File Pursuant To Rule 424 (b)(3)
Registration No. 333-87378
THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT IS NOT COMPLETE AND MAY BE
CHANGED. THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS IS NOT AN
OFFER TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING OFFERS TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
PROSPECTUS SUPPLEMENT (Subject to Completion, Issued February 2, 2004)
(To Prospectus dated May 31, 2002)
$
[FOREST CITY ENTERPRISES LOGO]
% SENIOR NOTES DUE 2034
------------------------
Interest payable on February 1, May 1, August 1 and November 1
------------------------
WE MAY REDEEM THE NOTES PRIOR TO MATURITY, IN WHOLE OR IN PART, AT ANY TIME ON
OR AFTER FEBRUARY , 2009, AT A REDEMPTION PRICE EQUAL TO THE PRINCIPAL AMOUNT
BEING REDEEMED PLUS ANY ACCRUED AND UNPAID INTEREST. THE NOTES WILL BE ISSUED IN
DENOMINATIONS OF $25 AND INTEGRAL MULTIPLES OF $25.
------------------------
WE INTEND TO APPLY TO HAVE THE NOTES LISTED ON THE NEW YORK STOCK EXCHANGE AND
WE EXPECT TRADING IN THE NOTES ON THE NEW YORK STOCK EXCHANGE TO BEGIN WITHIN 30
DAYS AFTER THE ORIGINAL ISSUE DATE.
------------------------
INVESTING IN THE NOTES INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON PAGE S-3.
------------------------
PRICE % AND ACCRUED INTEREST, IF ANY
------------------------
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS COMPANY
-------- ------------- -----------
Per Note.................................................. % % %
Total..................................................... $ $ $
------------------------
The Securities and Exchange Commission and state securities regulators have not
approved or disapproved these securities, or determined if this prospectus
supplement or the accompanying prospectus are truthful or complete. Any
representation to the contrary is a criminal offense.
The underwriters expect to deliver the notes to purchasers on February , 2004.
------------------------
MORGAN STANLEY MCDONALD INVESTMENTS INC.
February , 2004
No dealer, salesperson or other person is authorized to give any
information or to represent anything not contained in this prospectus supplement
or the accompanying prospectus. You must not rely on any unauthorized
information or representations. This prospectus supplement is an offer to sell
only the notes offered hereby, but only under circumstances and in jurisdictions
where it is lawful to do so. The information contained in this prospectus
supplement and the accompanying prospectus is current only as of their
respective dates.
------------------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
PAGE
----
Forward-Looking Statements.................................. ii
Available Information....................................... iii
Forest City................................................. S-1
Recent Developments......................................... S-1
Risk Factors................................................ S-3
Use of Proceeds............................................. S-14
Capitalization.............................................. S-14
Description of Notes........................................ S-15
Underwriters................................................ S-42
Validity of the Notes....................................... S-43
Independent Accountants..................................... S-43
PROSPECTUS
Where You Can Find More Information......................... 2
About This Prospectus....................................... 2
Incorporation of Documents by Reference..................... 2
Forward-Looking Statements.................................. 4
Forest City Enterprises, Inc................................ 5
Forest City Enterprises Capital Trust I and Forest City
Enterprises Capital Trust II.............................. 5
Ratio of Earnings to Fixed Charges.......................... 6
Use of Proceeds............................................. 6
Summary Description of Securities We and the Trusts May
Offer..................................................... 7
Description of Senior Debt Securities We May Offer.......... 7
Description of Subordinated Debt Securities We May Offer.... 16
Description of Preferred Stock We May Offer................. 28
Description of Depositary Shares We May Offer............... 30
Description of Common Stock We May Offer.................... 33
Description of Warrants We May Offer........................ 35
Description of Stock Purchase Contracts and Stock Purchase
Units We May Offer........................................ 37
Description of Subscription Rights We May Offer............. 37
Description of Preferred Securities the Trusts May Offer.... 38
Description of Trust Guarantees............................. 44
Plan of Distribution........................................ 47
Validity of the Offered Securities.......................... 50
Experts..................................................... 50
i
FORWARD-LOOKING STATEMENTS
We have included or incorporated by reference in this prospectus supplement
and the accompanying prospectus statements that constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Forward-looking statements include, for example:
-- economic conditions in our target markets;
-- statements relating to the timing of anticipated openings of new
developments;
-- the projected cost of real estate projects and our share of projected
cost;
-- our development activities;
-- our substantial leverage and ability to service debt;
-- our business strategy and prospects; and
-- availability and sufficiency of insurance.
These forward-looking statements are not historical facts but instead
represent only our current views regarding future events and are based on
assumptions and expectations that may not be realized and are inherently subject
to risks and uncertainties, many of which cannot be predicted with accuracy and
some of which may not even be anticipated. Future events and actual results,
financial or otherwise, may differ, possibly materially, from the anticipated
results indicated in these forward-looking statements.
Information regarding important factors that could cause actual results to
differ, perhaps materially, from those in our forward-looking statements is
contained under the caption "Risk Factors" in this prospectus supplement.
We disclaim any obligation, other than as may be imposed by law, to
publicly update or revise any forward-looking statement, whether as a result of
new information, future events or otherwise.
ii
AVAILABLE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission. You may read and copy
any document we file with the SEC at the SEC's Public Reference Room at 450
Fifth Street, NW, Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330
for further information on the Public Reference Room. Our SEC filings are also
available to the public from the SEC's Internet site at http://www.sec.gov or
from our Internet site at http://www.forestcity.net. However, the information on
our Internet site does not constitute a part of this prospectus.
We have filed a registration on Form S-3 with the SEC relating to the notes
offered by this prospectus supplement and the accompanying prospectus. This
prospectus supplement and the accompanying prospectus are part of the
registration statement and do not contain all of the information in the
registration statement. You may view a copy of the registration statement at the
SEC's public reference room in Washington, D.C., as well as through the SEC's
Internet site.
In this document, we "incorporate by reference" the information we file
with the SEC, which means that we can disclose important information to you by
referring to that information. The information incorporated by reference is
considered to be a part of this prospectus supplement and the accompanying
prospectus, and later information filed with the SEC will update and supercede
this information. We incorporate by reference the documents listed below and any
future filings made with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934 after the date of this prospectus supplement and
until this offering is completed:
-- Our Annual Report on Form 10-K for the fiscal year ended January 31,
2003 filed with the SEC on April 10, 2003;
-- Our Current Report on Form 8-K filed with the SEC on February 5,
2003;
-- Our Current Report on Form 8-K filed with the SEC on May 9, 2003, as
amended by our Current Report on Form 8-K/A filed with the SEC on May
12, 2003;
-- Our Current Report on Form 8-K filed with the SEC on May 14, 2003;
-- Our Current Report on Form 8-K filed with the SEC on May 20, 2003;
-- Our Quarterly Report on Form 10-Q for the quarterly period ended
April 30, 2003 filed with the SEC on June 12, 2003;
-- Our Quarterly Report on Form 10-Q for the quarterly period ended July
31, 2003 filed with the SEC on September 12, 2003; and
-- Our Quarterly Report on Form 10-Q for the quarterly period ended
October 31, 2003 filed with the SEC on December 8, 2003, as amended
by our Quarterly Report on Form 10-Q/A filed on January 28, 2004.
You may request a copy of these filings, at no cost, by writing or
telephoning us at the following address and phone number:
Secretary
Forest City Enterprises, Inc.
50 Public Square
Terminal Tower
Suite 1100
Cleveland, Ohio 44113-2203
Telephone Number: 216-621-6060
iii
FOREST CITY
Founded in 1920 and publicly traded since 1960, we are principally engaged
in the ownership, development, management and acquisition of commercial and
residential real estate properties in 21 states and the District of Columbia.
For the nine months ended October 31, 2003, we generated $47.4 million in net
earnings.
At October 31, 2003, we had approximately $5.7 billion in total assets. We
have a portfolio of real estate assets diversified both geographically and among
property types. We operate our business through four strategic business units:
-- Commercial Group, our largest business unit, owns, develops, acquires
and operates regional malls, specialty/urban retail centers, office
buildings, hotels and mixed use projects;
-- Residential Group owns, develops, acquires and operates residential
rental properties, including upscale and middle-market apartments,
adaptive re-use developments and supported-living facilities;
-- Land Development Group acquires and sells both land and developed
lots to residential, commercial and industrial customers. It also
owns and develops land into master-planned communities and mixed-use
projects; and
-- Lumber Trading Group, a lumber wholesaler.
RECENT DEVELOPMENTS
NEW REVOLVING CREDIT FACILITY
We have engaged our two lead banks, KeyBank National Association and
National City Bank, to lead a syndication effort to expand our existing credit
facilities totaling $350 million ($250 million revolver, $100 million term loan)
to a $400 million revolving credit facility. The terms of the new revolving
credit facility are expected to be substantially similar to the terms of our
existing credit facility and, with the participation of additional banks, the
new revolving credit facility may be increased to $450 million. The new
revolving credit facility is subject to the negotiation and execution of
definitive documentation. While we expect to finalize the new revolving credit
facility during the first quarter of fiscal 2004, it is possible that we will
not be able to enter into the new revolving credit facility, or that the terms
will not be as described above. Payments on the notes will be effectively junior
to any new indebtedness under the proposed new revolving credit facility. See
"Risk Factors--The Notes Will be Junior to All of the Existing and Future Debt
of Forest City's Subsidiaries and to All of Forest City's Existing and Future
Senior Secured Debt."
BROOKLYN DEVELOPMENT
On January 22, 2003, one of our affiliates, Forest City Ratner Companies,
announced plans to develop Brooklyn Atlantic Yards, a $2.5 billion mixed-use
project in downtown Brooklyn. Brooklyn Atlantic Yards is expected to feature an
800,000 square foot sports and entertainment arena for the Nets NBA basketball
team. Forest City Ratner Companies, or an affiliate, will have an ownership
interest in the arena and the Nets of approximately 10% to 15%. The purchase
price for the Nets is $300 million requiring an equity investment by Forest City
Ratner Companies of $30 to $45 million.
Brooklyn Atlantic Yards is also expected to include, when complete,
approximately 2.1 million square feet of commercial office space; approximately
300,000 square feet of retail space; and approximately 4.4 million square feet
of residential space, which are expected to be developed on properties adjacent
to or nearby the arena. Forest City Ratner Companies is in the process of
finalizing agreements with state and local government authorities, and currently
expects that it, together with other investors, will acquire preferential
development rights for these properties. Forest City Ratner Companies
anticipates that it will own approximately 40% to 50% of the interest in these
properties forming part of Brooklyn Atlantic Yards. The Company will own
approximately 70% of this 40% to 50% interest.
S-1
The acquisition and development of Brooklyn Atlantic Yards is subject to
the completion of negotiations with local and state governmental authorities,
including negotiation of the development rights described above, the
satisfactory completion of due diligence, the receipt of governmental and
non-governmental approvals and the possible condemnation of the land needed for
the development. The negotiations relating to the acquisition and development
rights for Brooklyn Atlantic Yards may not be successfully completed, the
acquisition and development rights may not be obtained or completed on the terms
described above and the Brooklyn Atlantic Yards may not be developed with the
features described above. For a discussion of risks we face in investing in and
developing real estate projects, see "Risk Factors--We are Subject to Real
Estate Development and Investment Risk."
WASHINGTON, D.C. DEVELOPMENT
The Company was recently selected to develop the Southeast Federal Center
in Washington, D.C. The redevelopment of the 44-acre site is expected to include
up to 1.8 million square feet of office space and 2,800 residential units. The
Company anticipates that this project will be completed in phases over the next
10 to 20 years. The development of Southeast Federal Center is subject to the
completion of negotiations with local and state governmental authorities,
including negotiation of the development rights, the satisfactory completion of
due diligence and the receipt of governmental and non-governmental approvals.
For a discussion of the risks we face in developing this project, see "Risk
Factors -- We are Subject to Real Estate Development and Investment Risk."
S-2
RISK FACTORS
An investment in the notes involves a number of risks. You should carefully
consider these risks, together with all of the other information included or
incorporated by reference in this prospectus supplement and the accompanying
prospectus, before you decide to purchase our notes. This prospectus supplement
and the accompanying prospectus contain forward-looking statements that involve
risks and uncertainties. For a discussion of these forward-looking statements,
see "Forward-Looking Statements."
OUR HIGH DEBT LEVERAGE MAY PREVENT US FROM RESPONDING TO CHANGING BUSINESS AND
ECONOMIC CONDITIONS
OUR HIGH DEGREE OF DEBT LEVERAGE COULD LIMIT OUR ABILITY TO OBTAIN ADDITIONAL
FINANCING OR ADVERSELY AFFECT OUR LIQUIDITY AND FINANCIAL CONDITION.
We have a relatively high ratio of debt to total market capitalization. Our
debt consists primarily of non-recourse mortgage debt. If this offering had
taken place on October 31, 2003 and we accounted for and applied the net
proceeds from this offering, that ratio would have been approximately 64.2% at
October 31, 2003. Our high leverage may adversely affect our ability to obtain
additional financing for working capital, capital expenditures, acquisitions,
development or other general corporate purposes and may make us more vulnerable
to a downturn in the economy generally.
We do not expect to repay a substantial amount of the outstanding principal
of our outstanding debt prior to maturity or to have available funds sufficient
to repay this debt at maturity. As a result, it will be necessary for us to
refinance our debt through new debt financings or through equity offerings. If
interest rates are higher at the time of refinancing, our interest expense would
increase, which would adversely affect our results of operations and cash flows.
In addition, in the event we were unable to secure refinancing on acceptable
terms, we might be forced to sell properties on unfavorable terms, which could
result in the recognition of losses and could adversely affect our financial
position, results of operations and cash flows. If we are unable to make the
required payments on any debt secured by a mortgage on one of our properties or
to refinance that debt when it comes due, the mortgage lender could take that
property through foreclosure and, as a result, we could lose income and asset
value.
Approximately $291.4 million becomes due in fiscal year 2004. Additionally,
we have obtained credit enhanced mortgage debt for a number of our properties.
Generally, the credit enhancement, such as a letter of credit, expires prior to
the term of the underlying mortgage debt and must be renewed or replaced to
prevent acceleration of the underlying mortgage debt. We treat credit enhanced
debt as maturing in the year the credit enhancement expires.
We cannot assure you that we will be able to refinance this debt, obtain
renewals or replacement of credit enhancement devices, such as a letter of
credit, or otherwise obtain funds by selling assets or by raising equity. Our
inability to repay or refinance our debt when it becomes due could result in
foreclosure on those properties.
From time to time, a non-recourse mortgage may become past due and if we
are unsuccessful in negotiating an extension or refinancing, the lender could
commence foreclosure proceedings.
OUR CREDIT FACILITY COVENANTS COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION.
We have guaranteed the obligations of one of our consolidated subsidiaries,
Forest City Rental Properties Corporation, or FCRPC, under the FCRPC credit
agreement, dated as of March 5, 2002, as amended, among Forest City Rental
Properties Corporation, the banks named therein, KeyBank National Association,
as administrative agent, and National City Bank, as syndication agent. This
guaranty imposes a number of restrictive covenants on Forest City, including a
prohibition on certain consolidations and mergers, limitations on the amount of
debt, guarantees and property liens that Forest City may incur. The guaranty
also requires Forest City to maintain a specified minimum cash flow coverage
ratio, consolidated shareholders' equity and earnings before depreciation and
taxes, or EBDT.
S-3
A failure to comply with any of the covenants under the guaranty or failure
by FCRPC to comply with any of the covenants under the FCRPC credit agreement
could result in an event of default, which would trigger Forest City's
obligation to repay all amounts outstanding under the FCRPC credit agreement.
Forest City's ability and FCRPC's ability to comply with these covenants will
depend upon the future economic performance of Forest City and FCRPC. These
covenants may adversely affect our ability to finance our future operations or
capital needs or to engage in other business activities that may be desirable or
advantageous to us.
THE FCRPC CREDIT AGREEMENT AND FOREST CITY'S GUARANTY MAY PREVENT PAYMENT ON THE
NOTES
In the event of a continuing default on the payment of principal, interest
or other charges due under the FCRPC credit agreement or under Forest City's
guaranty of payment of the FCRPC credit agreement, Forest City will be
prohibited from making payments of principal and interest on the notes. In the
event of a continuing non-payment default, the guaranty prohibits FCRPC from
making any distribution to Forest City except as is necessary to pay interest
(but not principal) on the notes.
THE NOTES WILL BE JUNIOR TO ALL OF THE EXISTING AND FUTURE DEBT OF FOREST CITY'S
SUBSIDIARIES AND TO ALL OF FOREST CITY'S EXISTING AND FUTURE SENIOR SECURED DEBT
Forest City holds substantially all of its assets and conducts
substantially all of its operations through its subsidiaries. Forest City
derives substantially all of its operating income and cash flow from its
subsidiaries and must rely substantially upon distributions from its
subsidiaries to generate the funds necessary to meet its obligations, including
the payment of principal and interest on the notes. The notes will be
effectively junior to all debt and other liabilities of Forest City's
subsidiaries, including the borrowings under the FCRPC credit agreement and the
Forest City Trading Group, Inc. credit agreement. For a description of the
proposed increase in the size of the FCRPC credit agreement, see "Recent
Developments." The aggregate revenues derived from Forest City's subsidiaries
for fiscal 2002 and the nine months ended October 31, 2003 was $926.4 million
and $785.6 million, respectively, or substantially all of our consolidated
revenues. Similarly, the aggregate net earnings derived from Forest City's
subsidiaries for fiscal 2002 and the nine months ended October 31, 2003 was
$62.1 million and $66.5 million, respectively, or substantially all of our
consolidated net earnings. Forest City's subsidiaries had an aggregate
shareholders' equity of $621.8 million and $688.0 million, or 88% and 92% of
consolidated shareholders' equity, at January 31, 2003 and October 31, 2003,
respectively. Additionally, Forest City's subsidiaries had approximately $3.2
billion and $3.6 billion of debt outstanding at January 31, 2003 and October 31,
2003, respectively.
Substantially all of Forest City's secured debt consists of non-recourse
mortgage debt incurred by its subsidiaries. As of October 31, 2003, Forest City
had $3.5 billion of secured debt outstanding. The notes will be effectively
junior in right of payment to all of Forest City's existing and future senior
secured debt, to the extent of the value of the collateral securing such debt.
FOREST CITY MAY BE UNABLE TO REPURCHASE THE NOTES UPON A CHANGE OF CONTROL OR
CERTAIN ASSET DISPOSITIONS
In the event of a change of control, Forest City will be required to make
an offer to purchase the notes. In the event of certain asset sales, Forest City
may also be required to repurchase the notes with excess proceeds from the asset
sales. The FCRPC guaranty prohibits the repayment of the notes if FCRPC is in
default on payment of principal, interest or other charges due under the FCRPC
credit agreement and prohibits distributions by FCRPC to Forest City to pay the
principal of the notes if, at the time it is required to repurchase the notes,
there is a continuing non-payment default. As a result of these provisions,
Forest City will be unable to purchase the notes as required if, at the time it
is required to repurchase the notes, there is a continuing default on payment of
principal, interest or other charges due under the FCRPC credit agreement.
Further, since a change of control (through a change in management or ownership
of Forest City) constitutes an event of default under the FCRPC credit
agreement, after a change of control FCRPC will be prohibited from making
payments to Forest City in order to provide Forest City with sufficient funds to
repay the notes as required. Because of these provisions, Forest City may be
unable to repurchase the notes unless FCRPC's
S-4
lenders waive these provisions or we refinance the FCRPC credit agreement.
Furthermore, even if the lenders waive these provisions, Forest City cannot
assure you that it will have the financial resources necessary to repurchase all
of the notes tendered by the holders thereof in the event of a change in
control, particularly if such change of control requires us to refinance, or
results in the acceleration of, the FCRPC credit agreement or any other debt.
ANY RISE IN INTEREST RATES WILL INCREASE OUR INTEREST COSTS
An increase in interest rates will increase our interest expenses
associated with our floating-rate debt and the refinancing of any fixed-rate
debt originally financed at a lower rate. At October 31, 2003, including
properties accounted for on the equity method, a 100 basis point increase in
taxable variable interest rates would have increased our interest expense, and
conversely reduced our pre-tax earnings, by approximately $3.4 million
(including both mortgage debt and corporate borrowings). This calculation
reflects the interest rate swaps and long-term LIBOR contracts in effect as of
October 31, 2003. We are exposed to the risk that our counterparties will fail
to perform their obligations to us, thus increasing our exposure to increases in
interest rates. Although tax-exempt interest rates generally increase in an
amount that is smaller than corresponding changes in taxable interest rates, a
100 basis point increase in tax-exempt variable interest rates would have
increased the interest expense, and conversely reduced our pre-tax earnings, by
approximately $3.9 million.
IF WE ARE UNABLE TO OBTAIN TAX-EXEMPT FINANCINGS, OUR INTEREST COSTS WILL RISE
We regularly utilize tax-exempt financings and tax increment financings,
which generally bear interest at rates below prevailing rates available for
conventional taxable financing. Such tax-exempt bonds or similar government
subsidized financing may not continue to be available to us in the future,
either for new development or acquisitions, or for the refinancing of
outstanding debt. If we are unable to obtain these financings or to refinance
outstanding debt on favorable terms, our ability to develop or acquire
properties could be impaired, which could have a material adverse effect on our
financial position, results of operations and cash flows.
WE ARE SUBJECT TO REAL ESTATE DEVELOPMENT AND INVESTMENT RISK
The value of, and our income from, our properties may decline due to
developments that adversely affect real estate generally and those that are
specific to our properties. General factors that may adversely affect our real
estate portfolios include:
-- a decline in the economic conditions in one or more of our primary
markets;
-- an increase in competition for tenants and customers or a decrease in
demand by tenants and customers;
-- increases in interest rates;
-- declines in consumer spending during an economic recession that
adversely affect our revenue from our retail centers;
-- a general tightening of the availability of credit;
-- an increase in supply of our property types in our primary markets;
-- a continuation of terrorist activities or other acts of violence or
war in the United States or the occurrence of such activities or acts
that impact properties in our real estate portfolios or that may
impact the general economy;
-- continuation or escalation of tensions in the Middle East; and
-- the adoption on the national, state or local level of more
restrictive laws and governmental regulations, including more
restrictive zoning, land use or environmental regulations and
increased real estate taxes.
S-5
In addition, there are factors that may adversely affect the value of, and
our income from, specific properties, including:
-- adverse changes in the perceptions of prospective tenants or
purchasers of the attractiveness of the property;
-- opposition from local community or political groups with respect to
development or construction at a particular site;
-- our inability to provide adequate management and maintenance or to
obtain adequate insurance;
-- our inability to collect rent or other receivables;
-- an increase in operating costs; and
-- introduction of a competitor's property in or in close proximity to
one of our current markets.
Our development projects may exceed budget or be prevented from completion
for many reasons, including:
-- an inability to secure sufficient financing on favorable terms,
including an inability to refinance construction loans;
-- construction delays or cost overruns, either of which may increase
project development costs;
-- an inability to obtain zoning, occupancy and other required
governmental permits and authorizations;
-- an inability to secure tenants or anchors necessary to support the
project; and
-- failure to achieve or sustain anticipated occupancy or sales levels.
The occurrence of one or more of the above risks could result in
significant delays or unexpected expenses. If any of these occur, we may not
achieve our projected returns on properties under development and we could lose
some or all of our investments in those properties.
In the past, we have elected not to proceed, or have been prevented from
proceeding, with specific development projects, and we anticipate that this may
occur again from time to time in the future. A development project may be
delayed or terminated because a project partner or prospective anchor tenant
withdraws or a third party challenges our entitlements or public financings.
We periodically serve as either the construction manager or the general
contractor for our development projects. The construction of real estate
projects entails unique risks, including risks that the project will fail to
conform to building plans, specifications and timetables. These failures could
be caused by strikes, weather, government regulations and other conditions
beyond our control. In addition, we may become liable for injuries and accidents
occurring during the construction process that are not insured.
In the construction of new projects, we generally guarantee the lender
under the construction loan the lien-free completion of the project. This
guaranty is recourse to us and places the risk of construction delays and cost
overruns on us. In addition, from time to time we guarantee the obligations of a
major tenant during the construction phase. This type of guaranty is released
upon completion of the project. Furthermore, as the general partner of certain
limited partnerships, we guarantee the funding of operating deficits of
newly-opened apartment projects for an average of five years. We may have to
make significant expenditures in the future in order to comply with our
lien-free completion obligations and funding of operating deficits.
S-6
AN ECONOMIC DECLINE IN ONE OR MORE OF OUR PRIMARY MARKETS MAY ADVERSELY AFFECT
OUR OPERATING RESULTS AND FINANCIAL CONDITION
Our core markets are Boston, Denver, California, New York City,
Philadelphia and Washington, D.C. A downturn in any of these markets may impair:
-- the ability of our tenants to make lease payments;
-- our ability to market new developments to prospective purchasers and
tenants;
-- our rental and lease rates;
-- hotel occupancy and room rates;
-- land sales; and
-- occupancy rates for commercial and residential properties.
Adverse economic conditions may continue to adversely impact our results of
operations and cash flows and the impact of these conditions could be more
significant than we have experienced to date. In addition, local real estate
market conditions have been, and may continue to be, significantly impacted by
one or more of the following events:
-- business layoffs and downsizing;
-- industry slowdowns;
-- relocations or closings of businesses;
-- changing demographics; and
-- any oversupply of or reduced demand for real estate.
In general, we have been experiencing weakness across almost all of our
markets in our Residential Group and in the hotel operations of our Commercial
Group. For example, our Residential Group has been experiencing weakness in
rental rates and occupancy rates in its portfolio in almost all of its markets.
We do not expect these situations to change in the near to medium-term. With
respect to particular markets, the Boston, Denver, California, New York City and
Cleveland real estate markets have been significantly impacted by recent local
economic downturns, which has made it more difficult to maintain occupancy
levels at certain of our properties. In the Cleveland market, where we have
significant office space (the majority of which must be refinanced in fiscal
2005 and 2006) we have significant office vacancies due to weak market
conditions. This situation has directly impacted us since we had a relatively
low number of long-term office space leases in place. Unless this situation
improves, we may have trouble refinancing our Cleveland office space.
VACANCIES IN OUR PROPERTIES MAY ADVERSELY AFFECT OUR RESULTS OF OPERATIONS AND
CASH FLOWS
Our results of operations and cash flows may be adversely affected if we
are unable to continue leasing a significant portion of our commercial and
residential real estate portfolio. We depend on commercial and residential
tenants in order to collect rents and other charges. Our ability to sustain our
current and historical occupancy levels depends on many factors that are
discussed elsewhere in this section. For example, as discussed above, we have
experienced decreased occupancy levels in our residential properties in all our
markets and in our commercial office properties in our Cleveland market. Our
failure to successfully lease our property on favorable terms will adversely
affect our results of operations and cash flows.
TERRORIST ATTACKS AND OTHER ACTS OF VIOLENCE OR WAR HAVE IMPACTED, AND MAY IN
THE FUTURE IMPACT, OUR OPERATIONS AND PROFITABILITY
We have a high concentration of properties in Washington, D.C. and New York
City. As a result, we face a heightened risk of terrorism. We were directly
impacted by the September 11, 2001 terrorist attacks at our Battery Park City
Hotel and retail properties.
S-7
Future terrorist attacks may directly impact physical facilities in our
real estate portfolio. In addition, future terrorist attacks, related armed
conflicts or prolonged or increased tensions in the Middle East could cause
consumer confidence and spending to decrease, and adversely affect mall traffic.
Additionally, future terrorist attacks could increase volatility in the U.S. and
worldwide financial markets. Any of these occurrences could have a significant
impact on our operating results, revenues and costs.
THERE MAY BE A DECREASE IN DEMAND FOR SPACE IN LARGE METROPOLITAN AREAS THAT
ARE CONSIDERED AT RISK FOR FUTURE TERRORIST ATTACKS, AND THIS DECREASE MAY
REDUCE OUR REVENUES FROM PROPERTY RENTALS.
We have significant investments in large metropolitan areas, including the
New York, Boston, California, Washington D.C. and Denver metropolitan areas. In
the aftermath of the terrorist attacks of September 11, 2001 and due to the
possibility of future terrorist attacks, some tenants in these areas have chosen
to relocate their business to less populated, lower-profile areas of the U.S.
that are not as likely to be targets of future terrorist activity. This has
resulted in a decrease in the demand for space in some areas, which could
increase vacancies in our properties and force us to lease our properties on
less favorable terms. As a result, the value of our property and the level of
our revenues could significantly decline.
WE MAY BE UNABLE TO SELL PROPERTIES TO AVOID LOSSES OR TO REPOSITION OUR
PORTFOLIO
Because real estate investments are relatively illiquid, we may be unable
to dispose of underperforming properties and may be unable to reposition our
portfolio in response to changes in regional or local real estate markets. As a
result, we may incur operating losses from some of our properties and may have
to write down the value of some properties.
OUR RESULTS OF OPERATIONS AND CASH FLOWS MAY BE ADVERSELY AFFECTED BY TENANT
DEFAULTS OR THE CLOSING OR BANKRUPTCY OF NON-TENANT ANCHORS
Our results of operations and cash flows may be adversely affected if a
significant number of our tenants are unable to meet their obligations or renew
their leases, or if we are unable to lease a significant amount of space on
economically favorable terms. In the event of a default by a tenant, we may
experience delays in payments and incur substantial costs in recovering our
losses. Our ability to collect rents and other charges will be even more
difficult if the tenant is bankrupt or insolvent. Our tenants have from time to
time filed for bankruptcy or been involved in insolvency proceedings and others
may in the future, which could make it more difficult to enforce our rights as
lessor and protect our investment.
Based on square feet as of July 31, 2003, our five largest office tenants
were City of New York, Millennium Pharmaceuticals Inc., U.S. Government, Keyspan
Energy and Securities Industry Automation Corp., and our five largest retail
tenants were Regal Entertainment Group, The Gap, TJX Companies, AMC
Entertainment Inc. and The Limited.
Ames Department Stores, Inc., or Ames, one of our retail tenants that
leased 236,000 square feet at three properties, filed for bankruptcy protection
on August 20, 2001. Ames vacated all three properties and rejected the leases,
which allowed it to stop paying rent. One property, Hunting Park, was re-leased,
however the replacement tenant's rent, which is tied to sales, was not
sufficient to cover debt service. We are negotiating with the lender to enter
into a deed in lieu of foreclosure on the property and are currently waiting for
the lender to complete its due diligence on the property so that we may complete
the asset transfer. While we are working with potential tenants in efforts to
achieve rental rates that will assure that debt service will be covered at other
locations, we may not be successful and the lender may foreclose on these
properties.
The Ames bankruptcy, other current bankruptcies of some of our tenants and
the potential bankruptcies of other tenants in the future could make it
difficult for us to enforce our rights as lessor and protect our investment.
With respect to our retail centers, we also could be adversely affected if
a non-tenant anchor were to close or enter into bankruptcy. Although non-tenant
anchors generally do not pay us rent, they typically contribute towards common
area maintenance and other charges payable by us. The loss of these revenues
could
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adversely affect our results of operations and cash flows. Further, the
temporary or permanent loss of an anchor likely would reduce customer traffic in
the retail center, which could reduce the percentage of rent paid by retail
center tenants or cause retail center tenants to close or enter into bankruptcy.
One or more of these factors could cause the retail center to fail to meet its
debt service requirements.
WE ARE CONTROLLED BY THE RATNER, MILLER AND SHAFRAN FAMILIES, WHOSE INTERESTS
MAY DIFFER FROM THOSE OF OTHER SHAREHOLDERS
Our authorized common stock consists of Class A common stock and Class B
common stock. The economic rights of each class of common stock are identical,
but the voting rights differ. The Class A common stock, voting as a separate
class, is entitled to elect 25% of the members of our board of directors, while
the Class B common stock, voting as a separate class, is entitled to elect the
remaining 75% of our board of directors. On all other matters, the Class A
common stock and Class B common stock vote together as a single class, with each
share of Class A common stock entitled to one vote per share and each share of
Class B common stock entitled to ten votes per share.
At March 3, 2003, members of the Ratner, Miller and Shafran families, which
include members of our current board of directors and executive officers, owned
74.7% of the Class B common stock. RMS, Limited Partnership, which owned 74.4%
of the Class B common stock, is a limited partnership, comprised of interests of
these families, with eight individual general partners, currently consisting of:
-- Samuel H. Miller, treasurer of Forest City and co-chairman of our
board of directors;
-- Charles A. Ratner, president, chief executive officer of Forest City
and a director;
-- Ronald A. Ratner, executive vice president of Forest City and a
director;
-- Brian J. Ratner, executive vice president of East Coast Development,
Inc., a subsidiary of Forest City, and a director;
-- Deborah Ratner Salzberg, president of Forest City Washington, Inc., a
subsidiary of Forest City, and a director;
-- Joan K. Shafran, a director;
-- Joseph Shafran; and
-- Abraham Miller.
Joan K. Shafran is the sister of Joseph Shafran. Charles A. Ratner, James
A. Ratner, executive vice president of Forest City and a director, and Ronald A.
Ratner are brothers. Albert B. Ratner, co-chairman of our board of directors, is
the father of Brian J. Ratner and Deborah Ratner Salzberg and is first cousin to
Charles A. Ratner, James A. Ratner, Ronald A. Ratner, Joan K. Shafran and Joseph
Shafran. Samuel H. Miller was married to Ruth Ratner Miller (now deceased), a
sister of Albert B. Ratner, and is the father of Abraham Miller. General
partners holding 60% of the total voting power of RMS, Limited Partnership
determine how to vote the Class B common stock held by RMS, Limited Partnership.
No person may transfer his or her interest in the Class B common stock held by
RMS, Limited Partnership without complying with various rights of first refusal.
In addition, at March 3, 2003, members of these families collectively owned
23.2% of the Class A common stock. As a result of their ownership in Forest
City, these family members and RMS, Limited Partnership have the ability to
elect a majority of our board of directors and to control the management and
policies of Forest City. Generally, they may also determine, without the consent
of our other shareholders, the outcome of any corporate transaction or other
matters submitted to our shareholders for approval, including mergers,
consolidations and the sale of all or substantially all of our assets and
prevent or cause a change in control of Forest City.
Even if these families or RMS, Limited Partnership reduce their level of
ownership of Class B common stock below the level necessary to maintain a
majority of voting power, specific provisions of Ohio law and our
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Restated Articles of Incorporation may have the effect of discouraging a third
party from making a proposal to acquire us or delaying or preventing a change in
control or management of Forest City without the approval of these families or
RMS, Limited Partnership.
RELATIONSHIPS EXIST BETWEEN US AND SOME OF OUR DIRECTORS AND EXECUTIVE OFFICERS
THAT CREATE CONFLICTS OF INTEREST
RMS INVESTMENT CORP. PROVIDES PROPERTY MANAGEMENT AND LEASING SERVICES TO US
AND IS CONTROLLED BY SOME OF OUR AFFILIATES.
We paid approximately $205,000 and $135,600 as total compensation during
fiscal 2002 and the nine months ended October 31, 2003, respectively, to RMS
Investment Corp. for property management and leasing services. RMS Investment
Corp. is controlled by members of the Ratner, Miller and Shafran families, some
of whom are our directors and executive officers.
RMS Investment Corp. manages and provides leasing services to two of our
Cleveland-area specialty retail centers, Golden Gate, which has 362,000 square
feet, and Midtown Plaza, which has 258,000 square feet. The current rate of
compensation for these management services is 4% of all rental income, plus a
leasing fee of generally 2% to 4% of rental income. Management believes these
fees are comparable to those other management companies would charge to
non-affiliated third parties.
OUR DIRECTORS AND EXECUTIVE OFFICERS MAY HAVE INTERESTS IN COMPETING
PROPERTIES, AND WE DO NOT HAVE NON-COMPETE AGREEMENTS WITH OUR DIRECTORS AND
EXECUTIVE OFFICERS.
Under our current policy, no director, officer or employee, including any
member of the Ratner, Miller and Shafran families, is allowed to invest in a
competing real estate opportunity without first obtaining the approval of the
audit committee of our board. We do not have non-compete agreements with any
director, officer or employee, however, and upon leaving Forest City any
director, officer or employee could compete with us. Notwithstanding our policy,
we permit our principal shareholders who are officers and employees to own,
alone or in conjunction with others, certain commercial, industrial and
residential properties that may be developed, expanded, operated and sold
independently of our business. As a result of their ownership of these
properties, a conflict of interest may arise between them and Forest City. The
conflict may involve the development or expansion of properties that may compete
with our properties and the solicitation of tenants to lease these properties.
OUR PROPERTIES AND BUSINESSES FACE SIGNIFICANT COMPETITION
The real estate industry is highly competitive in many of the markets in
which we operate. Competition could over-saturate any market, as a result of
which we may not have sufficient cash to meet the debt service requirements on
certain of our properties. Although we may attempt to renegotiate a
restructuring with the mortgagee, we may not be successful, which could cause a
property to be transferred to the mortgagee.
There are numerous developers, managers and owners of commercial and
residential real estate that compete with us nationally, regionally and/or
locally, some of whom have greater financial resources than us. They compete
with us for management and leasing revenues, land for development, properties
for acquisition and disposition and for anchor department stores and tenants for
properties. We may not be able to successfully compete in these areas.
Tenants at our retail properties face continual competition in attracting
customers from retailers at other shopping centers, catalogue companies, various
websites, warehouse stores, large discounters, outlet malls, wholesale clubs and
direct mail and telemarketers. Our competitors and those of our tenants could
have a material adverse effect on our ability to lease space in our properties
and on the rents we can charge or the concessions we can grant. This in turn
could materially and adversely affect our results of operations and cash flows,
and could affect the realizable value of our assets upon sale.
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The lumber wholesaling business is also highly competitive. Competitors in
the lumber brokerage business include numerous brokers and in-house sales
departments of lumber manufacturers, many of which are larger and have greater
resources than us.
OUR BUSINESS WILL BE ADVERSELY IMPACTED BY UNINSURED LOSSES OR LOSSES EXCEEDING
OUR INSURANCE LIMITS
We carry comprehensive general liability, special property, flood,
earthquake and rental loss (and environmental insurance on certain locations)
with respect to our properties within insured limits and policy specifications
that we believe are customary for similar properties. There are, however,
specific types of losses, generally of a catastrophic nature, such as losses
from wars, terrorism or earthquakes, for which we cannot obtain adequate
insurance coverage or, in our judgment, for which we cannot obtain insurance at
a reasonable cost. In the event of an uninsured loss or a loss in excess of our
insurance limits, we could lose both our invested capital in, and anticipated
profits from, the affected property. Any such loss could materially and
adversely affect our results of operations, cash flows and financial position.
Under our current policies, which expire November 1, 2004, our properties
are insured against acts of terrorism, subject to various limits, deductibles
and exceptions for acts of war and terrorist acts involving biological, chemical
and nuclear damage.
Once this policy expires, we may not be able to obtain adequate terrorism
coverage at a reasonable cost. In addition, our insurers may not be able to
maintain reinsurance sufficient to cover any losses we may incur as a result of
terrorist acts. As a result, our insurers' ability to pay for any damages that
we sustain as a result of a terrorist attack may be reduced.
Additionally, most of our current project mortgages require special
all-risk property insurance, and we cannot assure you that we will be able to
obtain policies that will satisfy lender requirements.
We are self-insured as to the first $500,000 of liability coverage and
self-insured on the first $250,000 of property damage. Our captive insurance
company, licensed and regulated by the State of Vermont, is adequately funded
per state regulations to cover the first $250,000 of potential property damage
claims. While we believe that our self-insurance reserves are adequate, we
cannot assure you that we will not incur losses that exceed these self-insurance
reserves.
OUR LUMBER TRADING GROUP MAY SUFFER IF HOME BUILDING OR REMODELING ACTIVITIES
DECLINE
The lumber business is highly cyclical. The Lumber Trading Group is exposed
to the risk of downturns in new home building and home remodeling activities.
While we believe that we have in place adequate controls to effectively manage
this risk, we cannot assure you that we will not suffer a loss from a downturn
in the new home building and home remodeling markets.
WE HAVE BEEN SUBJECTED TO VOLATILE COMMODITY LUMBER PRICES WHICH HAVE HAD AN
ADVERSE EFFECT ON OUR RESULTS OF OPERATIONS
Lumber prices can be highly volatile. Although a majority of the Lumber
Trading Group's sales involve back-to-back trades in which we bring together a
buyer and seller for an immediate purchase and sale, the remainder of our
transactions are trades in which we take a short-term ownership position in
lumber. This short-term ownership position subjects us to market risk associated
with fluctuations in lumber prices. Fluctuations in lumber prices can have an
adverse effect on the results of operations of our Lumber Trading Group.
WE MAY INCUR UNANTICIPATED COSTS AND LIABILITIES DUE TO ENVIRONMENTAL PROBLEMS
Under various federal, state and local environmental laws, an owner or
operator of real property may become liable for the costs of the investigation,
removal and remediation of hazardous or toxic substances at that property. These
laws often impose liability without regard to whether the owner or operator knew
of, or was responsible for, the presence of the hazardous or toxic substances.
The presence of hazardous or toxic
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substances, or the failure to remediate these substances when present, may
adversely affect the owner's ability to sell or rent that real property or to
borrow funds using that real property as collateral and it also may impose
unanticipated costs and delays on projects. Persons who arrange for the disposal
or treatment of hazardous or toxic wastes may also be liable for the costs of
the investigation, removal and remediations of those wastes at the disposal or
treatment facility, regardless of whether that facility is owned or operated by
that person. In some instances, federal, state and local laws require abatement
or removal of specific asbestos-containing materials in the event of demolition,
renovations, remodeling, damage or decay. These laws also impose specific worker
protection and notification requirements and govern emissions of and exposure to
asbestos fibers in the air.
We could be held liable for the environmental response costs associated
with the release of some regulated substances or related claims, whether by us,
our tenants, former owners or tenants of the affected property or others. In
addition to remediation actions brought by federal, state and local agencies,
the presence of hazardous substances on a property could result in personal
injury, contribution or other claims by private parties. These claims could
result in costs or liabilities that could exceed the value of the affected
property. We are not aware of any notification by any private party or
governmental authority of any claim in connection with environmental conditions
at any of our properties that we believe will involve any material expenditure.
Nor are we aware of any environmental condition on any of our properties that we
believe will involve any material expenditure. However, we cannot assure you
that any non-compliance, liability, claim or expenditure will not arise in the
future. To the extent that we are held liable for the release of regulated
substances by tenants or others, we cannot assure you we would be able to
recover our costs from those persons.
WE FACE POTENTIAL LIABILITY FROM RESIDENTIAL PROPERTIES ACCOUNTED FOR ON THE
EQUITY METHOD AND OTHER PARTNERSHIP RISKS
As part of our financing strategy, we have financed several real estate
projects through limited partnerships with investment partners. The investment
partner, typically a large, sophisticated institution or corporate investor,
invests cash in exchange for a limited partnership interest and special
allocations of expenses and the majority of tax losses and credits associated
with the project. These partnerships typically require us to indemnify, on an
after-tax or "grossed up" basis, the investment partner against the failure to
receive or the loss of allocated tax credits and tax losses.
We believe that all the necessary requirements for qualification for such
tax credits have been and will be met and that our investment partners will be
able to receive expense allocations associated with these properties. However,
we cannot assure you that this will, in fact, be the case or that we will not be
required to indemnify our investment partners on an after-tax basis for these
amounts. Any indemnification payment could have a material adverse effect on our
results of operations and cash flows.
In addition to partnerships, we also use limited liability companies, or
LLCs, to finance some of our projects with third party lenders. Acting through
our wholly-owned subsidiaries, we typically are a general partner or managing
member in these partnerships or LLCs. There are, however, instances in which we
do not control or even participate in management or day-to-day operations.
The use of a structure where we do not control the management of the entity
involves special risks associated with the possibility that:
-- another partner or member may have interests or goals that are
inconsistent with ours;
-- a general partner or managing member may take actions contrary to our
instructions, requests, policies or objectives with respect to our
real estate investments; or
-- a partner or a member could experience financial difficulties that
prevent it from fulfilling its financial or other responsibilities to
the project or its lender or the other partners or members.
To the extent we are a general partner or managing member, we may be
exposed to unlimited liability, which may exceed our investment or equity in the
partnership or LLC, as applicable. If one of our subsidiaries
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is a general partner or managing member of a particular partnership or LLC, as
applicable, it may be exposed to the same kind of unlimited liability.
COMPLIANCE OR FAILURE TO COMPLY WITH THE AMERICANS WITH DISABILITIES ACT AND
OTHER SIMILAR LAWS COULD RESULT IN SUBSTANTIAL COSTS
The Americans with Disabilities Act generally requires that public
buildings, including office buildings and hotels, be made accessible to disabled
persons.
In the event that we are not in compliance with the Americans with
Disabilities Act, the federal government could fine us or private parties could
be awarded damages against us. If we are required to make substantial
alterations and capital expenditures in one or more of our properties, including
the removal of access barriers, it could adversely affect our results of
operations and cash flows.
We may also incur significant costs complying with other regulations. Our
properties are subject to various federal, state and local regulatory
requirements, such as state and local fire and safety requirements. If we fail
to comply with these requirements, we could incur fines or private damage
awards. We believe that our properties are currently in material compliance with
all of these regulatory requirements. However, existing requirements may change
and compliance with future requirements may require significant unanticipated
expenditures that could adversely affect our cash flows and results of
operations.
AN INCREASE IN INTEREST RATES COULD CAUSE A DECREASE IN THE MARKET PRICE OF THE
NOTES
A variety of factors may influence the price of the notes in public trading
markets. We believe that investors generally perceive companies engaged in the
ownership, development, management and acquisition of commercial and residential
real estate properties as yield-driven investments and compare the annual yield
from distributions by such companies with yields on various other types of
financial instruments. Thus, an increase in market interest rates generally
could adversely affect the market price of the notes.
THERE IS NO PUBLIC MARKET FOR THE NOTES
Prior to this offering, there has been no public market for the notes, and
there can be no assurance that an active trading market for the notes will
develop or continue upon completion of the offering. Due to the absence of any
prior public market for the notes, there can be no assurance that the public
offering price will correspond to the price at which the notes will trade in the
public market subsequent to the offering. We intend to apply to list the notes
on the NYSE. However, we cannot assure you that the notes will be approved for
listing on the NYSE. If the application is approved, trading of the notes on the
NYSE is not expected to begin until 30 days after the date of initial delivery
of the notes.
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USE OF PROCEEDS
We expect to receive net proceeds from this offering of approximately
$ million after payment of all anticipated issuance costs of approximately
$ million. We intend to use these proceeds to pay off the current
outstanding balance of approximately $56.3 million under the term loan of the
FCRPC credit facility. Currently, the term loan matures in March 2006 and bears
interest at 3.91% per annum. We expect to use the remaining net proceeds for
general corporate and working capital purposes. Immediately after this offering
and until we use the proceeds as described, we intend to invest the net proceeds
in short-term investments.
CAPITALIZATION
The following table sets forth our capitalization as of October 31, 2003,
and as adjusted to give effect to this offering and the application of the net
proceeds therefrom in the manner described in "Use of Proceeds." The table
should be read in conjunction with our consolidated financial statements and our
other information included in the documents incorporated by reference in this
prospectus supplement and the accompanying prospectus.
OCTOBER 31, 2003
-----------------------
ACTUAL ADJUSTED
---------- ----------
(IN THOUSANDS)
Cash and cash equivalents................................... $ 175,958 $
========== ==========
Mortgage debt, non-recourse................................. 3,478,990 3,478,990
Long-term credit facility--revolving portion................ -- --
Long-term credit facility--term loan(1)..................... 62,500
7.625% senior notes due 2015................................ 300,000 300,000
Notes offered hereby........................................ --
Subordinated debt........................................... 20,400 20,400
Shareholders' equity:
Preferred stock--convertible, without par value; 5,000,000
shares authorized; no shares issued.................... -- --
Common stock--$.33 1/3 par value
Class A, 96,000,000 shares authorized; 36,509,636
shares issued, 36,240,344 shares outstanding......... 12,170 12,170
Class B, convertible, 36,000,000 shares authorized;
13,716,192 shares issued, 13,716,192 outstanding..... 4,572 4,572
Additional paid-in capital................................ 234,668 234,668
Retained earnings......................................... 505,722 505,722
Less treasury stock, at cost; 269,292 Class A shares and
no Class B shares...................................... (1,971) (1,971)
Accumulated other comprehensive loss...................... (8,990) (8,990)
---------- ----------
Total shareholders' equity............................. 746,171 746,171
---------- ----------
Total capitalization........................................ $4,608,061 $
========== ==========
---------------
(1) Since October 31, 2003 through the date of this prospectus supplement, we
have made regularly scheduled amortization payments of $6.2 million under
our term loan.
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DESCRIPTION OF NOTES
You should read the following information in conjunction with the
statements under "Description of Senior Debt Securities We May Offer" in the
accompanying prospectus. This prospectus supplement replaces the description of
the general terms and provisions of the debt securities set forth in the
accompanying prospectus to the extent the terms of the notes described below are
inconsistent with the provisions of the debt securities set forth in the
accompanying prospectus.
We will issue the notes under an indenture, dated as of May 19, 2003,
between Forest City and The Bank of New York, as trustee. We will issue the
notes in denominations of $25 and integral multiples of $25.
The statements under this caption relating to the notes and the indenture
are summaries and do not purport to be complete, and are subject to, and are
qualified in their entirety by reference to, all the provisions of the
indenture. The terms of the notes include those stated in the indenture and
those made part of the indenture by reference to the Trust Indenture Act of
1939, as amended. The notes are subject to all those terms, and prospective
purchasers of the notes are referred to the indenture and the Trust Indenture
Act for a statement thereof.
You can find the definitions of certain capitalized terms in this section
under the subheading "--Certain Definitions."
All references to "Forest City" or "we" in this description refer solely to
Forest City Enterprises, Inc., an Ohio corporation, and do not, unless otherwise
indicated, include the subsidiaries or affiliates of Forest City Enterprises
Inc. The risks relating to the status of Forest City Enterprises, Inc. as a
holding company are discussed under "Risk Factors--The Notes Will Be Junior to
All of the Existing and Future Debt of Forest City's Subsidiaries and to All of
Forest City's Existing and Future Senior Secured Debt."
GENERAL
-- Title: % Senior Notes Due 2034.
-- Maturity date: February 1, 2034.
-- Interest rate: % per annum.
-- Interest payment dates: February 1, May 1, August 1 and November 1,
commencing May 1, 2004.
-- Regular record dates: January 15, April 15, July 15 and October 15.
-- Overdue interest: 2% per annum.
-- Aggregate principal amount: $ million plus any additional notes
that may be issued in the future.
The notes will mature on February 1, 2034. Interest on the notes will
accrue from February , 2004 at a rate of % per annum, computed on the basis
of a 360-day year of twelve 30-day months. Principal of, and premium, if any,
and interest on the notes will be payable, and the notes may be presented for
registration of transfer and exchange, at the office or agency of Forest City
maintained for that purpose in the Borough of Manhattan, The City of New York.
However, Forest City may, at its option, pay interest on the notes by check
mailed to the address of the person entitled thereto as it appears in the note
register. Until otherwise designated by Forest City, that office or agency will
be the corporate trust office of the trustee, as paying agent and registrar.
RANKING
The notes will be senior unsecured obligations of Forest City. The notes
will rank equally in right of payment will all other existing and future senior
unsecured indebtedness of Forest City.
The FCRPC credit agreement prohibits the payment of principal and interest
on the notes during the existence of a payment default under the FCRPC credit
agreement or the guaranty. The notes will be
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effectively subordinated to all our existing and future senior secured
indebtedness, to the extent of the value securing such indebtedness.
AMOUNT UNLIMITED; NOTES ISSUED AS A SERIES
We may issue additional notes under the indenture. The additional notes may
be in any amount and may be treated as part of the same series as the notes
offered hereby for purposes of the indenture. If we issue additional notes as
part of the same series as the notes, the additional notes and the notes will be
treated as a single series for all purposes of the indenture, including waivers,
amendments and redemptions. Under the terms of the indenture, we may also from
time to time issue other series of notes with interest rates, maturities and
other terms that are different than the notes. Unless the context otherwise
requires, all references in this description to the notes include any additional
notes issued as part of the same series.
BOOK-ENTRY, DELIVERY AND FORM
The notes will be issued in the form of a global note or notes. The
Depository Trust Company, New York, New York, will act as the depositary for the
global note or notes. Forest City will register the global note or notes in The
Depository Trust Company's name or in the name of its nominee. Except in the
circumstances described below, global notes may be transferred only to the
depositary or its nominee or to a successor of the depositary or its nominee.
The depositary has also advised us that pursuant to procedures established by
it:
-- upon the issuance by us of the global notes, the depositary will
credit the accounts of participants designated by the underwriters
with the principal amount of the global notes purchased by the
underwriters; and
-- ownership of beneficial interests in the global notes will be shown
on, and the transfer of that ownership will be effected only through,
records maintained by the depositary, with respect to participants'
interests, the participants and the indirect participants.
The laws of some states require that certain persons take physical delivery
in definitive form of securities which they own. Such limits and such laws may
impair the ability of such persons to own, transfer or pledge beneficial
interests in a global note.
You can find further information regarding global notes and the
depositary's procedures for global notes under "Description of Senior Debt
Securities We May Offer--Global Securities" in the accompanying prospectus.
Neither Forest City nor the trustee will have any responsibility or
liability for any aspect of the records relating to, or payments made on account
of, beneficial ownership interests in the global notes, or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests.
Principal, premium and interest payments on the global notes registered in
the name of the depositary or its nominee, as the case may be, will be made by
Forest City, either directly or through a paying agent, to the depositary or its
nominee, as the case may be, as the registered owner of the global notes. The
depositary has advised Forest City and the trustee that its present practice is,
upon receipt of any payment of principal, premium or interest, to credit
immediately the accounts of the relevant participants with payment in amounts
proportionate to their respective holdings in principal amount of beneficial
interests in the global notes as shown on the records of the depositary.
Payments by participants and indirect participants to owners of beneficial
interests in the global notes will be governed by standing instructions and
customary practices, as is now the case with securities held for the accounts of
customers in bearer form or registered in "street name" and will be the
responsibility of those participants or indirect participants.
As long as the notes are represented by the global notes, the depositary or
its nominee, as the case may be, will be the holder of the notes and therefore
will be the only entity that can exercise a right to cause the repurchase of the
notes. The circumstances under which we may be required to repurchase the notes
are described below under "--Repurchase at the Option of Holders--Asset
Dispositions" and "--Change of Control." Notice by participants or indirect
participants of the depositary or by owners of beneficial interests in
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global notes held through those participants or indirect participants of the
exercise of the option to elect repayment of beneficial interests in the notes
represented by the global notes must be transmitted to the depositary in
accordance with its procedures on a form required by the depositary and provided
to participants. In order to ensure that the depositary or its nominee, as the
case may be, will timely exercise a right to repayment with respect to a
particular note, the beneficial owner of that note must instruct the broker or
other participant or indirect participant through which it holds an interest in
that note to notify the depositary of its desire to exercise a right to
repayment. Different firms have cut-off times for accepting instructions from
their customers and, accordingly, each beneficial owner should consult the
broker or other participant or indirect participant through which it holds an
interest in a note in order to ascertain the cut-off time by which the
instruction must be given in order for timely notice to be delivered to the
depositary. Forest City will not be liable for any delay in delivery of notices
of the exercise of the option to elect repayment.
Forest City will issue notes in definitive form in exchange for the global
notes if:
-- the depositary is at any time unwilling or unable to continue as
depositary or has ceased to be a clearing agency registered under the
Exchange Act and, in each case, a successor depositary is not
appointed by Forest City within 90 days;
-- an Event of Default under the indenture or an event that with notice
or lapse of time, or both, would constitute an Event of Default under
the indenture will have occurred or be continuing; or
-- Forest City so requests.
In each such instance, an owner of a beneficial interest in the global
notes will be entitled to have notes equal in principal amount to its beneficial
interest registered in its name and will be entitled to physical delivery of
those notes in definitive form. The definitive notes will be registered in the
names as the depositary will instruct the trustee. Notes so issued in definitive
form will be issued in denominations of $25 and integral multiples of $25 and
will be issued in registered form only, without coupons.
OPTIONAL REDEMPTION
We may not redeem the notes before February , 2009. On and after February
, 2009, we may redeem the notes, at our option and at any time, in whole or
part, at a redemption price equal to 100% of their principal amount plus accrued
and unpaid interest up to but not including the date of redemption.
To redeem the notes as described in this section, Forest City must give at
least 30 and at most 60 days notice by mail to each holder of notes that are to
be redeemed. If Forest City redeems the notes, Forest City will pay any accrued
and unpaid interest to, but excluding, the redemption date. A redemption will
not affect the right of holders to receive interest on a scheduled interest
payment date that occurs prior to the redemption date. If Forest City redeems
less than all the notes, the trustee will select the notes for redemption in a
manner the Trustee deems fair and appropriate. Partial redemption will be made
in increments of $25.
MANDATORY REDEMPTION
Except as described below under "--Repurchase at the Option of
Holders--Asset Dispositions" and "--Change of Control," the notes will not have
the benefit of any obligation of Forest City to repurchase notes at the option
of the holders.
The notes will not have the benefit of any sinking fund.
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REPURCHASE AT THE OPTION OF HOLDERS
ASSET DISPOSITIONS
Forest City may not, and may not permit any Subsidiary to, make any Asset
Disposition in one or more related transactions unless:
(1) Forest City or the Subsidiary, as the case may be, receives
consideration for such disposition at least equal to the fair market value
for the assets sold or disposed of as determined by the Board of Directors
of Forest City in good faith; and
(2) all Net Available Proceeds, less any amounts invested within 365
days of such disposition in assets of Forest City or any Subsidiary thereof
used in a Permitted Business, including capital stock of an entity which is
engaged in a Permitted Business, are applied within 365 days of such
disposition to the permanent repayment or reduction of outstanding Debt
that ranks equally to the notes, or any outstanding Debt of any Subsidiary
of Forest City, the terms of which would require such application or
prohibit the repurchase of the notes.
The amount of Net Available Proceeds from any Asset Disposition less any amounts
used in a Permitted Business or applied to reduce Debt during the 365-day period
set forth in the preceding sentence constitutes "Excess Proceeds." Any Asset
Disposition resulting from a condemnation of a property by a court or
governmental agency having jurisdiction over such property will not be required
to comply with clause (1) above, but will otherwise be treated as an Asset
Disposition.
When the aggregate amount of Excess Proceeds exceeds $10,000,000, Forest
City will, within 30 days thereof, apply the Excess Proceeds:
(1) first, to make an Offer to Purchase outstanding notes at 100% of
their principal amount, plus accrued interest to the date of purchase, and,
to the extent required by the terms thereof, any other Debt of Forest City
that ranks equal to the notes at a price no greater than 100% of the
principal amount of that Debt, plus accrued interest to the date of
purchase;
(2) second, to the extent of any remaining Excess Proceeds following
the completion of the Offer to Purchase, to the repayment of other Debt of
Forest City that ranks equal to the notes, or any Debt of any Subsidiary of
Forest City; and
(3) third, to the extent of any remaining Excess Proceeds, to any
other use as determined by Forest City which is not otherwise prohibited by
the terms of the indenture.
Upon the completion of an Offer to Purchase pursuant to this paragraph, the
amount of Excess Proceeds will be reset to zero.
CHANGE OF CONTROL
Within 30 days of the occurrence of a Change of Control, Forest City will
be required to make an Offer to Purchase all outstanding notes at a purchase
price equal to 101% of their principal amount, plus accrued interest to the date
of purchase.
A "Change of Control" will occur when either:
(1) any person, other than a Permitted Holder, or any persons acting
together that would constitute a "group" for purposes of Section 13(d) of
the Exchange Act other than Permitted Holders, together with any Affiliates
or related persons thereof, will beneficially own, within the meaning of
Rule 13d-3 under the Exchange Act at least 30% of the aggregate voting
power of all classes of Forest City's Voting Stock; or
(2) any person or group, other than Permitted Holders, together with
any Affiliates or related persons thereof, will succeed in having a
sufficient number of its nominees elected to the Board of Directors of
Forest City such that such nominees, when added to any existing director
remaining on the
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Board of Directors of Forest City after such election who was a nominee of
or is an Affiliate or related person of such person or group, will
constitute a majority of the Board of Directors of Forest City.
In the event that Forest City makes an Offer to Purchase the notes, Forest
City intends to comply with any applicable securities laws and regulations,
including any applicable requirements of Section 14(e) of, and Rule 14e-1 under,
the Exchange Act.
In order for Forest City to purchase the notes upon a Change of Control, it
may be necessary for us to recapitalize and/or refinance some or all of our
outstanding indebtedness or to seek the consent of our lenders. We cannot assure
you that such recapitalization, refinancing or consent, if required, would be
accomplished or obtained on favorable terms, in a timely manner or at all.
Forest City's failure to make an Offer to Purchase or to purchase the notes
pursuant to an Offer to Purchase will constitute an Event of Default under the
indenture. See "--Events of Default."
TRADING CHARACTERISTICS
We expect the notes to trade at a price that takes into account the value,
if any, of accrued but unpaid interest. Purchasers will not pay, and sellers
will not receive, accrued and unpaid interest on the notes that is not included
in their trading price. However, for federal income tax purposes, the portion of
the trading price of a note that is equal to accrued interest will be treated as
ordinary interest income to the seller for federal income tax purposes and will
not be treated as part of the amount realized for purposes of determining gain
or loss on the disposition of the notes.
COVENANTS
The indenture contains, among others, the following covenants:
LIMITATION ON DEBT
Forest City may not Incur any Debt, and may not permit any Subsidiary of
Forest City to Incur any Debt, unless, immediately after giving effect to the
Incurrence of such Debt and the receipt and application of the proceeds thereof:
(1) Forest City's Consolidated EBITDA to Interest Ratio for the last
four full fiscal quarters for which quarterly or annual financial
statements are available would be greater than 1.3 to 1; and
(2) Forest City's Consolidated Adjusted Net Worth would be greater
than its Minimum Adjusted Net Worth.
This limitation does not apply to the Incurrence by Forest City or its
Subsidiaries of the following types of Debt:
(1) Debt Incurred by Forest City under its guarantee of the FCRPC
credit agreement or by any Subsidiary of Forest City under the FCRPC credit
agreement in an aggregate principal amount at any one time not to exceed
$350 million, and any renewal, extension, refinancing or refunding thereof,
including, without limitation, the replacement of the banks under the FCRPC
credit agreement with a new group of banks in an amount which, together
with any amount remaining outstanding or available under the FCRPC credit
agreement, does not exceed $350 million; provided that such refinancing or
refunding Debt does not have a Weighted Average Life that is less than the
Weighted Average Life of the Debt being refinanced or refunded;
(2) performance guarantees and performance bonds, surety bonds and
appeal bonds in each case incurred in the ordinary course of business and
consistent with past practices;
(3) Debt, other than Debt described in another clause of this
paragraph, outstanding on the date of original issuance of the notes
offered hereby after giving effect to the application of the proceeds of
the notes;
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(4) Debt owed by Forest City to any Wholly Owned Subsidiary of Forest
City for which fair value has been received or Debt owed by a Subsidiary of
Forest City to Forest City or a Wholly Owned Subsidiary of Forest City;
provided, however, that any such Debt owing by Forest City to a Wholly
Owned Subsidiary will be Subordinated Debt evidenced by an intercompany
promissory note and upon either the transfer or other disposition by such
Wholly Owned Subsidiary or Forest City of any Debt so permitted to a person
other than Forest City or another Wholly Owned Subsidiary of Forest City or
the issuance, other than directors' qualifying shares, sale, lease,
transfer or other disposition of shares of Capital Stock, including by
consolidation or merger, of such Wholly Owned Subsidiary to a person other
than Forest City or another such Wholly Owned Subsidiary, the provisions of
this clause (4) will no longer be applicable to such Debt and such Debt
will be deemed to have been Incurred at the time of such transfer or other
disposition;
(5) Debt Incurred by a person prior to the time such person became a
Subsidiary of Forest City, such person merged into or consolidated with a
Subsidiary of Forest City or another Subsidiary of Forest City merged into
or consolidated with such person, in a transaction in which such person
became a Subsidiary of Forest City, which Debt was not Incurred in
anticipation of such transaction and was outstanding prior to such
transaction, provided that after giving pro forma effect to such
transaction and treating any Debt as having been Incurred at the time of
such transaction, Forest City could Incur at least $1.00 of additional Debt
pursuant to the preceding paragraph;
(6) Development Debt Incurred by Forest City or any Subsidiary of
Forest City; provided that the Incurrence of all such Development Debt
would have been permitted under the limitations set forth in the preceding
paragraph on the date that the first $1.00 of such Debt was Incurred
determined as if all such Development Debt had been incurred on the initial
date of Incurrence; provided, further, that if all such Development Debt
could be Incurred by Forest City or any Subsidiary of Forest City on such
date in accordance with the immediately preceding provision, then
individual borrowings or draw downs in an aggregate amount of such
Development Debt will not be subject to the requirements of the preceding
paragraph;
(7) Debt Incurred by Forest City or any of its Subsidiaries consisting
of Permitted Interest Rate, Currency or Commodity Price Agreements;
(8) Debt which is exchanged for or the proceeds of which are used to
refinance or refund, or any extension or renewal of, outstanding Debt
Incurred pursuant to the preceding paragraph or clauses (3), (5) or (6) of
this paragraph (each of the foregoing, a "refinancing") in an aggregate
principal amount not to exceed the principal amount of the Debt so
refinanced, plus the amount of any premium required to be paid in
connection with such refinancing pursuant to the terms of the Debt so
refinanced or the amount of any premium reasonably determined by Forest
City or the relevant Subsidiary as necessary to accomplish such refinancing
by means of a tender offer or privately negotiated repurchase, plus the
expenses of Forest City or the Subsidiary, as the case may be, incurred in
connection with such refinancing; provided, however, that:
(a) in the case of any refinancing of Debt which is subordinated in
right of payment to the notes, the refinancing Debt is Incurred by
Forest City and constitutes Subordinated Debt;
(b) the refinancing Debt by its terms (i) does not have a Weighted
Average Life less than the Weighted Average Life of the Debt being
refinanced and does not have a maturity earlier than the final stated
maturity of the Debt being refinanced and (ii) does not permit
redemption or other retirement, including pursuant to an offer to
purchase, of such debt at the option of the holder thereof prior to the
final stated maturity of the Debt being refinanced, other than a
redemption or other retirement at the option of the holder of such Debt,
including pursuant to an offer to purchase, which is conditioned upon
provisions substantially similar to those described under "--Repurchase
at the Option of Holders--Asset Dispositions" and "--Change of Control";
and
(c) in the case of any refinancing of Debt Incurred by Forest City,
the refinancing Debt may be Incurred only by Forest City, and in the
case of any refinancing of Debt Incurred by a Subsidiary,
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the refinancing Debt may be Incurred only by such Subsidiary; provided,
further, that Debt Incurred pursuant to clause (8) above may not be
Incurred more than 45 days prior to the application of the proceeds to
repay the Debt to be refinanced; and
(9) Debt Incurred by Forest City or any Subsidiary of Forest City not
otherwise permitted to be Incurred pursuant to clauses (1) through (8)
above, which, together with any other outstanding Debt Incurred pursuant to
this clause (9), has an aggregate principal amount not in excess of $50
million at any time outstanding.
LIMITATION ON PREFERRED STOCK OF SUBSIDIARIES
Forest City may not cause, and may not permit, any Subsidiary of Forest
City to issue any Preferred Stock except:
(1) Preferred Stock held by a Wholly Owned Subsidiary or held by
Forest City;
(2) Preferred Stock of an entity when it is acquired which is
outstanding at the time of such acquisition and not incurred in
anticipation of such acquisition if Forest City could Incur Debt in an
amount equal to the liquidation value of such Preferred Stock pursuant to
the first paragraph of "--Limitation on Debt"; and
(3) Preferred Stock issued by a Subsidiary of Forest City, other than
Forest City Rental Properties Corporation, if:
(a) the liquidation value of the Preferred Stock is treated as Debt
Incurred at the time the Preferred Stock is issued for all purposes
under the indenture,
(b) all dividends on the Preferred Stock, whether or not declared
or paid, are treated as Consolidated Interest Expense, and
(c) at the time of the issuance of the Preferred Stock and after
giving effect to the issuance of the Preferred Stock as Debt Incurred at
the time of the issuance thereof, Forest City could Incur at least $1.00
of additional Debt pursuant to the first paragraph of "--Limitation on
Debt."
LIMITATION ON RESTRICTED PAYMENTS
Forest City:
(1) may not, and may not permit any Subsidiary of Forest City,
directly or indirectly, to declare or pay any dividend or make any
distribution, including any payment in connection with any merger or
consolidation derived from assets of Forest City or any Subsidiary, in
respect of its Capital Stock or to the holders thereof, excluding:
(a) any dividends or distributions by Forest City payable solely in
shares of its Capital Stock, other than Redeemable Stock, or in options,
warrants or other rights to acquire its Capital Stock, other than
Redeemable Stock,
(b) in the case of a Subsidiary of Forest City, dividends or
distributions payable to Forest City or a Wholly Owned Subsidiary of
Forest City, pro rata dividends or distributions payable solely in
shares of its Capital Stock, other than Redeemable Stock, or in options,
warrants or other rights to acquire its Capital Stock, other than
Redeemable Stock, and
(c) in the case of a Subsidiary of Forest City, dividends or
distributions payable pursuant to the terms of its organizational
documents;
(2) may not, and may not permit any Subsidiary to, purchase, redeem or
otherwise acquire or retire for value any Capital Stock of Forest City or
any options, warrants or other rights to acquire shares of Capital Stock of
Forest City or any securities convertible or exchangeable into shares of
Capital Stock of Forest City; and
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(3) may not, and may not permit any Subsidiary of Forest City to,
redeem, repurchase, defease or otherwise acquire or retire for value, prior
to any scheduled maturity, repayment or sinking fund payment, any Debt of
Forest City which is subordinate in right of payment to the notes.
(each of clauses (1) through (3) set forth above are referred to as a
"Restricted Payment"), if:
(a) an Event of Default, or an event that with the passing of time
or the giving of notice, or both, would constitute an Event of Default,
will have occurred and is continuing or would result from such
Restricted Payment,
(b) after giving pro forma effect to such Restricted Payment as if
such Restricted Payment had been made at the beginning of the applicable
four-fiscal-quarter period, Forest City could not Incur at least $1.00
of additional Debt pursuant to the first paragraph of "--Limitation on
Debt" above, or
(c) upon giving effect to such Restricted Payment, the aggregate of
all Restricted Payments from January 31, 2003 exceeds the sum of:
(i) 25% of the sum of--
(A) cumulative Consolidated Net Income, or, if negative,
less 100% of such deficit, of Forest City since January 31, 2003
through the last day of the last full fiscal quarter ending
immediately preceding the date of such Restricted Payment, taken
as a single accounting period, plus
(B) the amount of consolidated depreciation and amortization
and deferred taxes included in such Consolidated Net Income, less
(C) the amount of ordinary and necessary expenditures for
the purpose of maintaining the real and personal property of
Forest City and its Subsidiaries in a state of good repair that
was included in such Consolidated Net Income or that was
capitalized and included on the consolidated balance sheet of
Forest City and its Subsidiaries since January 31, 2003; plus
(ii) 100% of the aggregate net proceeds received by Forest City
after the date of original issuance of the notes, including the fair
market value of property other than cash (determined in good faith by
the Board of Directors of Forest City), from contributions of capital
or the issuance and sale (other than to a Subsidiary) of Capital
Stock (other than Redeemable Stock) of Forest City, options, warrants
or other rights to acquire Capital Stock (other than Redeemable
Stock) of Forest City and the principal amount (or, in the case of
Debt issued at a discount, the accreted value of such Debt) of Debt
of Forest City that has been converted into or exchanged for Capital
Stock (other than Redeemable Stock and other than by or from a
Subsidiary) of Forest City after the date of original issuance of the
notes, so long as any net proceeds received by Forest City from an
employee stock ownership plan financed by loans from Forest City or a
Subsidiary of Forest City will be included only to the extent such
loans have been repaid with cash on or prior to the date of
determination; plus
(iii) $30 million.
The restrictions in the preceding paragraph will not apply to the following
(so long as no Event of Default, or event that with the passing of time or the
giving of notice, or both, would constitute an Event of Default, will have
occurred and is continuing or would result therefrom):
(1) Forest City and any Subsidiary of Forest City may pay any dividend
on Capital Stock of any class within 60 days after the declaration thereof
if, on the date when the dividend was declared, Forest City or such
Subsidiary could have paid such dividend in accordance with the prior
paragraph;
(2) Forest City may refinance any Debt otherwise permitted by clause
(8) of the second paragraph under "--Limitation on Debt" above or solely in
exchange for or out of the net proceeds of the substantially concurrent
sale, other than from or to a Subsidiary or from or to an employee stock
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ownership plan financed by loans from Forest City or a Subsidiary of Forest
City, of shares of Capital Stock, other than Redeemable Stock, of Forest
City so long as the amount of net proceeds from such exchange or sale will
be excluded from the calculation of the amount available for Restricted
Payments pursuant to the preceding paragraph;
(3) Forest City may purchase, redeem, acquire or retire any shares of
Capital Stock of Forest City solely in exchange for or out of the net
proceeds of the substantially concurrent sale, other than from or to a
Subsidiary or from or to an employee stock ownership plan financed by loans
from Forest City or a Subsidiary of Forest City, of shares of Capital
Stock, other than Redeemable Stock, of Forest City;
(4) Forest City may purchase or redeem any Debt from Net Available
Proceeds to the extent permitted under "--Repurchase at the Option of
Holders--Asset Dispositions;" and
(5) Forest City may make payments with respect to the extinguishment
of fractional or odd lot shares of its Capital Stock in an aggregate amount
not in excess of $250,000.
LIMITATIONS CONCERNING DISTRIBUTIONS BY AND TRANSFERS TO SUBSIDIARIES
Forest City may not, and may not permit any Subsidiary of Forest City,
directly or indirectly, to suffer to exist or become effective any consensual
encumbrance or restriction on the ability of any Subsidiary of Forest City to:
(1) pay dividends, in cash or otherwise, or make any other
distributions in respect of its Capital Stock or pay any Debt or other
obligation owed to Forest City or any other Subsidiary of Forest City;
(2) make loans or advances to Forest City or any other Subsidiary; or
(3) transfer any of its property or assets to Forest City or any other
Subsidiary.
The limitations in the preceding paragraph will not apply to any encumbrance or
restriction:
(1) pursuant to any agreement in effect on the date of original
issuance of the notes, including the FCRPC credit agreement;
(2) pursuant to any future senior credit facility between Forest City
Rental Properties Corporation and any financial institution or institutions
or a senior credit facility between Forest City Trading Group, Inc. and a
financial institution or institutions so long as any encumbrance or
restriction contained therein permits Forest City Rental Properties
Corporation and Forest City Trading Group, Inc. to make dividends, loans or
advances to Forest City:
(a) in amounts sufficient to pay, when due, all interest payments
in respect of Debt of Forest City, including the notes,
(b) amounts sufficient to pay, when due, all taxes of Forest City,
and
(c) except in the case of any default by Forest City Rental
Properties Corporation under any such future credit facility, not less
than $5.0 million per fiscal year to pay administrative and other
expenses of Forest City, provided that any future credit facility may
contain encumbrances or restrictions that restrict the applicable
Subsidiary's ability to make distributions to Forest City in the event
that Forest City Rental Properties Corporation fails to make any payment
of principal, interest or other amounts when due in accordance with the
terms of the future credit facility, after giving effect to any
applicable grace periods;
(3) pursuant to an agreement relating to any Debt Incurred by a person
prior to the date on which such person became a Subsidiary of Forest City
and outstanding on such date and not Incurred in anticipation of becoming a
Subsidiary, which encumbrance or restriction is not applicable to any
person, or the properties or assets of any person, other than the person so
acquired;
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(4) pursuant to an agreement entered into by a Subsidiary of Forest
City in connection with the acquisition, development, construction or
improvement of real property so long as such agreement is required by a
third party prior to making capital contributions, or extending credit, to
the Subsidiary; or
(5) pursuant to an agreement effecting a renewal, refunding or
extension of Debt Incurred pursuant to an agreement referred to in clauses
(1) through (4) above, including, solely for purposes of this clause (5),
renewals, refinancings and extensions of Debt Incurred pursuant to an
agreement referred to in clause (4) above that are in excess of the
original amount of such Debt, so long as the provisions contained in the
renewal, refunding or extension agreement relating to such encumbrance or
restriction are no more restrictive in any material respect than the
provisions contained in the agreement the subject thereof, in the
reasonable judgment of the Chief Executive Officer of Forest City.
LIMITATION ON SALE AND LEASEBACK TRANSACTIONS
Forest City may not, and may not permit any Subsidiary to, enter into any
Sale and Leaseback Transaction unless all of the conditions of the indenture
described under "--Repurchase at the Option of Holders--Asset Dispositions,"
including the provisions concerning the application of Net Available Proceeds,
are satisfied with respect to such Sale and Leaseback Transaction, treating all
of the consideration received in such Sale and Leaseback Transaction as Net
Available Proceeds for purposes of such covenant.
LIMITATION ON LAYERED DEBT OF SUBSIDIARIES
Forest City may not permit any Subsidiary to Incur any Debt that is by its
terms subordinate in right of payment to the FCRPC credit agreement.
LIMITATION ON LIENS
Forest City may not, and may not permit any Subsidiary of Forest City to,
Incur or suffer to exist any Lien to secure Debt on or with respect to any
property or assets now owned or hereafter acquired if the Lien secures Debt
that:
(1) ranks equal to the notes, unless the notes are secured on an equal
and ratable basis with the obligations so secured until such time as such
obligation is no longer secured by a Lien; or
(2) is subordinated to the notes, unless any such Lien will be
subordinated to the Lien granted to the holders of the notes to the same
extent as such subordinated Debt is subordinated in right of payment to the
notes.
The restriction in the preceding paragraph will not apply to:
(1) Liens on property or other assets of Forest City as described in
the definition of Purchase Money Debt to secure Purchase Money Debt
otherwise permitted under the indenture; or
(2) Liens to secure Debt Incurred to extend, renew, refinance or
refund, or successive extensions, renewals, refinancings or refundings, in
whole or in part, of, Purchase Money Debt secured by a Lien so long as such
Lien does not extend to any other property and the principal amount, or, in
the case of Debt issued at a discount, the accreted value thereof, of Debt
so secured is not increased.
LIMITATION ON ISSUANCES AND SALES OF CAPITAL STOCK OF SUBSIDIARIES
Subject to the "Mergers, Consolidations and Certain Sales of Assets"
covenant, if applicable, Forest City may not permit any Subsidiary of Forest
City to:
(1) transfer, convey, sell, lease or otherwise dispose of any Capital
Stock of the Subsidiary or any other Subsidiary of Forest City to any
person, other than Forest City or a Wholly Owned Subsidiary of Forest City;
and
(2) issue shares of Capital Stock, other than directors' qualifying
shares and other than to Forest City or a Wholly Owned Subsidiary of Forest
City,
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unless, in either case, if:
(a) in the case of any Subsidiary of Forest City other than Forest
City Rental Properties Corporation, the Net Available Proceeds from the
sale, assignment, transfer, issuance or conveyance are applied in
accordance with the provisions of the indenture described under
"--Repurchase at the Option of Holders--Asset Dispositions," including
the provisions relating to the application of Net Available Proceeds; or
(b) the issuance of Preferred Stock which is permitted by the
provisions described under "--Limitation on Preferred Stock of
Subsidiaries."
TRANSACTIONS WITH AFFILIATES AND RELATED PERSONS
Forest City may not, and may not permit any Subsidiary of Forest City to,
enter into any transaction, or series of related transactions, with an Affiliate
or related person of Forest City, other than Forest City or a Wholly Owned
Subsidiary of Forest City, including any Investment, either directly or
indirectly, unless such transaction is on terms no less favorable to Forest City
or such Subsidiary than those that could be obtained in a comparable
arm's-length transaction with an entity that is not an Affiliate or related
person and is in the best interests of Forest City or such Subsidiary. For any
transaction that involves:
(1) in excess of $1 million but less than or equal to $5 million, the
Chief Executive Officer of Forest City will determine that the transaction
satisfies the criteria;
(2) in excess of $5 million, a majority of the disinterested members
of the Board of Directors will determine that the transaction satisfies the
criteria; and
(3) in excess of $20 million, Forest City will also obtain an opinion
from a nationally recognized expert with experience in appraising the terms
and conditions of the type of transaction, or series of related
transactions, for which the opinion is required stating that such
transaction, or series of related transactions, is on terms no less
favorable to Forest City or such Subsidiary than those that could be
obtained in a comparable arm's-length transaction with an entity that is
not an Affiliate or related person of Forest City.
PROVISION OF FINANCIAL INFORMATION
Whether or not Forest City is required to file reports with the SEC
pursuant to the Exchange Act, Forest City will file with the SEC the annual
reports, quarterly reports and other documents which Forest City would have been
required to file with the SEC if Forest City were so required. Forest City will
also distribute copies of these reports to all holders of the notes upon their
written request by mail as their names and addresses appear in the security
register. These reports will be available on the SEC's website.
MERGERS, CONSOLIDATIONS AND CERTAIN SALES OF ASSETS
Forest City may not, in a single transaction or a series of related
transactions,
(1) consolidate with or merge into or reorganize with or into any
other person or permit any other person to consolidate with or merge into
or reorganize with or into Forest City; or
(2) directly or indirectly, transfer, convey, sell, lease or otherwise
dispose of all or substantially all of its assets to any other person,
unless, in each case:
(a) in a transaction, or series of transactions, in which Forest
City does not survive or in which Forest City sells, leases or otherwise
disposes of all or substantially all of its assets, the successor entity
to Forest City is organized under the laws of the United States of
America or any State thereof or the District of Columbia and expressly
assumes all of Forest City's obligations under the indenture;
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(b) immediately before and after giving effect to such transaction,
or series of transactions, and treating any Debt which becomes an
obligation of Forest City or a Subsidiary as a result of such
transaction, or series of transactions, as having been Incurred by
Forest City or such Subsidiary at the time of the transaction, or series
of transactions, no Event of Default or event that with the passing of
time or the giving of notice, or both, would constitute an Event of
Default will have occurred and be continuing;
(c) immediately after giving effect to such transaction, or series
of transactions, the Consolidated Net Worth of Forest City, or successor
entity to Forest City, is equal to or greater than 90% of Forest City's
Consolidated Net Worth immediately prior to the transaction, or series
of transactions;
(d) immediately after giving effect to such transaction, or series
of transactions, and treating any Debt which becomes an obligation of
Forest City or a Subsidiary as a result of such transaction, or series
of transactions, as having been Incurred by Forest City or such
Subsidiary at the time of the transaction, or series of transactions,
Forest City, including any successor entity to Forest City, after giving
pro forma effect thereto as if such transaction, or series of
transactions, had occurred at the beginning of the most recently ended
four full fiscal quarter period for which financial statements are
available immediately preceding the date of such transaction, or series
of transactions, could Incur at least $1.00 of additional Debt pursuant
to the Consolidated EBITDA to Interest Ratio test and the test of the
excess of Forest City's Consolidated Adjusted Net Worth over Forest
City's Minimum Adjusted Net Worth, each set forth in the first paragraph
under "--Covenants--Limitation on Debt"; and
(e) if, as a result of any such transaction, property and assets of
Forest City or any Subsidiary would become subject to a Lien which would
not be permitted by the limitation set forth under
"--Covenants--Limitation on Liens", Forest City or, if applicable, the
successor entity, as the case may be, takes such steps as are necessary
to secure the notes equally and ratably with, or prior to, the Debt
secured by such Lien.
GAAP
All reference to accounting terms that are not defined below and all
references to "generally accepted accounting principles" with respect to any
computation required or permitted under the indenture mean the accounting
principles as are generally accepted at the date of the indenture.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
indenture. Reference is made to the indenture for the full definition of all
such terms, as well as any other terms used herein for which no definition is
provided.
"Affiliate" of any person means any other person directly or indirectly
controlling or controlled by or under direct or indirect common control with
that person. For the purposes of this definition, "control," when used with
respect to any person, means the power to direct the management and policies of
that person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Asset Disposition" by any person means any transfer, conveyance, sale,
lease or other disposition by that person or any of its Subsidiaries (including
a consolidation or merger or other sale of any Subsidiary with, into or to
another person in a transaction in which the Subsidiary ceases to be a
Subsidiary) of:
(1) shares of Capital Stock, other than directors' qualifying shares,
or other ownership interests of a Subsidiary of that person;
(2) substantially all of the assets of that person or any of its
Subsidiaries representing a division or line of business; or
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(3) other assets or rights of that person or any of its Subsidiaries
outside of the ordinary course of business.
The following dispositions are not treated as Asset Dispositions:
(1) a disposition by a Subsidiary of that person to that person or a
Wholly Owned Subsidiary of that person or by that person to a Wholly Owned
Subsidiary of that person; and
(2) a disposition resulting from foreclosure on the mortgage
underlying a property or the transfer of the deed or other instrument of
title in lieu of foreclosure on a property (provided that in each case the
Debt underlying that property has matured).
"Capital Lease Obligation" of any person means the obligation to pay rent
or other payment amounts under a lease of, or other Debt arrangements conveying
the right to use, real or personal property of that person which is required to
be classified and accounted for as a capital lease or a liability on the face of
a balance sheet of that person in accordance with generally accepted accounting
principles. The stated maturity of the obligation will be the date of the last
payment of rent or any other amount due under the lease prior to the first date
upon which the lease may be terminated by the lessee without payment of a
penalty. The principal amount of an obligation will be the capitalized amount
thereof that would appear on the face of a balance sheet of the person prepared
in accordance with generally accepted accounting principles.
"Capital Stock" of any person means any and all shares, interests,
participations or other equivalents, however designated, of corporate stock or
other equity participations or interests, including partnership interests,
whether general or limited, and membership interests whether managing or
non-managing, of that person.
"Cash Equivalents" means, at any time,
(1) any Debt, other than any Debt issued at a discount, fully
guaranteed as to principal and interest by the United States of America or
any agency or instrumentality thereof, provided that the full faith and
credit of the United States is pledged in support thereof;
(2) certificates of deposit of any financial institution that has
combined capital and surplus and undivided profits of not less than
$50,000,000, or the equivalent thereof in another currency, and has a
long-term debt rating of at least "AA" by Standard & Poor's Ratings Group
or at least "Aa3" by Moody's Investors Service, Inc.; or
(3) commercial paper issued by a corporation, other than Forest City
or any Subsidiary thereof, organized under the laws of any State of the
United States and rated at least A-1 by Standard & Poor's Ratings Group and
at least P-1 by Moody's Investors Service, Inc.
"Common Development" of a person means multiple parcels of real or personal
property that are acquired, developed, constructed or improved by that person in
conjunction with, and as part of a written plan or arrangement with, a
non-Affiliated person, or with a group of persons under the common control of a
non-Affiliated person.
"Common Stock" of any person means Capital Stock of that person which does
not rank prior, as to the payment of dividends or as to other amounts upon any
voluntary or involuntary liquidation, dissolution or winding-up of that person,
to shares of Capital Stock of any other class of that person.
"Consolidated Adjusted Net Worth" of Forest City means, at any date, the
Consolidated Net Worth of Forest City plus:
(1) the consolidated accumulated depreciation and amortization of
Forest City as of January 31, 2003; and
(2) the consolidated depreciation and amortization expense of Forest
City for the period from February 1, 2003 through the date of any
determination,
determined in each case on a consolidated basis in accordance with generally
accepted accounting principles.
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"Consolidated EBITDA" of any person means, for any period the Consolidated
Net Income of that person for the period, plus:
(1) Consolidated Interest Expense of that person for the period;
(2) interest expense in respect of Non-Recourse Debt not paid in cash,
but only to the extent deducted from interest expense in determining
Consolidated Interest Expense for the period;
(3) Consolidated Income Tax Expense of that person for the period
(after deducting the portion of that Consolidated Income Tax Expense, if
any, included in Consolidated Net Income of that person for the period
pursuant to clause (8) of the definition of Consolidated Net Income); and
(4) the consolidated depreciation and amortization expense taken into
account in determining the Consolidated Net Income of that person for the
period.
"Consolidated EBITDA to Interest Ratio" of any person means for any period
(the "Reference Period") with respect to any date of calculation (the
"Transaction Date") the ratio of Consolidated EBITDA of that person for the
period to Consolidated Interest Expense of that person for that period. In
making this calculation,
(1) pro forma effect will be given to any Debt, other than
Non-Recourse Debt, Incurred during the Reference Period or subsequent to
the end of the Reference Period and on or prior to the Transaction Date to
the extent that Debt is outstanding at the Transaction Date, in each case
as if that Debt had been Incurred on the first day of the Reference Period
and after giving pro forma effect to the application of the proceeds
thereof as if such application had occurred on such first day;
(2) Consolidated Interest Expense attributable to interest on any
Debt, whether existing or being Incurred, other than Non-Recourse Debt,
computed on a pro forma basis and bearing a floating interest rate, will be
computed as if the rate in effect on the Transaction Date, taking into
account any Permitted Interest Rate, Currency or Commodity Price Agreement
applicable to that Debt if such Permitted Interest Rate, Currency or
Commodity Price Agreement has a remaining term in excess of 12 months or at
least equal to the remaining term of that Debt, had been the applicable
rate for the entire period;
(3) there will be excluded from Consolidated Interest Expense an
amount equal to the portion of Consolidated Interest Expense, if any,
related to any amount of Debt, other than Non-Recourse Debt, that was
outstanding during the Reference Period or thereafter, but that is not
outstanding or is to be repaid on the Transaction Date; and
(4) pro forma effect will be given to Asset Dispositions and asset
acquisitions by that person, including giving pro forma effect to the
application of proceeds of any Asset Dispositions, that occur during the
Reference Period or thereafter and prior to the Transaction Date as if they
had occurred and the proceeds had been applied on the first day of the
Reference Period.
"Consolidated Income Tax Expense" of any person for any period means the
consolidated provision for income taxes of that person for the period calculated
on a consolidated basis in accordance with generally accepted accounting
principles.
"Consolidated Interest Expense" of any person means for any period the
consolidated interest expense as set forth on a consolidated income statement of
that person and its subsidiaries for the period, after deducting:
(1) any consolidated interest income; and
(2) any interest expense in respect of Non-Recourse Debt not paid in
cash,
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in each case to the extent included in the income statement of that person and
its Subsidiaries for the period, calculated on a consolidated basis in
accordance with generally accepted accounting principles, including without
limitation or duplication (or, to the extent not so included, with the addition
of),
(a) the amortization of Debt discounts;
(b) any payments or fees with respect to letters of credit,
bankers' acceptances or similar facilities;
(c) fees with respect to Interest Rate, Currency or Commodity Price
Agreements;
(d) Preferred Stock dividends of Forest City and its Subsidiaries
(other than with respect to Redeemable Stock) declared, whether paid or
payable, in the period;
(e) accrued Redeemable Stock dividends of Forest City and its
Subsidiaries, whether or not declared or paid;
(f) interest on Debt guaranteed by that person or any of its
Subsidiaries;
(g) the portion of any rental obligation or Capital Lease
Obligation allocable to interest expense but only to the extent that
amount exceeds $750,000 on a consolidated basis; and
(h) the portion of the rental obligation in respect of any Sale and
Leaseback Transaction allocable to interest expense, determined as if
such obligation were a Capital Lease Obligation, but only to the extent
that amount exceeds $750,000 on a consolidated basis.
"Consolidated Net Income" of any person means for any period the
consolidated net income (or loss) of that person and its Subsidiaries for the
period determined in accordance with generally accepted accounting principles,
excluding:
(1) the net income (but not the net loss) of any Subsidiary of that
person which is subject to restrictions which prevent the payment of
dividends and the making of distributions (by loans, advances, intercompany
transfers or otherwise) to that person to the extent of such restrictions;
(2) the equity in earnings of unconsolidated entities of that person
except to the extent of the aggregate amount of dividends or other
distributions actually paid to that person by that other person during the
period (in no event, however, in an amount greater than the equity in
earnings of unconsolidated entities of that person);
(3) gains or losses on disposition of properties by that person and
its Subsidiaries as set forth on an income statement of that person
prepared in accordance with generally accepted accounting principles;
(4) the cumulative effect of changes in accounting principles in the
year of adoption of the changes;
(5) all extraordinary items of that person and its Subsidiaries as set
forth on an income statement of that person prepared in accordance with
generally accepted accounting principles;
(6) gains and losses from the early retirement or extinguishment of
Debt;
(7) all gains or losses of that person and its Subsidiaries resulting
from the disposal of a segment of a business of that person determined in
each case in accordance with Accounting Principles Board Opinion No. 30 as
set forth on an income statement of that person prepared in accordance with
generally accepted accounting principles; provided, however, that the gains
and losses will be excluded only to the extent the items are not included
within extraordinary gains or extraordinary losses of that person, and
provided further, however, that in no event will the amounts be excluded
beyond the fiscal year in which the disposal occurred;
(8) the provision for decline in real estate as set forth on an income
statement of that person prepared in accordance with generally accepted
accounting principles; and
(9) the tax effect of any of the items described in clauses (1)
through (8) above.
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"Consolidated Net Worth" of any person means, at any date, the consolidated
stockholders' equity of that person, determined on a consolidated basis in
accordance with generally accepted accounting principles, less amounts
attributable to Redeemable Stock of that person.
"consolidation" means, with respect to any person, the consolidation of the
accounts of that person with the accounts of each person in which that person,
directly or indirectly, owns an interest, if and to the extent the accounts of
that person would be consolidated with the accounts of that person in accordance
with generally accepted accounting principles.
"Debt" means, without duplication, with respect to any person, whether
recourse is to all or a portion of the assets of that person and whether or not
contingent:
(1) every obligation of that person for money borrowed;
(2) every obligation of that person evidenced by bonds, debentures,
notes or other similar instruments, including obligations Incurred in
connection with the acquisition of property, assets or businesses;
(3) every reimbursement obligation of that person with respect to
letters of credit, bankers' acceptances or similar facilities issued for
the account of that person;
(4) every obligation of that person issued or assumed as the deferred
purchase price of property or services, including securities repurchase
agreements, but excluding trade accounts payable or accrued liabilities
arising in the ordinary course of business which are not overdue or which
are being contested in good faith;
(5) every Capital Lease Obligation of that person;
(6) all Receivables Sales of that person, together with any obligation
of that person to pay any discount, interest, fees, indemnities, penalties,
recourse, expenses or other amounts in connection therewith;
(7) all Redeemable Stock issued by that person;
(8) every obligation to pay rent or other payment amounts of that
person with respect to any Sale and Leaseback Transaction to which that
person is a party (including, if applicable, the full payment obligation of
that person at expiry of the lease arrangement assuming no refinancing or
third-party sale);
(9) every obligation under Interest Rate, Currency or Commodity Price
Agreements of that person; and
(10) every obligation of the type referred to in clauses (1) through
(9) above of another person and all dividends or other distributions of
another person the payment of which, in either case, that person has
guaranteed or for which that person is responsible or liable, directly or
indirectly, as obligor, guarantor or otherwise.
The "amount" or "principal amount" of Debt is determined as follows:
(1) any contingent Debt, will be the maximum liability upon the
occurrence of the contingency giving rise to the obligation, unless the
underlying contingency has not occurred and the occurrence of the
underlying contingency is entirely within the control of Forest City;
(2) any Debt issued at a price that is less than the principal amount
at maturity thereof, will be the amount of the liability in respect thereof
determined in accordance with generally accepted accounting principles;
(3) any Receivables Sale, will be the amount of the unrecovered
capital or principal investment of the purchaser, other than Forest City or
a Wholly Owned Subsidiary of Forest City, as of the time of determination,
excluding amounts representative of yield or interest earned on the
investment; and
S-30
(4) any Redeemable Stock, will be the maximum fixed redemption or
repurchase price in respect thereof.
"Development Debt" of any person means Debt of that person or any
mortgages, indentures, instruments or agreements under which there may be issued
or existing or by which there may be secured or evidenced any Debt of that
person Incurred for the purpose of financing all or any part of the cost of
acquiring, developing, constructing or improving, real or personal property that
is owned or that immediately after the Incurrence of such Debt, will be owned,
by that person so long as:
(1) the principal amount of any the Debt does not exceed 100% of the
cost of such acquisition, development, construction or improvement, plus
expenses incurred in connection with the Incurrence of the Debt;
(2) such cost will be included in "Total Real Estate" on the
consolidated balance sheet of that person; and
(3) if such Debt is secured by a Lien, then (a) the Lien attached to
the real or personal property prior to, at the time of, or within 180 days
after the acquisition of or the completion of developing, constructing or
improving of the property and (b) the Lien does not extend to or cover any
property other than the specific item of such property, or portion thereof,
acquired, developed, constructed, or constituting the improvements made
with the proceeds of the Debt, except in the case of Common Development, in
which case such Lien may extend to any other property included within the
Common Development.
"Exchange Act" refers to the Securities Exchange Act of 1934 as it may be
amended from time to time and any successor act thereto.
"fair market value" means the price that would be paid in an arm's-length
transaction between an informed and willing seller under no compulsion to sell
and an informed and willing buyer under no compulsion to buy.
"FCRPC credit agreement" means the credit agreement, dated as of March 5,
2002, as amended as of May 9, 2003, among Forest City Rental Properties
Corporation, an Ohio corporation, as borrower, various lending institutions
named therein, Keybank National Association, individually and as administrative
agent, and National City Bank, individually and as syndication agent, and any
Debt the proceeds of which are used to renew, extend, refinance or replace the
FCRPC credit agreement and any Debt Incurred in connection with any subsequent
or successive renewal, extension or refinancing of that Debt.
"FCRPC guaranty" means the Guaranty of Payment of Debt, dated as of March
5, 2002, as amended as of May 9, 2003, by Forest City of the obligations under
the FCRPC credit agreement and any guarantee by Forest City, of any renewal,
extension, refinancing or replacement of the FCRPC credit agreement.
"guarantee" by any person means any obligation, contingent or otherwise, of
that person guaranteeing, or having the economic effect of guaranteeing, any
Debt of any other person (the "primary obligor") in any manner, whether directly
or indirectly, and including, without limitation, any obligation of that person,
(1) to purchase or pay, or advance or supply funds for the purchase or
payment of, the Debt or to purchase, or to advance or supply funds for the
purchase of, any security for the payment of the Debt;
(2) to purchase property, securities or services for the purpose of
assuring the holder of the Debt of the payment of the Debt; or
(3) to maintain working capital, equity capital or other financial
statement condition or liquidity of the primary obligor so as to enable the
primary obligor to pay the Debt,
provided, however, that the guaranty by any person will not include endorsements
by that person for collection or deposit, in either case, in the ordinary course
of business.
"Incur" means, with respect to any Debt or other obligation of any person,
to create, issue, incur (by conversion, exchange or otherwise) assume, guarantee
or otherwise become liable in respect of the Debt or
S-31
other obligation, including by acquisition of Subsidiaries, or the recording, as
required pursuant to generally accepted accounting principles or otherwise, of
the Debt or other obligation on the balance sheet of that person; provided,
however, that a change in generally accepted accounting principles that results
in an obligation of that person that exists at such time becoming Debt will not
be deemed an Incurrence of such Debt.
"Interest Rate, Currency or Commodity Price Agreement" of any person means
any forward contract, futures contract, swap, option or other financial
agreement or arrangement, including, without limitation, caps, floors, collars
and similar agreements, relating to, or the value of which is dependent upon,
interest rates, currency exchange rates or commodity prices or indices,
excluding contracts for the purchase or sale of goods in the ordinary course of
business.
"Investment" by any person in any other person means:
(1) any direct or indirect loan, advance or other extension of credit
or capital contribution to or for the account of the other person, by means
of any transfer of cash or other property to any person or any payment for
property or services for the account or use of any person, or otherwise;
(2) any direct or indirect purchase or other acquisition, including by
way of merger or consolidation, of any Capital Stock, bond, note,
debenture, or other debt or equity security or evidence of Debt, or any
other ownership interest, issued by the other person, whether or not the
acquisition is from that or any other person;
(3) any direct or indirect payment by the person on a guarantee of any
obligation of or for the account of the other person or any direct or
indirect issuance by the person of a guarantee; or
(4) any other investment of cash or other property by the person in or
for the account of the other person, but will not include trade accounts
receivable in the ordinary course of business on credit terms made
generally available to the customers of the person.
"Lien" means, with respect to any property or assets, any mortgage or deed
of trust, pledge, hypothecation, assignment, Receivables Sale, deposit
arrangement, security interest, lien, charge, easement (other than any easement
not materially impairing usefulness or marketability), encumbrance, preference,
priority or other security agreement or preferential arrangement of any kind or
nature whatsoever on or with respect to the property or assets, including,
without limitation, any conditional sale or other title retention agreement
having substantially the same economic effect as any of the foregoing or any
agreement to give any security interest.
"Material Subsidiary" means any Subsidiary of Forest City deemed a
"significant subsidiary" for purposes of Rule 1-02(w) of Regulation S-X under
the Securities Act.
"Minimum Adjusted Net Worth" of Forest City means, as of any date, the sum
of:
(1) $900 million;
(2) the amount of Recourse Debt Incurred after the date of original
issuance of the notes that is outstanding on any date of determination, but
only to the extent the amount of that Debt then outstanding exceeds $675
million; and
(3) 25% of Forest City's consolidated net income (or zero in the case
of a consolidated net loss) determined in accordance with generally
accepted accounting principles for the period from February 1, 2003 through
the date of any determination, determined on a consolidated basis in
accordance with generally accepted accounting principles.
"Net Available Proceeds" from any Asset Disposition by any person means
cash or readily marketable Cash Equivalents received, including by way of sale
or discounting of a note, installment receivable or other receivable, but
excluding any other consideration received in the form of assumption by the
acquiree of Debt
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or other obligations relating to such properties or assets or received in any
other noncash form, therefrom by that person, net of:
(1) all legal, title and recording tax expenses, commissions and other
fees and expenses Incurred and all federal, state, provincial, foreign and
local taxes required to be accrued as a liability as a consequence of the
Asset Disposition;
(2) all payments made by the person or its Subsidiaries on any Debt
which is secured by the assets in accordance with the terms of any Lien
upon or with respect to the assets or which must by the terms of the Lien,
or in order to obtain a necessary consent to the Asset Disposition or by
applicable law, be repaid out of the proceeds from the Asset Disposition;
(3) all distributions and other payments made to minority interest
holders in Subsidiaries of the person or joint ventures as a result of the
Asset Disposition; and
(4) appropriate amounts to be provided by the person or any Subsidiary
thereof, as the case may be, as a reserve in accordance with generally
accepted accounting principles against any liabilities associated with the
assets and retained by the person or any Subsidiary thereof, as the case
may be, after the Asset Disposition, including, without limitation,
liabilities under any indemnification obligations and severance and other
employee termination costs associated with the Asset Disposition, in each
case as determined by the Board of Directors, in its reasonable good faith
judgment; provided, however, that any reduction in the reserve within
twelve months following the consummation of such Asset Disposition will be
treated as a new Asset Disposition at the time of the reduction with Net
Available Proceeds equal to the amount of the reduction.
"Non-Recourse" as applied to any Debt means Debt of a person, or any
portion thereof, to the extent that, under the terms thereof, no personal
recourse may be had against that person or any affiliate of that person for the
payment of all or a portion of the principal of or interest or premium on the
Debt, and enforcement of obligations on the Debt, except with respect to fraud,
willful misconduct, intentional misrepresentation, misapplication of funds,
waste and undertakings with respect to environmental matters, is limited only to
recourse against interests in specified assets and properties owned by that
person, accounts and proceeds arising therefrom, and rights under purchase
agreements or other agreements relating to such assets.
"Offer to Purchase" means a written offer sent by Forest City to each
holder of the notes offering to purchase up to the principal amount of notes
specified in the offer at the purchase price specified in the offer. The offer
will, unless otherwise required by applicable law, specify an expiration date of
the Offer to Purchase which will be not less than 30 days or more than 60 days
after the date of the offer and a settlement date (the "Purchase Date") for
purchase of notes within three Business Days after the expiration date. Forest
City will notify the Trustee at least 15 Business Days (or such shorter period
as is acceptable to the Trustee) prior to the mailing of the offer of Forest
City's obligation to make an Offer to Purchase, and the offer will be mailed by
Forest City or by the Trustee, at the request of Forest City, in the name and at
the expense of Forest City. The offer will contain information concerning the
business of Forest City and its Subsidiaries which Forest City in good faith
believes will enable such holders to make an informed decision with respect to
the Offer to Purchase, which at a minimum will include:
(1) the most recent annual and quarterly financial statements and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" contained in the documents required to be filed with the
trustee pursuant to the provisions described under "--Covenants--Provision
of Financial Information" which requirements may be satisfied by delivery
of such documents together with the offer;
(2) a description of material developments in Forest City's business
subsequent to the date of the latest of such financial statements referred
to in clause (1) above, including a description of the events requiring
Forest City to make the Offer to Purchase;
(3) if applicable, appropriate pro forma financial information
concerning the Offer to Purchase and the events requiring Forest City to
make the Offer to Purchase; and
(4) any other information required by applicable law to be included
therein.
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The offer will also state:
(1) the section of the indenture pursuant to which the Offer to
Purchase is being made, including that a Change of Control or Asset
Disposition, as applicable, has occurred;
(2) the expiration date and the Purchase Date;
(3) the aggregate principal amount of the outstanding notes offered to
be purchased by Forest City pursuant to the Offer to Purchase (the
"Purchase Amount");
(4) the purchase price to be paid by Forest City for each $25
aggregate principal amount of notes accepted for payment;
(5) that the holder may tender all or any portion of the notes
registered in the name of the holder and that any portion of a note
tendered must be tendered in an integral multiple of $25 principal amount;
(6) the place or places where notes are to be surrendered for tender
pursuant to the Offer to Purchase;
(7) that interest on any note not tendered or tendered but not
purchased by Forest City pursuant to the Offer to Purchase will continue to
accrue;
(8) that on the Purchase Date the purchase price will become due and
payable upon each note being accepted for payment pursuant to the Offer to
Purchase and that interest thereon will cease to accrue on and after the
Purchase Date;
(9) that each holder electing to tender a note pursuant to the Offer
to Purchase will be required to surrender the note at the place or places
specified in the offer prior to the close of business on the expiration
date (such note being, if Forest City or the trustee so requires, duly
endorsed by, or accompanied by a written instrument of transfer in form
satisfactory to Forest City and the trustee duly executed by, the holder
thereof or his attorney duly authorized in writing);
(10) that holders will be entitled to withdraw all or any portion of
notes tendered if Forest City, or its paying agent, receives, not later
than the close of business on the expiration date, a facsimile transmission
or letter setting forth the name of the holder, the principal amount of the
note the holder tendered, the certificate number of the note the holder
tendered and a statement that such holder is withdrawing all or a portion
of his tender;
(11) that (a) if notes in an aggregate principal amount less than or
equal to the Purchase Amount are duly tendered and not withdrawn pursuant
to the Offer to Purchase, Forest City will purchase all such notes and (b)
if notes in an aggregate principal amount in excess of the Purchase Amount
are tendered and not withdrawn pursuant to the Offer to Purchase, Forest
City will purchase notes having an aggregate principal amount equal to the
Purchase Amount on a pro rata basis; and
(12) that in the case of any holder whose note is purchased only in
part, Forest City will execute, and the Trustee will authenticate and
deliver to the holder of the note without service charge, a new note or
notes, of any authorized denomination as requested by that holder, in an
aggregate principal amount equal to and in exchange for the unpurchased
portion of the note so tendered.
Any Offer to Purchase will be governed by and effected in accordance with the
offer for the Offer to Purchase.
"Permitted Business" means:
(1) developing, acquiring, owning and operating shopping centers,
office buildings and mixed-use projects, including entertainment complexes
and hotels;
(2) developing, acquiring, owning and operating multi-family
properties;
(3) acquiring land and owning and developing land into master planned
communities and other residential developments for resale;
(4) the lumber wholesaling business;
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(5) developing, acquiring, owning and operating any real estate not
otherwise provided for in clauses (1) through (3) above; and
(6) any business reasonably related, ancillary or complementary to the
businesses described in clauses (1), (2), (3) and (5) above, or any
reasonable extensions of the businesses described in clauses (1), (2), (3)
and (5) above.
"Permitted Holder" means:
(1) any of Samuel H. Miller, Albert B. Ratner, Charles A. Ratner,
James A. Ratner, Ronald A. Ratner or any spouse of any of the foregoing,
and any trusts for the benefit of any of the foregoing;
(2) RMS, Limited Partnership and any general partner or limited
partner thereof and any person, other than a creditor, that upon the
dissolution or winding-up of RMS, Limited Partnership receives a
distribution of Capital Stock of Forest City;
(3) any group, as defined in Section 13(d) of the Exchange Act, or any
successor provision thereto, of two or more persons or entities that are
specified clauses (1) and (2) above; and
(4) any successive recombination of the persons or groups that are
specified in clauses (1) through (3) above.
"Permitted Interest Rate, Currency or Commodity Price Agreement" of any
person means any Interest Rate, Currency or Commodity Price Agreement entered
into with one or more financial institutions in the ordinary course of business
that is designed:
(1) in the case of an interest rate or currency exchange agreement, to
protect the person against fluctuations in interest rates or currency
exchange rates with respect to Debt Incurred and which will have a notional
amount no greater than the payments due with respect to the Debt being
hedged thereby and, in the case of an agreement protecting that person from
fluctuations in interest rates, the profits and losses from the agreement
are included in interest expense under generally accepted accounting
principles; or
(2) in the case of currency or commodity protection agreements, to
protect the person against currency exchange rate or commodity price
fluctuations in the ordinary course of business relating to then existing
financial obligations or then existing or sold production and not for
purposes of speculation.
"Preferred Stock" of any person means Capital Stock of that person of any
class or classes, however designated, that ranks prior, as to the payment of
dividends or as to amounts upon any voluntary or involuntary liquidation,
dissolution or winding-up of that person, to shares of Capital Stock of any
other class of that person.
"public equity offering" means an underwritten primary public offering of
Common Stock of Forest City pursuant to an effective registration statement
under the Securities Act.
"Purchase Money Debt" of any person means Debt, other than Development
Debt, of that person Incurred for the purpose of financing all or any part of
the purchase price or cost of construction or improvement of property or other
assets of the person (other than property described in the definition of
Development Debt, that is, property the cost of which is or will be included in
"Total Real Estate" on a consolidated balance sheet of the person) acquired
after the date of original issuance of the notes; provided that:
(1) the principal amount of the Debt does not exceed 100% of the
purchase price or cost;
(2) the purchase price or costs is not at Incurrence, and will not be,
included in "Total Real Estate" on a consolidated balance sheet of the
person; and
(3) if the Debt is secured by a Lien, then (a) the Lien attached to
the property or assets prior to, at the time of, or within 180 days after
the acquisition, construction or improvement of the property or assets
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and (b) the Lien does not extend to or cover any property or assets other
than the specific item of the property or assets or portion thereof
acquired, constructed or improved with the proceeds of the Debt.
"Receivables" means receivables, chattel paper, instruments, documents or
intangibles evidencing or relating to the right to payment of money.
"Receivables Sale" of any person means any sale of Receivables of that
person, pursuant to a purchase facility or otherwise, other than in connection
with a disposition of the business operations of the person relating thereto or
a disposition of defaulted Receivables for purposes of collection and not as a
financing arrangement.
"Recourse Debt" of any person means Debt of that person that is not
Non-Recourse Debt.
"Redeemable Stock" of any person means any Capital Stock of that person
that by its terms, or by the terms of any security into which it is convertible
or for which it is exchangeable, or otherwise, including upon the occurrence of
an event, matures or is required to be redeemed, pursuant to any sinking fund
obligation or otherwise, or is convertible into or exchangeable for Debt or is
redeemable at the option of the holder thereof, in whole or in part, at any time
on or prior to the date that is 91 days after the final Stated Maturity of the
notes.
"related person" of any person means, without limitation, any other person
directly or indirectly owning:
(1) 5% or more of the outstanding Common Stock of the person, or, in
the case of a person that is not a corporation, 5% or more of the equity
interest in the person; or
(2) 5% or more of the combined voting power of the Voting Stock of the
person.
"Sale and Leaseback Transaction" of any person means an arrangement with
any lender or investor or to which the lender or investor is a party providing
for the leasing by the person of any property or asset of the person which has
been or is being sold or transferred by the person more than 270 days after the
acquisition thereof or the completion of construction or commencement of
operation thereof to the lender or investor or to any person to whom funds have
been or are to be advanced by the lender or investor on the security of the
property or asset. The stated maturity of such arrangement will be the date of
the last payment of rent or any other amount due under such arrangement prior to
the first date on which such arrangement may be terminated by the lessee without
payment of a penalty.
"Subordinated Debt" means Debt of Forest City as to which the payment of
principal of, and premium, if any, and interest and other payment obligations in
respect of that Debt will be subordinate to the prior payment in full of the
notes to at least the following extent:
(1) no payments of principal of, or premium, if any, or interest on or
otherwise due in respect of such Debt may be permitted for so long as any
default in the payment of principal, or premium, if any, or interest on the
notes exists;
(2) in the event that any other default that with the passing of time
or the giving of notice, or both, would constitute an Event of Default
exists with respect to the notes, upon notice by 25% or more in principal
amount of the notes to the trustee, the trustee will have the right to give
notice to Forest City and the holders of the Debt, or trustees or agents
therefor, of a payment blockage, and thereafter no payments of principal
of, or premium, if any, or interest on or otherwise due in respect of the
Debt may be made for a period of 179 days from the date of the notice; and
(3) the Debt may not (a) provide for payments of principal at the
stated maturity thereof or by way of a sinking fund applicable thereto or
by way of any mandatory redemption, defeasance, retirement or repurchase
thereof by Forest City, including any redemption, retirement or repurchase
which is contingent upon events or circumstances, but excluding any
retirement required by virtue of acceleration of such Debt upon an event of
default thereunder, in each case prior to the final Stated Maturity of the
notes, or (b) permit redemption or other retirement, including pursuant to
an offer to purchase made by Forest City, of such other Debt at the option
of the holder thereof prior to the final Stated Maturity of the notes,
other than a redemption or other retirement at the option of the holder of
such Debt, including
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pursuant to an offer to purchase made by Forest City, which is conditioned
upon a change of control of Forest City pursuant to provisions
substantially similar to those described under "--Repurchase at the Option
of Holders--Change of Control," and which will provide that such Debt will
not be repurchased pursuant to such provisions prior to Forest City's
repurchase of the notes required to be repurchased by Forest City.
"Subsidiary" of any person means:
(1) a corporation more than 50% of the combined voting power of the
outstanding Voting Stock of which is owned, directly or indirectly, by that
person or by one or more other Subsidiaries of that person or by that
person and one or more Subsidiaries thereof;
(2) a partnership of which that person, or one or more other
Subsidiaries of that person or that person and one or more other
Subsidiaries thereof, directly or indirectly, is the general partner and
has the power to direct the policies, management and affairs of the
partnership;
(3) a limited liability company of which that person or one or more
Subsidiaries of that person or that person and one or more Subsidiaries of
that person, directly or indirectly, is the managing member and has the
power to direct the policies, management and affairs of the company; or
(4) any other person, other than a corporation, partnership or limited
liability company, in which that person, or one or more other Subsidiaries
of that person or that person and one or more other Subsidiaries thereof,
directly or indirectly, has at least a majority ownership and power to
direct the policies, management and affairs thereof.
"U.S. Government Obligations" means securities that are (1) direct
obligations of the United States of America for the payment of which its full
faith and credit is pledged or (2) obligations of a person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America, the payment of which is unconditionally guaranteed as a full faith and
credit obligation by the United States of America, which, in either case, are
not callable or redeemable at the option of the issuer thereof, and will also
include a depository receipt issued by a bank, as custodian with respect to any
such U.S. Government Obligation or a specific payment of principal of or
interest on any such U.S. Government Obligation held by the custodian for the
account of the holder of the depository receipt, provided that, except as
required by law, the custodian is not authorized to make any deduction from the
amount payable to the holder of the depository receipt from any amount received
by the custodian in respect of the U.S. Government Obligation or the specific
payment of principal of or interest on the U.S. Government Obligation evidenced
by the depository receipt.
"Voting Stock" of any person means Capital Stock of that person which
ordinarily has voting power for the election of directors, or persons performing
similar functions, of that person, whether at all times or only so long as no
senior class of securities has such voting power by reason of any contingency.
"Weighted Average Life" means, as of the date of determination, with
respect to any Debt or Preferred Stock, the quotient obtained by dividing:
(1) the sum of the products of (a) the number of years from the date
of determination to the dates of each successive scheduled principal
payment of the Debt or mandatory redemption of the Preferred Stock,
respectively and (b) the amount of the principal payments or redemption
payments; by
(2) the sum of all such principal payments or redemption payments.
"Wholly Owned Subsidiary" of any person means a Subsidiary of that person
all of the outstanding Capital Stock or other ownership interests of which,
other than directors' qualifying shares, will at the time be owned by that
person or by one or more Wholly Owned Subsidiaries of that person or by that
person and one or more Wholly Owned Subsidiaries of that person.
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EVENTS OF DEFAULT
Each of the following will be an "Event of Default" under the indenture:
(1) failure to pay principal of, or premium, if any, on, any note when
due;
(2) failure to pay any interest on any note when due, continued for 30
days;
(3) default in the performance of, or a breach of, the covenant
described under "--Repurchase at the Option of Holders--Asset
Dispositions", "--Repurchase at the Option of Holders--Change of Control"
and "--Mergers, Consolidations and Certain Sales of Assets";
(4) failure to perform any other covenant or agreement of Forest City
under the indenture or the notes continued for 30 days after written notice
to holders by the trustee or holders of at least 25% in aggregate principal
amount of outstanding notes;
(5) a default or defaults under the terms of any Debt, other than
Non-Recourse Debt, by Forest City or any Subsidiary of Forest City or under
any mortgages, indentures or instruments under which there may be issued or
by which there may be secured or evidenced any Debt, other than
Non-Recourse Debt, of Forest City or any such Subsidiary with a principal
amount then outstanding, individually or in the aggregate, in excess of $10
million, whether such Debt now exists or is hereafter created, which
default or defaults consists of a failure to pay any portion of the
principal of such Debt when due and payable after the expiration of any
applicable grace period with respect thereto and results in such Debt
becoming or being declared due and payable prior to the date on which it
would otherwise have become due and payable or constitutes the failure to
pay any portion of the principal of such Debt when due and payable at
maturity or by acceleration;
(6) a default or defaults under the terms of any Non-Recourse Debt by
Forest City or any Subsidiary of Forest City or under any mortgages,
indentures or instruments under which there may be issued or by which there
may be secured or evidenced any Non-Recourse Debt of Forest City or any
such Subsidiary with a principal amount then outstanding, individually or
in the aggregate, in excess of 20% of the aggregate principal or similar
amount of all the outstanding Non-Recourse Debt of Forest City and its
Subsidiaries, whether such Non-Recourse Debt now exists or is hereafter
created, which default or defaults constitutes a failure to pay any portion
of the principal of such Non-Recourse Debt when due and payable after the
expiration of any applicable grace period with respect thereto or results
in such Non-Recourse Debt becoming or being declared due and payable prior
to the date on which it would otherwise have become due and payable;
(7) the rendering of a final judgment or judgments, not subject to
appeal, against Forest City or any Subsidiary of Forest City in an amount
in excess of $10 million which remains undischarged or unbonded for a
period of 45 days after the date on which the right to appeal has expired;
and
(8) certain events of bankruptcy, insolvency or reorganization
affecting Forest City or any Material Subsidiary.
Subject to the provisions of the indenture relating to the duties of the
trustee in case an Event of Default will occur and be continuing, the trustee
will be under no obligation to exercise any of its rights or powers under the
indenture at the request or direction of any of the holders, unless those
holders will have offered to the trustee reasonable indemnity. Subject to the
provisions for the indemnification of the trustee, the holders of a majority in
aggregate principal amount of the outstanding notes will have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the trustee or exercising any trust or power conferred on the
trustee.
If an Event of Default, other than an Event of Default described in clause
(8) above, will occur and be continuing, either the trustee or the holders of at
least 25% in aggregate principal amount of the outstanding notes may accelerate
the maturity of all notes; provided, however, that after such acceleration, but
before a judgment or decree based on acceleration, the holders of a majority in
aggregate principal amount of outstanding notes may, under certain
circumstances, rescind and annul such acceleration if all events of
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default, other than the non-payment of acceleration of principal, have been
cured or waived as provided in the indenture. If an Event of Default described
in clause (8) above occurs, the outstanding notes will automatically become
immediately due and payable without any declaration or other act on the part of
the trustee or any holder. For information as to waiver of defaults, see
"--Modification and Waiver."
No holder of any note will have any right to institute any proceeding with
respect to the indenture or for any remedy thereunder, unless the holder will
have previously given to the trustee written notice of a continuing Event of
Default and unless also the holders of at least 25% in aggregate principal
amount of the outstanding notes will have made written request, and offered
reasonable indemnity, to the trustee to institute such proceeding as trustee,
and the trustee will not have received from the holders of a majority in
aggregate principal amount of the outstanding notes a direction inconsistent
with the request and will have failed to institute such proceeding within 60
days. However, these limitations do not apply to a suit instituted by a holder
of a note for enforcement of payment of the principal of, and premium, if any,
or interest on the note on or after the respective due dates expressed in the
note.
In the case of any Event of Default occurring by reason of any willful
action or inaction, taken or not taken by or on behalf of Forest City with the
intention of avoiding payment of the premium that Forest City would have had to
pay if Forest City then had elected to redeem the notes pursuant to the
provisions described above in the first paragraph under "--Optional Redemption,"
an equivalent premium will also become and be immediately due and payable upon
the acceleration of the notes.
Forest City will be required to furnish to the trustee quarterly a
statement as to the performance by Forest City of certain of its obligations
under the indenture and as to any default in such performance. Forest City will
be required to deliver to the trustee, as soon as possible and in any event
within 10 days after Forest City becomes aware of the occurrence of an Event of
Default or an event which, with notice or the lapse of time or both, would
constitute an Event of Default, an Officers' Certificate setting forth the
details of such Event of Default or default, and the action which Forest City
proposes to take with respect thereto.
DEFEASANCE
The indenture will provide that, at the option of Forest City:
(1) Forest City will be discharged from any and all obligations in
respect of the outstanding notes; or
(2) Forest City may omit to comply with the restrictive covenants
described under "--Covenants" and clauses (c), (d) and (e) under
"--Mergers, Consolidations and Certain Sales of Assets", the violation or
non-compliance with those covenants or clauses will not be an Event of
Default under clause (4) under "--Events of Defaults" and the Events of
Default under clauses (5), (6) and (7) under "--Events of Default" will no
longer apply to the notes;
in either case upon the 123rd day after irrevocable deposit with the trustee, in
trust, of money and/or U.S. Government Obligations which will provide money in
an amount sufficient in the opinion of a nationally recognized firm of
independent certified public accountants to pay the principal of and premium, if
any, and each installment of interest, if any, on the outstanding notes. With
respect to clause (2) above, the obligations under the indenture other than with
respect to such covenants and the events of default other than the events of
default relating to such covenants above will remain in full force and effect.
Such trust may only be established if, among other things:
(1) with respect to clause (1) above, Forest City has received from,
or there has been published by, the Internal Revenue Service a ruling or
there has been a change in law, which in the opinion of counsel provides
that holders of the notes will not recognize gain or loss for Federal
income tax purposes as a result of such deposit, defeasance and discharge
and will be subject to Federal income tax on the same amount, in the same
manner and at the same times as would have been the case if such deposit,
defeasance and discharge had not occurred; or, with respect to clause (2)
above, Forest City has delivered to the trustee an opinion of counsel to
the effect that the holders of the notes will not recognize gain or loss
for Federal income tax purposes as a result of such deposit and defeasance
and will be subject
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to Federal income tax on the same amount, in the same manner and at the
same times as would have been the case if such deposit and defeasance had
not occurred;
(2) no Event of Default or event that with the passing of time or the
giving of notice, or both, will constitute an Event of Default will have
occurred or be continuing at any time during the 123-day period referred to
above;
(3) Forest City has delivered to the trustee an opinion of counsel to
the effect that such deposit will not cause the trustee or the trust so
created to be subject to the Investment Company Act of 1940; and
(4) certain other customary conditions precedent are satisfied.
In the event Forest City omits to comply with its remaining obligations
under the indenture and the notes after a defeasance of the indenture with
respect to the notes as described in clause (2) of the first paragraph under
"--Defeasance" above and the notes are declared due and payable because of the
occurrence of any Event of Default, the amount of money and U.S. Government
Obligations on deposit with the trustee may be insufficient to pay amounts due
on the notes at the time of the acceleration resulting from such Event of
Default. However, Forest City will remain liable in respect of such payments.
MODIFICATION AND WAIVER
Modifications and amendments of the indenture may be made by Forest City
and the trustee with the consent of the holders of a majority in aggregate
principal amount of the outstanding notes; provided, however, that no
modification or amendment may, without the consent of the holder of each
outstanding note affected thereby:
(1) change the stated maturity of the principal of, or any installment
of interest on, any note;
(2) reduce the principal amount of, or the premium, or interest on,
any note;
(3) change the place or currency of payment of principal of, or
premium, or interest on, any note;
(4) impair the right to institute suit for the enforcement of any
payment on or with respect to any note;
(5) reduce the above-stated percentage of outstanding notes necessary
to modify or amend the indenture;
(6) reduce the percentage of aggregate principal amount of outstanding
notes necessary for waiver of compliance with certain provisions of the
indenture or for waiver of certain defaults;
(7) modify any provisions of the indenture relating to the
modification and amendment of the indenture or the waiver of past defaults
or covenants, except as otherwise specified; or
(8) modify any of the provisions of the indenture described under
"--Repurchase at the Option of Holders--Asset Dispositions" and "--Change
of Control" in a manner adverse to the holders thereof.
The holders of a majority in aggregate principal amount of the outstanding
notes, on behalf of all holders of notes, may waive compliance by Forest City
with certain restrictive provisions of the indenture. Subject to certain rights
of the trustee, as provided in the indenture, the holders of a majority in
aggregate principal amount of the outstanding notes, on behalf of all holders of
notes, may waive any past default under the indenture, except a default in the
payment of principal, or premium, if any, or interest or a default arising from
failure to purchase any note tendered pursuant to an Offer to Purchase.
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GOVERNING LAW
The indenture and the notes will be governed by the laws of the State of
New York.
THE TRUSTEE
The indenture provides that, except during the continuance of an Event of
Default, the trustee will perform only such duties as are specifically set forth
in the indenture. During the existence of an Event of Default, the trustee will
exercise such rights and powers vested in it under the indenture and use the
same degree of care and skill in its exercise as a prudent person would exercise
under the circumstances in the conduct of such person's own affairs.
The indenture and provisions of the Trust Indenture Act incorporated by
reference therein contain limitations on the rights of the trustee, should it
become a creditor of Forest City, to obtain payment of claims in certain cases
or to realize on certain property received by it in respect of any such claim as
security or otherwise. The trustee is permitted to engage in other transactions
with Forest City or any Affiliate, provided, however, that if it acquires any
conflicting interest, as defined in the indenture or in the Trust Indenture Act,
it must eliminate such conflict or resign.
The Bank of New York is a lender to Forest City's Subsidiaries of
nonrecourse project debt. The Bank of New York is the institutional trustee for
each of Forest City Enterprises Capital Trust I and Forest City Enterprises
Capital Trust II. The Bank of New York (Delaware), an affiliate of The Bank of
New York, is the Delaware trustee for each of Forest City Enterprises Capital
Trust I and Forest City Enterprises Capital Trust II.
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UNDERWRITERS
Under the terms and subject to the conditions contained in a previously
executed underwriting agreement and a pricing agreement, dated the date hereof
(together, the "underwriting agreement"), the underwriters named below (the
"underwriters") have severally agreed to purchase, and we have agreed to sell to
them, severally, the respective principal amount of the notes set forth opposite
their respective names below:
PRINCIPAL AMOUNT
NAME OF NOTES
---- ----------------
Morgan Stanley & Co. Incorporated........................... $
McDonald Investments Inc....................................
-----------
Total....................................................... $
===========
The underwriting agreement provides that the obligations of the several
underwriters to pay for and accept delivery of the notes is subject to, among
other things, the receipt of opinions of counsel and certain other conditions.
The underwriters are obligated to take and pay for all of the notes if any are
taken.
The underwriters initially propose to offer part of the notes directly to
the public at the public offering price set forth on the cover page hereof and
part to certain dealers at a price that represents a concession not in excess of
% of the principal amount of the notes. Any underwriter may allow, and any
such dealers may reallow, a concession to certain other dealers not to exceed
% of the principal amount of the notes. After the initial offering of the
notes, the offering price and other selling terms may from time to time be
varied by the underwriters.
We have agreed to indemnify the several underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as amended.
We estimate that the total expenses of the offering, excluding underwriting
discounts and commissions, will be approximately $ .
Prior to the offering, there has been no public market for the notes. We
intend to apply to have the notes listed on the New York Stock Exchange, and we
expect trading in the notes on the New York Stock Exchange to begin within 30
days after the original issue date. In order to meet the requirements for
listing the notes, the underwriters will undertake to sell lots of 100 or more
notes to a minimum of 400 beneficial holders.
The notes are a new issue of securities with no established trading market,
but we have been advised by the underwriters that they intend to make a market
in the notes. The underwriters are not obligated, however, to do so and may
discontinue their market making at any time without notice. No assurance can be
given as to the liquidity of the trading market for the notes.
In order to facilitate the offering of the notes, the underwriters may
engage in transactions that stabilize, maintain or otherwise affect the prices
of the notes. Specifically, the underwriters may overallot in connection with
the offering, creating a short position in the notes for their own account. In
addition, to cover overallotments or to stabilize the price of the notes, the
underwriters may bid for, and purchase, the notes in the open market. Finally,
the underwriters may reclaim selling concessions allowed to an underwriter or a
dealer for distributing the notes in the offering, if they repurchase previously
distributed notes in transactions to cover syndicate short positions, in
stabilization transactions or otherwise. Any of these activities may stabilize
or maintain the market price for the notes above independent market levels. The
underwriters are not required to engage in these activities and may end any of
these activities at any time.
Certain of the underwriters and their affiliates have from time to time in
the past provided, and may from time to time in the future provide, investment
banking and general financing and banking services to Forest City and its
affiliates in the ordinary course of business for which they have in the past
received, and may in
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the future receive, customary fees. Morgan Stanley & Co. Incorporated leases
space from Forest City in the ordinary course of business. An affiliate of
McDonald Investments Inc. is an agent and a lender under the FCRPC credit
agreement. We intend to apply a portion of the net proceeds from this offering
to repay outstanding amounts under that credit agreement, and the affiliate of
McDonald Investments Inc. will receive its pro rata portion of the proceeds.
It is expected that delivery of the notes will be made against payment
therefor on or about February , 2004. Under Rule 15c6-1 of the Exchange Act,
trades in the secondary market generally are required to settle in three
business days, unless the parties to any such trade expressly agree otherwise.
Accordingly, purchasers who wish to trade notes on or after the date hereof will
be required, by virtue of the fact that the notes initially will settle on or
about February , 2004, to specify alternative settlement arrangements to
prevent a failed settlement.
VALIDITY OF THE NOTES
Certain legal matters, including the validity of our notes offered through
this prospectus supplement, will be passed upon for us by Jones Day, Cleveland,
Ohio. Certain legal matters incident to the validity of the notes offered
through this prospectus supplement will be passed upon for us by Geralyn Presti,
Senior Vice President, General Counsel and Assistant Secretary of Forest City.
As of January 16, 2004, Ms. Presti owned 640 shares of Class B common stock and
20,250 options to purchase shares of Class A common stock. The validity of the
notes offered through this prospectus supplement will be passed upon for the
underwriters by Sullivan & Cromwell LLP, New York, New York. Sullivan & Cromwell
LLP will rely as to all matters of Ohio law upon the opinion of Jones Day.
INDEPENDENT ACCOUNTANTS
The financial statements and financial statement schedules of Forest City
Enterprises, Inc. as of January 31, 2003 and 2002 and for each of the three
years in the period ended January 31, 2003, all included in our annual report on
Form 10-K for the fiscal year ended January 31, 2003 and incorporated by
reference in this prospectus supplement have been so incorporated in reliance
upon the reports of PricewaterhouseCoopers LLP, independent accountants, given
on the authority of said firm as experts in accounting and auditing.
S-43
FILED PURSUANT TO RULE 424(b)(3)
REGISTRATION NO: 333-87378
$842,180,000
FOREST CITY ENTERPRISES, INC.
SENIOR DEBT SECURITIES
SENIOR SUBORDINATED DEBT SECURITIES
JUNIOR SUBORDINATED DEBT SECURITIES
PREFERRED STOCK
DEPOSITARY SHARES
CLASS A COMMON STOCK WARRANTS
STOCK PURCHASE CONTRACTS
STOCK PURCHASE UNITS
SUBSCRIPTION RIGHTS
FOREST CITY ENTERPRISES CAPITAL TRUST I
FOREST CITY ENTERPRISES CAPITAL TRUST II
PREFERRED SECURITIES
GUARANTEED TO THE EXTENT SET FORTH HEREIN BY FOREST CITY ENTERPRISES, INC.
Forest City Enterprises, Inc. intends to offer from time to time its senior
debt securities, senior subordinated debt securities, junior subordinated
securities, preferred stock, depositary shares, class A common stock, warrants,
stock purchase contracts, stock purchase units or subscription rights. Forest
City Enterprises Capital Trust I and Forest City Enterprises Capital Trust II
intend to offer from time to time preferred securities that will be fully and
unconditionally guaranteed by Forest City Enterprises, Inc. Forest City
Enterprises, Inc. and the Trusts may sell any combination of these securities in
one or more offerings with an aggregate initial offering price of $842,180,000
or the equivalent amount in other currencies, currency units or composite
currencies.
Forest City Enterprises, Inc. and the Trusts will provide specific terms of
these securities in supplements to this prospectus. You should read this
prospectus and any prospectus supplement carefully before you invest. This
prospectus may not be used to offer and sell any securities unless accompanied
by a prospectus supplement describing the method and terms of the offering of
those securities being offered.
Forest City Enterprises, Inc. and the Trusts may sell the securities
directly or to or through underwriters or dealers, and also to other purchasers
or through agents. The names of any underwriters or agents that are included in
a sale of securities to you, and any applicable commissions or discounts, will
be stated in the accompanying prospectus supplement. In addition, the
underwriters, if any, may over-allot a portion of the securities.
---------------------
Forest City Enterprises, Inc.'s class A common stock, par value $.33 1/3
per share, and its class B common stock, par value $.33 1/3 per share, are
listed on The New York Stock Exchange under the symbols FCEA and FCEB. The
closing prices of the class A common stock and class B common stock on The New
York Stock Exchange on May 30, 2002 were $38.80 and $38.70. None of the other
securities that Forest City Enterprises, Inc. and the Trusts may offer under
this prospectus are currently publicly traded.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is May 31, 2002.
TABLE OF CONTENTS
PAGE
----
Where You Can Find More Information......................... 2
About This Prospectus....................................... 2
Incorporation of Documents by Reference..................... 2
Forward-Looking Statements.................................. 4
Forest City Enterprises, Inc. .............................. 5
Forest City Enterprises Capital Trust I and Forest City
Enterprises Capital Trust II.............................. 5
Ratio of Earnings to Fixed Charges.......................... 6
Use of Proceeds............................................. 6
Summary Description of Securities We and the Trusts May
Offer..................................................... 7
Description of Senior Debt Securities We May Offer.......... 7
Description of Subordinated Debt Securities We May Offer.... 16
Description of Preferred Stock We May Offer................. 28
Description of Depositary Shares We May Offer............... 30
Description of Common Stock We May Offer.................... 33
Description of Warrants We May Offer........................ 35
Description of Stock Purchase Contracts and Stock Purchase
Units We May Offer........................................ 37
Description of Subscription Rights We May Offer............. 37
Description of Preferred Securities the Trusts May Offer.... 38
Description of Trust Guarantees............................. 44
Plan of Distribution........................................ 47
Validity of the Offered Securities.......................... 50
Experts..................................................... 50
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational reporting requirements of the
Securities Exchange Act of 1934. We file reports, proxy statements and other
information with the Securities and Exchange Commission. You can inspect and
copy the reports, proxy statements and other information at the Public Reference
Room of the SEC located at Room 1024, 450 Fifth Street, N.W., Washington, D.C.
20549. You may obtain information on the operation of the Public Reference Room
by calling the SEC at 1-800-SEC-0330. You can obtain copies of these materials
at prescribed rates from the Public Reference Room of the SEC. The SEC maintains
a web site at http://www.sec.gov that contains reports, proxy and information
statements and other information on a delayed basis regarding registrants,
including us, that file electronically with the SEC. Our class A common stock,
par value $.33 1/3 per share, and our class B common stock, par value $.33 1/3
per share, are listed on The New York Stock Exchange under the symbols FCEA and
FCEB. You can also inspect and copy any reports, proxy statements and other
information that we file with the SEC at the offices of The New York Stock
Exchange located at 20 Broad Street, New York, NY 10005.
ABOUT THIS PROSPECTUS
This document is called a prospectus and is part of a registration
statement that we and the Trusts filed with the SEC using a "shelf" registration
or continuous offering process. Under this shelf process, we and/or the Trusts
may from time to time sell any combination of the securities described in this
prospectus in one or more offerings with an aggregate initial offering price of
$842,180,000 or the equivalent amount in other currencies, currency units or
composite currencies.
This prospectus provides you with a general description of the securities
we and the Trusts may offer. Each time we or the Trusts sell securities, we or
the Trusts, as the case may be, will provide a prospectus supplement containing
specific information about the terms of the securities being offered. That
prospectus supplement may include or incorporate by reference a detailed and
current discussion of any risk factors and will discuss any special
considerations applicable to those securities, including the plan of
distribution. For a more complete understanding of the offering of the
securities, you should refer to the registration statement, including its
exhibits. The prospectus supplement may also add, update or change information
in this prospectus. If there is any inconsistency between the information in
this prospectus and any prospectus supplement, you should rely on the
information in that prospectus supplement together with additional information
described under the headings "Where You Can Find More Information" and
"Incorporation of Documents by Reference."
You should rely only on the information contained or incorporated by
reference in this prospectus and in any prospectus supplement. Neither we nor
the Trusts, nor any underwriters or agents, have authorized anyone to provide
you with different information. Neither we nor the Trusts are offering the
securities in any state where the offering is prohibited. You should not assume
that the information in this prospectus, any prospectus supplement, or any
document incorporated by reference, is truthful or complete at any date other
than the date mentioned on the cover page of those documents.
References in the prospectus to the term "we," "us" or "Forest City" or
other similar terms mean Forest City Enterprises, Inc. and its consolidated
subsidiaries, unless we state otherwise or the context indicates otherwise.
References in the prospectus to the term "Trusts" mean Forest City Enterprises
Capital Trust I and Forest City Enterprises Capital Trust II, and references in
the prospectus to the term "Trust" mean either Forest City Enterprises Capital
Trust I or Forest City Enterprises Capital Trust II, unless we state otherwise
or the context indicates otherwise.
INCORPORATION OF DOCUMENTS BY REFERENCE
The SEC allows us to incorporate by reference the information that we file
with the SEC. This allows us to disclose important information to you by
referring you to those documents rather than repeating them in full in this
prospectus. The information incorporated by reference in this prospectus
contains important business and financial information. In addition, information
that we file with the SEC after the date of this prospectus
2
automatically updates and supersedes the information contained in this
prospectus and incorporated filings. We have previously filed the following
documents with the SEC (File No. 1-4372) and are incorporating them into this
prospectus by reference:
- our Annual Report on Form 10-K for the fiscal year ended January 31,
2002;
- Amendment No. 1 to our Annual Report on Form 10-K/A;
- our Current Report on Form 8-K, dated and filed with the SEC on March 14,
2002;
- our Current Report on Form 8-K, dated March 5, 2002 and filed with the
SEC on March 14, 2002; and
- the description of our class A common stock contained in our registration
statement on Form 10.
Each document or report that we file pursuant to Section 13(a), 13(c), 14
or 15(d) of Exchange Act after the date of this prospectus and until the
offering of the securities terminates will be incorporated by reference into
this prospectus and will be a part of this prospectus from the date of filing of
that document.
You may request a copy of any of these filings (other than an exhibit to
those filings unless we have specifically incorporated that exhibit by reference
into the filing), at no cost, by telephoning or writing to us at the following
phone number and address:
Secretary,
Forest City Enterprises, Inc.
50 Public Square
Terminal Tower
Suite 1100
Cleveland, Ohio 44113-2203
Telephone Number: 216-621-6060
We have not included or incorporated by reference in this prospectus any
separate financial statements of the Trusts. We do not believe that these
financial statements would provide holders of preferred securities with any
important information for the following reasons:
- we will own all of the voting securities of the Trusts;
- the Trusts do not and will not have any independent operations other than
to issue securities and to purchase and hold our subordinated debt
securities; and
- we are fully and unconditionally guaranteeing the obligations of the
Trusts as described in this prospectus.
3
FORWARD-LOOKING STATEMENTS
We may include or incorporate by reference in this prospectus or in an
accompanying prospectus supplement statements that constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Forward-looking statements include, for example, statements relating to
our development activities, business strategy and prospects.
These forward-looking statements are not historical facts but instead
represent only our beliefs regarding future events, many of which, by their
nature, are inherently uncertain and outside of our control. It is possible that
our actual results may differ, possibly materially, from the anticipated results
indicated in these forward-looking statements.
Information regarding important factors that could cause actual results to
differ, perhaps materially, from those in our forward-looking statements are
discussed in our reports filed with the SEC and may be contained under the
caption "Risk Factors" in or incorporated by reference in an accompanying
prospectus supplement.
We disclaim any obligation, other than as may be imposed by law, to update
or revise any forward-looking statement, whether as a result of new information,
future events or otherwise.
4
FOREST CITY ENTERPRISES, INC.
Founded in 1920 and publicly traded since 1960, we are principally engaged
in the ownership, development, acquisition and management of commercial and
residential properties in many states and the District of Columbia.
We have a portfolio of assets diversified both geographically and among
property types. We operate our business through four strategic business units:
- the Commercial Group, which owns, develops, acquires and operates
regional malls, specialty/urban retail centers, office buildings, hotels
and mixed-use projects;
- the Residential Group, which owns, develops, acquires, leases and manages
residential rental property, including middle-market apartments in urban
and suburban locations, adaptive re-use developments in urban locations
and supported-living facilities;
- the Land Development Group, which acquires and sells land and developed
lots to residential, commercial and industrial customers and owns and
develops raw land into master-planned communities and mixed-use projects;
and
- the Lumber Trading Group, which operates our lumber wholesaling business.
We are incorporated in the State of Ohio. Our principal executive offices
are located at 50 Public Square, Terminal Tower, Suite 1100, Cleveland, Ohio
44113-2203 and our telephone number is (216) 621-6060.
FOREST CITY ENTERPRISES CAPITAL TRUST I
AND FOREST CITY ENTERPRISES CAPITAL TRUST II
Each of the Trusts is a statutory business trust created under Delaware
law. Each of the Trusts exists for the exclusive purposes of:
- issuing the preferred securities, which represent preferred undivided
beneficial ownership interests in the Trust's assets;
- issuing the common securities, which represent common undivided
beneficial ownership interests in the Trust's assets, to us in a total
liquidation amount equal to at least 3% of the Trust's total capital;
- using the proceeds from the issuances to buy our subordinated debt
securities;
- maintaining the Trust's status as a grantor trust for federal income tax
purposes; and
- engaging in only those other activities necessary, advisable or
incidental to these purposes, such as registering the transfer of
preferred securities.
Any subordinated debt securities we sell to the Trusts will be the sole
assets of the Trusts, and, accordingly, payments under the subordinated debt
securities will be the sole revenues of the Trusts. We will acquire and own all
of the common securities of each of the Trusts, which will have an aggregate
liquidation amount equal to at least 3% of the total capital of each of the
Trusts. The common securities will rank on a parity with, and payments will be
made on the common securities pro rata with, the preferred securities, except
that upon an event of default under the amended and restated declaration of
trust resulting from an event of default under the subordinated debt securities,
our rights as holder of the common securities to distributions and payments upon
liquidation or redemption will be subordinated to the rights of the holders of
the preferred securities.
As issuer of the subordinated debt securities to be purchased by the Trusts
and as sponsor of the Trusts, we will pay all fees, expenses, debts and
obligations (other than the payment of distributions and other payments on the
preferred securities) related to the Trusts and any offering of the Trusts'
preferred securities and will pay, directly or indirectly, all ongoing costs,
expenses and liabilities of the Trusts. The principal executive office of each
of the Trusts is c/o Forest City Enterprises, Inc., 50 Public Square, Terminal
Tower, Suite 1100, Cleveland, Ohio 44113-2203 and its telephone number is (216)
621-6060.
5
Each of the Trusts has a term of 50 years, but may dissolve earlier as
provided in its amended and restated declaration of trust. The Trust's business
and affairs are conducted by the trustees. The trustees for each of the Trusts
are The Bank of New York, as institutional trustee, The Bank of New York
(Delaware), as the Delaware trustee, and two regular trustees who are officers
of Forest City Enterprises, Inc.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth our ratio of earnings to fixed charges for
the periods indicated.
YEARS ENDED JANUARY 31,
------------------------------------------------
PRO-RATA
FULL CONSOLIDATION(1) CONSOLIDATION(1)
------------------------------------------------
2002 2001 2000 1999 1998(2)
---- ---- ---- ---- ----------------
Ratio of Earnings to Fixed Charges.............. 1.72x 1.69x 1.59x 1.38x --
---------------
(1) Effective January 31, 2001, we implemented a change in the presentation of
our financial results. Prior to January 31, 2001, we used the pro-rata
method of consolidation to report our partnership investments proportionate
to our share of ownership for each line item of our consolidated financial
statements. In accordance with the Financial Accounting Standards Board's
Emerging Issues Task Force Issue No. 00-1, "Investor Balance Sheet and
Income Statement Display under the Equity Method for Investments in Certain
Partnerships and Other Ventures," we can no longer use the pro-rata
consolidation method for partnerships. Accordingly, partnership investments
that were previously reported on the pro-rata method are now reported as
consolidated at 100%, if deemed under our control, or otherwise on the
equity method of accounting.
(2) Total fixed charges exceeded our adjusted earnings by $10.0 million for
January 31, 1998. Our earnings, as adjusted, includes income of $15.0
million from a lawsuit settlement related to Toscana, a California apartment
project, and a $39.0 million loss related to the sale of Toscana ($36.0
million) and a partnership interest ($3.0 million), but does not include an
extraordinary gain of $18.0 million related to the sale of Toscana.
To date, we have not issued any shares of preferred stock. Therefore, the
ratio of earnings to combined fixed charges and preferred stock dividends is the
same as the ratio of earnings to fixed charges and is not separately presented.
We believe that we have other earnings from operations, principally from
depreciation and amortization, that are available to cover fixed charges.
USE OF PROCEEDS
Unless we inform you otherwise in the applicable prospectus supplement, we
intend to use the net proceeds from the sale of securities for general corporate
purposes. These purposes may include, but are not limited to:
- repayment of debt;
- additions to working capital;
- development of new properties;
- capital expenditures; and
- acquisitions.
Until we use the proceeds in this manner, we may temporarily use them to make
short-term investments or to reduce short-term debt.
Unless the Trusts inform you otherwise in the applicable prospectus
supplement, the Trusts will use all proceeds received from the sale of their
preferred securities to purchase our subordinated debt securities.
6
SUMMARY DESCRIPTION OF SECURITIES WE AND THE TRUSTS MAY OFFER
We may use this prospectus to offer the following types of securities.
- Senior debt securities. These debt securities will be unsecured and will
rank equally with all of our other unsubordinated and unsecured debt and
may be convertible into, or exchangeable for, our preferred stock or
class A common stock.
- Senior subordinated debt securities. These debt securities will be
unsecured and will rank equally with all of our other senior subordinated
and unsecured debt and may be convertible into, or exchangeable for, our
preferred stock or class A common stock.
- Junior subordinated debt securities. These debt securities will be
unsecured and will rank equally with all of our other junior subordinated
and unsecured debt and may be convertible into, or exchangeable for, our
preferred stock or class A common stock.
- Preferred stock, without par value. We can offer different series of
preferred stock with different dividend, liquidation, redemption,
conversion and voting rights.
- Depositary Shares. We may issue depositary shares that would each
represent a fraction of a share of preferred stock.
- Class A common stock, par value $.33 1/3 per share.
- Warrants to purchase any of the foregoing securities.
- Stock Purchase Contracts. We may issue stock purchase contracts, which
may represent the right to purchase our debt securities, preferred stock,
class A common stock or other securities.
- Stock Purchase Units. We may issue stock purchase units, which consist of
a stock purchase contract and our debt securities, preferred stock,
warrants or debt obligations of third parties' to secure the holder's
obligations to purchase the securities under the stock purchase
contracts.
- Subscription Rights to purchase any of our debt securities, preferred
stock and class A common stock.
The Trusts may use this prospectus to offer preferred securities. These
preferred securities will be fully and unconditionally guaranteed by us.
A prospectus supplement will describe the specific types, amounts, prices
and detailed terms of any of these securities.
DESCRIPTION OF SENIOR DEBT SECURITIES WE MAY OFFER
This section describes the general terms and provisions of the senior debt
securities that we may issue separately, upon conversion of preferred stock,
upon exercise of a debt warrant, in connection with a stock purchase contract,
as part of a stock purchase unit or upon exercise of a subscription right from
time to time in the form of one or more series of senior debt securities. The
applicable prospectus supplement will describe the specific terms, or modify the
general terms, of the senior debt securities offered through that prospectus
supplement and any special federal income tax consequences of these senior debt
securities.
The senior debt securities we may offer will be issued under an indenture,
between us and The Bank of New York, as trustee, unless otherwise indicated in
the applicable prospectus supplement. A copy of the form of our senior debt
indenture has been filed as an exhibit to the registration statement of which
this prospectus is a part and is incorporated by reference into this prospectus.
You should refer to the form of our senior debt indenture for more specific
information. See "Where You Can Find More Information" for information on how to
obtain a copy of the form of our senior debt indenture. The following summaries
of specific provisions of the indenture are not complete and are subject to all
of the provisions of the applicable indenture.
7
The trustee under the senior debt indenture has two main roles.
- First, the trustee can enforce your rights against us if we default.
There are some limitations on the extent to which the trustee acts on
your behalf, which we describe later under "-- Events of Default" and
"-- Modification and Waiver".
- Second, the trustee performs administrative duties for us, such as
sending you interest payments and notices.
See "-- Relationship With the Trustee" below for more information about the
trustee.
We currently conduct substantially all of our operations through our
subsidiaries. Our ability to pay principal and interest on the senior debt
securities will depend upon the ability of our subsidiaries to distribute their
income to us. Some of our subsidiaries are subject to financial covenants that
may limit or prohibit their ability to make loans, advances, dividends or
distributions to us.
The senior debt securities we may offer will rank equally in right of
payment with all our other existing and future senior unsecured debt, including
our $200.0 million aggregate principal amount of 8.5% senior notes due March 15,
2008 and our guaranty of the borrowings under the Forest City Rental Properties
Corporation, or FCRPC, credit agreement. FCRPC is one of our wholly owned
subsidiaries. The senior debt securities will be effectively subordinated to all
our existing and future senior secured debt, to the extent of the value securing
our senior secured debt.
Although the senior debt securities will be our senior obligations, they
will be effectively subordinated to all existing and future debt and other
liabilities, including trade payables and capital lease obligations, of our
subsidiaries, including the borrowings under the FCRPC credit agreement.
The FCRPC credit agreement prohibits the payment of principal and interest
on any senior debt securities during the existence and continuation of a payment
default under the FCRPC credit agreement or the guaranty. In the event of a
continuing non-payment default, our guaranty prohibits FCRPC from making any
distribution to us except as necessary to pay interest on any senior debt
securities and taxes. Our guaranty will also prohibit our redemption or
defeasance of any of our senior debt securities without the consent of the
lenders under the FCRPC credit agreement.
GENERAL
The applicable prospectus supplement will set forth the price or prices at
which the senior debt securities will be issued and will describe the following
terms of the senior debt securities, if applicable:
- the title and series of the senior debt securities;
- any limit on the aggregate principal amount of the senior debt
securities;
- the identity of the person to whom we will pay any interest on a senior
debt security, if it is any person other than the person in whose name
the senior debt security is registered at the close of business on the
regular record date for the interest payment;
- the date or dates on which we will pay the principal of the senior debt
securities;
- if the senior debt securities will bear interest, the interest rate or
rates, the date or dates from which the interest will accrue, the
interest payment dates on which we will pay the interest and the regular
record date for the interest payable on any interest payment date;
- the place or places where we will pay the principal of, and any premium
and interest on, the senior debt securities;
- the period or periods within which, the price or prices at which, and the
terms and conditions on which, we may, at our option, redeem the senior
debt securities, in whole or in part;
- our obligation, if any, to repurchase or redeem the senior debt
securities upon the happening of an event or at your option;
8
- if other than the entire principal amount, the portion of the principal
amount of the senior debt securities that we will pay upon acceleration
of maturity;
- if other than the currency of the United States, the currency, currencies
or currency units in which we will pay the principal of, or any premium
or interest on, the senior debt securities and the manner in which we
will determine the equivalent of the principal amount of the senior debt
securities in the currency of the United States for any purpose;
- if, at our option or your option, we may pay the principal of, or any
premium or interest on, the senior debt securities in one or more
currencies or currency units other than those in which the senior debt
securities are stated to be payable, the currency, currencies or currency
units in which we will pay, at our option or your option, these amounts,
the periods within which and the terms and conditions upon which the
election must be made by us or you, and the amount that we will pay or
the manner in which we will determine the amount;
- if the principal amount payable at the stated maturity of the senior debt
securities will not be determinable as of any one or more dates prior to
the stated maturity, the amount that will be deemed to be the principal
amount as of any date for any purpose;
- that the senior debt securities, in whole or in any specified part, are
defeasible as described below under " -- Defeasance and Discharge" or
" -- Covenant Defeasance," or under both captions;
- whether the principal or interest will be indexed to, or determined by
reference to, one or more securities, commodities, indices or other
financial measure;
- whether the principal or interest may be payable, in whole or in part, in
securities of another issuer;
- whether we may issue the senior debt securities, in whole or in part, in
the form of one or more global securities, and, if so, the depositaries
for the global securities, and, if different from those described below
under "-- Global Securities", any circumstances under which we may
exchange or transfer any global security, in whole or in part, in the
names of persons other than the depositary or its nominee; and
- any addition to or change in the events of default applicable to the
senior debt securities and any change in the right of the trustee or your
rights to declare the principal amount of the senior debt securities due
and payable.
We may sell senior debt securities at a substantial discount to their
principal amount. We will describe any special United States federal income tax
considerations applicable to the senior debt securities sold at an original
issue discount in the applicable prospectus supplement. In addition, we will
describe any special United States federal income tax or other considerations
applicable to any senior debt securities that are denominated in a currency or
currency unit other than United States dollars in the applicable prospectus
supplement.
CONVERSION RIGHTS
We will set forth in an applicable prospectus supplement whether the senior
debt securities will be convertible into or exchangeable for any other
securities and the terms and conditions upon which a conversion or exchange may
occur, including the initial conversion or exchange price or rate, the
conversion or exchange period and any other additional provisions.
FORM, EXCHANGE AND TRANSFER
We will issue the senior debt securities, if any, of each series only in
fully registered form, without coupons, and, unless otherwise specified in the
applicable prospectus supplement, only in denominations and integral multiples
of $1,000.
9
At your option, subject to the terms of the senior debt indenture and the
limitations applicable to global securities, senior debt securities of each
series will be exchangeable for other senior debt securities of the same series
of any authorized denomination in the same aggregate principal amount.
Subject to the terms of the senior debt indenture and the limitations
applicable to global securities, you may present senior debt securities for
exchange as provided above or for registration of transfer, if properly endorsed
or with the form of transfer properly endorsed and executed, at the office of
the security registrar or at the office of any transfer agent that we designate.
There will be no service charge for any registration of transfer or exchange of
senior debt securities, but we may require payment of a sum sufficient to cover
any tax or other governmental charge payable in connection with the transfer or
exchange. The security registrar will effect a transfer or exchange only if it
is satisfied with the documents of title and identity of the person making the
request for the transfer or exchange. We will appoint The Bank of New York as
security registrar, except as otherwise indicated in the applicable prospectus
supplement.
If we redeem the senior debt securities of any series in part, we will not
be required to issue, register the transfer of, or exchange, any senior debt
security of that series during a period beginning at the opening of business 15
days before the day of mailing of a notice of redemption and ending at the close
of business on the day of the mailing, or register the transfer of, or exchange,
any senior debt security selected for redemption, in whole or in part, except
the unredeemed portion of any senior debt security being redeemed in part.
GLOBAL SECURITIES
Some or all of the senior debt securities of any series may be represented,
in whole or in part, by one or more global securities that will have an
aggregate principal amount equal to that of the senior debt securities of the
particular series represented by the global securities. Each global security
will be registered in the name of a depositary or its nominee identified in the
applicable prospectus supplement, will be deposited with that depositary or
nominee or a custodian for the depositary or nominee and will bear a legend
regarding the restrictions on exchanges and registration of transfer referred to
below and any other matters as may be provided under the senior debt indenture.
Notwithstanding any provision of the senior debt indenture or any senior
debt security, no global security may be exchanged, in whole or in part, for
senior debt securities registered, and no transfer of a global security, in
whole or in part, may be registered, in the name of any person other than the
depositary for the global security or any nominee of the depositary unless:
- the depositary has notified us that it is unwilling or unable to continue
as depositary for the global security or has ceased to be qualified to
act as a depositary as required by the senior debt indenture;
- an event of default, or an event that with notice or lapse of time, or
both, will become an event of default, with respect to the senior debt
securities represented by the global security has occurred and is
continuing;
- we so request; or
- other circumstances, if any, in addition to or in lieu of those described
above and as may be described in the applicable prospectus supplement,
exist.
All securities issued in exchange for a global security or any portion of a
global security will be registered in the names that the depositary directs.
As long as the depositary, or its nominee, is the registered holder of a
global security, the depositary or the nominee will be considered the sole owner
and holder of the global security and the series of senior debt securities
represented by the global security for all purposes under that series of senior
debt securities and the senior debt indenture. Except in the limited
circumstances referred to above, owners of beneficial interests in a global
security will not be entitled to have a global security or any series of senior
debt securities represented by the global security registered in their names,
will not receive or be entitled to receive physical delivery of certificated
senior debt securities in exchange for the global security and will not be
considered to be the owners or holders of the global security or any series of
senior debt securities represented by the global security
10
for any purpose under that series of senior debt securities or the senior debt
indenture. All payments of principal of and any premium and interest on a global
security will be made to the depositary or its nominee, as the case may be, as
the holder of the global security. The laws of some jurisdictions require that
some purchasers of securities take physical delivery of the securities in
definitive form. These laws may impair the ability to transfer beneficial
interests in a global security.
Ownership of beneficial interests in a global security will be limited to
institutions that have accounts with the depositary or its nominee and to
persons that may hold beneficial interests through the depositary's
participants. In connection with the issuance of any global security, the
depositary will credit, on its book-entry registration and transfer system, the
respective principal amounts of senior debt securities represented by the global
security to the accounts of its participants. Ownership of beneficial interests
in a global security will be shown only on, and the transfer of those ownership
interests will be effected only through, records maintained by the depositary,
with respect to participants' interests, or by any participant, with respect to
interests of persons held by participants on their behalf. Payments, transfers,
exchanges and other matters relating to beneficial interests in a global
security may be subject to various policies and procedures adopted by the
depositary from time to time. None of us, the senior debt trustee or any agent
of ours or the senior debt trustee will have any responsibility or liability for
any aspect of the depositary's or any participant's records relating to, or for
payments made for, beneficial interests in a global security or for maintaining,
supervising or reviewing any records relating to beneficial interests.
Unless otherwise stated in the applicable prospectus supplement, we will
appoint The Depository Trust Company, or DTC, as the depositary for the senior
debt securities.
We understand that neither DTC nor its nominee will consent or vote with
respect to the senior debt securities. We have been advised that under its usual
procedures, DTC will mail an omnibus proxy to us as soon as possible after the
record date. The omnibus proxy assigns consenting or voting rights of DTC's
nominee to those participants to whose accounts the senior debt securities are
credited on the record date identified in a listing attached to the omnibus
proxy.
DTC has advised us that it will take any action permitted to be taken by a
holder of senior debt securities (including the presentation of senior debt
securities for exchange) only at the direction of one or more participants to
whose account with DTC interests in the global security are credited and only in
respect of such portion of the principal amount of the senior debt securities
represented by the global security as to which such participant or participants
has or have given such direction.
DTC has also advised us as follows:
- DTC is a limited purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a clearing
corporation within the meaning of the Uniform Commercial Code, as
amended, and a clearing agency registered pursuant to the provisions of
Section 17A of the Exchange Act;
- DTC was created to hold securities for its participants and facilitate
the clearance and settlement of securities transactions between
participants through electronic computerized book-entry changes in
accounts of its participants;
- DTC's participants include securities brokers and dealers, banks, trust
companies and clearing corporations and may include certain other
organizations;
- certain participants, or other representatives, together with other
entities, own DTC; and
- indirect access to the DTC system is available to other entities such as
banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a participant, either directly or
indirectly.
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PAYMENT AND PAYING AGENTS
Unless otherwise indicated in the applicable prospectus supplement, payment
of interest on a senior debt security on any interest payment date will be made
to the person in whose name the senior debt security, or one or more predecessor
senior debt securities, is registered at the close of business on the regular
record date for the interest payment.
Unless otherwise indicated in the applicable prospectus supplement,
principal of, and any premium and interest on, the senior debt securities of a
particular series will be payable at the office of the paying agent or paying
agents that we may designate from time to time. Any other paying agents that we
initially designate for the senior debt securities of a particular series will
be named in the applicable prospectus supplement. We may at any time designate
additional paying agents or rescind the designation of any paying agent or
approve change in the office through which any paying agent acts, except that we
will be required to maintain a paying agent in each place of payment for the
senior debt securities of a particular series.
All moneys that we deposit with the trustee or pay to a paying agent for
the payment of the principal of, or any premium or interest on, any senior debt
security that remain unclaimed at the end of two years after the principal,
premium or interest has become due and payable will be repaid to us, and the
holder of the senior debt security may look only to us for payment of any
principal, premium or interest.
RESTRICTIVE COVENANTS
Covenants applicable to the senior debt securities will be set forth in the
applicable prospectus supplement.
CONSOLIDATION, MERGER AND SALE OF ASSETS
Unless otherwise specified in the applicable prospectus supplement, the
senior debt indenture will provide that Forest City Enterprises, Inc. may not
consolidate with, merge into or reorganize with or into, or transfer, convey,
sell, lease or otherwise dispose of all or substantially all of its assets to,
any entity, unless all of the following conditions are met.
- If the successor entity is not Forest City Enterprises, Inc., the
successor entity is organized under the laws of any domestic jurisdiction
and expressly assumes Forest City Enterprises, Inc.'s obligations under
the senior debt indenture.
- Immediately before and after giving effect to the transaction, and
treating any debt that becomes an obligation of ours or the successor
entity as a result of the transaction as having been incurred by us or
the successor entity at the time of the transaction, no event of default,
and no event that, after notice or lapse of time or both, would become an
event of default, has occurred and is continuing.
- Immediately after giving effect to the transaction, the consolidated net
worth (as defined in the senior debt indenture) of Forest City
Enterprises, Inc. or the successor entity is equal to or greater than 90%
of Forest City Enterprises, Inc.'s consolidated net worth immediately
prior to the transaction.
- Immediately after giving effect to the transaction, and treating any debt
that becomes our obligation as a result of the transaction as having been
incurred by us at the time of the transaction, Forest City Enterprises,
Inc. could incur at least $1.00 of additional debt under specified
financial ratios contained in the senior debt indenture.
- If, as a result of the transaction, our properties or assets would become
subject to a lien or other encumbrance that would not be permitted by the
senior debt indenture, Forest City Enterprises, Inc. or the successor
entity, as the case may be, takes the steps necessary to secure the
senior debt securities equally and ratably with, or prior to, the
indebtedness secured by the lien or other encumbrance.
- Forest City Enterprises, Inc. delivers to the trustee an officers'
certificate and an opinion of counsel, both of which state that the
transaction complies with the terms of the senior debt indenture.
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EVENTS OF DEFAULT
Unless otherwise set forth in the applicable prospectus supplement, each of
the following events will constitute an event of default under the senior debt
indenture, if applicable:
- failure to pay principal of, or premium, if any, on, any senior debt
security when due;
- failure to pay any interest on any senior debt security when due that
continues for 30 days;
- failure to perform or observe the covenants in the senior debt indenture,
which may relate to dispositions of assets, mergers, consolidations and
sales of all or substantially all our assets, or a change of control of
the company, as specified in the applicable prospectus supplement;
- failure to perform other covenants in the senior indenture that continues
for 30 days after written notice as provided in the senior debt
indenture;
- a default under any recourse debt by us, individually or in the
aggregate, in excess of $10.0 million, which default (1) constitutes a
failure to pay when due, subject to any applicable grace period, any
portion of the principal of that recourse debt, and (2) results in that
recourse debt becoming or being declared due and payable prior to its
stated maturity;
- a default under any non-recourse debt by us, individually or in the
aggregate, in excess of 20% of the aggregate principal amount of all of
our outstanding non-recourse debt, which default (1) constitutes a
failure to a pay when due, subject to any applicable grace period, any
portion of the principal of that non-recourse debt, or (2) results in
that non-recourse debt becoming or being declared due and payable prior
to its stated maturity;
- the rendering of a final judgment or judgments against us or any
subsidiary that is not subject to appeal in an amount in excess of $10.0
million that remains undischarged or unstayed for a period of 45 days
after the date on which the right to appeal has expired;
- we or any of our significant subsidiaries file for bankruptcy, or other
events in bankruptcy, insolvency or reorganization occur; and
- any other event of default specified in the applicable prospectus
supplement.
Subject to the provisions of the senior debt indenture relating to the
duties of the trustee in case an event of default occurs and is continuing, the
trustee will be under no obligation to exercise any of its rights or powers
under the senior debt indenture at the request or direction of any of the
holders, unless those holders have offered reasonable indemnity to the trustee.
Subject to the provisions of the senior debt indenture relating to the
indemnification of the trustee, the holders of a majority in aggregate principal
amount of the outstanding senior debt securities will have the right to direct
the time, method and place of conducting any proceeding for any remedy available
to the trustee or exercising any trust or power conferred on the trustee.
If an event of default, other than an event of default relating to
bankruptcy, insolvency or reorganization, occurs and is continuing, either the
trustee or the holders of at least 25% in aggregate principal amount of a series
of outstanding senior debt securities may accelerate the maturity of all senior
debt securities of that series. If an event of default relating to bankruptcy,
insolvency or reorganization occurs, the principal amount of all the senior debt
securities, or, in the case of any original issue discount security or other
senior debt security, a specified amount, will automatically, and without any
action by the trustee or any holder, become immediately due and payable.
However, after the acceleration, but before a judgment or decree based on
acceleration, the holders of a majority in aggregate principal amount of
outstanding senior debt securities of that series may, under specific
circumstances, rescind the acceleration if all events of default, other than the
non-payment of accelerated principal, have been cured or waived as provided in
the senior debt indenture. For a more detailed discussion as to waiver of
defaults, see " -- Modification and Waiver."
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No holder of any senior debt security will have any right to institute any
proceeding with respect to the senior debt indenture or for any remedy under the
senior debt indenture unless:
- the holder has previously given to the trustee written notice of a
continuing event of default with respect to that series of senior debt
securities;
- the holders of at least 25% in aggregate principal amount of the
outstanding senior debt securities of the relevant series have made a
written request, and offered reasonable indemnity, to the trustee to
institute the proceeding as trustee;
- the trustee has failed to institute the proceeding within 60 days; and
- the trustee has not received from the holders of a majority in aggregate
principal amount of the outstanding senior debt securities of the
relevant series a direction inconsistent with the holders' request.
However, these limitations do not apply to a suit instituted by a holder of a
senior debt security for enforcement of payment of the principal of, and
premium, if any, or interest on, any senior debt security on or after the
respective due dates expressed in the senior debt security.
We will be required to furnish to the trustee a statement as to our
performance of some of our obligations under the senior debt indenture and as to
any default in our performance.
MODIFICATION AND WAIVER
Unless otherwise set forth in the applicable prospectus supplement, we and
the trustee may modify and amend the senior debt indenture with the consent of
the holders of not less than a majority in aggregate principal amount of any
series of outstanding senior debt securities, and, in some instances, we and the
trustee may modify and amend the senior debt indenture without the consent of
the holders of any series of outstanding senior debt securities. However, we and
the trustee may not modify or amend the senior debt indenture without the
consent of the holder of each outstanding senior debt security affected by the
modification or amendment if the modification or amendment:
- changes the stated maturity of the principal of, or any installment of
interest on, any senior debt security;
- reduces the principal amount of, or the premium or interest on, any
senior debt security;
- changes the place or currency of payment of principal of, or premium or
interest on, any senior debt security;
- impairs the right to institute suit for the enforcement of any payment on
or with respect to any senior debt security;
- reduces the percentage of any series of outstanding senior debt
securities necessary to modify or amend the senior debt indenture;
- reduces the percentage of aggregate principal amount of any series of
outstanding senior debt securities necessary for waiver of compliance
with specified provisions of the senior debt indenture or for waiver of
specified defaults; or
- modifies any other provisions of the senior debt indenture set forth in
the applicable prospectus supplement relating to the senior debt
securities, except to increase any percentages referred to above or to
provide other provisions of the senior debt indenture cannot be modified
or waived without the consent of the holders.
The holders of a majority in aggregate principal amount of any series of
outstanding senior debt securities may waive our compliance with specified
restrictive provisions of the senior debt indenture. The holders of a majority
in aggregate principal amount of any series of outstanding senior debt
securities may waive any past
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default under the senior debt indenture with respect to that series, except a
default in the payment of principal, premium, if any, or interest or any other
default specified in the applicable prospectus supplement.
DEFEASANCE AND DISCHARGE
The senior debt indenture will provide that, upon the exercise of our
option, we will be discharged from all our obligations with respect to any
senior debt securities of a series, except for the following obligations:
- to exchange or register the transfer of senior debt securities;
- to replace stolen, lost or mutilated senior debt securities;
- to maintain paying agencies; and
- to hold moneys for payment in trust, upon our deposit in trust for the
benefit of the holders of the senior debt securities of money or United
States government obligations, or both, in an amount sufficient to pay
the principal of, and any premium and interest on, senior debt securities
of that series on the stated maturity in accordance with the terms of the
senior debt indenture and the senior debt securities of that series.
We may only exercise defeasance or discharge if, among other things, we have
delivered to the trustee an opinion of counsel to the effect that we have
received from, or there has been published by, the Internal Revenue Service a
ruling, or there has been a change in tax law, in either case to the effect that
holders of the senior debt securities of a relevant series will not recognize
gain or loss for federal income tax purposes as a result of the deposit,
defeasance and discharge and will be subject to federal income tax on the same
amount, in the same manner and at the same times as would have been the case if
the deposit, defeasance and discharge were not to occur.
COVENANT DEFEASANCE
The senior debt indenture will provide that, at our option, we may omit to
comply with specified restrictive covenants related to the senior debt
securities of a series, including any that may be described in the applicable
prospectus supplement, and the occurrence of specified events of default related
to the senior debt securities of that series will be deemed not to be or result
in an event of default. We may only exercise this option if we deposit, in trust
for the benefit of the holders of the senior debt securities of that series,
money or United States government obligations, or both, in an amount sufficient
to pay the principal of, and any premium and each installment of interest on,
the senior debt securities of that series on the stated maturity in accordance
with the terms of the senior debt indenture and the senior debt securities of
that series. We also must, among other things, deliver to the trustee an opinion
of counsel to the effect that holders of the senior debt securities of the
relevant series will not recognize gain or loss for federal income tax purposes
as a result of the deposit and defeasance of specified obligations and will be
subject to federal income tax on the same amount, in the same manner and at the
same times as would have been the case if the deposit and defeasance were not to
occur.
If we exercise this option with respect to any senior debt securities of a
series and the senior debt securities of that series are declared due and
payable because of the occurrence of any event of default, the amount of money
and United States government obligations deposited in trust may be insufficient
to pay amounts due on the senior debt securities of that series at the time of
the acceleration. In such a case, we would remain liable for the deficiency.
NOTICES
Unless otherwise specified in the applicable prospectus supplement, notices
to the holders of senior debt securities will be given by mail to the addresses
of those holders as they may appear in the security register.
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TITLE
Unless otherwise specified in the applicable prospectus supplement, we, the
trustee and any agents of ours or the trustee may treat the person in whose name
a senior debt security is registered as the absolute owner of the senior debt
security, whether or not the senior debt security may be overdue, for the
purpose of making payment and for all other purposes.
RELATIONSHIP WITH THE TRUSTEE
The Bank of New York will be trustee under the senior debt indenture,
unless otherwise indicated in the applicable prospectus supplement. The Bank of
New York is the trustee under the indenture governing our $200.0 million
aggregate principal amount of 8.5% senior notes due March 15, 2008 and is also a
lender to our subsidiaries of nonrecourse project debt. The Bank of New York is
the institutional trustee for each of the Trusts. The Bank of New York
(Delaware), an affiliate of The Bank of New York, is the Delaware trustee for
each of the Trusts.
GOVERNING LAW
The senior debt indenture and the senior debt securities will be governed
by, and construed in accordance with, the law of the State of New York, unless
otherwise indicated in the applicable prospectus supplement.
DESCRIPTION OF SUBORDINATED DEBT SECURITIES WE MAY OFFER
This section describes the general terms and provisions of the subordinated
debt securities that we may issue separately, upon conversion of preferred
stock, upon exercise of a debt warrant, in connection with a stock purchase
contract, as part of a stock purchase unit or upon exercise of a subscription
right from time in the form of one or more series of subordinated debt
securities. The applicable prospectus supplement will describe the specific
terms, or modify the general terms, of the subordinated debt securities offered
through that prospectus supplement and any special federal income tax
consequences of these subordinated debt securities.
The subordinated debt securities we may offer will be issued under an
indenture, between us and National City Bank, as subordinated trustee, unless
otherwise indicated in the applicable prospectus supplement. Copies of the forms
of our senior subordinated debt indenture and our junior subordinated indenture
have been previously filed with the SEC, are incorporated by reference as
exhibits to the registration statement of which this prospectus is a part and
are incorporated by reference into this prospectus. The senior subordinated
indenture and junior subordinated indenture are sometimes referred to
collectively in this prospectus as the "subordinated indentures." You should
refer to the forms of our subordinated indentures for more specific information.
See "Where You Can Find More Information" for information on how to obtain
copies of the forms of our subordinated indentures. The following summaries of
specific provisions of the subordinated indentures are not complete and are
subject to all of the provisions of the subordinated indentures.
The subordinated trustee under each of the subordinated debt indentures has
two main roles.
- First, the subordinated trustee can enforce your rights against us if we
default. There are some limitations on the extent to which the
subordinated trustee acts on your behalf, which we describe later under
"-- Events of Default" and "-- Modification and Waiver".
- Second, the subordinated trustee performs administrative duties for us,
such as sending you interest payments and notices.
See "-- Relationship With the Subordinated Trustee" below for more information
about the trustee.
We currently conduct substantially all of our operations through our
subsidiaries. Our ability to pay principal and interest on the subordinated debt
securities will depend on the ability of our subsidiaries to distribute their
income to us. Some of our subsidiaries are subject to financial covenants that
may limit or prohibit their ability to make loans, advances, dividends or
distributions to us.
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The junior subordinated debt securities we may offer, if any, will be
subordinated in right of payment to all senior debt, and the senior subordinated
debt securities will be subordinated in right of payment to all senior
indebtedness. For a more detailed discussion of this subordination, see
" -- Subordination of Subordinated Debt Securities." The only senior debt or
senior indebtedness outstanding as of April 30, 2002 is our $200.0 million
aggregate principal amount of 8.5% senior notes due March 15, 2008, our guaranty
of borrowings under the FCRPC credit agreement and our guaranty of $20.4 million
of Franklin Town Towers Associates' Series 2000 Bonds that are due 2026 but
subject to mandatory tender in 2010. Franklin Town Towers Associates is one of
our wholly owned subsidiaries. The holders of subordinated debt securities,
including senior subordinated debt securities, will also be effectively
subordinated to all existing and future debt and other liabilities, including
trade payables and capital lease obligations, of our subsidiaries.
GENERAL
The subordinated indentures will provide that we may issue subordinated
debt securities in separate series from time to time without limitation as to
aggregate principal amount. We may specify a maximum aggregate principal amount
for the subordinated debt securities of any series. The subordinated debt
securities will have terms and provisions that are not inconsistent with the
subordinated indentures, including as to maturity, principal and interest, as we
may determine.
The applicable prospectus supplement will set forth whether the
subordinated debt securities will be senior subordinated debt securities or
junior subordinated debt securities and the price or prices at which we will
issue the subordinated debt securities. The applicable prospectus supplement
will also describe the following terms of the subordinated debt securities, if
applicable:
- the title and series of the subordinated debt securities;
- any limit on the aggregate principal amount of the subordinated debt
securities or the series of which they are a part;
- the identity of the person to whom we will pay any interest on a
subordinated debt security, if it is any person other than the person in
whose name the subordinated debt security is registered at the close of
business on the regular record date for the interest payment;
- the date or dates on which we will pay the principal of the subordinated
debt securities;
- if the subordinated debt securities will bear interest, the interest rate
or rates, the date or dates from which the interest will accrue, the
interest payment dates on which we will pay the interest and the regular
record date for the interest payable on any interest payment date;
- the place or places where we will pay the principal of, and any premium
and interest on, the subordinated debt securities;
- the period or periods within which, the price or prices at which, and the
terms and conditions on which, we may, at our option, redeem the
subordinated debt securities, in whole or in part;
- our obligation, if any, to redeem or purchase the subordinated debt
securities in connection with any sinking fund or similar provision or at
the option of the holder, and the period or periods within which, the
price or prices at which, and the terms and conditions on which, we will
redeem or repurchase any of the subordinated debt securities, in whole or
in part, in connection with this obligation;
- the denominations in which we will issue the subordinated debt
securities, if other than denominations and integral multiples of $1,000;
- the index or formula, if any, that we will use to determine the amount of
principal of, or any premium or interest on, the subordinated debt
securities;
- if other than the currency of the United States, the currency, currencies
or currency units in which we will pay the principal of, or any premium
or interest on, the subordinated debt securities and the
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manner in which we will determine the equivalent of the principal amount
of the subordinated debt securities in the currency of the United States
for any purpose;
- if, at our option or your option, we may pay the principal of, or any
premium or interest on, the subordinated debt securities in one or more
currencies or currency units other than those in which the subordinated
debt securities are stated to be payable, the currency, currencies or
currency units in which we will pay, at our option or your option, these
amounts, the periods within which and the terms and conditions upon which
the election must be made by us or you, and the amount that we will pay
or the manner in which we will determine the amount;
- if other than the entire principal amount, the portion of the principal
amount of the subordinated debt securities that we will pay upon
acceleration of maturity;
- if the principal amount payable at the stated maturity of the
subordinated debt securities will not be determinable as of any one or
more dates prior to the stated maturity, the amount that will be deemed
to be the principal amount as of any date for any purpose;
- that the subordinated debt securities, in whole or any specified part,
are defeasible under the provisions of the applicable subordinated
indenture described below under " -- Defeasance and Discharge" or
" -- Covenant Defeasance," or under both captions;
- whether the principal or interest will be indexed to, or determined by
reference to, one or more securities, commodities, indices, or other
financial measure;
- whether the principal or interest may be payable, in whole or in part, in
securities of another issuer;
- whether we may issue the subordinated debt securities, in whole or in
part, in the form of one or more global securities, and, if so, the
depositaries for the global securities, and, if different from those
described below under "-- Global Securities", any circumstances under
which we may exchange or transfer any global security, in whole or in
part, for securities in the names of persons other than the depositary or
its nominee; and
- any addition to or change in the events of default applicable to the
subordinated debt securities and any change in the right of the
subordinated trustee or the holders of the subordinated debt securities
to declare the principal amount of the subordinated debt securities due
and payable.
We may sell subordinated debt securities at a substantial discount to their
principal amount. We will describe any special United States federal income tax
considerations applicable to subordinated debt securities sold at an original
issue discount in the applicable prospectus supplement. In addition, we will
describe any special United States federal income tax or other considerations
applicable to any subordinated debt securities that are denominated in a
currency or currency unit other than United States dollars in the applicable
prospectus supplement.
CONVERSION RIGHTS
We will set forth in an applicable prospectus supplement whether the
subordinated debt securities will be convertible into or exchangeable for any
other securities and the terms and conditions upon which a conversion or
exchange may occur, including the initial conversion or exchange price or rate,
the conversion or exchange period and any other additional provisions.
SUBORDINATION OF SUBORDINATED DEBT SECURITIES
Unless otherwise indicated in the applicable prospectus supplement, the
following provisions will apply to the subordinated debt securities.
SENIOR SUBORDINATED DEBT SECURITIES
The senior subordinated debt indenture may provide that the senior
subordinated debt securities are subordinate in right of payment to the prior
payment in full of all senior indebtedness, which includes our
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$200.0 million aggregate principal amount of 8.5% senior notes due March 15,
2008, our guaranty of the obligations under the FCRPC credit agreement, our
guaranty of the Franklin Town Towers Associates' bonds and any senior debt
securities that we may issue under the senior debt indenture.
The holders of all senior indebtedness outstanding at the time of
acceleration will first be entitled to receive payment in full of all amounts
due on the senior indebtedness before the holders of the senior subordinated
debt securities will be entitled to receive any payment upon the principal of,
or premium, if any, or interest, if any, on the senior subordinated debt
securities in the following circumstances:
- upon any payment or distribution of assets to creditors upon any
liquidation, dissolution, winding up, reorganization, assignment for the
benefit of creditors, or any bankruptcy, insolvency, debt restructuring
or similar proceedings in connection with any insolvency or bankruptcy
proceeding of Forest City Enterprises, Inc.;
- (a) in the event and during the continuation of any default in the
payment of principal, premium or interest on any senior indebtedness
beyond any applicable grace period or (b) in the event that any event of
default with respect to any senior indebtedness has occurred and is
continuing, permitting the holders of that senior indebtedness (or a
trustee) to accelerate the maturity of that senior indebtedness, whether
or not the maturity is in fact accelerated (unless, in the case of (a) or
(b), the payment default or event of default has been cured or waived or
ceased to exist and any related acceleration has been rescinded) or (c)
in the event that any judicial proceeding is pending with respect to a
payment default or event of default described in (a) or (b); or
- in the event that any senior subordinated debt securities have been
declared due and payable before their stated maturity.
By reason of this subordination, in the event of liquidation or insolvency,
holders of senior subordinated debt securities may recover less than holders of
senior indebtedness and may recover more than the holders of junior subordinated
debt securities.
For purposes of the subordination provisions, the payment, issuance and
delivery of cash, property or securities, other than stock and some of our
subordinated securities, upon conversion or exchange of a senior subordinated
debt security will be deemed to constitute payment upon the principal of the
senior subordinated debt security.
JUNIOR SUBORDINATED DEBT SECURITIES
The junior subordinated debt indenture may provide that the junior
subordinated debt securities are subordinate in right of payment to the prior
payment in full of all senior debt, which includes any senior subordinated debt
securities that we may issue under the senior subordinated debt indenture.
The holders of all senior debt outstanding at the time of acceleration will
first be entitled to receive payment in full of all amounts due on the senior
debt before the holders of the junior subordinated debt securities will be
entitled to receive any payment upon the principal of, or premium, if any, or
interest, if any, on the junior subordinated debt securities in the following
circumstances:
- upon any payment or distribution of assets to creditors upon any
liquidation, dissolution, winding up, reorganization, assignment for the
benefit of creditors, or any bankruptcy, insolvency, debt restructuring
or similar proceedings in connection with any insolvency or bankruptcy
proceeding of Forest City Enterprises, Inc.;
- (a) in the event and during the continuation of any default in the
payment of principal, premium or interest on any senior debt beyond any
applicable grace period or (b) in the event that any event of default
with respect to any senior debt has occurred and is continuing,
permitting the holders of that senior debt (or a trustee) to accelerate
the maturity of that senior debt, whether or not the maturity is in fact
accelerated (unless, in the case of (a) or (b), the payment default or
event of been cured or waived or ceased to exist and any related
acceleration has been rescinded) or (c) in the event that any
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judicial proceeding is pending with respect to a payment default or event
of default described in (a) or (b); or
- in the event that any junior subordinated debt securities have been
declared due and payable before their stated maturity.
By reason of this subordination, in the event of liquidation or insolvency,
holders of junior subordinated debt securities may recover less than holders of
senior debt, including the holders of any senior subordinated debt securities.
For purposes of the subordination provisions, the payment, issuance and
delivery of cash, property or securities, other than stock and some of our
subordinated securities, upon conversion or exchange of a junior subordinated
debt security will be deemed to constitute payment upon the principal of the
junior subordinated debt security.
DEFINITIONS
Unless otherwise indicated in the applicable prospectus supplement, the
following definitions are applicable to the subordinated indentures relating to
the subordinated debt securities. You should refer to the applicable
subordinated indenture for the full definition of each term.
"Debt" means, without duplication, with respect to any person or entity,
whether recourse is to all or a portion of the assets of that person or entity
and whether or not contingent:
- every obligation of that person or entity for money borrowed;
- every obligation of that person or entity evidenced by bonds, debentures,
notes or other similar instruments, including obligations incurred in
connection with the acquisition of property, assets or businesses;
- every reimbursement obligation of that person or entity with respect to
letters of credit, bankers' acceptances or similar facilities issued for
the account of that person or entity;
- every obligation of that person or entity issued or assumed as the
deferred purchase price of property or services;
- all indebtedness of that person or entity, whether incurred on or prior
to the date of the applicable subordinated indenture or incurred later,
for claims in respect of derivative products, including interest rate,
foreign exchange rate and commodity forward contracts, options and swaps
and similar arrangements; and
- every obligation of the type referred to in the foregoing clauses of
another person or entity and all dividends of another person or entity
the payment of which, in either case, that person or entity has
guaranteed or is responsible or liable, directly or indirectly, as
obligor, guarantor or otherwise;
provided that this definition does not include trade accounts payable or accrued
liabilities arising in the ordinary course of business.
"Senior debt" means the principal of, and premium, if any, and interest if
any, on debt (as defined above), whether incurred on or prior to the date of the
junior subordinated indenture or created later, unless, in the instrument
creating or evidencing the same or pursuant to which the same is outstanding, it
is provided that the obligations are not superior in right of payment to the
junior subordinated debt securities or to other debt that is equal with, or
subordinated to, the junior subordinated debt securities. Senior debt will not
include any debt (as defined above) that, when incurred and without respect to
any election under Section 1111(b) of the Bankruptcy Reform Act of 1978, was
without recourse to us, debt to any of our employees, and the junior
subordinated debt securities.
"Senior indebtedness" means the principal of, and premium, if any, and
interest on all indebtedness for borrowed money, whether incurred on or prior to
the date of the senior subordinated indenture or incurred later, excluding (a)
the subordinated debt securities, (b) obligations that by their terms are not
superior in
20
right of payment to the senior subordinated securities or to other indebtedness
that is equal with, or subordinated to, the senior subordinated securities and
(c) any deferrals, renewals or extensions of any indebtedness for money
borrowed. The term "indebtedness for money borrowed" as used in the prior
sentence means any obligation of, or any obligation guaranteed by, Forest City
Enterprises, Inc. for the repayment of borrowed money, whether or not evidenced
by bonds, debentures, notes or other written instruments, and any deferred
obligation for the payment of the purchase price of property or assets.
Neither subordinated indenture limits or prohibits the incurrence of
additional senior debt or senior indebtedness, either of which may include
indebtedness that is senior to the subordinated debt securities, but subordinate
to other obligations of ours. In connection with the future issuances of
securities, the subordinated indentures may be amended or supplemented to limit
the amount of indebtedness incurred by us.
The applicable prospectus supplement may further describe the provisions,
if any, applicable to the subordination of the subordinated debt securities of a
particular series.
FORM, EXCHANGE AND TRANSFER
We will issue the subordinated debt securities, if any, of each series only
in fully registered form, without coupons, and, unless otherwise specified in
the applicable prospectus supplement, only in denominations and integral
multiples of $1,000.
At the option of the holder, subject to the terms of the applicable
subordinated indenture and the limitations applicable to global securities,
subordinated debt securities of each series will be exchangeable for other
subordinated debt securities of the same series of any authorized denomination
in the same aggregate principal amount.
Subject to the terms of the applicable subordinated indenture and the
limitations applicable to global securities, you may present subordinated debt
securities for exchange as provided above or for registration of transfer, if
properly endorsed or with the form of transfer properly endorsed and executed,
at the office of the security registrar or at the office of any transfer agent
that we designate. There will be no service charge for any registration of
transfer or exchange of subordinated debt securities, but we may require payment
of a sum sufficient to cover any tax or other governmental charge payable in
connection with the transfer or exchange. The security registrar or transfer
agent will effect a transfer or exchange only if it is satisfied with the
documents of title and identity of the person making the request for the
transfer or exchange. We will appoint National City Bank as security registrar,
except as otherwise indicated in the applicable prospectus supplement. Any
transfer agent that we initially designate for any subordinated debt securities
will be named in the applicable prospectus supplement. We may at any time
designate additional transfer agents or rescind the designation of any transfer
agent or approve a change in the office through which any transfer agent acts,
except that we will be required to maintain a transfer agent in each place of
payment for the subordinated debt securities of each series.
If we redeem the subordinated debt securities of any series in part, we
will not be required to issue, register the transfer of, or exchange, any
subordinated debt security of that series during a period beginning at the
opening of business 15 days before the day of mailing of a notice of redemption
and ending at the close of business on the day of the mailing, or register the
transfer of, or exchange, any subordinated debt security selected for
redemption, in whole or in part, except the unredeemed portion of any
subordinated debt security being redeemed in part.
GLOBAL SECURITIES
Some or all of the subordinated debt securities of any series may be
represented, in whole or in part, by one or more global securities that will
have an aggregate principal amount equal to that of the subordinated debt
securities of the particular series represented by the global securities. Each
global security will be registered in the name of a depositary or its nominee
identified in the applicable prospectus supplement, will be deposited with that
depositary or nominee or a custodian for the depositary or nominee and will bear
a
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legend regarding the restrictions on exchanges and registration of transfer
referred to below and any other matters as may be provided under the applicable
subordinated indenture.
Notwithstanding any provision of the applicable subordinated indenture or
any subordinated debt security, no global security may be exchanged, in whole or
in part, for subordinated debt securities registered, and no transfer of a
global security, in whole or in part, may be registered, in the name of any
person other than the depositary for the global security or any nominee of the
depositary unless:
- the depositary has notified us that it is unwilling or unable to continue
as depositary for the global security or has ceased to be qualified to
act as a depositary as required by the applicable subordinated indenture;
- an event of default with respect to the subordinated debt securities of a
series represented by the global security has occurred and is continuing;
or
- other circumstances, if any, in addition to or in lieu of those described
above and as may be described in the applicable prospectus supplement,
exist.
All securities issued in exchange for a global security or any portion of a
global security will be registered in the names that the depositary directs.
As long as the depositary, or its nominee, is the registered holder of a
global security, the depositary or the nominee will be considered the sole owner
and holder of the global security and the series of subordinated debt securities
represented by the global security for all purposes under the subordinated debt
securities and the applicable subordinated indenture. Except in the limited
circumstances referred to above, owners of beneficial interests in a global
security will not be entitled to have a global security or any subordinated debt
securities represented by the global security registered in their names, will
not receive or be entitled to receive physical delivery of certificated
subordinated debt securities in exchange for the global security and will not be
considered to be the owners or holders of the global security or any
subordinated debt securities represented by the global security for any purpose
under the subordinated debt securities or the applicable subordinated indenture.
All payments of principal of and any premium and interest on a global security
will be made to the depositary or its nominee, as the case may be, as the holder
of the global security. The laws of some jurisdictions require that some
purchasers of securities take physical delivery of the securities in definitive
form. These laws may impair the ability to transfer beneficial interests in a
global security.
Ownership of beneficial interests in a global security will be limited to
institutions that have accounts with the depositary or its nominee and to
persons that may hold beneficial interests through the depositary's
participants. In connection with the issuance of any global security, the
depositary will credit, on its book-entry registration and transfer system, the
respective principal amounts of the series of subordinated debt securities
represented by the global security to the accounts of its participants.
Ownership of beneficial interests in a global security will be shown only on,
and the transfer of those ownership interests will be effected only through,
records maintained by the depositary, with respect to participants' interests,
or by any participant, with respect to interests of persons held by participants
on their behalf. Payments, transfers, exchanges and other matters relating to
beneficial interests in a global security may be subject to various policies and
procedures adopted by the depositary from time to time. None of us, the
subordinated trustee or any agent of ours or the subordinated trustee will have
any responsibility or liability for any aspect of the depositary's or any
participant's records relating to, or for payments made for, beneficial
interests in a global security or for maintaining, supervising or reviewing any
records relating to beneficial interests.
Unless otherwise stated in the applicable prospectus supplement, we will
appoint DTC as the depositary for the subordinated debt securities.
We understand that neither DTC nor its nominee will consent or vote with
respect to the subordinated debt securities. We have been advised that under its
usual procedures, DTC will mail an omnibus proxy to us as soon as possible after
the record date. The omnibus proxy assigns consenting or voting rights of DTC's
nominee to those participants to whose accounts the subordinated debt securities
are credited on the record date identified in a listing attached to the omnibus
proxy.
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DTC has advised us that it will take any action permitted to be taken by a
holder of subordinated debt securities (including the presentation of
subordinated debt securities for exchange) only at the direction of one or more
participants to whose account with DTC interests in the global security are
credited and only in respect of such portion of the principal amount of the
subordinated debt securities represented by the global security as to which such
participant or participants has or have given such direction.
DTC has also advised us as follows:
- DTC is a limited purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a clearing
corporation within the meaning of the Uniform Commercial Code, as
amended, and a clearing agency registered pursuant to the provisions of
Section 17A of the Exchange Act;
- DTC was created to hold securities for its participants and facilitate
the clearance and settlement of securities transactions between
participants through electronic computerized book-entry changes in
accounts of its participants;
- DTC's participants include securities brokers and dealers, banks, trust
companies and clearing corporations and may include certain other
organizations;
- certain participants, or other representatives, together with other
entities, own DTC; and
- indirect access to the DTC system is available to other entities such as
banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a participant, either directly or
indirectly.
PAYMENT AND PAYING AGENTS
Unless otherwise indicated in the applicable prospectus supplement, payment
of interest on a subordinated debt security on any interest payment date will be
made to the person in whose name the subordinated debt security, or one or more
predecessor debt securities, is registered at the close of business on the
regular record date for the interest payment.
Unless otherwise indicated in the applicable prospectus supplement,
principal of, and any premium and interest on, the subordinated debt securities
of a particular series will be payable at the office of the paying agent or
paying agents that we may designate from time to time. Unless otherwise
indicated in the applicable prospectus supplement, the corporate trust office of
the subordinated trustee in The City of New York will be designated as our sole
paying agent for payments with respect to subordinated debt securities of each
series. Any other paying agents that we initially designate for the subordinated
debt securities of a particular series will be named in the applicable
prospectus supplement. We may at any time designate additional paying agents or
rescind the designation of any paying agent or approve change in the office
through which any paying agent acts, except that we will be required to maintain
a paying agent in each place of payment for the subordinated debt securities of
a particular series.
All moneys that we pay to a paying agent for the payment of the principal
of, or any premium or interest on, any subordinated debt security that remain
unclaimed at the end of two years after the principal, premium or interest has
become due and payable will be repaid to us, and the holder of the subordinated
debt security may look only to us for payment of any principal, premium or
interest.
RESTRICTIVE COVENANTS
We will include covenants specific to a particular series of subordinated
debt securities in the applicable prospectus supplement.
CONSOLIDATION, MERGER AND SALE OF ASSETS
Unless otherwise specified in the applicable prospectus supplement, the
subordinated indentures will provide that Forest City Enterprises, Inc. may not
consolidate with or merge into, or convey, transfer or lease
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its properties and assets substantially as an entirety to, any entity, and may
not permit any entity to merge into, or convey, transfer or lease its properties
and assets substantially as an entirety to Forest City Enterprises, Inc., unless
all of the following conditions are met.
- If the successor entity is not Forest City Enterprises, Inc., the
successor entity is a corporation, partnership, trust or other entity
organized and validly existing under the laws of any domestic
jurisdiction and expressly assumes Forest City Enterprises, Inc.'s
obligations on the subordinated debt securities and under the
subordinated indentures.
- Immediately after giving effect to the transaction, and treating any debt
that becomes our obligation as a result of the transaction as having been
incurred by us at the time of the transaction, no event of default, and
no event that, after notice or lapse of time or both, would become an
event of default, has occurred and is continuing.
- If, as a result of the transaction, the properties or assets of Forest
City Enterprises, Inc. would become subject to a lien or other
encumbrance that would not be permitted by the applicable subordinated
indenture, Forest City Enterprises, Inc. or the successor entity, as the
case may be, takes the steps necessary to secure the subordinated debt
securities equally and ratably with, or prior to, the indebtedness
secured by the lien or other encumbrance.
- Forest City Enterprises, Inc. delivers to the subordinated trustee an
officers' certificate and an opinion of counsel, both of which state that
the transaction complies with the terms of the applicable subordinated
indenture.
EVENTS OF DEFAULT
Unless otherwise set forth in the applicable prospectus supplement, each of
the following will constitute an event of default under the applicable
subordinated indenture with respect to subordinated debt securities of any
series, if applicable:
- failure to pay principal of, or premium, if any, on, any subordinated
debt security of that series when due, whether or not the payment is
prohibited by the subordination provisions of the applicable subordinated
indenture;
- failure to pay any interest on any subordinated debt securities of that
series when due that continues for 30 days, whether or not the payment is
prohibited by the subordination provisions of the applicable subordinated
indenture;
- failure to deposit any sinking fund payment when due on any subordinated
debt security of that series, whether or not the deposit is prohibited by
the subordination provisions of the applicable subordinated indenture;
- failure to perform any other covenant in the applicable subordinated
indenture, other than a covenant included in the applicable subordinated
indenture solely for the benefit of a series other than that series, that
continues for 60 days after written notice has been given by the
subordinated trustee or the holders of at least 10% in aggregate
principal amount of the outstanding subordinated debt securities of that
series as provided in the applicable indenture;
- a default under any indebtedness for money we borrowed that (1)
constitutes a failure to pay when due, subject to any applicable grace
period, the principal of that indebtedness if that debt has not been
discharged, or (2) results in that indebtedness becoming or being
declared due and payable prior to its stated maturity if that
indebtedness has not been discharged or the acceleration has not been
rescinded, in each case within 10 days after written notice has been
given by the subordinated trustee or the holders of at least 10% in
principal amount of the outstanding subordinated debt securities of that
series as provided in the applicable indenture;
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- we or any of our significant subsidiaries file for bankruptcy, or other
events in bankruptcy, insolvency or reorganization occur; and
- any other event of default specified in the applicable prospectus
supplement.
If any event of default, other than an event of default relating to
bankruptcy, insolvency or reorganization, occurs and is continuing, either the
subordinated trustee or the holders of at least 25% in aggregate principal
amount of the outstanding subordinated debt securities of the applicable series,
by notice as provided in the applicable subordinated indenture, may declare the
principal amount of the subordinated debt securities of that series to be due
and payable immediately. If an event of default relating to bankruptcy,
insolvency or reorganization occurs, the principal amount of all the
subordinated debt securities of the applicable series, or, in the case of any
original issue discount security or other subordinated debt security, a
specified amount, will automatically, and without any action by the subordinated
trustee or any holder, become immediately due and payable. However, after the
acceleration, but before a judgment or decree based on acceleration, the holders
of a majority in aggregate principal amount of the outstanding subordinated debt
securities of that series may, under specified circumstances, rescind the
acceleration if all events of default, other than the non-payment of accelerated
principal, or other specified amount, have been cured or waived as provided in
the applicable subordinated indenture. For a more detailed discussion as to
waiver of defaults, see " -- Modification and Waiver."
Subject to the provisions of the applicable subordinated indenture relating
to the duties of the subordinated trustee in case an event of default occurs and
is continuing, the subordinated trustee will be under no obligation to exercise
any of its rights or powers under the applicable subordinated indenture at the
request or direction of any of the holders, unless the holders have offered to
the subordinated trustee reasonable indemnity. Subject to the provisions of the
applicable subordinated indenture relating to the indemnification of the
subordinated trustee, the holders of a majority in aggregate principal amount of
the outstanding subordinated debt securities of any series will have the right
to direct the time, method and place of conducting any proceeding for any remedy
available to the subordinated trustee or exercising any trust or power conferred
on the subordinated trustee with respect to the subordinated debt securities of
that series.
No holder of a subordinated debt security of any series will have any right
to institute any proceeding with respect to the applicable subordinated
indenture, or for the appointment of a receiver or a trustee, or for any other
remedy thereunder, unless:
- the holder has previously given to the subordinated trustee written
notice of a continuing event of default with respect to the subordinated
debt securities of that series;
- the holders of at least 25% in aggregate principal amount of the
outstanding subordinated debt securities of that series have made a
written request and offered reasonable indemnity to the trustee to
institute the proceeding as trustee;
- the subordinated trustee has failed to institute the proceeding; and
- the subordinated trustee has not received from the holders of a majority
in aggregate principal amount of the outstanding subordinated debt
securities of that series a direction inconsistent with the request
within 60 days after the notice, request and offer.
However, these limitations do not apply to a suit instituted by a holder of a
subordinated debt security for the enforcement of payment of the principal of or
any premium or interest on such subordinated debt security on or after the
applicable due date specified in the debt security.
We will be required to furnish to the subordinated trustee annually a
statement as to whether or not we, to our knowledge, are in default in the
performance or observance of any of the terms, provisions and conditions of each
subordinated indenture and, if so, specifying all known defaults.
MODIFICATION AND WAIVER
Unless otherwise set forth in the applicable prospectus supplement, we and
the subordinated trustee may modify and amend the applicable subordinated
indenture with the consent of holders of not less than a
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majority in aggregate principal amount of any series of outstanding subordinated
debt securities, and, in some instances, we and the subordinated trustee may
modify and amend the subordinated indenture without the consent of the holders
of any series of outstanding subordinated debt securities. However, we and the
subordinated trustee may not modify or amend the subordinated indenture without
the consent of the holder of each outstanding subordinated debt security
affected by the modification or amendment if the modification or amendment:
- changes the stated maturity of the principal of, or any installment of
principal of or interest on, any subordinated debt security;
- reduces the principal amount of, or any premium or interest on, any
subordinated debt security;
- reduces the amount of principal of an original issue discount security or
any other subordinated debt security payable upon acceleration of
maturity;
- changes the place or currency of payment of principal of, or any premium
or interest on, any subordinated debt security;
- impairs the right to institute suit for the enforcement of any payment on
or with respect to any subordinated debt security;
- reduces the percentage of outstanding subordinated debt securities of any
series, the consent of whose holders is required for modification or
amendment of the applicable subordinated indenture;
- reduces the percentage of outstanding subordinated debt securities of any
series necessary for waiver of compliance with specified provisions of
the applicable subordinated indenture or for waiver of specified
defaults;
- modifies the provisions relating to modification and waiver in any other
respect except to increase any required percentage referred to above or
to add to the provisions that cannot be changed or modified without the
consent of the holders; or
- in the case of convertible subordinated debt securities, makes any change
that adversely affects the right to convert any subordinated debt
security, except as permitted by the applicable subordinated indenture,
or decreases the conversion rate or increases the conversion price of any
subordinated debt security.
Each subordinated indenture will provide that the holders of a majority in
aggregate principal amount of the outstanding subordinated debt securities of
any series may waive our compliance with specified restrictive provisions of the
applicable subordinated indenture. The holders of a majority in aggregate
principal amount of the outstanding subordinated debt securities of any series
may waive any past default with respect to that series under the applicable
subordinated indenture, except a default in the payment of principal, premium or
interest and specified covenants and provisions of the applicable subordinated
indenture that cannot be amended without the consent of the holder of each
outstanding subordinated debt security of the affected series.
DEFEASANCE AND DISCHARGE
The applicable subordinated indenture will provide that, upon the exercise
of our option, we will be discharged from all our obligations with respect to
any subordinated debt securities of a series, including the provisions relating
to subordination, except for the following obligations:
- to exchange or register the transfer of subordinated debt securities;
- to replace stolen, lost or mutilated subordinated debt securities;
- to maintain paying agencies; and
- to hold moneys for payment in trust, upon the deposit in trust for the
benefit of the holders of the subordinated debt securities of money or
United States government obligations, or both, in an amount
26
sufficient to pay the principal of, and any premium and interest on, the
subordinated debt securities of that series on the stated maturity in
accordance with the terms of the applicable subordinated indenture and
the subordinated debt securities of that series.
We may only exercise defeasance or discharge if, among other things, we have
delivered to the subordinated trustee an opinion of counsel to the effect that
we have received from, or there has been published by, the Internal Revenue
Service a ruling, or there has been a change in tax law, in either case to the
effect that holders of the subordinated debt securities of a relevant series
will not recognize gain or loss for federal income tax purposes as a result of
the deposit, defeasance and discharge and will be subject to federal income tax
on the same amount, in the same manner and at the same times as would have been
the case if the deposit, defeasance and discharge were not to occur.
COVENANT DEFEASANCE
The applicable subordinated indenture will provide that, at our option, we
may omit to comply with specified restrictive covenants related to the
subordinated debt securities of a series, including any that may be described in
the applicable prospectus supplement, and the occurrence of specific events of
default that are described above under " -- Events of Default" and any that may
be described in the applicable prospectus supplement that are related to the
subordinated debt securities, will be deemed not to be or result in an event of
default. If this occurs, the provisions relating to subordination will cease to
be effective with respect to any subordinated debt securities. We may only
exercise this option if we deposit, in trust for the benefit of the holders of
the subordinated debt securities of that series, money or United States
government obligations, or both, in an amount sufficient to pay the principal
of, and any premium and interest on, the subordinated debt securities on the
stated maturity in accordance with the terms of the applicable subordinated
indenture and the subordinated debt securities of that series. We also must,
among other things, deliver to the subordinated trustee an opinion of counsel to
the effect that holders of the subordinated debt securities of the relevant
series will not recognize gain or loss for federal income tax purposes as a
result of the deposit and defeasance of specified obligations and will be
subject to federal income tax on the same amount, in the same manner and at the
same times as would have been the case if the deposit and defeasance were not to
occur.
If we exercise this option with respect to any subordinated debt securities
of a series and the subordinated debt securities are declared due and payable
because of the occurrence of any event of default, the amount of money and
United States government obligations so deposited in trust may be insufficient
to pay amounts due on the subordinated debt securities at the time of their
respective stated maturities but is not sufficient to pay amounts due on the
subordinated debt securities of that series at the time of the acceleration. In
such a case, we would remain liable for the deficiency.
NOTICES
Unless otherwise set forth in the applicable prospectus supplement, notices
to the holders of subordinated debt securities will be given by mail to the
addresses of those holders as they may appear in the security register.
TITLE
Unless otherwise set forth in the applicable prospectus supplement, we, the
subordinated trustee and any agents of ours or the subordinated trustee may
treat the person in whose name a subordinated debt security is registered as the
absolute owner of the subordinated debt security, whether or not the
subordinated debt security may be overdue, for the purpose of making payment and
for all other purposes.
RELATIONSHIPS WITH THE SUBORDINATED TRUSTEE
National City Bank will be the subordinated trustee under the senior
subordinated indenture and the junior subordinated indenture, unless otherwise
indicated in the applicable prospectus supplement. National City Bank is also a
lender under the FCRPC credit agreement and is, and likely will be in the
future, a lender with respect to individual projects of our subsidiaries.
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GOVERNING LAW
The subordinated indentures and the subordinated debt securities will be
governed by, and construed in accordance with, the law of the State of New York,
unless otherwise indicated in the applicable prospectus supplement.
DESCRIPTION OF PREFERRED STOCK WE MAY OFFER
This section describes the general terms and provisions of the preferred
stock that we may issue separately, upon conversion of a senior debt security,
upon conversion of a subordinated debt security, upon exercise of an equity
warrant, in connection with a stock purchase contract, as part of a stock
purchase unit or upon exercise of a subscription right. The applicable
prospectus supplement will describe the specific terms, or modify the general
terms, of any shares of preferred stock offered through that prospectus
supplement and any special federal income tax consequences of those shares of
preferred stock. We will file an amendment to our amended articles of
incorporation that contains the terms of each series of preferred stock each
time we issue a new series of preferred stock. This amendment will establish the
number of shares included in a designated series and fix the designation,
powers, privileges, preferences and rights of the shares of each series as well
as any applicable qualifications, limitations or restrictions, including any
dividend, redemption, liquidation, sinking fund and conversion rights. The
description set forth below is not complete and is subject to the amendments to
our amended articles of incorporation fixing the preferences, limitations and
relative rights of a particular series of preferred stock. You should refer to
these amendments for specific information on the preferred stock. See "Where You
Can Find More Information" for information on how to obtain copies of amendments
to our amended articles of incorporation.
GENERAL
Under our amended articles of incorporation, our board of directors is
authorized to issue up to 5,000,000 shares of preferred stock, without par
value, in multiple series without the approval of shareholders with any
designation, powers, privileges, preferences and rights, as well as any
applicable qualifications, limitations or restrictions, as may be fixed by the
board of directors.
The preferred stock we may offer, if any, will have the dividend,
redemption, liquidation, sinking fund and conversion rights set forth below
unless otherwise provided in the applicable prospectus supplement. You should
refer to the applicable prospectus supplement relating to the particular series
of preferred stock offered by that prospectus supplement for specific terms,
which may include:
- the designation and authorized number of shares of each series;
- the title and liquidation preference per share;
- the number of shares offered;
- the price at which the shares of each series will be issued;
- the dividend rate, if any, the dates on which we will pay dividends and
the dates from which dividends will commence to accumulate;
- any redemption or sinking fund provisions of each series;
- any conversion or exchange rights; and
- any additional dividend, liquidation, redemption, sinking fund and other
rights, preferences, privileges, limitations and restrictions of each
series.
The shares of preferred stock will be, when issued, fully paid and
nonassessable. Unless otherwise specified in the applicable prospectus
supplement, each series will rank on a parity as to dividends and distributions
in the event of a liquidation with each other series of preferred stock and, in
all cases, will be senior to our class A common stock and our class B common
stock.
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DIVIDEND RIGHTS
Unless otherwise set forth in the applicable prospectus supplement, holders
of preferred stock of each series will be entitled to receive, when, as and if
declared by our board of directors, out of our assets legally available for the
payment of dividends, cash dividends at the rates and on the dates as set forth
in the applicable prospectus supplement. Holders of preferred stock will be
entitled to receive dividends in preference to and in priority over dividends on
common stock and may be cumulative or non-cumulative as determined by our board
of directors. We will generally be able to pay dividends and distribute assets
to holders of our preferred stock only if we have satisfied our obligations on
our debt that is then due and payable.
If the applicable prospectus supplement so provides, as long as any shares
of preferred stock are outstanding, no dividends will be declared or paid or any
distributions be made on our class A or class B common stock unless the accrued
dividends on each series of preferred stock have been declared and paid.
Each series of preferred stock will be entitled to dividends as described
in the applicable prospectus supplement. Different series of preferred stock may
be entitled to dividends at different dividend rates or based upon different
methods of determination. Except as provided in the applicable prospectus
supplement, no series of preferred stock will be entitled to participate in our
earnings or assets.
RIGHTS UPON LIQUIDATION
Upon any dissolution, liquidation or "winding up" of Forest City
Enterprises, Inc., the holders of each series of preferred stock will be
entitled to receive out of its assets, whether from capital, surplus or
earnings, and before any distribution of any assets is made on class A common
stock or class B common stock, the amount per share fixed by the board of
directors for that series of preferred stock, as reflected in the applicable
prospectus supplement, plus unpaid dividends, if any, to the date fixed for
distribution. Unless otherwise indicated in the applicable prospectus
supplement, holders of preferred stock will be entitled to no further
participation in any distribution made in conjunction with any dissolution,
liquidation or "winding up."
REDEMPTION
A series of preferred stock may be redeemable, in whole or in part, at our
option, and may be subject to mandatory redemption in connection with a sinking
fund. The terms, times, redemption prices and types of consideration of the
redemption will be set forth in the applicable prospectus supplement. The
applicable prospectus supplement will also specify the number of shares of the
series that we will redeem in each year commencing after a specified date, at a
specified redemption price per share, together with an amount equal to any
accrued and unpaid dividends to the date of redemption.
If, after giving notice of redemption to the holders of a series of
preferred stock, we deposit with a designated bank funds sufficient to redeem
the series of preferred stock, then from and after the deposit, all shares
called for redemption will no longer be outstanding for any purpose, other than
the right to receive the redemption price and the right, if applicable, to
convert the shares of preferred stock into our class A common stock or other
securities prior to the date fixed for redemption.
Except as indicated in the applicable prospectus supplement, the preferred
stock is not subject to any mandatory redemption at the option of the holder.
SINKING FUND
The applicable prospectus supplement for any series of preferred stock will
state the terms, if any, of a sinking fund for the purchase or redemption of
that series.
CONVERSION RIGHTS
The applicable prospectus supplement for any series of preferred stock will
state the terms, if any, on which shares of that series are convertible into
shares of class A common stock or, if applicable, other
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securities. Unless otherwise indicated in the applicable prospectus supplement,
the preferred stock will have no preemptive rights.
VOTING RIGHTS
Under ordinary circumstances, the holders of preferred stock have no voting
rights except as required by law. However, if dividends on the preferred stock
are in arrears for an aggregate of six quarterly dividends, the holders of the
preferred stock, voting as a class, will become entitled to elect two directors
until the time as the arrearages are paid and current dividends paid or declared
and funded. The applicable prospectus supplement may provide additional voting
rights for holders of preferred stock.
TRANSFER AGENT AND REGISTRAR
We will select the transfer agent, registrar and dividend disbursement
agent for a series of preferred stock, and each one will be described in the
applicable prospectus supplement. The registrar for shares of preferred stock
will send notices to shareholders of any meetings at which holders of preferred
stock have the right to vote on any matter.
DESCRIPTION OF DEPOSITARY SHARES WE MAY OFFER
We may, at our option, elect to offer fractional shares of preferred stock
rather than full shares of preferred stock. If we do elect to offer fractional
shares of preferred stock, we will issue depositary shares that each represent a
fraction of a share of a particular series of preferred stock. This section
describes the general terms and provisions of the depositary shares that we may
issue. The applicable prospectus supplement will describe the specific terms, or
modify the general terms, of any depositary shares offered through that
prospectus supplement and any special federal income tax consequences of those
depositary shares. A copy of the form of a deposit agreement between us and a
depositary has been previously filed with the SEC, is incorporated by reference
as an exhibit to the registration statement of which this prospectus is a part
and is incorporated by reference into the prospectus. See "Where You Can Find
More Information" for information on how to obtain a copy of the form of deposit
agreement. The following summaries of specific provisions of the deposit
agreement are not complete and are subject to all of the provisions of the
deposit agreement, including the definitions in the deposit agreement of
specified terms, and, with respect to any particular depositary shares, to the
description of the terms included in the applicable prospectus supplement.
GENERAL
The shares of any series of preferred stock represented by depositary
shares will be deposited under a deposit agreement between us and a depositary
named in the applicable prospectus supplement. Subject to the terms of the
deposit agreement, each owner of a depositary share will be entitled, in
proportion to the applicable fraction of a share of preferred stock represented
by the depositary share, to all the rights and preferences of the preferred
stock represented by the depositary shares, including dividend, voting,
redemption, subscription and liquidation rights.
The depositary shares will be evidenced by depositary receipts issued under
the deposit agreement. Depositary receipts will be distributed to those persons
purchasing the fractional shares of preferred stock in accordance with the terms
of the offering. Pending the preparation of definitive depositary receipts, the
depositary may, upon our written order, issue temporary depositary receipts
substantially identical to, and entitling the holders to all the rights
pertaining to, definitive depositary receipts but not in definitive form.
Definitive depositary receipts will be prepared thereafter without unreasonable
delay, and temporary depositary receipts will be exchangeable for definitive
depositary receipts at our expense.
DIVIDENDS AND OTHER DISTRIBUTIONS
The depositary will distribute all cash dividends or other cash
distributions received on the preferred stock to the record holders of
depositary shares relating to the preferred stock in proportion to the number of
the
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depositary shares owned by the holders of the depositary shares. The depositary
will distribute only the amount, however, as can be distributed without
attributing to any holder of depositary shares a fraction of one cent, and the
balance not so distributed will be held by the depositary, without liability for
interest thereon, and will be added to and treated as part of the sum next
received by the depositary for distribution to record holders of depositary
shares.
In the event of a distribution other than in cash, the depositary will
distribute property received by it to the record holders of depositary shares
entitled to the distribution, in amounts as are, as nearly as practicable, in
proportion to the number of depositary shares owned by each holder, unless the
depositary determines that it is not feasible to make the distribution. In that
case, the depositary may, with our approval, adopt any method that it deems
equitable and practical, including the sale of the property and the distribution
of the net proceeds from the sale to the holders of depositary shares.
The deposit agreement will also contain provisions relating to the manner
in which any subscription or similar rights we offer to holders of the preferred
stock will be made available to the holders of depositary shares.
WITHDRAWAL OF PREFERRED STOCK
Unless the related depositary shares have previously been called for
redemption, the holder of the depositary shares may receive the number of whole
shares of the related series of preferred stock and any money or other property
represented by the depositary shares after surrendering the depositary receipts
at the corporate trust office of the depositary, paying taxes, charges and fees
provided for in the deposit agreement and complying with any other requirements
of the deposit agreement. Holders of depositary shares making these withdrawals
will be entitled to receive whole shares of the related series of preferred
stock on the basis set forth in the applicable prospectus supplement for the
series of preferred stock, but holders of whole shares of the preferred stock
will not be entitled to receive depositary shares at a later time in exchange
for whole shares of preferred stock. If the depositary receipts delivered by the
holder evidence a number of depositary shares in excess of the number of
depositary shares representing the number of whole shares of the related series
of preferred stock to be withdrawn, the depositary will deliver to the holder at
the same time a new depositary receipt evidencing the excess number of
depositary shares.
REDEMPTION OF DEPOSITARY SHARES
If we redeem a series of preferred stock represented by depositary shares,
the depositary will redeem the depositary shares from the proceeds it receives
from the redemption, in whole or in part, of the series of preferred stock held
by the depositary in accordance with the terms of the deposit agreement.
Whenever we redeem shares of preferred stock held by the depositary, the
depositary will redeem, as of the same redemption date, the number of depositary
shares representing shares of preferred stock so redeemed. If fewer than all the
depositary shares are to be redeemed, the depositary shares to be redeemed will
be selected by lot or pro rata as may be determined by the depositary or by any
other method that may be determined by the depositary to be equitable.
After the date fixed for redemption, the depositary shares called for
redemption will no longer be outstanding, and all rights of the holders of the
depositary shares will cease, except the right to receive the money, securities
or other property payable upon redemption and any money, securities, or other
property to which the holders of the depositary shares were entitled upon
redemption. To receive this money, securities or property, the holder must
surrender the depositary receipts evidencing the depositary shares to the
depositary.
VOTING DEPOSITED PREFERRED STOCK
Upon receipt of notice of any meeting at which the holders of any series of
preferred stock are entitled to vote, the depositary will mail the information
contained in the notice of meeting to the record holders of the depositary
shares relating to the applicable series of preferred stock. Each record holder
of the depositary shares on the record date for that series of preferred stock
will be entitled to instruct the depositary as to the exercise of the voting
rights pertaining to the amount of whole shares of that series of preferred
stock
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represented by the holder's depositary shares. The depositary will attempt, as
practicable, to vote the amount of whole shares of that series of preferred
stock represented by the depositary shares in accordance with each holder's
instructions. We will agree to take all reasonable action that may be deemed
necessary by the depositary in order to enable the depositary to do so. The
depositary will abstain from voting shares of the preferred stock to the extent
that it does not receive specific instructions from the holder of depositary
shares representing that series of preferred stock.
AMENDMENT AND TERMINATION OF THE DEPOSIT AGREEMENT
We and the depositary may amend the form of depositary receipt evidencing
the depositary shares and any provision of the deposit agreement at any time.
However, any amendment that materially and adversely alters the rights of the
holders of depositary shares will not be effective unless the amendment has been
approved by the holders of at least a majority of the affected depositary shares
then outstanding under the deposit agreement. We or the depositary may terminate
the deposit agreement only if:
- all outstanding depositary shares under the deposit agreement have been
redeemed; or
- there has been a final distribution on the preferred stock in connection
with any liquidation, dissolution or winding up of Forest City
Enterprises, Inc. and the distribution has been distributed to the
holders of depositary receipts.
CHARGES AND EXPENSES OF DEPOSITARY
We will pay all transfer and other taxes and governmental charges arising
solely from the existence of the depositary arrangements. We will pay charges of
the depositary in connection with the initial deposit of the preferred stock,
any redemption of the preferred stock at our option and any withdrawals of
preferred stock by the holders of depositary shares. Holders of depositary
receipts will pay all other transfer and other taxes and governmental charges
and any other charges as may be expressly provided in the deposit agreement to
be for their accounts.
RESIGNATION AND REMOVAL OF DEPOSITARY
The depositary may resign at any time by delivering to us notice of its
election to do so, and we may at any time remove the depositary. Any resignation
or removal of the depositary will take effect upon the appointment of a
successor depositary and its acceptance of the appointment as provided in the
deposit agreement. The successor depositary must be appointed within 60 days
after delivery of the notice of resignation or removal and must be a bank or
trust company having its principal office in the United States and having a
combined capital and surplus of at least $50.0 million.
MISCELLANEOUS
We will deliver, at our expense, all notices and reports required by law,
by the rules of any national securities exchange upon which the preferred stock,
the depositary shares or the depositary receipts are listed or by our amended
articles of incorporation to be furnished to the record holders of preferred
stock.
As provided in the deposit agreement, neither we nor the depositary will be
liable if prevented or delayed by law or any other circumstance beyond our or
its control in performing obligations under the deposit agreement. Our
obligations and those of the depositary under the deposit agreement will be
limited to performance in good faith of the duties thereunder. The depositary
will not be obligated to prosecute or defend any legal proceeding on any
depositary shares or preferred stock unless satisfactory indemnity is furnished.
We and the depositary may rely upon written advice of counsel or accountants, or
upon information provided by persons presenting preferred stock for deposit,
holders of depositary receipts or other persons believed to be competent and on
documents believed to be genuine.
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DESCRIPTION OF COMMON STOCK WE MAY OFFER
This section describes the general terms and provisions of the shares of
class A common stock that we may issue separately, upon conversion of a senior
debt security, upon conversion of a subordinated debt security, upon conversion
of preferred stock, upon exercise of an equity warrant, in connection with a
stock purchase contract, as part of a stock purchase unit or upon exercise of a
subscription right. The description set forth below of the class A common stock
and class B common stock is not complete and is subject to our amended articles
of incorporation. You should refer to our amended articles of incorporation for
specific information on our class A common stock. See "Where You Can Find More
Information" for information on how to obtain a copy of our amended articles of
incorporation.
Our amended articles of incorporation authorize the issuance of 96,000,000
shares of class A common stock, of which, at March 1, 2002, 35,469,771 shares
were issued, 322,694 shares were held in treasury and 35,147,077 shares were
outstanding and were held of record by 753 shareholders, and 36,000,000 shares
of class B common stock, convertible on a share-for-share basis into class A
common stock, of which, at March 1, 2002, 14,756,057 shares were issued, 417,150
shares were held in treasury and 14,338,907 shares were outstanding and were
held of record by 572 shareholders.
GENERAL
Except as described below, the shares of class A common stock and the
shares of class B common stock are in all respects identical. The holders of
class A common stock and class B common stock are entitled to participate in any
dividend, reclassification, merger, consolidation, reorganization,
recapitalization, liquidation, dissolution or winding up of the affairs of the
company, share-for-share, without priority or other distinction between classes.
Both the class A and class B common stock are listed on The New York Stock
Exchange. As of March 1, 2002, class A common stock accounted for approximately
71% of the total number of shares of common stock outstanding.
DIVIDENDS
Our board of directors is not required to declare a regular cash dividend
in any fiscal year. The class A common stock and class B common stock will
participate equally on a share-for-share basis in any and all cash and non-cash
dividends paid. No cash dividend can be paid on a class of common stock until
provision is made for payment of a dividend of at least an equal amount on a
share-for-share basis on the other class of common stock. If our board of
directors determines to declare any stock dividend with respect to either class
of common stock, it must at the same time declare a proportionate stock dividend
with respect to the other class of common stock. If the shares of either class
of common stock are combined or subdivided, the shares of the other class of
common stock must be combined or subdivided in an equivalent manner. In the
discretion of our board of directors, dividends payable in class A common stock
may be paid with respect to shares of either class of common stock, but
dividends payable in class B common stock may be paid only with respect to
shares of class B common stock.
VOTING RIGHTS
The holders of the class A common stock, voting as a separate class, are
entitled to elect 25% of the directors rounded up to the nearest whole number.
All other directors are elected by the holders of the class B common stock
voting as a separate class. Cumulative voting for the election of directors is
provided by Ohio law if notice in writing is given by any shareholder to the
president, a vice president or the secretary not less than 48 hours before the
time fixed for the holding of the meeting that the shareholder desires
cumulative voting with respect to the election of directors by a class of
shareholders to which he belongs, and if an announcement of the giving of the
notice is made upon the convening of the meeting by the chairman or secretary or
by or on behalf of the shareholder giving the notice, each holder of shares of
that class will have the right to accumulate the voting power as he possesses at
the election with respect to shares of that class. If this occurs, each holder
of shares of class A common stock or class B common stock, as the case may be,
will
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have as many votes as equal the number of shares of that class of common stock
owned by him multiplied by the number of directors to be elected by the holders
of that class of common stock. These votes may be distributed among the total
number of directors to be elected by the holders of that class of common stock
or distributed among any lesser number, in the proportion as the holder may
desire.
In the event that the number of outstanding shares of class A common stock
is, as of the record date for any shareholder meeting at which directors will be
elected, less than 10% of the combined outstanding shares of class A and class B
common stock, then the holders of class A common stock will not have the right
to elect 25% of the directors. If this occurs, the holders of the class A common
stock and the holders of the class B common stock would vote together as a
single class in the election of all directors, with each class A share having
one vote and each class B share having ten votes.
Further, in the event that the number of outstanding shares of class B
common stock as of the above-mentioned record date is less than 500,000 shares,
the holders of class B common stock will lose their rights to elect 75% of the
directors. If this occurs, the holders of the class A common stock would
continue to vote as a separate class to elect 25% of the directors rounded up to
the nearest whole number, and the holders of the class A and class B common
stock would vote together as a single class in the election of the remaining
directors, with each class A share having one vote and each class B share having
ten votes.
The holders of class A common stock and the holders of class B common stock
are entitled to vote as separate classes:
- for the election of directors;
- to amend our amended articles of incorporation or our code of regulations
or approve a merger or consolidation of us with or into another
corporation if the amendment, merger or consolidation would adversely
affect the rights of the particular class; and
- on all matters as to which class voting may be required by applicable
Ohio law.
The holders of the class A common stock vote together with the holders of the
class B common stock as a single class on all matters which are submitted to
shareholder vote, except as discussed above. When all holders of our shares vote
as a single class, each class A share has one vote and each class B share has
ten votes.
CONVERSION
Holders of shares of class B common stock are entitled to convert, at any
time and at their election, each share of class B common stock into one share of
class A common stock. Shares of class A common stock are not convertible into
any security of ours.
OTHER TERMS
Our shareholders have no preemptive or other rights to subscribe for
additional shares of our voting securities, except for the conversion rights of
class B common stock described above and conversion rights of subordinated debt
securities and preferred stock, if any. Upon any liquidation, dissolution or
winding up of Forest City, the assets legally available for distribution to
holders of all classes of common stock are distributable ratably among the
holders of the shares of all classes of common stock outstanding at the time. No
class of common stock is subject to redemption.
TRANSFER AGENT
National City Bank, Cleveland, Ohio, currently serves as transfer agent for
our common stock.
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DESCRIPTION OF WARRANTS WE MAY OFFER
GENERAL DESCRIPTION OF WARRANTS
This section describes the general terms and provisions of the warrants we
may issue for the purchase of senior debt securities, subordinated debt
securities, class A common stock or preferred stock. We may issue warrants
independently or together with other securities offered by any prospectus
supplement and may attach warrants to those securities. Each series of warrants
will be issued under a separate warrant agreement to be entered into between us
and a bank or trust company, as warrant agent, all as set forth in the
applicable prospectus supplement relating to the particular issue of the
warrants. The warrant agent will act solely as our agent in connection with
warrant certificates evidencing the warrants and will not assume any obligation
or relationship of agency or trust for or with any holders of certificates
evidencing warrants or beneficial owners of warrants. A copy of the form of a
warrant agreement has been filed with the SEC as an exhibit to the registration
statement of which this prospectus is a part and is incorporated by reference
into this prospectus. See "Where You Can Find More Information" for information
on how to obtain a copy of the form of warrant agreement.
DEBT WARRANTS
The applicable prospectus supplement relating to a particular issue of
warrants to issue debt securities will describe the terms of those warrants,
including the following, if applicable:
- the title of the warrants;
- the offering price for the warrants, if any;
- the aggregate number of the warrants;
- the designation and terms of the debt securities purchasable upon
exercise of the warrants;
- the designation and terms of the debt securities that the warrants are
issued with and the number of warrants issued with each debt security;
- the date from and after which the warrants and any debt securities issued
with them will be separately transferable;
- the principal amount of debt securities that may be purchased upon
exercise of a warrant and the price at which the debt securities may be
purchased upon exercise;
- the dates on which the right to exercise the warrants will commence and
expire;
- the minimum or maximum amount of the warrants that may be exercised at
any one time;
- whether the warrants represented by the warrant certificates or debt
securities that may be issued upon exercise of the warrants will be
issued in registered or bearer form;
- information relating to book-entry procedures, if any;
- the currency or currency units in which the offering price, if any, and
the exercise price are payable;
- a discussion of material United States federal income tax considerations;
- anti-dilution provisions of the warrants, if any;
- redemption or call provisions, if any, applicable to the warrants;
- any additional terms of the warrants, including terms, procedures and
limitations relating to the exchange and exercise of the warrants; and
- any other information we think is important about the warrants.
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EQUITY WARRANTS
The applicable prospectus supplement relating to a particular issue of
warrants to issue shares of preferred stock, shares of class A common stock, or
other securities will describe the terms of those warrants, including the
following, if applicable:
- the title of the warrants;
- the offering price for the warrants, if any;
- the aggregate number of the warrants;
- the designation and terms of the securities that may be purchased upon
exercise of the warrants;
- the designation and terms of the securities that the warrants are issued
with and the number of warrants issued with each security;
- the date from and after which the warrants and any securities issued with
the warrants will be separately transferable;
- the number of securities that may be purchased upon exercise of a warrant
and the price at which the securities may be purchased upon exercise;
- the dates on which the right to exercise the warrants will commence and
expire;
- the minimum or maximum amount of the warrants that may be exercised at
any one time;
- the currency or currency units in which the offering price, if any, and
the exercise price are payable;
- a discussion of material United States federal income tax considerations;
- anti-dilution provisions of the warrants, if any;
- redemption or call provisions, if any, applicable to the warrants;
- any additional terms of the warrants, including terms, procedures and
limitations relating to the exchange and exercise of the warrants; and
- any other information we think is important about the warrants.
EXERCISE OF WARRANTS
Each warrant will entitle the holder of the warrant to purchase at the
exercise price set forth in the applicable prospectus supplement the principal
amount of debt securities or applicable number of securities being offered.
Holders may exercise warrants at any time up to the close of business on the
expiration date set forth in the applicable prospectus supplement. After the
close of business on the expiration date, unexercised warrants are void. Holders
may exercise warrants as set forth in the prospectus supplement relating to the
warrants being offered.
Until a holder exercises the warrants to purchase our securities, the
holder will not have any rights as a holder of the securities by virtue of
ownership of warrants.
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DESCRIPTION OF STOCK PURCHASE CONTRACTS AND
STOCK PURCHASE UNITS WE MAY OFFER
We may issue stock purchase contracts, including contracts obligating
holders to purchase from us, and obligating us to sell to the holders, a
specified number of shares of our class A common stock or other securities at a
future date or dates, which we refer to in this prospectus as "stock purchase
contracts." The price per share of the securities and the number of shares of
the securities may be fixed at the time the stock purchase contracts are issued
or may be determined by a specific reference to a formula set forth in the stock
purchase contracts. The stock purchase contracts may be issued separately or as
part of stock purchase units consisting of (1) a stock purchase contract and (2)
debt securities, preferred stock, warrants or debt obligations of third parties,
including United States Treasury securities, to secure the holder's obligations
to purchase our securities under the stock purchase contracts, which we refer to
in this prospectus as "stock purchase units." The stock purchase contracts may
require holders to secure their obligations under the stock purchase contracts
in a specified manner. The stock purchase contracts also may require us to make
periodic payments to the holders of the stock purchase units or vice versa, and
these payments may be unsecured or prefunded on some basis.
The applicable prospectus supplement will describe the terms of any stock
purchase contracts or stock purchase units. Any special federal income tax
considerations applicable to the stock purchase contracts and the stock purchase
units may also be discussed in the applicable prospectus supplement. A copy of
the form of a stock purchase contract has been filed with the SEC as an exhibit
to the registration statement of which this prospectus is a part and is
incorporated by reference into this prospectus. See "Where You Can Find More
Information" for information on how to obtain a copy of the form of stock
purchase contract.
DESCRIPTION OF SUBSCRIPTION RIGHTS WE MAY OFFER
We may issue to our shareholders subscription rights to purchase our senior
debt securities, subordinated debt securities, preferred stock, depositary
shares or class A common stock. These subscription rights may be issued
independently or together with any other security offered by this prospectus and
may or may not be transferable by the shareholder receiving the rights in the
rights offering. In connection with any rights offering, we may enter into a
standby underwriting agreement with one or more underwriters pursuant to which
the underwriter will purchase any securities that remain unsubscribed for upon
completion of the rights offering.
The applicable prospectus supplement relating to any subscription rights
will describe the terms of the offered subscription rights, including, where
applicable, the following:
- the exercise price for the subscription rights;
- the number of subscription rights issued to each shareholder;
- the extent to which the subscription rights are transferable;
- any other terms of the subscription rights, including terms, procedures
and limitations relating to the exchange and exercise of the subscription
rights;
- the date on which the right to exercise the subscription rights will
commence, and the date on which the right will expire;
- the extent to which the subscription rights include an over-subscription
privilege with respect to unsubscribed securities; and
- the material terms of any standby underwriting arrangement entered into
by us in connection with the subscription rights offering.
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DESCRIPTION OF PREFERRED SECURITIES THE TRUSTS MAY OFFER
This section describes the general terms and provisions of the preferred
securities that the Trusts may offer. The applicable prospectus supplement will
describe the specific terms of any preferred securities the Trusts may offer and
the extent, if any, to which these general terms and provisions may or may not
apply to the preferred securities.
The preferred securities that each of the Trusts may offer will be issued
under an amended and restated declaration of trust, which we will enter into at
the time of any offering of preferred securities by a Trust. The amended and
restated declaration of trust for each Trust is subject to and governed by the
Trust Indenture Act of 1939. The Bank of New York (Delaware) will act as
Delaware trustee and The Bank of New York will act as institutional trustee
under each amended and restated declaration of trust for the purposes of
compliance with the provisions of the Trust Indenture Act. A copy of the form of
the amended and restated declaration of trust has been filed with the SEC as an
exhibit to the registration statement of which this prospectus is a part and is
incorporated by reference into this prospectus. You should refer to the form of
the amended and restated declaration of trust for more specific information. See
"Where You Can Find More Information" on how to obtain copies of the form of the
amended and restated declaration of trust. The following summaries of specific
provisions of the form of the amended and restated declaration of trust are not
complete and are subject to all the provisions of the applicable amended and
restated declaration of trust, the Trust Indenture Act and the Delaware Business
Trust Act.
GENERAL
The amended and restated declaration of trust for each Trust will provide
that the Trust may issue, from time to time, only one series of preferred
securities and one series of common securities. The preferred securities will be
offered to investors and the common securities will be held by Forest City
Enterprises, Inc. The terms of the preferred securities, as a general matter,
will mirror the terms of the related series of subordinated debt securities that
we will issue to the applicable Trust in exchange for the proceeds of the sales
of the preferred and common securities. If we fail to make a payment on the
related series of subordinated debt securities, the Trust holding that series of
the subordinated debt securities will not have sufficient funds to make related
payments, including distributions, on its preferred securities.
You should refer to the applicable prospectus supplement relating to the
preferred securities for specific terms of the preferred securities, including,
but not limited to:
- the distinctive designation of the preferred securities and common
securities;
- the total and per-security liquidation amount of the preferred
securities;
- the annual distribution rate, or method of determining the rate at which
the applicable Trust will pay distributions, on the preferred securities
and the date or dates from which distributions will accrue;
- the date or dates on which the distributions will be payable and any
corresponding record dates;
- whether distributions on preferred securities will be cumulative, and, in
the case of preferred securities having cumulative distribution rights,
the date or dates or method of determining the date or dates from which
distributions on preferred securities will be cumulative;
- the right, if any, to defer distributions on the preferred securities
upon extension of the interest payment period of the related series of
subordinated debt securities;
- whether the preferred securities are to be issued in book-entry form and
represented by one or more global certificates and, if so, the depositary
for the global certificates and the specific terms of the depositary
arrangement;
- the amount or amounts which will be paid out of the assets of the
applicable Trust to the holders of preferred securities upon voluntary or
involuntary dissolution, "winding up" or termination of that Trust;
38
- any obligation of the applicable Trust to purchase or redeem preferred
securities issued by it and the terms and conditions relating to any
redemption obligation;
- any voting rights of the preferred securities;
- any terms and conditions upon which the related series of subordinated
debt securities held by the applicable Trust may be distributed to
holders of preferred securities;
- any securities exchange on which the preferred securities will be listed;
and
- any other relevant rights, preferences, privileges, limitations or
restrictions of the preferred securities not inconsistent with the
applicable amended and restated declaration of trust or with applicable
law.
We will guarantee the preferred securities to the extent described below
under "Description of Trust Guarantee". Our guarantee, when taken together with
our obligations under the related series of subordinated debt securities and the
related indenture, and our obligations under the applicable amended and restated
declaration of trust, would provide a full, irrevocable and unconditional
guarantee of amounts due on any preferred securities issued by a Trust. Any
United States federal income tax considerations applicable to any offering of
preferred securities will be described in the applicable prospectus supplement.
LIQUIDATION DISTRIBUTION UPON DISSOLUTION
Unless otherwise specified in an applicable prospectus supplement, the
amended and restated declaration of trust for each Trust will state that the
Trust will be dissolved:
- on the expiration of the term of the applicable Trust;
- upon bankruptcy or dissolution of Forest City Enterprises, Inc. or any
holder of the common securities of the applicable Trust, if different
than Forest City Enterprises, Inc.;
- upon our written direction to the institutional trustee to dissolve the
applicable Trust and distribute the related subordinated debt securities
directly to the holders of the preferred securities and common
securities;
- upon the redemption by the applicable Trust of all of the preferred and
common securities in accordance with their terms; or
- upon entry of a court order for the dissolution of the applicable Trust.
Unless otherwise specified in an applicable prospectus supplement, in the
event of a dissolution as described above other than in connection with
redemption, after the applicable Trust satisfies all liabilities to its
creditors as provided by applicable law, each holder of the preferred or common
securities issued by that Trust will be entitled to receive:
- the related series of subordinated debt securities in an aggregate
principal amount equal to the aggregate liquidation amount of the
preferred or common securities held by the holder; or
- if any distribution of the related series of subordinated debt securities
is determined by the institutional trustee not to be practical, cash
equal to the aggregate liquidation amount of the preferred or common
securities held by the holder, plus accumulated and unpaid distributions
to the date of payment.
If the applicable Trust cannot pay the full amount due on its preferred and
common securities because it has insufficient assets available for payment, then
the amounts payable by that Trust on its preferred and common securities will be
paid on a pro rata basis. However, if an event of default under the applicable
subordinated debt indenture has occurred and is continuing with respect to any
series of subordinated debt securities, the total amounts due on the related
preferred securities will be paid before any distribution on the common
securities.
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EVENTS OF DEFAULT
The following will be events of default under the amended and restated
declaration of trust for each Trust:
- an event of default under the applicable subordinated debt indenture
occurs with respect to any related series of subordinated debt
securities; or
- any other event of default specified in the applicable prospectus
supplement occurs.
If an event of default with respect to a related series of subordinated
debt securities occurs and is continuing under the applicable subordinated debt
indenture, and the subordinated trustee or the holders of not less than 25% in
aggregate principal amount of the related subordinated debt securities
outstanding fail to declare the principal amount of all of such subordinated
debt securities to be immediately due and payable, then the holders of at least
25% in aggregate liquidation amount of the outstanding preferred securities of
the applicable Trust holding the subordinated debt securities will have the
right to declare such principal amount immediately due and payable by providing
written notice to us, the institutional trustee and the subordinated trustee.
At any time after a declaration of acceleration has been made with respect
to a related series of subordinated debt securities and before a judgment or
decree for payment of the money due has been obtained, the holders of a majority
in liquidation amount of the affected preferred securities may rescind any
declaration of acceleration with respect to the related subordinated debt
securities and its consequences:
- if we deposit with the subordinated trustee funds sufficient to pay all
overdue principal of and premium and interest on the related series of
subordinated debt securities and other amounts due to the subordinated
trustee and the institutional trustee; and
- if all existing events of default with respect to the related series of
subordinated debt securities have been cured or waived except non-payment
of principal on the related series of subordinated debt securities that
has become due solely because of the acceleration.
The holders of a majority in liquidation amount of the affected preferred
securities may waive any past default under the applicable subordinated debt
indenture with respect to related series of subordinated debt securities, other
than a default in the payment of principal of, or any premium or interest on,
any related subordinated debt security or a default with respect to a covenant
or provision that cannot be amended or modified without the consent of the
holder of each affected outstanding related subordinated debt security. In
addition, the holders of at least a majority in liquidation amount of the
affected preferred securities may waive any past default under the applicable
amended and restated declaration of trust.
A holder of preferred securities may institute a legal proceeding directly
against us, without first instituting a legal proceeding against the
institutional trustee or anyone else, for enforcement of payment to the holder
of principal and any premium or interest on the related series of subordinated
debt securities having a principal amount equal to the aggregate liquidation
amount of the preferred securities of the holder if we fail to pay principal and
any premium or interest on the related series of subordinated debt securities
when payable.
We will be required to furnish annually, to the institutional trustee for
each Trust, officers' certificates to the effect that, to the best knowledge of
the individuals providing the certificates, we and the Trust are not in default
under the applicable amended and restated declaration of trust or, if there has
been a default, specifying the default and its status.
CONSOLIDATION, MERGER OR AMALGAMATION OF A TRUST
A Trust may not consolidate or merge with or into, or be replaced by, or
convey, transfer or lease its properties and assets substantially as an entirety
to, any entity, except as described below or as described in "-- Liquidation
Distribution Upon Dissolution". A Trust may, with the consent of the regular
trustees but without the consent of the holders of the outstanding preferred
securities or the other trustees of the applicable
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Trust, consolidate or merge with or into, or be replaced by, or convey, transfer
or lease its properties and assets substantially as an entirety to, a trust
organized under the laws of any state if:
- the successor entity either:
- expressly assumes all of the obligations of the applicable Trust
relating to its preferred and common securities; or
- substitutes for the applicable Trust's preferred securities other
securities having substantially the same terms as the preferred
securities, so long as the substituted successor securities rank the
same as the preferred securities for distributions and payments upon
liquidation, redemption and otherwise;
- we appoint a trustee of the successor entity who has substantially the
same powers and duties as the institutional trustee of the applicable
Trust;
- the successor securities are listed or traded, or any substituted
successor securities will be listed upon notice of issuance, on the same
national securities exchange or other organization on which the
applicable series of preferred securities are then listed or traded, if
any;
- the merger event does not cause the applicable series of preferred
securities or any substituted successor securities to be downgraded by
any national rating agency;
- the merger event does not adversely affect the rights, preferences and
privileges of the holders of the applicable series of preferred or common
securities or any substituted successor securities in any material
respect;
- the successor entity has a purpose substantially identical to that of the
applicable Trust;
- prior to the merger event, we have provided to the applicable Trust an
opinion of counsel from a nationally recognized law firm stating that:
- the merger event does not adversely affect the rights, preferences and
privileges of the holders of the applicable Trust's preferred or common
securities in any material respect;
- following the merger event, neither the applicable Trust nor the
successor entity will be required to register as an investment company
under the Investment Company Act of 1940; and
- following the merger event, the applicable Trust or the successor entity
will continue to be classified as a grantor trust for United States
federal tax purposes; and
- we own, or our permitted transferee owns, all of the common securities of
the successor entity and we guarantee, or our permitted transferee
guarantees, the obligations of the successor entity under the substituted
successor securities at least to the extent provided under the applicable
preferred securities guarantee.
In addition, unless all of the holders of its preferred securities approve
otherwise, the applicable Trust may not consolidate, amalgamate or merge with or
into, or be replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to, any other entity, or permit any other entity to
consolidate, amalgamate, merge with or into or replace it if the transaction
would cause that Trust or the successor entity to be taxable as a corporation or
classified other than as a grantor trust for United States federal income tax
purposes.
VOTING RIGHTS
Unless otherwise specified in the applicable prospectus supplement, the
holders of the preferred securities will have no voting rights except as
discussed below and under "-- Amendment to the Trust Agreement" and "Description
of Trust Guarantee -- Modification of the Trust Guarantee; Assignment" and as
otherwise required by law.
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The holders of a majority in aggregate liquidation amount of the preferred
securities issued by the applicable Trust have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
institutional trustee, or direct the exercise of any trust or power conferred
upon the institutional trustee under the applicable amended and restated
declaration of trust, including the right to direct the institutional trustee,
as holder of the related series of subordinated debt securities to:
- direct the time, method and place of conducting any proceeding for any
remedy available to the subordinated trustee for any related series of
subordinated debt securities or execute any trust or power conferred on
the subordinated trustee with respect to the related series of
subordinated debt securities;
- waive certain past defaults under the applicable subordinated debt
indenture with respect to any related series of subordinated debt
securities;
- cancel an acceleration of the maturity of the principal of any related
series of subordinated debt securities; or
- consent to any amendment, modification or termination of the applicable
subordinated debt indenture or any related series of subordinated debt
securities where consent is required.
In addition, before taking any of the foregoing actions, we will provide to
the institutional trustee an opinion of counsel experienced in such matters to
the effect that, as a result of such actions, the applicable Trust will not be
taxable as a corporation or classified as other than a grantor trust for United
States federal income tax purposes.
The institutional trustee will notify all preferred securities holders of
the applicable Trust of any notice of default received from the subordinated
trustee with respect to the series of subordinated debt securities held by that
Trust.
Any required approval of the holders of preferred securities may be given
at a meeting of the holders of the preferred securities convened for the purpose
or pursuant to written consent. The regular trustees will cause a notice of any
meeting at which holders of securities are entitled to vote to be given to each
holder of record of the preferred securities at the holder's registered address
at least seven days and not more than 60 days before the meeting.
No vote or consent of the holders of the preferred securities will be
required for a Trust to redeem and cancel its preferred securities in accordance
with its amended and restated declaration of trust.
Notwithstanding that holders of the preferred securities are entitled to
vote or consent under any of the circumstances described above, any of the
preferred securities that are owned by Forest City Enterprises, Inc. or any of
its affiliates will, for purposes of any vote or consent, be treated as if they
were not outstanding.
AMENDMENT TO THE AMENDED AND RESTATED DECLARATIONS OF TRUST
The amended and restated declaration of trust for each Trust may be amended
from time to time by us and the institutional trustee and the regular trustees
of the Trust, without the consent of the holders of the preferred securities,
to:
- cure any ambiguity or correct or supplement any provision which may be
defective or inconsistent with any other provision;
- add to the covenants, restrictions or obligations applicable to Forest
City Enterprises, Inc., as sponsor; or
- modify, eliminate or add to any provisions to the extent necessary to
ensure that the applicable Trust will not be taxable as a corporation or
classified as other than a grantor trust for United States federal income
tax purposes, to ensure that the related series of subordinated debt
securities held by that Trust are treated as indebtedness for United
States federal income tax purposes or to ensure that Trust will not be
required to register as an investment company under the Investment
Company Act of 1940.
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However, in each case, the amendment may not adversely affect in any material
respect the interests of the holders of the preferred securities or the related
series of subordinated debt securities.
If any proposed amendment to the applicable amended and restated
declaration of trust provides for, or the trustee of the applicable Trust
otherwise proposes to effect:
- any action that would adversely affect the powers, preferences or special
rights of the preferred securities in any material respect; or
- the dissolution, winding-up or termination of the applicable Trust other
than pursuant to the terms of the applicable amended and restated
declaration of trust,
then the holders of the affected preferred securities as a class will be
entitled to vote on the amendment or proposal. In that case, the amendment or
proposal will be effective only if approved by the holders of at least a
majority in aggregate liquidation amount of the affected preferred securities.
Other amendments to the applicable amended and restated declaration of
trust may be made by us and the trustees of the applicable Trust upon approval
of the holders of a majority in aggregate liquidation amount of the outstanding
preferred securities of that Trust and receipt by the trustees of an opinion of
counsel to the effect that the amendment will not cause that Trust to be taxable
as a corporation or classified as other than a grantor trust for United States
federal income tax purposes.
Notwithstanding the foregoing, without the consent of each affected holder
of common or preferred securities of the applicable Trust, an amended and
restated declaration of trust may not be amended to:
- change the amount or timing of any distribution on the common or
preferred securities of the applicable Trust or otherwise adversely
affect the amount of any distribution required to be made in respect of
the securities as of a specified date;
- change any of the redemption provisions; or
- restrict the right of a holder of any securities to institute suit for
the enforcement of any distribution on or after the distribution date.
REMOVAL AND REPLACEMENT OF TRUSTEES
Unless an event of default exists under the related series of subordinated
debt securities, we may remove the institutional trustee and the Delaware
trustee at any time. If an event of default exists, the institutional trustee
and the Delaware trustee may be removed only by the holders of a majority in
liquidation amount of the relevant series of the outstanding preferred
securities. In no event will the holders of the preferred securities have the
right to vote to appoint, remove or replace the regular trustees, because these
voting rights are vested exclusively in us as the holder of all the applicable
Trust's common securities. No resignation or removal of the institutional
trustee or the Delaware trustee and no appointment of a successor trustee will
be effective until the acceptance of appointment by the successor trustee in
accordance with the applicable amended and restated declaration of trust.
MERGER OR CONSOLIDATION OF TRUSTEES
Any entity into which the institutional trustee or the Delaware trustee may
be merged or converted or with which it may be consolidated, or any entity
resulting from any merger, conversion or consolidation to which the
institutional trustee or Delaware trustee shall be a party, or any entity
succeeding to all or substantially all of the corporate trust business of the
institutional trustee or Delaware trustee will be the successor of the
institutional trustee or Delaware trustee, as the case may be, under the
applicable amended and restated declaration of trust. However, the successor
entity must be otherwise qualified and eligible to serve as trustee.
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INFORMATION CONCERNING THE INSTITUTIONAL TRUSTEE
For matters relating to compliance with the Trust Indenture Act of 1939,
the institutional trustee for the applicable Trust will have all of the duties
and responsibilities of an indenture trustee under the Trust Indenture Act of
1939. Except if an event of default exists under the applicable amended and
restated declaration of trust, the institutional trustee will undertake to
perform only the duties specifically set forth in the amended and restated
declaration of trust. While such an event of default exists, the applicable
institutional trustee must exercise the same degree of care and skill as a
prudent person would exercise or use in the conduct of his or her own affairs.
Subject to this provision, the applicable institutional trustee is not obligated
to exercise any of the powers vested in it by the applicable amended and
restated declaration of trust at the request of any holder of preferred
securities, unless the institutional trustee is offered reasonable indemnity
against the costs, expenses and liabilities that it might incur. But the holders
of preferred securities will not be required to offer indemnity to the
institutional trustee if the holders, by exercising their voting rights, direct
the institutional trustee to take any action following a declaration event of
default.
The Bank of New York, which is the institutional trustee for the Trusts,
serves as the guarantee trustee under the trust guarantee described below. The
Bank of New York is also the trustee under the indenture governing our $200.0
million aggregate principal amount of 8.5% senior notes due 2008 and is also a
lender to our subsidiary of nonrecourse project debt. In addition, the Bank of
New York will be the trustee under the senior debt indenture, unless otherwise
indicated in the applicable prospectus supplement.
MISCELLANEOUS
The regular trustees of each Trust are authorized and directed to conduct
the affairs of and to operate the applicable Trust in such a way that:
- that Trust will not be taxable as a corporation or classified as other
than a grantor trust for United States federal income tax purposes;
- the related series of subordinated debt securities held by that Trust
will be treated as our indebtedness for United States federal income tax
purposes; and
- that Trust will not be deemed to be an investment company required to be
registered under the Investment Company Act of 1940.
We and the trustees are authorized to take any action, so long as it is
consistent with applicable law, the certificate of trust and the amended and
restated declaration of trust, that we and the trustees determine to be
necessary or desirable for the above purposes, as long as it does not materially
and adversely affect the holders of the preferred securities.
Registered holders of the preferred securities have no preemptive or
similar rights.
Neither Trust may, among other things, incur indebtedness, other than loans
represented by the related series of subordinated debt securities, or place a
lien on any of its assets.
GOVERNING LAW
The amended and restated declaration of trust for each Trust and the
preferred securities will be governed by, and construed in accordance with, the
laws of the State of Delaware, without regard to the conflict of laws
provisions.
DESCRIPTION OF TRUST GUARANTEES
This section describes the general terms and provisions of the trust
guarantees that we will execute and deliver for the benefit of the holders from
time to time of the preferred securities that the Trusts may offer. Each trust
guarantee will be separately qualified as an indenture under the Trust Indenture
Act of 1939, and The Bank of New York will act as indenture trustee under each
trust guarantee for the purposes of compliance with the provisions of the Trust
Indenture Act of 1939. A copy of the form of trust guarantee has been filed
44
with the SEC as an exhibit to the registration statement of which this
prospectus is a part and is incorporated by reference into this prospectus. You
should refer to the form of trust guarantee for more specific information. See
"Where you Can Find More Information" on how to obtain copies of the form of
trust guarantee. The following summaries of specific provisions of the form of
trust guarantee are not complete and are subject to all the provisions of the
applicable trust guarantee and the Trust Indenture Act of 1939. Each trust
guarantee will be held by the guarantee trustee of the applicable Trust for the
benefit of the holders of the preferred securities.
GENERAL
We will irrevocably and unconditionally agree to pay the following payments
or distributions with respect to preferred securities, in full, to the holders
of the preferred securities, as and when they become due regardless of any
defense, right of set-off or counterclaim that a Trust may have except for the
defense of payment:
- any accrued and unpaid distributions which are required to be paid on the
preferred securities, to the extent the applicable Trust has sufficient
funds available to do so;
- the redemption price and all accrued and unpaid distributions to the date
of redemption with respect to any preferred securities called for
redemption, to the extent the applicable Trust has sufficient funds
available to do so; and
- upon a voluntary or involuntary dissolution, "winding up" or termination
of the applicable Trust (other than in connection with the distribution
of related series of subordinated debt securities to the holders of
preferred securities or the redemption of all of the preferred
securities), the lesser of:
- the total liquidation amount and all accrued and unpaid distributions
on the relevant series of preferred securities to the date of payment;
and
- the amount of assets of the applicable Trust remaining available for
distribution to holders of such preferred securities in liquidation of
that Trust.
Our obligation to make a payment under the applicable trust guarantee may
be satisfied by our direct payment of the required amounts to the holders of
preferred securities to which the trust guarantee relates or by causing the
applicable Trust to pay the amounts to the holders.
Each trust guarantee will constitute a guarantee of payment and not of
collection. The holders of a majority in liquidation amount of the preferred
securities to which the trust guarantee relates have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the guarantee trustee in respect of the applicable trust guarantee or to direct
the exercise of any trust or power conferred upon the guarantee trustee under
the applicable trust guarantee. If the guarantee trustee fails to enforce the
applicable trust guarantee, any holder of preferred securities to which the
trust guarantee relates may institute a legal proceeding directly against us to
enforce the holder's rights under the applicable trust guarantee, without first
instituting a legal proceeding against the trust, the guarantee trustee or any
one else. If we do not make a guarantee payment, a holder of preferred
securities may directly institute a proceeding against us for enforcement of the
trust guarantee for the payment.
MODIFICATION OF THE TRUST GUARANTEES; ASSIGNMENT
Except with respect to any changes which do not adversely affect the rights
of holders of preferred securities in any material respect (in which case no
vote will be required), each trust guarantee may be amended only with the prior
approval of the holders of not less than a majority in liquidation amount of the
outstanding preferred securities to which the trust guarantee relates. The
manner of obtaining the approval of holders of the preferred securities will be
described in an accompanying prospectus supplement. All guarantees and
agreements contained in each trust guarantee will bind our successors, assigns,
receivers, trustees and representatives and will be for the benefit of the
holders of the outstanding preferred securities to which the trust guarantee
relates.
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TERMINATION
Each trust guarantee will terminate when any of the following has occurred:
- all preferred securities to which the trust guarantee relates have been
paid in full or redeemed in full by us, the applicable Trust or both;
- the related series of subordinated debt securities held by the applicable
Trust have been distributed to the holders of the relevant series of
preferred securities; or
- the amounts payable in accordance with the amended and restated
declaration of trust upon liquidation of the applicable Trust have been
paid in full.
Each trust guarantee will continue to be effective or will be reinstated,
as the case may be, if at any time any holder of preferred securities to which
the trust guarantee relates must restore payment of any amounts paid on the
preferred securities or under the trust guarantee.
EVENTS OF DEFAULT
There will be an event of default under a trust guarantee if we fail to
make any of our payment obligations or perform other obligations under the
applicable trust guarantee. However, other than with respect to a default in
payment of any guarantee payment, an event of default is not deemed to exist
unless we have received notice of default and not have cured the default within
90 days after receipt of the notice. We, as guarantor, will be required to file
annually with the guarantee trustee a certificate regarding our compliance with
the applicable conditions and covenants under our trust guarantee.
STATUS OF THE TRUST GUARANTEES
Each trust guarantee will be our general unsecured obligation and will rank
as follows:
- subordinate and junior in right of payment to all of our senior
indebtedness, as defined in the applicable senior subordinated debt
indenture, if we issue senior subordinated debt securities to the Trust;
- subordinate and junior in right of payment to all of our senior debt, as
defined in the applicable junior subordinated debt indenture, if we issue
junior subordinated debt securities to the Trust;
- equal to our most senior preferred stock currently outstanding or issued
in the future, to any guarantees of other preferred securities we or our
affiliates may issue and to other issues of senior or junior subordinated
debt securities, as applicable; and
- senior to our common stock.
The terms of the preferred securities will provide that each holder of
preferred securities by acceptance of the preferred securities agrees to the
subordination provisions and other terms of the trust guarantee relating to the
subordination.
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The guarantee trustee, except if we default under the applicable trust
guarantee, will undertake to perform only such duties as are specifically set
forth in each trust guarantee. In case a default with respect to the trust
guarantee has occurred, the applicable guarantee trustee must exercise the same
degree of care and skill as a prudent person would exercise or use in the
conduct of his or her own affairs. Subject to this provision, the guarantee
trustee will not be obligated to exercise any of the powers vested in it by the
applicable trust guarantee at the request of any holder of the preferred
securities unless the guarantee trustee is offered reasonable indemnity against
the costs, expenses and liabilities that it may incur.
GOVERNING LAW
Each trust guarantee will be governed by, and construed in accordance with,
the laws of the State of New York, unless otherwise indicated in the applicable
prospectus supplement.
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EFFECT OF OBLIGATIONS UNDER THE SUBORDINATED DEBT SECURITIES AND THE TRUST
GUARANTEES
As long as we make payments of interest and any other payments when they
are due on the related series of subordinated debt securities held by the
applicable Trust, those payments will be sufficient to cover distributions and
any other payments due on the preferred securities issued by that Trust because
of the following factors:
- the total principal amount of the related series of subordinated debt
securities held by the applicable Trust will be equal to the total stated
liquidation amount of the preferred securities and common securities
issued by that Trust;
- the interest rate and the interest payment dates and other payment dates
on the related series of subordinated debt securities held by the
applicable Trust will match the distribution rate and distribution
payment dates and other payment dates for the preferred securities and
common securities issued by that Trust;
- we will pay, and the applicable Trust will not be obligated to pay,
directly or indirectly, all costs, expenses, debt, and obligations of
that Trust (other than obligations under the trust securities); and
- the applicable amended and restated declaration of trust will further
provide that the applicable Trust is not authorized to engage in any
activity that is not consistent with its limited purposes.
Taken together, our obligations under the related series of subordinated
debt securities, the applicable subordinated debt indenture, the applicable
amended and restated declaration of trust and the applicable trust guarantee
will provide a full, irrevocable and unconditional guarantee of that Trust's
payments of distributions and other amounts due on the applicable series of
preferred securities.
If and to the extent that we do not make the required payments on the
related series of subordinated debt securities, the applicable Trust will not
have sufficient funds to make its related payments, including distributions on
the preferred securities. Our trust guarantee will not cover any payments when
the applicable Trust does not have sufficient funds available to make those
payments. Therefore, if we default on the payment obligations of the related
series of subordinated debt securities, your remedy, as a holder of preferred
securities, is to institute a direct action against us.
PLAN OF DISTRIBUTION
We and the Trusts may sell the offered securities in and outside the United
States:
- through underwriters or dealers;
- directly to purchasers, including our affiliates and shareholders, in a
rights offering;
- through agents;
- through brokers or dealers as part of, or in connection with, derivative
transactions; or
- through a combination of any of these methods.
The applicable prospectus supplement will include the following
information:
- the terms of the offering;
- the names of any underwriters, brokers, dealers or agents participating
in the offering;
- the name or names of any managing underwriter or underwriters;
- the purchase price or initial public offering price of the securities;
- the net proceeds from the sale of the securities;
- any delayed delivery arrangements;
- any underwriting discounts, commissions and other items constituting
underwriters' compensation;
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- any discounts or concessions allowed or reallowed or paid to dealers; and
- any commissions paid to agents.
SALE THROUGH UNDERWRITERS OR DEALERS
If underwriters are used in the sale, the underwriters will acquire the
securities for their own account for resale to the public, either on a
firm-commitment or best-efforts basis. The underwriters may resell the
securities from time to time in one or more transactions, including negotiated
transactions, at a fixed public offering price or at varying prices determined
at the time of sale. Underwriters may offer securities to the public either
through underwriting syndicates represented by one or more managing underwriters
or directly by one or more firms acting as underwriters. Unless we or the Trusts
inform you otherwise in the applicable prospectus supplement, the obligations of
the underwriters to purchase the securities will be subject to specified
conditions, and the underwriters will be obligated to purchase all the offered
securities if they purchase any of them. The underwriters may change from time
to time any initial public offering price and any discounts or concessions
allowed or reallowed or paid to dealers.
If we offer securities in a subscription rights offering to our existing
security holders, we may enter into a standby underwriting agreement with
dealers, acting as standby underwriters. We may pay the standby underwriters a
commitment fee for the securities they commit to purchase on a standby basis. If
we do not enter into a standby underwriting arrangement, we may retain a
dealer-manager to manage a subscription rights offering for us.
During and after an offering through underwriters, the underwriters may
purchase and sell the securities in the open market. These transactions may
include over-allotment and stabilizing transactions and purchases to cover
syndicate short positions created in connection with the offering. The
underwriters may also impose a penalty bid, which means that selling concessions
allowed to syndicate members or other broker-dealers for the offered securities
sold for their account may be reclaimed by the syndicate if the offered
securities are repurchased by the syndicate in stabilizing or covering
transactions. These activities may stabilize, maintain or otherwise affect the
market price of the offered securities, which may be higher than the price that
might otherwise prevail in the open market. If commenced, the underwriters may
discontinue these activities at any time.
Some or all of the securities that we and the Trusts offer though this
prospectus may be new issues of securities with no established trading market.
Any underwriters to whom we and the Trusts sell our securities for public
offering and sale may make a market in those securities, but they will not be
obligated to do so and they may discontinue any market making at any time
without notice. Accordingly, we and the Trusts cannot assure you of the
liquidity of, or continued trading markets for, any securities that we and the
Trusts offer.
If dealers are used in the sale of securities, we and the Trusts will sell
the securities to them as principals. They may then resell those securities to
the public at varying prices determined by the dealers at the time of resale. We
and the Trusts will include in the applicable prospectus supplement the names of
the dealers and the terms of the transaction.
DIRECT SALES AND SALES THROUGH AGENTS
We and the Trusts may sell the securities directly. In this case, no
underwriters or agents would be involved. We and the Trusts may also sell the
securities through agents designated from time to time. In the applicable
prospectus supplement, we and the Trusts will name any agent involved in the
offer or sale of the offered securities, and we and the Trusts will describe any
commissions payable to the agent. Unless we or the Trusts inform you otherwise
in the applicable prospectus supplement, any agent will agree to use its
reasonable best efforts to solicit purchases for the period of its appointment.
We and the Trusts may sell the securities directly to institutional
investors or others who may be deemed to be underwriters within the meaning of
the Securities Act with respect to any sale of those securities. We and the
Trusts will describe the terms of any sales of these securities in the
applicable prospectus supplement.
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REMARKETING ARRANGEMENTS
Offered securities may also be offered and sold, if so indicated in the
applicable prospectus supplement, in connection with a remarketing upon their
purchase, in accordance with a redemption or repayment pursuant to their terms,
or otherwise, by one or more remarketing firms, acting as principals for their
own accounts or as agents for us and the Trusts. Any remarketing firm will be
identified and the terms of its agreements, if any, with us and the Trusts, and
its compensation will be described in the applicable prospectus supplement.
DELAYED DELIVERY CONTRACTS
If we so indicate in the applicable prospectus supplement, we may authorize
agents, underwriters or dealers to solicit offers from specified types of
institutions to purchase securities from us at the public offering price under
delayed delivery contracts. These contracts would provide for payment and
delivery on a specified date in the future. The contracts would be subject only
to those conditions described in the applicable prospectus supplement. The
applicable prospectus supplement will describe the commission payable for
solicitation of those contracts.
DERIVATIVE TRANSACTIONS
We may sell securities as part of, or in connection with, our entering into
a derivative transaction with a financial institution. The financial institution
may hedge its position by making sales of securities covered by this prospectus.
GENERAL INFORMATION
We and the Trusts may have agreements with the agents, dealers,
underwriters and remarketing firms to indemnify them against specified civil
liabilities, including liabilities under the Securities Act of 1933, or to
contribute with respect to payments that the agents, dealers, underwriters or
remarketing firms may be required to make. Agents, dealers, underwriters and
remarketing firms may be customers of, engage in transactions with or perform
services for us or the Trusts in the ordinary course of their businesses.
AT-THE-MARKET OFFERINGS
We may offer our securities into an existing trading market on the terms
described in the applicable prospectus supplement. Underwriters and dealers who
may participate in any at-the-market offerings include Goldman, Sachs & Co.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated and McDonald Investments Inc.
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VALIDITY OF THE OFFERED SECURITIES
Unless otherwise indicated in the applicable prospectus supplement, various
matters of Delaware law relating to the Trusts and their preferred securities
are subject to the opinions of Richards, Layton & Finger, P.A., Wilmington,
Delaware. Unless otherwise indicated in the applicable prospectus supplement,
various legal matters incident to the validity of the securities offered by the
applicable prospectus supplement are subject to the opinions of William M.
Warren, Senior Vice President, General Counsel and Assistant Secretary of Forest
City, and Jones, Day, Reavis & Pogue, Cleveland, Ohio. As of March 1, 2002, Mr.
Warren owns, together with his spouse, 2,926 shares of class A common stock and
has been granted options to purchase 48,600 shares of class A common stock. Mr.
Warren also owns approximately $20,000 of our 8.5% senior notes due 2008. In
addition, counsel that will be named in the applicable prospectus supplement
will pass upon the validity of any securities offered under the applicable
prospectus supplement for any underwriters or agents. Counsel to the
underwriters or agents may, in some instances, rely as to specific matters of
Ohio law upon the opinion of Jones, Day, Reavis & Pogue.
EXPERTS
The consolidated financial statements incorporated in this prospectus by
reference to the Annual Report on Form 10-K for the year ended January 31, 2002
have been so incorporated in reliance on the report of PricewaterhouseCoopers
LLP, independent accountants, given on the authority of said firm as experts in
auditing and accounting.
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(FOREST CITY ENTERPRISES LOGO)