capital gain dividends generally will
be taxed as long-term capital gain, subject to certain limitations, but
generally would not be eligible for certain recently-enacted reduced
rates. Distributions in excess of current or accumulated earnings and
profits will be treated as a non-taxable return of basis to the extent of
a shareholder’s adjusted basis in its common shares, with the excess taxed
as capital gain.
Each
year, shareholders will receive an IRS Form 1099 used by corporations to
report dividends paid to their shareholders.
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Shareholders
who are individuals generally will not be required to file state income
tax returns and/or pay state income taxes outside of their state of
residence with respect to our operations and distributions. We may be
required to pay state income taxes in certain states.
Please
see “United States Income Tax Considerations,”
below.
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SELLING
SHAREHOLDERS
The
number of shares on the following table represents the number of Common Shares
known to us to be held by the selling shareholders as of March 10, 2009, the
maximum number of Common Shares that the selling shareholders may offer pursuant
to this prospectus and the aggregate number of our Common Shares and the
percentage of our outstanding Common Shares that the selling shareholders would
hold following the completion of this offering.
The
selling shareholders named below may from time to time offer the Common Shares
offered by this prospectus:
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Selling
Shareholder
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Total
Shares Beneficially Owned Prior to Offering (1)
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Percentage
of Shares Beneficially Owned Prior to the Offering(3)
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Maximum
Shares
Offered
Pursuant
to this
Prospectus
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Aggregate
Shares
Beneficially
Owned
Following
Completion
of
Offering
(2)
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Percentage
of
Shares Beneficially Owned Following Completion of the Offering
(2)
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Michael
L. Ashner (3)
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1,128,613
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1.1%
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104,000
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1,024,613
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1.0%
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E.
Robert Roskind (4)
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2,407,427
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2.4%
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46,286
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2,361,141
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2.4%
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Barnes
Properties, Inc. (5)
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2,299
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*
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1,428
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871
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*
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The
LCP Group, L.P (6)
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780,424
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*
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53,858
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726,566
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*
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Vornado
Realty Trust (7)
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16,149,594
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16.0
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16,149,594
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0
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*
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______________
* Indicates
less than one percent (1%).
(1) Based
on information available to us as of March 9,
2009.
(2) Assumes
that all Common Shares are sold in this offering pursuant to this prospectus,
LCIF units and/or Net 3 units held by selling shareholders have been redeemed
for our Common Shares and that no other transactions with respect to our Common
Shares occur. Percentages in the last column are based upon 100,664,974 Common
Shares outstanding as of May 13, 2008.
(3) Consists
of (i) 1,072,613 Common Shares held by Mr. Ashner, (ii) 10,520 held by Mr.
Ashner’s IRA, (iii) 8,280 shares held by Mr. Ashner’s spouse's IRA, (iv) 25,200
shares held in trust for Mr. Ashner’s children, and (v) 12,000 held by the
Ashner Family Evergreen Foundation, a New York not for profit corporation, an
entity in which Mr. Ashner is a director. Mr. Ashner resigned as our Executive
Chairman and Director of Strategic Acquisitions on March 22,
2008. The address of Mr. Ashner is 7 Bulfinch Place, Suite 500,
Boston, Massachusetts 02114.
(4) Consists
of (i) 1,519,154 OP units held directly by Mr. Roskind or indirectly by Mr.
Roskind through his wife and entities controlled by Mr. Roskind, in our
operating partnership subsidiaries, which are currently exchangeable, on a
one-for-one basis, for Common Shares, (ii) 365,603 Common Shares held directly
by Mr. Roskind, (iii) 111,875 Common Shares held directly by Mr. Roskind which
are subject to performance or time-based vesting requirements or a
lockup/claw-back agreement, (iv) 167,843 Common Shares held in trust in which
Mr. Roskind is beneficiary, (v) 33,620 Common Shares owned of record by The LCP
Group, L.P., an entity controlled by Mr. Roskind, which Mr. Roskind disclaims
beneficial ownership of to the extent of his pecuniary interest, and (vi)
209,332 Common Shares held by The Roskind Family Foundation, Inc., over which
Mr. Roskind shares voting and investment power. Mr. Roskind is our
Chairman. He previously served as our Co-Vice Chairman from December
2006 to March 2008 and our Co-Chief Executive Officer from October 1993 to
January 2003.
(5) Consists
of 2,299 OP units. Barnes Properties, Inc. is controlled by Mr. Roskind and all
Common Shares owned by BarnesProperties, Inc. are reported as owned by Mr.
Roskind.
(6) Consists
of (i) 746,804 OP units held directly by The LCP Group, L.P. in our operating
partnership subsidiaries, which are currently exchangeable, on a one-for-one
basis, for our Common Shares and (ii) 33,620 Common Shares held directly by The
LCP Group, L.P. The LCP Group, L.P. is controlled by Mr. Roskind and all Common
Shares owned by The LCP Group, L.P. are reported as owned by Mr.
Roskind.
(7) Vornado
Realty Trust and Vornado Realty L.P. beneficially own, including through their
wholly-owned subsidiaries: Vornado Newkirk LLC, VNK L.L.C. and Vornado LXP LLC,
16,149,592 Common Shares. As of the date of this prospectus, Mr. Clifford
Broser, Senior Vice President of Vornado Realty Trust, is a member of our Board
of Trustees. Mr. Broser disclaims beneficial ownership of all Common Shares
beneficially owned by Vornado Realty Trust. The address of Vornado
Realty Trust is 888 Seventh Avenue, New York, NY 10019.
UNITED
STATES FEDERAL INCOME TAX CONSIDERATIONS
The
following discussion summarizes the material United States federal income tax
considerations to you as a prospective holder of our Common Shares and assumes
that you will hold such shares as capital assets (within the meaning of Section
1221 of the Code). 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 of 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, regulated investment
companies, insurance companies, tax-exempt entities, financial institutions or
broker-dealers, expatriates, persons subject to the alternative minimum tax and
partnerships or other pass through entities.
The
information in this section is based on the Code, existing, temporary and
proposed regulations under the Code, the legislative history of the Code,
current administrative rulings and practices of the Internal Revenue Service, or
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. 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. PROSPECTIVE HOLDERS OF
OUR COMMON SHARES ARE ADVISED TO CONSULT THEIR OWN TAX ADVISORS REGARDING THE
FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF INVESTING IN OUR COMMON
SHARES IN LIGHT OF THEIR PARTICULAR CIRCUMSTANCES.
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 factual representations that are described in this section and
in officer’s certificates provided by us, Concord Debt Holdings LLC and Concord
Debt Funding Trust (both subsidiaries in which we indirectly hold interests),
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, Concord Debt Holdings LLC and Concord Debt
Funding Trust as to factual matters including, but not limited to, those set
forth herein, and those concerning our business and properties as set forth in
this prospectus. An opinion of counsel is not binding on the IRS 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:
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·
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First,
we will be taxed at regular corporate rates on any undistributed REIT
taxable income, including undistributed net capital
gains.
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Second,
under certain circumstances, we may be subject to the “alternative minimum
tax” on our items of tax
preference.
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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.
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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.
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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 95% (90% for taxable years ending
on or prior to December 31, 2004) 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.
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Sixth,
if we should fail to satisfy the asset tests (as discussed below) but
nonetheless maintain our qualification as a REIT because certain other
requirements have been met and we do not qualify for a de minimis
exception, we may be subject to a tax that would be the greater of (a)
$50,000; or (b) an amount determined by multiplying the highest rate of
tax for corporations by the net income generated by the assets for the
period beginning on the first date of the failure and ending on the day we
dispose of the nonqualifying assets (or otherwise satisfy the requirements
for maintaining REIT
qualification).
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Seventh,
if we should fail to satisfy one or more requirements for REIT
qualification, other than the 95% and 75% gross income tests and other
than the asset tests, but nonetheless maintain our qualification as a REIT
because certain other requirements have been met, we may be subject to a
$50,000 penalty for each failure.
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Eighth,
if we should fail to distribute during each calendar year at least the sum
of (a) 85% of our REIT ordinary income for such year, (b) 95% of our REIT
capital gain net income for such year, and (c) any undistributed taxable
income from prior periods, we would be subject to a nondeductible 4%
excise tax on the excess of such required distribution over the amounts
actually distributed.
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Ninth,
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 and we do not elect to be taxed at the time of the
acquisition, we would be subject to tax at the highest corporate rate if
we dispose of such asset during the ten-year period beginning on the date
that we acquired that asset, to the extent of such property’s “built-in
gain” (the excess of the fair market value of such property at the time of
our acquisition over the adjusted basis of such property at such time) (we
refer to this tax as the “Built-in Gains
Tax”).
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Tenth,
we will incur a 100% excise tax on transactions with a taxable REIT
subsidiary that are not conducted on an arm’s-length
basis.
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Finally,
if we own a residual interest in a real estate mortgage investment
conduit, or “REMIC,” we will be taxable at the highest corporate rate on
the portion of any excess inclusion income that we derive from the REMIC
residual interests equal to the percentage of our shares that is held in
record name by “disqualified organizations.” Similar rules apply if we own
an equity interest in a taxable mortgage pool. A “disqualified
organization” includes the United States, any state or political
subdivision thereof, any foreign government or international organization,
any agency or instrumentality of any of the foregoing, any rural
electrical or telephone cooperative and any tax-exempt organization (other
than a farmer’s cooperative described in Section 521 of the Code) that is
exempt from income taxation and from the unrelated business taxable income
provisions of the Code. However, to the extent that we own a REMIC
residual interest or a taxable mortgage pool through a taxable REIT
subsidiary, we will not be subject to this tax. See the heading
“Requirements for Qualification”
below.
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Requirements for
Qualification. A REIT is a corporation,
trust or association (1) that is managed by one or more trustees or directors,
(2) the beneficial ownership of which is evidenced by transferable shares, or by
transferable certificates of beneficial interest, (3) that would be taxable as a
domestic corporation, but for Sections 856 through 859 of the Code, (4) that is
neither a financial institution nor an insurance company subject to certain
provisions of the Code, (5) that has the calendar year as its taxable year, (6)
the beneficial ownership of which is held by 100 or more persons, (7) during the
last half of each taxable year, not more than 50% in value of the outstanding
stock of which is owned, directly or indirectly, by five or fewer individuals
(as defined in the Code to include certain entities), and (8) that meets certain
other tests, described below, regarding the nature of its income and assets. The
Code provides that conditions (1) through (5), inclusive, must be met during the
entire taxable year and that condition (6) must be met during at least 335 days
of a taxable year of twelve (12) months, or during a proportionate part of a
taxable year of less than twelve (12) months.
We 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.
The Code
allows a REIT to own wholly-owned corporate 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.
For
taxable years beginning on or after January 1, 2001, 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 (for
taxable years beginning after July 30, 2008, 25% of the value of the REIT’s
total assets) at the close of each quarter. A taxable REIT subsidiary is a fully
taxable corporation that generally is permitted to engage in businesses (other
than certain activities relating to lodging and health care facilities), 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 for purposes of satisfying the gross
income and assets tests (as discussed below). 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. Thus, our proportionate share (based on
equity capital) 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. The treatment described above also applies with respect to the ownership
of interests in limited liability companies or other entities that are treated
as partnerships for tax purposes.
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).
Special
rules apply to a REIT, a portion of a REIT, or a qualified REIT subsidiary that
is a taxable mortgage pool. An entity or portion thereof may be classified as a
taxable mortgage pool under the Code if:
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substantially
all of the assets consist of debt obligations or interests in debt
obligations;
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more
than 50% of those debt obligations are real estate mortgage loans or
interests in real estate mortgage loans as of specified testing
dates;
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the
entity has issued debt obligations that have two or more maturities;
and
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the
payments required to be made by the entity on its debt obligations “bear a
relationship” to the payments to be received by the entity on the debt
obligations that it holds as
assets.
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Under
Treasury Regulations, if less than 80% of the assets of an entity (or the
portion thereof) consist of debt obligations, these debt obligations are
considered not to comprise “substantially all” of its assets, and therefore the
entity would not be treated as a taxable mortgage pool.
An entity
or portion thereof that is classified as a taxable mortgage pool is generally
treated as a taxable corporation for federal income tax purposes. However, the
portion of the REIT’s assets, held directly or through a qualified REIT
subsidiary, that qualifies as a taxable mortgage pool is treated as a qualified
REIT subsidiary that is not subject to corporate income tax and therefore the
taxable mortgage pool classification does not change that treatment. The
classification of a REIT, qualified REIT subsidiary or portion thereof as a
taxable mortgage pool could, however, result in taxation of a REIT and certain
of its shareholders as described below.
IRS
guidance indicates that a portion of income from a taxable mortgage pool
arrangement, if any, could be treated as “excess inclusion income.” Excess
inclusion income is an amount, with respect to any calendar quarter, equal to
the excess, if any, of (i) income allocable to the holder of a REMIC residual
interest or taxable mortgage pool interest over (ii) the sum of an amount for
each day in the calendar quarter equal to the product of (a) the adjusted issue
price at the beginning of the quarter multiplied by (b) 120% of the long-term
federal rate (determined on the basis of compounding at the close of each
calendar quarter and properly adjusted for the length of such quarter). Under
the recent guidance, such income would be allocated among our shareholders in
proportion to dividends paid and, generally, may not be offset by net operating
losses of the shareholder, would be taxable to tax exempt shareholders who are
subject to the unrelated business income tax rules of the Code and would subject
non-U.S. shareholders to a 30% withholding tax (without exemption or reduction
of the withholding rate). To the extent that excess inclusion income is
allocated from a taxable mortgage pool to any disqualified organizations that
hold our shares, we may be taxable on this income at the highest applicable
corporate tax rate (currently 35%). Because this tax would be imposed on the
REIT, all of the REIT’s shareholders, including shareholders that are not
disqualified organizations, would bear a portion of the tax cost associated with
the classification of any portion of our assets as a taxable mortgage
pool.
If we own
less than 100% of the ownership interests in a subsidiary that is a taxable
mortgage pool, the foregoing rules would not apply. Rather, the subsidiary would
be treated as a corporation for federal income tax purposes and would
potentially be subject to corporate income tax. In addition, this
characterization would affect our REIT income and asset test calculations and
could adversely affect our ability to qualify as a REIT.
We have
made and in the future intend to make investments or enter into financing and
securitization transactions that may give rise to our being considered to own an
interest, directly or indirectly, in one or more taxable mortgage pools.
Prospective holders are urged to consult their own tax advisors regarding the
tax consequences of the taxable mortgage pool rules to them in light of their
particular circumstances.
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;” gain from the sale of real property other than property held for sale
to customers in the ordinary course of business; dividends from, and gain from
the sale of shares of, other qualifying REITs; certain interest described
further below; and certain income derived from a REMIC) 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 income that qualifies under the foregoing 75% gross income test,
other types of dividends and interest, gain from the sale or disposition of
stock or securities and certain other specified sources. Any income from a
hedging transaction entered into after December 31, 2004 that is clearly and
timely identified and hedges indebtedness incurred or to be incurred to acquire
or carry real estate assets will not constitute gross income, rather than being
treated as qualifying or nonqualifying income, for purposes of the 95% gross
income test and, with respect to such hedging transactions entered into after
July 30, 2008, for purposes of the 75% gross income test as well. For
transactions entered into after July 30, 2008, a hedging transaction also
includes a transaction entered into to manage foreign currency risks with
respect to items of income and gain (or any property which generates such income
or gain) that would be qualifying income under the 75% or 95% gross income
tests, but only if such transaction is clearly identified before the close of
the day it was acquired, originated or entered into. In addition,
certain foreign currency gains recognized after July 30, 2008 will be excluded
from gross income for purposes of one or both of the gross income
tests.
Rents
received by us will qualify as “rents from real property” in satisfying the
gross income requirements for a REIT described above only if several conditions
are met. First, the amount of rent must not be based in whole or in part on the
income or profits of any person. However, an amount received or accrued
generally will not be excluded from the term “rents from real property” solely
by reason of being based on a fixed percentage or percentages of receipts or
sales. Second, the Code provides that rents received from a tenant will not
qualify as “rents from real property” in satisfying the gross income tests if
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 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”).
For our
taxable years commencing on or after January 1, 1998, 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.
Generally,
interest on debt secured by a mortgage on real property or interests in real
property qualifies for purposes of satisfying the 75% gross income test
described above. However, if the highest principal amount of a loan
outstanding during a taxable year exceeds the fair market value of the real
property securing the loan as of the date the REIT agreed to originate or
acquire the loan, a proportionate amount of the interest income from such loan
will not be qualifying income for purposes of the 75% gross income test, but
will be qualifying income for purposes of the 95% gross income
test. In addition, any interest amount that is based in whole or in
part on the income or profits of any person does not qualify for purposes of the
foregoing 75% and 95% income tests except (a) amounts that are based on a fixed
percentage or percentages of receipts or sales and (b) amounts that are based on
the income or profits of a debtor, as long as the debtor derives substantially
all of its income from the real property securing the debt from leasing
substantially all of its interest in the property, and only to the extent that
the amounts received by the debtor would be qualifying “rents from real
property” if received directly by the REIT.
If a loan
contains a provision that entitles a REIT to a percentage of the borrower’s gain
upon the sale of the real property securing the loan or a percentage of the
appreciation in the property’s value as of a specific date, income attributable
to that loan provision will be treated as gain from the sale of the property
securing the loan, which is generally qualifying income for purposes of both
gross income 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 and we file a schedule
describing each item of our gross income for such taxable year in accordance
with Treasury Regulations (and for taxable years beginning on or before October
22, 2004, 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 95%
(90% for taxable years ending on or prior to December 31, 2004) 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 (including certain foreign currency
gain recognized after July 30, 2008) 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. In June 2007, we announced a restructuring of our investment
strategy, focusing on core and core plus assets. While we believe
that the dispositions of our assets pursuant to the restructuring of our
investment strategy should not be treated as prohibited transactions, and
although we intend to conduct our operations so that we will not be treated as
holding our properties for sale, whether a particular sale will be treated as a
prohibited transaction depends on all the facts and circumstances with respect
to the particular transaction. We have not sought and do not intend
to seek a ruling from the IRS regarding any
dispositions. Accordingly, there can be no assurance that the IRS
will not successfully assert a contrary position with respect to our
dispositions. If all or a significant portion of our dispositions
were treated as prohibited transactions, we would incur a significant U.S.
federal tax liability, which could have a material adverse effect on our results
of operations.
We will
be subject to tax at the maximum corporate rate on any income from foreclosure
property (including certain foreign currency gains and related deductions
recognized after July 30, 2008), other than income that otherwise would be
qualifying income for purposes of the 75% gross income test, less expenses
directly connected with the production of that income. However, gross
income from foreclosure property will qualify under the 75% and 95% gross income
tests. Foreclosure property is any real property, including interests
in real property, and any personal property incident to such real property (1)
that is acquired by a REIT as the result of the REIT having bid on such property
at foreclosure, or having otherwise reduced such property to ownership or
possession by agreement or process of law, after there was a default or default
was imminent on a lease of such property or on indebtedness that such property
secured; (2) for which the related loan was acquired by the REIT at a time when
the default was not imminent or anticipated; and (3) for which the REIT makes a
proper election to treat the property as foreclosure property. Any
gain from the sale of property for which a foreclosure property election has
been made will not be subject to the 100% tax on gains from prohibited
transactions described above, even if the property would otherwise constitute
inventory or dealer property.
A REIT
will not be considered to have foreclosed on a property where the REIT takes
control of the property as a mortgagee-in-possession and cannot receive any
profit or sustain any loss except as a creditor of the mortgagor. Property
generally ceases to be foreclosure property at the end of the third taxable year
following the taxable year in which the REIT acquired the property, unless a
longer extension is granted by the Secretary of the Treasury or the grace period
terminates earlier due to certain nonqualifying income or activities generated
with respect to the property.
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, including our allocable share of assets held by
partnerships in which we own an interest, must be represented by real estate
assets, 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) public debt offering by us, cash, cash items (including certain
receivables) and government securities. For this purpose, real estate assets
include interests in real property, such as land, buildings, leasehold interests
in real property, stock of other corporations that qualify as REITs, and certain
kinds of mortgage-backed securities (including regular or residual interests in
a REMIC to the extent provided in the Code) and mortgage loans. 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 (for taxable years beginning after July 30, 2008, 25% of the value
of our total assets) may be represented by securities of one or more taxable
REIT subsidiaries (as defined above under “Requirements for Qualification”).
Except for investments included in the 75% asset class, securities in a taxable
REIT subsidiary or qualified REIT subsidiary and certain partnership interests
and debt obligations, (1) not more than 5% of the value of our total assets may
be represented by securities of any one issuer (the “5% asset test”), (2) we may
not hold securities that possess more than 10% of the total voting power of the
outstanding securities of a single issuer (the “10% voting securities test”) and
(3) we may not hold securities that have a value of more than 10% of the total
value of the outstanding securities of any one issuer (the “10% value
test”).
The
following assets are not treated as “securities” held by us for purposes of the
10% value test (i) “straight debt” meeting certain requirements, unless we hold
(either directly or through our “controlled” taxable REIT subsidiaries) certain
other securities of the same corporate or partnership issuer that have an
aggregate value greater than 1% of such issuer’s outstanding securities; (ii)
loans to individuals or estates; (iii) certain rental agreements calling for
deferred rents or increasing rents that are subject to Section 467 of the Code,
other than with certain related persons; (iv) obligations to pay us amounts
qualifying as “rents from real property” under the 75% and 95% gross income
tests; (v) securities issued by a state or any political subdivision of a state,
the District of Columbia, a foreign government, any political subdivision of a
foreign government, or the Commonwealth of Puerto Rico, but only if the
determination of any payment received or accrued under the security does not
depend in whole or in part on the profits of any person not described in this
category, or payments on any obligation issued by such an entity; (vi)
securities issued by another qualifying REIT; and (vii) other arrangements
identified in Treasury Regulations (which have not yet been issued or proposed).
In addition, any debt instrument issued by a partnership will not be treated as
a “security” under the 10% value test if at least 75% of the partnership’s gross
income (excluding gross income from prohibited transactions) is derived from
sources meeting the requirements of the 75% gross income test. If the
partnership fails to meet the 75% gross income test, then the debt instrument
issued by the partnership nevertheless will not be treated as a “security” to
the extent of our interest as a partner in the partnership. Also, in looking
through any partnership to determine our allocable share of any securities owned
by the partnership, our share of the assets of the partnership, solely for
purposes of applying the 10% value test in taxable years beginning on or after
January 1, 2005, will correspond not only to our interest as a partner in the
partnership but also to our proportionate interest in certain debt securities
issued by the partnership.
Through
our investment in Concord Debt Holdings LLC, we may hold mezzanine loans that
are secured by equity interests in a non-corporate entity that directly or
indirectly owns real property. IRS Revenue Procedure 2003-65 provides a safe
harbor pursuant to which a mezzanine loan to such a non-corporate entity, if it
meets each of the requirements contained in the Revenue Procedure, will be
treated by the IRS as a real estate asset for purposes of the REIT asset tests,
and interest derived from it will be treated as qualifying mortgage interest for
purposes of the 75% gross income test. Although the Revenue Procedure provides a
safe harbor on which taxpayers may rely, it does not prescribe rules of
substantive tax law. Moreover, not all of the mezzanine loans that we hold meet
all of the requirements for reliance on this safe harbor. We have
invested, and intend to continue to invest, in mezzanine loans in a manner that
will enable us to continue to satisfy the gross income and asset
tests.
We may
also hold through our investment in Concord Debt Holdings LLC certain
participation interests, or “B-Notes,” in mortgage loans and mezzanine loans
originated by other lenders. A B-Note is an interest created in an underlying
loan by virtue of a participation or similar agreement, to which the originator
of the loan is a party, along with one or more participants. The borrower on the
underlying loan is typically not a party to the participation agreement. The
performance of a participant’s investment depends upon the performance of the
underlying loan, and if the underlying borrower defaults, the participant
typically has no recourse against the originator of the loan. The originator
often retains a senior position in the underlying loan, and grants junior
participations, which will be a first loss position in the event of a default by
the borrower. The appropriate treatment of participation interests for federal
income tax purposes is not entirely certain. We believe that we have
invested, and intend to continue to invest, in participation interests that
qualify as real estate assets for purposes of the asset tests, and that generate
interest that will be treated as qualifying mortgage interest for purposes of
the 75% gross income test, but no assurance can be given that the IRS will not
challenge our treatment of these participation interests.
We
believe that substantially all of our assets consist of (1) real properties, (2)
stock or debt investments that earn qualified temporary investment income, (3)
other qualified real estate assets, including qualifying REITs, and (4) cash,
cash items and government securities. We also believe that the value
of our securities in our taxable REIT subsidiaries will not exceed 20% of the
value of our total assets (or, beginning with our 2009 taxable year, 25% of the
value of our total assets). 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. If any interest
we hold in any REIT (including Concord Debt Funding Trust) or other category of
permissible investment described above does not qualify as such, we would be
subject to the 5% asset test and the 10% voting securities and value tests with
respect to such investment.
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 (including, for
taxable years beginning after July 30, 2008, discrepancies caused solely by a
change in the foreign currency exchange rate used to value a foreign asset). 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. If we were to
fail any of the asset tests at the end of any quarter without curing such
failure within 30 days after the end of such quarter, we would fail to qualify
as a REIT, unless we were to qualify under certain relief provisions enacted in
2004. Under one of these relief provisions, if we were to fail the 5% asset
test, the 10% voting securities test, or the 10% value test, we nevertheless
would continue to qualify as a REIT if the failure was due to the ownership of
assets having a total value not exceeding the lesser of 1% of our assets at the
end of the relevant quarter or $10,000,000, and we were to dispose of such
assets (or otherwise meet such asset tests) within six months after the end of
the quarter in which the failure was identified. If we were to fail to meet any
of the REIT asset tests for a particular quarter, but we did not qualify for the
relief for de minimis failures that is described in the preceding sentence, then
we would be deemed to have satisfied the relevant asset test if: (i) following
our identification of the failure, we were to file a schedule with a description
of each asset that caused the failure; (ii) the failure was due to reasonable
cause and not due to willful neglect; (iii) we were to dispose of the
non-qualifying asset (or otherwise meet the relevant asset test) within six
months after the last day of the quarter in which the failure was identified,
and (iv) we were to pay a penalty tax equal to the greater of $50,000, or the
highest corporate tax rate multiplied by the net income generated by the
non-qualifying asset during the period beginning on the first date of the
failure and ending on the date we dispose of the asset (or otherwise cure the
asset test failure). These relief provisions will be available to us in our
taxable years beginning on or after January 1, 2005, although it is not possible
to predict whether in all circumstances we would be entitled to the benefit of
these relief provisions.
Annual
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 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
or us, we may be permitted to remedy such failure by paying a “deficiency
dividend” in a later year together with interest. 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.
The IRS
has published guidance providing temporary relief for a publicly-traded REIT to
satisfy the annual distribution requirement with distributions consisting of its
stock and at least a minimum percentage of cash. Pursuant to this IRS
guidance, a REIT may treat the entire amount of a distribution consisting of
both stock and cash as a qualifying distribution for purposes of the annual
distribution requirement provided that such distribution is declared on or after
January 1, 2008 and the following requirements are met: (1) the distribution is
made by the REIT to its shareholders with respect to its stock; (2) stock of the
REIT is publicly traded on an established securities market in the United
States; (3) the distribution is declared with respect to a taxable year ending
on or before December 31, 2009; (4) pursuant to such declaration, each
shareholder may elect to receive its proportionate share of the declared
distribution in either money or stock of the REIT of equivalent value, subject
to a limitation on the amount of money to be distributed in the aggregate to all
shareholders (the “Cash Limitation”), provided that – (a) such Cash Limitation
is not less than 10% of the aggregate declared distribution, and (b) if too many
shareholders elect to receive money, each shareholder electing to receive money
will receive a pro rata amount of money corresponding to the shareholder’s
respective entitlement under the declaration, but in no event will any
shareholder electing to receive money receive less than 10% of the shareholder’s
entire entitlement under the declaration in money; (5) the calculation of the
number of shares to be received by any shareholder will be determined, as close
as practicable to the payment date, based upon a formula utilizing market prices
that is designed to equate in value the number of shares to be received with the
amount of money that could be received instead; and (6) with respect to any
shareholder participating in a dividend reinvestment plan (“DRIP”), the DRIP
applies only to the extent that, in the absence of the DRIP, the shareholder
would have received the distribution in money under subsection
(4) above. As of the date hereof, we have not made any
distributions consisting of both stock and cash intended to count toward our
satisfaction of the annual distribution requirement pursuant to the temporary
relief provided in the IRS guidance described above.
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
nondeductible 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 addition, excess inclusion income might be non-cash accrued
income, or “phantom” taxable income, which could therefore adversely affect our
ability to satisfy our distribution requirements. 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. Commencing with our
taxable year beginning January 1, 2005, if we were to fail to satisfy one or
more requirements for REIT qualification, other than an asset or income test
violation of a type for which relief is otherwise available as described above,
we would retain our REIT qualification if the failure was due to reasonable
cause and not willful neglect, and if we were to pay a penalty of $50,000 for
each such failure. It is not possible to predict whether in all circumstances we
would be entitled to the benefit of this relief provision. If we fail to qualify
as a REIT for any taxable year, and if certain relief provisions of the Code do
not apply, we would be subject to federal income tax (including applicable
alternative minimum tax) on our taxable income at regular corporate rates.
Distributions to shareholders in any year in which we fail to qualify will not
be deductible from our taxable income nor will they be required to be made. As a
result, our failure to qualify as a REIT would reduce the cash available for
distribution by us to our shareholders. In addition, if we fail to qualify as a
REIT, all distributions to shareholders will be taxable as ordinary income, to
the extent of our current and accumulated earnings and profits. Subject to
certain limitations of the Code, corporate distributees may be eligible for the
dividends-received deduction and shareholders taxed as individuals may be
eligible for a reduced tax rate on “qualified dividend income” from regular C
corporations.
If our
failure to qualify as a REIT is not due to reasonable cause but results from
willful neglect, we would not be permitted to elect REIT status for the four
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 may elect 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 Shareholders
As used
herein, the term “U.S. shareholder” means a beneficial owner of our common
shares who (for United States federal income tax purposes) (1) is a citizen or
resident of the United States, (2) is a corporation or other entity treated as a
corporation for federal income tax purposes created or organized in or under the
laws of the United States or of any political subdivision thereof, (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 pursuant to applicable Treasury Regulations. As used herein, the
term “non U.S. shareholder” means a beneficial owner of our common shares who is
not a U.S. shareholder or a partnership.
If a
partnership (including any entity treated as a partnership for U.S. federal
income tax purposes) is a shareholder, the tax treatment of a partner in the
partnership generally will depend upon the status of the partner and the
activities of the partnership. A shareholder that is a partnership and the
partners in such partnership should consult their own tax advisors concerning
the U.S. federal income tax consequences of acquiring, owning and disposing of
our Common Shares.
Taxation of
Taxable U.S. Shareholders.
As long
as we qualify as a REIT, distributions made to our U.S. shareholders out of
current or accumulated earnings and profits (and not designated as capital gain
dividends) will be taken into account by them as ordinary income and corporate
shareholders will not be eligible for the dividends-received deduction as to
such amounts. For purposes of computing our earnings and profits, depreciation
for depreciable real estate will be computed on a straight-line basis over a
40-year period. For purposes of determining whether distributions on the shares
constitute dividends for tax purposes, our earnings and profits will be
allocated first to distributions with respect to the Series B Preferred Shares,
Series C Preferred Shares, Series D 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, Series C Preferred Shares and Series D
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. Certain “qualified dividend income”
received by domestic non-corporate shareholders in taxable years prior to 2011
is subject to tax at the same tax rates as long-term capital gain (generally a
maximum rate of 15% for such taxable years). Dividends paid by a REIT generally
do not qualify as “qualified dividend income” because a REIT is not generally
subject to federal income tax on the portion of its REIT taxable income
distributed to its shareholders. Therefore, our dividends will continue to be
subject to tax at ordinary income rates, subject to two narrow exceptions. Under
the first exception, dividends received from a REIT may be treated as “qualified
dividend income” eligible for the reduced tax rates to the extent that the REIT
itself has received qualified dividend income from other corporations (such as
taxable REIT subsidiaries) in which the REIT has invested. Under the second
exception, dividends paid by a REIT in a taxable year may be treated as
qualified dividend income in an amount equal to the sum of (i) the excess of the
REIT’s “REIT taxable income” for the preceding taxable year over the
corporate-level federal income tax payable by the REIT for such preceding
taxable year and (ii) the excess of the REIT’s income that was subject to the
Built-in Gains Tax (as described above) in the preceding taxable year over the
tax payable by the REIT on such income for such preceding taxable year. We do
not expect to distribute a material amount of qualified dividend income, if
any.
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 exceeds 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 for noncorporate taxpayers, 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. Capital
gain dividends and qualified dividend income may 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 U.S. 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 (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 and (3) in the case of a U.S. shareholder that is a corporation,
appropriately adjust its earnings and profits for the retained capital gains in
accordance with Treasury Regulations to be promulgated by the IRS. 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.
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 and foreign corporations. 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. Distributions
that are not attributable to gain from sales or exchanges by us of “United
States real property interests” or otherwise effectively connected with the
non-U.S. shareholder’s conduct of a U.S. trade or business and that are not
designated by us as capital gain 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. Our dividends that are attributable to
excess inclusion income will be subject to 30% U.S. withholding tax without
reduction under any otherwise applicable tax treaty. See “—Taxation of the
Company—Requirements for Qualification” above. 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. If a distribution is
treated as effectively connected with the non-U.S. shareholder’s conduct of a
U.S. trade or business, the non-U.S. shareholder generally will be subject to
federal income tax on the distribution at graduated rates, in the same manner as
U.S. shareholders are taxed with respect to such distribution, and a non-U.S.
shareholder that is a corporation also may be subject to the 30% branch profits
tax with respect to the distribution.
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 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 to non-U.S. shareholders who
own more than 5% of our shares and that are attributable to gain from sales or
exchanges by us of United States real property interests will be taxed 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 who
own more than 5% of our shares would thus be taxed at the normal capital gain
rates applicable to U.S. shareholders (subject to applicable alternative minimum
tax and a special alternative minimum tax in the case of non-resident alien
individuals). Also, distributions made to non-U.S. shareholders who own more
than 5% of our shares may be subject to a 30% branch profits tax in the hands of
a corporate non-U.S. shareholder not entitled to treaty relief or exemption. We
are required by applicable regulations to withhold 35% of any distribution that
could be designated by us as a capital gain dividend regardless of the amount
actually designated as a capital gain dividend. This amount is creditable
against the non-U.S. shareholder’s FIRPTA tax liability.
Under the
Tax Increase Prevention and Reconciliation Act of 2005 (“TIPRA”), enacted on May
17, 2006, distributions, made to REIT or regulated investment company (“RIC”)
shareholders, that are attributable to gain from sales or exchanges of United
States real property interests will retain their character as gain subject to
the rules of FIRPTA discussed above when distributed by such REIT or RIC
shareholders to their respective shareholders. This provision is effective for
taxable years beginning after December 31, 2005.
If a
non-U.S. shareholder does not own more than 5% of our shares during the one-year
period prior to a distribution attributable to gain from sales or exchanges by
us of United States real property interests, such distribution will not be
considered to be gain effectively connected with a U.S. business as long as the
class of shares continues to be regularly traded on an established securities
market in the United States. As such, a non-U.S. shareholder who does not own
more than 5% of our shares would not be required to file a U.S. Federal income
tax return by reason of receiving such a distribution. In this case, the
distribution will be treated as a REIT dividend to that non-U.S. shareholder and
taxed as a REIT dividend that is not a capital gain distribution as described
above. In addition, the branch profits tax will not apply to such distributions.
If our Common Shares cease to be regularly traded on an established securities
market in the United States, all non-U.S. shareholders of our Common Shares
would be subject to taxation under FIRPTA with respect to capital gain
distributions attributable to gain from the sale or exchange of United States
real property interests.
Dispositions. Gain
recognized by a non-U.S. shareholder upon a sale or disposition of our Common
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 our shares was held directly
or indirectly by non-U.S. persons. We believe, but cannot guarantee, that we
have been a “domestically controlled REIT.” However, because our shares are
publicly traded, no assurance can be given that we will continue to be a
“domestically controlled REIT.”
Notwithstanding
the general FIRPTA exception for sales of domestically controlled REIT stock
discussed above, a disposition of domestically controlled REIT stock will be
taxable if the disposition occurs in a wash sale transaction relating to a
distribution on such stock. In addition, FIRPTA taxation will apply to
substitute dividend payments received in securities lending transactions or
sale-repurchase transactions of domestically controlled REIT stock to the extent
such payments are made to shareholders in lieu of distributions that would have
otherwise been subject to FIRPTA taxation. The foregoing rules regarding wash
sales and substitute dividend payments with respect to domestically controlled
REIT stock will not apply to stock that is regularly traded on an established
securities market within the United States and held by a non-U.S. shareholder
that held five percent or less of such stock during the one-year period prior to
the related distribution. These rules are effective for distributions on and
after June 16, 2006. Prospective purchasers are urged to consult their own tax
advisors regarding the applicability of the new rules enacted under TIPRA to
their particular circumstances.
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, whether or not
our shares are domestically controlled, will not be subject to tax 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 U.S. 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, 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 under the Code. In addition,
our dividends that are attributable to excess inclusion income will constitute
UBTI for most Exempt Organizations. See “—Taxation of the Company—Requirements
for Qualification” above. 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.
Information
Reporting and Backup Withholding
U.S.
Shareholders.
We will
report to 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 U.S. shareholder may be subject to backup
withholding, currently at a rate of 28%, with respect to dividends paid unless
such holder (a) is a corporation or comes within certain other exempt categories
and, when required, demonstrates this fact, or (b) provides a taxpayer
identification number, certifies as to no loss of exemption from backup
withholding and otherwise complies with the applicable requirements of the
backup withholding rules. A U.S. shareholder who does not provide us with its
correct taxpayer identification number also may be subject to penalties imposed
by the IRS. Amounts withheld as backup withholding will be creditable against
the shareholder’s income tax liability if proper documentation is supplied. 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.
Non-U.S.
Shareholders.
Generally,
we must report annually to the IRS the amount of dividends paid to a non-U.S.
shareholder, such holder’s name and address, and the amount of tax withheld, if
any. A similar report is sent to the non-U.S. shareholder. Pursuant to tax
treaties or other agreements, the IRS may make its reports available to tax
authorities in the non-U.S. shareholder’s country of residence. Payments of
dividends or of proceeds from the disposition of stock made to a non-U.S.
shareholder may be subject to information reporting and backup withholding
unless such holder establishes an exemption, for example, by properly certifying
its non-United States status on an IRS Form W-8BEN or another appropriate
version of IRS Form W-8. Notwithstanding the foregoing, backup withholding and
information reporting may apply if either we have or our paying agent has actual
knowledge, or reason to know, that a non-U.S. shareholder is a United States
person.
Backup
withholding is not an additional tax. Rather, the United States income tax
liability of persons subject to backup withholding will be reduced by the amount
of tax withheld. If withholding results in an overpayment of taxes, a refund or
credit may be obtained, provided that the required information is furnished to
the IRS.
PLAN
OF DISTRIBUTION
This
prospectus relates to and covers two separate offerings.
Issuance
of Common Shares upon Redemption of OP Units
If, and
to the extent that, holders of LCIF units or Net 3 units, as applicable, redeem
their units and require us to assume the redemption obligations of LCIF or Net
3, as applicable, and pay for the redemption with our Common Shares, we may
issue up to 878,266 Common Shares in exchange for the redemption of an equal
number of LCIF units or up to 44,858 Common Shares in exchange for the
redemption of an equal number of Net 3 units. Our Common Shares will be issued
in exchange for LCIF units or Net 3 units, as applicable, upon the redemption of
the units by their holders on a one-share-for-one-unit basis (subject to certain
anti-dilution adjustments).
Under the
LCIF partnership agreement, each holder of (i) 28,230 of the LCIF units covered
by this prospectus that were issued on August 1, 1995, and are redeemable on
February 1, 2006, and each February 1st thereafter; (ii) 171,168 of the LCIF
units covered by this prospectus that were issued on December 31, 1996, and are
redeemable on January 15, 2006, and each January 15th thereafter; (iii) 231,763
LCIF units covered by this prospectus that were issued as of December 31, 2003,
and are redeemable on January 15, 2006, and each January 15th, April 15th, July
15th and October 15th thereafter; (iv) 352,244 of the LCIF units covered by this
prospectus that were issued on November 2, 2005 and outstanding as of November
2, 2006 has the right to redeem its LCIF units on a one-for-one basis for our
Common Shares, on November 2, 2006 and on each May 2nd and November 2nd
thereafter; (v) 19,128 of the LCIF units covered by this prospectus that were
issued on August 1, 1995 and outstanding as of November 2, 2004 has the right to
redeem its LCIF units on a one-for-one basis for our Common Shares, on November
2, 2004 and on each November 2nd thereafter; (vi) 9,368 LCIF units issued on
August 1, 1995 and outstanding as of May 15, 2008 has the right to redeem
its LCIF units on a one-for-one basis for our Common Shares, on May 1, 2006 and
on each May 1st thereafter; (vii) 66,365 LCIF units issued on October 24, 2004
and outstanding as of May 15, 2008 has the right to redeem its LCIF units
on a one-for-one basis for our Common Shares, on May 1st, 2006, and on each
August 1st, November 1st, February 1st and May 1st thereafter.
Under the
Net 3 partnership agreement, each holder of the 44,858 Net 3 units covered by
this prospectus that were issued on November 28, 2001and outstanding as of
November 28, 2006 has the right to redeem its Net 3 units on a one-for-one basis
for our Common Shares, or, at our election, for cash, on November 28, 2006 or
any time thereafter. These rights may be exercised at the election of that
holder by giving written notice, subject to some limitations. The purchase price
for each of the Net 3 units to be redeemed for cash will equal the fair market
value of one share of our Common Shares, calculated as the average of the daily
closing prices for the twenty consecutive trading days immediately preceding the
date of determination or, if there is no reported sale or trade on the day in
question, on the basis of the average of the closing bid and asked quotations
regular way so reported, or if our Common Shares are not listed on the New York
Stock Exchange, or NYSE, or on any national securities exchange, on the basis of
the high bid and low asked quotations regular way on the day in question in the
over-the-counter market as reported by the National Association of Securities
Dealers Automated Quotation System, or, if not so quoted, as reported by the
National Quotation Bureau, Incorporated, or a similar organization. The
redemption of LCIF units or Net 3 units are subject to adjustments based on
stock splits, below market issuances of Common Shares pursuant to rights,
options or warrants to all holders of Common Shares and dividends of Common
Shares.
No holder
of the LCIF units or Net 3 units may exercise its redemption rights if we could
not issue our Common Shares to the redeeming partner in satisfaction of the
redemption (regardless of whether we would in fact do so instead of paying cash)
because of the ownership limitations contained in our declaration of trust and
bylaws, or if the redemption would cause us to violate the REIT requirements.
The relevant provisions of our declaration of trust, subject to certain
exceptions, provide that no holder may own, or be deemed to own by virtue of the
attribution provisions of the Code, more than 9.8% of our equity shares, defined
as Common Shares or preferred shares. Relevant provisions of our declaration of
trust further prohibit any person from beneficially or constructively owning our
common shares that would result in us being “closely held” under Section 856(h)
of the Code or otherwise cause us to fail to qualify as a REIT. In addition, no
holder of LCIF units or Net 3 units, as applicable, may exercise the redemption
right:
|
·
|
for
fewer than 1,000 LCIF units or Net 3 units, as applicable, or, if the
holder holds fewer than 1,000 LCIF units or Net 3 units, as applicable,
all of such units held by the
holder;
|
|
·
|
in
the case of LCIF, unless permitted by us, more than once each fiscal
quarter;
|
|
·
|
in
the case of Net 3, unless permitted by us, from time to time, but not less
than semi-annually; or
|
|
·
|
if
we determine that allowing such redemption may cause the operating
partnership to be treated as a publicly traded
partnership.
|
Offering
by Selling Shareholders
This
prospectus relates to the resale of our Common Shares by selling shareholders
named in this prospectus. As used in this section of the prospectus, the term
“selling shareholders” includes the selling shareholders named in the table
above and any of their pledgees, donees, transferees or other
successors-in-interest who receive our Common Shares offered hereby from the
selling shareholders as a gift, pledge, partnership distribution or other
non-sale related transfer and who subsequently sell any of such Common Shares
after the date of this prospectus.
All
costs, expenses and fees in connection with the registration of the Common
Shares offered hereby will be borne by us. Underwriting discounts, brokerage
commissions and similar selling expenses, if any, attributable to the sale of
the securities covered by this prospectus will be borne by the selling
shareholders.
The
selling shareholders may sell under this prospectus the shares which are
outstanding at different times. The selling shareholders will act independently
of us in making decisions as to the timing, manner and size of each sale. The
sales may be made on any national securities exchange or quotation system on
which the shares may be listed or quoted at the time of sale, in the
over-the-counter market or other than in such organized and unorganized trading
markets, in one or more transactions, at:
|
·
|
fixed
prices, which may be changed;
|
|
·
|
prevailing
market prices at the time of sale, including in “at the market
offerings”;
|
|
·
|
varying
prices determined at the time of sale;
or
|
The
Common Shares may be sold by one or more of the following methods in addition to
any other method permitted under this prospectus:
|
·
|
a
block trade in which the broker-dealer so engaged may sell the Common
Shares as agent, but may position and resell a portion of the block as
principal to facilitate the
transaction;
|
|
·
|
a
purchase by a broker-dealer as principal and resale by such broker-dealer
for its own account;
|
|
·
|
an
ordinary brokerage transaction or a transaction in which the broker
solicits purchasers;
|
|
·
|
a
privately negotiated transaction;
|
|
·
|
an
underwritten offering;
|
|
·
|
securities
exchange or quotation system sale that complies with the rules of the
exchange or quotation system;
|
|
·
|
in
“at the market offerings” to or through a market maker or into an existing
trading market or a securities exchange or
otherwise;
|
|
·
|
through
short sale transactions following which the Common Shares are delivered to
close out the short positions;
|
|
·
|
through
the writing of options relating to such Common Shares;
or
|
|
·
|
through
a combination of the above methods of
sale.
|
The
selling shareholders may enter into derivative transactions with third parties,
or sell securities not covered by this prospectus to third parties in privately
negotiated transactions. In connection with those derivatives, the third parties
may sell Common Shares covered by this prospectus, including in short sale
transactions. If so, the third party may use Common Shares pledged by the
selling shareholders or borrowed from the selling shareholders or others to
settle those sales or to close out any related open borrowings of Common Shares,
and may use Common Shares received from the selling shareholders in settlement
of those derivatives to close out any related open borrowings of Common Shares.
We will file a supplement to this prospectus to describe any derivative
transaction effected by the selling shareholders and to identify the third party
in such transactions as an “underwriter” within the meaning of Section 2(a)(11)
of the Securities Act.
The
selling shareholders may effect such transactions by selling the Common Shares
covered by this prospectus directly to purchasers, to or through broker-dealers,
which may act as agents for the seller and buyer or principals, or to
underwriters who acquire Common Shares for their own account and resell them in
one or more transactions. Such broker-dealers or underwriters may receive
compensation in the form of discounts, concessions, or commissions from the
selling shareholder and/or the purchasers of the Common Shares covered by this
prospectus for whom such broker-dealers may act as agents or to whom they sell
as principal, or both (which compensation as to a particular broker-dealer might
be in excess of customary commissions) and such discounts, concessions, or
commissions may be allowed or re-allowed or paid to dealers. Any public offering
price and any discounts or concessions allowed or paid to dealers may be changed
at different times.
The
selling shareholders and any broker-dealers that participate with the selling
shareholders or third parties to derivative transactions in the sale of the
Common Shares covered by this prospectus may be deemed to be “underwriters”
within the meaning of Section 2(a)(11) of the Securities Act, and any
commissions received by such broker-dealers and any profit on the resale of the
Common Shares sold by them while acting as principals might be deemed to be
underwriting discounts or commissions under the Securities Act.
We will
make copies of this prospectus available to the selling shareholders and have
informed them of their obligation to deliver copies of this prospectus to
purchasers at or before the time of any sale of the Common Shares.
The
selling shareholders also may resell all or a portion of his Common Shares in
open market transactions in reliance upon Rule 144 under the Securities Act, or
any other available exemption from required registration under the Securities
Act, provided they meets the criteria and conform to the requirements of such
exemption.
We will
file a supplement to this prospectus, if required, pursuant to Rule 424(b) under
the Securities Act upon being notified by the selling shareholders that any
material arrangements have been entered into with an underwriter, a
broker-dealer for the sale of Common Shares through an underwritten offering, a
block trade, special offering, exchange or secondary distribution or a purchase
by a broker-dealer. Such supplement will disclose:
|
·
|
the
name of the selling shareholder(s) and of the participating underwriters
or broker-dealers;
|
|
·
|
the
number of Common Shares involved;
|
|
·
|
the
price at which such Common Shares were
sold;
|
|
·
|
the
commissions paid or discounts or concessions allowed to such underwriters
or broker-dealers, where
applicable;
|
|
·
|
as
appropriate, that such broker-dealers did not conduct any investigation to
verify the information set out or incorporated by reference in this
prospectus; and
|
|
·
|
other
facts material to the transaction.
|
In
addition, upon receiving notice from the selling shareholders that a donee,
pledgee or transferee or other successor-in-interest intends to sell more than
500 Common Shares covered by this prospectus, we will file a supplement to this
prospectus pursuant to Rule 424(b) under the Securities Act to identify the
non-sale transferee.
The
selling shareholders are not restricted as to the price or prices at which they
may sell their Common Shares. Sales of such Common Shares may have an adverse
effect on the market price of the securities, including the market price of the
Common Shares. Moreover, the selling shareholders are not restricted as to the
number of Common Shares that may be sold at any time, and it is possible that a
significant number of Common Shares could be sold at the same time, which may
have an adverse effect on the market price of the Common Shares.
We and
the selling shareholders may agree to indemnify any underwriter, broker-dealer
or agent that participates in transactions involving sales of the Common Shares
against certain liabilities, including liabilities arising under the Securities
Act.
EXPERTS
The
consolidated financial statements and related financial statement schedule of
Lexington Realty Trust and subsidiaries included in our Annual Report on Form
10-K as of December 31, 2008 and 2007, and for each of the years in the
three-year period ended December 31, 2008, and Management’s Annual Report on
Internal Controls over Financial Reporting as of December 31, 2008, have been
incorporated by reference herein and in the Registration Statement in reliance
upon the reports of KPMG LLP, independent registered public accounting firm,
incorporated by reference herein, and upon the authority of said firm as experts
in accounting and auditing.
The
financial statements of Lex-Win Concord LLC incorporated in this
Prospectus by reference to the Annual Report on Form 10-K for the year
ended December 31, 2008, have been so incorporated in reliance on the report of
PricewaterhouseCoopers LLP, an independent registered public accounting firm,
given on the authority of said firm as experts in auditing and
accounting.
The
consolidated financial statements and related financial statement schedule of
Net Lease Strategic Asset Fund included in our Annual Report on Form 10-K as of
December 31, 2008 and for the year then ended, have been incorporated by
reference herein and in the Registration Statement in reliance upon the report
of KPMG LLP, independent registered public accounting firm, incorporated by
reference herein, and upon the authority of said firm as experts in accounting
and auditing.
LEGAL
MATTERS
Certain
legal matters, including tax matters, will be passed upon by Paul, Hastings,
Janofsky & Walker LLP, New York, New York, our counsel. Certain legal
matters relating to Maryland law, including the validity of our Common Shares,
will be passed upon by Venable LLP, our counsel with respect to Maryland
law.
WHERE
YOU CAN FIND MORE INFORMATION
We file
annual, quarterly and current reports, proxy statements and other information
with the SEC. Our filings with the SEC are available to the public on the
Internet at the SEC’s website at http://www.sec.gov. You may also read and copy
any document that we file with the SEC at its Public Reference Room, 100 F
Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for
further information on the Public Reference Room and its copy
charges.
The
information incorporated by reference herein is an important part of this
prospectus. Any statement contained in a document which is incorporated by
reference in this prospectus is automatically updated and superseded if
information contained in a subsequent filing or in this prospectus, or
information that we later file with the SEC prior to the termination of this
offering, modifies or replaces this information. The following documents filed
with the SEC are incorporated by reference into this prospectus, except for any
document or portion thereof “furnished” to the SEC:
|
·
|
our
Annual Report on Form 10-K for the year ended December 31, 2008, filed
with the SEC on March 2, 2009;
|
|
·
|
our
Current Reports on Form 8-K filed on January 2, 2009
and February 17, 2009;
and
|
|
·
|
all
documents that we file with the SEC pursuant to Sections 13(a), 13(c), 14
or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), after the date of this prospectus and prior to the termination of
this offering.
|
To
receive a free copy of any of the documents incorporated by reference in this
prospectus (other than exhibits, unless they are specifically incorporated by
reference in the documents), write us at the following address or call us at the
telephone number listed below:
Lexington
Realty Trust
One Penn
Plaza
Suite
4015
Attention:
Investor Relations
New York,
New York 10119-4015
(212)
692-7200
We also
maintain a website at http://www.lxp.com through
which you can obtain copies of documents that we filed with the SEC. The contents of that website are not
incorporated by reference in or otherwise a part of this
prospectus.
PART
II
INFORMATION
NOT REQUIRED IN PROSPECTUS
Item
14. Other Expenses of Issuance and Distribution.
The
following table sets forth the estimated expenses in connection with the
registration and sale of the shares registered hereby, all of which will be paid
by the Company, except as noted in the prospectus:
|
Commission
registration fee
|
|
$ |
(1 |
) |
|
Legal
fees and expenses
|
|
|
15,000 |
|
|
Accounting
fees and expenses
|
|
|
5,000 |
|
|
Miscellaneous
expenses
|
|
|
10,000 |
|
|
|
|
|
|
|
|
Total
|
|
$ |
(1 |
) |
________________
|
(1)
|
In
accordance with Rule 415(a)(6) under the Securities Act, the registrant is
potentially including (i) 431,161 shares of beneficial interest,
classified as common stock, unsold on its Registration Statement, under
its former name Lexington Corporate Properties Trust, on Form S-3 (No.
333-131347) filed on January 27, 2006; (ii) 416,230 shares of beneficial
interest, classified as common stock, unsold on its Registration
Statement, under its former name Lexington Corporate Properties Trust, on
Form S-3 (No. 333-138774) filed on November 16, 2006; (iii) 104,000 shares
of beneficial interest, classified as common stock, unsold on its
Registration Statement on Form S-3 (No. 333-151319) filed on May 16, 2008;
(iv) 75,733 shares of beneficial interest, classified as common stock
unsold on its Registration Statement on Form S-3 (No. 333-151321) filed on
May 16, 2008; and (v) 8,000,000 shares of beneficial interest, classified
as common stock unsold on its Registration Statement on Form S-3 (No.
333-155586) filed on November 21, 2008. The registrant will
identify in a pre-effective amendment to this registration statement the
exact amount of the unsold securities to be included pursuant to Rule
415(a)(6) and the amount of any new securities to be
registered.
|
Item
15. Indemnification of Trustees and Officers.
The
Maryland REIT Law and Section 2-418 of the Maryland General Corporation Law
generally permits indemnification of any trustee or officer made a party to any
proceedings by reason of service as a trustee or officer unless it is
established that (i) the act or omission of such person was material to the
matter giving rise to the proceeding and was committed in bad faith or was the
result of active and deliberate dishonesty; or (ii) such person actually
received an improper personal benefit in money, property or services; or (iii)
in the case of any criminal proceeding, such person had reasonable cause to
believe that the act or omission was unlawful. The indemnity may include
judgments, penalties, fines, settlements and reasonable expenses actually
incurred by the trustee or officer in connection with the proceeding; but, if
the proceeding is one by or in the right of the company, indemnification is not
permitted with respect to any proceeding in which the trustee or officer has
been adjudged to be liable to the company, or if the proceeding is one charging
improper personal benefit to the trustee or officer, whether or not involving
action in the trustee’s or officer’s official capacity, indemnification of the
trustee or officer is not permitted if the trustee or officer was adjudged to be
liable on the basis that personal benefit was improperly received. The
termination of any proceeding by conviction or upon a plea of nolo contendere or
its equivalent, or any entry of an order of probation prior to judgment, creates
a rebuttable presumption that the trustee or officer did not meet the requisite
standard of conduct required for permitted indemnification. The termination of
any proceeding by judgment, order or settlement, however, does not create a
presumption that the trustee or officer failed to meet the requisite standard of
conduct for permitted indemnification.
Pursuant
to the Company’s declaration of trust, the Company’s trustees and officers are
and will be indemnified against certain liabilities. The Company’s declaration
of trust requires the Company to indemnify its trustees and officers to the
fullest extent permitted from time to time by the laws of Maryland. The
Company’s declaration of trust also provides that, to the fullest extent
permitted under Maryland law, the Company’s trustees and officers will not be
liable to the Company or its shareholders for money damages.
The
foregoing reference is necessarily subject to the complete text of the Company’s
declaration of trust and the statutes referred to above and is qualified in its
entirety by reference thereto.
The
Company has also entered into indemnification agreements with certain officers
and trustees for the purpose of indemnifying such persons from certain claims
and actions in their capacities as such.
Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers or persons controlling the registrant pursuant
to the foregoing provisions, the registrant has been informed that in the
opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.
Item
16. Exhibits.
|
3.1
|
Amended
and Restated Declaration of Trust of the Company (incorporated by
reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed
January 8, 2007)*
|
|
3.2
|
Articles
Supplementary Relating to the 7.55% Series D Cumulative Redeemable
Preferred Stock, par value $0.0001 per share (incorporated by reference to
Exhibit 3.3 to the Company’s Registration Statement on Form 8A filed
February 14, 2007)*
|
|
3.3
|
Amended
and Restated By-Laws of the Company (incorporated by reference to Exhibit
3.2 to the Company’s Current Report on Form 8-K filed January 8,
2007)*
|
|
3.4
|
Fifth
Amended and Restated Agreement of Limited Partnership of Lepercq Corporate
Income Fund L.P., dated as of December 31, 1996, as supplemented
(incorporated by reference to Exhibit 3.3 to the Company’s Registration
Statement of Form 3/A filed September 10,
1999)*
|
|
3.5
|
Amendment
No. 1 to the Fifth Amended and Restated Agreement of Limited
Partnership of Lepercq Corporate Income Fund L.P. dated as of
December 31, 2000 (incorporated by reference to Exhibit 3.11 to
the Company’s Annual Report on Form 10-K for the year ended
December 31, 2003)*
|
|
3.6
|
First
Amendment to the Fifth Amended and Restated Agreement of Limited
Partnership of Lepercq Corporate Income Fund L.P. effective as of
June 19, 2003 (incorporated by reference to Exhibit 3.12 to the
Company’s Annual Report on Form 10-K for the year ended
December 31, 2003)*
|
|
3.7
|
Second
Amendment to the Fifth Amended and Restated Agreement of Limited
Partnership of Lepercq Corporate Income Fund L.P. effective as of
June 30, 2003 (incorporated by reference to Exhibit 3.13 to the
Company’s Annual Report on Form 10-K for the year ended
December 31, 2003)*
|
|
3.8
|
Third
Amendment to the Fifth Amended and Restated Agreement of Limited
Partnership of Lepercq Corporate Income Fund L.P. effective as of December
31, 2003 (incorporated by reference to Exhibit 3.10 to the Company’s
Registration Statement on Form S-3 filed January 27,
2006)*
|
|
3.9
|
Fourth
Amendment to the Fifth Amended and Restated Agreement of Limited
Partnership of Lepercq Corporate Income Fund L.P. effective as of
December 8, 2004 (incorporated by reference to Exhibit 10.1 to
the Company’s Current Report on Form 8-K filed December 14,
2004)*
|
|
3.10
|
Fifth
Amendment to the Fifth Amended and Restated Agreement of Limited
Partnership of Lepercq Corporate Income Fund L.P. effective as of
December 8, 2004 (incorporated by reference to Exhibit 10.1 to
the Company’s Current Report on Form 8-K filed December 14,
2004)*
|
|
3.11
|
Sixth
Amendment to the Fifth Amended and Restated Agreement of Limited
Partnership of Lepercq Corporate Income Fund L.P. effective as of
January 3, 2005 (incorporated by reference to Exhibit 10.1 to
the Company’s Current Report on Form 8-K filed January 3,
2005)*
|
|
3.12
|
Seventh
Amendment to the Fifth Amended and Restated Agreement of Limited
Partnership of Lepercq Corporate Income Fund L.P. effective as of
November 2, 2005 (incorporated by reference to Exhibit 10.1 to
the Company’s Current Report on Form 8-K filed November 3,
2005)*
|
|
3.13
|
Amended
and Restated Agreement of Limited Partnership of Net 3 Acquisition L.P.
(filed as Exhibit 3.16 to the Company’s Registration Statement of
Form S-3 filed November 16,
2006)*’
|
|
3.14
|
First
Amendment to the Amended and Restated Agreement of Limited Partnership of
Net 3 Acquisition L.P., effective as of November 29, 2001 (filed as
Exhibit 3.17 to the Company’s Annual Report on Form 10-K for the
year ended December 31, 2003, filed February 26,
2004)*
|
|
3.15
|
Second
Amendment to the Amended and Restated Agreement of Limited Partnership of
Net 3 Acquisition L.P., effective as of June 19, 2003 (filed as
Exhibit 3.18 to the Company’s Annual Report on Form 10-K for the
year ended December 31, 2003, filed February 26,
2004)*
|
|
3.16
|
Third
Amendment to the Amended and Restated Agreement of Limited Partnership of
Net 3 Acquisition L.P., effective as of June 30, 2003 (filed as
Exhibit 3.19 to the Company’s Annual Report on Form 10-K for the
year ended December 31, 2003, filed February 26,
2004)*
|
|
3.17
|
Fourth
Amendment to the Amended and Restated Agreement of Limited Partnership of
Net 3 Acquisition L.P., effective as of December 8, 2004 (filed as
Exhibit 10.3 to the Company’s Current Report on Form 8-K filed
December 14, 2004)*
|
|
3.18
|
Fifth
Amendment to Amended and Restated Agreement of Limited Partnership of Net
3 Acquisition L.P., effective as of January 3, 2005 (filed as
Exhibit 10.3 to the Company’s Current Report on Form 8-K filed
January 3, 2005)*
|
|
4.1
|
Specimen
of Common Shares Certificate of the Company (incorporated by reference to
Exhibit 4.1 to the Company’s Annual Report for the year end December 31,
2006, filed March 1, 2007)*
|
|
5.1
|
Opinion
of Venable LLP †
|
|
8.1
|
Opinion
of Paul, Hastings, Janofsky & Walker LLP
†
|
|
23.1
|
Consent
of Venable LLP (included as part of Exhibit 5.1)
†
|
|
23.2
|
Consent
of Paul, Hastings, Janofsky & Walker LLP (included as part of Exhibit
8.1) †
|
|
23.3
|
Consent
of KPMG LLP †
|
|
23.4
|
Consent
of PricewaterhouseCoopers LLP †
|
|
23.5
|
Consent
of KPMG LLP †
|
|
24
|
Power
of Attorney (included on signature page hereto)
†
|
|
*
|
Incorporated
by reference
|
Item
17. Undertakings.
(a) The
undersigned registrant hereby undertakes:
(1) To
file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To
include any prospectus required by section 10(a)(3) of the Securities
Act;
(ii) To
reflect in the prospectus any facts or events arising after the effective date
of the registration statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume
and price represent no more than a 20% change in the maximum aggregate offering
price set forth in the “Calculation of Registration Fee” table in the effective
registration statement; and
(iii) To
include any material information with respect to the plan of distribution not
previously disclosed in the registration statement or any material change to
such information in the registration statement;
Provided,
however, that paragraphs (a)(1)(i), (a)(1)(ii) and (a)(1)(iii) of this section
do not apply if the information required to be included in a post-effective
amendment by those paragraphs is contained in reports filed with or furnished to
the Commission by the registrant pursuant to section 13 or section 15(d) of the
Securities Exchange Act of 1934, as amended, or the Securities Exchange Act, as
amended, that are incorporated by reference in this registration statement, or
is contained in a form of prospectus filed pursuant to Rule 424(b) that is part
of the registration statement.
(2) That,
for the purpose of determining any liability under the Securities Act, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To
remove from registration by means of a post-effective amendment any of the
securities being registered which remain unsold at the termination of the
offering.
(4) That,
for the purpose of determining liability under the Securities Act of 1933, as
amended, to any purchaser:
(B) Each
prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as
part of a registration statement in reliance on Rule 430B relating to an
offering made pursuant to Rule 415(a)(1)(i), (vii), or (x) for the purpose of
providing the information required by section 10(a) of the Securities Act of
1933, as amended, shall be deemed to be part of and included in the registration
statement as of the earlier of the date such form of prospectus is first used
after effectiveness or the date of the first contract of sale of securities in
the offering described in the prospectus. As provided in Rule 430B, for
liability purposes of the issuer and any person that is at that date an
underwriter, such date shall be deemed to be a new effective date of the
registration statement relating to the securities in the registration statement
to which that prospectus relates, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof. Provided,
however, that no statement made in a registration statement or prospectus that
is part of the registration statement or made in a document incorporated or
deemed incorporated by reference into the registration statement or prospectus
that is part of the registration statement will, as to a purchaser with a time
of contract of sale prior to such effective date, supersede or modify any
statement that was made in the registration statement or prospectus that was
part of the registration statement or made in any such document immediately
prior to such effective date; or
(ii) Any
free writing prospectus relating to the offering prepared by or on behalf of the
undersigned registrant or used or referred to by the undersigned registrant;
(iii) The
portion of any other free writing prospectus relating to the offering containing
material information about the undersigned registrant or its securities provided
by or on behalf of the undersigned registrant; and
(iv) Any
other communication that is an offer in the offering made by the undersigned
registrant to the purchaser.
(b) The
undersigned registrant hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, each filing of the registrant’s
annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act
of 1934 (and, where applicable, each filing of an employee benefit plan’s annual
report pursuant to Section 15(d) of the Securities Exchange Act) that is
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
SIGNATURES
Pursuant
to the requirements of the Securities Act, the Company certifies that it has
reasonable grounds to believe that it meets all of the requirements for filing
on Form S-3 and has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York,
State of New York, on March 11, 2009.
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LEXINGTON
REALTY TRUST |
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By:
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/s/ T.
Wilson Eglin |
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T.
Wilson Eglin
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President,
Chief Executive Officer and Chief Operating Officer
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POWER OF
ATTORNEY
Each
person whose signature appears below authorizes T. Wilson Eglin and Patrick
Carroll, and each of them, each of whom may act without joinder of the other, as
his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities to execute in the name of each such person who is then an
officer or trustee of Lexington Realty Trust, and to file any amendments
(including post effective amendments) to this Registration Statement and any
registration statement for the same offering filed pursuant to Rule 462 under
the Securities Act, and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or their substitute or substitutes may lawfully do or cause to be done by
virtue hereof.
Pursuant
to the requirements of the Securities Act, this Registration Statement has been
signed by the following persons in the capacities and on the date
indicated:
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Signature
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Title
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Date
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/s/ E. Robert Roskind
E.
Robert Roskind
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Chairman
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March
11, 2009
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/s/ Richard J. Rouse
Richard
J. Rouse
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Vice
Chairman, Chief Investment Officer and Trustee
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/s/ T. Wilson Eglin
T.
Wilson Eglin
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Chief
Executive Officer, President, Chief Operating Officer and
Trustee
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/s/ Patrick Carroll
Patrick
Carroll
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Chief
Financial Officer, Executive Vice President and Treasurer
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/s/ Paul R. Wood
Paul
R. Wood
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Vice
President, Chief Accounting Officer and Secretary
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/s/ Clifford Broser
Clifford
Broser
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Trustee
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/s/ Geoffrey Dohrmann
Geoffrey
Dohrmann
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Trustee
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/s/ Harold First
Harold
First
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Trustee
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/s/ Richard Frary
Richard
Frary
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Trustee
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/s/ Carl D. Glickman
Carl
D. Glickman
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Trustee
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/s/ James Grosfeld
James
Grosfeld
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Trustee
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/s/ Kevin W. Lynch
Kevin
W. Lynch
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Trustee
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