I am pleased to invite you to attend the 2017 annual meeting of stockholders to be held in the 6th floor Riverview Room of the
Ritz-Carlton Hotel, Tower City Center, 1515 West Third Street, Cleveland, Ohio 44113, on June 9, 2017 at 2:00 p.m., Eastern Time. Your Board of Directors is recommending for election a slate of director nominees that is extremely well qualified to
represent all stockholders and lead the Company in executing our strategic plan.
In addition to the election of directors
and other matters customarily considered and voted upon at the annual meeting, record holders of Class A Common Stock and Class B Common Stock are being asked to consider and vote upon a proposal to approve a reclassification, by means of
an amendment and restatement of our charter, whereby each issued and outstanding share of Class B Common Stock will be reclassified and exchanged into 1.31 shares of Class A Common Stock. If the reclassification is completed, we will no
longer have authorized Class B Common Stock. The reclassification will result in our having a single class of common stock with one vote per share.
Thank you for your continued support. If you have any questions, please contact D.F. King & Co., Inc., our proxy
solicitor that is assisting us in connection with the annual meeting, at (866) 796-7179.
James A. Ratner
NOTICE IS HEREBY GIVEN that the annual meeting of stockholders of Forest City Realty Trust, Inc., a Maryland corporation
(the
Company
), will be held in the 6th floor Riverview Room of the Ritz-Carlton Hotel, Tower City Center, 1515 West Third Street, Cleveland, Ohio 44113, on June 9, 2017 at 2:00 p.m., Eastern Time (the
Annual
Meeting
), for the purpose of considering and acting upon:
(1) The election of thirteen directors, with the
Companys nominees being those named in this proxy statement/prospectus, each to serve until the next annual stockholders meeting and until a successor is duly elected and qualified. Four directors will be elected by holders of
Class A Common Stock and nine directors will be elected by holders of Class B Common Stock.
(2) The approval
(on an advisory, non-binding basis) of the compensation of the Companys Named Executive Officers, as described in the accompanying proxy statement/prospectus.
(3) The vote (on an advisory, non-binding basis) on the frequency of which the Companys stockholders will have an
advisory, non-binding vote on the compensation of the Companys Named Executive Officers.
(4) The ratification of
the appointment of PricewaterhouseCoopers LLP as the independent registered public accounting firm for the Company for the year ending December 31, 2017.
(6) The proposal to adjourn the Annual Meeting to a later date or dates, if necessary or
appropriate, to solicit additional proxies if there are insufficient votes to approve the Reclassification Proposal at the time of the Annual Meeting.
(7) Such other business as may properly come before the Annual Meeting or any postponement or adjournment thereof.
Stockholders of record at the close of business on April 20, 2017 are entitled to notice of and to vote by proxy or in person
at the Annual Meeting or any postponement or adjournment thereof.
Your vote is very important, regardless of the number
of shares of Common Stock you own. The Reclassification cannot be completed unless the Reclassification Proposal is approved by the holders of a majority of the issued and outstanding shares of Class A Common Stock, voting as a separate class,
and the holders of a majority of the issued and outstanding shares of Class B Common Stock, voting as a separate class. In addition, under the Reclassification Agreement, it is a condition precedent to the Companys and RMSs
obligation to complete the Reclassification that the holders of a majority of the issued and outstanding shares of Class A Common Stock entitled to vote thereon, excluding Class A shares beneficially owned by RMS and Class A Shares
beneficially owned by Ratner Family Members, vote
FOR
the Reclassification Proposal (which we refer to as the
majority of the minority
stockholder approval condition).
You may authorize a proxy to vote your shares via the internet, by telephone, or by completing, signing, dating and mailing the enclosed WHITE
proxy card in the enclosed prepaid envelope. Only your latest-dated proxy will count, and any proxy may be revoked at any time prior to its exercise at the Annual Meeting.
Jeffrey P. Sabatine, Interim Secretary
If you have questions about how to vote your shares, or need additional assistance, please contact
D.F. King & Co., Inc., which is assisting us in the solicitation of proxies:
S
UMMARY
This summary highlights selected information contained elsewhere in this proxy statement/prospectus and may not contain
all the information that is important to you. This summary is qualified in its entirety by, and should be read together with, the other parts of this proxy statement/prospectus and the other documents to which this proxy statement/prospectus refers
to fully understand the matters to be considered and voted upon at the Annual Meeting. In particular, you should read the annexes attached to this proxy statement/prospectus.
For a discussion of the risk factors that you should carefully
consider, see the section entitled
Risk Factors
beginning on page 30.
Most items in this summary include a page reference directing you to a more complete description of that item.
Information about the Company
(See page 37)
Forest City Realty Trust, Inc.
Terminal Tower, 50 Public
Square
Suite 1100
Cleveland, Ohio 44113
(216) 621-6060
The Company, a
Maryland corporation, principally engages in the ownership, development, management and acquisition of office, residential and retail real estate and land throughout the United States. The Company had approximately $8.2 billion of consolidated
assets in 20 states and the District of Columbia at December 31, 2016. The Companys core markets include Boston, Chicago, Dallas, Denver, Los Angeles, Philadelphia, and the greater metropolitan areas of New York City, San Francisco
and Washington, D.C. The Companys headquarters are located at Terminal Tower, 50 Public Square, Suite 1100, Cleveland, Ohio 44113 and the telephone number at this location is (216) 621-6060.
Risk Factors
(See page 30)
Before voting on any of the proposals described in the Notice of Annual Meeting of Stockholders, you should carefully
consider all of the information contained in or incorporated by reference into this proxy statement/prospectus, as well as the specific factors under the heading
Risk Factors
.
2017 Annual Meeting of Stockholders
(See page 33)
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Date and Time:
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Record Date:
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June 9, 2017 at 2:00 p.m., Eastern Time
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April 20, 2017
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Place:
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Webcast:
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6th floor Riverview Room of the Ritz-Carlton Hotel, Tower City Center, 1515 West Third Street, Cleveland, Ohio
44113
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A webcast of the Annual Meeting will be accessible via the investor relations page of the Companys internet site,
www.forestcity.net
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Annual Report and Proxy Materials
Available at www.proxyvote.com (for access, use the control number included on your WHITE proxy card) or at www.forestcity.net.
13
Proposals to be Considered and Voted Upon and Board Recommendations
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Proposal
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Description
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Board
Recommendation
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Page
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1
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Election of Directors.
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FOR EACH NOMINEE RECOMMENDED BY YOUR BOARD
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108
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2
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Approval (on an advisory, non-binding basis) of the compensation of the Companys Named Executive Officers, as
described in this proxy statement/prospectus.
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FOR
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185
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3
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Vote (on an advisory, non-binding basis) on the frequency of which the Companys stockholders will have an advisory,
non-binding vote on the compensation of the Companys Named Executive Officers.
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Every One Year
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187
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4
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Ratification of the appointment of PricewaterhouseCoopers LLP as independent registered public accounting firm for the
Company for the year ending December 31, 2017.
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FOR
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188
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5
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The Reclassification Proposal.
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FOR
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197
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6
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The Adjournment Proposal.
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FOR
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198
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Recent Corporate Actions
1.
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Successfully completed the Merger, in connection with our plan to convert to REIT status commencing with the
year ending December 31, 2016.
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2.
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Published our fourth Corporate Social Responsibility Report according to the Global Reporting Initiative
(
GRI
) framework and achieved an MSCI Environmental, Social, and Governance (
ESG
) rating of A and Global Real Estate Sustainability Benchmark (
GRESB
) Green Star Recognition for the second
straight year (see page 133).
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3.
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Reinstituted a quarterly dividend in the first quarter of 2016.
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4.
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Implemented a new organizational structure to improve efficiencies and operating margins.
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5.
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Established new segment reporting to align to our new organizational structure, based on the Companys
real estate operations, real estate development and corporate support service functions.
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6.
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Entered into an agreement to effect the Reclassification, subject to stockholder approval at the Annual
Meeting (see page 37).
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7.
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Agreed to implement a majority voting standard in uncontested elections of directors with a resignation
policy, effective upon the effective date of the Reclassification.
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8.
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Appointed a non-executive Chairman of the Board.
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14
Election of Directors (
See page
108)
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Nominee
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Class
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Director Since
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Independent
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Non-Executive Chairman:
James A. Ratner
Lead Director:
Scott S. Cowen
Director Terms:
1 Year
Required Vote:
Plurality of votes cast
Board Meetings in 2016:
5
Standing Board Committee Meetings:
Audit Committee (the
Audit Committee
) (8); Compensation Committee (the
Compensation Committee
) (7); and
Corporate Governance & Nominating Committee (the
Corporate Governance & Nominating Committee
) (8)
Director Attendance:
Averaged 96.7% and no director attended fewer than 84.6% of the meetings of the Board and those committees
on which the director served
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Arthur F. Anton
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A
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2010
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Yes
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Kenneth J. Bacon
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A
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2012
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Yes
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Scott S. Cowen
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A
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1989
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Yes
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Michael P. Esposito, Jr.
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A
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1995
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Yes
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Z. Jamie Behar
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B
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2017
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Yes
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Christine R. Detrick
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B
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2014
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Yes
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Deborah L. Harmon
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B
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2008
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Yes
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David J. LaRue
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B
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2011
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No
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Craig Macnab
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B
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N/A
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Yes
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Brian J. Ratner
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B
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1993
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No
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Deborah Ratner Salzberg
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B
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1995
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No
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James A. Ratner
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B
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2017
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No
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Ronald A. Ratner
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B
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1985
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No
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Executive Compensation (
See page 141
)
Our executive compensation program is intended to support our core values, drive long-term growth and stockholder value
creation and reinforce our culture of accountability, integrity, responsibility, legal compliance, ethical behavior and transparency.
Key Objectives of our Executive Compensation Program:
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Focus senior management on key business objectives as reflected in
our annual business plan and strategic plan that support our ultimate objective of maximizing long-term stockholder value.
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Attract and retain highly-talented employees to lead our continued
growth and success and reward them for their contributions toward that success.
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Avoid unnecessary or excessive risk taking.
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Provide competitive pay aligned with performance in support of
long-term stockholder value.
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Key Components of our Executive Compensation Program:
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Component
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Component Objective
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Performance Linkage
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Base Salary
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Provide base pay commensurate with level of
responsibility, experience and individual performance
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Partially linked (merit
increases tied to individual performance)
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Annual Short-Term
Incentives
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Align pay with the attainment of specified business objectives at the corporate, department, regional and/or individual levels
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Strongly linked
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Long-Term Incentives
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Align pay with achievement of strategic goals and
long-term stockholder value creation
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Minimally (restricted stock) to
Strongly (cash and performance shares) linked
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Benefits & Perquisites
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Provide for health, welfare and retirement needs at
a reasonable shared cost
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Minimally or not
linked
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15
Results of the 2016 Say on Pay Advisory Vote:
We held our annual advisory vote on the compensation of our named executive officers (
NEOs
) (
Say on
Pay Vote
) at our annual meeting of stockholders on May 25, 2016. At that meeting, our stockholders overwhelmingly passed a resolution approving the compensation of our NEOs, with approximately 99.3% of the votes cast at the 2016
annual meeting approving the resolution. Overall, the Compensation Committee believes that this overwhelming level of stockholder support is evidence that our executive compensation program is appropriately structured and aligned with stockholder
interests. We continue to strive to align our programs more directly with the interests of our stockholders.
Financial Performance
Metrics that Impacted Compensation Decisions:
The following table provides comparisons of some of the key
financial metrics, as previously reported in our Form 10-K for the year ended December 31, 2016, and Supplemental Package for the quarter ended December 31, 2016 furnished on Form 8-K, which we use in evaluating the Companys
performance and which the Compensation Committee considers when making compensation decisions:
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Key Metric
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Year Ended December 31,
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Change
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2016
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2015
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Funds From Operations (FFO)
(1)(2)
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$
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241,733,000
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$
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505,682,000
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(52.2
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)%
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Operating FFO (OFFO)
(1)
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$
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386,461,000
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$
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337,601,000
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14.5
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%
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FFO per share (on a fully-diluted basis)
(1)(2)
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$
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0.92
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$
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1.98
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(53.5
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)%
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OFFO per share (on a fully-diluted basis)
(1)
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$
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1.46
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$
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1.36
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7.4
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%
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Comparable Net Operating Income
(1)
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$
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585,389,000
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$
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567,015,000
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3.2
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%
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Net Debt to Adjusted EBITDA
(3)
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8.92
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(1)
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These measures are financial measures not presented in accordance with Generally Accepted Accounting
Principles. See pages 142-145 and Annexes G, H and I of this proxy statement/prospectus for additional information on these measures.
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(2)
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2016 fiscal year results for FFO and FFO per share were significantly affected by recognition of a
$299.6 million impairment on our Pacific Park Brooklyn project in Brooklyn, New York.
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(3)
|
The metric of Net Debt to Adjusted EBITDA as used by the Compensation Committee as a performance metric and
presented in this table differs slightly from Net Debt to Adjusted EBITDA as presented in our Supplemental Package for the quarter ended December 31, 2016, as furnished with the SEC on Form 8-K. See page 144 for the definition of Net Debt to
Adjusted EBITDA as presented in this table.
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Key Metric
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Stock
Price
December 31,
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TSR
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2016
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2015
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2014
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1-Year
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3-Year
(1)
|
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Total Shareholder Return
(
TSR
): Class A Common Stock
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$
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20.84
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$
|
21.93
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$
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21.30
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(3.43
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)%
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3.50
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%
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(1)
|
Represents an annualized rate of return. TSR based on closing price of Class A Common Stock of $19.10 on
December 31, 2013 and includes any dividends paid.
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Please see the
Compensation Discussion and
Analysis
section beginning on page 141 of this proxy statement/prospectus and the Executive Compensation Tables beginning on page 178 for a more detailed description of our executive compensation program and practices.
16
The Reclassification (See page 37)
Structure of the Reclassification
(See page 37)
On August 18, 2016, the Board designated a Special Committee of Class A directors, consisting of Arthur F. Anton,
Scott S. Cowen and Michael P. Esposito, Jr., each of whom also is an independent director, to explore the possibility of eliminating the Companys dual-class stock structure. The Special Committee retained Lazard to act as its financial advisor
and Sullivan & Cromwell to act as its legal counsel. On December 5, 2016, the Board, based upon the recommendation of the Special Committee, authorized and approved the Reclassification and declared the Reclassification Amendment
advisable and in the best interests of the Company. If the Reclassification Proposal is approved and the Reclassification is completed, at the Effective Time, each Class B share issued and outstanding immediately prior to the Effective Time will be
reclassified and exchanged into 1.31 Class A shares. The Reclassification will not be completed unless and until the Reclassification Proposal is approved by the affirmative vote of (a) the holders of a majority of the issued and
outstanding Class A shares, voting as a separate class, and (b) the holders of a majority of the issued and outstanding Class B shares, voting as a separate class. In addition, under the Reclassification Agreement, it is a condition
precedent to the Companys and RMSs obligation to complete the Reclassification that the majority of the minority stockholder approval be obtained. If the Reclassification is completed, immediately following the Effective Time,
Class A Common Stock will be the sole class of the Companys Common Stock issued and outstanding, and each share of Class A Common Stock will have one vote upon each matter brought before a meeting of stockholders.
For additional information about the Reclassification, see the section of this proxy statement/prospectus entitled
The Reclassification
.
R
easons for the Reclassification
(See
page 44)
Each of the Special Committee and the Board reviewed certain pertinent factors in reaching its
decisions, (a) in the case of the Special Committee, to recommend to the Board that it: (i) authorize the Company to enter into the Reclassification Agreement, the Irrevocable Proxy and the Voting and Support Agreement, (ii) determine that
the Reclassification Amendment is advisable and in the best interests of the Company and (iii) direct that the Reclassification Amendment be submitted to the holders of Class A Common Stock for their approval and recommend that the holders
of Class A Common Stock approve the same, and (b) in the case of the Board, (i) resolving that the Reclassification Agreement, Irrevocable Proxy, Voting and Support Agreement, and the transactions contemplated thereby, including the
Reclassification and Reclassification Amendment, are advisable, fair and in the best interests of the Company and the stockholders, (ii) authorizing and approving the same, and (iii) resolving to recommend that the stockholders adopt the
Reclassification Amendment.
The Special Committee and the Board considered the following material factors:
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the benefits of aligning voting rights with economic ownership;
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the realignment of RMSs voting power and economic interests;
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RMSs board designation rights;
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the Special Committee process;
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the potential for improvement of liquidity and increased trading efficiencies;
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the potential increased attractiveness to institutional investors of a single-class stock structure;
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the benefits of improved governance;
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that approval of both current classes of Common Stock is required;
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17
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that the Companys and RMSs obligation to consummate the Reclassification under the
Reclassification Agreement is conditioned on the receipt of a majority of the minority stockholder approval;
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the elimination of potential investor confusion regarding the Companys capital structure;
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the increased strategic flexibility; and
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the opinion of Lazard Frères & Co. LLC (
Lazard
).
|
The Special Committee and the Board also considered the following factors:
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the current equivalent economic rights of the Class A Common Stock and the Class B Common Stock;
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that the Scopia Parties (as defined below in
The Voting and Support Agreement
)
support the Reclassification Proposal and agreed to vote in its favor;
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certain historical trading price and trading volume differentials of the Class A Common Stock and the
Class B Common Stock;
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that the Reclassification would be dilutive to holders of Class B Common Stock with respect to their
voting power and dilutive to holders of Class A Common Stock with respect to their relative economic interest in the Company;
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the fact that both the Equal Treatment Provision and the Share Conversion Provision in the Companys
charter would be eliminated as part of the Reclassification;
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the fact that the Class B Common Stock has significantly less trading liquidity than the Class A
Common Stock; and
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the interests of the Companys officers and directors and RMS in the Reclassification.
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Further, the Special Committee and the Board considered certain potentially negative factors:
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the risk that the Reclassification might not be completed in a timely manner or at all; and
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the risks described in the section of this proxy statement/prospectus entitled
Risk Factors
.
|
In addition to the foregoing factors, the Board carefully considered the following material factor:
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the opinion of Houlihan Lokey Capital, Inc. (
Houlihan Lokey
).
|
For more information on the factors considered by the Special Committee and the Board, see the sections of this proxy
statement/prospectus entitled
The ReclassificationReasons for the Reclassification, The ReclassificationOpinion of Lazard
and
The ReclassificationOpinion of Houlihan Lokey
.
Required Vote
(See page 37)
The Reclassification Proposal, which would eliminate the Companys existing dual-class stock structure, includes a charter
amendment.
Article VIII of the Companys charter expressly reserves the right to amend the charter in any manner
authorized by law, including any amendment altering the terms or contract rights, as expressly set forth in the charter, of any shares of outstanding stock, so long as the requisite stockholder approval is obtained. The terms of the Companys
charter provide that the Company may not, without the affirmative vote of the holders of a majority of the outstanding shares of an affected class of stock, voting as a separate class to the exclusion of any other unaffected class of stock, amend
the charter if the amendment would adversely alter the rights, preferences,
18
privileges or restrictions of such class relative to the shares of any other class. The proposed amendment of the Companys charter contemplated by the Reclassification Proposal will
adversely alter the relative rights, preferences, privileges or restrictions applicable to the Class A shares and to the Class B shares. Among other things, the proposed amendment will eliminate the Equal Treatment Provision, which provides
protections to both holders of Class A shares and Class B shares. The proposed amendment also will eliminate various other rights that are specific to either the Class A shares or the Class B shares, including the right of the holders of Class
A shares to elect 25% of the members of the Companys Board of Directors (rounded up to the nearest whole number of directors); the right of the holders of Class B shares to elect the balance of the members of the Companys Board of
Directors; and the right of the holders of Class B shares to ten votes per share. Because of these results, the proposed amendment of the Companys charter must be approved separately by the holders of each of the Class A shares and Class B
shares.
The Reclassification Agreement
(See page 66)
In support of the Reclassification, on December 5, 2016, the Company entered into the Reclassification Agreement with RMS.
Pursuant to the Reclassification Agreement, RMS agreed, among other things, to vote all Class B shares beneficially owned by RMS, representing approximately 68.58% of the outstanding Class B Common Stock as of the Record Date,
FOR
the Reclassification Proposal (on the terms and subject to the conditions set forth in such agreement). In addition, the Company and RMS have entered into an Irrevocable Proxy, dated as of December 5, 2016 (the
Irrevocable Proxy
), appointing designated executive officers of the Company as RMSs proxy for purposes of voting in favor of the Reclassification Proposal.
The Voting and Support Agreement
(See page 47)
As previously disclosed, on December 5, 2016, the Company entered into the Voting and Support Agreement with the Scopia
Parties. Pursuant to the Voting and Support Agreement, the Scopia Parties agreed, among other things and subject to certain conditions, to vote shares of Common Stock beneficially owned by them and their Associates (as defined in the Voting and
Support Agreement) at the Annual Meeting as follows:
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in favor of any and all persons nominated by the Board for election as directors (provided at least eight of
the thirteen nominees have been determined to be independent directors by the Board in accordance with relevant stock exchange rules);
|
|
|
|
FOR
the Reclassification Proposal and any action reasonably requested by the Company
in furtherance of the foregoing; and
|
|
|
|
against any other action, agreement or transaction involving the Company or the Board that is intended, or
would reasonably be expected, to prevent or impair or delay the consummation of the Reclassification or the other transactions contemplated by the Reclassification Agreement.
|
As disclosed in a Schedule 13D/A filed with the SEC by Scopia Capital Management LP, as of February 3, 2017, Scopia
Capital Management LP beneficially owned 23,726,734 Class A shares (representing approximately 9.83% of the outstanding Class A shares as of the Record Date). It is possible that between February 3, 2017 and the Record Date, Scopia
Capital Management LP bought or sold Class A Common Stock.
The Reimbursement Agreement
(See page 47)
As previously disclosed, on October 24, 2016, the Company entered into the Reimbursement Agreement
with RMS. Pursuant to the Reimbursement Agreement, on the terms and subject to the conditions set forth therein, the Company agreed to reimburse RMS (together with its officers, directors, employees, beneficiaries, trustees, representatives and
agents) and each Member of the Ratner Family (as defined in the Reimbursement
19
Agreement) for various costs, fees, expenses, losses, damages and liabilities, including certain costs associated with the Reclassification and any Proceeding (as defined in the Reimbursement
Agreement). Please see the section entitled
The ReclassificationThe Reimbursement Agreement
beginning on page 47 for a more detailed discussion of the Reimbursement Agreement.
Interests of Certain Persons in the Reclassification
(See page 63)
The Companys directors, executive officers, the Ratner Family Members and RMS have interests in the
Reclassification that are different from, or in addition to, the interests of stockholders generally. The members of the Special Committee were aware of and considered these interests, among other matters, in evaluating and negotiating the
Reclassification Agreement and in determining to unanimously recommend that the Board determine that the Reclassification is advisable and in the best interests of the Company. Further, the members of the Board were aware of and considered these
interests, among other matters, when the Board authorized and approved the Reclassification and declared the Reclassification Amendment advisable, fair and in the best interests of the Company. These interests are described in more detail in the
section entitled
The ReclassificationInterests of Certain Persons in the Reclassification
beginning on page 63.
Conditions to the Companys Obligation to Complete the Reclassification
(See page 69)
The Companys obligation to complete the Reclassification pursuant to the Reclassification Agreement is subject to
customary conditions, including, among others:
|
|
|
the effectiveness of the Companys Registration Statement on
Form S-4
of which this proxy statement/prospectus forms a part;
|
|
|
|
the approval of the Reclassification Proposal by the affirmative vote of a majority of the issued and
outstanding Class A shares and a majority of the issued and outstanding Class B shares (voting as separate classes) and that the majority of the minority stockholder approval be obtained;
|
|
|
|
the absence of any governmental order or law preventing the consummation of the Reclassification;
|
|
|
|
the approval by the NYSE of the listing of the Class A shares into which the Class B shares will be
reclassified and exchanged; and
|
|
|
|
the accuracy of the representations and warranties of RMS (subject to specified materiality standards) and
material compliance by RMS with its obligations under the Reclassification Agreement.
|
Accounting Treatment
(See page 64)
At the Effective Time, each issued and outstanding Class B share will be
reclassified and exchanged into 1.31 Class A shares. The Reclassification will result in approximately 24.6 million additional Class A shares being issued and approximately 18.8 million outstanding Class B shares being cancelled.
The issuance of the additional Class A shares (and the elimination of all outstanding Class B shares) will increase the total outstanding shares and the weighted average shares outstanding used in the calculation of basic and fully diluted
earnings per share. The increased number of Class A shares outstanding will lower the book value per share, and basic and fully diluted earnings per share will be reduced. During the year ended December 31, 2017, the Company expects to
incur professional and consulting fees directly related to the Reclassification of approximately $8,700,000, which will be recorded as a reduction to additional paid-in capital.
No Appraisal Rights
(See page 35)
No dissenters or appraisal rights, or rights of objecting stockholders under Title 3, Subtitle 2 of the MGCL will be
available to holders of Class A shares or Class B shares with respect to the Reclassification Amendment or the other transactions contemplated by the Reclassification.
20
Regulatory Matters
We are not aware of any material regulatory requirements that must be complied with or regulatory approvals that must be
obtained prior to completion of the Reclassification, other than compliance with applicable federal and state securities laws and the filing and acceptance for record of the Articles of Amendment and Restatement by the State Department of
Assessments and Taxation of Maryland.
De-listing of Class B Common Stock
(See page 64)
Class B shares are currently listed and traded on the NYSE under the symbol FCE.B. If the Reclassification is
completed, each Class B share that is issued and outstanding immediately prior to the Effective Time will be reclassified and exchanged into 1.31 Class A shares at the Effective Time. As a result, the Class B Common Stock will be
deregistered under the Securities Exchange Act of 1934, as amended (the
Exchange Act
), delisted from the NYSE and cease to be publicly traded.
Financial Opinions
Opinion of Lazard
(See page 48)
The Special Committee retained Lazard to act as its independent financial advisor and for purposes of providing a financial
opinion in connection with the Reclassification. On December 5, 2016, Lazard rendered its oral opinion to the Special Committee and the Board, subsequently confirmed in writing, that, as of such date, and based upon and subject to the
assumptions, procedures, factors, qualifications and limitations set forth therein, the Exchange Ratio provided for in the Reclassification was fair, from a financial point of view, to the holders of Class A Common Stock (other than
Class A Common Stock held by the RMS Group), solely in their capacity as holders of Class A Common Stock, with respect to such Class A Common Stock and without taking into account any Class B Common Stock held by such holders.
The full text of Lazards written opinion, dated December 5, 2016, which sets forth the assumptions made,
procedures followed, factors considered and qualifications and limitations on the review undertaken by Lazard in connection with its opinion, is attached to this proxy statement/prospectus as Annex D and is incorporated into this proxy
statement/prospectus by reference. The summary of Lazards opinion is qualified in its entirety by reference to the full text of the opinion. We encourage you to read Lazards opinion, and the section entitled
The
ReclassificationOpinion of Lazard
beginning on page 48, carefully and in their entirety. Lazards opinion was directed to the Special Committee and the Board (in each case, in its capacity as such) for the
information and assistance of the Special Committee and the Board in connection with their evaluation of the Reclassification. Lazards opinion did not address any other aspect of the Reclassification and was not intended to and does not
constitute a recommendation to any stockholder as to how such stockholder should vote or act with respect to the Reclassification or any matter relating thereto
.
Opinion of Houlihan Lokey
(See page 53)
The Company retained Houlihan Lokey for purposes of providing a financial opinion in connection with the Reclassification. On
December 5, 2016, Houlihan Lokey verbally rendered its opinion to the Board (which was subsequently confirmed in writing by delivery of Houlihan Lokeys written opinion addressed to the Board dated December 5, 2016), as to the
fairness, from a financial point of view, of the Exchange Ratio provided for in the Reclassification pursuant to the Reclassification Agreement to the holders of Class B Common Stock (other than RMS Group) (solely in their capacity as holders of
shares of Class B Common Stock, with respect to such Class B Common Stock, and without taking into account any shares of Class A Common Stock held by such holders), as of December 5, 2016, based upon and subject to the procedures followed,
assumptions made, qualifications and limitations on the review undertaken and other matters considered by Houlihan Lokey in preparing its opinion.
21
Houlihan Lokeys opinion was directed to the Board (in its capacity
as such) and only addressed the fairness, from a financial point of view, of the Exchange Ratio provided for in the Reclassification, pursuant to the Reclassification Agreement, to the holders of Class B Common Stock (other than RMS Group) (solely
in their capacity as holders of shares of Class B Common Stock, with respect to such Class B Common Stock, and without taking into account any shares of Class A Common Stock held by such holders) and did not address any other aspect or
implication of the Reclassification or any other agreement, arrangement or understanding. The summary of Houlihan Lokeys opinion in this proxy statement/prospectus is qualified in its entirety by reference to the full text of its written
opinion, which is attached as Annex E to this proxy statement/prospectus and describes the procedures followed, assumptions made, qualifications and limitations on the review undertaken and other matters considered by Houlihan Lokey in connection
with the preparation of its opinion. However, neither Houlihan Lokeys opinion nor the summary of its opinion and the related analyses set forth in this proxy statement/prospectus are intended to be, and do not constitute, advice or a
recommendation to the Special Committee, the Board, any security holder of the Company or any other person as to how to act or vote with respect to any matter relating to the Reclassification. See the section of this proxy statement/prospectus
entitled
The ReclassificationOpinion of Houlihan Lokey.
Material U.S. Federal
Income Tax Consequences of the Reclassification
(See page 70)
The Reclassification is intended to qualify
as a recapitalization within the meaning of Section 368(a)(1)(E) of the Internal Revenue Code of 1986, as amended (the
Code
). In connection with the filing of the registration statement of which this proxy
statement/prospectus is a part, the Company has received a legal opinion from Sullivan & Cromwell LLP (
Sullivan & Cromwell
) to the effect that the Reclassification so qualifies. Accordingly, it generally will not
result in the recognition of any income, gain or loss for United States federal income tax purposes, except with respect to any cash received by holders of Class B Common Stock in lieu of fractional shares.
Holders of Class B Common Stock should read the section entitled
Material U.S. Federal Income Tax
Consequences
for a more complete discussion of the U.S. federal income tax consequences of the Reclassification. Tax matters can be complicated, and the tax consequences of the Reclassification to a particular holder will depend on
such holders individual facts and circumstances.
All holders of Class B Common Stock should consult their own tax advisors to determine the specific tax consequences of the Reclassification to them.
Shares Owned by Directors and Executive Officers
Based on the 241,464,998 Class A shares and the 18,788,163 Class B shares issued and outstanding as of the Record Date,
the issued and outstanding Class A shares represent approximately 92.78% and 56.24% of the outstanding economic and voting interest in the Company, respectively, and the issued and outstanding Class B shares represent approximately 7.22% and
43.76% of the outstanding economic and voting interest in the Company, respectively.
At the close of business on the
Record Date, the Companys directors and executive officers and their affiliates were entitled to vote 5,210,105 Class A shares and 16,369,179 Class B shares. This represents approximately 2.16% of the issued and outstanding Class A
shares and 87.12% of the issued and outstanding Class B shares as of the Record Date.
Litigation Related to the
Reclassification
(See page 65)
On March 21, 2017, the City of Riviera Beach Police Pension Fund, a purported
Class A stockholder, filed a lawsuit on behalf of a putative class of Class A stockholders of the Company in the Circuit Court for Baltimore City, Maryland. The plaintiff in this matter alleges, among other things, (i) that certain current and
former members of the Board are causing the Company to breach certain provisions of the Companys charter, including
22
the Equal Treatment Provision and the Share Conversion Provision, (ii) that certain current and former members of the Board breached their duties because, among other things, the Reclassification
Amendment is coercive in that the amendment and restatement of the charter contemplated thereby would both effectuate the Reclassification and eliminate the Equal Treatment Provision and the Share Conversion Provision, and because the registration
statement of which this proxy statement/prospectus forms a part contains false and materially misleading statements, (iii) that certain Ratner Family Members aided and abetted such alleged breaches, (iv) that certain current and former members of
the Board and certain Ratner Family Members breached an implied covenant of good faith and fair dealing, (v) that certain Ratner Family Members breached their fiduciary duties, (vi) unjust enrichment of the holders of Class B Common Stock and (vii)
that Sections 6.2.1 and 6.2.2 of the charter prohibit Class B stockholders from receiving a premium for their shares in connection with the Reclassification and that any such reclassification must be done on a 1:1 basis. The plaintiff seeks, among
other things, injunctive relief and damages. On April 6, 2017, the plaintiff filed a motion for preliminary injunction seeking, among other things, to delay the stockholder meeting until after various additional disclosures are made by the Company
and certain allegedly coercive aspects of the transaction are remedied.
On March 30, 2017, the Board received a
demand letter from Kenneth Bumba, a purported Class A stockholder, alleging, among other things, that certain current and former members of the Board breached their duties and violated the charter in authorizing and approving the Reclassification,
that RMS and certain Ratner Family Members aided and abetted such alleged breaches, and unjust enrichment of the holders of Class B Common Stock and demanding that the Board take steps to remediate these alleged breaches of duty. On April 5,
2017, this purported Class A stockholder filed a putative class action lawsuit and derivative lawsuit in the Circuit Court for Baltimore City, Maryland, alleging, essentially, substantially similar claims as those alleged in the City of Riviera
Beach Police Pension Fund action described above on behalf of the same putative class of Class A stockholders. The Bumba complaint also alleges derivative claims on behalf of the Company against certain current and former members of the Board
alleging similar claims for breaches of fiduciary and contractual duties, as well as a claim that certain director defendants breached their duties by causing the Company to enter into the Reimbursement Agreement. The complaint seeks among other
things, injunctive relief and damages to the putative class and to the Company.
On April 21, 2017, the Court entered
an order consolidating these cases under the caption In Re Forest City Realty Trust, Inc. Class A Stockholder Litigation, Case No. 24-C-17-001424.
The defendants have not yet answered or otherwise responded to the complaints in the underlying actions or in the consolidated
action. The defendants believe that the claims alleged are without merit and intend to defend against them vigorously.
23
S
ELECTED
H
ISTORICAL
C
ONSOLIDATED
F
INANCIAL
D
ATA
The following table presents selected
historical consolidated financial data as of the dates and for the periods indicated for the Company. The operating results presented in the table below are not necessarily indicative of the results to be expected for any future period.
The selected statement of operations data presented below for the years ended December 31, 2016, 2015 and 2014 and the
selected balance sheet data as of December 31, 2016 and 2015 have been derived from the Companys audited consolidated financial statements and related notes thereto incorporated by reference into this proxy statement/prospectus. The
selected statement of operations data presented below for the eleven months ended December 31, 2013 and fiscal year ended January 31, 2013 and the selected balance sheet data as of December 31, 2014, December 31, 2013 and
January 31, 2013 have been derived from the Companys audited consolidated financial statements and related notes thereto, which are not incorporated by reference into this proxy statement/prospectus.
The information set forth below does not provide all of the information contained in the Companys financial
statements, including the related notes. It is important for you to read the following summary of selected financial data together with the other information contained in the Companys Annual Report on Form 10-K for the fiscal year ended
December 31, 2016, including the sections entitled
Managements Discussion and Analysis of Financial Condition and Results of Operations
, and the consolidated financial statements and related notes therein. See the
section entitled
Where You Can Find More Information
beginning on page 199.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
11 Months
Ended
|
|
|
Year Ended
|
|
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
|
December 31,
2014
|
|
|
December 31,
2013
|
|
|
January 31,
2013
|
|
|
|
(in thousands, except share and per share data)
|
|
Operating Results:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
929,483
|
|
|
$
|
978,231
|
|
|
$
|
849,357
|
|
|
$
|
893,740
|
|
|
$
|
999,714
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations attributable to Forest City Realty Trust, Inc.
|
|
$
|
(206,583
|
)
|
|
$
|
531,552
|
|
|
$
|
(7,862
|
)
|
|
$
|
34,595
|
|
|
$
|
(16,779
|
)
|
Earnings (loss) from discontinued operations attributable to Forest City Realty Trust,
Inc.
|
|
|
48,181
|
|
|
|
(35,510
|
)
|
|
|
267
|
|
|
|
(39,902
|
)
|
|
|
53,204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) attributable to Forest City Realty Trust, Inc.
|
|
$
|
(158,402
|
)
|
|
$
|
496,042
|
|
|
$
|
(7,595
|
)
|
|
$
|
(5,307
|
)
|
|
$
|
36,425
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings per Common Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations attributable to Forest City Realty Trust, Inc.
|
|
$
|
(0.80
|
)
|
|
$
|
2.10
|
|
|
$
|
(0.04
|
)
|
|
$
|
0.17
|
|
|
$
|
(0.28
|
)
|
Earnings (loss) from discontinued operations attributable to Forest City Realty Trust,
Inc.
|
|
|
0.19
|
|
|
|
(0.13
|
)
|
|
|
|
|
|
|
(0.20
|
)
|
|
|
0.30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) attributable to Forest City Realty Trust, Inc.
|
|
$
|
(0.61
|
)
|
|
$
|
1.97
|
|
|
$
|
(0.04
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
0.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Diluted Shares Outstanding
|
|
|
258,509,970
|
|
|
|
250,848,286
|
|
|
|
198,480,783
|
|
|
|
194,031,292
|
|
|
|
172,621,723
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividend declared and paid per share-Class A and B Common Stock
|
|
$
|
0.24
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Special, one-time distribution declared and paid per share-Class A and B Common
Stock
|
|
$
|
0.10
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
|
December 31,
2014
|
|
|
December 31,
2013
|
|
|
January 31,
2013
|
|
|
|
(in thousands)
|
|
Financial Position:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated assets
|
|
$
|
8,228,597
|
|
|
$
|
9,923,150
|
|
|
$
|
8,731,352
|
|
|
$
|
8,874,117
|
|
|
$
|
10,517,729
|
|
Real estate, at cost
(1)
|
|
|
7,915,565
|
|
|
|
9,613,342
|
|
|
|
8,328,987
|
|
|
|
8,475,571
|
|
|
|
10,026,010
|
|
Long-term debt, net, primarily nonrecourse mortgages and notes payable, net
(1)
|
|
|
3,566,282
|
|
|
|
4,662,342
|
|
|
|
4,854,613
|
|
|
|
5,201,598
|
|
|
|
6,678,926
|
|
(1)
|
Includes applicable balances associated with assets and liabilities held for sale, land held for divestiture and development project held for sale.
|
25
S
UMMARY
U
NAUDITED
P
RO
F
ORMA
C
ONDENSED
F
INANCIAL
D
ATA
The following table presents selected financial data from the unaudited pro forma condensed consolidated balance sheet
as of December 31, 2016 included in this proxy statement/prospectus. The unaudited pro forma condensed consolidated balance sheet is presented as if the Reclassification had occurred on December 31, 2016. Certain professional and
consulting fees incurred directly related to the Reclassification were recorded as a reduction to additional paid-in capital, in accordance with applicable accounting requirements when raising permanent equity. This proxy statement/prospectus does
not present an unaudited pro forma condensed consolidated statement of operations for the year ended December 31, 2016, because, except for the adjustment to the basic and diluted share amounts presented in the section entitled
Comparative Historical and Pro Forma Per Share Data
, there are no adjustments required to reflect events of a continuing nature or to eliminate one-time costs from the results of this period.
The unaudited pro forma condensed financial data is based on the estimates and assumptions set forth in the notes to
such data, which are preliminary and have been made solely for the purposes of developing such pro forma information. The unaudited pro forma condensed financial data is not necessarily indicative of the financial position that would have occurred
had the Reclassification been completed as of the date indicated, nor are they necessarily indicative of any future financial position. This information should be read in conjunction with the unaudited pro forma condensed consolidated balance sheet
and related notes and the historical financial statements and related notes of the Company included in or incorporated by reference into this proxy statement/prospectus. All assumptions used in the following pro forma consolidated financial data are
described under
Unaudited Pro Forma Condensed Consolidated Balance Sheet
.
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
As of
|
|
|
|
December 31, 2016
|
|
|
|
(in thousands)
|
|
Condensed Consolidated Balance Sheet
|
|
|
|
|
Real estate, net
|
|
$
|
6,473,559
|
|
Cash and equivalents
|
|
|
174,619
|
|
Restricted cash
|
|
|
149,300
|
|
Notes and accounts receivable, net
|
|
|
591,726
|
|
Investments in and advances to unconsolidated entities
|
|
|
564,779
|
|
Other assets
|
|
|
274,614
|
|
|
|
|
|
|
Total Assets
|
|
$
|
8,228,597
|
|
|
|
|
|
|
Mortgage debt and notes payable, nonrecourse
|
|
$
|
3,120,833
|
|
Revolving credit facility
|
|
|
|
|
Term loan facility, net
|
|
|
333,268
|
|
Convertible senior debt, net
|
|
|
112,181
|
|
Accounts payable, accrued expenses and other liabilities
|
|
|
735,424
|
|
Cash distributions and losses in excess of investments in unconsolidated entities
|
|
|
150,592
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
4,452,298
|
|
Total shareholders equity
|
|
|
3,275,138
|
|
Noncontrolling interest
|
|
|
501,161
|
|
|
|
|
|
|
Total Equity
|
|
|
3,776,299
|
|
|
|
|
|
|
Total Liabilities and Equity
|
|
$
|
8,228,597
|
|
|
|
|
|
|
26
C
OMPARATIVE
H
ISTORICAL
AND
P
RO
F
ORMA
P
ER
S
HARE
D
ATA
The following tables present selected historical per share data for the Company and selected unaudited pro forma per share
data after giving effect to the Reclassification.
This information should be read in conjunction with the selected
historical financial information included in or incorporated by reference into this proxy statement/prospectus and the historical financial statements and related notes that are included in or incorporated by reference into this proxy
statement/prospectus. See the section entitled
Where You Can Find More Information
beginning on page 199 of this proxy statement/prospectus.
The unaudited pro forma financial data are presented for informational purposes only, and have been prepared on the basis of
the Reclassification being in effect during the period presented below. The unaudited pro forma financial data are not necessarily indicative of the financial position or operating results that would have occurred had the Reclassification been
effective during the period presented below, nor are they necessarily indicative of any future financial position or operating results.
Historical
Data Per Share
The historical book value per share data presented below is computed by dividing total
stockholders equity of $3,283,838,000 on December 31, 2016 by the number of shares outstanding on that date.
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|
|
|
|
|
|
As of or for the year
ended December 31,
2016
|
|
Loss from continuing operations attributable to common stockholders per share:
|
|
|
|
|
Basic
|
|
$
|
(0.80
|
)
|
Diluted
|
|
$
|
(0.80
|
)
|
Book value per share
|
|
$
|
12.69
|
|
Cash dividends per share
|
|
$
|
0.34
|
|
Unaudited Pro Forma Data Per Share
The pro forma book value per share as of December 31, 2016 is computed by dividing pro forma stockholders equity of
$3,275,138,000 by the pro forma number of shares assumed to be outstanding on that date.
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|
|
|
|
|
|
Pro Forma
|
|
|
|
As of or for the year
ended December 31,
2016
|
|
Loss from continuing operations attributable to common stockholders per share:
|
|
|
|
|
Basic
|
|
$
|
(0.78
|
)
|
Diluted
|
|
$
|
(0.78
|
)
|
Book value per share
|
|
$
|
12.38
|
|
Cash dividends per share
|
|
$
|
0.34
|
|
27
H
ISTORICAL
M
ARKET
P
RICES
AND
D
IVIDEND
D
ATA
Shares of Class A Common
Stock and Class B Common Stock are currently listed and traded on the NYSE under the symbols FCE.A and FCE.B, respectively. The following table sets forth the high and low sales prices of Class A Common Stock and Class B
Common Stock as reported by the NYSE and the quarterly cash dividends declared per share in respect of Class A Common Stock and Class B Common Stock for the calendar quarters indicated.
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|
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|
|
|
|
|
|
|
|
Class A Common Stock
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|
|
Class B Common Stock
|
|
|
|
High
|
|
|
Low
|
|
|
Dividend
|
|
|
High
|
|
|
Low
|
|
|
Dividend
|
|
Fiscal Year Ending December 31,
2017
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|
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|
|
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|
|
|
|
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First Quarter
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|
$
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23.42
|
|
|
$
|
20.25
|
|
|
$
|
0.09
|
|
|
$
|
30.32
|
|
|
$
|
26.25
|
|
|
$
|
0.09
|
|
Fiscal
Year Ended December 31, 2016
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|
|
|
|
|
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|
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|
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|
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|
|
|
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Fourth
Quarter
|
|
$
|
23.08
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|
|
$
|
17.79
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|
|
$
|
0.06
|
|
|
$
|
28.41
|
|
|
$
|
18.00
|
|
|
$
|
0.06
|
|
Third
Quarter
|
|
$
|
24.22
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|
|
$
|
22.24
|
|
|
$
|
0.06
|
|
|
$
|
24.84
|
|
|
$
|
22.29
|
|
|
$
|
0.06
|
|
Second
Quarter
|
|
$
|
23.56
|
|
|
$
|
20.50
|
|
|
$
|
0.06
|
|
|
$
|
23.20
|
|
|
$
|
20.60
|
|
|
$
|
0.06
|
|
First
Quarter
|
|
$
|
22.22
|
|
|
$
|
16.44
|
|
|
$
|
0.16
|
(1)
|
|
$
|
22.50
|
|
|
$
|
16.59
|
|
|
$
|
0.16
|
(1)
|
Fiscal
Year Ended December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fourth
Quarter
|
|
$
|
23.73
|
|
|
$
|
20.12
|
|
|
|
|
|
|
$
|
23.82
|
|
|
$
|
19.97
|
|
|
|
|
|
Third
Quarter
|
|
$
|
23.96
|
|
|
$
|
19.34
|
|
|
|
|
|
|
$
|
23.83
|
|
|
$
|
19.76
|
|
|
|
|
|
Second
Quarter
|
|
$
|
25.88
|
|
|
$
|
22.07
|
|
|
|
|
|
|
$
|
25.83
|
|
|
$
|
22.50
|
|
|
|
|
|
First
Quarter
|
|
$
|
25.90
|
|
|
$
|
20.68
|
|
|
|
|
|
|
$
|
25.81
|
|
|
$
|
20.74
|
|
|
|
|
|
Fiscal
Year Ended December 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fourth
Quarter
|
|
$
|
21.90
|
|
|
$
|
19.03
|
|
|
|
|
|
|
$
|
21.74
|
|
|
$
|
19.20
|
|
|
|
|
|
Third
Quarter
|
|
$
|
21.54
|
|
|
$
|
18.90
|
|
|
|
|
|
|
$
|
21.30
|
|
|
$
|
19.03
|
|
|
|
|
|
Second
Quarter
|
|
$
|
20.23
|
|
|
$
|
18.29
|
|
|
|
|
|
|
$
|
20.05
|
|
|
$
|
18.31
|
|
|
|
|
|
First Quarter
|
|
$
|
19.64
|
|
|
$
|
17.53
|
|
|
|
|
|
|
$
|
19.65
|
|
|
$
|
17.65
|
|
|
|
|
|
(1)
|
Includes a special, one-time $0.10/share distribution declared and paid per share of Common Stock.
|
The following table presents the closing sales prices of shares of Class A Common Stock and Class
B Common Stock, each as reported by the NYSE, on (i) December 5, 2016, the last trading day for which market information is available prior to the public announcement of the proposed Reclassification, and (ii) April 28, 2017, the last
practicable trading day prior to the date of this proxy statement/prospectus.
|
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|
|
|
|
|
|
|
|
Class A Common
Stock
|
|
|
Class B Common
Stock
|
|
December 5, 2016
|
|
$
|
18.75
|
|
|
$
|
19.25
|
|
April 28, 2017
|
|
$
|
22.60
|
|
|
$
|
29.39
|
|
28
S
PECIAL
N
OTE
R
EGARDING
F
ORWARD
-L
OOKING
S
TATEMENTS
This proxy statement/prospectus and the
documents incorporated herein by reference contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements relate to future, not past, events and often
address the Companys expected future actions and expected future business and financial performance. Forward-looking statements may be identified by the use of words such as potential, expect, intend,
plan, may, subject to, continues, if and similar words and phrases. These forward-looking statements are not guarantees of future events and involve risks, uncertainties and assumptions
that are difficult to predict. All statements regarding the Reclassification and expected associated costs and benefits, the likelihood of satisfaction of certain conditions to the completion of the Reclassification, whether and when the
Reclassification will be completed and expected future financial performance are forward looking. Discussions of strategies, plans or intentions often contain forward-looking statements. Actual results, developments and business decisions may differ
materially from those expressed or implied by such forward-looking statements. Important factors, among others, that could cause the Companys actual results and future actions to differ materially from those described in forward-looking
statements include, but are not limited to: failure to receive stockholder approval of the Reclassification Proposal, any other delays with respect to, or the failure to complete, the Reclassification, the ability to carry out future transactions
and strategic investments, as well as the acquisition related costs, unanticipated difficulties realizing expected benefits expected when entering into a transaction, the Companys ability to qualify or to remain qualified as a REIT, its
ability to satisfy REIT distribution requirements, the impact of issuing equity, debt or both, and selling assets to satisfy its future distributions required as a REIT or to fund capital expenditures, future growth and expansion initiatives, the
impact of the amount and timing of any future distributions, the impact from complying with REIT qualification requirements limiting its flexibility or causing it to forego otherwise attractive opportunities beyond rental real estate operations, the
impact of complying with the REIT requirements related to hedging, its lack of experience operating as a REIT, legislative, administrative, regulatory or other actions affecting REITs, including positions taken by the Internal Revenue Service, the
possibility that the Companys Board of Directors will unilaterally revoke its REIT election, the possibility that the anticipated benefits of qualifying as a REIT will not be realized, or will not be realized within the expected time period,
the impact of current lending and capital market conditions on its liquidity, its ability to finance or refinance projects or repay its debt, the impact of the slow economic recovery on the ownership, development and management of its commercial
real estate portfolio, general real estate investment and development risks, litigation risks, including risks with respect to the outcome of any legal proceedings that have or may be instituted against the Company or others relating to the
Reclassification, vacancies in its properties, risks associated with developing and managing properties in partnership with others, competition, its ability to renew leases or re-lease spaces as leases expire, illiquidity of real estate investments,
its ability to identify and transact on chosen strategic alternatives for a portion of its retail portfolio, bankruptcy or defaults of tenants, anchor store consolidations or closings, the impact of terrorist acts and other armed conflicts, its
substantial debt leverage and the ability to obtain and service debt, the impact of restrictions imposed by the Companys revolving credit facility, term loan facility and senior debt, exposure to hedging agreements, the level and volatility of
interest rates, the continued availability of tax-exempt government financing, its ability to receive payment on the notes receivable issued by Onexim in connection with their purchase of our interests in the Barclays Center and the Nets, the impact
of credit rating downgrades, effects of uninsured or underinsured losses, effects of a downgrade or failure of its insurance carriers, environmental liabilities, competing interests of its directors and executive officers, the ability to recruit and
retain key personnel, risks associated with the sale of tax credits, downturns in the housing market, the ability to maintain effective internal controls, compliance with governmental regulations, increased legislative and regulatory scrutiny of the
financial services industry, changes in federal, state or local tax laws and international trade agreements, volatility in the market price of its publicly traded securities, inflation risks, cybersecurity risks, cyber incidents, shareholder
activism efforts, conflicts of interest, risks related to its organizational structure including operating through its Operating Partnership and its umbrella partnership REIT structure. These risks and uncertainties, as well as others, are discussed
in more detail in the Companys documents filed with the SEC, including the Companys Annual Report on Form 10-K for the year ended December 31, 2016, quarterly reports on Form 10-Q and Current Reports on Form 8-K. The Company
expressly disclaims any obligation to update any forward-looking statement contained in this document to reflect events or circumstances that may arise after the date hereof, all of which are expressly qualified by the foregoing, other than as
required by applicable law.
29
R
ISK
F
ACTORS
In addition to the other information included in and incorporated by reference into this proxy statement/prospectus,
including the matters addressed in the section entitled
Special Note Regarding Forward-Looking Statements
beginning on page 29, you should read and carefully consider the following risks before deciding how to vote on the
proposals to be considered and voted upon at the Annual Meeting. In addition, you should read and consider the risks associated with the businesses of the Company found in the Companys Annual Report on
Form 10-K
for the fiscal year ended December 31, 2016, as updated by any subsequent Quarterly Reports on
Form 10-Q,
all of which are filed with the SEC
and incorporated by reference into this proxy statement/prospectus. See the section entitled
Where You Can Find More Information
beginning on page 199.
The Reclassification may not benefit the Company or stockholders.
The Reclassification may not result in the recognition of stockholder value or improve the liquidity and marketability of the
Companys equity. Furthermore, market volatility, as well as general economic, market or political conditions, could cause a reduction in the market price and liquidity of shares of Class A Common Stock following the Reclassification.
The Company will incur significant costs in connection with the Reclassification, which may be in excess of those anticipated by the
Company.
The Company has incurred and will incur substantial non-recurring costs and expenses in connection with
the negotiation and completion of the proposed Reclassification. These costs and expenses include, among others, the costs and expenses of printing and mailing this proxy statement/prospectus, all filing and other fees paid to the SEC in connection
with the Reclassification, and professional and consulting fees incurred related to the Reclassification. These costs and expenses, as well as other unanticipated costs and expenses, could have an adverse effect on the financial condition and
operating results of the Company following the proposed Reclassification.
RMS, the stockholder that has the most significant voting
power in the Company, has interests in the Reclassification that are different from, or in addition to, the interests of other stockholders.
As of the Record Date, RMS beneficially owned no Class A shares and 12,885,157 Class B shares, which represents
approximately 30.01% voting interest in the Company (based on the number of shares of Common Stock issued and outstanding as of the Record Date). If the Reclassification is completed, RMS will receive 16,879,556 Class A shares, which will
represent approximately 6.34% voting interest in the Company (based on RMSs beneficial ownership as of, and the number of shares of Common Stock issued and outstanding as of, the Record Date).
RMS is also party to the Reclassification Agreement. Pursuant to the Reclassification Agreement, on the terms and subject to
the conditions set forth therein, the Company will (i) include in the slate of nominees recommended by the Board each of Brian J. Ratner, James A. Ratner, Ronald A. Ratner and Deborah Ratner Salzberg (or a replacement identified by RMS as
described in the Reclassification Agreement) to stand for election as directors at the Companys 2017, 2018 and 2019 annual stockholders meetings. In addition, so long as the Ratner Family Members, in the aggregate, continue to beneficially own
18,153,421 Class A shares (adjusted for any stock dividend, stock split, reverse stock split or similar transaction) (or any successor security) following completion of the Reclassification, on the terms and subject to the conditions set forth
in the Reclassification Agreement, the Company will also include in the slate of nominees recommended by the Board two individuals designated by RMS (or, if RMS is unable to make such designation 15 business days prior to the first anniversary
of mailing of the Companys proxy statement with respect to the 2019 annual stockholder meeting, two Ratner Family Members as designated by the Board) who are reasonably acceptable to the Companys Corporate Governance and Nominating
Committee to stand for election as directors at the 2020 and 2021 annual stockholder meetings.
30
As a result of its significant voting power and its rights under the
Reclassification Agreement, RMS has interests in the Reclassification that are different from, or in addition to, the interests of certain other stockholders. The members of the Special Committee were aware of and considered these interests, among
other matters, in evaluating and negotiating the Reclassification Agreement and in determining to unanimously recommend that the Board determine that the Reclassification is advisable and in the best interests of the Company. Further, the members of
the Board were aware of and considered these interests, among other matters, when the Board authorized and approved the Reclassification and declared the Reclassification Amendment advisable, fair and in the best interests of the Company.
Certain officers and directors of the Company have interests in the Reclassification that are different from, or in addition to, the
interests of other stockholders.
Certain members of the Companys management and the Board have
interests in the Reclassification that are different from, or in addition to, the interests of holders of Class A shares and/or Class B shares. These interests include, among others, the Companys agreement pursuant to the Reclassification
Agreement to include in the slate of nominees recommended by the Board current directors Brian J. Ratner, James A. Ratner, Ronald A. Ratner and Deborah Ratner Salzberg (or a replacement identified by RMS as described in the Reclassification
Agreement) to stand for election as directors at the Companys 2017, 2018 and 2019 annual stockholders meetings. See the section of this proxy statement/prospectus entitled
The ReclassificationInterests of Certain Persons in the
Reclassification.
The members of the Special Committee were aware of and considered these interests,
among other matters, in evaluating and negotiating the Reclassification Agreement and in determining to unanimously recommend that the Board determine that the Reclassification Amendment is advisable and in the best interests of the Company.
Further, the members of the Board were aware of and considered these interests, among other matters, when the Board authorized and approved the Reclassification and declared the Reclassification Amendment advisable, fair and in the best interests of
the Company.
Failure to consummate the Reclassification could adversely affect the price of the Class A Common Stock and/or
the Class B Common Stock.
Under the terms of the Reclassification Agreement, the Company and RMSs
obligation to consummate the Reclassification is subject to customary conditions. The Company cannot be certain that these conditions will be satisfied. If the Reclassification Agreement is terminated for failure to satisfy a condition precedent or
for any other reason, the Company and/or RMS may determine to not pursue the Reclassification.
If the Reclassification is
not completed, the Companys businesses and financial results may be adversely affected as follows:
|
|
|
the Company may experience negative reactions from the financial markets, including negative impacts on the
market price of shares of Class A Common Stock and/or Class B Common Stock; and
|
|
|
|
the Company will have expended substantial time and resources that could otherwise have been spent on the
Companys existing businesses and the pursuit of other opportunities that could have been beneficial to the Company.
|
Under certain circumstances, the Company may be required to reimburse certain of RMSs expenses even if the Reclassification
Agreement is terminated.
Pursuant to the Reimbursement Agreement, on the terms and subject to the conditions set
forth therein, the Company agreed to reimburse RMS (together with its officers, directors, employees, beneficiaries, trustees, representatives and agents) and each Member of the Ratner Family (as defined in the Reimbursement Agreement, which
includes members of the Companys current Board and certain executive officers) for certain costs, fees, expenses, losses, damages and liabilities. Specifically, the Company agreed to reimburse RMS (together with its
31
officers, directors, employees, beneficiaries, trustees, representatives and agents) for reasonable and documented fees and out-of-pocket expenses of RMSs financial, legal and public
relations advisors incurred in evaluating and negotiating the Reclassification. In addition, the Company agreed to reimburse each Member of the Ratner Family (as defined in the Reimbursement Agreement, which includes members of the Companys
current Board and certain executive officers) and RMS (together with its officers, directors, employees, beneficiaries, trustees, representatives and agents) (collectively, the
Reimbursed Persons
) for (i) reasonable costs and
expenses incurred by each Reimbursed Person in connection with any Proceeding (as defined in the Reimbursement Agreement) to which such Reimbursed Person is a party or otherwise involved in and (ii) any losses, damages or liabilities actually
and reasonably suffered or incurred in any such Proceeding by a Reimbursed Person. These reimbursement obligations are not subject to a cap and may be potentially significant for the Company. Further, even if the Reclassification Agreement were
terminated, the Companys obligations under the Reimbursement Agreement would survive. As of December 31, 2016, the Company incurred an aggregate amount of $1,541,500 in reimbursements to the Reimbursed Persons.
The market price of shares of Class A Common stock will continue to fluctuate after the Reclassification.
If the Reclassification is completed, holders of Class B Common Stock will become holders of shares of Class A Common
Stock. The market price of shares of Class A Common Stock may fluctuate significantly following completion of the Reclassification and holders of Class B Common Stock could lose some or all of the value of their investment in Class A
Common Stock. In addition, the stock market has experienced significant price and volume fluctuations in recent times, which, if they continue to occur, could have a significant adverse effect on the market for, or liquidity of, the Class A
Common Stock, regardless of the Companys actual operating performance.
The market price of Class A shares may decline in
the future as a result of the sale of Class A shares held by former Class B stockholders or current Class A stockholders.
Based on the number of Class B shares issued and outstanding as of the Record Date, the Company expects to issue up to
approximately 24,612,494 Class A shares to Class B stockholders in the Reclassification. Following their receipt of Class A shares in the Reclassification, former Class B stockholders may seek to sell the Class A shares delivered to
them. Other Class A stockholders may also seek to sell Class A shares held by them following, or in anticipation of, completion of the Reclassification. These sales (or the perception that these sales may occur), coupled with the increase
in the outstanding number of Class A shares, may affect the market for, and the market price of, Class A Common Stock in an adverse manner.
Lawsuits have been filed against the Company, certain current and former members of the Board, RMS and certain Ratner Family
Members, and an adverse determination in such lawsuits may prevent the Reclassification from becoming effective or from becoming effective within the expected timeframe
.
The Company, certain current and former members of the Board, RMS and certain Ratner Family Members are named as defendants in
a putative class action and derivative lawsuit brought by purported Class A stockholders on behalf of a putative class of Class A stockholders as well as on behalf of the Company challenging the proposed Reclassification. The Plaintiffs
seek, among other things, to enjoin the completion of the Reclassification on the terms described in this proxy statement/prospectus and other monetary and equitable relief. The outcome of such litigation is uncertain. If a dismissal is not granted
or a settlement is not reached, this litigation could prevent or delay completion of the Reclassification and result in substantial costs to the Company. Other persons or entities may file additional lawsuits against the Company, members of the
Board, members of the Companys management, RMS, or members of the Ratner, Miller and Shafran families in connection with the Reclassification.
For more detailed information regarding the lawsuit noted above, see the section of this proxy statement/prospectus entitled
The ReclassificationLitigation Related to the Reclassification
.
32
T
HE
A
NNUAL
M
EETING
Place, Date and Time
The Annual Meeting is scheduled to be held in the 6th floor Riverview Room of the Ritz-Carlton Hotel, Tower City Center, 1515
West Third Street, Cleveland, Ohio 44113, on June 9, 2017 at 2:00 p.m., Eastern Time.
Purpose of the Annual Meeting
The Annual Meeting is being held for the purpose of considering and voting upon:
|
|
|
the election of 13 directors, each to serve until the next annual stockholders meeting and until a
successor is duly elected and qualifies. The holders of Class A shares will be entitled as a class to elect four Class A directors and the holders of Class B shares will be entitled as a class to elect nine Class B directors;
|
|
|
|
the approval (on an advisory, non-binding basis) of the compensation of the Companys Named Executive
Officers, as defined in this proxy statement/prospectus;
|
|
|
|
the vote (on an advisory, non-binding basis) on the frequency of which the Companys stockholders will
have an advisory, non-binding vote on the compensation of the Companys Named Executive Officers;
|
|
|
|
the ratification of the appointment of PricewaterhouseCoopers LLP as independent registered public accounting
firm for the Company for the year ending December 31, 2017;
|
|
|
|
the Reclassification Proposal;
|
|
|
|
the Adjournment Proposal; and
|
|
|
|
such other business as may properly come before the Annual Meeting or any postponement or adjournment thereof.
|
Recommendations of the Board
With regard to the election of directors, the Board recommends that:
|
|
|
Holders of Class A Common Stock vote
FOR
the Class A director nominees
named in this proxy statement/prospectus, and;
|
|
|
|
Holders of Class B Common Stock vote
FOR
the Class B director nominees named in this
proxy statement/prospectus.
|
The Board also recommends that you vote
FO
R
each of
the following proposals:
|
|
|
FOR
the approval of the compensation of the Companys Named Executive Officers,
as described in this proxy statement/prospectus;
|
|
|
|
Every One Yea
r
as the preferred frequency for advisory votes on the
compensation of the Companys Named Executive Officers;
|
|
|
|
FOR
the ratification of the appointment of PricewaterhouseCoopers LLP as independent
registered public accounting firm for the Company for the year ending December 31, 2017;
|
|
|
|
FOR
the Reclassification Proposal; and
|
|
|
|
FOR
the Adjournment Proposal.
|
Record Date; Stock Entitled to Vote
Only holders of record of Class A shares and/or Class B shares at the close of business on April 20, 2017 are entitled to
notice of, and to vote at, the Annual Meeting and at any postponement or adjournment thereof.
33
Quorum
The presence, either in person or by proxy, of stockholders entitled to cast a majority of all the votes entitled to be cast at
the Annual Meeting on any matter is necessary to constitute a quorum at the Annual Meeting. Shares of Common Stock represented by a properly completed proxy will be treated as present at the Annual Meeting for purposes of determining a quorum.
Broker non-votes, if any, and abstentions will be counted for purposes of determining whether a quorum is present. If a share of Common Stock is present at the Annual Meeting, it is deemed present for quorum purposes throughout the meeting.
Required Vote; Abstentions and Broker Non-Votes
The vote required to approve each proposal is as follows:
|
|
|
Proposal 1 Election of Directors
:
For each class of directors, the nominees
receiving the greatest number of votes cast at the Annual Meeting will be elected. A proxy card marked
Withhold All
or
For All Except
with respect to the election of one or more directors will not
be voted with respect to the director or directors indicated. Abstentions and broker non-votes, if any, will not be counted as votes cast for purposes of the election of directors and will have no effect on the result of the vote.
|
|
|
|
Proposal 2 Non-Binding Advisory Vote to Approve Executive Compensation
:
The
affirmative vote of a majority of all of the votes cast at the Annual Meeting is required for approval of this proposal. Abstentions and broker non-votes, if any, will not be counted as votes cast and, as a result, will have no effect on the result
of the vote on this proposal.
|
|
|
|
Proposal 3 Non-Binding Advisory Vote on the Frequency of the Approval of Executive
Compensation
:
The choice among every one, two or three years as the frequency of which the Companys stockholders will vote on the compensation of the Named Executive Officers which receives a majority of all of the votes cast at
the Annual Meeting will be the frequency for the advisory vote on executive compensation that has been recommended by stockholders. In the event that no option receives a majority of the votes cast, we will consider the option that receives the
highest number of votes as the preferred choice of the stockholders. Abstentions and broker non-votes, if any, will not be counted as votes cast and, as a result, will have no effect on the result of the vote on this proposal.
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Proposal 4 Ratification of Appointment of PricewaterhouseCoopers LLP
:
The
affirmative vote of a majority of all of the votes cast at the Annual Meeting is required for approval of this proposal. Abstentions and broker non-votes, if any, will not be counted as votes cast and, as a result, will have no effect on the result
of the vote for this proposal.
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Proposal 5 Reclassification Proposal
:
The affirmative vote of (a) the holders
of a majority of the issued and outstanding shares of Class A Common Stock, voting as a separate class, and (b) the holders of a majority of the issued and outstanding shares of Class B Common Stock, voting as a separate class, is required
for approval of this proposal. Abstentions and broker non-votes, if any, will have the effect of votes
AGAINST
this proposal.
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Proposal 6 Adjournment Proposal
:
The affirmative vote of a majority of all of the
votes cast at the Annual Meeting is required for approval of this proposal. Abstentions and broker non-votes, if any, will not be counted as votes cast and, as a result, will have no effect on the result of the vote on this proposal.
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Each Class A stockholder is entitled to one vote per Class A share and each Class B
stockholder is entitled to ten votes per Class B share.
Voting by the Companys Directors and Executive Officers
As of the Record Date, the directors and executive officers of the Company and their affiliates as a
group were entitled to vote 5,210,105 shares of Class A Common Stock and 16,369,179 shares of Class B Common
34
Stock, representing 2.16% of the issued and outstanding Class A shares and 87.12% of the issued and
outstanding Class B shares and 39.34% of the total vote on matters
being voted on by holders of Class A shares and Class B shares voting together. The Company currently expects that its directors and executive officers will vote their shares
FOR
the Reclassification Proposal.
As described in the section entitled
Security Ownership of Certain Beneficial Owners and
Management
, Ronald A. Ratner, Brian J. Ratner and Deborah Ratner Salzberg, each a current director of the Company, have beneficial ownership and shared voting power over shares of Common Stock as a result of their status as general
partners of RMS. On the terms and subject to the conditions set forth in the Reclassification Agreement, RMS agreed to vote all shares of Common Stock beneficially owned by RMS, representing none of the total outstanding Class A shares as of
the Record Date and 68.58% of the total outstanding Class B shares as of the Record Date, in support of the Reclassification Proposal at the Annual Meeting.
How to Vote
If you are a stockholder of record at the close of business on the Record Date, you may vote in person at the Annual Meeting or
authorize a proxy to vote your shares, in which case you may:
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Submit a proxy by Mail: sign, date and mail in your WHITE proxy card using the accompanying envelope;
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Submit a proxy by Telephone: submit a proxy by calling 1-800-690-6903; or
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Submit a proxy via the internet: connect to the internet site www.proxyvote.com and follow the directions
provided.
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The WHITE proxy card also confers discretionary authority on the individuals appointed by the
Board and named on the WHITE proxy card to vote the shares represented by the WHITE proxy card on any other matter that is properly presented for consideration at the Annual Meeting and any postponement or adjournment thereof.
Detailed instructions for using the telephone and internet options for voting by proxy are set forth on the WHITE proxy card
accompanying this proxy statement. Because the internet and telephone services authenticate stockholders by use of a control number, you must have the WHITE proxy card available in order to use these services to authorize a proxy to vote. Proxies
submitted by telephone or internet must be received by 11:59 p.m., Eastern Time, on June 8, 2017. If you choose to authorize a proxy to vote by telephone or internet, you do not need to return the WHITE proxy card.
If you submit a properly executed WHITE proxy card but do not specify how you want to vote, your shares will be
voted
FOR
the election of each of the Companys nominees for director;
FOR
advisory approval of the compensation of the Companys Named Executive Officers; for the option of
Every One Year
as the preferred frequency for advisory votes on the compensation of the Companys Named Executive Officers;
FOR
the ratification of the appointment of PricewaterhouseCoopers
LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2017;
FOR
the Reclassification Proposal and
FOR
the Adjournment Proposal. The proxy holders
will vote all proxies in their discretion on any other matters that may properly come before the Annual Meeting.
If your shares of Common Stock are held in street name by a broker, bank, trust or other nominee, then you are not
the stockholder of record. In that case, to vote in person at the Annual Meeting, you must obtain a legal proxy from your broker, bank, trust or other nominee and present it at the Annual Meeting.
No Appraisal Rights
No dissenters or appraisal rights, or rights of objecting stockholders under Title 3, Subtitle 2 of the MGCL will be
available to holders of Class A shares or Class B shares with respect to the Reclassification Amendment or the other transactions contemplated by the Reclassification.
35
Results of the Annual Meeting
The preliminary voting results will be announced at the Annual Meeting. In addition, within four business days following the
Annual Meeting, the Company will file the final voting results with the SEC on a Current Report on Form 8-K, provided that the final voting results have been certified within that four business day period. If the final voting results have not been
certified within that four business day period, the Company will report the preliminary voting results on a Current Report on Form 8-K at that time and will file an amendment to the Current Report on Form 8-K to report the final voting results
within four business days of the date that the final results are certified.
STOCKHOLDERS SHOULD CAREFULLY READ THIS PROXY
STATEMENT/PROSPECTUS IN ITS ENTIRETY FOR MORE DETAILED INFORMATION CONCERNING THE MATTERS TO BE CONSIDERED AND VOTED ON AT THE ANNUAL MEETING.
36
T
HE
R
ECLASSIFICATION
The descriptions of the material terms of the Reclassification and the Reclassification Agreement set forth below are not
intended to be complete descriptions thereof. These descriptions are qualified by reference to (i) the proposed amended and restated charter of the Company attached to this proxy statement/prospectus as Annex A, and (ii) the
Reclassification Agreement attached to this proxy statement/prospectus as Annex B and incorporated by reference herein. The Company urges all stockholders to read these documents carefully and in their entirety.
Information about the Company
Forest City Realty Trust, Inc.
Terminal Tower, 50 Public
Square
Suite 1100
Cleveland, Ohio 44113
(216) 621-6060
The
Company, a Maryland corporation, principally engages in the ownership, development, management and acquisition of office, retail and residential real estate and land throughout the United States. The Company had approximately $8.2 billion of
consolidated assets in 20 states and the District of Columbia at December 31, 2016. The Companys core markets include Boston, Chicago, Dallas, Denver, Los Angeles, Philadelphia, and the greater metropolitan areas of New York City, San
Francisco and Washington, D.C. The Companys headquarters are located at Terminal Tower, 50 Public Square, Suite 1100, Cleveland, Ohio 44113 and the telephone number at this location is (216) 621-6060. The Companys Common Stock
trades on the NYSE under the symbols FCE.A and FCE.B. For additional information about the Company and its businesses, see the section of this proxy statement/prospectus entitled
Where You Can Find More
Information
.
Structure of the Reclassification
The Reclassification will be effectuated through an amendment and restatement of the Companys charter, substantially in
the form of Articles of Amendment and Restatement attached to this proxy statement/prospectus as Annex A. If the Reclassification is completed, upon the acceptance for record of the Articles of Amendment and Restatement by the State Department of
Assessments and Taxation of Maryland, the Companys charter will be amended and restated such that, at the Effective Time, each Class B share issued and outstanding immediately prior to the Effective Time will be reclassified and exchanged into
1.31 Class A shares. Immediately following the Effective Time, the Class A Common Stock will be the sole class of the Companys authorized common stock.
No fractional shares will be issued in the Reclassification. All fractional shares of Class A Common Stock that a holder
of Class B Common Stock would otherwise be entitled to receive as a result of the Reclassification will be aggregated and, if a fractional share results from such aggregation, such holder will be entitled to receive, in lieu thereof, an amount in
cash without interest determined as follows: the Exchange Agent will (i) aggregate such fractional interests, (ii) sell the shares resulting therefrom and (iii) allocate and distribute the net proceeds received from the sale (after
deducting commissions and other expenses arising from such sale), without interest, among the holders of the fractional interests as their respective interests appear.
Required Vote
The
Reclassification Proposal, which would eliminate the Companys existing dual-class stock structure, includes a charter amendment.
Article VIII of the Companys charter expressly reserves the right to amend the charter in any manner authorized by law,
including any amendment altering the terms or contract rights, as expressly set forth in the charter, of any shares of outstanding stock, so long as the requisite stockholder approval is obtained. The terms of the Companys charter provide that
the Company may not, without the affirmative vote of the holders of a majority of the outstanding shares of an affected class of stock, voting as a separate class to the exclusion of any other unaffected class of stock,
37
amend the charter if the amendment would adversely alter the rights, preferences, privileges or restrictions of such class relative to the shares of any other class. The proposed amendment of the
Companys charter contemplated by the Reclassification Proposal will adversely alter the relative rights, preferences, privileges or restrictions applicable to the Class A shares and to the Class B shares. Among other things, the proposed
amendment will eliminate the Equal Treatment Provision, which provides protections to both holders of Class A shares and Class B shares. The proposed amendment also will eliminate various other rights that are specific to either the Class A shares
or the Class B shares, including the right of the holders of Class A shares to elect 25% of the members of the Companys Board of Directors (rounded up to the nearest whole number of directors); the right of the holders of Class B shares to
elect the balance of the members of the Companys Board of Directors; and the right of the holders of Class B shares to ten votes per share. Because of these results, the proposed amendment of the Companys charter must be approved
separately by the holders of each of the Class A shares and Class B shares.
Background of the Reclassification
As part of its ongoing evaluation and review of the Company and its business, the Board has periodically reviewed the
Companys equity capital structure and considered whether maintaining the dual-class structure of the Companys common equity remained in the best interests of the Company and its stockholders. As part of these reviews, the Board has
discussed and solicited the input of its stockholders with respect to the Companys dual-class stock structure. These discussions, and the input received, focused on the merits and considerations of maintaining or eliminating the Companys
dual-class stock structure, including whether the Companys dual-class stock structure negatively impacted stockholder value as compared to the net asset value of the Company, and, in some cases, the investors views of what premium, if
any, might be warranted to induce the holders of Class B shares to eliminate that structure. In that context some investors expressed reservations about any significant premium but at least one investor indicated that the potential value of
eliminating the dual-class structure might warrant a premium of 3-4% of the Companys equity value. These discussions also involved consideration of whether stockholder dissatisfaction with the Companys inability to eliminate its
dual-class stock structure might lead one or more investors to engage in a contested solicitation with respect to one or more of the Companys Class A directorships at a future annual meeting of stockholders. As part of these reviews, the Board
also considered reports, analyses and policies of proxy advisory services, such as Institutional Shareholder Services (ISS), regarding dual-class stock structures and other corporate governance matters, noting that ISS has historically viewed a
dual-class stock structure, such as that in effect for the Company, to be a negative factor in its evaluation of an issuers overall corporate governance profile.
On August 18, 2016, the Board discussed whether it should explore the possibility of eliminating the Companys
dual-class stock structure. During this discussion, Charles A. Ratner indicated that, while RMS was content with the status quo, RMS also would be willing to consider in good faith the possibility of eliminating the Companys dual-class stock
structure so long as the economics of doing so were acceptable to RMS and the transaction eliminating the Companys dual-class stock structure was approved by the Companys independent directors. In light of this development, at the
conclusion of the discussion the Board designated a special committee of Class A directors consisting of Arthur F. Anton, Scott S. Cowen and Michael P. Esposito, Jr., each of whom is also an independent director, to explore the possibility of
eliminating the Companys dual-class stock structure, and authorized the Special Committee to retain legal counsel and financial advisors at the Companys expense. The members of the Special Committee were selected based upon, among other
things, their status as a Class A Directors, their qualification as independent directors, their extensive experience as public company directors, their extensive knowledge of the Company and its business operations, and their ability and
willingness to devote a significant amount of time to their service on the Special Committee. Dr. Cowen was selected as Chairman of the Special Committee based upon, among other things, his position as Lead Independent Director, his prior experience
as chairman of the special committee of independent directors of American Greetings Corporation in 2012-2013 and chairman of the special committee of independent directors of Jo-Ann Stores, Inc. in 2010, which experiences both involved similar
circumstances and considerations (although in sales rather than reclassification contexts), and his ability and willingness to devote a significant amount of time to serve as Chairman of the Special Committee. In view of the fact that RMS and
RMSs controlling families hold substantially all of the Class B Common Stock, the Board further determined that it would be advisable and in the best interests of the Company and its stockholders for RMS and RMSs controlling
families to
38
analyze a potential reclassification, and resolved to reimburse RMS for reasonable costs and expenses incurred by RMS in evaluating the advisability of a potential reclassification, which
determination was later memorialized in the Reimbursement Agreement executed on October 24, 2016. Subsequently, the Board acting by unanimous written consent approved a charter of the Special Committee dated August 18, 2016, which provided
that the Board would not authorize a reclassification unless and until it had received the affirmative recommendation of the Special Committee in favor of such reclassification.
Following the August 18 Board meeting, the Special Committee held initial meetings on August 19 and August 24, 2016 and
retained Lazard to act as its financial advisor and Sullivan & Cromwell to act as its legal counsel. Lazard was one of two prospective financial advisors that were considered to assist the Special Committee in exploring the possibility of
eliminating the Companys dual-class stock structure. At the Special Committee meeting held on August 24, 2016, both Lazard and the other firm under consideration met separately with the Special Committee and presented their respective
credentials with respect to the potential engagement. Following these presentations, Lazard was selected as financial advisor because of its qualifications and expertise and reputation in investment banking and mergers and acquisitions, as well as
its familiarity with the business of the Company. Sullivan & Cromwell was retained by the Special Committee for numerous reasons, including its familiarity with the Company, its reputation as a highly regarded corporate law firm, its extensive
experience with special committee representations and the absence of any relationships with Ratner Family Members that would compromise its independence with respect to the representation.
On August 28, September 10, September 17, and September 24, 2016, the Special Committee met
telephonically, together with representatives of Lazard and Sullivan & Cromwell, to discuss various preliminary matters related to a potential reclassification, and, at the September 17 and September 24 meetings, to discuss
certain preliminary analyses prepared by representatives of Lazard. The preliminary analyses prepared by representatives of Lazard for discussion with the Special Committee during various of its meetings were necessarily preliminary in nature,
included a general comparative review of the market for the Companys securities and a preliminary review of a theoretical reclassification accomplished at various levels of conversion premium, and utilized substantially the same sources and
methodologies as described under the heading
The ReclassificationOpinion of Lazard.
At the conclusion of the September 24th meeting, the Special Committee determined that Dr. Scott S. Cowen, the Chairman of
the Special Committee, would meet with Charles A. Ratner, the principal representative of RMS, to discuss a potential reclassification.
On September 28, 2016, Dr. Cowen and Charles A. Ratner spoke telephonically and later met in person on
October 5, 2016 to continue their discussion of the Special Committee and RMSs respective views on a potential reclassification. Also on October 5, at the direction of the Special Committee, representatives of Lazard met with
representatives of Morgan Stanley & Co. LLC (
Morgan Stanley
), financial advisor to RMS, to discuss the potential reclassification.
On October 9, 2016, the Special Committee met telephonically, together with representatives of Lazard and
Sullivan & Cromwell. At the meeting, Dr. Cowen updated the Special Committee on his discussions with Charles A. Ratner. A representative of Lazard also updated the Special Committee on discussions during the previous week between
representatives of Lazard and Morgan Stanley regarding the potential reclassification. The Special Committee then discussed certain preliminary financial analyses prepared by representatives of Lazard. At the conclusion of the October 9th
meeting, the Special Committee directed representatives of Lazard to convey to representatives of Morgan Stanley the preliminary perspective of the Special Committee on financial terms on which an agreement could be reached to eliminate the
Companys dual-class stock structure. The preliminary perspective of the Special Committee contemplated a reclassification in which each Class B share would be reclassified and exchanged into 1.1 to 1.2 Class A shares. In developing
this preliminary perspective, the members of the Special Committee were aware that any reclassification in which holders of Class A Common Stock and holders of Class B Common Stock did not participate share for share would require a class vote. The
Special Committee further directed representatives of Lazard to convey to representatives of Morgan Stanley the Special Committees familiarity with the fact that certain comparable precedent reclassification transactions did not involve the
receipt of any premium by holders of the high-vote stock.
39
On October 11, 2016, the Special Committee met telephonically, together with
representatives of Lazard and Sullivan & Cromwell. At the meeting, representatives of Lazard updated the Special Committee on their discussion earlier that day with representatives of Morgan Stanley. Later on October 11, following the
meeting of the Special Committee, Charles A. Ratner informed Dr. Cowen that it appeared that the perspectives of the Special Committee and RMS on financial terms for a potential reclassification were far apart. The preliminary perspective
of RMS contemplated a reclassification at an exchange ratio that would result in Class B stockholders receiving an aggregate premium with a value in the range of $180-240 million.
On October 12, 2016, the Special Committee met telephonically, together with representatives of Lazard and
Sullivan & Cromwell. At the meeting, Dr. Cowen updated the Special Committee regarding his discussions with Charles A. Ratner. The Special Committee directed representatives of Lazard to convey to representatives of Morgan Stanley that
the Special Committee was not prepared to support a reclassification on financial terms reflecting the perspective of RMS. Representatives of Lazard conveyed this message to representatives of Morgan Stanley on October 13, 2016.
On October 14, 2016, Charles A. Ratner telephoned Dr. Cowen to request that they meet in person on
October 16, 2016, to discuss the potential reclassification, to which Dr. Cowen agreed.
At the October 16,
2016 meeting, at the request of Charles A. Ratner, Dr. Cowen agreed that the Special Committee, along with representatives of Lazard and Sullivan & Cromwell, would meet telephonically with representatives of RMS and Morgan Stanley
to discuss Morgan Stanleys perspectives on the potential reclassification and the differences between the Special Committees initial perspective, which contemplated a reclassification in which each Class B share would be reclassified and
exchanged into 1.1 to 1.2 Class A shares, and RMSs perspective, which contemplated a reclassification at an exchange ratio that would result in Class B stockholders receiving an aggregate premium with value in the range of $180-240
million, understanding that RMS was focused on precedents based upon premium paid as a percentage of total market capitalization while the Special Committee was focused on both precedents based upon premium paid as a percentage of total market
capitalization and the premium paid as a percentage of the per share stock price.
On October 17, 2016, the
Companys independent directors held a telephonic meeting, at which Dr. Cowen provided an update on the Special Committee process to date.
On October 18, 2016, the Special Committee, along with representatives of Lazard and Sullivan & Cromwell, met in
person with representatives of RMS and Morgan Stanley, with certain attendees participating telephonically where each of Morgan Stanley and Lazard discussed their respective financial perspectives on the potential reclassification.
Later on October 18, 2016, the Special Committee instructed Lazard to communicate to Morgan Stanley that, unless there were a
willingness on the part of RMS to entertain a proposal at an exchange ratio much closer to the Special Committees financial perspective than to RMSs financial perspective, then the parties would be too far apart for there to be a
reasonable basis to continue conversations. On October 20, 2016, representatives of Lazard and Morgan Stanley met telephonically, and representatives of Lazard communicated such message to representatives of Morgan Stanley.
On October 22, 2016, the Special Committee met telephonically, together with representatives of Lazard and
Sullivan & Cromwell. At the meeting, based on discussions to date with representatives of RMS, the Special Committee concluded that while the Special Committee planned to keep an open dialogue with RMS regarding a potential
reclassification, the Special Committee did not at the time believe it would be able to reach an agreement with RMS on mutually acceptable terms.
Thereafter, Dr. Cowen and Charles A. Ratner agreed that the Special Committee and RMS were unable to reach an agreement for a
reclassification at that time but would continue to maintain a dialogue regarding a potential reclassification.
40
On October 26, 2016, the Company issued a press release that stated, among
other things, that the Board had established the Special Committee, that the Special Committee and representatives of RMS had engaged in good faith negotiations, that the Special Committee and RMS were unable to reach an agreement at that time on
mutually acceptable terms, and that the Special Committee and RMS were planning to keep an open dialogue with respect to a potential reclassification transaction.
Consistent with the approach of keeping an open dialogue, on November 8, 2016, the Special Committee met telephonically,
together with representatives of Lazard and Sullivan & Cromwell, to discuss the possibility of delivering a non-binding proposal to RMS. At the conclusion of the discussion, the Special Committee determined to deliver a non-binding written
proposal (the
Written Proposal
) to RMS that contemplated (i) that each Class B share would be reclassified and exchanged into 1.2 Class A shares and (ii) classifying the Board into three classes, with two
persons designated by RMS serving as initial Class II Directors (with their initial term expiring at the 2019 annual stockholders meeting), and two persons designated by RMS serving as initial Class III Directors (with their initial
term expiring at the 2020 annual stockholders meeting). The Special Committee further directed a representative of Lazard to deliver the Written Proposal to representatives of Morgan Stanley, which occurred on November 9, 2016.
On November 15, 2016, the Special Committee met and discussed the possibility of Dr. Cowen meeting with representatives of RMS
on behalf of the Special Committee on November 18, 2016 to discuss the Written Proposal.
On November 18, 2016,
Dr. Cowen met in person with representatives of RMS, including Messrs. Charles A., James A., and Albert B. Ratner to discuss the Written Proposal.
On November 19, 2016, the Special Committee met telephonically, together with representatives of Lazard and
Sullivan & Cromwell. Dr. Cowen updated the Special Committee on his meeting with representatives of RMS the prior day. At the conclusion of the discussion, the Special Committee affirmed that Dr. Cowen would continue discussions
with RMS and negotiate on behalf of the Special Committee with the understanding that any agreement in principle that Dr. Cowen might reach would be subject to the review and approval of the full Special Committee. The Special Committee
considered it desirable and appropriate that Dr. Cowen negotiate on behalf of the Special Committee given the extensive experience regarding negotiations he acquired as chairman of the special committee of independent directors of American Greetings
Corporation and chairman of the special committee of independent directors of Jo-Ann Stores, Inc., his extensive knowledge of the Company and its business operations and the confidence each other Special Committee member had that, based on committee
discussions, Dr. Cowen had a thorough understanding of the views of the other two Special Committee members concerning appropriate potential terms.
On November 28, 2016, Dr. Cowen met in person with Charles A. and Albert B. Ratner, representatives of
RMS. At this meeting, Messrs. Charles A. and Albert B. Ratner suggested that RMS would be amenable to continue discussions on the basis of a possible reclassification under which (i) each Class B share would be reclassified and
exchanged into 1.4 Class A shares and (ii) the Board would be divided into three classes, with two persons designated by RMS serving as initial Class II Directors (with their initial term expiring at the 2019 annual
stockholders meeting), and two persons designated by RMS serving as initial Class III Directors (with their initial term expiring at the 2020 annual stockholders meeting). Dr. Cowen responded with a proposal that contemplated
(i) that each Class B share would be reclassified and exchanged into 1.28 Class A shares and (ii) an annually elected Board with no director designation rights for RMS. Dr. Cowen, having been authorized to negotiate on
behalf of the Special Committee, indicated that he no longer considered classifying the Board on the terms contemplated by the Written Proposal favorably due to the meaningfully higher exchange ratio contained in this proposal. Later that day, the
Special Committee met telephonically, together with representatives of Lazard and Sullivan & Cromwell and Dr. Cowen provided an update and solicited feedback on the discussions he had with representatives of RMS.
On November 29, 2016, Dr. Cowen met in person with Charles A. and Albert B. Ratner, representatives of RMS. At
such meeting, Messrs. Charles A. and Albert B. Ratner suggested that RMS would be amenable to continue discussions on the basis of a possible reclassification under which (i) each Class B share would be
41
reclassified and exchanged into 1.34 Class A shares, (ii) RMS would have the right to designate four nominees to the Board until the 2019 annual stockholders meeting, and
thereafter have a perpetual right to designate two nominees to the Board so long as RMS remained one of the Companys five largest stockholders and (iii) the Board would elect James A. Ratner as non-executive Chairman until the 2019
annual stockholders meeting.
Later on November 29, 2016, the Special Committee met in person, with
representatives of Lazard and Sullivan & Cromwell participating telephonically, to discuss RMSs most recent proposal. At the conclusion of the discussion, the Special Committee agreed that Dr. Cowen would present a proposal to
RMS that contemplated (i) that each Class B share would be reclassified and exchanged into 1.28 Class A shares, (ii) that RMS would have the right to designate four nominees to the Board until the 2019 annual stockholders
meeting, and thereafter have a right to designate two nominees to the Board until the 2021 annual stockholders meeting so long as RMS held at least 7.5% of the issued and outstanding shares of Class A Common Stock and (iii) that the
Board would elect James A. Ratner as non-executive Chairman until the 2019 annual stockholders meeting.
Later
on November 29, 2016, Dr. Cowen discussed the Special Committees proposal in person with representatives of RMS. The discussion yielded an agreement in principle with respect to a reclassification that contemplated: (i) that
each Class B share would be reclassified and exchanged into 1.31 Class A shares, (ii) that RMS would have the right to designate four nominees to the Board until the 2019 annual stockholders meeting, and thereafter have a
right to designate two nominees to the Board until the 2021 annual stockholders meeting so long as RMS and members of the Ratner families held at least 75% of their post-reclassification Class A share holdings, and (iii) that the
Board would elect James A. Ratner as non-executive Chairman until the 2019 annual stockholders meeting. After discussing and deliberating upon this agreement in principle, the Special Committee directed representatives of Sullivan &
Cromwell to draft transaction documents memorializing the agreement in principle, and directed representatives of Lazard to analyze whether the Exchange Ratio was fair, from a financial point of view, to the holders of Class A Common Stock
(other than Class A Common Stock held by the RMS Group), solely in their capacity as holders of Class A Common Stock, with respect to such Class A Common Stock and without taking into account any Class B Common Stock held by such
holders.
On November 29, 2016, the Board held a special meeting. Members of the Companys management, and
representatives of Sullivan & Cromwell participated by invitation. At the meeting, Dr. Cowen informed the Board that the Special Committee and RMS had agreed in principle upon the terms of the Reclassification, outlined the terms of
the agreement in principle, and explained that the Special Committee had directed representatives of Sullivan & Cromwell to draft transaction documents memorializing the agreement in principle for consideration by the Special Committee.
On November 30, 2016, the Company entered into a non-disclosure agreement with the Scopia Parties for the purpose of
determining whether they would enter into a voting and support agreement with respect to the Reclassification. On December 1, 2016, pursuant to the non-disclosure agreement, Mr. David J. LaRue, President and Chief Executive Officer of
the Company and a Class B Director, and Dr. Cowen spoke telephonically with representatives of the Scopia Parties, during which conversation the representatives of the Scopia Parties indicated they were amenable in principle to entering into
such a voting and support agreement.
On December 1, 2016, the Company engaged Houlihan Lokey in connection with a
request by the Board that Houlihan Lokey render to the Board an opinion as to whether the Exchange Ratio provided for in the Reclassification was fair, from a financial point of view, to the holders of Class B Common Stock (other than the RMS
Group).
Between December 1 and December 5, 2016, at the direction of the Special Committee and RMS,
respectively, representatives of Sullivan & Cromwell and representatives of Fried, Frank, Harris, Shriver & Jacobson LLP, counsel to RMS, finalized transaction documents memorializing the agreement in principle reached between the
Special Committee and RMS.
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Between December 2 and December 5, 2016, at the direction of the
Company and the Scopia Parties, respectively, representatives of Sullivan & Cromwell and representatives of Akin Gump Strauss Hauer & Feld LLP, counsel to the Scopia Parties, finalized documents memorializing the terms of the
voting and support agreement discussed by Mr. LaRue, Dr. Cowen, and the representatives of the Scopia Parties.
On December 5, 2016, the Special Committee met telephonically, together with Deborah L. Harmon and Stan Ross,
independent directors of the Company, the Companys General Counsel, and representatives of Lazard, Sullivan & Cromwell, and Venable LLP (
Venable
), the Companys Maryland counsel. At the meeting, a
representative of Venable reviewed with the Special Committee the duties of the directors under Maryland law. A representative of Sullivan & Cromwell then reviewed with the Special Committee the terms of the Reclassification Agreement, the
Irrevocable Proxy and the Voting and Support Agreement. A representative of Lazard then discussed with the Special Committee the financial analyses performed by representatives of Lazard at the direction of the Special Committee. A representative of
Lazard also discussed with the Special Committee the various assumptions made, procedures followed, matters considered and limitations on the scope of the review undertaken by Lazard in preparing its opinion. At the conclusion of the discussion,
Lazard verbally rendered to the Special Committee its opinion (which was subsequently confirmed in writing by delivery of Lazards written opinion addressed to the Special Committee dated December 5, 2016) that, as of such date, and based
upon and subject to the various assumptions made, procedures followed, matters considered, and qualifications and limitations described in its written opinion, the Exchange Ratio provided for in the Reclassification was fair, from a financial point
of view, to the holders of Class A Common Stock (other than Class A Common Stock held by the RMS Group), solely in their capacity as holders of Class A Common Stock, with respect to such Class A Common Stock and without taking
into account any Class B Common Stock held by such holders. The Special Committee then discussed and deliberated upon the Reclassification Agreement, the Irrevocable Proxy and the Voting and Support Agreement. At the conclusion of the
discussion and deliberation, the Special Committee unanimously resolved to recommend to the Board that it: (i) authorize the Company to enter into the Reclassification Agreement, the Irrevocable Proxy and the Voting and Support Agreement;
(ii) determine that the Reclassification Amendment is advisable and in the best interests of the Company; and (iii) direct that the Reclassification Amendment be submitted to the holders of Class A Common Stock for their approval and
recommend that the holders of Class A Common Stock approve the same. The Special Committee then agreed that Dr. Cowen would present the unanimous recommendations of the Special Committee to the Board.
Later on December 5, 2016, the Board met telephonically. Also participating by invitation were members of management, as
well as representatives of Sullivan & Cromwell, Venable, Lazard and Houlihan Lokey. At the meeting, a representative of Venable reviewed with the Board the duties of the directors under Maryland law. Dr. Cowen then provided an overview
of the process undertaken by the Special Committee in formulating its unanimous recommendations to the Board, and delivered the unanimous recommendations of the Special Committee to the Board. A representative of Sullivan & Cromwell then
reviewed with the Board the terms of the Reclassification Agreement, the Irrevocable Proxy and the Voting and Support Agreement. A representative of Lazard then discussed with the Board the financial analyses performed by representatives of Lazard
at the direction of the Special Committee. A representative of Lazard further discussed with the Board the various assumptions made, procedures followed, matters considered and limitations on the scope of the review undertaken by Lazard in preparing
its opinion. At the conclusion of this discussion, Lazard reiterated the opinion that it had rendered to the Special Committee. A representative of Houlihan Lokey then discussed with the Board the financial analyses performed by representatives of
Houlihan Lokey at the direction of the Company. A representative of Houlihan Lokey further discussed with the Board the assumptions made, procedures followed, matters considered and limitations on the scope of the review undertaken by Houlihan Lokey
in preparing its opinion. At the conclusion of this discussion, Houlihan Lokey verbally rendered to the Board its opinion (which was subsequently confirmed in writing by delivery of Houlihan Lokeys written opinion addressed to the Board dated
December 5, 2016) that, as of such date, and based upon and subject to the various assumptions made, procedures followed, matters considered, and qualifications and limitations described in its written opinion, the Exchange Ratio provided for
in the Reclassification pursuant to the Reclassification Agreement was fair, from a
43
financial point of view, to the holders of Class B Common Stock (other than the RMS Group), solely in their capacity as holders of shares of Class B Common Stock, with respect to such
Class B Common Stock, and without taking into account any shares of Class A Common Stock held by such holders. The Board then discussed and deliberated upon the Reclassification Agreement, the Irrevocable Proxy and the Voting and Support
Agreement. At the conclusion of the discussion and deliberation, the Board (i) resolved that the Reclassification Agreement, Irrevocable Proxy, Voting and Support Agreement, and the transactions contemplated thereby, including the
Reclassification and Reclassification Amendment, are advisable, fair and in the best interests of the Company and the stockholders, (ii) authorized and approved the same, and (iii) resolved to recommend that the stockholders adopt the
Reclassification Amendment. However, Brian Ratner, Charles Ratner, Ronald Ratner and Deborah Ratner Salzberg abstained from voting.
Following the Board meeting, the Company and RMS executed the Reclassification Agreement and the Irrevocable Proxy, the terms
of which are more fully described in the sections of this proxy statement/prospectus entitled
The Reclassification Agreement
and
The ReclassificationThe Irrevocable Proxy
, respectively, and the Company and
the Scopia Parties executed the Voting and Support Agreement, the terms of which are more fully described in the section of this proxy statement/prospectus entitled
The Reclassification
The Voting and Support
Agreement
.
Before the opening of the NYSE on December 6, 2016, the Company issued a press release
announcing its plan to eliminate its dual-class stock structure via the Reclassification.
Reasons for the Reclassification
The Special Committee and the Board reviewed certain pertinent factors in reaching its decisions, (a) in the case of
the Special Committee, to recommend to the Board that it: (i) authorize the Company to enter into the Reclassification Agreement, the Irrevocable Proxy and the Voting and Support Agreement, (ii) determine that the Reclassification
Amendment is advisable and in the best interests of the Company and (iii) direct that the Reclassification Amendment be submitted to the holders of Class A Common Stock for their approval and recommend that the holders of Class A
Common Stock approve the same, and (b) in the case of the Board, (i) resolving that the Reclassification Agreement, Irrevocable Proxy, Voting and Support Agreement, and the transactions contemplated thereby, including the Reclassification and
Reclassification Amendment, are advisable, fair and in the best interests of the Company and the stockholders, (ii) authorizing and approving the same, and (iii) resolving to recommend that the stockholders adopt the Reclassification
Amendment.
The discussion in this proxy statement/prospectus of the information and factors that the Special Committee
and Board considered is not intended to be exhaustive but includes the material factors considered. In view of the wide variety of factors considered and the complexity of these matters, neither the Special Committee nor the Board found it useful
to, and did not attempt to, quantify, rank, or otherwise assign relative weights to these factors. In addition, the individual members of the Special Committee and the Board may have assigned different weight to different factors.
The Special Committee and the Board considered the following material factors:
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Alignment of Voting Rights with Economic Ownership.
The Reclassification would align stockholders
voting power with their economic interests in the Company by establishing a unitary equity capital structure whereby each share of common stock of the Company is entitled to one vote. The Reclassification may, therefore, make our common stock a more
attractive investment.
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Realignment of RMSs Voting Power and Economic Interests.
Currently, RMS can effectively prevent
the approval of any matter requiring the vote of Class B stockholders and elect nine directors to the Board. Following the Reclassification, RMSs voting power would be reduced to align with its economic interests.
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RMS Board Designation Rights.
Pursuant to the Reclassification Agreement, the Company will
(i) include in the slate of nominees recommended by the Board each of Brian J. Ratner, James A.
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44
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Ratner, Ronald A. Ratner and Deborah Ratner Salzberg (or a replacement identified by RMS as described in the Reclassification Agreement) to stand for election as directors at the Companys
2017, 2018 and 2019 annual stockholders meetings. In addition, following the Reclassification, so long as the Ratner Family Members, in the aggregate, continue to beneficially own 18,153,421 shares of Class A Common Stock (adjusted for any
stock dividend, stock split, reverse stock split or similar transaction) (or any successor security), the Company will also include in the slate of nominees recommended by the Board two individuals designated by RMS (or, if RMS is unable to make
such designation 15 business days prior to the first anniversary of mailing of the Companys proxy statement with respect to the 2019 annual stockholder meeting, two Ratner Family Members as designated by the Board) that are reasonably
acceptable to the Corporate Governance and Nominating Committee to stand for election as directors at the 2020 and 2021 annual stockholder meetings.
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Special Committee Process.
The Special Committee, which consisted entirely of three Class A
directors, each of whom is also an independent director, negotiated the terms of the Reclassification Agreement, including the Exchange Ratio, and had the authority to not recommend that the Board approve the Reclassification (and the Board would
have been precluded from approving the Reclassification under those circumstances).
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Improvement of Liquidity and Increased Trading Efficiencies.
The Reclassification is expected to
provide stockholders with greater liquidity and an enhanced quality of trade execution. It should support enhanced liquidity for our stockholders by both increasing the number of outstanding shares of our common stock and aggregating the volume of
our common stock that is currently traded, thereby removing a possible impairment to the efficient trading of our shares. Greater liquidity of the Class A Common Stock following the Reclassification may allow stockholders to buy and sell larger
positions with less impact on the stock price than might otherwise be the case.
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Increased Attractiveness to Institutional Investors.
Simplifying our capital structure and increasing
liquidity by eliminating our dual-class stock structure could address complexity and liquidity concerns that institutional investors have expressed from time to time and may allow our common stock to be held by certain institutional investors whose
investment policies do not permit them to invest in companies that have disparate voting rights in their capital structure.
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Improved Governance.
The resulting capital structure will be aligned with the trend of publicly traded
companies away from dual-class capital structures, which is consistent with the policies of major national securities exchanges and institutional investors in favor of one vote per share of common stock.
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Approval of Both Classes Required.
The Reclassification Proposal must be approved by the holders
of a majority of the issued and outstanding shares of Class A Common Stock, voting as a separate voting class, and the holders of a majority of the issued and outstanding shares of Class B Common Stock, voting as a separate voting class.
In addition, under the Reclassification Agreement, it is a condition precedent to the Companys and RMSs obligation to consummate the Reclassification that the majority of the minority stockholder approval be obtained.
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Elimination of Investor Confusion.
Some investors or potential investors may not understand the
differences between our Class A Common Stock and our Class B Common Stock. Eliminating our dual-class stock structure would eliminate this potential confusion.
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Increased Strategic Flexibility.
A single-class common equity structure could provide increased
flexibility to structure acquisitions and equity financings by using equity as acquisition currency and for possible future offerings of our Class A Common Stock to potential investors.
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Opinion of Lazard.
On December 5, 2016, Lazard rendered its oral opinion to the Special Committee
and the Board, subsequently confirmed in writing, that, as of such date, and based upon and subject to the assumptions, procedures, factors, qualifications and limitations set forth therein, the Exchange Ratio provided for in the Reclassification
was fair, from a financial point of view, to the holders of Class A Common Stock (other than Class A Common Stock held by the RMS Group), solely in their
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45
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capacity as holders of Class A Common Stock, with respect to such Class A Common Stock and without taking into account any Class B Common Stock held by such holders. See the section of
this proxy statement/prospectus entitled
The ReclassificationOpinion of Lazard
.
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The Special Committee and the Board also considered the following factors:
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the holders of Class A Common Stock and the holders of the Class B Common Stock currently have the
same per share economic interests, and the equal per share economic interests of the Class A Common Stock and Class B Common Stock would continue absent an amendment to the Companys charter;
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that the Scopia Parties support the Reclassification Proposal and, pursuant to the Voting Agreement, agreed to
vote (a) in favor of any and all persons nominated by the Board for election as directors (provided at least eight of the thirteen nominees have been determined to be independent directors by the Board in accordance with relevant stock exchange
rules), (b) in favor of approving the Reclassification Proposal and any action reasonably requested by the Company in furtherance of the foregoing, and (c) against any other action, agreement or transaction involving the Company or the
Board that is intended, or would reasonably be expected, to prevent or impair or delay the consummation of the Reclassification or the other transactions contemplated by the Reclassification Agreement;
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certain historical trading price and trading volume differentials of the Class A Common Stock and
Class B Common Stock;
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that the Reclassification will be dilutive to holders of Class B Common Stock with respect to their
voting power and dilutive to current holders of Class A Common Stock with respect to their relative economic interest in the Company;
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the fact that both the Equal Treatment Provision and the Share Conversion Provision in the Companys
charter would be eliminated as part of the Reclassification;
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the fact that the Class B Common Stock has significantly less trading liquidity than the Class A
Common Stock; and
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that certain officers, directors and RMS have interests in the Reclassification that are different from, or in
addition to, those of the holders of Class A Common Stock and/or holders of Class B Common Stock.
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Further, the Special Committee and the Board considered the following potentially negative factors:
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the risk that the Reclassification might not be completed in a timely manner or at all; and
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the risks described in the section of this proxy statement/prospectus entitled
Risk
Factors
.
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In addition to the foregoing factors, the Board considered the following material
factor:
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Opinion of Houlihan Lokey.
On December 5, 2016, Houlihan Lokey rendered to the Board its written
opinion that, as of such date, and based upon and subject to the various assumptions made, procedures followed, matters considered, and qualifications and limitations described in its written opinion, the Exchange Ratio provided for in the
Reclassification pursuant to the Reclassification Agreement was fair, from a financial point of view, to the holders of Class B Common Stock (other than the RMS Group), solely in their capacity as holders of shares of Class B Common Stock,
with respect to such Class B Common Stock, and without taking into account any shares of Class A Common Stock held by such holders. See the section of this proxy statement/prospectus entitled
The ReclassificationOpinion of
Houlihan Lokey.
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46
The Irrevocable Proxy
In furtherance of its support obligations and pursuant to the Reclassification Agreement, RMS executed and delivered to the
Company the Irrevocable Proxy appointing designated executive officers of the Company as RMSs proxy for purposes of voting in favor of the Reclassification Proposal. The Irrevocable Proxy will survive until either (a) the closing of the
transactions contemplated by the Reclassification Agreement or (b)
it terminates automatically in accordance with its own terms.
The Voting and Support Agreement
As previously disclosed, on December 5, 2016, the Company entered into the Voting and Support Agreement with the Scopia
Parties. Pursuant to the Voting and Support Agreement, the Scopia Parties have agreed, among other things and subject to certain conditions, to vote shares of Common Stock beneficially owned by them and their Associates (as defined in the Voting and
Support Agreement) at the Annual Meeting as follows: (a) in favor of any and all persons nominated by the Board for election as directors (provided at least eight of the thirteen nominees have been determined to be independent directors by the
Board in accordance with relevant stock exchange rules), (b) in favor of approving the Reclassification Proposal and any action reasonably requested by the Company in furtherance of the foregoing and (c) against any other action, agreement
or transaction involving the Company or the Board that is intended, or would reasonably be expected, to prevent or impair or delay the consummation of the Reclassification or the other transactions contemplated by the Reclassification Agreement.
As disclosed in a Schedule 13D/A filed with the SEC by Scopia Capital Management LP, as of February 3, 2017, Scopia
Capital Management LP beneficially owned 23,726,734 Class A shares (representing approximately 9.83% of the outstanding Class A shares as of the Record Date). It is possible that between February 3, 2017 and the Record Date, Scopia
Capital Management LP bought or sold shares of Class A Common Stock.
The Voting and Support Agreement was filed as
Exhibit 10.3 to the Current Report on Form
8-K
filed by the Company on December 6, 2016, and is incorporated by reference herein. The foregoing description of various terms of the Voting and Support
Agreement is qualified in its entirety by reference to the Voting and Support Agreement.
The Reimbursement Agreement
As previously disclosed, on October 24, 2016, the Company entered into the Reimbursement Agreement with RMS.
Pursuant to the Reimbursement Agreement, on the terms and subject to the conditions set forth therein, the Company agreed to reimburse RMS (together with its officers, directors, employees, beneficiaries, trustees, representatives and agents) and
each Member of the Ratner Family (as defined in the Reimbursement Agreement, which includes members of the Companys current Board and certain executive officers) for certain costs, fees, expenses, losses, damages and liabilities. Specifically,
the Company agreed to reimburse RMS (together with its officers, directors, employees, beneficiaries, trustees, representatives and agents) for reasonable and documented fees and out-of-pocket expenses of RMSs financial, legal and public
relations advisors incurred in evaluating and negotiating the Reclassification. In addition, the Company agreed to reimburse each Member of the Ratner Family (as defined in the Reimbursement Agreement, which includes members of the Companys
current Board and certain executive officers) and RMS (together with its officers, directors, employees, beneficiaries, trustees, representatives and agents) (collectively, the
Reimbursed Persons
) for (i) reasonable costs and
expenses incurred by each Reimbursed Person in connection with any Proceeding (as defined in the Reimbursement Agreement) to which such Reimbursed Person is a party or otherwise involved in and (ii) any losses, damages or liabilities actually
and reasonably suffered or incurred in any such Proceeding by a Reimbursed Person. These reimbursement obligations are not subject to a cap and may be potentially significant for the Company. Further, even if the Reclassification Agreement were
terminated, the Companys obligations under the Reimbursement Agreement would survive. As of December 31, 2016, the Company incurred an aggregate amount of $1,541,500 in reimbursements to the Reimbursed Persons.
47
The Reimbursement Agreement was filed as Exhibit 10.51 to the Companys
Annual Report on Form
10-K
for the fiscal year ended December 31, 2016, and is incorporated by reference herein. The foregoing description of the Reimbursement Agreement is qualified in its entirety by
reference to the Reimbursement Agreement.
Opinion of Lazard
The Special Committee retained Lazard to act as financial advisor to the Special Committee and to render an opinion to the
Special Committee and the Board as to the fairness, from a financial point of view, of the Exchange Ratio provided for in the Reclassification to the holders of Class A Common Stock (other than Class A Common Stock held by the RMS Group),
solely in their capacity as holders of Class A Common Stock, with respect to such Class A Common Stock and without taking into account any Class B Common Stock held by such holders. On December 5, 2016, Lazard rendered its oral
opinion to the Special Committee and the Board, subsequently confirmed in writing, that, as of such date, and based upon and subject to the assumptions, procedures, factors, qualifications and limitations set forth therein, the Exchange Ratio
provided for in the Reclassification was fair, from a financial point of view, to the holders of Class A Common Stock (other than Class A Common Stock held by the RMS Group), solely in their capacity as holders of Class A Common
Stock, with respect to such Class A Common Stock and without taking into account any Class B Common Stock held by such holders.
The full text of Lazards written opinion, dated December 5, 2016, which sets forth the assumptions made,
procedures followed, factors considered and qualifications and limitations on the review undertaken by Lazard in connection with its opinion is attached to this proxy statement/prospectus as Annex D and is incorporated into this proxy
statement/prospectus by reference. The summary of Lazards opinion set forth in this proxy statement/prospectus is qualified in its entirety by reference to the full text of Lazards written opinion attached as Annex D. We encourage you to
read Lazards opinion and this section carefully and in their entirety.
Lazards opinion was directed to
the Special Committee and the Board (in each case, in its capacity as such) for the information and assistance of the Special Committee and the Board in connection with their evaluation of the Reclassification and only addressed the fairness, from a
financial point of view, of the Exchange Ratio provided for in the Reclassification to the holders of Class A Common Stock (other than Class A Common Stock held by the RMS Group) solely in their capacity as holders of Class A Common
Stock, with respect to such Class A Common Stock and without taking into account any Class B Common Stock held by such holders. The Special Committee did not request Lazard to consider, and Lazards opinion did not address, the relative
merits of the Reclassification as compared to any other transaction or business strategy in which the Company might engage or the merits of the underlying decision by the Company to engage in the Reclassification. Lazards opinion was not
intended to and does not constitute a recommendation to any stockholder as to how such stockholder should vote or act with respect to the Reclassification or any matter relating thereto. Lazards opinion was necessarily based on economic,
monetary, market and other conditions as in effect on, and the information made available to Lazard as of, the date of Lazards opinion. Lazard assumed no responsibility for updating or revising its opinion based on circumstances or events
occurring after the date of Lazards opinion. Lazards opinion did not express any opinion as to the prices at which shares of Class A Common Stock or Class B Common Stock may trade at any time subsequent to the announcement of
the Reclassification.
The following is a summary of Lazards opinion. We encourage you to read Lazards written
opinion carefully in its entirety.
In connection with its opinion, Lazard:
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Reviewed the financial terms and conditions of a draft, dated December 4, 2016, of the Reclassification
Agreement, including the Articles of Amendment and Restatement attached thereto;
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Reviewed certain publicly available historical business and financial information relating to the Company;
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48
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Reviewed various financial forecasts and other data provided to Lazard by the Company relating to the business
of the Company;
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Held discussions with members of the senior management of the Company with respect to the business and
prospects of the Company;
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Reviewed the financial terms of comparable transactions Lazard believed to be generally relevant;
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Reviewed public information with respect to certain other companies with multiple classes of publicly traded
stock Lazard believed to be generally relevant;
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Reviewed historical stock prices and trading volumes of Class A Common Stock and Class B Common Stock;
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Reviewed the potential pro forma financial impact of the Reclassification on the capitalization and ownership
of the Company; and
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Conducted such other financial studies, analyses and investigations as Lazard deemed appropriate.
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Lazard assumed and relied upon the accuracy and completeness of the foregoing information, without
independent verification of such information. Lazard did not conduct any independent valuation or appraisal of any of the assets or liabilities (contingent or otherwise) of the Company or concerning the solvency or fair value of the Company, and
Lazard was not furnished with any such valuation or appraisal. With respect to the financial forecasts Lazard reviewed, Lazard assumed, with the consent of the Special Committee, that they were reasonably prepared on bases reflecting the best
currently available estimates and judgments of the management of the Company as to the future financial performance of the Company. Lazard assumed no responsibility for and expressed no view as to such forecasts or the assumptions on which they were
based. The financial forecasts provided to Lazard were not, however, an input in Lazards performance of the financial analyses summarized in this proxy statement/prospectus, including the principal financial analysis Lazard deemed appropriate
in rendering its opinion, as financial forecasts are not an input in performing a premiums paid analysis. Lazard noted that, in its judgment, the financial analyses typically utilized in the analysis of change of control merger and acquisition
transactions were not applicable in considering reclassification transactions such as the Reclassification and Lazards conclusion with respect to fairness instead relied on analysis of the Reclassification in the context of similar
reclassification transactions.
In rendering its opinion, Lazard was not authorized to, and Lazard did not, solicit
indications of interest from third parties regarding a potential transaction with the Company.
In rendering its opinion,
Lazard assumed, with the consent of the Special Committee, that the Reclassification would be consummated on the terms described in the Reclassification Agreement, without any waiver or modification of any terms or conditions material to
Lazards analyses. Representatives of the Company advised Lazard, and Lazard assumed, that the Reclassification Agreement, when executed, would conform to the draft reviewed by Lazard in all respects material to Lazards analyses. Lazard
also assumed, with the consent of the Special Committee, that obtaining any necessary approvals and consents for the Reclassification would not have an adverse effect on the Company or the Reclassification. Lazard further assumed that the
Reclassification would qualify for U.S. federal income tax purposes as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended. Lazards opinion did not address any legal, tax, regulatory or
accounting matters, as to which Lazard understood that the Special Committee obtained such advice as it deemed necessary from qualified professionals. Lazard expressed no view or opinion as to any terms or other aspects (other than the Exchange
Ratio to the extent expressly specified in Lazards opinion) of the Reclassification, including, without limitation, the fairness of the Exchange Ratio to holders of Class B Common Stock, or the relative fairness of the consideration to be
received in the Reclassification by the holders of Class B Common Stock, on the one hand, and the holders of Class A Common Stock, on the other hand. In addition, Lazard expressed no view or opinion as to the fairness of the amount or nature
of, or any other aspects relating to, the compensation to any officers, directors or employees of any parties to the Reclassification, or class of such persons, relative to the Exchange Ratio or otherwise.
49
The following is a brief summary of the principal financial analysis that Lazard
deemed appropriate in connection with rendering its opinion, as summarized below under
Financial Analysis
, and Lazard also performed certain additional financial analyses as summarized below under
Other
Analyses
. The brief summary of Lazards analyses and reviews provided below under
Financial Analysis
and
Other Analyses
is not a complete description of the analyses and reviews
undertaken by Lazard. The preparation of a fairness opinion is a complex process involving various determinations as to the most appropriate and relevant methods of analysis and review and the application of those methods to particular
circumstances, and, therefore, is not readily susceptible to summary description. Considering selected portions of the analyses and reviews or the summary set forth below, without considering the analyses and reviews as a whole, could create an
incomplete or misleading view of the analyses and reviews underlying Lazards opinion.
In arriving at its opinion,
Lazard considered the results of all of its analyses and reviews and did not attribute any particular weight to any factor, analysis or review considered by it; rather, Lazard made its determination as to fairness on the basis of its experience and
professional judgment after considering the results of all of its analyses and reviews.
For purposes of its analyses and
reviews, Lazard considered industry performance, general business, economic, market and financial conditions and other matters, many of which are beyond the control of the Company. No company, business or transaction used in Lazards analyses
and reviews as a comparison is identical to the Company or the Reclassification, and an evaluation of the results of those analyses and reviews is not entirely mathematical. Rather, the analyses and reviews involved complex considerations and
judgments concerning financial and operating characteristics and other factors that could affect the reclassification, acquisition, public trading or other values of the companies, businesses or transactions used in Lazards analyses and
reviews. The estimates contained in Lazards analyses and reviews and the ranges of valuations resulting from any particular analysis or review are not necessarily indicative of actual values or predictive of future results or values, which may
be significantly more or less favorable than those suggested by Lazards analyses and reviews. In addition, analyses and reviews relating to the value of companies, businesses or securities do not purport to be appraisals or to reflect the
prices at which companies, businesses or securities actually may be sold. Accordingly, the estimates used in, and the results derived from, Lazards analyses and reviews are inherently subject to substantial uncertainty.
The summary of the analyses and reviews provided below includes information presented in tabular format. In order to fully
understand Lazards analyses and reviews, the tables must be read together with the full text of each summary. The tables alone do not constitute a complete description of Lazards analyses and reviews. Considering the data in the tables
below without considering the full description of the analyses and reviews, including the methodologies and assumptions underlying the analyses and reviews, could create a misleading or incomplete view of Lazards analyses and reviews.
Except as otherwise noted, the following quantitative information, to the extent that it is based on market data, is based on
market data as it existed on or before December 2, 2016, and is not necessarily indicative of current market conditions.
Financial Analysis
Premiums Paid Analysis Selected Reclassification Transactions
Lazard identified and analyzed certain publicly available financial information for 18 selected precedent reclassification
transactions in which multiple classes of stock of a single company with differential voting or other governance rights were reclassified, exchanged or otherwise combined into a single class of common stock. We refer to the class of stock with lower
voting power or no voting power per share as the low-vote stock. Lazard excluded from its analysis 37 reclassification transactions that Lazard, based on its experience and professional judgment, did not view as substantially comparable to the
circumstances of the Reclassification because, among other things, (i) a significant stockholder or the holders of the shares of high-vote stock retained control of such company after giving effect to such transaction, (ii) the
companys dual-class structure was put in
50
place in order to facilitate a spin-off or the exit of a large stockholder or other similar transaction, (iii) multiple classes of shares remained outstanding post-transaction or (iv) a
companys organizational documents provided that all classes of stock vote together with a single vote per share when considering a potential change of control transaction or that the class of high-vote stock would convert into low-vote stock
after a certain period of time or upon reaching a certain threshold ownership percentage. Of the selected 18 precedent transactions, Lazard further identified nine transactions that Lazard viewed as particularly comparable to the corporate structure
and stockholder profile of the Company, where the RMS Group had, as of the date of Lazards opinion based on publicly available information, the ability to elect 9 of the 13 directors of the Board through their 92.8% ownership of the Class B
Common Stock and controls over 42% of the voting power of the Company. In particular, in each of the nine transactions, prior to the reclassification a single stockholder or group of stockholders had the power to elect a majority of the board of
directors and had the effective ability to block certain corporate transactions.
Lazard reviewed (i) the transaction
value premium to the low-vote stock trading price received by the holders of high-vote stock and (ii) the implied aggregate premium received by holders of high-vote stock as a percentage of market capitalization. The transaction value premium
to the low-vote stock trading price was defined as the value of the aggregate cash and stock consideration received per high-vote share in a transaction (with the stock consideration valued at the low-vote stock closing price the trading day prior
to announcement of the reclassification transaction) less the low-vote stock closing price on the trading day prior to announcement of the reclassification transaction (which we refer to as the Per Share Premium) relative to the closing price of the
low-vote stock on the trading day prior to announcement of the reclassification transaction. The implied aggregate premium as a percentage of market capitalization was defined as the Per Share Premium multiplied by the number of high-vote shares
relative to the market capitalization of the company on the trading day prior to announcement of the reclassification transaction.
The
precedent transactions reviewed were:
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High Vote
Premium
to Low Vote
Trading Price
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Implied Aggregate
Premium as
Percentage of
Market Cap
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Particularly Comparable Precedent Transactions
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Stewart Information Services Corporation
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34.8
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%
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|
1.5
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%
|
Hubbell Incorporated
|
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28.3
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%
|
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|
3.5
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%
|
Sothebys Holdings, Inc.
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15.3
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%
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4.3
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%
|
Robert Mondavi Corporation
|
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16.5
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%
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|
5.7
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%
|
Iteris Holdings, Inc.
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10.0
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%
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0.4
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%
|
Readers Digest Association, Inc.
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29.8
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%
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|
3.6
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%
|
E-Z-EM, Inc.
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0
|
%
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0
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%
|
Dairy Mart Convenience Stores, Inc.
|
|
|
10.0
|
%
|
|
|
3.0
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%
|
Remington Oil and Gas Corporation
|
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|
26.6
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%
|
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|
4.2
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%
|
Other Comparable Precedent Transactions
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Aarons Inc.
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0
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%
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0
|
%
|
Triarc Companies, Inc.
|
|
|
0
|
%
|
|
|
0
|
%
|
GameStop Corp.
|
|
|
0
|
%
|
|
|
0
|
%
|
Kaman Corporation
|
|
|
258.7
|
%
|
|
|
7.5
|
%
|
Commonwealth Telephone Enterprises, Inc.
|
|
|
9.0
|
%
|
|
|
0.8
|
%
|
Continental Airlines, Inc.
|
|
|
30.4
|
%
|
|
|
5.5
|
%
|
PacifiCare Health Systems, Inc.
|
|
|
8.0
|
%
|
|
|
2.6
|
%
|
First Oak Brook Bancshares, Inc.
|
|
|
0
|
%
|
|
|
0
|
%
|
Scott Technologies, Inc.
|
|
|
0
|
%
|
|
|
0
|
%
|
For the 18 select precedent reclassification transactions, holders of high-vote stock received
an implied premium to the low-vote stock trading price ranging from 0% to 258.7%, with a median of 10%. For the nine
51
particularly comparable reclassification transactions, holders of high-vote stock received an implied premium to the low-vote stock trading price ranging from 0% to 34.8%, with a median of 16.5%.
Lazard compared the results to the 31.0% implied premium to the Class A Common Stock price as of December 2, 2016 to be received by holders of Class B Common Stock in the Reclassification.
In addition, Lazard calculated the aggregate premium received by holders of high-vote stock in the 18 precedent transactions
as a percentage of the market capitalization for each of the companies, with premiums ranging from 0% to 7.5%, with a median of 2.1%. Lazard also calculated the aggregate premium received by holders of high-vote stock in the nine particularly
comparable reclassification transactions as a percentage of the market capitalization for each of the companies, with premiums ranging from 0% to 5.7%, with a median of 3.5%. Lazard compared the results to the 2.2% aggregate premium as a percentage
of the Companys market capitalization as of December 2, 2016 (calculated using the number of shares outstanding for the Class A Common Stock and Class B Common Stock as of October 31, 2016 and including the Class A Common
Stock issuable on an as-converted basis in respect of the Companys in-the-money convertible senior notes) to be received by holders of Class B Common Stock in the Reclassification.
Although none of the 18 selected precedent transactions is identical to the Reclassification, Lazard observed that the Kaman
Corporation transaction was a relative outlier among the selected precedent transactions in terms of the high premium received by holders of the high vote stock, due in part to the existence of a pending proposal to acquire a significant majority of
the high vote stock at a substantial premium.
Other Analyses
The analyses and data described below were presented to the Special Committee and the Board for reference purposes only and did
not provide the basis for, and were not otherwise material to, the rendering of Lazards opinion.
Premiums Paid Analysis
Selected Dual-Class M&A Transactions
Lazard performed a premiums paid analysis based on premiums paid in U.S.
domestic merger and acquisition transactions occurring since 1996, that involved acquisitions of U.S. publicly traded companies that, at the time of the acquisition transaction, had two or more classes of common stock with different voting rights
and in which an excess premium was paid to the holders of high-vote stock relative to the holders of the corresponding low-vote stock. As a result, this analysis did not include approximately 100 transactions in which no premium was paid to the
holders of high-vote stock relative to the holders of the corresponding low-vote stock.
Lazard calculated the excess
premium paid to the holders of the high-vote stock relative to the premium received by holders of low-vote stock. This analysis indicated that the excess premium paid to the holders of the high-vote stock compared to the holders of the low-vote
stock ranged from 4.7% to 72.0%, with a median of 18.2%. Lazard then calculated the implied excess premium received by holders of high-vote stock as a percentage of the aggregate transaction consideration by dividing the aggregate high-vote premium
by the aggregate transaction consideration excluding the aggregate high-vote premium, which resulted in a range of premiums from 0.5% to 5.4%, with a median of 2.8%.
Premiums Paid Analysis Selected Real Estate M&A Transactions
Lazard performed a premiums paid analysis based on premiums paid in selected corporate U.S. real estate transactions with a
transaction value between $1 billion and $20 billion where all-cash consideration was paid to the selling stockholders and that were announced from 2011 through the date of Lazards opinion. The analysis was based on the one-day implied
premiums paid in the selected precedent transactions. Premiums paid were calculated as the percentage by which the per share consideration paid in each such transaction exceeded the closing price per share of the target companies one day prior to
the earlier of the announcement date or the date of a rumored announcement of such transactions, resulting in a range from 6.6% to 35.3%, with a median of 18.6%.
52
Miscellaneous
In connection with Lazards services as the Special Committees financial advisor, the Company agreed to pay Lazard
an aggregate fee of $5,000,000, of which $1,500,000 was payable upon the delivery of Lazards opinion, and the remainder of the fee, net of fully-credited $250,000 quarterly retainers, is contingent upon the consummation of the
Reclassification. The Company also agreed to reimburse Lazard for certain expenses incurred in connection with Lazards engagement and to indemnify Lazard and certain related persons under certain circumstances against certain liabilities that
may arise from or relate to Lazards engagement, including certain liabilities under U.S. federal securities laws.
Lazard, as part of its investment banking business, is continually engaged in the valuation of businesses and their securities
in connection with mergers and acquisitions, negotiated underwritings, secondary distributions of listed and unlisted securities, private placements, leveraged buyouts and valuations for estate, corporate and other purposes. Lazard has in the past
provided, currently is providing and in the future may provide investment banking services to the Company and certain of its affiliates, for which Lazard has received and may receive compensation, including, during the past two years, having advised
the Company in connection with convertible debt transactions in 2015 and 2016. The aggregate amount of fees paid to Lazard for financial advisory services provided to the Company in the two-year period prior to the date of the opinion (but excluding
any fees paid for Lazards services as the Special Committees financial advisor as noted above) was approximately $8.7 million. In the two-year period preceding the date of the opinion, Lazards financial advisory business did not
receive any fees for financial advisory services from any of RMS, any of the general partners of RMS or Bruce C. Ratner (who is not a partner or beneficial owner of RMS). In addition, in the ordinary course, Lazard and its affiliates and employees
may trade securities of the Company and certain of its affiliates for their own accounts and for the accounts of their customers and, accordingly, may at any time hold a long or short position in such securities, and may also trade and hold
securities on behalf of the Company and certain of its affiliates. The issuance of Lazards opinion was approved by the Opinion Committee of Lazard.
Lazard is an internationally recognized investment banking firm providing a full range of financial advisory and other
services. Lazard was selected to act as financial advisor to the Special Committee because of its qualifications, expertise and reputation in investment banking and mergers and acquisitions, as well as its familiarity with the business of the
Company.
The Special Committee determined the Exchange Ratio to be paid to the holders of Class B Common Stock in the
Reclassification through arms-length negotiations with RMS, and the Special Committee and the Board approved the Exchange Ratio. Lazard conducted the analyses and reviews summarized above for the purpose of providing an opinion to the Special
Committee and the Board as to the fairness, from a financial point of view, of the Exchange Ratio provided for in the Reclassification to the holders of Class A Common Stock (other than Class A Common Stock held by the RMS Group), solely
in their capacity as holders of Class A Common Stock, with respect to such Class A Common Stock and without taking into account any Class B Common Stock held by such holders. Lazard did not recommend any specific consideration to the
Special Committee, the Board or any other person or indicate that any given consideration constituted the only appropriate consideration for the Reclassification.
Lazards opinion was one of many factors considered by the Special Committee and the Board. Consequently, the summary of
the analyses and reviews provided above should not be viewed as determinative of the opinion of the Special Committee and the Board with respect to the Exchange Ratio or of whether the Special Committee and the Board would have been willing to
recommend a different transaction or determine that a different Exchange Ratio was fair. Additionally, Lazards opinion is not intended to confer any rights or remedies upon any employee or creditor of the Company.
Opinion of Houlihan Lokey
On December 5, 2016, Houlihan Lokey verbally rendered its opinion to the Board (which was subsequently confirmed in
writing by delivery of Houlihan Lokeys written opinion addressed to the Board dated December 5,
53
2016), as to the fairness, from a financial point of view, of the Exchange Ratio provided for in the Reclassification pursuant to the Reclassification Agreement to the holders of Class B Common
Stock (other than RMS Group) (solely in their capacity as holders of shares of Class B Common Stock, with respect to such Class B Common Stock, and without taking into account any shares of Class A Common Stock held by such holders), as of
December 5, 2016, based upon and subject to the procedures followed, assumptions made, qualifications and limitations on the review undertaken and other matters considered by Houlihan Lokey in preparing its opinion.
Houlihan Lokeys opinion was directed to the Board (in its capacity as such) and only addressed the fairness, from a
financial point of view, of the Exchange Ratio provided for in the Reclassification, pursuant to the Reclassification Agreement, to the holders of Class B Common Stock (other than RMS Group) (solely in their capacity as holders of shares of Class B
Common Stock, with respect to such Class B Common Stock, and without taking into account any shares of Class A Common Stock held by such holders) and did not address any other aspect or implication of the Reclassification or any other
agreement, arrangement or understanding. The summary of Houlihan Lokeys opinion in this proxy statement/prospectus is qualified in its entirety by reference to the full text of its written opinion, which is attached as Annex E to this proxy
statement/prospectus and describes the procedures followed, assumptions made, qualifications and limitations on the review undertaken and other matters considered by Houlihan Lokey in connection with the preparation of its opinion. However, neither
Houlihan Lokeys opinion nor the summary of its opinion and the related analyses set forth in this proxy statement/prospectus is intended to be, and neither constitutes, advice or a recommendation to the Special Committee, the Board, any
security holder of the Company or any other person as to how to act or vote with respect to any matter relating to the Reclassification.
In arriving at its opinion, Houlihan Lokey, among other things:
|
|
|
reviewed the following agreements and documents:
|
|
|
|
a draft, dated December 4, 2016, of the Reclassification Agreement;
|
|
|
|
a draft, dated December 1, 2016, of Forest City Realty Trust, Inc. Articles of Amendment and Restatement;
|
|
|
|
a draft, dated December 1, 2016, of Forest City Realty Trust, Inc. Amended and Restated Bylaws;
|
|
|
|
Forest City Realty Trust, Inc. Articles of Amendment and Restatement (as in effect upon the execution and
delivery of the Reclassification Agreement); and
|
|
|
|
Forest City Realty Trust, Inc. Amended and Restated Bylaws (as in effect upon the execution and delivery of
the Reclassification Agreement);
|
|
|
|
reviewed certain publicly available business and financial information relating to the Company that Houlihan
Lokey deemed to be relevant;
|
|
|
|
spoke with certain members of the management of the Company and certain of its representatives and advisors
regarding the capital structure of the Company, the Reclassification and related matters;
|
|
|
|
considered the publicly available financial terms of certain (i) mergers and acquisitions transactions
and (ii) reclassification transactions that, in each case, Houlihan Lokey deemed to be relevant;
|
|
|
|
reviewed the current and historical market prices and trading volume for Class A Common Stock and Class B
Common Stock, and the current and historical market prices and trading volume of the publicly traded securities of certain other companies that Houlihan Lokey deemed to be relevant; and
|
|
|
|
conducted such other financial studies, analyses and inquiries and considered such other information and
factors as Houlihan Lokey deemed appropriate.
|
Houlihan Lokey relied upon and assumed, without
independent verification, the accuracy and completeness of all data, material and other information furnished, or otherwise made available, to Houlihan Lokey, discussed
54
with or reviewed by Houlihan Lokey or publicly available, and did not assume any responsibility with respect to such data, material and other information. Houlihan Lokey relied upon and assumed,
without independent verification, that there (i) had been no change in the business, assets, liabilities, financial condition, results of operations, cash flows or prospects of the Company since the respective dates of the most recent financial
statements and other information, financial or otherwise, provided to Houlihan Lokey, and (ii) was no information or any facts that would have made any of the information reviewed by Houlihan Lokey incomplete or misleading, in each case, that
would have been material to Houlihan Lokeys analyses or its opinion.
Houlihan Lokey relied upon and assumed,
without independent verification, that, to the extent material to its analyses or its opinion, (a) the representations and warranties of all parties to the Reclassification Agreement and all other related documents and instruments that are
referred to therein were true and correct, (b) each party to the Reclassification Agreement and such other related documents and instruments would fully and timely perform all of the covenants and agreements required to be performed by such
party, (c) all conditions to the consummation of the Reclassification would be satisfied without waiver thereof and (d) the Reclassification would be consummated in a timely manner in accordance with the terms described in the
Reclassification Agreement and such other related documents and instruments, without any amendments or modifications thereto. Houlihan Lokey also assumed, with the consent of the Board, that the Reclassification would qualify as a tax-free
transaction. Houlihan Lokey relied upon and assumed, without independent verification, that (i) the Reclassification would be consummated in a manner that complies in all respects with all applicable federal and state statutes, rules and
regulations and (ii) all governmental, regulatory, and other consents and approvals necessary for the consummation of the Reclassification would be obtained and that no delay, limitations, restrictions or conditions would be imposed or
amendments, modifications or waivers made that would have an effect on the Reclassification or the Company or any expected benefits of the Reclassification that would be material to Houlihan Lokeys analyses or its opinion. In addition,
Houlihan Lokey relied upon and assumed, without independent verification, that the final forms of any draft documents identified above would not differ in any respect from the drafts of said documents in any respect material to Houlihan Lokeys
analyses or its opinion.
Furthermore, in connection with its opinion, Houlihan Lokey was not requested to make, and did
not make, any physical inspection or independent appraisal or evaluation of any of the assets, properties or liabilities (fixed, contingent, derivative, off-balance-sheet or otherwise) of the Company or any other party, nor was Houlihan Lokey
provided with any such appraisal or evaluation. Houlihan Lokey did not estimate, and expressed no opinion regarding, the liquidation value of any entity or business. Houlihan Lokey undertook no independent analysis of any potential or actual
litigation, regulatory action, possible unasserted claims or other contingent liabilities, to which the Company is or may be a party or is or may be subject, or of any governmental investigation of any possible unasserted claims or other contingent
liabilities to which the Company is or may be a party or is or may be subject. In reaching its conclusion in its opinion, Houlihan Lokey did not perform any intrinsic valuation analyses of the Company in light of the nature of the Reclassification,
in which the holders of Class B Common Stock are (i) increasing their equity ownership percentage in the Company and (ii) receiving shares of Class A Common Stock, which class of equity securities is (a) more liquid than Class B
Common Stock and (b) economically identical to that of the Class B Common Stock, and such holders are not otherwise receiving cash and/or securities in another entity.
Houlihan Lokey was not requested to, and did not, (a) initiate or participate in any discussions or negotiations with, or
solicit any indications of interest from, third parties with respect to the Reclassification, the securities, assets, businesses or operations of the Company or any other party or any alternatives to the Reclassification, (b) negotiate the
terms of the Reclassification or (c) advise the Special Committee, the Board or any other party with respect to alternatives to the Reclassification. The opinion was necessarily based on financial, economic, market and other conditions as in
effect on, and the information made available to Houlihan Lokey as of, the date of the opinion. Houlihan Lokey did not undertake, and was under no obligation, to update, revise, reaffirm or withdraw its opinion or otherwise comment on or consider
events occurring or coming to its attention after the date of the opinion. Houlihan Lokey did not express any opinion as to what the value of
55
Class A Common Stock actually would be when issued pursuant to the Reclassification or the price or range of prices at which Class A Common Stock or Class B Common Stock may be
purchased or sold, or otherwise be transferable, at any time. Houlihan Lokey assumed that the Class A Common Stock to be issued in the Reclassification to the holders of Class B Common Stock would be listed on the NYSE.
Houlihan Lokeys opinion was furnished for the use of the Board (in its capacity as such in connection with its
evaluation of the Reclassification) and may not be used for any other purpose without Houlihan Lokeys prior written consent, other than for inclusion in this proxy statement/prospectus to the extent contemplated by the letter agreement dated
December 1, 2016 between the Company and Houlihan Lokey. Houlihan Lokeys opinion was not intended to be, and does not constitute, a recommendation to the Special Committee, the Board, any security holder or any other party as to how to
act or vote with respect to any matter relating to the Reclassification or otherwise.
Houlihan Lokey was not requested to
opine as to, and its opinion did not express an opinion as to or otherwise address, among other things: (i) the underlying business decision of the Special Committee, the Board, the Company, its security holders or any other party to proceed
with or effect the Reclassification, (ii) the terms of any arrangements, understandings, agreements or documents related to, or the form, structure or any other portion or aspect of, the Reclassification or otherwise (other than the Exchange
Ratio to the extent expressly specified therein), (iii) the fairness of any portion or aspect of the Reclassification to the holders of any class of securities, creditors or other constituencies of the Company, or to any other party, except if
and only to the extent expressly set forth in the last sentence of Houlihan Lokeys opinion, (iv) the relative merits of the Reclassification as compared to any alternative business strategies or transactions that might be available for
the Company any other party, (v) the fairness of any portion or aspect of the Reclassification to any one class or group of the Companys or any other partys security holders or other constituents vis-à-vis any other class or
group of the Companys or such other partys security holders or other constituents (including, without limitation, the allocation of any consideration amongst or within such classes or groups of security holders or other constituents),
(vi) whether or not the Company, its security holders or any other party is receiving or paying reasonably equivalent value in the Reclassification, (vii) the solvency, creditworthiness or fair value of the Company, or any other
participant in the Reclassification, or any of their respective assets, under any applicable laws relating to bankruptcy, insolvency, fraudulent conveyance or similar matters or (viii) the fairness, financial or otherwise, of the amount, nature
or any other aspect of any compensation to or consideration payable to or received by any officers, directors or employees of any party to the Reclassification, any class of such persons or any other party, relative to the Exchange Ratio or
otherwise. Furthermore, no opinion, counsel or interpretation was intended in matters that constitute legal, regulatory, accounting, insurance, tax or other similar professional advice. Houlihan Lokey assumed that such opinions, counsel or
interpretations had been or would be obtained from the appropriate professional sources. Furthermore, Houlihan Lokey relied, with the consent of the Board, on the assessments by the Special Committee, the Company, and their respective advisors, as
to all legal, regulatory, accounting, insurance and tax matters with respect to the Company and the Reclassification or otherwise.
In performing its analyses, Houlihan Lokey considered general business, economic, industry and market conditions, financial
and otherwise, and other matters as they existed on, and could be evaluated as of, the date of its opinion. No company, transaction or business used in Houlihan Lokeys analyses for comparative purposes is identical to the Company or the
proposed Reclassification and an evaluation of the results of those analyses is not entirely mathematical. As a consequence, mathematical derivations (such as the high, low, mean and median) of financial data are not by themselves meaningful and in
selecting the ranges of multiples to be applied were considered in conjunction with experience and the exercise of judgment. In addition, any analyses relating to the value of assets, businesses or securities do not purport to be appraisals or to
reflect the prices at which businesses or securities actually may be sold, which may depend on a variety of factors, many of which are beyond the control of the Company. Much of the information used in, and accordingly the results of, Houlihan
Lokeys analyses are inherently subject to substantial uncertainty.
Houlihan Lokeys opinion was only one of
many factors considered by the Board in evaluating the proposed Reclassification. Neither Houlihan Lokeys opinion nor its analyses were determinative of the Exchange Ratio or
56
of the views of the Board or management with respect to the Reclassification or the Exchange Ratio. Under the terms of its engagement by the Company, neither Houlihan Lokeys opinion nor any
other advice or services rendered by it in connection with the proposed Reclassification or otherwise should be construed as creating, and Houlihan Lokey should not be deemed to have, any fiduciary duty to, or agency relationships with, the Board or
the Company or any security holder or creditor of the Company or any other person, regardless of any prior or ongoing advice or relationships. The Exchange Ratio was determined through negotiation between the Special Committee and RMS, and the
decision to enter into the Reclassification Agreement was solely that of the Board.
Financial Analyses
In preparing its opinion to the Board, Houlihan Lokey performed a variety of analyses, including those described below. The
summary of Houlihan Lokeys analyses is not a complete description of the analyses underlying Houlihan Lokeys opinion. The preparation of such an opinion is a complex process involving various quantitative and qualitative judgments and
determinations with respect to the financial, comparative and other analytical methods employed and the adaptation and application of these methods to the unique facts and circumstances presented. As a consequence, neither Houlihan Lokeys
opinion nor its underlying analyses is readily susceptible to summary description. Houlihan Lokey arrived at its opinion based on the results of all analyses undertaken by it and assessed as a whole and did not draw, in isolation, conclusions from
or with regard to any individual analysis, methodology or factor. While the results of each analysis were taken into account in reaching Houlihan Lokeys overall conclusion with respect to fairness, Houlihan Lokey did not make separate or
quantifiable judgments regarding individual analyses. Accordingly, Houlihan Lokey believes that its analyses and the following summary must be considered as a whole and that selecting portions of its analyses, methodologies and factors, without
considering all analyses, methodologies and factors, could create a misleading or incomplete view of the processes underlying Houlihan Lokeys analyses and opinion.
The following is a summary of the material financial analyses performed by Houlihan Lokey in connection with the preparation
of its opinion and reviewed with the Board on December 5, 2016. The order of the analyses does not represent relative importance or weight given to those analyses by Houlihan Lokey. The analyses summarized below include information presented in
tabular format. The tables alone do not constitute a complete description of the analyses. Considering the data in the tables below without considering the full narrative description of the analyses, as well as the methodologies underlying, and the
assumptions, qualifications and limitations affecting, each analysis, could create a misleading or incomplete view of Houlihan Lokeys analyses.
Unless the context indicates otherwise, market capitalization values and current market values used in the
selected companies analysis described below were calculated using the closing prices of Class A Common Stock, Class B Common Stock and the classes of common stock of the selected companies listed below as of December 2, 2016, and
transaction values for the selected reclassification transactions analyses and selected mergers and acquisitions transactions described below were calculated based on the announced transaction equity prices and other public information available at
the time of the announcement of the applicable selected transaction.
57
Selected Reclassification Transactions Analysis.
Houlihan Lokey reviewed
certain financial terms of 37 reclassification transactions in which two classes of publicly traded voting stock of a single company with differential voting rights were reclassified or combined into a single class of common stock. Such transactions
were announced during the period from June 1998 to August 2015 and involved U.S. domiciled companies in which the holders of the high vote shares held at least 50% of the voting rights of the company and/or the ability to appoint a majority of the
companys board of directors. The companies involved in the selected transactions consisted of the following:
|
|
|
Month Announced
|
|
Company
|
Aug-2015
|
|
Hubbell Incorporated
|
Mar-2013
|
|
Tecumseh Products Company
|
Sep-2011
|
|
SunPower Corporation
|
Jun-2011
|
|
Benihana Inc.
|
Sep-2010
|
|
Aarons, Inc.
|
Oct-2009
|
|
Chipotle Mexican Grill, Inc.
|
Dec-2008
|
|
Mueller Water Products, Inc.
|
Dec-2006
|
|
GameStop Corp.
|
Feb-2006
|
|
Eagle Materials Corporation
|
Sep-2005
|
|
LocatePlus Holdings Corporation
|
Apr-2005
|
|
Gartner, Inc.
|
Mar-2005
|
|
Curtiss-Wright Corporation
|
Dec-2004
|
|
Agere Systems, Inc.
|
Oct-2003
|
|
Alberto Culver Company
|
Aug-2003
|
|
Pilgrims Pride Corporation
|
Aug-2003
|
|
MIPS Technologies, Inc.
|
May-2003
|
|
Jo-Ann Stores, Inc.
|
Apr-2003
|
|
Florida East Coast Industries, Inc.
|
Apr-2003
|
|
Commonwealth Telephone Enterprises LLC
|
Oct-2002
|
|
The Readers Digest Association, Inc.
|
Jul-2002
|
|
E-Z-EM, Inc.
|
Feb-2002
|
|
Freeport-McMoRan Copper & Gold, Inc.
|
Dec-2001
|
|
Michael Baker Corporation
|
Jul-2001
|
|
Conoco, Inc.
|
Mar-2001
|
|
AmSurg Corporation
|
Feb-2001
|
|
Raytheon Company
|
Dec-2000
|
|
Waddell & Reed Financial, Inc.
|
Nov-2000
|
|
Continental Airlines
|
May-2000
|
|
The J. M. Smucker Company
|
Apr-2000
|
|
Mitchell Energy & Development
|
Nov-1999
|
|
Dairy Mart Convenience Stores
|
Aug-1999
|
|
InfoUSA, Inc.
|
May-1999
|
|
PacifiCare Health Systems, LLC
|
Mar-1999
|
|
The Cherry Corporation
|
Mar-1999
|
|
First Oak Brook Bancshares Inc.
|
Oct-1998
|
|
Scott Technologies, Inc.
|
Jun-1998
|
|
Remington Oil and Gas Corp.
|
For each of the selected reclassification transactions, Houlihan Lokey calculated the implied
premiums paid to the holders of high vote stock, taken as a percentage of (i) the low vote share price based on the closing price of such publicly traded low vote shares one day prior to the announcement of the reclassification transaction, and
(ii) the aggregate equity market capitalization of the company, based on the closing share prices of all of the publicly traded shares of the respective companies one day prior to announcement of the reclassification
58
transaction. Houlihan Lokey also calculated the implied premium to be paid to the holders of Class B Common Stock based on the same methodologies. The resulting high, median, mean and low
percentages for the selected transactions, as well as those implied by the Reclassification were as follows:
|
|
|
|
|
|
|
|
|
|
|
Implied Premium
to Low Vote
Share Price
|
|
|
Implied Premium as a
Percentage of
Market Capitalization
|
|
High
|
|
|
29.4
|
%
|
|
|
8.3
|
%
|
Median
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Mean
|
|
|
4.0
|
%
|
|
|
0.8
|
%
|
Low
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
The Company
|
|
|
31.0
|
%
|
|
|
2.2
|
%
|
Houlihan Lokey further reviewed certain financial terms of the eight reclassification
transactions, out of the 37 reclassification transactions listed above, in which the holders of high vote shares received a premium relative to the holders of low vote shares. The eight selected reclassification transactions consisted of the
following:
|
|
|
Month
Announced
|
|
Company
|
Aug-2015
|
|
Hubbell Incorporated
|
May-2003
|
|
Jo-Ann Stores, Inc.
|
Apr-2003
|
|
Commonwealth Telephone Enterprises LLC
|
Oct-2002
|
|
The Readers Digest Association, Inc.
|
Nov-2000
|
|
Continental Airlines
|
Nov-1999
|
|
Dairy Mart Convenience Stores
|
May-1999
|
|
PacifiCare Health Systems, LLC
|
June-1998
|
|
Remington Oil and Gas Corp.
|
For each of the eight selected reclassification transactions in which the holders of high vote
shares received a premium relative to the holders of low vote shares, Houlihan Lokey conducted the same review as described above with respect to all 37 selected reclassification transactions. The resulting high, median, mean and low percentages for
such eight selected transactions, as well as those implied by the Reclassification were as follows:
|
|
|
|
|
|
|
|
|
|
|
Implied Premium
to Low Vote
Share Price
|
|
|
Implied Premium as a
Percentage of
Market Capitalization
|
|
High
|
|
|
29.4
|
%
|
|
|
8.3
|
%
|
Median
|
|
|
15.0
|
%
|
|
|
3.2
|
%
|
Mean
|
|
|
18.5
|
%
|
|
|
3.8
|
%
|
Low
|
|
|
9.0
|
%
|
|
|
0.8
|
%
|
The Company
|
|
|
31.0
|
%
|
|
|
2.2
|
%
|
59
Selected M&A Transactions Analysis.
Houlihan Lokey considered certain
financial terms of eight mergers and acquisitions transactions in which (i) the target company at the time of such transaction had two outstanding classes of common stock with different voting rights, (ii) the high vote class held at least
50% of the voting rights of the company or was able to control the companys decision to conduct a sale and (iii) a premium was paid to the holders of high vote stock relative to the consideration paid to the holders of corresponding low
vote stock. Such transactions had enterprise values of at least $250 million, involved U.S. domiciled companies and were announced between August 1996 and June 2016. The selected mergers and acquisitions transactions consisted of the following:
|
|
|
|
|
Date
Announced
|
|
Target
|
|
Acquiror
|
06/30/2016
|
|
Starz
|
|
Lions Gate Entertainment Corp.
|
02/26/2013
|
|
Assisted Living Concepts, Inc.
|
|
TPG Capital, L.P.; TPG Partners VI, L.P.
|
12/21/2011
|
|
Delphi Financial Group, Inc.
|
|
Tokio Marine & Nichido Fire Insurance Co., Ltd.
|
09/28/2009
|
|
Affiliated Computer Services, Inc.
|
|
Xerox Corporation
|
10/19/2004
|
|
The Robert Mondavi Corporation
|
|
Constellation Brands, Inc.
|
03/05/1999
|
|
Century Communications Corp.
|
|
Adelphia Communications Corp.
|
06/24/1998
|
|
Tele-Communications, Inc.
|
|
AT&T Corp.
|
08/26/1996
|
|
Home Shopping Network, Inc.
|
|
Silver King Communications
|
For each of the selected mergers and acquisitions transactions, Houlihan Lokey calculated the
implied per share premium to the holders of high vote stock, calculated as (i) the percentage of (a) the per share consideration paid to the holders of high vote stock, based on the cash and/or stock consideration received by the holders
of high vote stock, in excess of (b) the per share consideration paid to holders of the low vote stock, based on the cash and/or stock consideration received by the holders of low vote stock, and (ii) the percentage of (a) such excess
aggregate consideration paid to the holders of high vote stock, based on the cash and/or stock consideration received by the high vote stock, as compared to (b) the implied aggregate equity market capitalization of the target company, based on
the announced transaction equity price and other public information available at the time of the announcement. Houlihan Lokey also calculated the implied premium to be paid to the holders of Class B Common Stock based on the same methodologies. The
resulting high, median, mean and low percentages for the selected transactions, as well as those implied by the Reclassification were as follows:
|
|
|
|
|
|
|
|
|
|
|
High Vote/Low Vote
Per Share Premium
|
|
|
High Vote Aggregate Premium
as Percentage of Market
Capitalization
|
|
High
|
|
|
72.0
|
%
|
|
|
5.8
|
%
|
Median
|
|
|
13.2
|
%
|
|
|
3.3
|
%
|
Mean
|
|
|
20.6
|
%
|
|
|
3.1
|
%
|
Low
|
|
|
7.5
|
%
|
|
|
0.9
|
%
|
The Company
|
|
|
31.0
|
%
|
|
|
2.2
|
%
|
60
Selected Companies Analysis.
Houlihan Lokey reviewed certain data for 12
selected companies which had (i) two classes of publicly traded common stock with different voting rights, (ii) market capitalization of greater than $1 billion, (iii) trailing twelve month revenues of greater than $500 million and
(iv) both classes of common stock trading on a major U.S. exchange. Although all of the selected companies had two classes of publicly traded common stock with different voting rights, Houlihan Lokey was aware that the difference in voting
rights was not the same for all of the selected companies. The details of these differences in voting rights, however, were not material to Houlihan Lokeys analysis. The selected companies consisted of the following:
|
Company
|
Bio-Rad Laboratories, Inc.
|
Brown-Forman Corporation
|
CBS Corporation
|
Constellation Brands, Inc.
|
Greif, Inc.
|
John Wiley & Sons, Inc.
|
Lennar Corporation
|
Moog Inc.
|
Rush Enterprises, Inc.
|
Twenty-First Century Fox, Inc.
|
Viacom, Inc.
|
Watsco, Inc.
|
For each of the selected companies, Houlihan Lokey reviewed the historical trading prices for
the high vote shares and the low vote shares as of December 2, 2016 and also the average premium/(discount) of the high vote shares historical trading prices to the low vote shares historical trading prices over the six month, one-year,
two-year, three-year and five-year periods ended December 2, 2016. In addition, Houlihan Lokey compared the high, median, mean and low average premium/(discount) of the high vote shares historical trading prices to the low vote shares
historical trading prices for such periods to such average premium/(discount) of the Class B Common Stock to the Class A Common Stock over such same time periods. The results of such review were as follows:
High Vote vs. Low Vote Premium/(Discount)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
6-Month
Avg.
|
|
|
1-Year
Avg.
|
|
|
2-Year
Avg.
|
|
|
3-Year
Avg.
|
|
|
5-Year
Avg.
|
|
High
|
|
|
21.0
|
%
|
|
|
21.6
|
%
|
|
|
24.4
|
%
|
|
|
19.1
|
%
|
|
|
15.7
|
%
|
|
|
11.8
|
%
|
Median
|
|
|
(0.0
|
)%
|
|
|
0.9
|
%
|
|
|
0.7
|
%
|
|
|
0.2
|
%
|
|
|
0.1
|
%
|
|
|
0.1
|
%
|
Mean
|
|
|
0.2
|
%
|
|
|
1.5
|
%
|
|
|
1.9
|
%
|
|
|
0.6
|
%
|
|
|
(0.4
|
)%
|
|
|
(1.4
|
)%
|
Low
|
|
|
(25.8
|
)%
|
|
|
(24.8
|
)%
|
|
|
(24.4
|
)%
|
|
|
(23.5
|
)%
|
|
|
(22.5
|
)%
|
|
|
(23.9
|
)%
|
The Company
|
|
|
2.1
|
%
|
|
|
0.0
|
%
|
|
|
(0.1
|
)%
|
|
|
(0.4
|
)%
|
|
|
(0.4
|
)%
|
|
|
(0.2
|
)%
|
61
Houlihan Lokey also reviewed the relative trading liquidity for the five years
ending December 2, 2016 for the high vote shares and low vote shares for each selected company, as well as for the Class A Common Stock and the Class B Common Stock, in each case, by reviewing the daily trading volume for such shares over
such five year period and comparing the daily trading volume of such high vote and low vote shares to the aggregate daily trading volume of all outstanding shares of such selected company, as well as for the Company. The resulting high, median, mean
and low percentages for such classes of common stock were as follows:
|
|
|
|
|
|
|
Average Relative Trading
Liquidity of High Vote Shares for
Selected Companies
|
|
Average Relative Trading
Liquidity for Low Vote Shares for
Selected Companies
|
High
|
|
18.6%
|
|
100.0%
|
Median
|
|
0.5%
|
|
99.5%
|
Mean
|
|
2.8%
|
|
97.2%
|
Low
|
|
0.0%
|
|
81.4%
|
|
|
|
|
|
Average Relative Trading
Liquidity of
Class B Common
Stock
|
|
Average Relative Trading
Liquidity of
Class A Common
Stock
|
The Company
|
|
0.1%
|
|
99.9%
|
Miscellaneous
Houlihan Lokey was engaged by the Company to provide an opinion to the Board as to the fairness, from a financial point of
view, of the Exchange Ratio provided for in the Reclassification, pursuant to the Reclassification Agreement, to the holders of Class B Common Stock (other than RMS Group) (solely in their capacity as holders of shares of Class B Common Stock, with
respect to such Class B Common Stock, and without taking into account any shares of Class A Common Stock held by such holders). We engaged Houlihan Lokey based on Houlihan Lokeys experience and reputation. Houlihan Lokey is regularly
engaged to render financial opinions in connection with mergers, acquisitions, divestitures, leveraged buyouts, and for other purposes. Pursuant to its engagement by the Company, Houlihan Lokey was entitled to an aggregate fee of $700,000 for its
services, a portion of which became payable upon the execution of Houlihan Lokeys engagement letter and the balance of which became payable upon the delivery of Houlihan Lokeys opinion. No portion of Houlihan Lokeys fee was
contingent upon the successful completion of the Reclassification. The Company also agreed to reimburse Houlihan Lokey for certain expenses and to indemnify Houlihan Lokey, its affiliates and certain related parties against certain liabilities and
expenses, including certain liabilities under the federal securities laws, arising out of or related to Houlihan Lokeys engagement.
In the ordinary course of business, certain of Houlihan Lokeys employees and affiliates, as well as investment funds in
which they may have financial interests or with which they may co-invest, may acquire, hold or sell, long or short positions, or trade, in debt, equity, and other securities and financial instruments (including loans and other obligations) of, or
investments in, the Company or any other party that may be involved in the Reclassification and their respective affiliates or any currency or commodity that may be involved in the Reclassification.
Houlihan Lokey in the past provided investment banking services to an indirect subsidiary of the Company, for which Houlihan
Lokey received compensation. Houlihan Lokey and certain of its affiliates may provide investment banking, financial advisory and/or other financial or consulting services to the Company, other participants in the Reclassification or certain of their
respective affiliates in the future, for which Houlihan Lokey and its affiliates may receive compensation. Furthermore, in connection with bankruptcies, restructurings, and similar matters, Houlihan Lokey and certain of its affiliates may have in
the past acted, may currently be acting and may in the future act as financial advisor to debtors, creditors, equity holders, trustees, agents and other interested parties (including, without limitation, formal and informal committees or groups of
creditors) in such bankruptcies, restructuring or similar matters that may have included or represented and may include or represent, directly or indirectly, or may be or have been adverse to, the Company, other participants in the Reclassification
or certain of their respective affiliates, for which advice and services Houlihan Lokey and its affiliates have received and may receive compensation.
62
Recommendations of the Special Committee and of the Board
On December 5, 2016, the Special Committee agreed to unanimously recommend that the Board:
(i) authorize the Company to enter into the Reclassification Agreement, the Irrevocable Proxy and the Voting and Support Agreement; (ii) determine that the Reclassification Amendment is advisable and in the best interests of the Company;
and (iii) direct that the Reclassification Amendment be submitted to the holders of Class A Common Stock for their approval and recommend that the holders of Class A Common Stock approve the same. Later on December 5, the Board
authorized and approved the Reclassification Agreement and the Reclassification and the transactions contemplated thereby, declared the Reclassification Amendment advisable and in the best interests of the Company and its stockholders and directed
that the Reclassification Proposal be submitted to the stockholders. The Board recommends that you vote
FOR
the Reclassification Proposal.
Certain Effects of the Reclassification
Rule
13e-3
under the Exchange Act is applicable to certain going private
transactions and requires that certain information relating to the fairness of a proposed transaction and the consideration offered to minority stockholders in such transaction be filed with the SEC and disclosed to stockholders prior to
consummation of the transaction. The Company believes that Rule
13e-3
is not applicable to the Reclassification as a result of Rule
13e-3(g)(2),
which provides an
exception for the reclassification of existing shares into common stock that is registered under the Exchange Act and listed on a national securities exchange.
Nevertheless, in authorizing and approving the Reclassification Amendment, the Reclassification Agreement and the
Reclassification, the Board considered certain effects of the Reclassification on affiliated and unaffiliated holders of the Companys Class A Common Stock and Class B Common Stock and concluded that the Reclassification is fair to
unaffiliated stockholders. The Board received the unanimous recommendations of the Special Committee, consisting solely of three Class A Directors, each of whom is also an independent director, which Special Committee was advised by
representatives of Lazard, Sullivan & Cromwell and Venable, each a nationally recognized firm. Each share of Class B Common Stock issued and outstanding immediately prior to the Effective Time, whether or not held by an affiliate of the
Company, will be reclassified and exchanged into 1.31 shares of Class A Common Stock. Moreover, the Company retained Houlihan Lokey for purposes of providing a financial opinion as to the fairness of the Exchange Ratio provided for in the
Reclassification, from a financial point of view, to the holders of Class B Common Stock (other than the RMS Group), solely in their capacity as holders of shares of Class B Common Stock, with respect to such Class B Common Stock, and without taking
into account any shares of Class A Common Stock held by such holders. In addition, under the Reclassification Agreement, it is a condition precedent to the Companys and RMSs obligation to complete the Reclassification that the
majority of the minority stockholder approval be obtained.
Regulatory Matters
We are not aware of any material regulatory requirements that must be complied with or regulatory approvals that must be
obtained prior to completion of the Reclassification, other than compliance with applicable federal and state securities laws and the filing and acceptance for record of the Articles of Amendment and Restatement by the State Department of
Assessments and Taxation of Maryland.
Interests of Certain Persons in the Reclassification
In considering the recommendation of the Board, stockholders should be aware that some of the Companys executive officers
and directors and their affiliates, including RMS, have interests in the Reclassification that are different from, or in addition to, the interests of some or all holders of Class A shares and/or Class B shares.
Certain of our executive officers and directors and their affiliates own beneficial interests in shares of Common Stock
as described in the table contained in the section of this proxy statement/prospectus entitled
Security Ownership of Certain Beneficial Owners and Management
and the accompanying notes thereto.
63
As of the Record Date, RMS beneficially owned none of the outstanding
Class A shares and 68.58% of the outstanding Class B shares. RMS is party to the Reclassification Agreement, pursuant to which, among other things, RMS agreed to vote all shares of Common Stock beneficially owned by it in favor of the
Reclassification Proposal. RMS also provided the Irrevocable Proxy in support of the Reclassification Agreement. Pursuant to the Reclassification Agreement, the Company will (i) include in the slate of nominees recommended by the Board current
directors Brian J. Ratner, James A. Ratner, Ronald A. Ratner and Deborah Ratner Salzberg (or a replacement identified by RMS as described in the Reclassification Agreement) to stand for election as directors at the Companys 2017, 2018 and 2019
annual stockholders meetings. In addition, so long as the Ratner Family Members, in the aggregate, continue to beneficially own 18,153,421 shares of Class A Common Stock (adjusted for any stock dividend, stock split, reverse stock split or
similar transaction) (or any successor security), the Company will include in the slate of nominees recommended by the Board two individuals designated by RMS (or, if RMS is unable to make such designation 15 business days prior to the first
anniversary of mailing of the Companys proxy statement with respect to the 2019 annual stockholder meeting, two Ratner Family Members as designated by the Board) that are reasonably acceptable to the Corporate Governance and Nominating
Committee to stand for election as directors at the 2020 and 2021 annual stockholder meetings. As a result of its significant voting power and its rights and obligations contained in the Reclassification Agreement, the Reimbursement Agreement and
Irrevocable Proxy, RMS has interests in the Reclassification that are different from, or in addition to, the interests of certain other stockholders.
The members of the Special Committee were aware of and considered these interests, among other matters, in evaluating and
negotiating the Reclassification Agreement and in determining to unanimously recommend that the Board determine that the Reclassification Amendment is advisable and in the best interests of the Company. Further, the members of the Board were aware
of and considered these interests, among other matters, when the Board authorized and approved the Reclassification and declared the Reclassification Amendment advisable, fair and in the best interests of the Company.
Transmittal Procedures
The Company has selected Wells Fargo Shareowner Services to act as Exchange Agent (the
Exchange Agent
) for
the Reclassification. With respect to book-entry Class B shares, when the Reclassification becomes effective, and upon receipt of an appropriate agents message or other electronic confirmation from a record holder of book-entry Class B shares,
the Exchange Agent will register in the name of such record holder the shares of Class A Common Stock into which each share of Class B Common Stock represented by each such book-entry has been reclassified and exchanged. With respect to Class B
shares represented by certificates, promptly after the Reclassification becomes effective, the Company will cause the Exchange Agent to mail to each record holder of Class B shares represented by certificates a customary letter of transmittal and
instructions for use in effecting the delivery of certificates (or affidavits of loss in lieu of certificates) to the Exchange Agent. Upon receipt of a certificate (or affidavit of loss in lieu of a certificate), the Exchange Agent will register, in
the name of the holder, the shares of Class A Common Stock into which each share of Class B Common Stock represented by such certificate has been reclassified and exchanged. No dividend or other distribution that is declared or paid on the
Class A Common Stock with a record date after the Effective Time will be paid to any former holder of Class B shares that have been reclassified and exchanged into Class A Common Stock until such person has taken appropriate action with
respect to their shares.
Delisting of Class B Common Stock
Shares of Class B Common Stock are currently listed and traded on the NYSE under the symbol FCE.B. In the
Reclassification, the Companys existing Class B Common Stock will be reclassified and exchanged into Class A Common Stock. As a result, the Class B Common Stock will be deregistered under the Exchange Act, will be delisted from the NYSE
and will cease to be publicly traded.
Accounting Treatment of the Reclassification
At the Effective Time, each issued and outstanding Class B share will be reclassified and exchanged into 1.31 Class A
shares. The Reclassification will result in approximately 24.6 million additional Class A shares
64
being issued and approximately 18.8 million outstanding Class B shares being cancelled. The issuance of the additional Class A shares (and the elimination of all outstanding Class B
shares) will increase the total outstanding shares and the weighted average shares outstanding used in the calculation of basic and fully diluted earnings per share. The increased number of Class A shares outstanding will lower the book value
per share, and basic and fully diluted earnings per share will be reduced. During the year ended December 31, 2016, approximately $4,600,000 of professional and consulting fees directly related to the Reclassification were recorded as a
reduction to additional paid-in capital, in accordance with applicable accounting requirements when raising permanent equity. During the year ended December 31, 2017, the Company expects to incur professional and consulting fees directly
related to the Reclassification of approximately $8,700,000, which will be recorded as a reduction to additional paid-in capital.
Litigation Related
to the Reclassification
On March 21, 2017, the City of Riviera Beach Police Pension Fund, a purported Class A
stockholder, filed a lawsuit on behalf of a putative class of Class A stockholders of the Company in the Circuit Court for Baltimore City, Maryland. The plaintiff in this matter alleges, among other things, (i) that certain current and former
members of the Board are causing the Company to breach certain provisions of the Companys charter, including the Equal Treatment Provision and the Share Conversion Provision, (ii) that certain current and former members of the Board breached
their duties because, among other things, the Reclassification Amendment is coercive in that the amendment and restatement of the charter contemplated thereby would both effectuate the Reclassification and eliminate the Equal Treatment Provision and
the Share Conversion Provision, and because the registration statement of which this proxy statement/prospectus forms a part contains false and materially misleading statements, (iii) that certain Ratner Family Members aided and abetted such alleged
breaches, (iv) that certain current and former members of the Board and certain Ratner Family Members breached an implied covenant of good faith and fair dealing, (v) that certain Ratner Family Members breached their fiduciary duties, (vi) unjust
enrichment of the holders of Class B Common Stock and (vii) that Sections 6.2.1 and 6.2.2 of the charter prohibit Class B stockholders from receiving a premium for their shares in connection with the Reclassification and that any such
reclassification must be done on a 1:1 basis. The plaintiff seeks, among other things, injunctive relief and damages. On April 6, 2017, the plaintiff filed a motion for preliminary injunction seeking, among other things, to delay the stockholder
meeting until after various additional disclosures are made by the Company and certain allegedly coercive aspects of the transaction are remedied.
On March 30, 2017, the Board received a demand letter from Kenneth Bumba, a purported Class A stockholder, alleging, among
other things, that certain current and former members of the Board breached their duties and violated the charter in authorizing and approving the Reclassification, that RMS and certain Ratner Family Members aided and abetted such alleged breaches,
and unjust enrichment of the holders of Class B Common Stock and demanding that the Board take steps to remediate these alleged breaches of duty. On April 5, 2017, this purported Class A stockholder filed a putative class action lawsuit and
derivative lawsuit in the Circuit Court for Baltimore City, Maryland, alleging, essentially, substantially similar claims as those alleged in the City of Riviera Beach Police Pension Fund action described above on behalf of the same putative class
of Class A stockholders. The Bumba complaint also alleges derivative claims on behalf of the Company against certain current and former members of the Board alleging similar claims for breaches of fiduciary and contractual duties, as well as a claim
that certain director defendants breached their duties by causing the Company to enter into the Reimbursement Agreement. The complaint seeks among other things, injunctive relief and damages to the putative class and to the Company.
On April 21, 2017, the Court entered an order consolidating these cases under the caption In Re Forest City Realty Trust,
Inc. Class A Stockholder Litigation, Case No. 24-C-17-001424.
The defendants have not yet answered or otherwise
responded to the complaints in the underlying actions or in the consolidated action. The defendants believe that the claims alleged are without merit and intend to defend against them vigorously.
65
T
HE
R
ECLASSIFICATION
A
GREEMENT
This section describes the material terms of the Reclassification Agreement, which was
executed on December 5, 2016. The description of the Reclassification Agreement in this section and elsewhere in this proxy statement/prospectus is qualified in its entirety by reference to the complete text of the Reclassification Agreement, a
copy of which is attached as Annex B to this proxy statement/prospectus and is incorporated by reference. This summary does not purport to be complete and may not contain all of the information about the Reclassification Agreement that is important
to you. You are encouraged to read the Reclassification Agreement carefully and in its entirety.
Explanatory Note
Regarding the Reclassification Agreement
The Reclassification Agreement and this summary are included solely to
provide you with information regarding its terms. The representations, warranties and covenants made in the Reclassification Agreement by the Company and RMS were made solely for the purposes of the Reclassification Agreement and as of specific
dates and were qualified and subject to important limitations agreed to in connection with the negotiation of the Reclassification Agreement. In particular, in your review of the representations and warranties contained in the Reclassification
Agreement and described in this summary, it is important to bear in mind that the representations and warranties were negotiated with the principal purposes of establishing the circumstances in which a party to the Reclassification Agreement may
have the right to not effect the Reclassification and that the representations and warranties may be intended not as statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate. The
representations and warranties may also be subject to a contractual standard of materiality different from those generally applicable to stockholders and reports and documents filed with the SEC. Moreover, information concerning the subject matter
of the representations and warranties, which do not purport to be accurate as of the date of this proxy statement/prospectus, may have changed since the date of the Reclassification Agreement. Accordingly, the representations and warranties and
other provisions of the Reclassification Agreement should not be read alone, but instead should be read together with the information provided elsewhere in this proxy statement/prospectus, the documents incorporated by reference into this proxy
statement/prospectus, and reports, statements and filings that the Company and RMS file with the SEC from time to time. For more information, see the section of this proxy statement/prospectus entitled
Where You Can Find More
Information
.
Material Obligations of the Company and RMS under the Reclassification Agreement
Pursuant to the Reclassification Agreement, the Company agreed to submit the Reclassification Proposal for the consideration
and vote of stockholders at the Annual Meeting. Until the closing of the Reclassification or the termination of the Reclassification Agreement, RMS agreed to vote, at the Annual Meeting and at any special meeting of the stockholders called with the
approval of RMS for the purposes of obtaining the requisite stockholder approval, all shares of Common Stock beneficially owned by RMS:
|
|
|
in support of the Reclassification Proposal;
|
|
|
|
unless otherwise directed in writing by the Special Committee, to oppose any action, agreement or transaction
that would reasonably be expected to be inconsistent with or contrary to the terms and conditions of the Reclassification Amendment or result in any of the conditions precedent set forth in the Reclassification Agreement not being satisfied on or
prior to July 31, 2017 (subject to certain exceptions and requirements);
|
|
|
|
unless otherwise directed in writing by the Special Committee, against any nominees for election as directors
of the Company at the Annual Meeting other than those nominees recommended by the Board; and
|
|
|
|
against any other action, agreement or transaction involving the Company or any of its subsidiaries, including
any change in the present capitalization of the Company or any amendment or other change
|
66
|
to the Companys charter (other than the Reclassification Amendment) or bylaws, that is intended, or would reasonably be expected, to prevent or impair or delay the consummation of the
Reclassification or the other transactions contemplated by the Reclassification Agreement or the performance by the Company or by RMS of its obligations under the Reclassification Agreement.
|
Furthermore, pursuant to the Reclassification Agreement, the Company agreed that the Companys bylaws would be amended
and restated effective as of the Effective Time, substantially in the form set forth in Annex C attached to the Reclassification Agreement, to make certain amendments incidental to the consummation of the Reclassification and adoption of the
Articles of Amendment and Restatement and to adopt a majority voting standard for the election of directors.
Until the
closing of the Reclassification or the termination of the Reclassification Agreement, both RMS and the Company have also each agreed not to take any actions that would make any representation or warranty in the Reclassification Agreement untrue or
incorrect or have the effect of preventing or disabling their ability to perform any of their obligations under the Reclassification Agreement.
Termination
The obligations of the Company and RMS under the Reclassification Agreement are subject to certain
rights of termination. Subject to certain requirements and exceptions, the Company may terminate the Reclassification Agreement if there has been a breach by RMS of its representations, warranties, covenants or agreements contained in the
Reclassification Agreement. Subject to certain requirements and exceptions, RMS may terminate the Reclassification Agreement if there has been a breach by the Company of its representations, warranties, covenants or agreements contained in the
Reclassification Agreement. Additionally, subject to certain exceptions, there are shared termination rights that include, but are not limited to, the right of either the Company or RMS to terminate the Reclassification Agreement:
|
|
|
if the closing contemplated by the Reclassification Agreement does not occur on or prior to July 31,
2017;
|
|
|
|
if stockholder approval of the Reclassification Amendment is not obtained at the Annual Meeting; or
|
|
|
|
if any legal restraint has been issued or come into effect that will or could have the effect of preventing
the consummation of the Reclassification or the Reclassification Amendment becoming effective, and such legal restraint has become final and non-appealable.
|
The Reclassification Agreement provides that the Company will not exercise any of the above termination rights unless and
until the action has been approved by the Special Committee.
Efforts to Hold Stockholder Vote
The Company agreed to use reasonable efforts to cause the Annual Meeting to be held on or before May 25, 2017. In the
event the Company is unable to hold the Annual Meeting on or before May 25, 2017, the Company agreed to use its reasonable best efforts to hold the Annual Meeting as soon as practicable thereafter. The Reclassification Agreement requires the
Company to submit the Reclassification Amendment to a stockholder vote. The Board authorized and approved the Reclassification Agreement and the Reclassification and the transactions contemplated thereby, declared the Reclassification Amendment
advisable and in the best interests of the Company and its stockholders and directed that the Reclassification Proposal be submitted to the stockholders for their consideration.
No Change in Board Recommendation
Under the Reclassification Agreement, the Board agreed to include in this proxy statement/prospectus (i) the determination
of the Board that the Reclassification Agreement and the transactions contemplated thereby,
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including the Reclassification, are advisable, fair to and in the best interests of the Company and its stockholders and (ii) the recommendation of the Board that stockholders vote in favor
of the Reclassification Proposal.
Representations and Warranties
The Reclassification Agreement contains representations and warranties by each of the parties. These representations and
warranties have been made solely for the benefit of the other party to the Reclassification Agreement and:
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may be intended not as statements of fact, but rather as a way of allocating the risk to one of the parties if
those statements prove to be inaccurate; and
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may apply standards of materiality in a way that is different from what may be viewed as material by you or
other investors.
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Accordingly, the representations and warranties and other provisions of the
Reclassification Agreement should not be read alone, but instead should be understood in the context in which they were given and read together with the information provided elsewhere in this proxy statement/prospectus and in the documents
incorporated by reference herein. See the section of this proxy statement/prospectus entitled
Where You Can Find More Information
.
The representations and warranties made by the Company in the Reclassification Agreement relate to, among other topics, the
following:
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valid existence and corporate power and authority;
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authority of the Company relative to execution and delivery of the Reclassification Agreement and the absence
of conflicts with, or violations of, the organizational documents of the Company, any note, bond, mortgage, indenture, deed of trust, license, contract, undertaking, agreement, lease or other instrument or obligation to which the Company is a party
(other than any compensation or similar plan or arrangement), or any governmental order or law applicable to the Company;
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consents and approvals relating to the Reclassification;
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accuracy of information supplied or to be supplied in the registration statement and this proxy
statement/prospectus;
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the Boards authorization and approval of the Reclassification Amendment, the Reclassification Agreement
and the Reclassification, and the recommendation to Company stockholders that they approve the Reclassification Proposal;
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absence of certain litigation; and
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receipt of opinions from Lazard and Houlihan Lokey.
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The representations and warranties made by RMS in the Reclassification Agreement relate to, among other topics, the following:
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title to the shares of Common Stock beneficially owned by RMS;
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valid existence and corporate power and authority;
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authority of RMS relative to execution and delivery of the Reclassification Agreement and the absence of
conflicts with, or violations of, organizational documents of RMS or any governmental order or law applicable to RMS;
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consents and approvals relating to the Reclassification;
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accuracy of information supplied or to be supplied in the registration statement and this proxy
statement/prospectus;
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absence of certain litigation; and
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absence of finders fees.
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Conditions to the Company and RMSs Obligation to Complete the Reclassification
Under the terms of the Reclassification Agreement, the Company and RMSs obligation to complete the Reclassification is
subject to customary conditions, including, among others:
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the effectiveness of the Companys Registration Statement on Form
S-4
of which this proxy statement/prospectus forms a part;
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the approval of the Reclassification Proposal by the affirmative vote of a majority of the issued and
outstanding Class A shares and a majority of the issued and outstanding Class B shares (voting as separate classes), and that the majority of the minority stockholder approval be obtained;
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the absence of any governmental order or law preventing the Reclassification becoming effective; and
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the approval by the NYSE of the listing of the shares of Class A Common Stock into which the Class B
Common Stock will be reclassified and exchanged.
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Under the terms of the Reclassification Agreement, the
Companys obligation to complete the Reclassification is also subject to, among others, the following customary condition:
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the accuracy of the representations and warranties of RMS (subject to specified materiality standards) and
material compliance by RMS with its obligations under the Reclassification Agreement.
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Under the terms
of the Reclassification Agreement, RMSs obligation to complete the Reclassification is also subject to, among others, the following customary condition:
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the accuracy of the representations and warranties of the Company (subject to specified materiality standards)
and material compliance by the Company with its obligations under the Reclassification Agreement.
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Amendments and Waivers
Amendment
. The Reclassification Agreement may not be altered, amended or supplemented except by an agreement in writing
signed by the parties thereto. The Company may not agree to amend the Reclassification Agreement unless and until such amendment is approved by the Special Committee.
Waiver
. At any time prior to the Effective Time, with certain exceptions, any party may (i) waive any inaccuracies
in the representations and warranties of the other party contained in the Reclassification Agreement or in any document delivered pursuant to the Reclassification Agreement or (ii) waive compliance by the other party with any of the agreements
or conditions contained in the Reclassification Agreement. The Company may not waive any right or condition to its obligations under the Reclassification Agreement unless and until such waiver is approved by the Special Committee.
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M
ATERIAL
U.S. F
EDERAL
I
NCOME
T
AX
C
ONSEQUENCES
The following discussion summarizes the material
United States federal income tax consequences of the Reclassification to holders of shares of Class B Common Stock of the Company and the taxation of the Company. This discussion is for your general information only. This summary is not tax advice.
The tax treatment of a holder will vary depending upon the holders particular situation, and this summary addresses only holders that hold shares of Class B Common Stock as capital assets and does not deal with all aspects of taxation that may
be relevant to particular holders in light of their personal investment or tax circumstances. This summary also does not deal with all aspects of taxation that may be relevant to certain types of holders to which special provisions of the U.S.
federal income tax laws apply, including:
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dealers in securities or currencies;
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traders in securities that elect to use a mark-to-market method of accounting for such traders
securities holdings;
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tax-exempt organizations;
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persons liable for the alternative minimum tax;
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persons that hold shares of Class B Common Stock that are a hedge, that are hedged against interest rate or
currency risks or that are part of a straddle or conversion transaction;
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persons that purchase or sell shares of Class B Common Stock as part of a wash sale for tax purposes; and
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U.S. shareholders (as defined below) whose functional currency is not the U.S. dollar.
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This summary is based on the Code, its legislative history, existing and proposed regulations under the Code, published
rulings and court decisions. This summary describes the provisions of these sources of law only as they are currently in effect. All of these sources of law may change at any time, and any change in the law may apply retroactively. Changes in U.S.
federal, state and local tax laws or regulations, with or without retroactive application, could have a negative effect on the Company. New legislation, Treasury regulations, administrative interpretations or court decisions could significantly and
negatively affect the Companys ability to qualify to be taxed as a REIT and/or the U.S. federal income tax consequences to the Companys investors and to the Company of such qualification. In addition, recent election results and the
shortfall in tax revenues for states and municipalities in recent years may lead to an increase in the frequency and size of such tax law changes. Even changes that do not impose greater taxes on the Company could potentially result in adverse
consequences to the Companys stockholders. For example, a decrease in corporate tax rates could decrease the attractiveness of the REIT structure relative to companies that are not organized as REITs.
If a partnership holds shares of Class B Common Stock, the U.S. federal income tax treatment of a partner will generally
depend on the status of the partner and the tax treatment of the partnership. A partner in a partnership holding shares of Class B Common Stock should consult such partners tax advisor with regard to the U.S. federal income tax treatment of an
investment in the shares.
As used in this section, the term U.S. shareholder means a holder of shares of Company stock, who,
for U.S. federal income tax purposes, is:
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a citizen or resident of the United States,
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a domestic corporation,
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an estate whose income is subject to U.S. federal income taxation regardless of the incomes source, or
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a trust if a United States court can exercise primary supervision over the trusts administration and one
or more United States persons have authority to control all substantial decisions of the trust.
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Nonresident alien individuals, foreign corporations, foreign partnerships and
estates or trusts that in either case are not subject to U.S. federal income tax on a net income basis, who own shares of Class B Common Stock are referred to in this section as non-U.S. shareholders.
ALL HOLDERS OF CLASS B COMMON STOCK SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES OF THE
RECLASSIFICATION TO THEM, INCLUDING THE APPLICATION AND EFFECT OF U.S. FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS.
U.S.
Federal Income Tax Consequences of the Reclassification
The Reclassification is intended to qualify as a
recapitalization within the meaning of Section 368(a)(1)(E) of the Code. In connection with the filing of the registration statement of which this proxy statement/prospectus is a part, the Company has received a legal opinion from
Sullivan & Cromwell to the effect that the Reclassification so qualifies. The opinion is based on representations provided by the Company and on customary assumptions. If any such representation or assumption is inaccurate, the tax
consequences of the Reclassification could differ from those described below. No ruling has been or will be sought from the IRS as to the U.S. federal income tax consequences of the Reclassification and an opinion of counsel is not binding on the
IRS or any court. Accordingly, no assurance can be given that the IRS would not assert, or that a court would not sustain, a position contrary to any of the tax consequences described below.
Accordingly, the material U.S. federal income tax consequences of the Reclassification to U.S. shareholders and non-U.S.
shareholders of shares of Class B Common Stock are as follows:
U.S. shareholders
A U.S. shareholder generally will not recognize gain or loss upon the exchange of shares of Class B Common Stock for shares of
Class A Common Stock pursuant to the Reclassification. The aggregate tax basis of the shares of Class A Common Stock received in exchange for shares of Class B Common Stock pursuant to the Reclassification generally will be equal to the
aggregate tax basis in the shares of Class B Common Stock deemed surrendered. The holding period of the shares of Class A Common Stock received in exchange for shares of Class B Common Stock pursuant to the Reclassification generally will
include the holding period of the shares of Class B Common Stock deemed surrendered.
The receipt of a cash payment in
lieu of fractional shares of Class A Common Stock will be treated as received in redemption of such fractional shares. Any such deemed redemption will be a taxable sale transaction of the fractional shares for U.S. federal income tax purposes.
The shareholder will recognize capital gain or loss equal to the difference between the amount of such cash payment and the shareholders basis in the fractional share treated as redeemed. The capital gain or loss would be long-term capital
gain or loss if the holding period for the Class B Common Stock exceeds one year at the time of the Reclassification.
Non-U.S. shareholders
In general, the U.S. federal income tax consequences to non-U.S. shareholders upon the deemed exchange of shares
of Class B Common Stock for shares of Class A Common Stock pursuant to the Reclassification will be the same as those described above for U.S. shareholders, except as described below.
Gain recognized by a non-U.S. shareholder upon a sale or exchange of shares of Company stock generally will not be taxed under
the Foreign Investment in Real Property Tax Act of 1980 (
FIRPTA
) if the Company is a domestically controlled REIT, defined generally as a real estate investment, less than 50% in value of the stock of which is and was
held directly or indirectly by foreign persons at all times during a specified testing period (provided that, if any class of a REITs stock is regularly traded on an established securities market in the
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United States, a person holding less than 5% of such class during the testing period is presumed not to be a foreign person, unless the REIT has actual knowledge otherwise). The Company believes
that it is a domestically controlled REIT, and, therefore, assuming that the Company continues to be a domestically controlled REIT, that taxation under FIRPTA will not apply to the exchange of shares of Class B Common Stock
for shares of Class A Common Stock pursuant to the Reclassification and generally will not apply to the deemed sale of shares of Class B Common Stock; and the remainder of this paragraph so assumes. However, gain will be taxable to a non-U.S.
shareholder if investment in the shares of Class B Common Stock is treated as effectively connected with the non-U.S. shareholders U.S. trade or business or is attributable to a permanent establishment that the non-U.S. shareholder maintains
in the United States if that is required by an applicable income tax treaty as a condition for subjecting the non-U.S. shareholder to U.S. taxation on a net income basis. In this case, the same treatment will apply to the non-U.S. shareholder as to
U.S. shareholders with respect to the gain. In addition, gain on the redemption of fractional shares will be taxable to a non-U.S. shareholder if the non-U.S. shareholder is a nonresident alien individual who was present in the United States for 183
days or more during the taxable year and has a tax home in the United States, or maintains an office or a fixed place of business in the United States to which the gain is attributable. In this case, a 30% tax will apply to the
nonresident alien individuals capital gains.
If the Company does not qualify as a domestically controlled
REIT, the tax consequences to a non-U.S. shareholder of an exchange or a deemed sale of shares of Class B Common Stock could be adverse. In such case, the tax consequences to a non-U.S. shareholder will depend upon whether such stock is
regularly traded on an established securities market and the amount of such stock that is held by the non-U.S. shareholder. Generally, a non-U.S. shareholder will be treated as owning a United States real property interest within the meaning of
FIRPTA (i) if the shareholder owns more than 10% of the shares of any regularly traded class of Company stock at any time during the shorter of the period that the non-U.S. shareholder owned such shares or the five-year period ending on the date
when the shareholder disposed of the shares, or (ii) in the case of shares that are not regularly traded, if on the date the shares were acquired by the shareholder such shares had a fair market value greater than the fair market value on that date
of 5% of the regularly traded class of the Companys outstanding shares with the lowest fair market value. If you are treated as owning a United States real property interest within the meaning of FIRPTA, you should consult your own tax
advisors.
Non-U.S. shareholders should consult their own tax advisors regarding the application of the foregoing rules in
light of their particular facts and circumstances and the procedures for claiming treaty benefits or otherwise establishing an exemption from U.S. withholding tax with respect to any portion of the cash consideration payable pursuant to the
Reclassification.
FATCA Withholding
Pursuant to Sections 1471 through 1474 of the Code, commonly known as the Foreign Account Tax Compliance Act
(
FATCA
), a 30% withholding tax (
FATCA withholding
) may be imposed on certain payments to you or to certain foreign financial institutions, investment funds and other non-U.S. persons receiving payments on your
behalf if you or such persons fail to comply with certain information reporting requirements. Such payments will include U.S.-source dividends and the gross proceeds from the sale or other disposition of stock that can produce U.S.-source dividends.
Payments of dividends that you receive in respect of the Class B Common Stock could be affected by this withholding if you are subject to the FATCA information reporting requirements and fail to comply with them or if you hold shares of Class B
Common Stock through a non-U.S. person (e.g., a foreign bank or broker) that fails to comply with these requirements (even if payments to you would not otherwise have been subject to FATCA withholding). However, FATCA withholding will not apply to
payments of gross proceeds from a sale or other disposition of Class B Common Stock before January 1, 2019. You should consult your own tax advisors regarding the relevant U.S. law and other official guidance on FATCA withholding.
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Information Reporting and Backup Withholding
A U.S. shareholder may, under certain circumstances, be subject to information reporting and backup withholding at the
applicable rate (currently, 28%) with respect to any cash received pursuant to the Reclassification, unless such holder properly establishes an exemption or provides its correct tax identification number and otherwise complies with the applicable
requirements of the backup withholding rules. Certain holders (such as corporations and non-U.S. shareholders) are exempt from backup withholding. Non-U.S. shareholders may be required to comply with certification requirements and identification
procedures in order to establish an exemption from information reporting and backup withholding. Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules can be refunded or credited against a holders
U.S. federal income tax liability, if any, provided that such holder furnishes the required information to the Internal Revenue Service in a timely manner.
Taxation of the Company as a Real Estate Investment Trust
The Companys qualification as a real estate investment trust under the Code depends upon the continuing satisfaction by
the Company of requirements of the Code relating to qualification for real estate investment trust status. Some of these requirements depend upon actual operating results, distribution levels, diversity of stock ownership, asset composition, source
of income and record keeping. Accordingly, while the Company intends to continue to qualify to be taxed as a real estate investment trust for U.S. federal income tax purposes, the actual results of the Company or certain subsidiaries that are also
REITs (the
REIT Subsidiaries
) for any particular year might not satisfy these requirements. No law firm will monitor the compliance of the Company or the REIT Subsidiaries with the requirements for real estate investment trust
qualification on an ongoing basis.
The sections of the Code applicable to REITs are highly technical and complex. The
following discussion summarizes material aspects of these sections of the Code.
As a real estate investment trust, the
Company generally will not have to pay U.S. federal corporate income taxes on the Companys net income that the Company currently distributes to its shareholders. This treatment substantially eliminates the double taxation at the
corporate and shareholder levels that generally results from investment in a regular corporation. The Companys dividends, however, generally will not be eligible for (i) the reduced rates of tax applicable to dividends received by
noncorporate holders and (ii) the corporate dividends-received deduction.
However, the Company will have to pay U.S. federal income
tax as follows:
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First, the Company will have to pay tax at regular corporate rates on any undistributed real estate investment
trust taxable income, including undistributed net capital gains.
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Second, under certain circumstances, the Company may have to pay the alternative minimum tax on the
Companys items of tax preference.
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Third, if the Company has (a) net income from the sale or other disposition of foreclosure
property, as defined in the Code, which is held primarily for sale to customers in the ordinary course of business or (b) other non-qualifying income from foreclosure property, the Company will have to pay tax at the highest corporate
rate on that income.
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Fourth, if the Company has net income from prohibited transactions, as defined in the Code, the
Company will have to pay a 100% tax on that income. Prohibited transactions are, in general, certain sales or other dispositions of property, other than foreclosure property, held primarily for sale to customers in the ordinary course of business.
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Fifth, if the Company should fail to satisfy the 75% gross income test or the 95% gross income test, as
discussed below under
Requirements for QualificationIncome Tests
, but has nonetheless maintained the Companys qualification as a real estate investment trust because the Company has
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satisfied some other requirements, the Company will have to pay a 100% tax on an amount equal to (a) the gross income attributable to the greater of (i) 75% of the Companys gross
income over the amount of gross income that is qualifying income for purposes of the 75% test, and (ii) 95% of the Companys gross income over the amount of gross income that is qualifying income for purposes of the 95% test, multiplied by
(b) a fraction intended to reflect the Companys profitability.
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Sixth, if the Company should fail to distribute during each calendar year at least the sum of (1) 85% of
the Companys real estate investment trust ordinary income for that year, (2) 95% of the Companys real estate investment trust capital gain net income for that year and (3) any undistributed taxable income from prior periods,
the Company would have to pay a 4% excise tax on the excess of that required distribution over the sum of the amounts actually distributed and retained amounts on which income tax is paid at the corporate level.
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Seventh, if the Company recognizes gain on the disposition of any asset it owned prior to its conversion into
a REIT during the five-year period beginning January 1, 2016, or if the Company acquires any asset from a C corporation in certain transactions in which the Company must adopt the basis of the asset or any other property in the hands of the C
corporation as the basis of the asset in the hands of the Company, and the Company recognizes gain on the disposition of that asset during the five-year period beginning on the date on which the Company acquired that assets, then, in each case, the
Company will have to pay tax on the built-in gain at the highest regular corporate rate. A C corporation means generally a corporation that has to pay full corporate-level tax.
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Eighth, if the Company derives excess inclusion income from a residual interest in a real estate
mortgage investment conduit, or REMIC, or certain interests in a taxable mortgage pool, or TMP, the Company could be subject to corporate-level U.S. federal income tax at a 35% rate to the extent that such income is allocable
to certain types of tax-exempt shareholders that are not subject to unrelated business income tax, such as government entities.
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Ninth, if the Company receives non-arms-length income from a TRS (as defined under
Requirements for QualificationAsset Tests
), or as a result of services provided by a TRS to tenants of the Company, the Company will be subject to a 100% tax on the amount of the Companys non-arms-length
income.
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Tenth, if the Company fails to satisfy a real estate investment trust asset test, as described below, due to
reasonable cause and the Company nonetheless maintains its real estate investment trust qualification because of specified cure provisions, the Company will generally be required to pay a tax equal to the greater of $50,000 or the highest corporate
tax rate multiplied by the net income generated by the nonqualifying assets that caused the Company to fail such test.
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Eleventh, if the Company fails to satisfy any provision of the Code that would result in the Companys
failure to qualify as a real estate investment trust (other than a violation of the real estate investment trust gross income tests or a violation of the asset tests described below) and the violation is due to reasonable cause, the Company may
retain its real estate investment trust qualification but will be required to pay a penalty of $50,000 for each such failure.
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Requirements for Qualification
The Code defines a real estate investment trust as a corporation, trust or association:
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that is managed by one or more trustees or directors;
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the beneficial ownership of which is evidenced by transferable shares, or by transferable certificates of
beneficial interest;
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that would otherwise be taxable as a domestic corporation, but for the sections of the Code defining and
providing special rules for real estate investment trusts;
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that is neither a financial institution nor an insurance company to which certain provisions of the Code
apply;
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the beneficial ownership of which is held by 100 or more persons;
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during the last half of each taxable year, not more than 50% in value of the outstanding stock of which is
owned, directly or constructively, by five or fewer individuals, as defined in the Code to include certain entities (the
not closely held requirement
); and
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that meets certain other tests, including tests described below regarding the nature of its income and assets.
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The Code provides that the conditions described in the first through fourth bullet points above must be
met during the entire taxable year and that the condition described in the fifth bullet point above must be met during at least 335 days of a taxable year of 12 months, or during a proportionate part of a taxable year of less than 12 months.
The Company has satisfied conditions described in the first through fifth bullet points of the second preceding paragraph and
believes that it has also satisfied the condition described in the sixth bullet point of the second preceding paragraph. In addition, the Companys charter provides for restrictions regarding the ownership and transfer of the shares of Company
stock. These restrictions are intended to, among other things, assist the Company in continuing to satisfy the share ownership requirements described in the fifth and sixth bullet points of the preceding paragraph.
Disregarded Entity Subsidiaries
. A corporation that is a QRS, as defined in the Code, will not be treated as a separate
corporation, and all assets, liabilities and items of income, deduction and credit of a QRS will be treated as assets, liabilities and items of these kinds of the Company, unless the Company makes an election to treat such corporation as a TRS.
Thus, in applying the requirements described in this section, the Companys QRSs (if any) will be ignored, and all assets, liabilities and items of income, deduction and credit of these subsidiaries will be treated as assets, liabilities and
items of these kinds of the Company.
Investments in Partnerships
. The Company holds investments indirectly through
its Operating Partnership (Forest City Enterprises, L.P.). In addition, the Operating Partnership holds certain of its investments indirectly through subsidiary partnerships and limited liability companies which are treated as partnerships or
disregarded entities for U.S. federal income tax purposes. In general, entities that are classified as partnerships or disregarded entities for U.S. federal income tax purposes are pass-through entities which are not required to pay
entity-level U.S. federal income tax. If a real estate investment trust is a partner in a partnership, Treasury regulations provide that the real estate investment trust will be deemed to own its proportionate share of the assets of the partnership
and will be deemed to be entitled to the income of the partnership attributable to that proportionate share. In addition, the character of the assets and gross income of the partnership will retain the same character in the hands of the real estate
investment trust for purposes of the rules of the Code defining real estate investment trusts, including satisfying the gross income tests and the asset tests. Thus, the Companys proportionate share of the assets, liabilities and items of
income of any partnership in which the Company is a partner, including the Operating Partnership, will be treated as assets, liabilities and items of income of the Company for purposes of applying the requirements described in this section. Thus,
actions taken by partnerships in which the Company owns an interest, either directly or through one or more tiers of partnerships or disregarded entity subsidiaries, can affect the Companys ability to satisfy the real estate investment trust
income and asset tests and the determination of whether the Company has net income from prohibited transactions. See the fourth bullet point under the heading
Taxation of the Company as a Real Estate Investment Trust
above for a
brief description of prohibited transactions.
Taxable Real Estate Investment Trust Subsidiaries
. A TRS is any
corporation in which a real estate investment trust directly or indirectly owns stock, provided that the real estate investment trust and that
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corporation make a joint election to treat that corporation as a TRS. The election can be revoked at any time as long as the real estate investment trust and the TRS revoke such election jointly.
In addition, if a TRS holds, directly or indirectly, more than 35% of the securities of any other corporation other than a real estate investment trust (by vote or by value), then that other corporation is also treated as a TRS. A corporation can be
a TRS with respect to more than one real estate investment trust.
A TRS is subject to U.S. federal income tax at regular
corporate rates (currently a maximum rate of 35%), and may also be subject to state and local taxation. Any dividends paid or deemed paid by any one of the Companys TRSs will also be taxable, either (1) to the Company to the extent the
dividend is retained by the Company, or (2) to the Companys shareholders to the extent the dividends received from the TRS are paid to the Companys shareholders. The Company may hold more than 10% of the stock of a TRS without
jeopardizing its qualification as a real estate investment trust under the Code notwithstanding the rule described below under
Asset Tests
that generally precludes ownership of more than 10% of any issuers securities.
However, as noted below, in order for the Company to qualify as a real estate investment trust under the Code, the securities of all of the TRSs in which the Company has invested either directly or indirectly may not represent more than 20% of the
total value of the Companys assets (25% with respect to the Companys taxable years ending on or before December 31, 2017). The Company believes that the aggregate value of all of its interests in TRSs has represented and will
continue to represent less than 20% of the total value of the Companys assets; however, the Company cannot assure that this will always be true. Other than certain activities related to operating or managing a lodging or health care facility,
a TRS may generally engage in any business including the provision of customary or non-customary services to tenants of the parent real estate investment trust.
Income Tests
. In order to maintain the Companys qualification as a real estate investment trust, the Company
annually must satisfy two gross income requirements.
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First, the Company must derive at least 75% of its gross income, excluding gross income from prohibited
transactions, for each taxable year directly or indirectly from investments relating to real property, mortgages on real property or investments in real estate investment trust equity securities, including rents from real property, as
defined in the Code, or from certain types of temporary investments. Rents from real property generally include expenses of the Company that are paid or reimbursed by tenants.
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Second, at least 95% of the Companys gross income, excluding gross income from prohibited transactions,
for each taxable year must be derived from real property investments as described in the preceding bullet point, dividends, interest and gain from the sale or disposition of stock or securities, or from any combination of these types of sources.
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Rents that the Company receives will qualify as rents from real property in satisfying the gross income
requirements for a REIT described above only if the rents satisfy several conditions.
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First, the amount of rent must not be based in whole or in part on the income or profits of any person.
However, an amount received or accrued generally will not be excluded from rents from real property solely because the rent is based on a fixed percentage or percentages of receipts or sales.
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Second, the Code provides that rents received from a tenant will not qualify as rents from real property in
satisfying the gross income tests if the Company, directly or under the applicable attribution rules, owns a 10% or greater interest in that tenant; except that rents received from a TRS under certain circumstances qualify as rents from real
property even if the Company owns more than a 10% interest in the subsidiary. We refer to a tenant in which the Company owns a 10% or greater interest as a related party tenant.
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Third, if rent attributable to personal property leased in connection with a lease of real property is greater
than 15% of the total rent received under the lease, then the portion of rent attributable to the personal property will not qualify as rents from real property.
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76
|
|
|
Finally, for rents received to qualify as rents from real property, except as described below, the Company
generally must not operate or manage the property or furnish or render services to the tenants of the property, other than through an independent contractor from whom the Company derives no revenue or through a TRS. However, the Company may directly
perform certain services that landlords usually or customarily render when renting space for occupancy only or that are not considered rendered to the occupant of the property.
|
The Company may directly perform services for some of its tenants. The Company does not believe that the provision of these
services will cause its gross income attributable to these tenants to fail to be treated as rents from real property. If the Company were to provide services to a tenant of a property of the Company other than those services landlords usually or
customarily provide to tenants of properties of a similar class in the same geographic market when renting space for occupancy only, amounts received or accrued by the Company for any of these services will not be treated as rents from real property
for purposes of the real estate investment trust gross income tests. However, the amounts received or accrued for these services will not cause other amounts received with respect to the property to fail to be treated as rents from real property
unless the amounts treated as received in respect of the services, together with amounts received for certain management services, exceed 1% of all amounts received or accrued by the Company during the taxable year with respect to the property. If
the sum of the amounts received in respect of the services to tenants and management services described in the preceding sentence exceeds the 1% threshold, then all amounts received or accrued by the Company with respect to the property will not
qualify as rents from real property, even if the Company provides the impermissible services to some, but not all, of the tenants of the property.
The term interest generally does not include any amount received or accrued, directly or indirectly, if the
determination of that amount depends in whole or in part on the income or profits of any person. However, an amount received or accrued generally will not be excluded from the term interest solely because the amount of the interest is based on a
fixed percentage or percentages of receipts or sales.
From time to time, the Company may enter into hedging transactions
with respect to one or more of the Companys assets or liabilities. The Companys hedging activities may include entering into interest rate swaps, caps, and floors, options to purchase these items, and futures and forward contracts.
Except to the extent provided by Treasury regulations, any income the Company derives from a hedging transaction that is clearly identified as such as specified in the Code, including gain from the sale or disposition of such a hedging transaction,
will not constitute gross income for purposes of the 75% or 95% gross income tests, and therefore will be excluded for purposes of these tests, but only to the extent that the transaction hedges indebtedness incurred or to be incurred by us to
acquire or carry real estate. The term hedging transaction, as used above, generally means any transaction the Company enters into in the normal course of its business primarily to manage risk of interest rate or price changes or
currency fluctuations with respect to borrowings made or to be made, or ordinary obligations incurred or to be incurred, by the Company. The term hedging transaction also includes any transaction entered into primarily to manage the risk
of currency fluctuations with respect to any item of income or gain that would be qualifying income under the 75% or 95% gross income test (or any property that generates such income or gain), including gain from the termination of such a
transaction. The term hedging transaction also includes hedges of other hedging transactions described in this paragraph. The Company intends to structure any hedging transactions in a manner that does not jeopardize its status as a real
estate investment trust.
As a general matter, certain foreign currency gains recognized by the Company will be excluded
from gross income for purposes of one or both of the gross income tests, as follows.
Real estate foreign exchange
gain will be excluded from gross income for purposes of both the 75% and 95% gross income test. Real estate foreign exchange gain generally includes foreign currency gain attributable to any item of income or gain that is qualifying income for
purposes of the 75% gross income test, foreign currency gain attributable to the acquisition or ownership of (or becoming or being the obligor under) obligations secured by mortgages on real property or on interests in real property and certain
foreign currency gain attributable to certain qualified business units of a real estate investment trust.
77
Passive foreign exchange gain will be excluded from gross income for
purposes of the 95% gross income test. Passive foreign exchange gain generally includes real estate foreign exchange gain as described above, and also includes foreign currency gain attributable to any item of income or gain that is qualifying
income for purposes of the 95% gross income test and foreign currency gain attributable to the acquisition or ownership of (or becoming or being the obligor under) obligations that would not fall within the scope of the definition of real estate
foreign exchange gain.
If the Company fails to satisfy one or both of the 75% or 95% gross income tests for any taxable
year, the Company may nevertheless qualify as a real estate investment trust for that year if the Company satisfies the requirements of other provisions of the Code that allow relief from disqualification as a real estate investment trust. These
relief provisions will generally be available if:
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The Companys failure to meet the income tests was due to reasonable cause and not due to willful
neglect; and
|
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|
The Company files a schedule of each item of income in excess of the limitations described above in accordance
with regulations to be prescribed by the IRS.
|
The Company might not be entitled to the benefit of these
relief provisions, however. Even if these relief provisions apply, the Company would have to pay a tax on the excess income. The tax will be a 100% tax on an amount equal to (a) the gross income attributable to the greater of (i) 75% of
the Companys gross income over the amount of gross income that is qualifying income for purposes of the 75% test, and (ii) 95% of the Companys gross income over the amount of gross income that is qualifying income for purposes of
the 95% test, multiplied by (b) a fraction intended to reflect the Companys profitability.
Asset Tests
.
The Company, at the close of each quarter of its taxable year, must also satisfy four tests relating to the nature of its assets.
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First, at least 75% of the value of the Companys total assets must be represented by real estate assets,
including (a) real estate assets held by the Companys disregarded entity subsidiaries (if any), the Companys allocable share of real estate assets held by partnerships in which the Company owns an interest and stock issued by
another real estate investment trust, (b) for a period of one year from the date of the Companys receipt of proceeds of an offering of the shares of Company stock or publicly offered debt with a term of at least five years, stock or debt
instruments purchased with these proceeds and (c) cash, cash items and government securities.
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|
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|
Second, not more than 25% of the Companys total assets may be represented by securities other than those
in the 75% asset class (except that not more than 25% of the Companys total assets may be represented by nonqualified debt instruments issued by publicly offered real estate investment trusts).
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Third, not more than 20% of the Companys total assets may constitute securities issued by TRSs (25% with
respect to the Companys taxable years ending on or before December 31, 2017) and of the investments included in the 25% asset class, the value of any one issuers securities, other than equity securities issued by another real estate
investment trust or securities issued by a TRS, owned by the Company may not exceed 5% of the value of the Companys total assets. In addition, not more than 25% of the value of the Companys total assets may consist of
nonqualified publicly offered REIT debt, as defined in Section 856(c)(5)(L) of the Code.
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|
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|
Fourth, the Company may not own more than 10% of the vote or value of the outstanding securities of any one
issuer, except for issuers that are real estate investment trusts, disregarded entity subsidiaries or TRSs, or certain securities that qualify under a safe harbor provision of the Code (such as so-called straight-debt securities). Solely
for the purposes of the 10% value test described above, the determination of the Companys interest in the assets of any partnership or limited liability company in which the Company owns an interest will be based on the Companys
proportionate interest in any securities issued by the partnership or limited liability company, excluding for this purpose certain securities described in the Code.
|
78
If the IRS successfully challenges the partnership status of any of the
partnerships in which the Company maintains a more than 10% vote or value interest (including the Operating Partnership), and the partnership is reclassified as a corporation or a publicly traded partnership taxable as a corporation, the Company
could lose its real estate investment trust status. In addition, in the case of such a successful challenge, the Company could lose its real estate investment trust status if such recharacterization results in the Company otherwise failing one of
the asset tests described above.
Certain relief provisions may be available to the Company if it fails to satisfy the
asset tests described above after a 30-day cure period. Under these provisions, the Company will be deemed to have met the 5% and 10% real estate investment trust asset tests if the value of the REITs nonqualifying assets (i) does not
exceed the lesser of (a) 1% of the total value of the REITs assets at the end of the applicable quarter and (b) $10,000,000, and (ii) the REIT disposes of the nonqualifying assets within (a) six months after the last day of
the quarter in which the failure to satisfy the asset tests is discovered or (b) the period of time prescribed by Treasury regulations to be issued. For violations due to reasonable cause and not willful neglect that are not described in the
preceding sentence, the REIT may avoid disqualification as a real estate investment trust under any of the asset tests, after the 30-day cure period, by taking steps including (i) the disposition of the nonqualifying assets to meet the asset
test within (a) six months after the last day of the quarter in which the failure to satisfy the asset tests is discovered or (b) the period of time prescribed by Treasury regulations to be issued, (ii) paying a tax equal to the
greater of (a) $50,000 or (b) the highest corporate tax rate multiplied by the net income generated by the nonqualifying assets, and (iii) disclosing certain information to the IRS.
Annual Distribution Requirements.
The Company, in order to qualify as a real estate investment trust, is required to distribute
dividends, other than capital gain dividends, to the Companys shareholders in an amount at least equal to (1) the sum of (a) 90% of the Companys real estate investment trust taxable income, computed without regard
to the dividends paid deduction and the Companys net capital gain, and (b) 90% of the Companys net after-tax income, if any, from foreclosure property minus (2) the sum of certain items of non-cash income.
In addition, if the Company recognizes gain on the disposition of any asset it owned prior to its conversion into a REIT
during the five-year period beginning January 1, 2016, or if the Company acquires an asset from a C corporation in a carryover basis transaction and disposes of such asset within five years of acquiring the asset, the Company may be required to
distribute at least 90% of the after-tax built-in gain, if any, recognized on the disposition of the asset.
These
distributions must be paid in the taxable year to which the distributions relate, or in the following taxable year if declared before the Company timely files its tax return for the year to which the distributions relate and if paid on or before the
first regular dividend payment after the declaration. However, for U.S. federal income tax purposes, these distributions that are declared in October, November or December as of a record date in such month and actually paid in January of the
following year will be treated as if the distributions were paid on December 31 of the year declared.
To the extent
that the Company does not distribute all of its net capital gain or distributes at least 90%, but less than 100%, of the Companys real estate investment trust taxable income, as adjusted, the Company will have to pay tax on the undistributed
amounts at regular ordinary and capital gain corporate tax rates. Furthermore, if the Company fails to distribute during each calendar year at least the sum of (a) 85% of the Companys ordinary income for that year, (b) 95% of the
Companys capital gain net income for that year and (c) any undistributed taxable income from prior periods, the Company would have to pay a 4% excise tax on the excess of the required distribution over the sum of the amounts actually
distributed and retained amounts on which income tax is paid at the corporate level.
The Company intends to satisfy the
annual distribution requirements.
79
From time to time, the Company may not have sufficient cash or other liquid
assets to meet the 90% distribution requirement due to timing differences between (a) when the Company actually receives income and when the Company actually pays deductible expenses and (b) when the Company includes the income and deducts
the expenses in arriving at the Companys taxable income. If timing differences of this kind occur, in order to meet the 90% distribution requirement, the Company may find it necessary to arrange for short-term, or possibly long-term,
borrowings or to pay dividends in the form of taxable stock dividends.
Under certain circumstances, the Company may be
able to rectify a failure to meet the distribution requirement for a year by paying deficiency dividends to shareholders in a later year, which may be included in the Companys deduction for dividends paid for the earlier year.
Thus, the Company may be able to avoid being taxed on amounts distributed as deficiency dividends; however, the Company will be required to pay interest based upon the amount of any deduction taken for deficiency dividends.
Failure to Qualify as a Real Estate Investment Trust
If the Company would otherwise fail to qualify as a real estate investment trust because of a violation of one of the
requirements described above, the Companys qualification as a real estate investment trust will not be terminated if the violation is due to reasonable cause and not willful neglect and the Company pays a penalty tax of $50,000 for the
violation. The immediately preceding sentence does not apply to violations of the income tests described above or a violation of the asset tests described above, each of which has specific relief provisions that are described above.
If the Company fails to qualify for taxation as a real estate investment trust in any taxable year, and the relief provisions
do not apply, the Company will have to pay tax, including any applicable alternative minimum tax, on the Companys taxable income at regular corporate rates. The Company will not be able to deduct distributions to shareholders in any year in
which the Company fails to qualify, nor will the Company be required to make distributions to shareholders. In this event, to the extent of current and accumulated earnings and profits, all distributions to shareholders will be taxable to the
shareholders as dividend income (which may be subject to tax at preferential rates) and corporate distributees may be eligible for the dividends-received deduction if such distributees satisfy the relevant provisions of the Code. Unless entitled to
relief under specific statutory provisions, the Company will also be disqualified from taxation as a real estate investment trust for the four taxable years following the year during which qualification was lost. The Company might not be entitled to
the statutory relief described above in all circumstances.
Excess Inclusion Income
If the Company holds a residual interest in a REMIC or certain interests in a TMP from which the Company derives excess
inclusion income, the Company may be required to allocate such income among its shareholders in proportion to the dividends received by the Companys shareholders, even though the Company may not receive such income in cash. To the extent
that excess inclusion income is allocable to a particular shareholder, the income (1) would not be allowed to be offset by any net operating losses otherwise available to the shareholder, (2) would be subject to tax as unrelated business
taxable income in the hands of most types of shareholders that are otherwise generally exempt from U.S. federal income tax, and (3) would result in the application of U.S. federal income tax withholding at the maximum rate (30%), without
reduction pursuant to any otherwise applicable income tax treaty, to the extent allocable to most types of foreign shareholders.
Other Tax Consequences
State or local taxation may apply to the Company and its shareholders in various state or
local jurisdictions, including those in which the Company or its shareholders transact business or reside. The state and local tax treatment of the Company and its shareholders with respect to the Reclassification may not conform to the U.S. federal
income tax consequences discussed above. Consequently, shareholders should consult their own tax advisors regarding the effect of state and local tax laws with respect to the Reclassification.
80
U
NAUDITED
P
RO
F
ORMA
C
ONDENSED
C
ONSOLIDATED
B
ALANCE
S
HEET
The Unaudited Pro
Forma Condensed Consolidated Balance Sheet presented below presents the effects of the Reclassification as of December 31, 2016, as if the Reclassification was completed as of that date. The Unaudited Pro Forma Condensed Consolidated Balance
Sheet presented below has been derived from the historical consolidated financial statements of the Company incorporated by reference into this proxy statement/prospectus.
In the Reclassification, each share of Class B Common Stock issued and outstanding immediately prior to the Effective Time
will be reclassified and exchanged into 1.31 shares of Class A Common Stock.
Assumptions and estimates underlying
the pro forma adjustments, which are preliminary and have been made solely for the purposes of developing the Unaudited Pro Forma Condensed Consolidated Balance Sheet, are described in the accompanying notes and should be read in connection with the
Unaudited Pro Forma Condensed Consolidated Balance Sheet. The Unaudited Pro Forma Condensed Consolidated Balance Sheet has been presented for illustrative purposes only and is not necessarily indicative of the financial position that would have been
achieved had the Reclassification taken place as of the date indicated, or the future financial position of the Company.
The Unaudited
Pro Forma Condensed Consolidated Balance Sheet should be read in conjunction with:
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|
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the accompanying notes to the Unaudited Pro Forma Condensed Consolidated Balance Sheet;
|
|
|
|
the Companys historical consolidated financial statements as of and for the year ended December 31,
2016, included in the Companys annual report on Form 10-K and incorporated by reference into this proxy statement/prospectus; and
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|
|
|
the other information contained in or incorporated by reference into this proxy statement/prospectus.
|
The pro forma adjustments to the Unaudited Pro Forma Condensed Consolidated Balance Sheet represents
events that are (i) directly attributable to the Reclassification and (ii) factually supportable.
81
Forest City Realty Trust, Inc. and Subsidiaries
Unaudited Pro Forma Consolidated Balance Sheet
As of December 31, 2016
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
|
Adjustments
|
|
|
Pro Forma
|
|
|
|
(in thousands)
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Real Estate
|
|
|
|
|
|
|
|
|
Completed rental properties
|
|
$
|
7,112,347
|
|
|
$
|
|
|
|
$
|
7,112,347
|
|
Projects under construction and development
|
|
|
734,980
|
|
|
|
|
|
|
|
734,980
|
|
Land inventory
|
|
|
68,238
|
|
|
|
|
|
|
|
68,238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Real Estate
|
|
|
7,915,565
|
|
|
|
|
|
|
|
7,915,565
|
|
Less accumulated depreciation
|
|
|
(1,442,006
|
)
|
|
|
|
|
|
|
(1,442,006
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate, net
|
|
|
6,473,559
|
|
|
|
|
|
|
|
6,473,559
|
|
Cash and equivalents
|
|
|
174,619
|
|
|
|
|
|
|
|
174,619
|
|
Restricted cash
|
|
|
149,300
|
|
|
|
|
|
|
|
149,300
|
|
Accounts receivable, net
|
|
|
208,563
|
|
|
|
|
|
|
|
208,563
|
|
Note receivable
|
|
|
383,163
|
|
|
|
|
|
|
|
383,163
|
|
Investments in and advances to unconsolidated entities
|
|
|
564,779
|
|
|
|
|
|
|
|
564,779
|
|
Other assets
|
|
|
274,614
|
|
|
|
|
|
|
|
274,614
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
8,228,597
|
|
|
$
|
|
|
|
$
|
8,228,597
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Equity
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Nonrecourse mortgage debt and notes payable, net
|
|
$
|
3,120,833
|
|
|
$
|
|
|
|
$
|
3,120,833
|
|
Revolving credit facility
|
|
|
|
|
|
|
|
|
|
|
|
|
Term loan facility, net
|
|
|
333,268
|
|
|
|
|
|
|
|
333,268
|
|
Convertible senior debt, net
|
|
|
112,181
|
|
|
|
|
|
|
|
112,181
|
|
Accounts payable, accrued expenses and other liabilities
|
|
|
726,724
|
|
|
|
8,700
|
(A)
|
|
|
735,424
|
|
Cash distributions and losses in excess of investments in unconsolidated entities
|
|
|
150,592
|
|
|
|
|
|
|
|
150,592
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
4,443,598
|
|
|
|
8,700
|
|
|
|
4,452,298
|
|
Commitments and Contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
Shareholders Equity
|
|
|
|
|
|
|
|
|
Preferred stock $.01 par value; 20,000,000 shares authorized, no shares issued
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock $.01 par value
|
|
|
|
|
|
|
|
|
Class A, 371,000,000 shares authorized, 239,937,796 and 264,550,297 shares issued and
outstanding, respectively
|
|
|
2,399
|
|
|
|
246
|
(B)
|
|
|
2,645
|
|
Class B, convertible, 56,000,000 and 0 shares authorized, 18,788,169 and 0 issued and outstanding;
26,257,961 and 0 issuable, respectively
|
|
|
188
|
|
|
|
(188
|
)(B)
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total common stock
|
|
|
2,587
|
|
|
|
58
|
|
|
|
2,645
|
|
Additional paid-in capital
|
|
|
2,483,275
|
|
|
|
(8,758
|
)(A)(B)
|
|
|
2,474,517
|
|
Retained earnings
|
|
|
812,386
|
|
|
|
|
|
|
|
812,386
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity before accumulated other comprehensive loss
|
|
|
3,298,248
|
|
|
|
(8,700
|
)
|
|
|
3,289,548
|
|
Accumulated other comprehensive loss
|
|
|
(14,410
|
)
|
|
|
|
|
|
|
(14,410
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Shareholders Equity
|
|
|
3,283,838
|
|
|
|
(8,700
|
)
|
|
|
3,275,138
|
|
Noncontrolling interest
|
|
|
501,161
|
|
|
|
|
|
|
|
501,161
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Equity
|
|
|
3,784,999
|
|
|
|
(8,700
|
)
|
|
|
3,776,299
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Equity
|
|
$
|
8,228,597
|
|
|
$
|
|
|
|
$
|
8,228,597
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
82
Notes to the Unaudited Pro Forma Condensed Consolidated Balance Sheet:
(A)
|
Pro forma adjustment to record approximately $8,700,000 of estimated one-time costs directly related to the
Reclassification. These costs primarily relate to professional fees and the reimbursement of certain costs of RMS that the Company expects to be incurred upon the completion of the Reclassification, during the year ended December 31, 2017.
|
(B)
|
Pro forma adjustment to record the par value reflecting the reclassification and exchange of all outstanding
Class B Common Stock immediately prior to the Effective Time into Class A Common Stock including the issuance of 5,824,332 additional shares of Class A Common Stock to the holders of Class B shares.
|
83
C
OMPARISON
OF
S
TOCKHOLDER
R
IGHTS
Following the Reclassification, the rights of each
stockholder will be identical in all material respects to the rights of each holder of Class A shares prior to the Reclassification, except with respect to the matters specified below. The summary contained in the section does not include a
complete description of the specific matters referred to below. You are urged to read carefully the relevant provisions of the Companys charter and bylaws, copies of which have been filed with the SEC, and the form of Articles of Amendment and
Restatement included as Annex A to this proxy statement/prospectus, and this summary is qualified in its entirety by reference to the full text thereof. See the section entitled
Where You Can Find More Information.
|
|
|
|
|
|
|
Prior to the Reclassification
|
|
Effective upon Completion
of the Reclassification
|
Capital Structure:
|
|
Two classes of common
stock: Class A and Class B.
|
|
One class of common stock: Class A.
|
|
|
|
Voting:
|
|
Subject to the provisions of the charter regarding
the restrictions on ownership and transfer, the holders of Class A shares are entitled to one vote per Class A share and the holders of Class B shares are entitled to ten votes per Class B share.
|
|
Subject to the provisions of the
charter regarding the restrictions on ownership and transfer, the holders of Class A shares are entitled to one vote per Class A share.
|
|
|
|
Election and Removal of Directors:
|
|
Subject to the rights, if any, of holders of any
class or series of preferred stock (it being acknowledged that, as of the date of this proxy statement/prospectus, the Company does not have any preferred stock outstanding), holders of Class A shares, voting as a separate class, elect 25% of the
entire Board (rounded up to the nearest whole number of directors, which, as of the date of this proxy statement/prospectus, represents four of the 13 board seats), whom we refer to as the Class A directors, and holders of Class B shares, voting
separately as a class, elect the remaining members of the Board, whom we refer to as the Class B directors. If, on any record date, the total number of issued and outstanding Class A shares should represent less than 10% of the aggregate of all
issued and outstanding shares of Common Stock, then at the related meeting all directors would be elected by the holders of Class A shares and the holders of Class B shares voting together as a single class. If, on any record date, there were fewer
than 500,000 Class B shares outstanding, then holders of Class A shares would have the right to participate with holders of Class B shares, as a single class, in the election of the directors that otherwise would have been elected only by the
holders of Class B shares.
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Subject to the rights, if any, of
holders of any class or series of preferred stock, the holders of Class A Common Stock will be entitled to elect the entire Board.
In uncontested elections, a director will be elected by the affirmative vote of a majority of the total votes cast for and votes cast against
or withheld as to each director nominee. In contested elections, directors will be elected by a plurality of the votes cast. An election will be considered to be contested if the Companys secretary has received notice that a stockholder has
nominated one or more persons for election as a director, which notice complies with the requirements for advance notice of stockholder nominations set forth in the Companys bylaws, and the nomination has not been withdrawn at least 10 days
prior to the date that the Companys proxy statement is filed with the SEC, and, as a result of which, the number of nominees exceeds the number of directors to be elected at the meeting.
Subject to the rights, if any, of holders of shares of one or
more classes or series of preferred stock to elect or remove one or more directors, any director may be removed
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Prior to the Reclassification
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Effective upon Completion
of the Reclassification
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The Class A directors are elected by a plurality of
the votes cast by the holders of Class A Common Stock in the election of directors and the Class B directors are elected by a plurality of the votes cast by the holders of Class B Common Stock in the election of directors; provided, however, in the
event that the holders of Class A Common Stock and Class B Common Stock vote together as a class to elect one or more directors, such directors are elected by a plurality of all the votes cast in the election of directors by the holders of Class A
Common Stock and Class B Common Stock voting together as a class.
Subject to the rights of holders of shares of one or more classes or
series of preferred stock to elect or remove one or more directors, (a) any Class A director may be removed as a director at any time by the affirmative vote of holders of shares of Class A Common Stock entitled to cast a majority of all the votes
entitled to be cast generally in the election of Class A directors, with or without cause, and (b) any Class B director may be removed as a director at any time by the affirmative vote of holders of shares of Class B Common Stock entitled to cast a
majority of the votes entitled to be cast generally in the election of Class B directors, with or without cause.
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as a director at any time by the
affirmative vote of holders of shares of Class A Common Stock entitled to cast a majority of all the votes entitled to be cast generally in the election of directors, with or without cause.
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Class Protection Provision:
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The Companys charter includes a protective
voting provision, which provides that the Company will not, without the affirmative vote of the holders of a majority of the outstanding shares of an affected class, voting as a separate class to the exclusion of any other unaffected class of stock,
(1) amend the charter, (2) amend the bylaws or (3) consolidate or merge the Company with or into another entity, if any such actions would adversely alter the rights, preferences, privileges or restrictions granted or imposed with respect to the
shares of such class relative to the shares of any other class.
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The class protection provision
is specific to the Companys dual-class stock structure and, therefore, will be eliminated as part of the Reclassification.
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Prior to the Reclassification
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Effective upon Completion
of the Reclassification
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Equal Treatment Provision:
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The Companys charter includes the Equal
Treatment Provision, which provides in effect that, except as otherwise provided in the charter, the shares of Class A Common Stock and the shares of Class B Common Stock will be in all respects identical, and the respective holders will be entitled
to participate in any dividend, reclassification, merger, consolidation, conversion, reorganization, recapitalization, liquidation, dissolution or winding up of the affairs of the Company, share for share, without priority or distinction between
classes.
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The Equal Treatment Provision is
specific to the Companys dual-class stock structure and, therefore, will be eliminated as part of the Reclassification.
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Share Conversion Provision:
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The Companys charter includes the Share
Conversion Provision, which provides in effect that each holder of a Class B share may at any time or from time to time, in such holders sole discretion and at such holders option, convert any whole number or all of such holders
Class B shares into fully paid and nonassessable Class A shares at the rate of one Class A share for each Class B share surrendered for conversion.
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The Share Conversion Provision
is specific to the Class B shares and, therefore, will be eliminated as part of the Reclassification.
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D
ESCRIPTION
OF
C
LASS
A C
OMMON
S
TOCK
This section describes the general terms and
provisions of the shares of Class A Common Stock following the Reclassification. This description is not complete and is summarized from, and qualified in its entirety by reference to, applicable provisions of the MGCL, the form of Articles of
Amendment and Restatement attached hereto as Annex A, the Company bylaws, as amended from time to time, and other information with respect to Class A Common Stock which has been publicly filed with the SEC. See the section of this proxy
statement/prospectus entitled
Where You Can Find More Information
.
General
Immediately following the Reclassification, the Companys authorized capital stock will consist of:
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371,000,000 shares of Class A Common Stock, par value $0.01 per share; and
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20,000,000 shares of Preferred Stock, par value $0.01 per share
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The Class A Common Stock will continue to be listed on the NYSE under the symbol FCE.A and will be the
Companys only authorized class of common stock.
Under Maryland law, stockholders generally are not personally
liable for Company debts or obligations solely as a result of their status as stockholders.
The Companys charter
will continue to authorize the Board, with the approval of a majority of the entire Board and without stockholder approval, to amend the charter to increase or decrease the aggregate number of shares of stock or the number of shares of stock of any
class or series that the Company is authorized to issue.
The Companys charter will continue to authorize the Board
(without stockholder approval) to authorize the issuance from time to time of shares of common stock of any class or series. The charter also will continue to authorize the Board to classify and reclassify any unissued shares of common stock into
other classes or series of stock, including one or more classes or series of stock that have priority over shares of Class A Common Stock with respect to distributions or upon liquidation, and authorize the Company to issue the newly classified
shares. Prior to the issuance of shares of each new class or series, the Board is required by Maryland law and by the charter to set, subject to the provisions of the charter regarding the restrictions on ownership and transfer of stock, the
preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications and terms and conditions of redemption for each class or series. As was the case prior to the Reclassification,
these actions may be taken without the approval of holders of Class A Common Stock unless such approval is required by applicable law, the terms of any other class or series of Company stock or the rules of any stock exchange or automated
quotation system on which any shares of Company stock are listed or traded. Therefore, the Board will continue to be able to authorize the issuance of shares of common or preferred stock with terms and conditions that could have the effect of
delaying, deferring or preventing a change in control or other transaction that might involve a premium price for Class A Common Stock or otherwise be in the best interests of the Class A stockholders.
Subject to the preferential rights, if any, of holders of shares of any other class or series of Company stock and to the
provisions of the charter regarding the restrictions on ownership and transfer of shares of Company stock, holders of Class A Common Stock are entitled to receive distributions when authorized by the Board and declared by the Company out of
assets legally available for distribution to stockholders and will be entitled to share ratably in assets legally available for distribution to stockholders in the event of the Companys liquidation, dissolution or winding up after payment of
or adequate provision for all of its known debts and liabilities.
Subject to the provisions of the charter regarding the
restrictions on ownership and transfer of Company stock, each outstanding Class A share entitles the holder to one vote on any matter upon which holders of common stock are entitled to vote, and, except as may be provided with respect to any
other class or series of our stock, the holders of Class A shares will possess exclusive voting power.
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In the election of directors, subject to the rights, if any, of holders of any
class or series of preferred stock to elect or remove one or more additional directors, the holders of Class A shares will elect the entire Board.
Class A stockholders will have no preference, conversion, exchange, sinking fund, redemption or appraisal rights and will
have no preemptive rights to subscribe for any securities that the Company may issue. Subject to the provisions of the charter regarding the restrictions on ownership and transfer of Company stock, Class A shares have equal distribution,
liquidation and other rights.
Restrictions on Ownership and Transfer
In order for the Company to qualify as a real estate investment trust under the Code, Company stock must be beneficially owned
by 100 or more persons during at least 335 days of a taxable year of 12 months or during a proportionate part of a shorter taxable year. Also, not more than 50% of the value of the outstanding shares of Company stock (after taking into account
certain options to acquire shares of Company stock) may be owned, directly or indirectly or through application of certain attribution rules, by five or fewer individuals at any time during the last half of a taxable year.
The Companys charter will continue to include restrictions concerning the ownership and transfer of shares of Company
stock. The Board may, from time to time, grant waivers from these restrictions, in its sole discretion. The relevant sections of the charter provide that, subject to the exceptions described below, no person or entity may own, or be deemed to own,
beneficially or by virtue of the applicable constructive ownership provisions of the Code, more than 9.8%, in value or in number of shares, whichever is more restrictive, of the outstanding shares of Class A Common Stock (the
common
stock ownership limit
) or 9.8% in value of the outstanding shares of all classes or series of Company stock (the
aggregate stock ownership limit
, and together with the common stock ownership limit, the
ownership
limits
). This proxy statement/prospectus refers to a person or entity that, but for operation of the ownership limits or another restriction on ownership and transfer of Company stock as described below, would beneficially own or
constructively own shares of Company stock in violation of such limits or restrictions and, if appropriate in the context, a person or entity that would have been the record owner of such shares of stock as a prohibited owner.
The applicable constructive ownership rules under the Code are complex and may cause shares of Company stock owned
beneficially or constructively by a group of related individuals and/or entities to be treated as owned beneficially or constructively by one individual or entity. As a result, the acquisition of less than 9.8%, in value or in number of shares,
whichever is more restrictive, of the outstanding shares of Class A Common Stock, or less than 9.8% in value of the outstanding shares of all classes and series of Company stock (or the acquisition by an individual or entity of an interest in
an entity that owns, beneficially or constructively, shares of Company stock), could, nevertheless, cause that individual or entity, or another individual or entity, to own beneficially or constructively shares of Company stock in excess of the
ownership limits.
The Board, in its sole discretion, may exempt, prospectively or retroactively, a particular stockholder
from the ownership limits or establish a different limit on ownership (an
excepted holder limit
) if the Board determines that:
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no individuals beneficial or constructive ownership of Company stock will result in the Company being
closely held under Section 856(h) of the Code (without regard to whether the ownership interest is held during the last half of a taxable year) or otherwise failing to qualify as a real estate investment trust under the Code; and
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such stockholder does not and will not own, actually or constructively, an interest in a tenant of the Company
(or a tenant of any entity owned or controlled by the Company) that would cause the Company to own, actually or constructively, more than a 9.9% interest (as set forth in Section 856(d)(2)(B) of the Code) in such tenant (or the Board determines
that revenue derived from such tenant will not affect the Companys ability to qualify as a real estate investment trust under the Code).
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Any violation or attempted violation of any such representations or undertakings
will result in such stockholders shares of Company stock being automatically transferred to a charitable trust. As a condition of granting the waiver or establishing an excepted holder limit, the Board may require an opinion of counsel or a
ruling from the IRS, in either case in form and substance satisfactory to the Board, in its sole discretion, in order to determine or ensure the Companys status as a real estate investment trust under the Code and such representations and
undertakings from the person requesting the exception as the Board may require in its sole discretion to make the determinations above. The Board may impose such conditions or restrictions as it deems appropriate in connection with granting such a
waiver or establishing an excepted holder limit.
In connection with granting a waiver of the ownership limits or creating
an excepted holder limit or at any other time, the Board may from time to time increase or decrease the common stock ownership limit, the aggregate stock ownership limit or both, for one or more persons, unless, after giving effect to such increase,
five or fewer individuals could beneficially own, in the aggregate, more than 49.9% in value of the outstanding shares of Company stock or the Company would otherwise fail to qualify as a real estate investment trust under the Code. A reduced
ownership limit will not apply to any person or entity whose percentage ownership of Class A Common Stock or stock of all classes and series, as applicable, is, at the effective time of such reduction, in excess of such decreased ownership
limit until such time as such persons or entitys percentage ownership of Class A Common Stock or stock of all classes and series, as applicable, equals or falls below the decreased ownership limit, but any further acquisition of
shares of Class A Common Stock or stock of all classes or series, as applicable, will violate the decreased ownership limit.
The
charter further prohibits:
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any person from beneficially or constructively owning, applying certain attribution rules of the Code, shares
of Company stock that would result in the Company being closely held under Section 856(h) of the Code (without regard to whether the ownership interest is held during the last half of a taxable year) or otherwise cause the Company
to fail to qualify as a real estate investment trust under the Code; and
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any person from transferring shares of Company stock if the transfer would result in shares of Company stock
being beneficially owned by fewer than 100 persons (determined under the principles of Section 856(a)(5) of the Code).
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Any person who acquires or attempts or intends to acquire beneficial or constructive ownership of shares of our stock that
will or may violate the ownership limits or any of the other restrictions on ownership and transfer of our stock described above, or who would have owned shares of our stock transferred to the trust as described below, must immediately give written
notice to us of such event or, in the case of an attempted or proposed transaction, give us at least 15 days prior written notice and provide us with such other information as we may request in order to determine the effect of such transfer on
our status as a real estate investment trust under the Code.
If any transfer of shares of Company stock would result in
shares of Company stock being beneficially owned by fewer than 100 persons, the transfer will be null and void and the intended transferee will acquire no rights in the shares. In addition, if any purported transfer of shares of Company stock or any
other event would otherwise result in any person violating the ownership limits or an excepted holder limit established by the Board, or in the Company being closely held under Section 856(h) of the Code (without regard to whether
the ownership interest is held during the last half of a taxable year) or otherwise failing to qualify as a real estate investment trust under the Code, then that number of shares (rounded up to the nearest whole share) that would cause the
violation will be automatically transferred to, and held by, a trust for the exclusive benefit of one or more charitable organizations selected by the Company, and the intended transferee or other prohibited owner will acquire no rights in the
shares. The automatic transfer will be effective as of the close of business on the business day prior to the date of the violative transfer or other event that results in a transfer to the trust. If the transfer to the trust as described above is
not automatically effective, for any reason, to prevent violation of the
89
applicable ownership limits or the Company being closely held under Section 856(h) of the Code (without regard to whether the ownership interest is held during the last half of a
taxable year) or the Company otherwise failing to qualify as a real estate investment trust under the Code, then the charter provides that the transfer of the shares will be null and void and the intended transferee will acquire no rights in such
shares.
Shares of Company stock held in the trust will be issued and outstanding shares. The prohibited owner will not
benefit economically from ownership of any shares of Company stock held in the trust and will have no rights to distributions and no rights to vote or other rights attributable to the shares of Company stock held in the trust. The trustee of the
trust will exercise all voting rights and receive all distributions with respect to shares held in the trust for the exclusive benefit of the charitable beneficiary of the trust. Any distribution made before we discover that the shares have been
transferred to a trust as described above must be repaid by the recipient to the trustee upon demand by us. Subject to Maryland law, effective as of the date that the shares have been transferred to the trust, the trustee will have the authority to
rescind as void any vote cast by a prohibited owner before the Companys discovery that the shares have been transferred to the trust and to recast the vote in accordance with the desires of the trustee acting for the benefit of the charitable
beneficiary of the trust. However, if we have already taken irreversible corporate action, then the trustee may not rescind and recast the vote.
Shares of Company stock transferred to the trustee are deemed offered for sale to us or the Companys designee, at a
price per share equal to the lesser of (i) the price paid by the prohibited owner for the shares (or, in the case of a devise or gift, the market price at the time of such devise or gift) and (ii) the market price on the date we accept, or
the Companys designee accepts, such offer. The Company may reduce the amount so payable to the trustee by the amount of any distribution that we made to the prohibited owner before we discovered that the shares had been automatically
transferred to the trust and that are then owed by the prohibited owner to the trustee as described above, and we may pay the amount of any such reduction to the trustee for distribution to the charitable beneficiary. The Company has the right to
accept such offer until the trustee has sold the shares of Company stock held in the trust as discussed below. Upon a sale to the Company, the interest of the charitable beneficiary in the shares sold terminates, and the trustee must distribute the
net proceeds of the sale to the prohibited owner and must distribute any distributions held by the trustee with respect to such shares to the charitable beneficiary.
If the Company does not buy the shares, the trustee must, within 20 days of receiving notice from the Company of the transfer
of shares to the trust, sell the shares to a person or entity designated by the trustee who could own the shares without violating the ownership limits or the other restrictions on ownership and transfer of Company stock. After the sale of the
shares, the interest of the charitable beneficiary in the shares transferred to the trust will terminate and the trustee must distribute to the prohibited owner an amount equal to the lesser of (i) the price paid by the prohibited owner for the
shares (or, if the prohibited owner did not give value for the shares in connection with the event causing the shares to be held in the trust (for example, in the case of a gift, devise or other such transaction), the market price of the shares on
the day of the event causing the shares to be held in the trust) and (ii) the sales proceeds (net of any commissions and other expenses of sale) received by the trust for the shares. The trustee may reduce the amount payable to the prohibited
owner by the amount of any distribution that the Company paid to the prohibited owner before the Company discovered that the shares had been automatically transferred to the trust and that are then owed by the prohibited owner to the trustee as
described above. Any net sales proceeds in excess of the amount payable to the prohibited owner must be paid immediately to the charitable beneficiary, together with any distributions thereon. In addition, if, prior to the discovery by the Company
that shares of stock have been transferred to a trust, such shares of stock are sold by a prohibited owner, then such shares will be deemed to have been sold on behalf of the trust and, to the extent that the prohibited owner received an amount for
or in respect of such shares that exceeds the amount that such prohibited owner was entitled to receive, such excess amount will be paid to the trustee upon demand. The prohibited owner has no rights in the shares held by the trustee.
In addition, if the Board determines that a transfer or other event has taken place that would violate the restrictions on
ownership and transfer of Company stock described above, the Board may take such action as it
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deems advisable to refuse to give effect to or to prevent such transfer, including causing us to redeem shares of Company stock, refusing to give effect to the transfer on our books or
instituting proceedings to enjoin the transfer.
Every owner of 5% or more (or such lower percentage as required by the
Code or the regulations promulgated thereunder) of Company stock, within 30 days after the end of each taxable year, must give the Company written notice stating the stockholders name and address, the number of shares of each class and series
of Company stock that the stockholder beneficially owns and a description of the manner in which the shares are held. Each such owner must provide to the Company in writing such additional information as the Company may request in order to determine
the effect, if any, of the stockholders beneficial ownership on the Companys status as a real estate investment trust and to ensure compliance with the ownership limits. In addition, any person or entity that is a beneficial owner or
constructive owner of shares of the Company stock and any person or entity (including the stockholder of record) who is holding shares of Company stock for a beneficial owner or constructive owner must, on request, provide to the Company such
information as the Company may request in order to determine the Companys status as a real estate investment trust and to comply with the requirements of any taxing authority or governmental authority or to determine such compliance and to
ensure compliance with the ownership limits.
These restrictions on ownership and transfer of Company stock will not apply
if the Board determines that it is no longer in the Companys best interests to attempt to qualify, or to continue to qualify, as a real estate investment trust or that compliance is no longer required.
The restrictions on ownership and transfer of Company stock described above could delay, defer or prevent a transaction or a
change in control that might involve a premium price for Class A Common Stock or otherwise be in the best interests of our stockholders.
Transfer
Agent
Wells Fargo Shareowner Services, a division of Wells Fargo Bank, N.A., Mendota Heights, Minnesota, currently
serves as transfer agent for the Class A Common Stock.
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C
ERTAIN
P
ROVISIONS
OF
M
ARYLAND
L
AW
AND
O
UR
C
HARTER
AND
B
YLAWS
This section describes the certain terms and provisions of Maryland law and of the Companys charter and bylaws
following the Reclassification. This description is not complete and is summarized from, and qualified in its entirety by reference to, applicable provisions of the MGCL, the form of Articles of Amendment and Restatement attached hereto as
Annex A, the Company bylaws, as amended from time to time, and charter and other information with respect to Class A Common Stock which has been publicly filed with the SEC. See the section entitled
Where You Can Find More
Information
.
The Board of Directors
The Companys charter provides that the number of directors may only be increased or decreased pursuant to the bylaws. The
bylaws provide that the number of directors may be established, increased or decreased by the Board but, unless the bylaws are amended, may not be fewer than eleven nor more than 15.
Election of Directors; Removals; Vacancies
Immediately following the Reclassification, subject to the rights, if any, of holders of any class or series of preferred
stock, the holders of Class A Common Stock will be entitled to elect the entire Board. In uncontested elections, a director will be elected by the affirmative vote of a majority of the total votes cast for and votes cast against or withheld as
to each director nominee. In contested elections, directors will be elected by a plurality of the votes cast. An election will be considered to be contested if the Companys secretary has received notice that a stockholder has nominated one or
more persons for election as a director, which notice complies with the requirements for advance notice of stockholder nominations set forth in the Companys bylaws, and the nomination has not been withdrawn at least 10 days prior to the date
that the Companys proxy statement is filed with the SEC, and, as a result of which, the number of nominees exceeds the number of directors to be elected at the meeting.
Subject to the rights, if any, of holders of shares of one or more classes or series of preferred stock to elect or remove one
or more directors, any director may be removed as a director at any time by the affirmative vote of holders of shares of Class A Common Stock entitled to cast a majority of all the votes entitled to be cast generally in the election of
directors, with or without cause.
Any vacancy on the Board for any cause other than an increase in the number of
directors may be filled by a majority of the remaining directors, even if such majority is less than a quorum. Any vacancy in the number of directors created by an increase in the number of directors may be filled by a majority of the entire Board.
Any individual so elected as director will serve until the next annual meeting of stockholders and until his or her successor is duly elected and qualifies.
Business Combinations
Under the MGCL, certain business combinations (including a merger, consolidation, statutory share exchange or, in
certain circumstances, an asset transfer or issuance or reclassification of equity securities) between a Maryland corporation and any interested stockholder, or an affiliate of such an interested stockholder, are prohibited for five years after the
most recent date on which the interested stockholder becomes an interested stockholder. Maryland law defines an interested stockholder as:
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any person who beneficially owns, directly or indirectly, 10% or more of the voting power of the
corporations outstanding voting stock; or
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an affiliate or associate of the corporation who, at any time within the two-year period prior to the date in
question, was the beneficial owner of 10% or more of the voting power of the then-outstanding voting stock of the corporation.
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A person is not an interested stockholder if the board of directors approved in
advance the transaction by which the person otherwise would have become an interested stockholder. In approving a transaction, however, the board of directors may provide that its approval is subject to compliance, at or after the time of the
approval, with any terms and conditions determined by it.
After such five-year period, any such business combination must
be recommended by the board of directors of the corporation and approved by the affirmative vote of at least:
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80% of the votes entitled to be cast by holders of outstanding shares of voting stock of the corporation; and
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two-thirds of the votes entitled to be cast by holders of voting stock of the corporation other than shares
held by the interested stockholder with whom (or with whose affiliate) the business combination is to be effected or held by an affiliate or associate of the interested stockholder.
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These supermajority approval requirements do not apply if, among other conditions, the corporations common stockholders
receive a minimum price (as defined in the MGCL) for their shares and the consideration is received in cash or in the same form as previously paid by the interested stockholder for its shares.
These provisions of the MGCL do not apply, however, to business combinations that are approved or exempted by a Maryland
corporations board of directors prior to the time that the interested stockholder becomes an interested stockholder. Pursuant to the statute, the Company has, by resolution of the Board, exempted from the Maryland Business Combination Act all
business combinations between the Company and any other person, provided that such business combination is first approved by the Board (including a majority of directors who are not affiliates or associates of such person). As a result, any person
described above may be able to enter into business combinations with the Company that may not be in the best interests of the Companys stockholders, without compliance by the Company with the supermajority vote requirements and other
provisions of the statute.
The Company cannot assure you that the Board will not opt to be subject to such business
combination provisions in the future. However, an alteration or repeal of this resolution will not have any effect on any business combination that has been consummated or upon any agreement existing at the time of such modification or repeal.
Control Share Acquisitions
The MGCL provides that a holder of control shares of a Maryland corporation acquired in a control share
acquisition has no voting rights with respect to such shares except to the extent approved by the affirmative vote of at least two-thirds of the votes entitled to be cast on the matter, excluding shares of stock of the corporation in respect
of which any of the following persons is entitled to exercise or direct the exercise of the voting power of such shares in the election of directors: (i) a person who has made or proposes to make the control share acquisition; (ii) an
officer of the corporation or (iii) an employee of the corporation who is also a director of the corporation. Control shares are voting shares of stock which, if aggregated with all other such shares of stock owned by the acquirer,
or in respect of which the acquirer is entitled to exercise or direct the exercise of voting power (except solely by virtue of a revocable proxy), would entitle the acquirer to exercise voting power in electing directors within one of the following
ranges of voting power: (A) one-tenth or more but less than one-third; (B) one-third or more but less than a majority or (C) a majority or more of all voting power. Control shares do not include shares that the acquiring person is
then entitled to vote as a result of having previously obtained stockholder approval or shares acquired directly from the corporation. A control share acquisition means the acquisition of issued and outstanding control shares, subject to
certain exceptions.
A person who has made or proposes to make a control share acquisition, upon satisfaction of certain
conditions (including an undertaking to pay expenses and making an acquiring person statement as described
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in the MGCL), may compel the corporations board of directors to call a special meeting of stockholders to be held within 50 days of demand to consider the voting rights of the shares. If no
request for a meeting is made, the corporation may itself present the question at any stockholders meeting.
If voting
rights are not approved at the meeting or if the acquiring person does not deliver an acquiring person statement as required by the statute, then, subject to certain conditions and limitations, the corporation may redeem for fair value
any or all of the control shares (except those for which voting rights have previously been approved). Fair value is determined, without regard to the absence of voting rights for the control shares, as of the date of the last control share
acquisition by the acquirer or, if a meeting of stockholders is held at which the voting rights of such shares are considered and not approved, as of the date of the meeting. If voting rights for control shares are approved at a stockholders meeting
and the acquirer becomes entitled to exercise or direct the exercise of a majority of all voting power, all other stockholders may exercise appraisal rights. The fair value of the shares as determined for purposes of such appraisal rights may not be
less than the highest price per share paid by the acquirer in the control share acquisition.
The control share
acquisition statute does not apply to (i) shares acquired in a merger, consolidation or statutory share exchange if the corporation is a party to the transaction or (ii) acquisitions of shares previously approved or exempted by the charter
or bylaws of the corporation.
As permitted by the MGCL, the Companys bylaws contain a provision opting out of the
Maryland Control Share Acquisition Act. This provision may be amended or eliminated at any time in the future by the Board.
Subtitle 8
Subtitle 8 of Title 3 of the MGCL permits a Maryland corporation with a class of equity securities registered under the
Exchange Act and at least three independent directors to elect to be subject, by provision in its charter or bylaws or a resolution of its board of directors and notwithstanding any contrary provision in the charter or bylaws, to any or all of five
provisions of the MGCL which provide, respectively, for:
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a two-thirds vote requirement for removing a director;
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a requirement that the number of directors be fixed only by vote of the board of directors;
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a requirement that a vacancy on the board be filled only by the remaining directors and for the remainder of
the full term of the class of directors in which the vacancy occurred; or
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a majority requirement for the calling of a special meeting of stockholders.
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The Company has not elected to be subject to any of the provisions of Subtitle 8. Through provisions in the charter and bylaws
unrelated to Subtitle 8, the Company already requires, unless called by its chairman, chief executive officer, president or Board, the written request of stockholders entitled to cast a majority of all votes entitled to be cast at such a meeting on
such matter to call a special meeting on any matter.
Approval of Extraordinary Actions; Amendments to the Charter and Bylaws
Under the MGCL, a Maryland corporation generally may not dissolve, merge or consolidate with, or convert to, another entity,
sell all or substantially all of its assets or engage in a statutory share exchange unless the action is declared advisable by the board of directors and approved by the affirmative vote of stockholders entitled to cast at least two-thirds of the
votes entitled to be cast on the matter, unless a lesser percentage (but not less than a majority of all of the votes entitled to be cast on the matter) is specified in the corporations charter. The charter provides that these actions must be
approved by a majority of all of the votes entitled to be cast on the matter.
94
The charter generally may be amended only if such amendment is declared advisable
by the Board and approved by the affirmative vote of stockholders entitled to cast a majority of the votes entitled to be cast on the matter.
The charter and bylaws provide that except for amendments relating to the minimum number of directors on the Board and the
vote required to amend such provisions, which amendments must be approved by the affirmative vote of at least two-thirds of the votes cast on the matter by the holders of Class A common stock, the Board has the exclusive power to adopt, alter
or repeal any provision in the bylaws and to make new bylaws.
Meetings of Stockholders
Under the bylaws, annual meetings of stockholders will be held each year at a date and time determined by the Board. Special
meetings of stockholders may be called by the Companys chairman, chief executive officer, president or the Board. Additionally, the bylaws provide that, subject to the satisfaction of certain procedural and informational requirements by the
stockholders requesting the meeting, a special meeting of stockholders to act on any matter that may properly be considered at a meeting of stockholders must also be called by the Companys secretary upon the written request of the stockholders
entitled to cast not less than a majority of all the votes entitled to be cast on such matter at the meeting. Only matters set forth in the notice of the special meeting may be considered and acted upon at such a meeting.
Advance Notice of Director Nominations and New Business
The bylaws provide that nominations of individuals for election as directors and proposals of business to be considered by
stockholders at any annual meeting may be made only (1) pursuant to the Companys notice of the meeting, (2) by or at the direction of the Board or (3) by any stockholder who was a stockholder of record at the record date set by
the Board for the purpose of determining stockholders entitled to vote at the meeting, at the time of giving the notice required by the bylaws and at the time of the meeting, who is entitled to vote at the meeting in the election of each of the
individuals so nominated or on such other proposed business and who has complied with the advance notice procedures of the bylaws. Stockholders generally must provide notice to the Companys secretary not earlier than the 150th day or later
than the close of business on the 120th day before the first anniversary of the date that the Companys proxy statement is released to the stockholders for the preceding years annual meeting of stockholders.
Only the business specified in the notice of the meeting may be brought before a special meeting of stockholders. Nominations
of individuals for election as directors at a special meeting of stockholders may be made only (1) by or at the direction of the Board, (2) by a stockholder that has requested that a special meeting be called for the purpose of electing
directors in compliance with the bylaws and that has supplied the information required by the bylaws about each individual whom the stockholder proposes to nominate for election of directors or (3) if the special meeting has been called in
accordance with the bylaws for the purpose of electing directors, by any stockholder who was a stockholder of record at the record date set by the Board for purposes of determining stockholders entitled to vote at the meeting, at the time of giving
the notice required by the bylaws and at the time of the meeting, who is entitled to vote at the meeting in the election of each individual so nominated and who has complied with the advance notice procedures of the bylaws. Stockholders generally
must provide notice to the Companys secretary not earlier than the 120th day before such special meeting or later than the later of the close of business on the 90th day before the special meeting or the tenth day after the first public
announcement of the date of the special meeting and the nominees proposed by the Board to be elected at the meeting.
A
stockholders notice must contain certain information specified by the bylaws about the stockholder, its affiliates and any proposed business or nominee for election as a director, including information about the economic interest of the
stockholder, its affiliates and any proposed nominee in the Company.
95
Exclusive Forum
The bylaws provide that, unless the Board agrees otherwise, (a) any derivative action or proceeding, (b) any action
asserting a claim of breach of any duty owed by any of the Companys directors, officers or other employees to the Company or to the Companys stockholders, (c) any action asserting a claim against the Company or any of the
Companys directors, officers or other employees pursuant to the MGCL, the charter or the bylaws and (d) claims governed by the internal affairs doctrine must be brought in the Circuit Court for Baltimore City, Maryland (or, if that court
does not have jurisdiction, the United States District Court for the District of Maryland, Baltimore Division).
Limitation of Liability and
Indemnification of Directors and Officers
For information concerning limitation of liability and indemnification
applicable to our directors and officers, see
Limitation of Liability and Indemnification of Directors and Officers
.
Restrictions
on Ownership and Transfer of the Companys Stock
Except with regard to persons exempted by the Board from the
ownership and transfer restrictions of the charter, no person may beneficially or constructively own more than 9.8% (in value or number of shares, whichever is more restrictive) of the outstanding Class A Common Stock or more than 9.8% (in
value) of all classes or series of stock. See
Description of Class A Common StockRestrictions on Ownership and Transfer
.
REIT Qualification
The
charter provides that the Board may revoke or otherwise terminate the Companys real estate investment trust election under the Code, without approval of the Companys stockholders, if it determines that it is no longer in the
Companys best interests to continue to be qualified as a real estate investment trust under the Code.
96
S
ECURITY
O
WNERSHIP
OF
C
ERTAIN
B
ENEFICIAL
O
WNERS
A
ND
M
ANAGEMENT
The following table sets forth the beneficial ownership of shares of Class A and Class B Common Stock as of
January 31, 2017 of each current director, nominee, and the other Named Executive Officers (as named in the Summary Compensation Table), as well as all directors and executive officers as a group.
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Number of Shares of Common Stock Beneficially Owned
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Name
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Class
A
Common
Stock
(a)(c)
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Percent
of
Class
(a)
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Class A Assuming
Conversion of
Class B by the
Beneficial
Owner
(b)(c)
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Percent
of
Class
(b)
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Class B
Common Stock
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Percent
of Class
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Arthur F. Anton
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74,995
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(1)
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0.03
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%
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74,995
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0.03
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%
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0.00
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%
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Scott S. Cowen
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80,585
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(2)
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0.03
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%
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80,585
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0.03
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%
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0.00
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%
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Michael P. Esposito, Jr.
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194,710
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(3)
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0.08
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%
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194,710
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0.08
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%
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0.00
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%
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Stan Ross
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110,705
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(4)
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0.05
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%
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110,705
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0.05
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%
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0.00
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%
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Kenneth J. Bacon
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35,931
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(5)
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0.01
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%
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35,931
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0.01
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%
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0.00
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%
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Z. Jamie Behar
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0.00
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%
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0.00
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%
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Christine R. Detrick
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22,670
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(6)
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0.01
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%
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22,670
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0.01
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%
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0.00
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%
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Deborah L. Harmon
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58,223
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(7)
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0.02
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%
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58,223
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0.02
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%
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0.00
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%
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David J. LaRue
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665,590
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(8)
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0.28
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%
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667,025
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0.28
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%
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1,435
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0.01
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%
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Craig Macnab
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0.00
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%
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0.00
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%
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Brian J. Ratner
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1,895,144
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(9)
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0.78
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%
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15,399,182
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(9)(10)
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6.04
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%
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13,504,041
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(10)
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71.88
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%
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Deborah Ratner Salzberg
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1,988,677
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(11)
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0.82
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%
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15,766,222
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(11)(12)
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6.17
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%
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13,777,545
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(12)
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73.33
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%
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James A. Ratner
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1,323,409
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(13)
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0.55
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%
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2,926,909
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(13)(14)
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1.20
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%
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1,603,500
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(14)
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8.53
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%
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Ronald A. Ratner
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1,073,322
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(15)
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0.44
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%
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15,770,168
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(15)(16)
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6.15
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%
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14,696,846
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(16)
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78.22
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%
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OTHER NAMED EXECUTIVE OFFICERS
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Robert G. OBrien
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596,128
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(17)
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0.25
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%
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596,128
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0.25
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%
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0.00
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%
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Duane F. Bishop
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62,238
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(18)
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0.03
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%
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62,238
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0.03
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%
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0.00
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%
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ALL DIRECTORS, NOMINEES AND EXECUTIVE
OFFICERS AS A GROUP (20 in number)
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7,708,842
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(19)
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3.16
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%
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24,078,021
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(19)(20)
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9.25
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%
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16,369,179
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(20)
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87.12
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%
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(1)
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Includes 5,969 shares of restricted stock and 30,273 shares that were issuable upon the exercise of stock
options vested at January 31, 2017 or that will vest within 60 days thereafter.
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(2)
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Includes 5,969 shares of restricted stock and 21,766 shares that were issuable upon the exercise of stock
options vested at January 31, 2017 or that will vest within 60 days thereafter.
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(3)
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Includes 5,969 shares of restricted stock and 60,162 shares that were issuable upon the exercise of stock
options vested at January 31, 2017 or that will vest within 60 days thereafter.
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(4)
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Includes 2,984 shares of restricted stock and 55,846 shares that were issuable upon the exercise of stock
options vested at January 31, 2017 or that will vest within 60 days thereafter.
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(5)
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Includes 5,969 shares of restricted stock and 13,988 shares that were issuable upon the exercise of stock
options vested at January 31, 2017 or that will vest within 60 days thereafter.
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(6)
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Includes 5,969 shares of restricted stock and 7,060 shares that were issuable upon the exercise of stock
options vested at January 31, 2017 or that will vest within 60 days thereafter.
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(7)
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Includes 2,984 shares of restricted stock and 34,251 shares that were issuable upon the exercise of stock
options vested at January 31, 2017 or that will vest within 60 days thereafter.
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(8)
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David J. LaRue has beneficial ownership of 47,872 shares of Class A Common Stock held in a trust for which
he has sole power of voting and disposition and 9,551 shares held in custodial accounts. Includes 58,253 shares of restricted stock and 286,234 shares that were issuable upon the exercise of stock options vested at January 31, 2017 or that will
vest within 60 days thereafter.
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(9)
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Brian J. Ratner has beneficial ownership of 1,801,658 shares of Class A Common Stock held in trusts and
foundations: 1,770,858 shares for which he is trustee and has shared power of voting and disposition and 30,800 shares for which he has sole power of voting and disposition. Mr. Ratner has beneficial ownership of 25,000 shares held in trusts
for which he is trust advisor and has shared power of voting and disposition. Includes 22,291 shares of restricted stock and 46,192 shares that were issuable upon the exercise of stock options vested at January 31, 2017 or that will vest within
60 days thereafter.
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97
(10)
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Brian J. Ratner has beneficial ownership of 533,172 shares of Class B Common Stock held in trusts: 497,934
shares for which he is trustee and has shared power of voting and disposition and 35,238 shares for which he has sole power of voting and disposition. Mr. Ratner has beneficial ownership of 85,712 shares held in trusts for which he is
trust advisor and has shared power of voting and disposition. Mr. Ratners beneficial ownership of the remaining 12,885,157 shares of Class B Common Stock reflects his status as a general partner of RMS. Does not reflect the following
shares of which Mr. Ratner disclaims beneficial ownership: 1,153,126 shares of Class B Common Stock held in trusts for which he is trustee, which shares are held in the Max Ratner Family Branch of RMS. See discussion of RMS on pages
109-110.
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(11)
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Deborah Ratner Salzberg has beneficial ownership of 1,890,057 shares of Class A Common Stock held in
trusts and foundations: 1,348,270 shares for which she is trustee and has shared power of voting and disposition and 541,787 shares for which she has sole power of voting and disposition. Ms. Ratner Salzberg has beneficial ownership of 32,352
shares held in trusts for which she is trust advisor and has shared power of voting and disposition. Includes 19,721 shares of restricted stock and 46,547 shares that were issuable upon the exercise of stock options vested at January 31, 2017
or that will vest within 60 days thereafter.
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(12)
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Deborah Ratner Salzberg has beneficial ownership of 806,676 shares of Class B Common Stock held in trusts:
369,082 shares for which she is trustee and has shared power of voting and disposition and 437,594 shares for which she has sole power of voting and disposition. Ms. Ratner Salzberg has beneficial ownership of 85,712 shares held in trusts for
which she is trust advisor and has shared power of voting and disposition. Ms. Ratner Salzbergs beneficial ownership of the remaining 12,885,157 shares of Class B Common Stock reflects her status as a general partner of RMS. Does not
reflect the following shares of which Ms. Ratner Salzberg disclaims beneficial ownership: 1,726,930 shares of Class B Common Stock held in trusts for which she is trustee, of which 1,525,575 shares are held in the Max Ratner Family Branch of
RMS and 201,355 shares are held in the Ruth Miller Family Branch of RMS. See discussion of RMS on
pages 109-110.
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(13)
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James A. Ratner has beneficial ownership of 856,966 shares of Class A Common Stock held in trusts: 855,082
shares for which he is trustee and has shared power of voting and disposition and 1,884 shares for which he has sole power of voting and disposition. Mr. Ratner has beneficial ownership of 256,853 shares held in trusts for which he is trust
advisor and has shared power of voting and disposition. Includes 22,093 shares of restricted stock and 187,497 shares that were issuable upon the exercise of stock options vested at January 31, 2017 or that will vest within 60 days thereafter.
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(14)
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James A. Ratner has beneficial ownership of 1,603,500 shares of Class B Common Stock held in trusts for which
he is trustee and has shared power of voting and disposition. Does not reflect the following shares of which Mr. Ratner disclaims beneficial ownership: 2,665,097 shares of Class B Common Stock held in trusts for which he is trustee and 563,103
shares held in trusts for which he is trust advisor, of which 2,389,846 shares are held in the Max Ratner Family Branch of RMS and 838,354 shares are held in the Albert Ratner Family Branch of RMS. See discussion of RMS on pages 109-110.
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(15)
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Ronald A. Ratner has beneficial ownership of 785,324 shares of Class A Common Stock held in trusts:
537,281 shares for which he is trustee and has shared power of voting and disposition and 248,043 shares for which he has sole power of voting and disposition. Mr. Ratner has beneficial ownership of 78,408 shares held in trusts for which he is
trust advisor and has shared power of voting and disposition. Includes 22,093 shares of restricted stock and 187,497 shares that were issuable upon the exercise of stock options vested at January 31, 2017 or that will vest within 60 days
thereafter.
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(16)
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Ronald A. Ratner has beneficial ownership of 1,332,785 shares of Class B Common Stock held in trusts: 1,182,785
shares for which he is trustee and has shared power of voting and disposition and 150,000 shares for which he has sole power of voting and disposition. Mr. Ratner has beneficial ownership of 478,904 shares held in trusts for which he is trust
advisor and has shared power of voting and disposition. Mr. Ratners beneficial ownership of the remaining 12,885,157 shares of Class B Common Stock reflects his status as a general partner of RMS. See discussion of RMS on
pages 109-110.
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(17)
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Robert G. OBrien has beneficial ownership of 109,224 shares of Class A Common Stock held in trusts:
71,581 shares for which he is trustee and has sole power of voting and disposition and 37,643 shares for which he is trust advisor and has shared power of voting and disposition. Includes 79,943 shares of restricted stock and 197,925 shares that
were issuable upon the exercise of stock options vested at January 31, 2017 or that will vest within 60 days thereafter.
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(18)
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Includes 26,264 shares of restricted stock and 17,107 shares that were issuable upon the exercise of stock
options vested at January 31, 2017 or that will vest within 60 days thereafter.
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(19)
|
These shares of Class A Common Stock represent all the shares in which beneficial ownership is claimed by
these persons. Shares for which beneficial ownership have been claimed by more than one person have been counted only once in this category. Includes 345,990 shares of restricted stock, 1,395,133 shares that were issuable upon the exercise of stock
options vested at January 31, 2017 or that will vest within 60 days thereafter, and 973,548 Class A Common Units.
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(20)
|
These shares of Class B Common Stock represent all the shares in which beneficial ownership is claimed by these
persons. Included in this total are 12,885,157 shares of Class B Common Stock that are held by RMS. Shares for which beneficial ownership have been claimed by more than one person have been counted only once in this category.
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98
(a)
|
Does not reflect potential conversion of Class B Common Stock to Class A Common Stock.
|
(b)
|
Reflects potential conversion of all Class B Common Stock held by the person listed to Class A Common
Stock. Shares of Class B Common Stock are convertible pursuant to their terms into shares of Class A Common Stock at any time on a one-for-one basis. Does not reflect the conversion premium as provided for as part of the Reclassification.
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(c)
|
This column includes Class A stock options, if any, that were exercisable on January 31, 2017 or that
will be exercisable within 60 days after such date.
|
Unless otherwise indicated, the following table
sets forth the security ownership as of January 31, 2017 of all other persons who beneficially own more than 5% of any class of the Companys Common Stock.
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|
|
|
|
Number of Shares of Common Stock Beneficially Owned
|
|
Name and Address
|
|
Class A
Common
Stock
(a)
|
|
|
Percent of
Class
(a)
|
|
|
Class A
Assuming
Conversion
of
Class B by the
Beneficial
Owner
(b)
|
|
|
Percent of
Class
(b)
|
|
|
Class B
Common
Stock
|
|
|
Percent
of
Class
|
|
The Vanguard Group
100 Vanguard Boulevard
Malvern, PA 19355
|
|
|
36,771,533
(1)
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15.22%
|
|
|
|
36,771,533
(1)
|
|
|
|
15.22%
|
|
|
|
|
|
|
|
0.00%
|
|
|
|
|
|
|
|
|
Scopia Capital Management LP
152 West 57th Street, 33rd Floor
New York, NY 10019
|
|
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23,726,734
(2)
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|
9.82%
|
|
|
|
23,726,734
(2)
|
|
|
|
9.82%
|
|
|
|
|
|
|
|
0.00%
|
|
|
|
|
|
|
|
|
Vanguard Specialized Funds
Vanguard REIT Index Fund
100 Vanguard Boulevard
Malvern, PA 19355
|
|
|
18,334,479
(3)
|
|
|
|
7.59%
|
|
|
|
18,334,479
(3)
|
|
|
|
7.59%
|
|
|
|
|
|
|
|
0.00%
|
|
|
|
|
|
|
|
|
Senator Investment Group LP
510 Madison Avenue
28th Floor
New York, NY 10022
|
|
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13,750,000
(4)
|
|
|
|
5.69%
|
|
|
|
13,750,000
(4)
|
|
|
|
5.69%
|
|
|
|
|
|
|
|
0.00%
|
|
|
|
|
|
|
|
|
BlackRock, Inc.
55 East 52nd Street
New York, NY 10055
|
|
|
13,715,119
(5)
|
|
|
|
5.68%
|
|
|
|
13,715,119
(5)
|
|
|
|
5.68%
|
|
|
|
|
|
|
|
0.00%
|
|
|
|
|
|
|
|
|
FMR LLC
245 Summer Street
Boston, MA 02210
|
|
|
12,189,350
(6)
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|
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|
5.05%
|
|
|
|
12,189,350
(6)
|
|
|
|
5.05%
|
|
|
|
|
|
|
|
0.00%
|
|
|
|
|
|
|
|
|
Ratner, Miller & Shafran Family Interests
(see pages 109-110)
Terminal Tower
50 Public Square, Suite 1600
Cleveland, OH 44113
|
|
|
8,956,188
(7)
|
|
|
|
3.70%
|
|
|
|
26,325,612
(7)
|
|
|
|
10.14%
|
|
|
|
17,369,424
(7)
|
|
|
|
92.45%
|
|
(1)
|
The Vanguard Group has sole voting power of 434,541 shares of Class A Common Stock, sole dispositive
power of 36,374,981 shares of Class A Common Stock, shared voting power of 277,126 shares of Class A Common Stock and shared dispositive power of 396,552 shares of Class A Common Stock. The number of shares of Class A Common
Stock represents shares beneficially owned at December 31, 2016 as disclosed in Schedule 13G/A filed with the SEC by the principal security holder.
|
99
(2)
|
Scopia Capital Management LP has shared voting and dispositive power of 23,726,734 shares of Class A
Common Stock. The number of shares of Class A Common Stock represents shares beneficially owned at February 3, 2017 as disclosed in Schedule 13D/A filed with the SEC by the principal security holder.
|
(3)
|
Vanguard Specialized Funds - Vanguard REIT Index Fund has sole voting power of 18,334,479 shares of
Class A Common Stock. The number of shares of Class A Common Stock represents shares beneficially owned at December 31, 2016 as disclosed in Schedule 13G filed with the SEC by the principal security holder.
|
(4)
|
Senator Investment Group LP has shared voting and dispositive power of 13,750,000 shares of Class A Common
Stock. The number of shares of Class A Common Stock represents shares beneficially owned at February 27, 2017 as disclosed in Schedule 13G filed with the SEC by the principal security holder.
|
(5)
|
BlackRock, Inc. has sole voting power of 12,842,926 shares of Class A Common Stock and sole dispositive
power of 13,715,119 shares of Class A Common Stock. The number of shares of Class A Common Stock represents shares beneficially owned at December 31, 2016 as disclosed in Schedule 13G/A filed with the SEC by the principal security
holder.
|
(6)
|
FMR LLC has sole voting power of 7,391,255 shares of Class A Common Stock and sole dispositive power of
12,189,350 shares of Class A Common Stock. The number of shares of Class A Common Stock represents shares beneficially owned at December 30, 2016 as disclosed in Schedule 13G/A filed with the SEC by the principal security holder.
|
(7)
|
The Ratner, Miller and Shafran families have an ownership interest in the Company as reflected in the
principal security holders table. These securities are beneficially owned by members of these families either individually or through a series of trusts, foundations and custodianships. Of the shares of Class B Common Stock listed, RMS owns
12,855,157 shares, which represent 68.58% of the Class B Common Stock outstanding at January 31, 2017.
|
Certain members of the Ratner family are currently directors and have been nominated for election to serve on our Board of
Directors. (See information regarding current directors and director nominees previously disclosed in this proxy statement/prospectus regarding the beneficial ownership of Common Stock by these individuals). Samuel H. Miller, Abraham Miller and Joan
K. Shafran are each general partners of RMS, but are not directors, director nominees or Named Executive Officers. Samuel H. Miller has beneficial ownership of 1,121,753 shares of Class A Common Stock, of which 1,110,020 are held in trusts and
a foundation: 648,505 shares for which he has sole power of voting and disposition and 461,515 shares for which he is a trustee with shared power of voting and disposition. Samuel H. Miller has beneficial ownership of 278,718 shares of Class B
Common Stock held in trusts in which he is trustee and has sole power of voting and disposition. Abraham Miller has beneficial ownership of 275,424 shares of Class A Common Stock held in trusts: 37,155 shares for which he is a trustee with
shared power of voting and disposition and 238,269 shares for which he has sole power of voting and disposition. Abraham Miller has beneficial ownership of 147,433 shares of Class B Common Stock held in trusts: 36,255 shares for which he is trustee
and has shared power of voting and disposition and 111,178 shares for which he has sole power of voting and disposition. Joan K. Shafran has beneficial ownership of 159,240 shares of Class A Common Stock held in trusts, foundations and
partnerships: 128,018 shares for which she has sole power of voting and disposition and 31,222 shares for which she has shared power of voting and disposition. Joan K. Shafran has beneficial ownership of 13,500 shares of Class B Common Stock held in
partnerships in which she has shared power of voting and disposition. As general partners of RMS, Samuel H. Miller, Abraham Miller and Joan K. Shafran each have beneficial ownership of the 12,885,157 shares of Class B Common Stock owned by RMS. See
discussion of RMS under Election of Directors on pages 109-110 for additional details.
(a)
|
Does not reflect potential conversion of Class B Common Stock to Class A Common Stock.
|
(b)
|
Reflects potential conversion of all Class B Common Stock held by the principal security holder listed to
Class A Common Stock. Shares of Class B Common Stock are currently convertible into shares of Class A Common Stock at any time on a one-for-one basis. Does not reflect the conversion premium as provided for as part of the Reclassification.
|
100
P
OLICIES
W
ITH
R
ESPECT
TO
C
ERTAIN
A
CTIVITIES
The following is a discussion of the
Companys policies with respect to distributions, investments, financing, lending and certain other activities. From time to time, these policies may be reconsidered by the Board without notice to, or a vote of, stockholders.
Dividend Policy
To
qualify as a REIT, the Company must annually distribute to stockholders an amount equal to at least 90% of the Companys REIT taxable income, determined without regard to the dividends paid deduction and excluding any net capital gains. The
Company commenced paying regular distributions in 2016. The amount, timing and frequency of future distributions, however, will be at the sole discretion of the Board and will be declared based upon various factors, many of which are beyond the
Companys control, including, the Companys financial condition and operating cash flows, the amount required to qualify for REIT status and reduce any income and excise taxes that the Company otherwise would be required to pay,
limitations on distributions in the Companys existing and future debt instruments, the Companys ability to utilize net operating losses to offset, in whole or in part, the Companys distribution requirements, limitations on the
Companys ability to fund distributions using cash generated through its TRSs, applicable law and other factors that the Board may deem relevant.
Investment Policy
Investments in Real Estate or
Interests in Real Estate
The Company is the sole general partner of its Operating Partnership (Forest City
Enterprises, L.P.), conducts substantially all of its business through its Operating Partnership, and owns substantially all of its assets through its Operating Partnership, whether directly or indirectly through subsidiaries of its Operating
Partnership.
The Companys investment objective is to seek the highest risk adjusted returns on invested capital for
stockholders by simultaneously increasing recurring free cash flow per share and the Companys return on invested capital. To achieve this, the Company expects that it will continue to deploy its capital through its annual capital expenditure
program and strategic acquisitions, subject to available funds and market conditions.
The Company expects to develop or
acquire real estate assets based on their anticipated total return, which consists of income and any capital appreciation. The Company expects to be a long-term owner in the properties. The Company approaches investments with a long-term investment
view, but the Company may sell properties at any time, subject to the REIT provisions of the Code, including the prohibited transaction rules, if management determines it is in the Companys best interest to do so.
Subject to certain asset tests that the Company must satisfy to qualify as a REIT, there are no limitations on (a) the
percentage of the Companys assets that may be invested in any one property, venture or type of security, (b) the number of properties in which the Company may invest, or (c) the concentration of the Companys investments in a
single geographic region. The Board may establish limitations, and other policies, as it deems appropriate from time to time.
The Company utilizes mortgage debt as a primary source of capital. Although the Company generally only expects to encumber its
properties with a single senior mortgage, the Company has no limit on the number or amount of mortgages that may be placed on any of its properties.
Investments in Securities of or Interests in Persons Primarily Engaged in Real Estate Activities and Other Issuers
The Company generally expects to engage in joint venture investments with other investors through its Operating Partnership.
The Company may also invest, through its Operating Partnership, in the securities of other issuers in connection with acquisitions of indirect interests in properties (normally general or limited partnership
101
interests in special purpose partnerships owning properties). Subject to the percentage of ownership limitations and the income and asset tests necessary to qualify as a REIT under the Code, the
Company intends to limit its investments in issuers to those that own office, retail and/or residential real estate or land in the United States where such investments would be consistent with our investment objectives. Through its Operating
Partnership, the Company may in the future acquire some, all or substantially all of the securities or assets of other entities that qualify as REITs under the Code or similar entities where that investment would be consistent with the
Companys investment policies and qualification as a REIT under the Code. The Company does not anticipate investing, either directly or through its Operating Partnership, in other issuers of securities for the purpose of exercising control
(except with respect to the Companys control of its Operating Partnership through its ownership of the general partnership interest and a majority of the limited partnership interests in its Operating Partnership) or acquiring any investments
primarily for sale in the ordinary course of business or holding any investments with a view to making short-term profits from their sale, but the Company may engage in these activities in the future.
The Company does not intend that its beneficial ownership of securities will require the Company to register as an
investment company under the Investment Company Act of 1940, as amended, and the Company intends to divest securities before any such registration would be required. The Company does not intend to engage, directly or indirectly, in
trading, underwriting, agency distribution or sales of securities of other issuers.
Investments in Other Securities
Other than as described above, the Company does not intend to invest, either directly or through its Operating Partnership, in
any additional securities.
Investments in Mortgages
The Company does not plan to invest, either directly or through its Operating Partnership, in real estate mortgages, although
the Company is not prohibited from doing so.
Dispositions
The Company may dispose of some of the assets it holds, whether such assets are held directly or through its Operating
Partnership, if management or the Board, as appropriate, determines that such action would be advisable and in the best interests of the Company.
Financing Policy
The
Companys financing policies largely depend on the nature and timeline of the Companys investment opportunities and the prevailing economic and market conditions. If the Board determines that additional funding is desirable, the Company
may raise funds through:
|
|
|
senior or subordinated debt financings, including accessing U.S. debt capital markets, drawing from its
revolving credit facility and bank borrowings;
|
|
|
|
preferred or common equity offerings; and
|
|
|
|
any combination of the above methods.
|
The Company anticipates providing the proceeds from any of the above transactions to its Operating Partnership in exchange for
partnership interests therein. The Company intends to retain the maximum possible cash flow to fund the investments the Company makes, either directly or through its Operating Partnership, subject to provisions in the Code requiring distribution of
REIT taxable income to enable the Company to qualify as a REIT under the Code, and to minimize the Companys income and excise tax liabilities. The Company intends to utilize its cash on hand and availability under its revolving credit facility
to fund future discretionary investments. The Company does not have a formal policy limiting the amount of indebtedness that it may incur,
102
but the Company is subject to certain restrictions under certain indentures and under its credit facility with regard to permitted indebtedness. In the future, the Company may seek to extend,
expand, reduce or renew its credit facility, obtain new or additional credit facilities or lines of credit, or issue new unsecured or secured debt that may contain limitations on indebtedness or operations. The Company will consider a number of
factors when evaluating its level of indebtedness and when making decisions regarding the incurrence of indebtedness, including overall prudence, the purchase price of assets to be acquired with debt financing, the estimated market value of the
Companys assets upon refinancing, the Companys ability to generate cash flow, both directly and through its Operating Partnership, to cover the Companys expected debt service and restrictions under its existing debt arrangements.
See the section of the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2016, entitled
Managements Discussion and Analysis of Financial Condition and Results of OperationsFinancial Condition
and Liquidity
.
Lending Policy
The Company may make loans or guarantee the debt of its Operating Partnership and future direct or indirect subsidiaries to the
extent they require debt financing to fund acquisitions and capital expenditures.
Equity Capital Policies
Subject to applicable law and the requirements for NYSE listed companies, the Board may authorize, without the approval of
stockholders, the obtaining of additional capital through the issuance of equity securities of the Company or its Operating Partnership. If the Reclassification is completed, the Company will have authority to issue up to 371,000,000 shares of
Class A Common Stock and 20,000,000 shares of Preferred Stock. As permitted under the MGCL, the Companys charter authorizes the Board, with the approval of a majority of the entire Board and without stockholder approval, to amend the
charter to increase or decrease the aggregate number of shares of Company stock or the number of shares of any class or series of shares of Company stock that the Company is authorized to issue.
In certain cases, the Company or its Operating Partnership may issue securities in exchange for real property or interests in
real property.
The Company may, under certain circumstances, purchase shares of Common Stock in the open market or in
private transactions with its stockholders, if those purchases are approved by the Board.
Reports to Stockholders
The Company is subject to the information reporting provisions of the Exchange Act, which require the Company to file annual
and periodic reports, proxy statements and other information, including audited financial statements, with the SEC.
Other Activities
The Company intends to operate and to invest so as to qualify as a REIT under the Code unless the Board determines that it is
no longer advisable and in the best interests of the Company to so qualify.
103
L
EGAL
M
ATTERS
The validity of the shares of Class A Common Stock offered hereby will be passed upon by Venable.
Certain U.S. federal income tax consequences of the Reclassification will be passed upon by Sullivan & Cromwell.
104
E
XPERTS
The financial statements, financial statement schedules and managements assessment of the effectiveness of internal
control over financial reporting (which is included in Managements Report on Internal Control over Financial Reporting) incorporated in this proxy statement/prospectus by reference to the Annual Report on
Form 10-K
for the year ended December 31, 2016, have been so incorporated in reliance on the report of PricewaterhouseCoopers LLP, an independent registered public accounting firm, given on the
authority of said firm as experts in auditing and accounting.
105
L
IMITATION
OF
L
IABILITY
AND
I
NDEMNIFICATION
OF
D
IRECTORS
AND
O
FFICERS
Maryland law permits a Maryland corporation to include in its charter a provision limiting the liability of its directors and
officers to the corporation and its stockholders for money damages except for liability resulting from actual receipt of an improper benefit or profit in money, property or services or active and deliberate dishonesty that is established by a final
judgment and is material to the cause of action. The Companys charter contains such a provision that eliminates such liability to the maximum extent permitted by Maryland law.
The MGCL requires a Maryland corporation (unless the charter provides otherwise, which the Companys charter does not) to
indemnify a director or officer who has been successful, on the merits or otherwise, in the defense of any proceeding to which he or she is made a party by reason of his or her service in that capacity. The MGCL permits a corporation to indemnify
its present and former directors and officers, among others, against judgments, penalties, fines, settlements and reasonable expenses actually incurred by them in connection with any proceeding to which they may be made or threatened to be made a
party by reason of their service in those or other capacities unless it is established that:
|
|
|
the act or omission of the director or officer was material to the matter giving rise to the proceeding and
(a) was committed in bad faith or (b) was the result of active and deliberate dishonesty;
|
|
|
|
the director or officer actually received an improper personal benefit in money, property or services; or
|
|
|
|
in the case of any criminal proceeding, the director or officer had reasonable cause to believe that the act
or omission was unlawful.
|
A corporation may not indemnify a director or officer in a suit by or on
behalf of the corporation in which the director or officer was adjudged liable to the corporation or in a suit in which the director or officer was adjudged liable on the basis that personal benefit was improperly received. A court may order
indemnification if it determines that the director or officer is fairly and reasonably entitled to indemnification, even though the director or officer did not meet the prescribed standard of conduct or was adjudged liable on the basis that personal
benefit was improperly received. However, indemnification for an adverse judgment in a suit by or on behalf of the corporation, or for a judgment of liability on the basis that personal benefit was improperly received, is limited to expenses.
In addition, the MGCL permits a corporation to advance reasonable expenses to a director or officer upon receipt of:
|
|
|
a written affirmation by the director or officer of his or her good faith belief that he or she has met the
standard of conduct necessary for indemnification by the corporation; and
|
|
|
|
a written undertaking by the director or officer or on the directors or officers behalf to repay
the amount paid or reimbursed by the corporation if it is ultimately determined that the director or officer did not meet the standard of conduct.
|
The Companys charter authorizes the Company to obligate the Company, and the Companys bylaws obligate the Company,
to the maximum extent permitted by Maryland law in effect from time to time, to indemnify and, without requiring a preliminary determination of the ultimate entitlement to indemnification, pay or reimburse reasonable expenses in advance of final
disposition of a proceeding to:
|
|
|
any present or former director or officer of the Company who is made or threatened to be made a party to, or
witness in, the proceeding by reason of his or her service in that capacity; or
|
|
|
|
any individual who, while a director or officer of the Company and at the Companys request, serves or
has served as a director, officer, trustee, member, manager, or partner of another corporation, real estate investment trust, limited liability company, partnership, joint venture, trust, employee benefit plan or any other enterprise and who is made
or threatened to be made a party to, or witness in, the proceeding by reason of his or her service in that capacity.
|
106
The Companys charter and bylaws also permit the Company to indemnify and
advance expenses to any person who served a predecessor of the Company in any of the capacities described above and any employee or agent of the Company or a predecessor of the Company.
The Company has entered into customary indemnification agreements with the Companys directors and executive officers
that require the Company, among other things, to indemnify the Companys directors and executive officers against certain liabilities that may arise by reason of their status as directors or officers to the maximum extent permitted by Maryland
law and provide for the advancement of expenses in connection therewith.
The Company also maintains directors and
officers liability insurance that indemnifies the Companys directors and officers against damages arising out of certain kinds of claims that might be made against them based on acts and things done (or not done) by them while acting in
their capacity as directors and officers.
Insofar as indemnification for liabilities arising under the Securities Act of
1933, as amended (the
Securities Act
), may be provided to directors, officers or persons controlling the Company pursuant to the foregoing provisions, in the opinion of the SEC such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.
107
P
ROPOSAL
1 E
LECTION
OF
D
IRECTORS
Overview of Election of Directors
It is intended that proxies will be voted for the election of the nominees named below as our directors unless authority is
withheld. All elected directors will serve until the next annual stockholders meeting and until their respective successors are duly elected and qualified. In the event any one or more of such nominees unexpectedly becomes unavailable for
election, proxies will be voted in the discretion of the proxy holder. All nominees named below except for Craig Macnab are presently our directors.
Background to the Boards Recommendation in Favor of the Companys Nominees
In connection with our announcement on December 6, 2016 that Bruce C. Ratner would be resigning from our Board at year-end
2016 and that Stan Ross would not stand for re-election at the Annual Meeting, our Corporate Governance and Nominating Committee began a search to identify, recruit and select two new, highly-qualified candidates for the Board to nominate for
election as directors at the Annual Meeting. To assist the Corporate Governance and Nominating Committee in identifying the candidates who would best serve the interests of the Company and all of our stockholders, we retained Ferguson Partners, an
independent search firm to help identify and evaluate candidates with the requisite skills and experience. As a result of this process, Z. Jamie Behar was elected to the Board on April 21, 2017 and Craig Macnab and Ms. Behar were nominated for
election at the Annual Meeting.
The Board is committed to acting in the best interests of the Company and its
stockholders. In the past year, following discussions with and input from the Companys largest stockholders, the Board and management team took significant steps to enhance the Companys corporate governance by entering into agreements to
eliminate our dual-class stock structure, elect two new independent directors and adopt a majority voting standard for the election of directors. Moreover, the Company also implemented a new organizational structure to improve efficiencies and
operating margins and reinstituted a quarterly dividend in the first quarter of 2016. We expect that each of our incumbent directors and our two new independent director nominees will provide an important source of leadership and experience during
this critical transition period, as the Company implements these corporate governance enhancements and executes its strategic plan to create stockholder value.
The names of our nominees and certain other information about them is set forth further below.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE
FOR
EACH OF THE COMPANYS
NOMINEES FOR DIRECTOR ON THE ENCLOSED WHITE PROXY CARD.
The persons named as proxies intend to vote the proxies
FOR
the election of each of the Companys nominees, except that a WHITE proxy card marked
Withhold All
or
For All Except
with respect to the election of one or more directors will
not be voted with respect to the director or directors indicated. If for some reason any director nominee is unable to serve, or for good cause will not serve if elected, the persons named as proxies may vote in their discretion for a substitute
nominee recommended by the Board, and unless you indicate otherwise on the WHITE proxy card, the proxies will be voted in favor of the remaining nominees. If any substitute nominees are designated, we will file an amended proxy statement/prospectus
that, as applicable, identifies the substitute nominees, discloses that such nominees have consented to being named in the revised proxy statement/prospectus and to serve if elected, and includes certain biographical and other information about such
nominees required by SEC rules.
Background to Potential Contested Solicitation
Following the Companys announcement of its planned corporate governance enhancements, including the proposed
Reclassification, Land and Buildings submitted a notice of its intent to nominate three individuals for election as Class A directors at the Annual Meeting.
108
Our Board and management team value input from our stockholders and have made a
sustained and continuing effort to engage constructively with our stockholders. We are hopeful that Land and Buildings does not proceed in undertaking a contested solicitation, and instead remains open to a path of constructive engagement. A
contested solicitation may require the Company to incur additional costs and expenses and likely would distract our management team from their efforts to accelerate implementation of our strategic plan to create stockholder value.
Information Concerning Participants in the Companys Solicitation
In addition to the biographical information for the Companys nominees set forth below, Annex F sets forth information
relating to our directors and certain of our officers and employees who are considered participants in our solicitation under the rules of the SEC by reason of their position as directors of the Company or because they may be soliciting
proxies on our behalf.
Family Interests
At January 31, 2017, the Ratner, Miller and Shafran families, which include members of our current Board and certain
executive officers not including Bruce C. Ratner (
Family Interests
), owned 3.7% of the outstanding shares of Class A Common Stock and 92.4% of the Class B Common Stock. RMS, which owned 68.58% of the outstanding shares of
Class B Common Stock as of the Record Date, is a limited partnership comprised of the Family Interests, with seven individual general partner positions, currently consisting of: Samuel H. Miller, Co-Chairman Emeritus; Charles A. Ratner; Ronald A.
Ratner, our Executive Vice President and Director; Brian J. Ratner, our Executive Vice President and Director; Deborah Ratner Salzberg, our Executive Vice President and Director; Joan K. Shafran, a former Director; and Abraham Miller. Charles A.
Ratner, James A. Ratner, our Chairman of the Board, and Ronald A. Ratner are brothers. Albert B. Ratner, our Co-Chairman Emeritus, 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, Bruce C. Ratner and Joan K. 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.
Under the partnership agreement of RMS, the voting power of the general partners representing a family branch is determined by
dividing the interest of the family branch they represent by the aggregate interests of all family branches. The voting power of the general partner or general partners representing a family branch may not be divided or apportioned but must be voted
together as a whole. If the general partners representing a family branch are unable to agree on how to vote that branch, the total voting power of the other general partners is computed without reference to the voting power otherwise available to
that family branch. General partners holding 60% of the total voting power (excluding the voting power of a family branch, if any, unable to agree on how to vote on a particular matter) of RMS determine how to vote the Class B Common Stock held by
RMS, except in the case of a sale of all or substantially all of the assets of RMS or the dissolution of RMS, in which case a 75% vote is required.
Effective December 20, 2013, the general partners of RMS voted to distribute five million (5,000,000) shares of
Class B Common Stock to certain of its limited partners (the
Limited Partner Recipients
). The distributed shares are subject to the Ratner, Miller and Shafran Shareholders Agreement, dated as of December 20, 2013 (the
Shareholder Agreement
). The distribution did not change the investment intent of the Family Interests with regard to ownership of Class B Common Stock. The Shareholder Agreement contains transfer restrictions that provide a right
of first refusal to the other members of the Ratner, Miller and Shafran families. In addition, the Shareholder Agreement requires the Limited Partner Recipients to vote the distributed shares consistent with the partnership agreement of RMS.
109
The following table sets forth the shares of Class B Common Stock held by RMS at
January 31, 2017, which under the partnership agreement are voted by the general partners of RMS, who under Rule 13d-3 of the Exchange Act, are deemed to be the beneficial owners of those shares of Class B Common Stock:
|
|
|
|
|
|
|
Family Branch
|
|
Name of General Partners
|
|
Shares of Class B
Common Stock
Held Through RMS
|
|
Percent of RMSs
Holdings of Class B
Common Stock
|
Max Ratner
|
|
Charles A. Ratner
|
|
6,493,853
|
|
50.4%
|
|
|
Ronald A. Ratner
|
|
|
|
|
Albert Ratner
|
|
Brian J. Ratner
|
|
3,552,483
|
|
27.6%
|
|
|
Deborah Ratner Salzberg
|
|
|
|
|
Samuel H. Miller
|
|
Samuel H. Miller
|
|
719,488
|
|
5.6%
|
Nathan Shafran
|
|
Joan K. Shafran
|
|
1,355,651
|
|
10.5%
|
Ruth Miller
|
|
Abraham Miller
|
|
763,682
|
|
5.9%
|
|
|
|
|
|
|
|
Total
|
|
|
|
12,885,157
|
|
100.0%
|
110
Director Qualifications and Experience
The Corporate Governance and Nominating Committee of our Board of Directors performs an annual assessment of the skills and the
experience needed to maintain a well-rounded, diverse and effective Board and summarizes such assessment in a tabular matrix. The Committee uses the matrix to assess the current composition of the Board and to identify qualifications and experience
for potential nominees. When identifying nominees for the Board, the Committee conducts a targeted effort to identify and recruit individuals who have the qualifications and experience identified through this process. The following is a tabular
summary of the most recently conducted matrix assessment for the members of the Board.
|
|
|
|
|
Director Qualifications and Experience
|
|
Percentage of Directors Identified as
having Advanced or Good
Qualifications or Experience
|
|
Financial Expertise and Literacy
is important because it assists our directors in understanding and overseeing our financial reporting and internal controls.
|
|
|
100
|
%
|
Capital Markets
experience and
knowledge is important in evaluating opportunities in the financial markets to raise capital.
|
|
|
100
|
%
|
Talent Management and Succession
Planning
experience is valuable in helping us attract, motivate and retain top candidates for positions at the Company.
|
|
|
92
|
%
|
Organizational Design and Change
Management
experience with organizational structure design and implementation of organizational change is important to our adaptability to industry trends.
|
|
|
100
|
%
|
Real Estate
knowledge and
experience is important in reviewing and understanding our business strategy.
|
|
|
92
|
%
|
Government and Government
Relations
experience is relevant because we operate as a publicly-traded company that is directly affected by governmental policies.
|
|
|
92
|
%
|
Political Acumen and External
Relations
knowledge and experience is important in aligning with issues, candidates and entities whose missions align with ours.
|
|
|
92
|
%
|
Corporate Governance
experience
supports our goals of strong Board and management accountability, transparency and protection of stockholder interests.
|
|
|
100
|
%
|
Legal
experience and acumen
provide critical thinking, analysis and understanding of the regulations applicable to us.
|
|
|
92
|
%
|
Risk Management
experience is
critical to the Boards role in overseeing the risks facing our business.
|
|
|
83
|
%
|
Strategic Planning
experience is
important to provide guidance for our strategic initiatives and oversight of the planning and implementation of our strategic plan.
|
|
|
100
|
%
|
Marketing
experience is relevant
as it seeks to identify and develop new real estate development and management markets.
|
|
|
67
|
%
|
Stakeholder and Community
Engagement
experience is important to facilitate communication and create long-term value for our stakeholders and the communities in which we operate.
|
|
|
92
|
%
|
Academic/Education
experience is
important because it brings perspective regarding organizational management and academic research relevant to our business and strategy.
|
|
|
100
|
%
|
Business Ethics
experience is
important given the critical role that ethics plays in the success of our business.
|
|
|
100
|
%
|
Business Head Administration
experience is important since directors with administration experience typically possess strong leadership qualities and the ability to identify those qualities in others.
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100
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%
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Business Operations
experience
provides a practical understanding of developing, implementing and assessing our operational plan and business strategy.
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100
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%
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Cybersecurity
experience is
important to facilitate the Boards oversight of the information technology security demands and risks of the Company.
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17
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%
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111
Director Nominee Biographies
Set forth below are each nominees name, age, year first elected as a director, principal occupation, professional history
and public company directorships held currently and during the past five years, and detailed information about the qualifications, experience, attributes and skills that led to the conclusion that such person should serve as our director.
NOMINEES FOR ELECTION AS CLASS A DIRECTORS
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Arthur F. Anton
Principal Occupation and Business Experience
Since 2003, Mr. Anton has been the chief executive officer of Swagelok, a privately-held domestic and international developer and provider of
fluid system solutions with approximately $2 billion of annual revenue. Mr. Anton has also served as the chairman of the Board of Swagelok since October 2015. Prior to his current positions, Mr. Anton served Swagelok as the president and chief
operating officer from 2001 to 2003, executive vice president from 2000 to 2001, and chief financial officer from 1998 to 2001. Prior to joining Swagelok, Mr. Anton was a consulting partner at Ernst & Young LLP, where he worked with companies in
the manufacturing, energy, service and other industries. He is a board member of two additional publicly-traded companies: Olympic Steel, Inc., a metal service center, where he has been a director since 2009, and the Sherwin-Williams Company, a
paint and building material manufacturing and distribution company, where he has been a director since 2006. He is also a board member and chairman of the Finance Committee of University Hospitals of Cleveland.
Key Experience, Attributes and Skills
Mr. Antons leadership experience, both as a chief executive officer
and chief financial officer, and his deep understanding of corporate strategy and vast financial acumen make him a tremendous asset to Forest City and our Board of Directors. Mr. Anton is able to provide guidance on best practices, risk management
and corporate governance strategies from his experience serving on other public company boards.
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Age:
59
Director Since:
2010
Independent
Board Committees:
-Audit
-Compensation
Other Current Registered
Company Directorships:
-Olympic
Steel, Inc.
-The Sherwin-Williams Company
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112
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Kenneth J. Bacon
Principal Occupation and Business Experience
Mr. Bacon co-founded RailField Partners, a financial advisory
and asset management firm based in Washington, D.C., in 2012. Mr. Bacon retired from the Federal National Mortgage Association (Fannie Mae) in 2012 after nearly 20 years with the company. Mr. Bacon joined Fannie Mae as senior vice president,
Northeast Region. In 1998, he was selected to lead Fannie Maes American Communities Fund. In 2000, he became senior vice president of the organizations Multifamily Division and in 2005 he was promoted to executive vice president of the
division. Prior to Fannie Mae, Mr. Bacon served as director of policy for the Oversight Board at Resolution Trust Corporation, and was later named director of securitization. Prior to this, he worked at Morgan Stanley, where his focus was mortgage
finance and related products. Mr. Bacon began his career with Kidder Peabody. Mr. Bacon is a board member of three other publicly-traded companies: Comcast Corporation, a global media and technology company, where he has been a director since 2002;
Ally Financial Inc., a financial service company, where he has been a director since 2015; and Welltower Inc., a healthcare property REIT, where he has been a director since January 2016. He is also a board member of the National Multifamily Housing
Council and serves on the Advisory Board of the Stanford Center on Longevity. Mr. Bacon has a B.A. from Stanford University, a M.Sc. from the London School of Economics, and an MBA from the Harvard Graduate School of Business.
Key Experience, Attributes and Skills
Mr. Bacon brings significant financial, asset management and
real estate experience to our Board of Directors. His varied professional officer roles as well as his board service with other publicly-traded companies and real estate industry organizations make him a tremendous asset to Forest City and our
Board. In addition, he provides recommendations on best practices in areas such as governmental affairs, the financial industry and the non-profit, educational and philanthropic communities.
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Age:
62
Director Since:
2012
Independent
Board Committees:
-Audit
-Corporate Governance and
Nominating
Other Current Registered Company
Directorships:
-Comcast Corporation
-Ally Financial Inc.
-Welltower,
Inc.
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113
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Scott S. Cowen
Principal Occupation and Business Experience
Dr. Cowen has been the president emeritus and distinguished
University chair of Tulane University since July 2014. From July 1998 to July 2014, Dr. Cowen served as the president of Tulane University. While serving as president of Tulane University he led the school, as well as the City of New Orleans,
through the aftermath of Hurricane Katrina and developed unique and exceptional skills in crisis management. In recognition of his leadership skills, he received the Carnegie Award for Academic Leadership, the TIAA-CREF Hesburgh Award for Leadership
Excellence in Higher Education, and was named one of the Ten Best College Presidents in America by Time magazine. Prior to 1998, Dr. Cowen was dean at the Weatherhead School of Management at Case Western Reserve University, where he was
also a professor for 23 years. Dr. Cowen is currently a board member of two other publicly-traded companies: Newell Rubbermaid, Inc., a consumer products corporation, where he has been a director since 1999, and Barnes & Noble, Inc., a leading
bookseller and content, commerce and technology company, where he has been a director since 2014. In addition, Dr. Cowen served as a board member of NACCO Industries, Inc., a publicly-traded mining, small appliances and specialty retail holding
company, from May 2014 to August 2016 and American Greetings Corporation, formerly a publicly-traded greeting card company, from 1989 to 2013. Since January 2015, Dr. Cowen has been serving as a senior advisor for the Boston Consulting Group. In
2010, President Barack Obama appointed him to the White House Council for Community Solutions, which advised the President on the best ways to mobilize citizens, nonprofits, businesses and government to address community needs. Dr. Cowen recently
became a member of the Board of Trustees of Case Western Reserve University and the University of Notre Dame.
Key Experience, Attributes and Skills
An award-winning educator and leader, Dr. Cowen has consulted for dozens of companies, from start-ups to the Fortune 100. His impressive
background and service as the President of a major research university and on the boards of both public and private companies have given him expertise in strategic planning, financial management, external reporting, organizational behavior, crisis
management and corporate governance. During his tenure on the Forest City Board of Directors, Dr. Cowen has contributed valuable strategic oversight and has developed a deep knowledge of the real estate industry and of Forest City in
particular.
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Lead Director
Age:
70
Director Since:
1989
Independent
Board Committees:
-Compensation (Chair)
-Corporate
Governance and Nominating
Other Current Registered
Company Directorships:
-Newell Rubbermaid, Inc. -Barnes & Noble, Inc.
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114
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Michael P. Esposito, Jr.
Principal Occupation and Business Experience
Mr. Esposito has been the non-executive chairman of Syncora Holdings Ltd., a guarantee insurance company, since 2006 and served as the
non-executive chairman of Primus Guaranty Ltd., a seller of credit protection, from 2002 to November 2014. In 1995, Mr. Esposito retired from The Chase Manhattan Bank, N.A. where he served as executive vice president and chief control, compliance
and administrative officer. At the time of his retirement, he had been with The Chase Manhattan Bank, N.A. for 34 years in various positions, including principal accounting officer, corporate controller and chief financial officer. In 2007, he
retired as the non-executive chairman of insurance company XL Capital Ltd. Mr. Esposito has also held leadership positions with the Bank Administration Institute, American Bankers Association, Conference Board, and the Advisory Council to the
Financial Accounting Standards Board.
Key
Experience, Attributes and Skills
Mr. Esposito
brings significant financial experience and expertise to our Board of Directors, including knowledge from his service with other publicly-traded companies. He provides valuable guidance on best practices in areas such as risk management, financial
management, corporate governance, capital management and debt management. Mr. Esposito has chaired a strong Audit Committee of our Board of Directors, and during his tenure on the Committee, the Company has consistently received high ratings from
proxy advisory firms with regard to Forest Citys low audit risk.
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Age:
77
Director Since:
1995
Independent
Board Committees:
-Audit (Chair)
-Compensation
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115
NOMINEES FOR ELECTION AS CLASS B DIRECTORS
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Z. Jamie Behar
Principal Occupation and Business Experience
Ms. Behar served as Managing Director, Real Estate &
Alternative Investments for GM Investment Management Corp. (GMIMCo) from 2005 to 2015. While at GMIMCo, she managed GMIMCos clients real estate investment portfolios, including both private market and publicly traded security
investments, as well as their alternative investment portfolios, totaling approximately $12 billion at peak portfolio value. She was also a member of GMIMCos Board of Directors, the Investment Management Committee, the Private Equity
Investment Approval Committee and the Risk Management Committee. Ms. Behar is currently a board member of two additional publicly-traded companies: Gramercy Property Trust, a REIT that specializes in acquiring and managing single-tenant, net-leased
industrial and office properties, where she has been a director since 2015 and serves as a member of the Investment Committee and Audit Committee; and Sunstone Hotel Investors, Inc., a U.S. hotel company, where she has been a director since 2004 and
serves as Chair of the Nominating & Corporate Governance Committee and as a member of the Audit Committee. Ms. Behar previously served on the Board of Directors of Desarrolladora Homex, S.A. de C.V., a publicly-traded home development company
located in Mexico, from 2004 to 2013, where she served on the Audit Committee. Ms. Behar was a member of the Board of Directors of the Pension Real Estate Association (PREA) from March 2008 through March 2014 and was a member of the Real Estate
Investment Advisory Council of the National Association of Real Estate Investment Trusts (NAREIT) from its inception through 2015. Ms. Behar holds a B.S.E. from The Wharton School, University of Pennsylvania, an MBA from Columbia University Graduate
School of Business, and the CFA Charter.
Key
Experience, Attributes and Skills
Ms. Behar has
significant real estate company board experience and is a seasoned business executive and CFA with extensive investment experience in a diverse range of public and private real estate equity and debt, and other private equity portfolios. She brings
a wealth of executive and board-level experience in investment strategy, financial management, corporate governance and other areas, making her an outstanding member of our Board.
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Age:
59
Director Since:
April, 2017
Independent
Other Current Registered Company Directorships:
-Gramercy Property Trust
-Sunstone Hotel Investors, Inc.
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116
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Christine R. Detrick
Principal Occupation and Business Experience
Ms. Detrick previously served as a director, senior advisor
and the head of the Americas Financial Services Practice at Bain & Company from 2002 to 2011. Prior to Bain, in 1992, she was recruited to the financial services practice at A.T. Kearney where she became the global head of Financial Services and
served on the firms Board of Management and Board of Directors. Prior to this, in 1988 Ms. Detrick was a founding partner of First Financial Partners, Inc., a venture capital firm specializing in savings and loan institutions, where she served
as chief executive officer and oversaw its mortgage and real estate portfolio in a turnaround setting for a failing savings and loan bank that had been acquired by the firm. Ms. Detrick began her career in the insurance industry at Progressive
Corporation and Chubb Corporation, before joining McKinsey & Company in 1984. Ms. Detrick is currently a board member of an additional publicly-traded company, Reinsurance Group of America, Incorporated, a global life reinsurance company, which
she joined in 2014. She is also a board member of the Hartford Mutual Funds, Inc., a family of mutual funds registered under the Investment Company Act of 1940, which she joined in February 2016.
Key Experience, Attributes and Skills
Ms. Detrick has significant board experience from serving on
the boards of both public and private companies and is a seasoned business executive with more than 30 years of experience leading and advising financial services companies and investors. She brings a wealth of executive-level experience in
strategy, planning, governance, risk management, operational improvement and other areas that make her a strong, independent director and a tremendous asset to Forest City and the Board of Directors.
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Age:
58
Director Since:
2014
Independent
Board Committee:
-Corporate
Governance and Nominating
Other Current Registered
Company Directorships:
-Reinsurance Group of America, Incorporated
-The Hartford Mutual Funds, Inc.
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117
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Deborah L. Harmon
Principal Occupation and Business Experience
Ms. Harmon is a co-founder and the chief executive officer of
Artemis Real Estate Partners, LLC, a real estate investment firm that manages $1.8 billion of institutional capital across the core plus, value add and opportunistic risk spectrum in a variety of real estate strategies. With over 25 years of
experience in the real estate industry, she is responsible for establishing, implementing and overseeing the strategic direction of Artemis. Prior to co-founding Artemis, she spent 17 years with the J.E. Robert Companies, Inc. (JER), a
real estate investment firm where she was last president and chief investment officer. Before joining JER, Ms. Harmon was a managing director at Bankers Trust Company where she worked in both the corporate finance and real estate groups handling a
$2 billion portfolio of real estate developers and national corporations. Ms. Harmon currently serves on the Board of Pension Real Estate Association as a Trustee of the Urban Land Institute, the Advisory Boards of Caravel Management and BlackIvy
Group, the investment committee of Sidwell Friends School and the executive committee of the Zell/Lurie Real Estate Center at the Wharton School of the University of Pennsylvania. She also serves on the Board and Executive Committee of Women for
Women International and as commissioner for the White House Fellows program which she was appointed to by President Barack Obama in 2009. Ms. Harmon is a member of the Council on Foreign Relations and The Economic Club of Washington D.C.
Key Experience, Attributes and Skills
With more than 25 years experience in the management and investment
of real estate funds, Ms. Harmon has extensive knowledge of the real estate investment and financial markets. She has expertise in real estate acquisition, capital markets, valuation, capital raising, strategic planning, implementation and
oversight, and institutional portfolio management. She provides valuable guidance regarding the capital markets in which Forest City operates as well as the competitive environment in which we must raise capital.
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Age:
57
Director Since:
2008
Independent
Board Committee:
-Corporate Governance and Nominating (Chair)
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118
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David J. LaRue
Principal Occupation and Business Experience
Mr. LaRue has been the president and chief executive officer
of Forest City since June 2011. He is also an officer of various subsidiaries of Forest City. Prior to becoming president and chief executive officer, Mr. LaRue served as executive vice president and chief operating officer from March 2010 to June
2011. Mr. LaRue served as president and chief operating officer of Forest City Commercial Group, Inc. (now known as Forest City Commercial Group, LLC) from 2003 to March 2010 and as executive vice president of Forest City Rental Properties, Inc.
(now known as Forest City Properties, LLC) from 1997 to 2003. Prior to joining Forest City in 1986, Mr. LaRue was an internal auditor and financial analyst with the Sherwin-Williams Company. Mr. LaRue served on the Board of CubeSmart, a
publicly-traded real estate investment trust focused on self-storage facilities, from 2004 to May 2013. Mr. LaRue is a member of the National Association of Real Estate Investment Trusts (NAREIT) Board of Governors; a member of the Board
of Directors of The Real Estate Round Table; a member of the Board of Trustees and chair of the Capital Committee of the Friends of the Cleveland School of the Arts; a trustee and member of the Finance Committee of the Lawrence School; a member of
the Board of Directors of St. Edward High School; and a member of the Board of Directors of the Greater Cleveland Partnership.
Key Experience, Attributes and Skills
Under Mr. LaRues leadership as president and chief executive officer, Forest City successfully executed a merger transaction in
connection with its conversion to REIT status, and continues to make significant progress achieving its strategic objectives of focusing on core products in core markets, building a sustainable capital structure and achieving operational excellence.
As an employee of Forest City since 1986, Mr. LaRue brings vast experience in virtually every aspect of our business, along with broad strategic, operational and financial acumen to the Board of Directors.
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Age:
55
Director Since:
2011
Forest City Executive
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119
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Craig Macnab
Principal Occupation and Business Experience
Mr. Macnab has served as chief executive officer since 2004
and chairman of the board of directors since 2008 of National Retail Properties, Inc. (NNN), a publicly traded REIT with a market cap of approximately $6.5 billion. Mr. Macnab will retire from NNN effective April 28, 2017. Prior to joining NNN, Mr.
Macnab served as president and chief executive officer at JDN Realty Corporation, from 1999 to 2003. In addition to his board service at NNN through his retirement on April 28, 2017, Mr. Macnab is currently a board member of one additional
publicly-traded company: American Tower Corporation, a REIT which owns, operates and develops multitenant communications real estate, where he has been a director since December 2014 and serves on the Audit Committee. Also, Mr. Macnab is a director
of Cadillac Fairview Corporation, a Canadian commercial property real estate company that is wholly owned by Ontario Teachers Pension Plan, since 2011. Mr. Macnab has previously served on the board of DDR Corporation, a publicly-traded REIT
focused on commercial real estate, from 2003 to 2015, where he served as Chairman of the Nominating and Corporate Governance Committee, member of Audit Committee and member of the Executive Committee. Mr. Macnab holds bachelors degree in
economics and accounting from the University of Witwatersrand in Johannesburg, South Africa and an MBA from Drexel University.
Key Experience, Attributes and Skills
Mr. Macnabs diverse leadership experience as a chief executive officer and director of large real estate companies, and strong financial
and investment experience make him an excellent candidate for nomination to our Board of Directors. If elected, he will bring a wealth of investment and corporate strategy, real estate management, and financial and capital management skills and
insight to our Board of Directors.
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Age:
61
Nominee for Election at the Annual Meeting
Independent
Other Current Registered Company Directorships:
-American Tower Corporation
-National Retail Properties, Inc. (retiring on April 28, 2017)
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Brian J. Ratner
Principal Occupation and Business Experience
Mr. Ratner has been an executive vice president of Forest
City since 2001 and is an officer and/or director of various subsidiaries of the Company. In particular, Mr. Ratner leads Forest Citys operations in Dallas, a core market for the Company. Mr. Ratner is active with numerous community,
charitable, educational and professional organizations, including the Board of Directors of the Jewish Federation of Greater Dallas, the Executive Board of the Greater Dallas Symphony Orchestra and the Board of Trustees of Case Western Reserve
University.
Key Experience, Attributes and
Skills
As a member of one of Forest Citys
founding families and a large stockholder with over 25 years of experience at the Company, Mr. Ratner brings a depth of experience and knowledge of the real estate industry to the Board of Directors. His execution of transactions in our core market
of Dallas brings regional market insight to our Board of Directors. In addition, he is a former practicing attorney and his legal experience and acumen provide critical thinking and analysis to the Board.
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Age:
60
Director Since:
1993
Forest City Executive
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120
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Deborah Ratner Salzberg
Principal Occupation and Business Experience
Ms. Ratner Salzberg has been an executive vice president of
Forest City since June 2013 and is an officer and/or director of various subsidiaries of the Company. She also leads Forest Citys operations in the Washington D.C. metropolitan area, one of the Companys core markets. Since 2013, Ms.
Ratner Salzberg has been a Board member of CubeSmart, a publicly-traded real estate investment trust focused on self-storage facilities. Ms. Ratner Salzberg is active with numerous Washington D.C. community, charitable and professional
organizations. She is a member of the Executive Committee of the Jewish Federation of Greater Washington, the Board of Trustees of Kenyon College, the Board of Directors of Capital Bank, N.A., the District of Columbia Building Industry Association
and the Meyer Foundation.
Key Experience,
Attributes and Skills
As a member of one of
Forest Citys founding families and a large stockholder with more than 30 years of experience at the Company, Ms. Ratner Salzberg brings a wealth of experience and knowledge of the real estate industry and public-private partnerships to the
Board of Directors. Further, her experience in executing transactions in our core market of the greater metropolitan area of Washington D.C. brings regional insight to our Board of Directors. Ms. Ratner Salzberg received a law degree from the
University of San Francisco in 1979 and practiced until 1985. Her legal experience and acumen provide critical thinking and analysis to the Board of Directors.
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Age:
64
Director Since:
1995
Forest City Executive
Other Current Registered
Company
Directorship:
-CubeSmart
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James A. Ratner
Principal Occupation and Business Experience
Mr. Ratner became the non-executive chairman of the Forest City Board of Directors on December 31, 2016. Previously, Mr. Ratner served as
executive vice president of the Company from March 1988 to December 2016, including service as our executive vice president development from January 2016 to December 2016. He has also served as an officer and/or director of various
subsidiaries of Forest City. Mr. Ratner has served as a board member of NACCO Industries, Inc., a publicly-traded mining, small appliances and specialty retail holding company, since 2012. Mr. Ratner is active with numerous community, charitable and
professional organizations, including membership on the Board of Trustees of Case Western Reserve University, The Cleveland Museum of Art and The Playhouse Square Foundation. Mr. Ratner holds a bachelors degree from Columbia University and a
masters degree in business administration from Harvard University.
Key Experience, Attributes and Skills
As a member of one of Forest Citys founding families, our former executive vice president development and a large stockholder with
over 40 years of experience at the Company, Mr. Ratner brings a wealth of leadership experience and knowledge of the Company and the real estate industry to the Board of Directors.
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Chairman
Age:
72
Director Since:
December 2016
Chairman Since:
December 2016
Former Director Service:
1985 2012
Other Current Registered
Company
Directorship:
-NACCO Industries, Inc.
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121
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Ronald A. Ratner
Principal Occupation and Business Experience
Mr. Ratner has been our executive vice president - development since January 2016 and an executive vice president at Forest City since March
1988. He is also an officer and/or director of various subsidiaries of the Company. Mr. Ratner is active with numerous community, educational, charitable and professional organizations, including serving as a member of the United States Holocaust
Memorial Museum Council, the Board of Trustees of the Cleveland Clinic and the Board of Trustees of Enterprise Community Partners.
Key Experience, Attributes and Skills
As a member of one of Forest Citys founding families and a large stockholder with over 40 years of experience at the Company, Mr. Ratner
brings vast experience and knowledge of the real estate industry to the Board of Directors. In addition, as an architect by educational background, he brings vision and creativity to Board deliberations.
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Age:
70
Director Since:
1985
Forest City Executive
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Voting
The nominees receiving the greatest number of votes cast will be elected. A WHITE proxy card marked
Withhold
All
or
For All Except
with respect to the election of one or more directors will not be voted with respect to the director or directors indicated. Abstentions and broker non-votes, if any, will not be counted as votes
cast for purposes of the election of directors and will have no effect on the result of the vote. We have been advised that the shares owned by RMS and otherwise owned by the Family Interests will be voted for the election of the directors nominated
by the Board. If such shares are so voted, then such vote will be sufficient to elect the nominees voted on by the Class B stockholders.
On December 5, 2016, the Company entered into the Voting and Support Agreement with the Scopia Parties. Pursuant to the
Voting and Support Agreement, the Scopia Parties have agreed, among other things and subject to certain conditions, to, at the Annual Meeting, vote shares of Common Stock beneficially owned by the Scopia Parties and their Associates (as defined in
the Voting and Support Agreement) in favor of any and all persons nominated by the Board for election as directors (provided at least eight of the thirteen nominees have been determined to be independent directors by the Board in accordance with
relevant stock exchange rules).
THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE
FOR
EACH NOMINEE
FOR DIRECTOR NAMED IN THIS PROXY STATEMENT/PROSPECTUS.
122
The following individuals are not being nominated for election at the Annual
Meeting. Charles A. Ratner retired from the Board and Bruce C. Ratner resigned from the Board, each effective on December 31, 2016, and Mr. Ross has decided not to stand for re-election. Each of the following individuals has made numerous valuable
contributions to the Board and Company. The Board and Company commend and thank Messrs. C. Ratner, B. Ratner and Ross for their outstanding tenures on and exemplary services to the Board and wish them the very best in their future endeavors.
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Charles A. Ratner
Principal Occupation and Business Experience
Mr. Ratner was Chairman of our Board of Directors from June
2011 to December 31, 2016. Previously, Mr. Ratner served as president and chief executive officer of the Company from 1995 through June 2011, and served as president and chief operating officer from 1993 to 1995. He was also an officer and/or
director of various subsidiaries of Forest City. Mr. Ratner served as a board member of RPM, Inc., a publicly-traded specialty coatings and sealants company, from 2005 to January 24, 2017, and American Greetings Corporation, formerly a
publicly-traded greeting card company, from 2000 to 2013. He is active with numerous community, charitable and professional organizations, including membership on the Board of Directors of the Cleveland Foundation and the United Jewish Communities.
He also serves on the Board of Trustees of the Musical Arts Association, Mandel Associated Foundations, the Jewish Federation of Cleveland, and the David and Inez Myers Foundation and the Executive Committee of the Jewish Federation of
Cleveland.
As a member of one of our founding families,
our former Chief Executive Officer and a large shareholder with over 40 years of experience at Forest City, Mr. Ratner brought a wealth of leadership experience and knowledge of the Company and the real estate industry to the Board of
Directors.
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Age:
75
Director Service:
1972
- December 31, 2016
Chairman Service:
2011
- December
31,
2016
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123
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Bruce C. Ratner
Principal Occupation and Business Experience
Mr. Ratner has been our Executive Vice President since
November 2006 and is Executive Chairman of Forest City Ratner Companies, the New York City subsidiary of Forest City. He also serves as an officer and/or director of various other subsidiaries of Forest City. Previously, Mr. Ratner served as chief
executive officer of Forest City Ratner Companies from 1987 through April 2013. Prior to joining Forest City, Mr. Ratner served as New York Citys commissioner of consumer affairs during the administration of Mayor Ed Koch. He also served in
the administration of former New York Mayor John Lindsay. He was also an Assistant Clinical Professor of Law at the New York University Law School. Mr. Ratner has served on many boards and is currently the Chairman of the Board of the Museum of
Jewish Heritage - A Living Memorial to the Holocaust, and on the boards of the Memorial Sloan-Kettering Cancer Center and the Weill Cornell Medical College and a former board member of the Metropolitan Museum of Art.
As a member of one of our founding families and a large
shareholder with over 25 years of experience leading the Companys operations in the New York metropolitan area, one of the Companys core markets, Mr. Ratner brought a wealth of experience and knowledge of the real estate industry to the
Board of Directors.
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Age:
72
Director
Service:
2007
- December 31, 2016
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Stan Ross
Principal Occupation and Business Experience
Mr. Ross, a retired certified public accountant, holds
multiple positions at the University of Southern California, including chairman of the board of the Lusk Center for Real Estate and distinguished fellow of the School of Policy, Planning & Development. He is the retired vice chairman of real
estate industry services for Ernst & Young LLP, where he was a member of the firms management committee. Mr. Ross is a life trustee and governor of the Urban Land Institute, and trustee emeritus of his alma mater, Baruch College, from
which he holds an honorary Doctor of Laws degree. He was also a member of the auditing standards board of the American Institute of Certified Public Accountants. Mr. Ross serves as senior advisor to The Irvine Company, a diversified private real
estate company, and on the board of the American Jewish University.
Key Experience, Attributes and Skills
Mr. Ross brings substantial real estate experience and financial expertise to Forest Citys Board of Directors. As a nationally recognized
real estate expert, he provides thoughtful and far-reaching insight into current economic and industry trends, domestic and global practices, and challenges facing the real estate sector. Mr. Ross expertise in accounting, tax and strategic
planning for real estate companies has been invaluable to our Board of Directors throughout his tenure, particularly during the recent economic downturn.
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Age:
81
Director Since:
1999
Independent
Board Committees:
-Audit
-Compensation
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124
D
IRECTOR
C
OMPENSATION
Our director compensation policy is outlined in the following chart. Compensation is paid to nonemployee directors only.
Directors who are also our employees receive no additional compensation for service as directors. All of our nonemployee directors serving on the Board during 2016 were independent.
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Nonemployee Director Compensation Policy
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Amount
(1)
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Annual Board Retainer
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$
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65,000
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Annual Stock Award
(2)
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$
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125,000
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Annual Retainer to Lead
Director
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$
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25,000
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Annual Retainer to Committee Chairman
for:
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Audit Committee
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$
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30,000
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Compensation Committee
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$
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20,000
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Corporate Governance and Nominating
Committee
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$
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15,000
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Annual Retainer to Committee Members (other
than Chairman) for:
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Audit Committee
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$
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15,000
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Compensation Committee
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$
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10,000
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Corporate Governance and Nominating
Committee
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$
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7,500
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Other Fees for:
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(fees per day
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)
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Attending other formal meetings in their
capacity as directors not held on the same day as a board meeting or board committee meeting, such as Executive Committee and strategic planning meetings.
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$
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1,500
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Attending special meetings or performing
special services in their capacity as members of a board committee, in each case as determined and approved by the applicable committee.
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$
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1,500
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Director Stock Ownership Requirement:
(3)
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Nonemployee directors have up to five years to accumulate ownership of our common stock in an amount of at least
five times the annual board retainer, using a fixed number of shares approach to be reviewed at least once every three years and based upon the 90-day average price leading up to a December 31 measurement date. The shares may be acquired
through direct acquisition, exercise of stock options, vesting of restricted stock, accumulation of phantom stock in their deferred compensation plan and 60% of unvested restricted stock.
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(1)
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We pay annual retainers in quarterly installments.
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(2)
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Nonemployee directors may choose between stock options and/or restricted stock in 25% multiples. The default
selection is 100% restricted stock. Equity grants to independent directors have one-year cliff vesting. The number of Class A Common Stock options granted is determined by dividing the amount of the award allocated to stock options by the
Black-Scholes fair value, and the number of shares of restricted Class A Common Stock is determined by dividing the amount of the award allocated to restricted stock by the closing price of the Class A Common Stock on the date of grant.
The computed number of options and restricted shares is rounded down to eliminate fractional shares.
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(3)
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As of January 31, 2017, all of our incumbent nonemployee directors, except Christine R. Detrick, met the
stock ownership requirement of 16,430 shares. Ms. Detrick has accumulated more than 80% toward her requirement and will have until November 19, 2019 to meet the requirement.
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The Deferred Compensation Plan for Nonemployee Directors (the
Deferred Compensation Plan
) permits
nonemployee members of the Board of Directors to defer 50% or 100% of their annual board retainer. Directors electing to participate select either a cash investment option or stock investment option for fees deferred during the year. Fees deferred
to the stock investment option are deemed to be invested in phantom shares of our Class A Common Stock. Dividends earned on phantom shares are deemed to be reinvested in more shares. After the participant ceases to be our director, the phantom
shares accumulated in the participants account will be paid out in shares of Class A Common Stock or cash, as elected by the participant. In the aggregate, there were 16,820
125
phantom shares accumulated in participants accounts as of December 31, 2016. Participants may make an annual election as of each December 31 to reallocate their account balances
between the two investment options. The Deferred Compensation Plan does not limit the number of shares that can be issued under the stock investment option.
The Corporate Governance and Nominating Committee bi-annually reviews the policy of nonemployee director compensation and
annually reviews stock ownership requirements.
Effective as of 11:59 p.m., Eastern Time, on December 31, 2016, James
A. Ratner resigned his position of Executive Vice President Development to serve as non-executive Chairman of the Board. Mr. Ratner received no compensation in his role as non-executive Chairman of the Board during 2016. The Board
approved an annual retainer of $150,000 and an annual equity award having a grant-date fair market value of $250,000 for his service as non-executive Chairman of the Board beginning in 2017. In approving these amounts, the Corporate Governance and
Nominating Committee considered the benchmark data provided by Pearl Meyer (
Pearl Meyer
) pertaining to non-executive chairmen at comparable REITs as well as within the general industry, Mr. Ratners unique expertise and
experience which he brings to the role, and that Mr. Ratner is expected to devote significantly more hours annually to his new role than typical non-executive board chairs.
The information presented in the following table is for the year ended December 31, 2016. All other directors not listed
were our employees during the year and receive no compensation in their capacity as director.
Director Compensation Table
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Name
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Fees
Earned or
Paid in
Cash
($)
(1)
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Stock
Awards
($)
(2)
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Option
Awards
($)
(3)
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Change in
Pension
Value
and
Nonqualified
Deferred
Compensation
Earnings
($)
(4)
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All Other
Compensation
($)
(5)
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Total
($)
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Arthur F. Anton
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$
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112,500
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$
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124,991
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$
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$
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$
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$
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237,491
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Kenneth J. Bacon
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$
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87,500
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$
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124,991
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$
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$
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1,031
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$
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$
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213,522
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Scott S. Cowen
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$
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151,250
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$
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124,991
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$
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$
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$
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$
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276,241
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Christine R. Detrick
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$
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72,500
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$
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124,991
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$
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$
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$
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$
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197,491
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Michael P. Esposito, Jr.
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$
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129,000
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$
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124,991
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$
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$
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927
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$
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$
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254,918
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Deborah L. Harmon
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$
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80,000
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$
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62,485
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$
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62,496
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$
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251
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$
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$
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205,232
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Stan Ross
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$
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90,000
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$
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62,485
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$
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62,496
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$
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$
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$
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214,981
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(1)
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Includes fees earned during 2016 by members of the Special Committee established in connection with the
Reclassification, as more fully described in
The Reclassification
section of this proxy statement/prospectus. Members of the Special Committee, including Mr. Anton, Dr. Cowen and Mr. Esposito, attended a total of 15 Special
Committee meetings during 2016. Mr. Anton and Mr. Esposito each earned $22,500 ($1,500 per meeting in accordance with the Nonemployee Director Compensation Policy). The Corporate Governance and Nominating committee recommended and the Board of
Directors approved an increased fee for Dr. Cowen for his enhanced involvement on the Special Committee of $33,750 ($2,250 per meeting).
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(2)
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Restricted stock grants are valued at their grant-date fair value based on the closing price of the
Class A Common Stock on the date of grant computed in accordance with accounting guidance for share-based payments. During the year ended December 31, 2016, we granted restricted stock having a grant-date fair value of $20.94 per share as
follows: Mr. Anton, 5,969; Mr. Bacon, 5,969; Dr. Cowen, 5,969; Ms. Detrick, 5,969; Mr. Esposito, 5,969; Ms. Harmon, 2,984; and Mr. Ross, 2,984. The aggregate number of shares of unvested restricted stock
outstanding as of December 31, 2016 was as follows: Mr. Anton, 5,969; Mr. Bacon, 5,969; Dr. Cowen, 5,969; Ms. Detrick, 5,969; Mr. Esposito, 5,969; Ms. Harmon, 2,984; and Mr. Ross, 2,984.
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(3)
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Stock option grants are valued at their grant-date fair value that is computed using the Black-Scholes
option-pricing model. The assumptions used in the fair value calculations in 2016 are described in Footnote Q, Stock-Based Compensation, to our consolidated financial statements for the year ended December 31, 2016, which are
included in our Annual Report on Form 10-K, filed with the SEC. During the year ended December 31, 2016, we granted stock options having a grant-date fair value of $4.9957 per share as follows: Ms. Harmon, 12,510; and Mr. Ross,
12,510. The options have an exercise price of $20.94, which was the closing price of the underlying Class A Common Stock on the date of grant. The aggregate number of stock options outstanding as of December 31, 2016 was as follows:
Mr. Anton, 30,273; Mr. Bacon, 13,988; Dr. Cowen, 21,766; Ms. Detrick, 7,060; Mr. Esposito, 60,162; Ms. Harmon, 34,251; and Mr. Ross, 55,846.
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(4)
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Amounts deferred under the Deferred Compensation Plan for Nonemployee Directors under the cash investment
option earn interest at a rate equal to the average of the Moodys Long-Term Corporate Bond Yields for Aaa, Aa and A, plus 0.5% (
Moodys Rates
). The rate is updated every calendar quarter using the first published
Moodys Rates of the new quarter. Interest rates ranged from 3.97% to 4.71% during the year ended December 31, 2016. Interest is compounded quarterly. The amounts shown in this column represent the amount of above-market earnings on each
directors nonqualified deferred compensation balances. The amount of above-market earnings was computed to be the amount by which the actual earnings exceeded what the earnings would have been had we used 120% times the Federal Long-Term Rates
published by the Internal Revenue Service in accordance with Section 1274(d) of the Internal Revenue Code.
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(5)
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All other compensation does not include our incremental cost for the use of our chartered airplane service by
directors for attending board of directors meetings and committee meetings because such use is deemed to be a business expense. The total incremental cost of airplane usage by all directors for business purposes amounted to $36,150 for the year
ended December 31, 2016.
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127
C
ORPORATE
G
OVERNANCE
We are managed by our senior management under the direction of the Board. The Board operates within a comprehensive plan of
corporate governance and has adopted, and periodically reviews, policies and procedures to guide it in the discharge of its oversight and decision-making responsibilities. Those policies and procedures are summarized in this section. Copies of the
Corporate Governance Guidelines adopted by our Board, its committee charters, the Forest City Realty Trust, Inc. Code of Legal and Ethical Conduct (
Code of Legal and Ethical Conduct
) and other relevant information are set forth or
explained in greater detail on our website at www.forestcity.net. References to our website are for your convenience; however, the information contained on our website is not incorporated into this proxy statement/prospectus or any other report we
file with the Securities and Exchange Commission (the
SEC
).
The Board also routinely compares our
corporate governance policies and practices to those suggested by various groups or authorities active in corporate governance, including proxy advisory firms, and follows our policies and practices for compliance with the requirements of the SEC,
including the Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act and the listing standards of the NYSE. These reviews specifically focus on the following areas of corporate governance:
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our Corporate Governance Guidelines in general;
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our current Board composition, size and compensation;
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our Board and Board committee operation and charters;
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certain procedures relating to our Code of Legal and Ethical Conduct;
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our director nomination process;
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our stockholder communications process; and
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director continuing education.
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We will continue to adopt further changes in the future that the Board believes are in the best interests of the Company and
long-term stockholder value creation.
Corporate Governance Guidelines
The Board believes in establishing a corporate culture of accountability, integrity, responsibility, legal compliance, ethical
behavior and transparency through the careful selection and evaluation of senior management and members of the Board and by carrying out the responsibilities of the Board with honesty and integrity. Our Corporate Governance and Nominating Committee
performed its annual review of our Corporate Governance Guidelines, as well as the Board committee charters and Code of Legal and Ethical Conduct, and did not recommend any substantive changes.
Our Corporate Governance Guidelines, among other matters, provide for: Audit, Compensation, and Corporate Governance and
Nominating Committees; all members of the Audit, Compensation and Corporate Governance and Nominating Committees to be independent directors as determined in accordance with applicable standards, rules, laws and regulations, including, but not
limited to, standards and rules promulgated by the NYSE; regular sessions of independent directors; an annual self-assessment process for the Board and its committees; succession planning; new director orientation; and continuing director education.
These guidelines, as amended, largely document practices and principles already in place at the Board level and are available on our website at www.forestcity.net.
128
Board Leadership Structure
The Board has chosen to separate the positions of chairman of the Board and chief executive officer. We believe this structure
is optimal for us because it provides a checks and balances process between the chairman and the chief executive officer. This separation provides strong leadership for the Board and the Company through the chairman, while also positioning our chief
executive officer as our leader in the eyes of our employees and other stakeholders. The Board has no formal policy that requires the separation or combination of the chairman and chief executive officer roles. Because our chairman is not deemed
independent under the applicable standards for independence established by SEC and NYSE, the Company has chosen to have an independent lead director, as well.
The non-executive chairmans role, among other responsibilities, is to: provide overall leadership to and coordinate the
activities of the Board; lead the Board in its oversight of the Companys strategic plan, talent management and succession planning; serve as the principal liaison on Board-related issues between the Chief Executive Officer and lead director;
develop a schedule of Board and Board committee meetings that enables the Board and Board committees to perform their duties responsibly while not interfering with management or the flow of Company operations; in consultation with the chief
executive officer and lead director, as appropriate, establish the agenda for Board meetings; call special meetings of the Board; ensure the Board receives the materials it needs to fulfill its duties; along with the Corporate Governance and
Nominating Committee and chief executive officer, interview Board candidates; serve as an ex-officio member of all Board committees; work with the Corporate Governance and Nominating Committee to ensure proper committee structure, including
assignments of members and committee chairs; lead the Board in anticipating and responding to crises; represent the Board, as necessary and appropriate, in external forums and communication; in consultation with other directors, approve the
retention of consultants who report directly to the Board; and carry out other responsibilities as requested by the chief executive officer and Board.
The chief executive officers role, among other responsibilities, is to: provide day-to-day leadership for the Company;
establish, direct and lead the vision, mission, core values and long-term strategic plan and initiatives of the Company; establish and direct annual and long-term business and financial plans and objectives for the Company and its business units;
direct and lead programs and initiatives regarding talent and leadership development, and senior management succession planning; direct and lead the development of programs and initiatives that promote organizational development and growth; direct
and lead the efforts to ensure the integrity of the Companys financial statements and reporting, compliance with applicable laws and ethical business conduct; identify, assess and manage the Companys exposure to enterprise risks,
compliance with health and safety standards and minimization of the Companys environmental impact; generally serve as the Companys chief spokesperson; participate in investor relations; facilitate Board governance and administration;
regularly meet with the lead director and individual Board members from time to time; and perform other powers and duties as may be prescribed by the Chairman or the Board.
Our independent directors meet in an executive session following each regularly scheduled Board meeting. In accordance with
our Corporate Governance Guidelines, Dr. Scott S. Cowen, as an independent, non-management director, is the lead director over all of those sessions. The role of the independent lead director and the executive sessions is to provide
balance between the different perspectives of the independent directors and the management directors and maintain proper independent oversight of management. In addition, the lead directors role, among other responsibilities, is to chair
meetings of the Board at which the chairman is not present; as appropriate, engage in communications with stockholders, the investment community and other external constituencies; keep the Board focused on strategic decisions and matters of
significance for the long-term success of the Company; facilitate communications and serve as the principal liaison on Board-related issues between the chief executive officer, the chairman and the independent directors; authorize the retention of
independent legal advisors, consultants and other advisors that report to the Board on Board-related issues; and perform other powers and responsibilities as may be prescribed by the independent directors from time to time.
129
While we recognize that different board leadership structures may be appropriate
for companies in different situations, we believe our current leadership structure, with the separation of responsibilities among the chairman, the chief executive officer, and the lead director, is the optimal structure for us at this time.
The Boards Role in Risk Oversight
Our Board plays an important role in our risk oversight and identification of potential risks. While management is responsible
for the day-to-day management of the risks we face, our Board and its committees oversee and identify risks through their direct decision-making authority with respect to significant matters and the oversight of management.
Risk oversight is administered by our Board (or a Committee thereof) through:
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The review and discussion of regular periodic reports to the Board and its committees on topics relating to
the risks we face, including, among others, national and international market and industry conditions, cash projections, internal financial measures, occupancy rates, the status of current and anticipated development projects, compliance with debt
covenants, management of debt maturities, the ability to refinance, tax matters, access to debt and equity capital markets, changes in interest rates, competition, regulatory matters, cybersecurity, existing and potential legal claims against us and
various other matters of risk relating to our business;
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The required approval by the Board (or a Committee thereof) of significant transactions and decisions,
including, among others, executive compensation plans, equity and capital transactions, strategic planning, budget and the appointment of, succession planning for and retention of senior management;
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The direct oversight by the Board (or a Committee thereof) of the Companys overall risk management
program, including the mitigation of risk through development and training of our employees, pertaining to specific areas of our business, enterprise risk management and strategic, industry, business and other significant risks facing the Company;
and
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Regular periodic reports to the Board from our internal and external auditors, internal legal department and
other outside consultants regarding various areas of potential risk.
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Our Board relies on management and
our internal audit group to bring significant matters impacting us to the Boards attention. Management is responsible for identifying the Companys significant strategic business risks and other risks, developing risk management
strategies and policies to mitigate such risks, and integrating risk management into the Companys decision-making process and strategy. To that end, the Company has implemented an enterprise risk management program where management identifies,
monitors and controls such risks and exposures. This risk management structure helps ensure that necessary information regarding significant risks and exposures is transmitted across the Companys leadership, including the appropriate Board
committees and the Board of Directors.
Our Board discharges many of its responsibilities and oversight functions with
respect to risk through its Audit, Compensation, and Corporate Governance and Nominating Committees. The Audit Committee is the lead committee for the Boards risk oversight functions through its oversight of the enterprise risk management
system and its review of our: financial statements and preparation thereof, including internal controls over financial reporting; fraud risks identified by management and internal and external auditors; management of financial risk; risk
assessments; enterprise risk management program; cybersecurity risks; and compliance with our internal policies, such as policies related to data privacy, information technology, conflict of interest, Regulation FD, anti-corruption, insider trading
and social media. In addition, the Audit Committee oversees our Code of Legal and Ethical Conduct, including an annual update on the content, implementation, operation and effectiveness of our ethics program and the administration of our
whistleblower procedures. The Compensation Committee establishes the appropriate compensation incentives and is responsible for conducting an annual assessment to ensure that our compensation programs and policies do not encourage inappropriate risk
taking.
130
The Corporate Governance and Nominating Committee is responsible for advising the Board on matters of organizational and governance structure for effective oversight. See Meetings and
Committees of the Board for further discussion of the roles and responsibilities of each of the committees.
Because
all of these committees are comprised of independent directors, our independent directors have a significant role in the Boards risk oversight function. As part of the oversight process, each Committee regularly receives reports from members
of senior management on areas of material risk to us that are under the purview of that Committee to enable it to understand our risk identification, risk management and risk mitigation strategies. While each Committee is responsible for evaluating
and overseeing certain risks, the entire Board is apprised of such risks through regular Committee reports. This enables the Board and its committees to assume joint accountability and to coordinate the risk oversight role, particularly with respect
to risk interrelationships.
Because of the Boards role in our risk oversight program, the Board believes that any
leadership structure that it adopts must allow it to effectively oversee the management of the risks relating to our operations. The Board recognizes that there are different leadership structures that could allow the Board to effectively oversee
the management of the risks relating to our operations, and while the Board believes its current leadership structure enables it to effectively manage such risks, it was not the primary reason the Board selected its current leadership structure over
other potential alternatives. See the discussion under the heading Board Leadership Structure above for a discussion of why the Board has determined that its current leadership structure is appropriate.
Independence Determinations
We are considered a controlled company under the NYSE corporate governance rules because, as of January 31,
2017, the Family Interests controlled 92.4% of Class B votes, which has the power to elect a majority of our Board of Directors. See the section of this proxy statement/prospectus entitled
Election of Directors
for a description
of the Family Interests. As a matter of good corporate governance, the Board of Directors has been composed of a majority of independent directors since December of 2012 despite not being required to do so under the NYSE rules due to our
controlled company status. Furthermore, the Board has determined that all members of our Compensation, Corporate Governance and Nominating and Audit Committees are independent after considering all applicable standards for independence
established by the NYSE for membership on such committees.
The Board unanimously determined that Messrs. Anton, Bacon,
Cowen, Esposito, Macnab and Ross, and Mss. Behar, Detrick and Harmon are neither affiliated persons of ours, nor do they have any material relationship with us (other than their role as our director) and, therefore, qualify as independent directors
within the meaning of all applicable laws and regulations, including the independence standards of the NYSE.
In making
these independence determinations, the Board considered all of the factors that automatically compromise director independence as specified in the respective independence standards of the SEC and the NYSE, including but not limited to charitable
contributions to any charitable organization in which such director serves as a trustee or director, and determined that none of those conditions existed. In addition, the Board considered whether any direct or indirect material relationship, beyond
those factors that automatically compromise director independence, existed between either us and/or our management and/or any of their respective affiliates or family members or otherwise between each director or any family member of such director
or any entity with which such director or family member of such director was employed or otherwise affiliated. For those directors for whom the Board determined there was a relationship, with respect to each of the most recent three completed fiscal
years, the Board evaluated the following:
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Matching charitable contributions to various non-profit organizations with which Messrs. Anton, Bacon, Cowen,
Esposito or Ross or Mss. Detrick or Harmon are affiliated and determined that the amount of the contribution to any such organization in each of the past three fiscal years was below the limits set forth in our independence standards.
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131
The Board determined, for those directors identified as independent above, that
any relationship that existed was not material and did not compromise that directors independence from management. Accordingly, all of these directors are independent under SEC and NYSE requirements, as well as our own Corporate Governance
Guidelines.
Communications with the Board
Our lead director receives and responds to communications from stockholders and he, along with our non-executive Chairman and
other independent Board members, have met and may continue to meet with our stockholders from time to time.
We have
established procedures to permit confidential and anonymous (if desired) submissions to the lead director regarding concerns about our conduct. Interested parties may make their concerns about us known to the independent or non-management directors
by directly mailing Dr. Scott S. Cowen, the lead director, a statement of concerns marked Confidential and addressed as follows:
Dr. Scott S. Cowen, Lead Director
c/o General Counsel
Confidential
Forest
City Realty Trust, Inc.
Terminal Tower
50 Public Square, Suite 1360
Cleveland, Ohio 44113
Code of Legal and
Ethical Conduct
We require that all directors, officers and employees adhere to our Code of Legal and Ethical Conduct
in addressing the legal and ethical issues encountered in conducting their work. The Code of Legal and Ethical Conduct requires, among other things, that our employees avoid conflicts of interest, comply with all laws and other legal requirements
and otherwise act with integrity.
We require all directors, officers, and employees to annually review and acknowledge
compliance with our Code of Legal and Ethical Conduct. Furthermore, all newly hired employees are required to acknowledge receipt and compliance with the Code of Legal and Ethical Conduct. In addition, those with supervisory duties are also required
to acknowledge their responsibility for both informing and monitoring compliance with the Code of Legal and Ethical Conduct on the part of employees under their supervision. In 2016, 100% of our directors, officers and employees acknowledged
compliance with the Code of Legal and Ethical Conduct.
The Board adopted a Senior Financial Officers Code of Ethical
Conduct as an addendum to the Code of Legal and Ethical Conduct. The Senior Financial Officers Code of Ethical Conduct formalizes the general standards of honesty, integrity and judgment that we expect of our senior financial officers. We require
our senior financial officers to annually acknowledge receipt of and compliance with the Senior Financial Officers Code of Ethical Conduct. In 2016, 100% of our senior financial officers acknowledged compliance with the Senior Financial Officers
Code of Ethical Conduct.
In addition, the Board adopted a Supplier Code of Conduct in 2012. The Supplier Code of Conduct
formalizes our expectations of suppliers and sets forth legal, moral and ethical standards and guidelines by which we expect our suppliers to abide. In 2014, the Board adopted substantial enhancements to the Supplier Code of Conduct to add
additional standards related to health and human safety, and labor and human rights, and enhanced provisions related to gifts and gratuities.
We have implemented an anonymous hotline monitored by an external, third-party firm. Our Audit Committee has adopted a policy
statement entitled Employee Complaint Procedures for Accounting and Auditing Matters establishing procedures to investigate complaints.
132
Copies of the Code of Legal and Ethical Conduct and the Supplier Code of Conduct
are available on the Companys website at www.forestcity.net.
Corporate Social Responsibility
Since 2013, we have published annual corporate responsibility (
CR
) reports according to the GRI framework, a
widely recognized and standardized set of principles for the preparation of CR reports. To strengthen our commitment to our CR efforts, during 2015 we conducted an assessment to determine which CR topics are of highest priority to manage and
measure. As part of this effort, we considered the CR impacts for our core markets, gathered input from critical external stakeholders, and weighed inputs based upon the strength of evidence and stakeholder prioritization. This process informed our
CR strategy going forward and compelled us to continue advancing our commitment to transparency via external reporting.
In 2016, we issued our first GRI G4 report, in which we detailed our highest priority CR topics as determined by our
materiality assessment conducted in 2015. Our latest GRI report featured Forest Citys approach to Building Lifecycle Management, Ethics and Compliance, Talent Management, Land Management and Design for Urban Access, Community Engagement, and
Political Spending.
We continue to enhance our management teams engagement with CR activities to reflect the
importance of such activities to our overall success. In 2016, our CR team began making periodic reports of their activities and performance directly to the Office of the CEO and other executive committees. This engagement fosters integrated
sustainability strategies intended to reduce long-term risk and enhance future growth.
As a result of our CR reporting
and efforts, our MSCI ESG rating has improved from BB in 2013 to its current rating of A. In 2016, we completed the GRESB survey, earning a Green Star for performance for the second straight year, placing us among the top quadrant of respondents.
GRESB is an industry-driven organization committed to assessing the sustainability performance of real estate assets and portfolios around the world.
To view our latest CR report, visit http://www.forestcity.net/Documents/ForestCity2015CRReport.pdf.
Lobbying Policy and Political Activity Procedures
We are committed to being a responsible corporate citizen and, from time to time, participate in the public policy arena on a
wide range of issues that we believe are important to our stockholders, customers, lenders, partners and employees. We have adopted a formalized lobbying policy and set of procedures, as well as corporate political contribution procedures. The
procedures set forth guidelines on the engagement of lobbyists and participation in lobbying activities, ensure compliance with lobbying and political contribution regulations and aid the Boards oversight of our political activities.
133
M
EETINGS
AND
C
OMMITTEES
OF
THE
B
OARD
The Board
The authorized size of the Board of Directors is currently set at thirteen members. Since December 2012, a majority of the
members of our Board are independent, currently consisting of eight independent members and five non-independent members. Of the five non-independent members, four directors are members of the Ratner families and four directors are members of
management. Effective at 11:59 p.m., Eastern Time, on December 31, 2016, Charles A. Ratner retired as Chairman of our Board and James A. Ratner was appointed as non-executive Chairman. Biographical information and information about the Board
committees on which our director nominees serve are set forth in the Election of Directors section of this proxy statement/prospectus and in this section, under
Committees of the Board
.
During the year ended December 31, 2016, our Board of Directors held four regular meetings and one special meeting. All
directors attended at least 84.6% of the aggregate of the meetings of the Board and those committees on which and during which time each director served. In total, the average board meeting attendance during 2016 was 96.7%. We have a policy that
members of the Board are expected to attend the annual meeting of stockholders when the annual meeting of stockholders coincides with a Board meeting. The exception to this attendance requirement is when the two meetings are not consecutively
scheduled. Twelve of our directors attended the 2016 annual meeting of stockholders.
In addition to the regular and
special meetings, our Board of Directors held seven informational sessions during 2016. Members of management and external advisors often attended these sessions. At the informational sessions, the Board discussed the progress of the Companys
strategic plan, internal reorganization and activities and responses related to stockholder activism. Along with the Board meetings, the informational sessions provided Board members with education and relevant management reports from which the
Board could perform its oversight duties, make well-informed decisions and offer guidance to the Company during 2016, a year of significant organizational transformation. Further, the additional informational sessions and discussions enhanced our
Board members ability to fulfill their duties to the Company and its stockholders.
Led by Dr. Scott S.
Cowen, our Lead Director, the independent members of the Board meet in an executive session following each regularly scheduled Board meeting.
Committees of the Board
The Boards policy is to conduct its specific oversight tasks through committees, with the objective of freeing the Board
as a whole to focus on strategic business and significant risk oversight and matters that by law or good business practice require the attention of the full Board. Our Board has established three standing committees, functioning in the following
areas:
|
|
|
audit and financial reporting;
|
|
|
|
management compensation, succession plan and progress, and review of diversity plan and progress; and
|
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|
nominations, corporate governance, succession plan and progress and review of diversity plan and progress.
|
134
The following table indicates the members of each Board Committee during the year
ended December 31, 2016:
|
|
|
|
|
|
|
Name
|
|
Audit
|
|
Compensation
|
|
Corporate Governance and
Nominating
|
Arthur F. Anton
|
|
Member
|
|
Member
|
|
|
Kenneth J. Bacon
|
|
Member
|
|
|
|
Member
|
Scott S. Cowen
|
|
|
|
Chair
|
|
Member
|
Christine R. Detrick
|
|
|
|
|
|
Member
|
Michael P. Esposito, Jr.
|
|
Chair
|
|
Member
|
|
|
Deborah L. Harmon
|
|
|
|
|
|
Chair
|
Stan Ross
|
|
Member
|
|
Member
|
|
|
Each of our standing committees operates under a written charter that is annually reviewed by
the respective committees and recommended by the Corporate Governance and Nominating Committee and approved by the Board. The Committee Charters for each of our standing committees can be viewed on our website at www.forestcity.net. Each Board
Committee is authorized to retain outside advisors.
Audit Committee
: Our Audit Committee is presently composed of
four nonemployee, independent directors. The Board has determined that each member of the Audit Committee qualifies as an audit committee financial expert in accordance with the requirements of Section 407 of the Sarbanes-Oxley Act
of 2002 and the SEC rules implementing that section. The Audit Committees purpose is to assist the Board in fulfilling its oversight responsibilities with respect to the following:
|
|
|
integrity and adequacy of our financial reporting systems and business process controls, including our system
of internal controls, accounting controls and disclosure controls;
|
|
|
|
compliance with legal, ethical and regulatory requirements including, but not limited to, the requirements of
the Sarbanes-Oxley Act of 2002;
|
|
|
|
review of the Companys quarterly financial statements and audited financial statements, including
footnotes, managements discussion and analysis and all related disclosures to be filed with the SEC, as well as the earnings press releases, supplemental packages and any financial information or earnings guidance provided to analysts or
rating agencies;
|
|
|
|
correspondence with regulators or government agencies and any complaints or concerns regarding the
Companys financial statements or accounting policies;
|
|
|
|
appointment, oversight, retention, termination, approval of compensation and evaluation of the qualifications,
performance and independence of the independent registered public accounting firm, as well as the approval of all non-audit engagements of such firm and the participation in the selection of the lead audit and lead reviewing partners of such firm;
|
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|
approval of the annual internal audit plan and respective department budget;
|
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|
evaluation of our internal audit function, including the annual performance evaluation of and approval of the
compensation to our chief internal auditor;
|
|
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|
review and approval of our hedging strategy and the use of swaps and other derivative instruments, and review
and approval, at least annually, of our decisions to enter into swaps, including those subject to the end-user exception under the Commodity Exchange Act;
|
|
|
|
oversight of our enterprise risk management including information technology security and related
cybersecurity risks; and
|
|
|
|
production of the Audit Committees report, made pursuant to the Exchange Act, to be included in the
proxy statement relating to our annual meeting of stockholders.
|
135
The Audit Committee meets with our independent registered public accounting firm
on a quarterly basis and periodically as deemed necessary. In addition, the Audit Committee also meets in executive sessions following each regularly scheduled Board meeting.
The Audit Committee has implemented a policy for Employee Complaint Procedures for Accounting and Auditing
Matters, which establishes procedures for the receipt, retention, treatment and internal investigation of complaints regarding accounting, internal accounting controls, or auditing matters and the confidential, anonymous submission by
employees of concerns regarding questionable accounting or auditing matters.
Our stockholders will have the opportunity
to ratify the appointment of our independent registered public accounting firm at the Annual Meeting (see the section of this proxy statement/prospectus entitled
Proposal 4 Ratification of the Appointment of PricewaterhouseCoopers LLP
as Independent Registered Public Accounting Firm for the year ending December 31, 2017
). Although this ratification is not required by law, the Board believes that stockholders should have an opportunity to express their views on the
subject.
The Audit Committee met eight times during the year ended December 31, 2016.
A copy of the Audit Committee Report is included elsewhere in this proxy statement/prospectus. The Audit Committee Charter, as
amended, is available on our website at www.forestcity.net.
Compensation Committee
: Our Compensation Committee is
presently composed of four nonemployee, independent directors. The Compensation Committees purpose is to assist the Board in carrying out its oversight responsibilities relating to the following matters:
|
|
|
establishment and oversight of the compensation of our senior management and executive officers, in light of
the executive compensation programs goals and objectives;
|
|
|
|
reviewing goals, objectives and policies of our executive compensation plans, including a review of such
matters at least annually;
|
|
|
|
together with the Corporate Governance and Nominating Committee, overseeing succession planning activities for
our CEO and other senior executives, including the development of procedures for succession planning, review and evaluation, at least annually, of the succession plan and progress, and oversight of the execution of the succession plan;
|
|
|
|
together with the Corporate Governance and Nominating Committee, reviewing diversity planning activities,
including the review, at least annually, of the diversity plan and progress for the Company;
|
|
|
|
approving our equity incentive plans, including approval of grants or awards under such plans;
|
|
|
|
approving our cash incentive plans for executive officers and senior management, including approval of the
goals under such plans and the results achieved relative to such goals;
|
|
|
|
approving employment agreements with and severance or other termination payments proposed to be made to any
Named Executive Officer (
NEO
);
|
|
|
|
overseeing and monitoring of risks associated with our compensation programs and monitoring of such risks;
|
|
|
|
reviewing and considering the outcome of the advisory stockholder votes on executive compensation;
|
|
|
|
retention or termination of compensation consultants or other advisors and whether such arrangements raise any
conflict of interest with the Company or otherwise impact the consultants or advisors independence;
|
|
|
|
reviewing the Compensation Discussion & Analysis prepared by our management, including the review and
recommendation of the inclusion of such disclosure in the proxy statement relating to our annual meeting of stockholders;
|
136
|
|
|
production of the Compensation Committee Report, made pursuant to the Exchange Act, to be included in the
proxy statement relating to our annual meeting of stockholders;
|
|
|
|
annual oversight and approval of the salary increase budget and periodic review and guidance on our benefit
strategy and/or plans;
|
|
|
|
overseeing internal controls on incentive payments made under the executive compensation program;
|
|
|
|
ensuring regulatory compliance with respect to compensation matters; and
|
|
|
|
overseeing the administrative responsibilities associated with incentive and benefit plans.
|
The Compensation Committee also annually evaluates the performance of our CEO based on objective and
subjective criteria, including an assessment of business performance, accomplishment of long-term strategic objectives, and management development.
The Compensation Committee administers our executive compensation program. All members of the Compensation Committee are
outside directors as defined under Internal Revenue Code Section 162(m) (
Section 162(m)
), nonemployee directors as defined in Rule 16b-3 under the Exchange Act, and independent directors
under the NYSE listing standards.
In reviewing and designing the various components of our executive compensation
program, the Compensation Committee periodically draws upon the expertise of our Chairman of the Board, CEO, CFO and executive officer of Human Resources (
HR Executive
), who typically attend the Compensation Committee meetings, as
well as external independent consultants. Our CEO provides advice and counsel to the Compensation Committee regarding alignment of performance measures under our Executive Short-Term Incentive Plan (
STIP
) and our Long-Term
Incentive Plan (
LTIP
) relative to our annual business and strategic plans, may discuss the performance of key executives, including NEOs, who report to him to assist in the determination of their incentive awards as well as any
merit increases or pay adjustments, offers guidance and recommendations on succession and management development activities and discusses the impact of the design of our incentive programs (including equity awards) on our ability to attract and
retain key personnel. Our HR Executive provides information pertaining to our compensation programs and in connection with succession planning and talent reviews. Our CFO, who attended Compensation Committee meetings during fiscal year 2016 as
requested, periodically provides an accounting and analysis of the financial results of performance measures under the STIP and the LTIP. Our General Counsel also attended meetings during the year as requested by the Compensation Committee. The
Compensation Committee periodically meets in executive sessions to discuss and approve, among other matters, the compensation of the CEO.
The Compensation Committee has the authority to retain, oversee, terminate, and approve fees for any compensation consultant
used to assist in the evaluation of compensation for executive officers and other members of senior management. It may also obtain advice and assistance from internal or external legal, accounting, or other advisors.
The Compensation Committee has retained Pearl Meyer as its independent consultant to provide guidance on various aspects of
our executive compensation program. Pearl Meyer reports directly to the Compensation Committee, only provides compensation consulting services to the Company, and regularly participates in committee meetings. In early 2017, the Compensation
Committee considered and assessed all relevant factors, including but not limited to, those set forth in Rule 10C-1(b)(4)(i) through (vi) under the Exchange Act, that could give rise to a potential conflict of interest with respect to Pearl
Meyers work. Based on this review, we are not aware of any conflict of interest that has been raised by the work performed by Pearl Meyer.
The Compensation Committee met seven times during the year ended December 31, 2016.
A copy of the Compensation Committee Report is included in this proxy statement/prospectus following the
Compensation
Discussion & Analysis
section. The Compensation Committee Charter, as amended, is available on our website at www.forestcity.net.
137
Corporate Governance and Nominating Committee
: Our Corporate Governance
and Nominating Committee is composed of four nonemployee, independent directors. The Corporate Governance and Nominating Committees purpose is to assist the Board in carrying out its oversight responsibilities relating to corporate governance
matters, including the composition of the Board. The Corporate Governance and Nominating Committees purpose is to assist the Board in carrying out its oversight responsibilities relating to the following matters:
|
|
|
identification of individuals qualified to become Board members and the director nominees for the next annual
meeting of stockholders;
|
|
|
|
recommendation of director nominees for each Committee;
|
|
|
|
our organizational and governance structure, including the development and recommendation to the Board of the
Corporate Governance Guidelines applicable to us;
|
|
|
|
development and recommendation of our Code of Legal and Ethical Conduct;
|
|
|
|
together with the Compensation Committee, succession planning activities for our CEO and other senior
executives, including the development of procedures for succession planning, review and evaluation, at least annually, of the succession plan and progress, and oversight of the execution of the succession plan;
|
|
|
|
together with the Compensation Committee, diversity planning activities, including the review, at least
annually, of the diversity plan and progress for the Company;
|
|
|
|
review of the Boards performance and evaluation of the Board, its committees and management;
|
|
|
|
recommendation of nonemployee Board member compensation and stock ownership requirements, including the
compensation of the non-executive Chairman;
|
|
|
|
determination, on an annual basis, of which members of senior management qualify as officers subject to
Section 16 of the Exchange Act;
|
|
|
|
continuing education for directors;
|
|
|
|
review and approval of related party transactions;
|
|
|
|
charitable and political activities, including corporate political spending and lobbying activities;
|
|
|
|
analysis and identification of Audit Committee financial experts and the financial
literacy of the Audit Committee members; and
|
|
|
|
determination, on an annual basis, of the independence of our Audit Committee and Compensation Committee
members.
|
The Corporate Governance and Nominating Committee utilizes a variety of methods for
identifying and evaluating nominees for director. The Committee regularly reviews the appropriate size of the Board and whether any vacancies on the Board are expected due to retirement or otherwise. In the event that vacancies are anticipated, or
otherwise arise, the Committee considers various potential candidates for director. The Corporate Governance and Nominating Committee may consider candidates recommended by stockholders, as well as from other sources, such as current directors or
officers, professional search firms or other appropriate sources. The Committee may choose not to consider an unsolicited recommendation if no vacancy exists on the Board of Directors, and the Corporate Governance and Nominating Committee does not
perceive a need to increase the size of the Board of Directors.
Third-party consultants are retained from time to time by
the Corporate Governance and Nominating Committee to identify potential candidates. If retained, third-party consultants are used primarily to identify potential candidates, conduct customary background and reference checks and recommend potential
candidates to the Committee in accordance with criteria furnished by the Committee. On occasion, at the request of the Chair of the Committee, third-party consultants may also conduct preliminary screening and interviews to assess candidate
suitability in accordance with criteria furnished by the Committee.
138
Our Corporate Governance Guidelines contain Board membership criteria that apply
to the Corporate Governance and Nominating Committees recommended nominees for a position on our Board of Directors. Under these criteria, members of the Board must demonstrate the qualities of integrity and high ethical standards, have the
ability to communicate clearly and persuasively, express opinions, raise questions and make informed, independent judgments. A director must possess knowledge, experience and skills in a minimum of one specialty area, such as: knowledge of the real
estate industry (development, management, operations, marketing, competition, etc.); accounting and finance; corporate management; strategic planning; and international, legal or governmental expertise. The Committee considers other qualifications
in recommending nominees for a position on the Board of Directors, including diversity in gender, ethnic background, geographic origin or personal and professional experience. The Company maintains a core value of diversity and inclusion and the
Committee embraces this core value as one of the primary considerations in seeking director nominees. The willingness and ability to work with other members of our Board of Directors in an open and constructive manner and the ability to devote
sufficient time to prepare for and attend Board meetings are required. Service on other boards of public companies should be limited to no more than four, subject to the Board of Directors review.
The Committee has adopted a matrix approach that tracks each directors and director nominees qualifications and
experience in a tabular format to assist the Committee in maintaining a well-rounded, diverse and effective Board of Directors. In addition, the matrix approach helps the Committee identify any qualifications and experience for potential director
nominees that would help improve the composition of and add value to the Board of Directors. A tabular summary of the most recently conducted matrix assessment is provided under
Director Qualifications and Experience
included
within the
Proposal 1 Election of Directors
section of this proxy statement/prospectus.
The
Corporate Governance and Nominating Committee met eight times during the year ended December 31, 2016.
The Corporate
Governance and Nominating Committee periodically meets in executive sessions following its meetings, without the presence of management, to discuss, among other matters, issues pertaining to the nomination and governance function of the Board.
The Corporate Governance and Nominating Committee Charter, as amended, is available on our website at www.forestcity.net.
139
C
OMPENSATION
C
OMMITTEE
I
NTERLOCKS
& I
NSIDER
P
ARTICIPATION
The Compensation Committee
of the Board of Directors consists entirely of nonemployee, independent directors. No member of the Compensation Committee is a current or former officer or employee of ours or any of our subsidiaries, and no director had interlocking relationships
with any other entities of the type that would be required to be disclosed in this proxy statement/prospectus.
140
C
OMPENSATION
D
ISCUSSION
&
A
NALYSIS
Introduction
This Compensation Discussion and Analysis (
CD&A
) provides an overview of our executive compensation
program and 2016 fiscal year pay determinations for our NEOs as identified below:
|
|
|
Name
|
|
Title
|
David J. LaRue
|
|
President and Chief Executive Officer
|
Robert G. OBrien
|
|
Executive Vice President and Chief Financial Officer
|
James A. Ratner
|
|
Executive Vice President Development*
|
Ronald A. Ratner
|
|
Executive Vice President Development
|
Duane F. Bishop
|
|
Executive Vice President Chief Operating Officer
|
*
|
James A. Ratner resigned as Executive Vice President Development to become our non-executive Chairman
of the Board effective at 11:59 p.m., Eastern Time, on December 31, 2016.
|
Our management is
responsible for the preparation of this CD&A.
Executive Summary
Our Company is principally engaged in the ownership, development, management and acquisition of office, residential and retail
real estate throughout the United States. Founded in 1920 and having been publicly-traded since 1960, we are headquartered in Cleveland, Ohio, with offices throughout the United States. As of December 31, 2016, we had approximately $8.2 billion
in consolidated assets, 1,936 full-time and 139 part-time employees, annual consolidated revenues of $929 million, and an equity market capitalization of $5.5 billion.
We attribute our long-term success in large part to our highly talented and experienced employees as well as the following
core values which reinforce our Companys culture:
|
|
|
integrity and openness;
|
|
|
|
entrepreneurial spirit;
|
|
|
|
diversity and inclusion;
|
|
|
|
sustainability and stewardship; and
|
Our executive compensation program is intended to support these values, drive long-term growth and stockholder value creation
and reinforce our culture. The following discussion summarizes our executive compensation programs key objectives and primary components which are designed to meet the needs of our Company, our stockholders and our employees:
|
|
|
Focusing senior management on key business objectives as reflected in our annual business plan and strategic
plan that support our ultimate objective of maximizing long-term stockholder value;
|
|
|
|
Providing competitive pay that is aligned with performance in support of long-term stockholder value creation;
|
|
|
|
Attracting and retaining highly-talented employees to lead our continued growth and success and rewarding them
for their contributions toward that success; and
|
|
|
|
Avoiding unnecessary or excessive risk taking.
|
141
To achieve these objectives, our executive compensation program includes the following primary
components:
|
|
|
Competitive base salaries reflective of each executives responsibility level, experience and individual
performance over time;
|
|
|
|
Performance-based annual incentives tied to the attainment of specified business objectives at the corporate,
department, regional and/or individual levels;
|
|
|
|
Long-term incentives linked to strategic goals and long-term stockholder value creation; and
|
|
|
|
Competitive benefits that meet the needs of our employees and their families at a reasonable shared cost.
|
The following table provides comparisons of the key financial metrics, some of which have been
previously reported in our Form 10-K for the year ended December 31, 2016, and Supplemental Package for the year and quarter ended December 31, 2016 furnished on Form 8-K, which we use in evaluating the Companys performance and which the
Compensation Committee considers when making compensation decisions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Key Metric
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
Change
|
|
Funds
From Operations (
FFO
)*
|
|
$
|
241,733,000
|
|
|
$
|
505,682,000
|
|
|
|
(52.2
|
)%
|
Operating
FFO (
OFFO
)
|
|
$
|
386,461,000
|
|
|
$
|
337,601,000
|
|
|
|
14.5
|
%
|
FFO per
Share (on a fully-diluted basis)*
|
|
$
|
0.92
|
|
|
$
|
1.98
|
|
|
|
(53.5
|
)%
|
OFFO per
share (on a fully-diluted basis)
|
|
$
|
1.46
|
|
|
$
|
1.36
|
|
|
|
7.4
|
%
|
Comparable Net Operating Income (
Comparable NOI
)
|
|
$
|
585,389,000
|
|
|
$
|
567,015,000
|
|
|
|
3.2
|
%
|
Net Debt
to Adjusted EBITDA**
|
|
|
8.92
|
|
|
|
|
|
|
|
|
|
*
|
2016 results for this metric were significantly affected by recognition of a $299.6 million impairment on our
Pacific Park Brooklyn project in Brooklyn, New York.
|
**
|
The metric of Net Debt to Adjusted EBITDA as used by the Compensation Committee as a performance metric and
presented in this table differs slightly from Net Debt to Adjusted EBITDA as presented in our Supplemental Package for the quarter ended December 31, 2016, as furnished with the SEC on Form 8-K. See page 144 for the definition of Net Debt to
Adjusted EBITDA as presented in this table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Price
December 31,
|
|
|
TSR
|
|
Key Metric
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
1-Year
|
|
|
3-Year
(1)
|
|
TSR: Class A Common Stock
|
|
$
|
20.84
|
|
|
$
|
21.93
|
|
|
$
|
21.30
|
|
|
|
(3.43
|
)%
|
|
|
3.50
|
%
|
(1)
|
Represents an annualized rate of return. TSR based on closing price of Class A Common Stock of $19.10 on
December 31, 2013 and includes any dividends paid.
|
FFO, OFFO, NOI, Comparable NOI, EBITDA, Adjusted
EBITDA and Net Debt to Adjusted EBITDA are financial measures not presented in accordance with Generally Accepted Accounting Principles (
GAAP
) that we believe provide our investors with additional information about our core
businesses necessary to understand our operating results.
FFO, as defined by NAREIT, is net earnings excluding the
following items at our ownership: (i) gain (loss) on full or partial disposition of rental properties, divisions and other investments (net of tax); (ii) non-cash charges for real estate depreciation and amortization; (iii) impairment
of depreciable real estate (net of tax); and (iv) cumulative or retrospective effect of change in accounting principle (net of tax). A reconciliation of net earnings (loss), the most comparable GAAP measure to FFO, is provided in Annex G to
this proxy statement/prospectus.
FFO, a non-GAAP measure, along with net earnings, provides additional information about
our core operations. While property dispositions, acquisitions or other factors impact net earnings in the short-term, we believe FFO presents a more consistent view of the overall financial performance of our business from period-to-period since
the core of our business is the recurring operations of our portfolio of real estate assets. Management
142
believes that the exclusion from FFO of gains and losses from the sale of operating real estate assets allows investors and analysts to readily identify the operating results of the assets that
form the core of the Companys activity and assists in comparing those operating results between periods. Implicit in historical cost accounting for real estate assets in accordance with GAAP is the assumption that the value of real estate
assets diminishes predictably over time. Since real estate values have historically risen or fallen with market conditions, many industry investors and analysts have considered presentations of operating results for real estate companies using
historical cost accounting alone to be insufficient. Because FFO excludes depreciation and amortization of real estate assets and impairment of depreciable real estate, management believes that FFO, along with the required GAAP presentations,
provides a more complete measurement of the Companys performance relative to its competitors and a more appropriate basis on which to make decisions involving operating, financing and investing activities than the required GAAP presentations
alone would provide.
In connection with our conversion to REIT status, we were required to reverse our net deferred tax
liabilities related to our subsidiaries that will be held as qualified REIT investments of $588,607,000 during the three months ended December 31, 2015, which we have excluded from our December 31, 2015 FFO calculation.
OFFO is an additional financial measure of our performance that we report. Operating FFO is defined as FFO adjusted to
exclude: (i) impairment of non-depreciable real estate; (ii) write-offs of abandoned development projects and demolition costs; (iii) income recognized on state and federal historic and other tax credits; (iv) gains or losses
from extinguishment of debt; (v) change in fair market value of non-designated hedges; (vi) gains or losses on change in control of interests; (vii) the adjustment to recognize rental revenues and rental expense using the
straight-line method; (viii) participation payments to ground lessors on refinancing of our properties; (ix) other transactional items; (x) the Brooklyn Nets pre-tax FFO; and (xi) income taxes on FFO. A reconciliation of FFO to OFFO
is provided in Annex G to this proxy statement/prospectus.
We report Operating FFO, a non-GAAP measure, as an additional
measure of our operating performance. We believe it is appropriate to adjust FFO for significant items driven by transactional activity and factors relating to the financial and real estate markets, rather than factors specific to the on-going
operating performance of our properties. We use Operating FFO as an indicator of continuing operating results in planning and executing our business strategy. Operating FFO should not be considered to be an alternative to net earnings computed under
GAAP as an indicator of our operating performance and may not be directly comparable to similarly-titled measures reported by other companies.
NOI reflects our share of the core operations of our rental real estate portfolio, prior to any financing activity. NOI is
defined as revenues less operating expenses at our ownership within our Office, Retail, Apartments and Development segments, except for revenues and cost of sales associated with sales of land held in these segments. The activities of our Corporate
and Other segments do not involve the operations of our rental property portfolio and therefore are not included in NOI.
We believe NOI provides important information about our core operations and, along with earnings before income taxes, is
necessary to understand our business and operating results. Because NOI excludes general and administrative expenses, interest expense, depreciation and amortization, revenues and cost of sales associated with sales of land, other non-property
income and losses, and gains and losses from property dispositions, it provides a performance measure that, when compared year over year, reflects the revenues and expenses directly associated with owning and operating office, retail and apartment
real estate and the impact to operations from trends in occupancy rates, rental rates, and operating costs, providing a perspective on operations not immediately apparent from net income. We use NOI to evaluate our operating performance on a
portfolio basis since NOI allows us to evaluate the impact that factors such as occupancy levels, lease structure, rental rates, and tenant mix have on our financial results.
Investors can use NOI as supplementary information to evaluate our business. In addition, management believes NOI provides
useful information to the investment community about our financial and operating
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performance when compared to other REITs since NOI is generally recognized as a standard measure of performance in the real estate industry. NOI is not intended to be a performance measure that
should be regarded as an alternative to, or more meaningful than, our GAAP measures, and may not be directly comparable to similarly-titled measures reported by other companies.
We use comparable NOI as a metric to evaluate the performance of our office, retail and apartment properties. This measure
provides a same-store comparison of operating results of all stabilized properties that are open and operating in all periods presented. Non-capitalizable development costs and unallocated management and service company overhead, net of service fee
revenues, are not directly attributable to an individual operating property and are considered non-comparable NOI. In addition, certain income and expense items at the property level, such as lease termination income, real estate tax assessments or
rebates, certain litigation expenses incurred and any related legal settlements and NOI impacts of changes in ownership percentages, are excluded from comparable NOI. Other properties and activities such as Arena, federally assisted housing,
military housing, straight-line rent adjustments and participation payments as a result of refinancing transactions are not evaluated on a comparable basis and the NOI from these properties and activities is considered non-comparable NOI.
Comparable NOI is an operating statistic defined as NOI from stabilized properties operated in all periods presented. We
believe comparable NOI is useful because it measures the performance of the same properties on a period-to-period basis and is used to assess operating performance and resource allocation of the operating properties. While property dispositions,
acquisitions or other factors impact net earnings in the short term, we believe comparable NOI presents a more consistent view of the overall performance of our operating portfolio from period to period.
Reconciliations of Comparable NOI to NOI, and earnings (loss) before income taxes, the most comparable GAAP measure, to NOI,
are provided in Annex H to this proxy statement/prospectus.
EBITDA is defined as net earnings excluding the following
items at our ownership: i) non-cash charges for depreciation and amortization; ii) interest expense; iii) amortization of mortgage procurement costs; and iv) income taxes. EBITDA may not be directly comparable to similarly-titled measures reported
by other companies. We use EBITDA as a starting point in order to derive Adjusted EBITDA as further described below.
We
define Adjusted EBITDA, a non-GAAP measure, as EBITDA adjusted to exclude: i) impairment of real estate; ii) gains or losses from extinguishment of debt; iii) gain (loss) on full or partial disposition of rental properties, development projects and
other investments; iv) gains or losses on change in control of interests; v) other transactional items; and vi) the Nets pre-tax EBITDA. We believe EBITDA, Adjusted EBITDA and net debt to Adjusted EBITDA provide additional information in evaluating
our credit and ability to service our debt obligations. Adjusted EBITDA is used by the chief operating decision maker and management to assess operating performance and resource allocations by segment and on a consolidated basis. Management believes
Adjusted EBITDA gives the investment community a more complete understanding of the Companys operating results, including the impact of general and administrative expenses and acquisition-related expenses, before the impact of investing and
financing transactions and facilitates comparisons with competitors. However, Adjusted EBITDA should not be viewed as an alternative measure of the Companys operating performance since it excludes financing costs as well as depreciation and
amortization costs which are significant economic costs that could materially impact the Companys results of operations and liquidity.
Net Debt to Adjusted EBITDA, is defined as total debt, gross of unamortized debt procurement costs at our ownership (total
debt includes outstanding borrowings on our revolving credit facility, our term loan facility, convertible senior debt, nonrecourse mortgages and notes payable) less cash and equivalents, at our ownership, divided by Adjusted EBITDA. Net Debt to
Adjusted EBITDA is a supplemental measure derived from non-GAAP financial measures that the Company uses to evaluate its capital structure and the magnitude of its debt against its operating performance. The Company believes that investors use
versions of this ratio in a similar manner.
Reconciliations of Net earnings (loss), the most comparable GAAP measure to
EBITDA, and EBITDA to Adjusted EBITDA and Net Debt is provided in Annex I to this proxy statement/prospectus.
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FFO, OFFO, NOI, Comparable NOI, EBITDA, Adjusted EBITDA and Net Debt to Adjusted
EBITDA should not be considered to be alternatives to net earnings computed under GAAP as an indicator of our operating performance and may not be directly comparable to similarly titled measures reported by other companies.
The year 2016 was one of transition for our Company as we migrated to REIT status. Key strategic accomplishments included the following:
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Completed first year operating as a REIT;
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Closed on sale of our equity interest in Barclays Center, Brooklyn;
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Closed on sale of our Military Housing portfolio;
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Reached agreement for sale of our Federally Assisted Housing portfolio;
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Completed sale of our Terminal Tower headquarters building;
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Announced exploration of strategic initiatives with respect to our Retail portfolio; and
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Entered into an agreement to eliminate the Companys dual-class share structure.
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Major Actions Taken With Respect to Our Compensation Programs
Working with Pearl Meyer, its independent advisor, our Compensation Committee made some adjustments to our compensation plans
and programs for 2016 to ensure continued competitiveness and alignment with key business and compensation program objectives and with best practices in the area of governance. In this regard, the Compensation Committee relied in part on market data
and advice provided by Pearl Meyer. Pearl Meyer periodically reviews our executive compensation programs in support of our desire to maintain strong pay for performance linkage, alignment with stockholder interests and greater transparency.
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Base Pay Adjustments:
As part of an ongoing review of executive pay levels, Pearl Meyer annually
reviews the compensation levels of certain of our senior executive officers relative to benchmark information. The Compensation Committee approved an increase in the base salary of David J. LaRue to $750,000 effective March 1, 2016. The
Compensation Committee approved this increase based on benchmark data from Pearl Meyer and this change was designed to bring Mr. LaRues base salary closer to, but still slightly below, the market 50
th
percentile (or median) values for CEOs at comparable organizations. Robert G. OBrien also received a salary increase of 2.9% in 2016 consistent with benchmark data. Additionally
Duane F. Bishop became our corporate Chief Operating Officer on January 1, 2016 and received a promotional adjustment to reflect his new role.
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Short-Term Incentives:
Award opportunities under the 2016 Short-Term Incentive Plan
(
STIP
) were based on OFFO per share and Net Debt ((Non-recourse Mortgage Debt plus Corporate Debt), net of cash available, cash voluntarily reserved at properties and cash invested) to Adjusted Earnings Before Interest, Taxes,
Depreciation and Amortization (
Adjusted EBITDA
) goals, both of which were equally weighted. Additionally, to improve line of sight, one of our NEOs, Duane F. Bishop, had a portion of his total STIP award determined by his
performance relative to individual goals. Expressed as percentages of base salary, STIP award opportunities were the same as in 2015, except for Duane F. Bishop, whose target award opportunity was increased to 100% of base salary upon his promotion
to the Chief Operating Officer role.
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For the performance year ended December 31, 2016, our OFFO per
share was between target and maximum performance goals and Net Debt to Adjusted EBITDA was between threshold and target performance. Resulting STIP payouts for our NEOs ranged from 113% to 114% of target award opportunities. Further information
regarding the actual award payments earned by each of our NEOs and the calibration schedules used to determine the awards is contained in the
Short-Term Incentives
portion of the
Components of the Executive Compensation
Program
section of this CD&A.
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Long-Term Incentives:
In 2016, our NEOs received long-term incentives through a combination of
long-term cash incentives (
Cash LTIP
) awards and equity grants, including performance shares and restricted stock. In 2015, grants to NEOs were provided through an equal weighting, in terms of grant date target value, for each of
these award vehicles. To further strengthen the focus on long-term value creation, in 2016, the Compensation Committee increased the emphasis on Cash LTIP and performance shares, with each representing 37.5% of the total target long-term incentive
award opportunity, and reduced the weighting on restricted stock to 25%.
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Cash LTIP awards are tied to
multi-year performance periods that align with our strategic planning cycle. For cycles beginning prior to 2015, eligible NEOs under the Executive Long-Term Incentive Plan were tied to an enabling formula based on cumulative FFO dollars in excess of
a threshold. While this approach remains in place for cycles which began in 2013 and 2014, in the interest of ensuring greater transparency, the Compensation Committee made changes to the approach used for determining long-term cash incentives going
forward. For three-year performance cycles beginning in 2015 and 2016, cumulative FFO per share and growth in net asset value metrics with specific targets are being used to determine award funding, with each component equally weighted.
For the Cash LTIP cycle that began on February 1, 2013 and ended on December 31, 2016, our cumulative FFO exceeded
the applicable threshold, allowing for the funding of maximum award opportunities of up to $1.75 million per eligible NEO, subject to the Compensation Committees ability to exercise negative discretion based on various qualitative and/or
quantitative factors. The Compensation Committee exercised its negative discretion, with approved payouts for eligible NEOs well below initially funded levels and ranging from 27% to 28% of target award opportunities. Duane Bishop was covered under
the Senior Management version of the Cash LTIP for the 2013 2016 performance period commensurate with his previous role of COO of the Commercial properties business unit. As such, his award was determined based on two equally-weighted
metrics, cumulative FFO per share and an internal measure of value creation, Total Return (defined as change in net asset value plus or minus cash generated or used). Based on cumulative FFO per share results that were between threshold and target
goals and Total Return that was below the threshold level, Mr. Bishops Cash LTIP payout for the 2013 2016 performance period was equal to approximately 27% of his target award opportunity. Further information is contained in the
Cash LTIP
portion of the
Components of the Executive Compensation Program
section of this CD&A.
In 2016, all of our NEOs received grants of performance shares which vest based on the TSR of our Class A Common Stock
relative to companies in the NAREIT All Equity REIT Index (
NAREIT
Index
) for the period of January 1, 2016 through December 31, 2018, and restricted shares which vest over three years based on continued service.
Consistent with our desire to set meaningful, yet challenging goals, and to reward relative outperformance in terms of long-term stockholder value creation, the Compensation Committee approved a vesting schedule which requires 60
th
percentile performance in order to earn a target performance share award. For the performance share cycle of February 1, 2013 through December 31, 2016, Forest Citys TSR was below
the threshold level, resulting in no shares being earned for that cycle. Further information is contained in the
Equity
portion of the
Components of the Executive Compensation Program
section of this CD&A.
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Executive Stock Ownership Requirements Policy:
In early 2016, the Compensation Committee reviewed our
Executive Stock Ownership Requirements Policy (
Executive Stock Ownership Policy
) and made modifications to the required number of shares our NEOs and other senior executives must hold. Notably, the ownership requirement for David
J. LaRue was increased to a share equivalent translating into approximately six times the value of his current base salary; however, the underlying fixed share requirement did not change. Further information on the requirements for each of our NEOs
is included later in this CD&A.
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Resignation of James A. Ratner and Transition to Non-Executive Chairman effective as of 11:59 p.m., Eastern
Time, on December 31, 2016:
Charles A. Ratner, our former Executive Chairman of the Board of Directors retired as of 11:59 p.m., Eastern Time, on December 31, 2016 (the
Transition Effective
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Time
). As of the Transition Effective Time, James A. Ratner resigned as Executive Vice President Development to become our non-executive Chairman. Given his extensive
experience and familiarity with our operations, James A. Ratner will devote a considerable amount of time in his role as non-executive Chairman and will receive an annual cash retainer and equity awards totaling $400,000, as more fully
described under the section entitled
Director Compensation
in this proxy statement/prospectus. In connection with his appointment, the Compensation Committee approved, and the Company and James A. Ratner entered into, an agreement
to extend the vesting period for his unvested restricted stock and stock options subject to his continued service as non-executive Chairman. Additionally, in recognition of his 41 plus years of service and the substantial contributions
James A. Ratner made while employed by our Company, the Compensation Committee approved a one-time special recognition award to James A. Ratner of $500,000, which was made in December 2016. Further information is included in the
Transition of James A. Ratner to Non-Executive Chairman
section of this CD&A.
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Risk Assessment:
The Audit and Compensation Committees jointly reviewed the results of a risk analysis
prepared by management during early 2017, as well as comments by Pearl Meyer pertaining to managements assessment. Based on this review, the Audit and Compensation Committees concluded that our compensation programs and practices do not create
risks that are reasonably likely to have a material adverse effect on the Company. The risk assessment is discussed in further detail under the Plan Design as it Pertains to Risk section of this CD&A.
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We believe the compensation of our NEOs for fiscal year 2016 was consistent with our philosophy and overall performance.
Say on Pay Voting Results and Impacts
We held our annual advisory vote on the compensation of our NEOs (
Say on Pay Vote
) at our annual meeting of
stockholders on May 25, 2016. At that meeting, our stockholders overwhelmingly passed a resolution approving the compensation of our NEOs, with approximately 99.3% votes cast at the 2016 annual meeting approving the resolution. Overall, the
Compensation Committee believes that this overwhelming level of stockholder support is evidence that our executive compensation program is appropriately structured and aligned with stockholder interests.
The Compensation Committee remains mindful of the need to provide a competitive compensation program that is
appropriately aligned with overall performance and with our annual and strategic business plans. In addition, we continue to strive to align our programs more directly with the interests of our stockholders. This is evidenced by a number of changes
which have been made to our executive compensation program and corporate governance practices over the past several years, such as the use of performance share grants tied to a relative TSR metric, greater transparency of metrics used under the Cash
LTIP, primary emphasis on at risk variable pay, revisions to the Executive Stock Ownership Policy, adoption of a clawback policy (defined below in the section entitled
Additional Executive Compensation Policies
) and
adoption of a Securities Hedging and Pledging Policy (defined below in the section entitled
Additional Executive Compensation Policies
).
Our Commitment to Sound Corporate Governance
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What We Do
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What We Dont Do
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Use performance-based incentives tied to multiple metrics and challenging goals
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Provide multi-year pay
guarantees
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Place primary emphasis on performance contingent long-term incentives
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Offer excessive perquisites with
employment agreements
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Use tally sheets
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Reprice Stock Options without
stockholder approval
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Apply Executive Stock Ownership Guidelines
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Provide tax gross ups on
awards
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Have Clawback Policy
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Pay dividends on unearned
performance shares
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Have Hedging and Pledging Policy
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Provide uncapped performance
awards
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Executive Compensation Core Principles
To guide the development and use of specific compensation elements and to support the key objectives outlined in the
Executive Summary
section of this CD&A, we use the following set of principles.
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Pay for performance:
Our executive compensation program emphasizes variable incentive pay tied to
challenging performance goals, with no awards earned for results below designated threshold levels. Our decision to set relative TSR target performance at the 60
th
percentile versus comparable
companies for performance share grants is one example of how this translates into plan design.
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The following table
summarizes incentive award determinations for performance cycles ending in 2016 and further demonstrates our commitment to pay for performance:
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Pay Component
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Performance Cycle
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Performance and NEO Award Funding Outcome
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Annual STIP
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1/1/2016 12/31/2016
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OFFO was well above target and
Net Debt to Adjusted EBITDA was between threshold and target, with overall payouts ranging from between 113% to 114% of target award opportunities
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Cash LTIP
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2/1/2013 12/31/2016
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The Committee exercised negative
discretion to significantly reduce awards for four NEOs below originally funded levels and target opportunities, to account for cumulative FFO per share results that were between threshold and target goals and Total Return results that were below
threshold performance. NEO payouts ranged from 27% to 28% of target award opportunities
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Performance Shares
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2/1/2013 12/31/2016
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Relative TSR was below threshold
and no shares were earned
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A majority of pay for top executives should be contingent on performance and tied to multiple
time periods:
Any awards earned by our NEOs under the STIP are tied to our annual business plan and generally structured to consider the tax deductibility of payments, with the Compensation Committee taking Company and/or individual
performance, along with market target award levels provided by Pearl Meyer, into account when determining any amounts earned. Similarly, the LTIP consists primarily of performance components tied to long-term stockholder value creation. Awards under
the cash-based portion of the LTIP will only be earned if warranted, in the Compensation Committees assessment of performance over a multi-year period (generally consistent with our strategic planning cycle). Any performance share awards will
only be earned if our relative TSR meets or exceeds certain levels. Pay levels vary with our actual performance results.
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The following charts illustrate the percentage of the 2016 target total direct
compensation opportunity of each major pay component for our NEOs. We define target total direct compensation as base salary plus target STIP and LTIP award opportunities. As illustrated, a majority of target total direct compensation, ranging from
63% to 67% for NEOs, is at risk, or not guaranteed pay, since it is tied to performance. Consistent with competitive practice, a higher percentage (67%) of David J. LaRues target total direct compensation opportunity is
at risk and a higher portion (62%) tied to long-term incentives, as compared with other NEOs, reflecting his role as President and CEO. Based on a review conducted by Pearl Meyer, the target pay mix for our NEOs was comparable with the
median mix for executive officers at comparable organizations.
At risk pay represents 67% of target 2016 Total Direct Compensation
At risk pay represents 63% of target 2016 Total Direct Compensation
Variable at risk pay includes the STIP, Cash LTIP and performance shares.
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Long-term incentives are emphasized to align executive and stockholder interests:
As illustrated, our
executive compensation program generally places greater emphasis on long-term incentives as compared with short-term incentives, to focus senior management on long-term strategic goals and
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stockholder value creation. Long-term incentives represent approximately 62% of target total direct compensation for David J. LaRue and 50% of target total direct compensation for other NEOs. We
currently use a combination of equity-based and cash-based long-term award vehicles to minimize potential stockholder dilution that would result from the sole use of equity plans.
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Total compensation should be fair, competitive and communicated:
Pay levels are periodically
reviewed to determine if they are externally competitive and internally equitable. Annual notification of performance goals and corresponding award opportunities for the incentive compensation plans is provided to participants along with periodic
updates of performance relative to goals.
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Our executive compensation program should not encourage the taking of excessive risks that could be
detrimental to the interests of our stockholders:
We believe our use of short-term and long-term incentives, with multiple types of award vehicles, performance criteria, measurement periods and stock ownership guidelines, clawback provisions,
and stock hedging/pledging policies, do not encourage our NEOs and other senior executives to take unreasonable risks relating to our business. A comprehensive formal risk assessment is reviewed annually by our Audit and Compensation Committees.
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Target Executive Officer Pay Levels & Relevant Employment Market
We use targeted pay levels to reinforce core principles and key objectives under our executive compensation program
: Our
base salaries, short-term and long-term incentives are targeted competitively to attract and retain talented and experienced executives. With our emphasis on performance-based incentive compensation, actual total direct pay can be above or below
targeted levels based on our actual versus planned performance results and level of stock price appreciation.
In
assessing pay competitiveness for our executive officers, we periodically review published compensation surveys for the real estate industry (reflecting data for both public and private companies), including the:
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NAREIT Compensation Survey;
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National Multi-Housing Councils National Apartment Survey;
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CEL & Associates National Real Estate Compensation and Benefits Survey;
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Mercers U.S. Real Estate Compensation Survey; and
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Mercers Benchmark Database.
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We use survey data as a guide to benchmark the pay practices and levels for our executives relative to jobs with similar
duties as described in the surveys. We review base salary, short-term and long-term incentive opportunities to determine if our pay practices remain in line with our overall executive pay strategy and key objectives. We also review proxy statement
pay data for a designated group of publicly-traded industry peers as compiled by Pearl Meyer. The Compensation Committee uses this data to help determine whether our pay practices are competitive and whether our mix of pay components is appropriate
in light of our strategic plans.
We periodically review the companies in our peer group for their similarity in sales,
asset size and/or market capitalization. Given that we have diversified real estate holdings, we give significant consideration to ensure that the peer companies chosen represent a cross-section of the industry, including retail, office and
residential development and management companies. The following companies were included in the compensation peer group based on our most recent review:
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Alexandria Real Estate Equities, Inc.
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Equity Residential
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Apartment Investment & Management Co.
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Federal Realty Investment Trust
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AvalonBay Communities, Inc.
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Kimco Realty Corporation
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Boston Properties, Inc.
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The Macerich Company
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CBL & Associates Properties, Inc.
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SL Green Realty Corp.
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DDR Corp.
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UDR, Inc.
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Duke Realty Corporation
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Vornado Realty Trust
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When benchmarking CEO compensation, the Compensation Committee excludes peer
companies whose pay practices are significantly higher than other peers.
The peer group is identical to the one used in
2015 to gauge executive pay practices for comparable organizations. As of December 31, 2016, total assets for this peer group ranged between $5.4 billion and $21.3 billion, with our total assets of $8.2 billion being between the 25
th
and 50
th
percentiles of the peer group. The equity market capitalization for the peer group as of December 31, 2016 ranged from between $2.0
billion and $24.3 billion, with our market capitalization being below the 25
th
percentile. Our consolidated net revenues of $929 million were slightly below the peer group 25
th
percentile.
Components of the Executive Compensation Program
The primary components of our total rewards strategy within our executive compensation program are shown below. A more detailed
description for each component follows:
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Compensation Component
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Component Objective
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Paid in
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Performance
Linkage
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Base Salary - Direct Compensation
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Provide base pay commensurate with level of responsibility, experience and individual performance
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Cash
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Partially linked
(merit increases
tied to individual
performance)
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Short-Term Incentives - Direct Compensation
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Align pay with achievement of short-term performance goals in support of annual business plan and strategic goals
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Cash
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Strongly linked
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Long-Term Incentives - Direct Compensation
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Align pay with achievement of longer-term strategic goals and stockholder value creation, enhance retention of senior management, and facilitate
stock ownership
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Cash
Performance Shares
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Strongly linked
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Restricted Stock
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Minimally linked
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Benefits & Perquisites - Indirect Compensation
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Provide for health, welfare and retirement needs at a reasonable shared cost
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Health Care
Life and
Disability
Retirement Plans
Perquisites
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Minimally or not
linked
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Base Salary
: Base salary is reflective of each executives level of
responsibility, experience, individual performance and contributions to our overall success. It also impacts annual and long-term incentive award opportunities that are expressed as a percentage of base salary.
Base salaries are targeted competitively consistent with our overall compensation philosophy and may be adjusted for senior
executives and management within certain high cost of living locations (such as New York and California) to reflect geographic pay differentials. Since they are each based in Cleveland, none of our NEOs receives a geographic differential.
In determining base salary levels for our NEOs, other than the CEO, the Compensation Committee considers a number of factors
including:
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Pay practices of comparable real estate organizations;
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Recommendations from our CEO; and
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An assessment of each executives performance and their contributions toward our success.
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The CEOs base salary is determined by examining pay practices at comparable real estate companies
and based on the CEOs overall performance relative to objectives. Annualized base salaries for each NEO as of year-end 2016 are shown below:
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Named Executive Officer
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2016 Fiscal Year
Annualized Base Salary
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David J. LaRue
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$
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750,000
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Robert G. OBrien
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$
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583,000
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James A. Ratner
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$
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500,000
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Ronald A. Ratner
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$
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500,000
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Duane F. Bishop
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$
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500,000
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With the exception of Duane F. Bishop, who does not have an employment agreement with us, the
annualized base salaries for all NEOs shown above were consistent with the terms of their employment agreements. David J. LaRues base salary was increased from $675,000 to $750,000, effective March 1, 2016. Even with this increase,
Mr. LaRues base salary remained slightly below median market values for comparable organizations as reported in Pearl Meyers market pay analysis. Robert G. OBrien also received a 2.9% base salary increase effective
March 1, 2016, from $566,500 to $583,000, consistent with benchmark data. Mr. Bishop received an increase from $425,000 to $500,000 effective January 1, 2016, commensurate with his promotion to Chief Operating Officer of Forest City
Realty Trust, Inc. No salary increases were provided to James A. Ratner or Ronald A. Ratner.
Short-Term
Incentives
: Our NEOs and other eligible senior executives and managers participate in the STIP. The STIPs primary objective is to motivate senior executives and managers to achieve specified business objectives over the short-term that
lead to long-term value creation. Actual awards earned, if any, can be considerably above or below target levels based on our actual performance.
Our CEO, in consultation with other members of the senior management team, recommends a threshold performance level that must
be achieved for any payment to be earned under the STIP. For 2016 two equally-weighted company-wide metrics, OFFO per share and Net Debt to Adjusted EBITDA, were used to determine the award opportunity under the STIP for each of our NEOs except for
Duane F. Bishop. To further enhance his line of sight, 10% of Duane F. Bishops STIP opportunity was based on individual performance which focused on the integration of the former Commercial and Residential business units operations and
the remaining 90% based on the two equally-weighted corporate-wide components. For each performance component, the actual award could range from 0% to 200% of target.
The Compensation Committee selected OFFO per share and Net Debt to Adjusted EBITDA as the STIP metrics since they reflect the
ongoing operating performance of our portfolio and are key indicators of continuing operating results in planning and executing our business strategy.
The calibration schedules used to determine the actual awards under the 2016 STIP are shown below:
Operating FFO per Share
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|
Performance Level
|
|
Corresponding OFFO
per share
|
|
Percent of Target
Achieved
|
|
Percent of Target
Award Earned
|
Below Threshold
|
|
Below $1.20
|
|
Below 90%
|
|
0%
|
Threshold
|
|
$1.20
|
|
90%
|
|
25%
|
Target Range Low
|
|
$1.26
|
|
95%
|
|
80%
|
Target
|
|
$1.33
|
|
100%
|
|
100%
|
Target Range High
|
|
$1.46
|
|
110%
|
|
140%
|
Maximum
|
|
$1.60 and above
|
|
120%
|
|
200%
|
152
Net Debt to Adjusted EBITDA Ratio
|
|
|
|
|
|
|
Performance Level
|
|
Corresponding Net
Debt to Adjusted
EBITDA Ratio
|
|
Percent of Target
Achieved
|
|
Percent of Target
Award Earned
|
Below Threshold
|
|
Above 9.58
|
|
Below 90%
|
|
0%
|
Threshold
|
|
9.58
|
|
90%
|
|
25%
|
Target Range Low
|
|
9.07
|
|
95%
|
|
80%
|
Target
|
|
8.62
|
|
100%
|
|
100%
|
Target Range High
|
|
7.84
|
|
110%
|
|
140%
|
Maximum
|
|
7.18
|
|
120%
|
|
200%
|
Approved actual performance for each of the two company-wide STIP metrics is shown in the
following table:
|
|
|
|
|
|
|
2016 STIP Metric
|
|
Target
|
|
Actual Performance
|
|
Percent of Target
Award Earned Per
Component
|
OFFO per share
(1)
|
|
$1.33
|
|
$1.46
|
|
140.00%
|
Net Debt to Adjusted EBITDA
(2)
|
|
8.62
|
|
8.92
|
|
86.55%
|
(1)
|
OFFO per share, a non-GAAP measure, is calculated by dividing OFFO, as defined, by the fully diluted weighted
average shares outstanding for the year ended December 31, 2016.
|
(2)
|
See reconciliation of Net Debt to Adjusted EBITDA in Annex I.
|
The following table reflects the actual 2016 STIP award earned by each of our NEOs (as a dollar amount and as a percentage of
target), as determined by the Compensation Committee. The table also sets out the target STIP award levels that were established for each NEO:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Named Executive Officer
|
|
2016 STIP
Target Award as
a Percentage of
Base Salary
|
|
|
2016 STIP
Actual Award as
a Percentage of
Target
|
|
|
2016 STIP
Target Award
|
|
|
2016 STIP
Actual Award
Earned
|
|
David J. LaRue
|
|
|
130
|
%
|
|
|
113.3
|
%
|
|
$
|
975,000
|
|
|
$
|
1,104,431
|
|
Robert G. OBrien
|
|
|
100
|
%
|
|
|
113.3
|
%
|
|
$
|
583,000
|
|
|
$
|
660,393
|
|
James A. Ratner
|
|
|
100
|
%
|
|
|
113.3
|
%
|
|
$
|
500,000
|
|
|
$
|
566,375
|
|
Ronald A. Ratner
|
|
|
100
|
%
|
|
|
113.3
|
%
|
|
$
|
500,000
|
|
|
$
|
566,375
|
|
Duane F. Bishop*
|
|
|
100
|
%
|
|
|
114.4
|
%
|
|
$
|
500,000
|
|
|
$
|
572,238
|
|
*
|
Actual 2016 STIP award was determined as follows: 45% OFFO per share; 45% Net Debt to Adjusted EBITDA; and 10%
individual performance relative to agreed upon objectives which focused on the integration of the former Commercial and Residential business units operations. Actual individual performance was 125% of target. The Compensation Committee
approved this rating understanding the individual portion of Duane F. Bishops 2016 STIP payment may not be tax deductible compensation.
|
Long-Term Incentives
: Our long-term incentives align pay with long-term strategic goals and stockholder value creation.
They also enhance our retention of senior executives and managers, and facilitate stock ownership. Our long-term incentives consist primarily of two components which promote a balanced focus on objectives under the strategic plan in support of
long-term value creation:
|
|
|
Equity provided through the use of restricted stock and/or performance shares.
|
153
The following table summarizes the opportunities in effect for performance periods beginning in
2016:
|
|
|
Cash LTIP Award Opportunity
|
|
Equity Grant Opportunity
|
|
|
New performance cycle begins each year
|
|
Annual Performance share
grant opportunity to NEOs which vests based on relative TSR, generally at the end of a three-year performance period
|
|
|
Performance cycle generally runs for three years
|
|
Annual Restricted Stock grant
to promote enhanced ownership stake and improve retention and which vests over a three-year period
|
|
|
Award earned based on actual versus planned performance for cumulative FFO per share and compound annual growth rate in Net Asset Value (NAV)
per Share
|
|
|
In determining award levels for NEOs, the Compensation Committee gives consideration to
competitive market practice, employee responsibility level, and internal equity.
As reflected in the table below, the
targeted value mix of LTIP awards in 2016 for all of our NEOs was weighted 37.5% in the form of a Cash LTIP opportunity, 37.5% for a performance share grant opportunity and 25% for restricted stock. The 2015 target value mix was equally weighted
between all three award vehicles. We believe this increased emphasis on performance-based LTI (with Cash LTIP and Performance shares collectively comprising 75% of the total annual opportunity), provides an appropriate balance and further
demonstrates our commitment to aligning NEO pay with long-term value creation. Performance shares will only be earned if our total stockholder return relative to a broad group of REIT comparators warrants. The Cash LTIP is dependent on attainment of
defined financial goals. Actual awards earned, if any, for these two components can be above or below target levels based on our actual versus planned performance relative to strategic goals and stock price appreciation.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016 Fiscal Year Target Award Equivalents (as Percents of Base Salary)
|
|
Named Executive Officer
|
|
Total Annualized
LTIP Award as a
Percent of Base
Salary
|
|
|
Absolute
Percentage in the
form of
Performance
Shares (vesting
determined at the
end of
the
2016 2018
performance
period)
|
|
|
Absolute
Percentage in the
form of Restricted
Stock
|
|
|
Absolute
Percentage in the
form of Cash LTIP
(payment
determined at the
end of the 2016
2018 performance
period)
|
|
David J. LaRue
|
|
|
375
|
%
|
|
|
140.625
|
%
|
|
|
93.75
|
%
|
|
|
140.625
|
%
|
Robert G. OBrien
|
|
|
200
|
%
|
|
|
75.00
|
%
|
|
|
50.00
|
%
|
|
|
75.00
|
%
|
James A. Ratner
|
|
|
200
|
%
|
|
|
75.00
|
%
|
|
|
50.00
|
%
|
|
|
75.00
|
%
|
Ronald A. Ratner
|
|
|
200
|
%
|
|
|
75.00
|
%
|
|
|
50.00
|
%
|
|
|
75.00
|
%
|
Duane F. Bishop
|
|
|
200
|
%
|
|
|
75.00
|
%
|
|
|
50.00
|
%
|
|
|
75.00
|
%
|
Cash LTIP
The Cash LTIP provides for overlapping performance periods that will begin each year. Prior to 2015, these performance periods
were for up to 48 months to correspond with our Companys then existing strategic planning periods. Effective with performance cycles beginning on or after January 1, 2015, the performance period was changed to a three-year cycle to
correspond with our current strategic planning period. The potential target award for each performance period is calculated using the target award multiplied by the base salary of the participant as of the beginning of the performance period.
154
Cash LTIP Performance Cycles
The following illustrates key attributes of the Cash LTIP performance cycles currently in effect as of January 1, 2017.
Results pertaining to a 47-month cycle ending December 31, 2016 are discussed in further detail in this section. All NEOs are currently eligible to participate in the Cash LTIP.
|
|
|
|
|
|
|
|
|
January 1, 2014 to
December 31, 2017
Performance Cycle*
|
|
January 1, 2015 to
December 31, 2017
Performance Cycle
|
|
January 1, 2016 to
December 31, 2018
Performance Cycle
|
Duration of performance period*
|
|
48 months
|
|
36 months
|
|
36 months
|
|
|
|
|
Award Funding Calculation
|
|
1.5% of excess, if any, of cumulative FFO, as adjusted, over $1 billion, not to exceed $1.75 million
|
|
Cumulative FFO per
share and Net Asset
Value growth relative
to approved targets
|
|
Cumulative FFO per
share and Net Asset
Value growth per
Share relative to
approved targets
|
|
|
|
|
Actual Awards Earned Subject to
|
|
Exercise of negative discretion by Compensation Committee taking other quantitative and/or qualitative factors into account
|
|
Final results relative to
targets and calibrations
approved by the
Compensation
Committee
|
|
Final results relative to
targets and calibrations
approved by the
Compensation
Committee
|
|
|
|
|
Awards Earned (if any) will be paid in
|
|
Early 2018
|
|
Early 2018
|
|
Early 2019
|
*
|
For the 2014 2017 performance cycle, all NEOs with the exception of Duane F. Bishop are covered under
the Executive Long-Term Incentive Plan. Duane F. Bishop is eligible for a Cash LTIP award under the Senior Management Long-Term Incentive Plan and his award will be determined by two equally-weighted performance metrics for this cycle: cumulative
FFO per Share and an internal measure of value creation, Total Return (defined as change in net asset value plus or minus cash generated or used).
|
With the intention of qualifying any potential Cash LTIP payments under the Executive Long-Term Incentive Plan as
performance-based under Section 162(m), the Compensation Committee approved target and/or maximum award opportunities for each performance cycle as shown in the previous table, subject to the Compensation Committees exercise of negative
discretion in determining any final award earned. Any actual amounts earned by each NEO, (with the exception of Duane F. Bishop whose award will be determined by two equally-weighted metrics, cumulative FFO per share and Total Return under the
Senior Management Long-Term Incentive Plan), for the 2014 - 2017 performance cycles will be based on the aforementioned cumulative FFO performance level, and will take into account certain other qualitative and/or quantitative factors as determined
by the Compensation Committee. To further enhance transparency, the Compensation Committee decided that for cycles beginning in 2015, two equally-weighted metrics would be used in lieu of an enabling formula to calculate the Cash LTIP award.
2013 - 2016 Cash LTIP Performance Cycle
The Cash LTIP cycle for the 2013 2016 performance period encompassed a 47 month time frame to reflect our transition to
a calendar year fiscal year beginning in 2014. For the 47-month Cash LTIP performance cycle ended December 31, 2016, the performance metric used was 1.5% of the excess, if any, of cumulative FFO, as adjusted over $1 billion with the award to
any eligible NEO not to exceed $1.75 million. Actual cumulative FFO performance for the 2013 - 2016 performance cycle was $1.164 billion resulting in a maximum potential Cash LTIP award of $1.75 million per eligible NEO, subject to exercise of
negative discretion by the Compensation Committee.
155
Duane F. Bishop was covered under the Senior Management version of the Cash LTIP
for the 2013 2016 performance period. As such his award was determined based on two equally-weighted metrics, cumulative FFO per share and an internal measure of value creation, Total Return (defined as change in net asset value plus or minus
cash generated or used). The calibration schedules for these two metrics under the Senior Management Long-Term Incentive Plan for Duane F. Bishop were as follows:
Cumulative FFO per Share
|
|
|
|
|
|
|
Performance Level
|
|
Corresponding
Cumulative FFO
per share 2013 2016
Performance Cycle
|
|
Percent of Target
Achieved
|
|
Percent of Target
Award Earned
|
Below Threshold
|
|
Below $4.72
|
|
Below 90%
|
|
0%
|
Threshold
|
|
$4.72
|
|
90%
|
|
50%
|
Target
|
|
$5.24
|
|
100%
|
|
100%
|
Maximum
|
|
$6.29
|
|
120%
|
|
200%
|
Total Return
|
|
|
|
|
|
|
Performance Level
|
|
Corresponding Total
Return 2013 2016
Performance Cycle
|
|
Percent of Target
Achieved
|
|
Percent of Target
Award Earned
|
Below Threshold
|
|
Below 6.84%
|
|
Below 90%
|
|
0%
|
Threshold
|
|
6.84%
|
|
90%
|
|
50%
|
Target
|
|
7.60%
|
|
100%
|
|
100%
|
Maximum
|
|
9.12%
|
|
120%
|
|
200%
|
Duane F. Bishops target Cash LTIP award opportunity was equal to 33.3333% of his
$425,000 base salary in 2013 or $141,667. Actual cumulative FFO per share for the performance period was $4.76 versus a target of $5.24, resulting in 53.85% of a target award for this component. Actual Total Return was well below the 90% of target
threshold needed for any payment to be earned resulting in no amount earned for this component. As a result, the Committee approved total payment of a $38,144 Cash LTIP award for Duane Bishop for the 2013 2016 performance period.
The Compensation Committee exercised negative discretion in determining the 2013 - 2016 Cash LTIP awards under the Executive
Long-Term Incentive Plan for David J. LaRue, Robert G. OBrien, James A. Ratner and Ronald A. Ratner as shown below.
|
|
|
|
|
|
|
|
|
Named Executive Officer
|
|
Maximum Cash LTIP Award
earned for 2013 - 2016
Performance Cycle
|
|
|
Actual 2013 - 2016 Cash LTIP
Award as determined by
Compensation Committee
|
|
David J. LaRue
|
|
$
|
1,750,000
|
|
|
$
|
200,000
|
|
Robert G. OBrien
|
|
$
|
1,750,000
|
|
|
$
|
100,000
|
|
James A. Ratner
|
|
$
|
1,750,000
|
|
|
$
|
90,000
|
|
Ronald A.
Ratner
|
|
$
|
1,750,000
|
|
|
$
|
90,000
|
|
In determining the 2013 - 2016 Cash LTIP awards for each of the above NEOs, the Compensation Committee
considered the following:
|
|
|
Annualized benchmark target award levels for each NEOs position;
|
|
|
|
Cumulative FFO per share for the performance period was $4.76, below the targeted level of $5.24, but slightly
above threshold, while a measure of internal value creation, Total Return was well below the threshold required for payment under the Senior Management version of the Cash LTIP; and
|
156
|
|
|
Individual accomplishments for each NEO as outlined in the following table:
|
|
|
|
Named Executive Officer
|
|
Accomplishments
|
|
|
|
David J. LaRue
|
|
Continued execution and advancement of
strategic goals of focusing on core products in core markets, building a sustainable capital structure and operational excellence
|
|
|
Led development of FCRTs new Strategic Plan and presented
for approval to the Board
|
|
|
Focused Capital Allocation while continuing
construction on Atlantic Yards assets and Arizona State Retirement System (ASRS) JV opportunities
|
|
|
Led strategic review of FCRTs Retail Portfolio
businesses
|
|
|
Operated under new REIT rules and executed on
new operating structure
|
|
|
Identified opportunities through Zero Based Budgeting process to
expand operating margins by approximately $60 million
|
|
|
Increased level of shareholder outreach
providing Board with direct feedback on FCRTs market position and investor perceptions.
|
Robert G. OBrien
|
|
Continued execution and advancement of strategic goals of
focusing on core products in core markets, building a sustainable capital structure and operational excellence
|
|
|
Led strategic initiatives that resulted in
major improvement in balance sheet metrics. Improved Net debt to EBITDA ratio to 8.4x
|
|
|
Participated in the Strategic review of FCRTs Retail
Portfolio businesses
|
|
|
Focused on compliance of financial aspects of
REIT conversion
|
|
|
Executed on opportunities identified through Zero Based Budgeting
process to expand operating margins
|
|
|
Revised, expanded and extended the
companys credit facility. Added term loan. Expanded the unencumbered pool of operating assets.
|
James A. Ratner
|
|
Continued execution and advancement of strategic goals of
focusing on core products in core markets, building a sustainable capital structure and operational excellence
|
|
|
Participated in the strategic review of
FCRTs Retail Portfolio businesses
|
|
|
Maintained focus on development exposure while executing on
development and construction operations. Opened 7 projects on budget
|
|
|
Further expanded the relationship with QIC in
terms of properties in the partnership
|
|
|
Led Zero Based Budgeting restructuring efforts of the development
functions
|
|
|
Identified opportunities to reduce development
overhead and expense
|
157
|
|
|
Named Executive Officer
|
|
Accomplishments
|
Ronald A. Ratner
|
|
Continued execution and advancement of
strategic goals of focusing on core products in core markets, building a sustainable capital structure and operational excellence
|
|
|
Participated in the Strategic review of FCRTs Retail
Portfolio businesses
|
|
|
Maintained focus on development exposure while
executing on development and construction operations. Opened 7 projects on budget
|
|
|
Further expanded the relationship with ASRS with additional
development opportunity being added. Fully invested funds allocated to this partnership.
|
|
|
Led Zero Based Budgeting restructuring efforts
of the development functions
|
|
|
Identified opportunities to expand reduced development overhead
and expense
|
|
|
Continued and ongoing success in the
companys multi-year land sales and development at Stapleton
|
Equity
We typically grant equity awards under the LTIP following the release of full year earnings for the prior fiscal year. Equity
awards may be granted to NEOs as well as other senior executives and managers of significant subsidiaries, as determined by the Compensation Committee, based on an evaluation of their duties and overall performance, including current and potential
contributions to our success. We use different award tiers based on recommendations by Pearl Meyer that take into consideration market pay practices to determine the mix of equity opportunities.
The amount of equity granted in 2016 was based on target award opportunities, as disclosed above and as called for under our
LTIP. The number of stock options and restricted shares provided to our outside Directors, and restricted shares and performance shares granted to our NEOs and other senior executives and managers who participate in the LTIP, represented a run rate
(defined as total shares granted divided by total common shares outstanding) of approximately 0.40%. This run rate included an assumed target level performance share grant for participating executives.
Restricted Stock
Each of
our NEOs as well as other senior executives are eligible for restricted stock grants, which are made to recognize performance, enhance retention, and promote long-term stock ownership in conjunction with stock ownership requirements. Restricted
stock will vest over a three-year period as follows:
|
|
|
25% vest on the first anniversary of the date of grant;
|
|
|
|
25% vest on the second anniversary of the date of grant; and
|
|
|
|
50% vest on the third anniversary of the date of grant.
|
Performance Share Grant Opportunity Cycles
Each of our NEOs received performance share grants in 2013, 2014, 2015 and 2016 allowing them to earn shares of our
Class A Common Stock based on our TSR relative to a broad comparator group of REITs included in the NAREIT Index, as determined over a multi-year performance period. Comparator companies include all REITs in the NAREIT Index at both the start
and the end of each applicable performance cycle. TSR is defined as change in stock price over the performance period, plus any dividends paid, for our Class A Common Stock compared to that of comparator companies. TSR calculations for Forest
City and all comparator companies are based on average closing prices for the twenty trading days leading up to the beginning and end of each
158
performance share cycle. Results pertaining to a 47-month cycle ending December 31, 2016 are discussed in further detail in this section. The following illustrates key attributes of three
performance share grant cycles outstanding as of January 1, 2017.
|
|
|
|
|
|
|
|
|
January 1, 2014 to
December 31, 2017
Performance Cycle
|
|
January 1, 2015 to
December 31, 2017
Performance Cycle
|
|
January 1, 2016 to
December 31, 2018
Performance Cycle
|
Duration of performance period
|
|
48 months
|
|
36 months
|
|
36 months
|
|
|
|
|
Performance Share Award earned to be
determined using
|
|
TSR of Forest Citys Class A Common Stock relative to NAREIT Index comparators
|
|
TSR of Forest Citys Class A Common Stock relative to NAREIT Index comparators
|
|
TSR of Forest Citys Class A Common Stock relative to NAREIT Index comparators
|
|
|
|
|
Number of
Performance Shares which can vest
|
|
0% to 200% of Target Amounts based on vesting schedule
|
|
0% to 200% of Target Amounts based on vesting schedule
|
|
0% to 200% of Target Amounts based on vesting schedule
|
|
|
|
|
Vesting
of Performance Shares earned (if any) will occur upon Compensation Committee approval in
|
|
2018
|
|
2018
|
|
2019
|
Beginning with grants in 2015, the performance cycle was reduced to a three-year period to
correspond to our revised strategic planning cycle.
The Compensation Committee believes that the use of relative TSR as
the sole performance metric for determining how many performance shares (if any) vest is appropriate since it effectively aligns the compensation of our senior officers, including NEOs, with stockholder results, recognizing that stockholders have
other real estate company investment opportunities. The Compensation Committee also believes that the use of a relative TSR metric for performance share vesting, coupled with those metrics used in calculating any Cash LTIP award, provides an
appropriate balance between externally and internally focused long-term value creation measures for our LTIP.
The Compensation Committee
approved the use of the following vesting schedule for each of the performance share grants made in 2013 through 2016:
|
|
|
Forest
Citys TSR Relative to
NAREIT Index Comparator Companies
|
|
Percentage of
Target
Performance Shares Earned
|
Below 40
th
Percentile
|
|
0% of target share amount will vest
|
40
th
Percentile
|
|
25% of target share amount will vest
|
50
th
Percentile
|
|
50% of target share amount will vest
|
60
th
Percentile
|
|
100% of target share amount
will vest
|
75
th
Percentile or greater
|
|
200% of target share amount
will vest
|
Under the approved grants, TSR over the performance period must be at the 60
th
percentile versus companies in the NAREIT Index in order to earn a target number of performance shares. The use of the 60
th
percentile target
performance hurdle is consistent with our pay for performance philosophy and our desire to set challenging goals.
As with
the Cash LTIP award opportunity, performance share grants are based on a target percentage of each NEOs base pay. For the 2016 - 2018 performance cycle, the Compensation Committee used the closing
159
price of our Class A Common Stock on the grant date to determine the target number of performance shares which a participating executive could earn. As noted in prior years proxy
statements, the value derived under a Monte Carlo simulation model for accounting expense recognition purposes may differ from the grant date value used to determine the target number of performance shares granted.
The Compensation Committee approved the use of the closing price on the date of grant of $20.94 to determine 2016 grant
levels, to align with intended target award values. The final Monte Carlo simulation for the 2016 grants yielded a $17.27 per share value for expense recognition purposes.
The following table summarizes the differences in value associated with the performance share grant opportunity for the 2016 -
2018 performance period.
|
|
|
|
|
|
|
|
|
|
|
|
|
Named Executive Officer
|
|
Number of Target
Performance Shares
Granted for 2016 -
2018
Performance Period
|
|
|
Calculated Target
Value Based on Grant
Date Stock Price
|
|
|
Calculated
Accounting Value
based on Final Monte
Carlo Simulation and
as reported in
the
Grants of Plan-Based
Awards Table
|
|
David J. LaRue
|
|
|
50,367
|
|
|
$
|
1,054,685
|
|
|
$
|
869,838
|
|
Robert G. OBrien
|
|
|
21,489
|
|
|
$
|
449,980
|
|
|
$
|
371,115
|
|
James A. Ratner
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|
17,908
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|
|
$
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374,994
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|
|
$
|
309,271
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|
Ronald A. Ratner
|
|
|
17,908
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|
$
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374,994
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|
|
$
|
309,271
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|
Duane F. Bishop
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|
|
17,908
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|
|
$
|
374,994
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|
|
$
|
309,271
|
|
2013 - 2016 Performance Share Cycle
For the 47-month performance cycle ending December 31, 2016, the cumulative TSR for Forest City Class A Common Stock
was 21.8%, which resulted in our Class A Common Stock achieving a 16
th
percentile performance ranking relative to companies in the NAREIT Index. Consistent with our Companys pay for
performance philosophy, since the minimum threshold performance required was the 40
th
percentile, no performance shares vested for the 2013 2016 performance period.
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Named Executive Officer
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Target Performance Share
Award for the
2013 - 2016
Performance
Cycle
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Actual Performance Share
Award Earned based on
Relative TSR Results for
the
2013 - 2016
Performance Cycle
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David J. LaRue
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38,751
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0
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Robert G. OBrien
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19,734
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|
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0
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James A. Ratner
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|
17,940
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0
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Ronald A. Ratner
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|
17,940
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0
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Duane F. Bishop
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6,929
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|
0
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Outperformance Plan Award Opportunity
Given our commencement of operating as a REIT in 2016 and the corresponding required organizational transformation, the
Compensation Committee approved a one-time performance share grant for select senior executives, including each of our NEOs, through a special Outperformance Plan (the
Outperformance Plan
) award opportunity. To align this
opportunity directly with stockholder interests, the number of performance shares that will vest, if any, will be based on the absolute annualized TSR of Forest Citys Class A Common Stock from January 1, 2015 through
December 31, 2017 with no payouts for results below a minimum threshold return requirement. TSR calculations will be based on average closing prices of Forest Citys Class A Common Stock for the ten days leading up to the beginning
and end of the three-year performance period. The actual award which can be earned could range from 0% to 300% of the target share amounts.
160
No award will be earned for a three year annualized TSR of 8% or less, with a
target share award being earned for annualized TSR of 10.5%, and a maximum award being earned for annualized TSR of 16% or more. Any award earned is subject to a reduction of up to 25% if the annualized TSR for Forest Citys Class A Common
Stock is less than the annualized TSR of the companies in the NAREIT Index for the same performance period. To further enhance retention, 50% of any earned performance shares will vest at the end of the three-year performance period, with the
remaining 50% vesting after one additional year of continued service.
The target number of performance shares associated with the
Outperformance Plan award opportunity calculated based on a grant date value of $25.31 and associated expense based on a Monte Carlo simulation derived value of $31.63 per share is as follows:
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Named Executive Officer
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|
Number of Target
Outperformance
Award Opportunity
Performance Shares
Granted for 2015 -2017
Performance Period
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|
Calculated Target
Value Based on Grant
Date Price
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|
Calculated Accounting
Value based on Final
Monte Carlo
Simulation
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David J. LaRue
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50,000
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|
$
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1,265,500
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$
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1,581,500
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Robert G. OBrien
|
|
|
40,000
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|
$
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1,012,400
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|
$
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1,265,200
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James A. Ratner
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|
20,000
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|
$
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506,200
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|
$
|
632,600
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Ronald A. Ratner
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|
20,000
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|
|
$
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506,200
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|
$
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632,600
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Duane F. Bishop
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32,000
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|
$
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809,920
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|
$
|
1,012,160
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If actual performance as of December 31, 2016, persisted for the remainder of the
three-year performance cycle, the realizable value of Outperformance Plan performance shares would be $0 for each NEO since our Companys annualized absolute TSR at that time was below the threshold annualized return requirement.
Benefits and Other Perquisites
: Consistent with our pay for performance philosophy, we do not offer our NEOs a large
number of perquisites or supplemental benefits. Our NEOs, as well as other members of senior management, receive customary benefits such as group term life insurance. Likewise, these individuals are eligible to participate in a qualified 401(k)
retirement plan, which provides for an employer matching contribution of up to $3,500 per year. We do not maintain a qualified defined benefit pension plan.
To supplement retirement benefits and enhance retention, all NEOs also participate in an unfunded nonqualified supplemental
retirement plan administered by the Compensation Committee, which historically provided for discretionary annual accruals that only begin to vest after 10 years of service, with full vesting after 15 years of service. Effective with the 2008 fiscal
year, no new participants were admitted into this plan and no additional annual contributions will be made on behalf of NEOs, other senior executives or managers. All participating NEOs are fully vested in their benefits at this time.
Our NEOs are also eligible for a taxable health care subsidy payment. NEOs may use the health care subsidy to purchase health
care coverage under one of our Companys sponsored health care plans available to our associates and to partially defray the costs associated with out-of-pocket health care expenses. The amount of the annual health care subsidy payment for each
of David J. LaRue, Robert G. OBrien and Duane F. Bishop is $30,000. For James A. Ratner and Ronald A. Ratner the annual health care subsidy payment is $25,000. These amounts are not subject to a tax gross-up, nor are they included in each
NEOs base salary. Therefore, these payments are not considered when determining short-term or long-term incentive opportunities for each executive.
With the exception of Duane F. Bishop, we also provide our NEOs with the premium cost associated with a long-term care policy.
Each NEO is also offered a monthly auto allowance for personal use. Certain NEOs also receive reimbursements for club dues or parking allowances. The value of these items is included in the All Other Compensation column of the Summary Compensation
Table included in this proxy statement.
161
Additionally, a death benefit is provided to each of our NEOs, except for
Duane F. Bishop. The benefit is equal to five times the annual salary of each executive at the time of death and is paid to his designated beneficiaries in the form of salary continuation for a period of five years in the event the executive dies
while in our employment. Further information on the value of these benefits is provided in the
Potential Payments upon Termination or Change of Control
section of this proxy statement/prospectus. Effective as of 11:59 p.m.,
Eastern Time, on December 31, 2016, James A. Ratners death benefit obligation is no longer in effect, since he is no longer an employee of the Company.
Additional Executive Compensation Policies
Executive Stock Ownership Requirements Policy
: The Compensation Committee adopted the Executive Stock Ownership Policy
in 2010 to align our compensation programs more closely to stockholder interests. The Executive Stock Ownership Policy was most recently amended in February 2016 and covers our NEOs as well as additional senior executives now subject to the
requirements. Covered executives are required to meet a fixed share requirement which will be recalibrated at least once every three years. The following table lists the revised share requirements under the amended Executive Stock Ownership Policy
for each NEO as of February 2016.
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|
|
|
Named Executive Officer
|
|
Multiple of Base Salary used
to Determine the Initial Fixed
Share Requirement
|
|
Fixed Share Ownership
Requirement
|
David J. LaRue
|
|
6 times
|
|
200,000 shares
|
Robert G. OBrien
|
|
4 times
|
|
100,000 shares
|
James A. Ratner
|
|
4 times
|
|
100,000 shares
|
Ronald A. Ratner
|
|
4 times
|
|
100,000 shares
|
Duane F. Bishop
|
|
4 times
|
|
100,000 shares
|
*
|
The amended fixed share guidelines were based on a 90-day average closing price through December 31, 2015
of $21.50 per share.
|
Covered executives must meet the share ownership requirements under the Executive
Stock Ownership Policy by December 31, 2018. If the executive does not meet the requirements during the first five years of being subject to the guidelines, he/she will be required to hold 50% of net-after-tax shares received from equity grants
until the ownership requirements are met. If a covered executive does not meet the requirements as of December 31, 2018, or if later, five years from the time of first being subject to the guidelines, he/she will be required to hold 100% of net
after-tax shares received from equity grants until the ownership requirements are met. These requirements further enhance the alignment of our senior executives ownership interests with those of our stockholders and simplify administration.
Given his promotion to COO in early 2016 and the substantial ownership requirements associated with his new position, Duane Bishop will have until December 31, 2020 (five years) to meet his 100,000 share ownership requirement.
The Compensation Committee monitors compliance with the ownership requirements on an annual basis. As of December 31,
2016, each of David J. LaRue, Robert G. OBrien, James A. Ratner and Ronald A. Ratner had met his stock ownership requirements.
Clawback Policy
: Since 2011 we have maintained a recoupment policy (the
Clawback Policy
) for
compensation paid to certain executive officers, including our NEOs, who are covered by the Executive Stock Ownership Policy under the following circumstances:
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|
The payment, grant or vesting of such compensation was based on the achievement of financial results that were
subsequently the subject of a restatement of our financial statements filed with the SEC, or the amount of the award was based upon the achievement of metrics which subsequently were determined to have been misstated;
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|
|
|
The Compensation Committee determines, in its sole discretion, exercised in good faith, that the officer
engaged in fraud or misconduct that caused or contributed to the need for the restatement or caused or contributed to the misstatement of the metrics;
|
162
|
|
|
The misstatement was discovered within three years of the filing of the financials; and
|
|
|
|
The Compensation Committee determines, in its sole discretion, that it is in the best interests of our Company
and its stockholders for the officer to repay or forfeit all or any portion of their excess compensation.
|
The Compensation Committee intends to periodically review our existing Clawback Policy and, as appropriate, conform it to the
requirements under the Dodd-Frank Wall Street Reform and Consumer Protection Act after the SEC issues any final guidance on this matter.
Securities Hedging and Pledging Policy:
To further align our policies with best practices in the area of governance,
the Board of Directors in 2013 approved a Securities Hedging and Pledging Policy (
Hedging and Pledging Policy
). The Hedging and Pledging Policy prohibits Directors and executive officers of the Company and its subsidiaries
from:
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|
|
Owning financial instruments or participating in investment strategies that represent a direct hedge of the
economic risk of owning our shares of Class A or Class B Common Stock or any securities that give the holder any rights to acquire any of our Common Stock;
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|
|
Holding a margin account, or otherwise pledging as collateral, any of our securities granted to them as equity
compensation; and
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|
|
Engaging in pledging of our securities except in limited circumstances and upon the prior approval of our
Audit Committee. Under no circumstances will a person subject to the Hedging and Pledging Policy be permitted to pledge our securities unless he or she complies with the minimum ownership level required under the stock ownership guidelines
applicable to such person in effect at both the time of the pledge and on a pro-forma basis after taking the effect of the pledge into account. In determining whether to grant its approval of a pledge, the Audit Committee will take into account
multiple factors it deems relevant in order to determine that the pledge is not significant from a corporate governance standpoint.
|
Employment Agreements
: Effective January 1, 2016, Messrs. LaRue and OBrien entered into new employment
agreements with Forest City Employer, LLC in connection with the merger to facilitate our conversion to REIT status. Each agreement continues for additional periods of one year until termination by the Company or the covered officer pursuant to the
conditions designated in the respective agreement, including by death, disability, by the Company with or without cause, by the executive with or without good reason or upon non-renewal of the then current employment term.
Under the agreements, Messrs. LaRue and OBrien receive initial base salaries, subject to annual adjustments based upon
the performance by the respective officers and the Company, as well as industry standards. They remain eligible to participate in the executive versions of the STIP and the LTIP in accordance with the terms established by our Compensation Committee
from time to time.
Subject to certain limitations contained in the employment agreements, Messrs. LaRue and OBrien
will be eligible for severance payments and benefits upon termination. Following termination, each officer generally will be entitled to:
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|
The earned and unpaid portions of his annual base salary, incentive compensation under the STIP and LTIP for
the last completed performance period prior to termination, and accrued and unused paid-time-off through the date of termination; and
|
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|
Any other amounts or benefits required to be paid, provided or which he is eligible to receive.
|
Also, subject to the conditions set forth in the employment agreements, including the
requirement to release all claims against the Company, following termination due to disability, by the Company without cause or by the
163
executive for good reason, as defined in the employment agreements and summarized below, Messrs. LaRue and OBrien generally shall be entitled to additional severance as more
fully described under the
Other Benefits and Perquisites
portion of the
Potential Payments Upon Termination
section of this proxy statement/prospectus.
Good reason is defined to include: (1) a material reduction in the duties or responsibilities of the
executive (including any change in officer status); (2) a material reduction by the Company of the executives base salary, targeted STIP or LTIP opportunity or total direct compensation opportunity (defined as a reduction of more than 10%
during the terms of the employment agreement); (3) a material change (by more than 50 miles) in the geographic location of the executives principal work location; or (4) a material breach of the agreement by the Company.
Pursuant to the employment agreements, Messrs. LaRue and OBrien each agreed to certain non-solicitation and
non-competition provisions applicable during the terms of their respective employments with the Company and for a two-year period following thereafter. In addition, the employment agreements also contain customary non-disparagement and
confidentiality provisions applicable during and after the respective terms of their employment with the Company.
The
employment agreements, however, do not contain change of control provisions nor do they provide for excessive perquisites or benefits. In addition, the agreements do not provide for tax gross-ups associated with severance payments.
The Compensation Committee approved the employment agreements with Messrs. LaRue and OBrien to improve retention and to
protect our Company in the event an individual executive decides to voluntarily terminate their employment for good reason.
Messrs. LaRue and OBrien are also party to death benefit agreements, which provide that if the executive dies while
employed by the Company, the Company will pay a death benefit to the executives designated beneficiary or estate for a period of five years after the executives death. The benefit will equal the executives annual salary at the time
of death.
James A. Ratner and Ronald A. Ratner also had employment agreements with Forest City Employer, LLC which became
effective January 1, 2016 that provide for a minimum base salary and death benefits (equivalent to those provided to Messrs. LaRue and OBrien) and are renewable for one-year periods unless otherwise terminated. In addition, the agreements
for James A. Ratner and Ronald A. Ratner contain a non-compete provision. James A. Ratners employment agreement with the Company was terminated as of the Transition Effective Time as a result of his resignation as Executive Vice President
Development and assumption of the non-executive Chairman position.
Duane F. Bishop does not have an employment
agreement with us.
Transition of James A. Ratner to Non-Executive Chairman:
Effective as of the Transition
Effective Time, Charles A. Ratner, our former executive Chairman of the Board of Directors, retired. James A. Ratner, our former EVP Development, was appointed non-executive Chairman of the Board of Directors effective as of the Transition
Effective Time. In connection with his appointment, the Compensation Committee approved, and the Company and James A. Ratner entered into, an agreement to extend the vesting period for his unvested restricted stock and stock options to coincide with
his continued service as non-executive Chairman. James A. Ratner would have met the definition of retirement, and under the provisions of our 1994 Stock Plan (the
Stock Plan
), as amended, the Compensation Committee had the
authority to accelerate vesting of these shares due to his resignation. However, given Mr. Ratners continued association with the Company in his new role, both parties felt these shares should continue to vest over time. In recognition of
his 41 plus years of service and the substantial contributions that Mr. Ratner made while employed by our Company, the Compensation Committee also approved a one-time special recognition award to James A. Ratner of $500,000, which was made in
December 2016.
164
Mr. James A. Ratners compensation as non-executive
Chairman is $400,000 annually consisting of $150,000 in the form of a cash retainer and an annual equity grant value of $250,000. For more information on Mr. Ratners compensation as our non-executive Chairman, see the section entitled
Director Compensation
included in this proxy statement/prospectus. In approving these amounts, the Governance Committee considered benchmark data provided by Pearl Meyer pertaining to Non-Executive Chairmen at comparable REITs as
well as within general industry, Mr. Ratners unique expertise and experience which he brings to the role, and that Mr. Ratner is expected to devote significantly more hours annually to his new role than typical non-executive Board
Chairs.
Plan Design as it Pertains to Risk
The Audit and Compensation Committees reviewed the results of a risk assessment at a joint meeting in February 2017. The risk
assessment was conducted by representatives of human resources and senior management in connection with the requirements set forth by the SEC to assess whether our compensation programs, policies and systems encourage inappropriate risk-taking. The
Compensation Committees compensation consultant, Pearl Meyer, was also asked to review the prepared document and provided an independent analysis which concurred overall with managements assessment.
In conducting our analysis, we used materials provided by outside legal counsel and Pearl Meyer. We used a compensation risk
scorecard to evaluate our executive compensation programs, policies and systems relative to a number of risk factors including: pay opportunity; pay mix; performance goals, metrics and targets; external reference to peers and market practices; and
use of appropriate checks and balances. Based on this review, the Audit and Compensation Committees concluded that our overall compensation approaches, practices and systems do not create risks that are reasonably likely to have a material adverse
effect on our Company. In making this determination, the Audit and Compensation Committees considered that our compensation approaches are in line with competitive and best practices, are based on multiple measures tied to appropriate business
results and are structured to encourage a balanced focus on both short-term and long-term performance without encouraging inappropriate risk-taking on the part of participants. Several specific examples of programs and policies designed to
discourage inappropriate risk-taking include the use of incentive award opportunity caps, stock ownership guidelines and share holding requirements, a clawback policy and a securities hedging and pledging policy. The Compensation Committee also
periodically reviews tally sheets to gauge potential realizable values for NEOs under the various executive compensation programs, as well as potential award payouts under various termination of employment scenarios, and compliance with stock
ownership requirements.
Tax & Accounting Implications
Deductibility of Executive Compensation
: Section 162(m) limits the amount of compensation provided to certain
executive officers that publicly-traded companies can deduct to $1.0 million per covered employee unless it qualifies as performance-based (as defined under Section 162(m)). In order to qualify as
performance-based, compensation must be based solely on pre-established objective goals under a stockholder approved plan, with no positive discretion permitted when determining award payouts. The Compensation Committees policy
with respect to Section 162(m) is to consider tax deductibility while also maintaining the flexibility to structure the executive compensation program to support Company and stockholder interests, even if some compensation is not fully tax
deductible. In general and with minimal exceptions, the STIP and the Cash LTIP, and performance share grants, are all intended to qualify as performance-based compensation under Section 162(m), unless the Compensation Committee decides it is
not in the best interests of our company and stockholders. However, the Compensation Committee reserves the right to provide compensation that does not qualify as performance-based under Section 162(m).
165
C
OMPENSATION
C
OMMITTEE
R
EPORT
The Compensation Committee (the Compensation Committee) of the Board of Directors
(the Board) of Forest City Realty Trust, Inc. (Forest City) has reviewed and discussed the Compensation Discussion & Analysis required by Item 402(b) of Regulation S-K with management and, based on such review
and discussion, the Compensation Committee recommended to the Board that the Compensation Discussion & Analysis be included in this proxy statement/prospectus for Forest Citys Annual Meeting.
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Scott S. Cowen (Chairman)
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Arthur F. Anton
|
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Michael P. Esposito, Jr.
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Stan Ross
|
The foregoing Compensation Committee Report shall not be deemed incorporated by reference by any general
statement incorporating by reference this proxy statement/prospectus into any filing under the Securities Act or under the Exchange Act, except to the extent that we specifically incorporate the information by reference, and shall not otherwise be
deemed filed under such Acts.
166
P
OTENTIAL
P
AYMENTS
UPON
T
ERMINATION
OR
C
HANGE
OF
C
ONTROL
The
following discussion outlines the payments that would be provided to each of our NEOs in the event of termination, retirement, death, disability or change of control as of December 31, 2016.
Under our various plans described in the CD&A and below (with the exception of the Elective Deferred Compensation and
Nonqualified Supplemental Retirement Plans), in order to be eligible for payment upon retirement, a NEO must be at least 65 years old and have served the Company or its subsidiaries for five or more years.
Our Stock Plan provides that, in the event of a change of control, the Compensation Committee, in its sole discretion, may
provide for or take such actions, if any, as it deems necessary or desirable with respect to any award that is outstanding as of the date of the change of control. Those actions could include, for example: (i) accelerated vesting, settlement
and/or exercisability of an award, (ii) payment of cash in exchange for the cancellation of an award, (iii) cancellation of underwater option rights and/or appreciation rights without any payment therefor, or (iv) issuance
of substitute awards that substantially preserve the value, rights and benefits of any affected awards.
Short-Term Incentive Plan
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Termination Event
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Named
Executive
Officer
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Retirement
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Voluntary
for Good
Reason
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Involuntary
without
Cause
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Involuntary
with Cause
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Death
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Disability
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Change of
Control
|
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David J. LaRue
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$
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$
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$
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$
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$
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$
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$
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Robert G. OBrien
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$
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$
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$
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$
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$
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$
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$
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James A. Ratner
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$
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$
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$
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$
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$
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$
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$
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Ronald A. Ratner
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$
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$
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$
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$
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$
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$
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$
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Duane F. Bishop
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$
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$
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$
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$
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$
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$
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$
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No additional STIP payment beyond that earned under the Stock Plan for the 2016 performance
period and referenced in the CD&A section of this proxy statement/prospectus would be provided for retirement, voluntary termination for good reason, involuntary termination without cause, involuntary termination with cause, death, disability or
in the event of a change in control on December 31, 2016. Since the performance period end would have coincided with each of the previously listed termination events as of December 31, 2016, no additional payments under the STIP would have
been earned.
Under the terms of their employment agreements, David J. LaRue and Robert G. OBrien would have been
eligible to receive a STIP award upon termination due to disability, involuntary termination without cause or voluntary termination by the executive for good reason, subject to an executed release of claims. Since the STIP payment for
the 2016 performance period would have been earned as of December 31, 2016, no additional amounts would have been provided under this Plan.
Cash-Based Long-Term Incentive Plan (2013 - 2016 Performance Cycle)
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Termination Event
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|
Named
Executive
Officer
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Retirement
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Voluntary
for Good
Reason
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Involuntary
without
Cause
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Involuntary
with Cause
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Death
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Disability
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Change of
Control
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David J. LaRue
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$
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$
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$
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$
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$
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$
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$
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Robert G. OBrien
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$
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$
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$
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$
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$
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$
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$
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James A. Ratner
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$
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$
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$
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$
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$
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$
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$
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Ronald A. Ratner
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$
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$
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$
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$
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$
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$
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$
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Duane F. Bishop
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$
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$
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$
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$
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$
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$
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$
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167
As with the 2016 STIP, no additional payment would be due to any NEO for the 2013
- 2016 Cash LTIP cycle assuming termination for any of the reasons shown above, since these payments would have been already earned irrespective of a termination event on the last day of the performance cycle. The actual amounts earned for this
performance period are included in the CD&A portion of this proxy statement/prospectus.
Under the terms of their
employment agreements, David J. LaRue and Robert G. OBrien would have been eligible to receive a 2013 - 2016 Cash LTIP award upon termination due to disability, involuntary termination without cause or voluntary termination by the executive
for good reason, subject to an executed release of claims. However, since the Cash LTIP payment for the 2013 - 2016 performance period would have been earned as of December 31, 2016, no additional amounts would have been provided
under this Plan for this cycle.
Cash-Based Long-Term Incentive Plan (2014 - 2017 Performance Cycle)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination Event
|
Named Executive
Officer
|
|
Retirement
|
|
|
Voluntary
for Good
Reason
|
|
|
Involuntary
without
Cause
|
|
|
Involuntary
with Cause
|
|
|
Death
|
|
|
Disability
|
|
|
Change of
Control
|
David J.
LaRue
|
|
$
|
|
|
|
$
|
468,666
|
|
|
$
|
468,666
|
|
|
$
|
|
|
|
$
|
540,000
|
|
|
$
|
468,666
|
|
|
At discretion of
Committee
|
Robert G. OBrien
|
|
$
|
|
|
|
$
|
238,673
|
|
|
$
|
238,673
|
|
|
$
|
|
|
|
$
|
275,000
|
|
|
$
|
238,673
|
|
|
At discretion of
Committee
|
James A.
Ratner
|
|
$
|
216,975
|
|
|
$
|
|
|
|
$
|
216,975
|
|
|
$
|
|
|
|
$
|
250,000
|
|
|
$
|
250,000
|
|
|
At discretion of
Committee
|
Ronald A. Ratner
|
|
$
|
216,975
|
|
|
$
|
|
|
|
$
|
216,975
|
|
|
$
|
|
|
|
$
|
250,000
|
|
|
$
|
250,000
|
|
|
At discretion of
Committee
|
Duane F. Bishop
|
|
$
|
|
|
|
$
|
|
|
|
$
|
92,214
|
|
|
$
|
|
|
|
$
|
106,250
|
|
|
$
|
106,250
|
|
|
At discretion of
Committee
|
Cash-Based Long-Term Incentive Plan (2015 - 2017 Performance Cycle)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination Event
|
Named Executive
Officer
|
|
Retirement
|
|
|
Voluntary
for Good
Reason
|
|
|
Involuntary
without
Cause
|
|
|
Involuntary
with Cause
|
|
|
Death
|
|
|
Disability
|
|
|
Change of
Control
|
David J.
LaRue
|
|
$
|
|
|
|
$
|
352,323
|
|
|
$
|
352,323
|
|
|
$
|
|
|
|
$
|
540,000
|
|
|
$
|
352,323
|
|
|
At discretion of
Committee
|
Robert G. OBrien
|
|
$
|
|
|
|
$
|
164,272
|
|
|
$
|
164,272
|
|
|
$
|
|
|
|
$
|
251,778
|
|
|
$
|
164,272
|
|
|
At discretion of
Committee
|
James A.
Ratner
|
|
$
|
144,989
|
|
|
$
|
|
|
|
$
|
144,989
|
|
|
$
|
|
|
|
$
|
222,222
|
|
|
$
|
222,222
|
|
|
At discretion of
Committee
|
Ronald A. Ratner
|
|
$
|
144,989
|
|
|
$
|
|
|
|
$
|
144,989
|
|
|
$
|
|
|
|
$
|
222,222
|
|
|
$
|
222,222
|
|
|
At discretion of
Committee
|
Duane F. Bishop
|
|
$
|
|
|
|
$
|
|
|
|
$
|
61,620
|
|
|
$
|
|
|
|
$
|
94,444
|
|
|
$
|
94,444
|
|
|
At discretion of
Committee
|
168
Cash-Based Long-Term Incentive Plan (2016 - 2018 Performance Cycle)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination Event
|
Named Executive
Officer
|
|
Retirement
|
|
|
Voluntary
for Good
Reason
|
|
|
Involuntary
without
Cause
|
|
|
Involuntary
with Cause
|
|
|
Death
|
|
|
Disability
|
|
|
Change of
Control
|
David J. LaRue
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
351,563
|
|
|
$
|
351,563
|
|
|
At discretion of
Committee
|
Robert G. OBrien
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
141,625
|
|
|
$
|
141,625
|
|
|
At discretion of
Committee
|
James A. Ratner
|
|
$
|
125,000
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
125,000
|
|
|
$
|
125,000
|
|
|
At discretion of
Committee
|
Ronald A. Ratner
|
|
$
|
125,000
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
125,000
|
|
|
$
|
125,000
|
|
|
At discretion of
Committee
|
Duane F. Bishop
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
125,000
|
|
|
$
|
125,000
|
|
|
At discretion of
Committee
|
Under the terms of the LTIP, eligible NEOs would be able to receive a pro-rated Cash LTIP
payment in the event of retirement, death or disability provided the executive had completed at least one year of the performance period. In the event of retirement, a pro-rated payment could be earned based on the actual results of the 2014 - 2017,
the 2015 - 2017 and the 2016 - 2018 performance cycles and determined after the end of each cycle, provided the executive was retirement eligible (age 65 or older and with five or more years of service) as of their termination date. As of
December 31, 2016, only James A. Ratner and Ronald A. Ratner would have met the definition of retirement and would have been eligible for such pro-rated payments. James A. Ratner resigned from active employment on December 31, 2016, and,
under the terms of the LTIP, such resignation qualified as a retirement. As such, James A. Ratner will be eligible for pro-rated payments for each of the three aforementioned cash-based long-term incentive plan cycles shown above based on actual
performance and determined at the end of each cycle. In the event of death or disability as of December 31, 2016, the executive or their estate would have been eligible to receive a pro-rated payment of 36/48
ths
of a full award for the 2014 - 2017 cycle, two-thirds of a full award for the 2015-2017 cycle, and one-third of a full award for the 2016 - 2018 cycle, in each case based on the target level of
performance. The Compensation Committee would retain discretion to reduce the amount of any payment earned.
In the event
of involuntary termination without cause, each NEO would be eligible to receive a pro-rated award at the end of each performance period based on actual performance for that cycle only if at least half of the performance period had elapsed, as would
have been the case with the 2014 - 2017 and the 2015 - 2017 performance cycles. Since less than half of the performance period for the 2016 - 2018 cycle had elapsed as of December 31, 2016, our NEOs would not have been eligible for an award due
to this termination reason. Except as otherwise noted below, for voluntary terminations or involuntary terminations with cause, each NEO would not be eligible to receive a pro-rated award under the terms of the Cash LTIP. In terms of change of
control, no specific payment trigger provisions exist under the Cash LTIP or in any employment agreements we have with our NEOs, but the Compensation Committee retains discretion to award a payment if so inclined.
Under the terms of their employment agreements, David J. LaRue and Robert G. OBrien would be able to receive a Cash LTIP
award based on actual performance if they terminated their employment due to disability, involuntarily without cause or voluntarily by the executive for good reason but only if their termination occurred within the second half of the
performance cycle, subject to an executed release of claims. Since more than half of the 2014 - 2017 and 2015 2017 performance cycles had elapsed by December 31, 2016, David J. LaRue and Robert G. OBrien would be eligible for such
pro-rated awards based on actual performance at the end of each cycle. Since less than half of the performance period for the 2016 - 2018 cycle had elapsed as of December 31, 2016, no payment would have been earned under the employment
agreements. In the event of termination due to disability, the provisions of the Cash LTIP would have superseded those under the employment agreements for each of David J. LaRue and Robert G. OBrien and a pro-rated payment at target could have
been earned for the 2016 - 2018 cycle.
169
As of December 31, 2016 the estimated performance for the 2014 - 2017 cycle
was such that approximately 85% of a target payment would have been earned before pro-ration. For the 2015 - 2017 cycle approximately two-thirds of a target performance was assumed and for the 2016 - 2018 cycle, a target award was assumed.
Equity Awards - Unvested Stock Options Granted 2013 to Present
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination Event
|
Named Executive
Officer
|
|
Retirement
(1)
|
|
|
Voluntary
for Good
Reason
(2)
|
|
|
Involuntary
without
Cause
(2)
|
|
|
Involuntary
with Cause
|
|
|
Death
(3)
|
|
|
Disability
(2)
|
|
|
Change of
Control
|
David J. LaRue
|
|
|
$0, forfeited
|
|
|
$
|
204,579
|
|
|
$
|
204,579
|
|
|
|
$0, forfeited
|
|
|
|
$0, forfeited
|
|
|
$
|
204,579
|
|
|
At discretion of
Committee
|
Robert G. OBrien
|
|
|
$0, forfeited
|
|
|
$
|
104,182
|
|
|
$
|
104,182
|
|
|
|
$0, forfeited
|
|
|
|
$0, forfeited
|
|
|
$
|
104,182
|
|
|
At discretion of
Committee
|
James A. Ratner
|
|
$
|
94,712
|
|
|
|
$0, forfeited
|
|
|
|
$0, forfeited
|
|
|
|
$0, forfeited
|
|
|
$
|
94,712
|
|
|
|
$0, forfeited
|
|
|
At discretion of
Committee
|
Ronald A. Ratner
|
|
$
|
94,712
|
|
|
|
$0, forfeited
|
|
|
|
$0, forfeited
|
|
|
|
$0, forfeited
|
|
|
$
|
94,712
|
|
|
|
$0, forfeited
|
|
|
At discretion of
Committee
|
Duane F. Bishop
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At discretion of
Committee
|
(1)
|
All stock options accelerate vesting upon retirement as defined under the Stock Plan with the consent of the
Compensation Committee. An executive has the remaining term of the option life in which to exercise.
|
(2)
|
Per the terms of the Stock Plan and stock option agreements, all unvested options are forfeited.
Notwithstanding the limitations in the Stock Plan and the stock option agreements, per the terms of the employment agreements for Messrs. LaRue and OBrien, their unvested stock options would vest in the event of disability, involuntary
termination without cause or voluntary termination by the executive for good reason, subject to an executed release of claims. Although neither James A. Ratner nor Ronald A. Ratner would vest in their stock options through a good
reason provision, each would vest in the amounts shown under the Retirement column if they left voluntarily with the consent of the Compensation Committee since each had attained retirement age as of December 31, 2016. Notwithstanding the
amounts shown under the Retirement column above, per mutual agreement, James A. Ratners unvested stock options as of December 31, 2016 will continue to vest in the future subject to the continuation of his role as non-executive Chairman.
|
(3)
|
All stock options accelerate vesting upon death, provided the executive was at least age 65 at time of death.
The executives estate would have the lesser of the remaining term of the option or one year from the date of the executives death in which to exercise the vested options.
|
In terms of stock option awards, we determined the dollar value amounts shown above based on the intrinsic value of the
unvested options using the closing price of our Class A Common Stock as of December 31, 2016.
Under the terms
of the Stock Plan, the stock option agreements and the employment agreements entered into with certain of our NEOs, no options would vest solely upon a change of control. However, as noted earlier in this section, the Compensation Committee would
have discretion to vest shares upon a change of control under the Stock Plan.
Duane F. Bishop currently has no unvested
stock options.
170
Equity Awards - Restricted Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination Event
|
Named Executive
Officer
|
|
Retirement
(1)
|
|
|
Voluntary
for Good
Reason
(2)
|
|
|
Involuntary
without
Cause
(3)
|
|
|
Involuntary
with Cause
(4)
|
|
|
Death
(3)
|
|
|
Disability
(3)
|
|
|
Change of
Control
|
David J. LaRue
|
|
|
$0, forfeited
|
|
|
$
|
1,213,993
|
|
|
$
|
1,213,993
|
|
|
|
$0, forfeited
|
|
|
$
|
1,213,993
|
|
|
$
|
1,213,993
|
|
|
At discretion of
Committee
|
Robert G. OBrien
|
|
|
$0, forfeited
|
|
|
$
|
1,666,012
|
|
|
$
|
1,666,012
|
|
|
|
$0, forfeited
|
|
|
$
|
1,666,012
|
|
|
$
|
1,666,012
|
|
|
At discretion of
Committee
|
James A. Ratner
|
|
$
|
460,418
|
|
|
|
$0, forfeited
|
|
|
$
|
460,418
|
|
|
|
$0, forfeited
|
|
|
$
|
460,418
|
|
|
$
|
460,418
|
|
|
At discretion of
Committee
|
Ronald A. Ratner
|
|
$
|
460,418
|
|
|
|
$0, forfeited
|
|
|
$
|
460,418
|
|
|
|
$0, forfeited
|
|
|
$
|
460,418
|
|
|
$
|
460,418
|
|
|
At discretion of
Committee
|
Duane F.
Bishop
|
|
|
$0, forfeited
|
|
|
|
$0, forfeited
|
|
|
$
|
547,342
|
|
|
|
$0, forfeited
|
|
|
$
|
547,342
|
|
|
$
|
547,342
|
|
|
At discretion of
Committee
|
(1)
|
All previously unvested restricted shares would vest, provided the executive was of retirement age as defined
under the Stock Plan, subject to Compensation Committee approval.
|
(2)
|
Per the terms of the Stock Plan and restricted stock agreements, all unvested restricted shares are
forfeited. Notwithstanding the limitations in the Stock Plan and in the restricted stock agreements, per the terms of the employment agreements for David J. LaRue and Robert G. OBrien, their unvested restricted shares would vest in the event
of termination by the executive for good reason, subject to an executed release of claims. Although neither James A. Ratner nor Ronald A. Ratner would vest in their restricted shares through a good reason provision, each
would vest in the amounts shown under the Retirement column if they left voluntarily with the consent of the Committee since each had attained retirement age as of December 31, 2016. Notwithstanding the amounts shown under the Retirement column
above, per mutual agreement, James A. Ratners unvested restricted stock as of December 31, 2016 will continue to vest in the future subject to the continuation of his role as non-executive Chairman.
|
(3)
|
Per the terms of the restricted stock agreements, all previously unvested restricted shares would vest.
|
(4)
|
Per the terms of the restricted stock agreements, all unvested restricted shares are forfeited.
|
All of our NEOs had unvested restricted stock as of December 31, 2016. The intrinsic value of
unvested restricted stock that would vest in the event of retirement, involuntary termination without cause, voluntary termination for good reason, death, disability or change of control is shown in the previous table.
Equity Awards - Performance Shares (2014 - 2017 Performance Cycle)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination Event
|
Named Executive
Officer
|
|
Retirement
|
|
|
Voluntary
for Good
Reason
|
|
|
Involuntary
without
Cause
|
|
|
Involuntary
with Cause
|
|
|
Death
|
|
|
Disability
|
|
|
Change of
Control
|
David J. LaRue
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
600,817
|
|
|
$
|
|
|
|
At discretion of
Committee
|
Robert G. OBrien
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
305,973
|
|
|
$
|
|
|
|
At discretion of
Committee
|
James A. Ratner
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
278,151
|
|
|
$
|
278,151
|
|
|
At discretion of
Committee
|
Ronald A. Ratner
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
278,151
|
|
|
$
|
278,151
|
|
|
At discretion of
Committee
|
Duane F.
Bishop
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
129,083
|
|
|
$
|
129,083
|
|
|
At discretion of
Committee
|
171
Equity Awards - Performance Shares (2015 - 2017 Performance Cycle)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination Event
|
Named Executive
Officer
|
|
Retirement
|
|
|
Voluntary
for Good
Reason
|
|
|
Involuntary
without
Cause
|
|
|
Involuntary
with Cause
|
|
|
Death
|
|
|
Disability
|
|
|
Change of
Control
|
David J. LaRue
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
457,084
|
|
|
$
|
|
|
|
At discretion of
Committee
|
Robert G. OBrien
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
213,381
|
|
|
$
|
|
|
|
At discretion of
Committee
|
James A. Ratner
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
188,102
|
|
|
$
|
188,102
|
|
|
At discretion of
Committee
|
Ronald A. Ratner
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
188,102
|
|
|
$
|
188,102
|
|
|
At discretion of
Committee
|
Duane F.
Bishop
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
82,318
|
|
|
$
|
82,318
|
|
|
At discretion of
Committee
|
Equity Awards - Performance Shares (2016 - 2018 Performance Cycle)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination Event
|
Named Executive
Officer
|
|
Retirement
|
|
|
Voluntary
for Good
Reason
|
|
|
Involuntary
without
Cause
|
|
|
Involuntary
with Cause
|
|
|
Death
|
|
|
Disability
|
|
|
Change of
Control
|
David J. LaRue
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
349,883
|
|
|
$
|
349,883
|
|
|
At discretion of
Committee
|
Robert G. OBrien
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
149,277
|
|
|
$
|
149,277
|
|
|
At discretion of
Committee
|
James A. Ratner
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
124,394
|
|
|
$
|
124,394
|
|
|
At discretion of
Committee
|
Ronald A. Ratner
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
124,394
|
|
|
$
|
124,394
|
|
|
At discretion of
Committee
|
Duane F.
Bishop
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
124,394
|
|
|
$
|
124,394
|
|
|
At discretion of
Committee
|
Under the terms of the performance share grants, eligible NEOs would be able to receive a
pro-rated performance share award in the event of retirement, death or disability, provided the executive had completed at least one year of the performance period. In the event of retirement, a pro-rated award could be earned based on the actual
results of the 2014 - 2017, the 2015 - 2017 and the 2016 - 2018 performance cycles and determined after the end of each cycle, provided the executive was retirement eligible (age 65 or older and with five or more years of service) as of their
termination date. As of December 31, 2016, only James A. Ratner and Ronald A. Ratner had met the definition of retirement and would be eligible for such pro-rated payments. However, actual performance for each of these three cycles was below
threshold, indicating no shares would have vested. In the event of death or disability as of December 31, 2016, the executive or their estate would be eligible to receive a pro-rated award of
36/48
ths
of a target share award for the 2014 - 2017 cycle, two-thirds of a target share award for the 2015 - 2017 cycle, and one-third of a target share award for the 2016 - 2018 cycle. The
Compensation Committee would retain discretion to reduce the amount of any award earned.
In the event of involuntary
termination without cause, each NEO would be eligible to receive a pro-rated share award at the end of each performance period based on actual performance for that cycle only if at least half of the performance period had elapsed, as was the case
with the 2014 - 2017 and 2015 - 2017 performance cycles. Since less than half of the performance period for the 2016 - 2018 cycle had elapsed as of December 31, 2016, our NEOs would not have been eligible for an award due to this termination
reason. Except as otherwise noted below, for voluntary terminations or involuntary terminations with cause, none of the NEOs would have been eligible to receive a pro-rated performance share award. In terms of change of control, no specific payment
172
trigger provisions exist under the Stock Plan or performance share agreements or in any employment agreements we have with our NEOs, but the Compensation Committee retains discretion to award a
payment if so inclined.
Under the terms of their employment agreements, David J. LaRue and Robert G. OBrien would
be able to vest in a performance share award based on actual performance if they terminated their employment due to disability, involuntarily without cause or voluntarily by the executive for good reason but only if their termination
occurred within the second half of the performance cycle, subject to an executed release of claims. Since more than half of the 2014 2017 and the 2015 2017 performance cycles had elapsed by December 31, 2016, David J. LaRue and
Robert G. OBrien would have been eligible for such pro-rated awards based on actual performance at the end of the cycle. Since for the 2016 - 2018 performance cycle more than half of the cycle had not elapsed as December 31, 2016, no
payment would have been earned under the employment agreements. In the event of termination due to disability, the provisions pertaining to the performance share grants would have superseded those under the employment agreements for each of David J.
LaRue and Robert G. OBrien and a pro-rated award at target could have been earned for the 2016 2018 cycle.
As of December 31, 2016 before pro-rations, estimated performance for each of the 2014 2017, the 2015 2017
and the 2016 2018 cycles was such that 0% of a target share award would have been earned for each cycle, since a threshold level of performance would not have been achieved.
Outperformance Plan Equity Award Opportunity - Performance Shares (2015 - 2017 Performance Cycle)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination Event
|
Named Executive
Officer
|
|
Retirement
|
|
|
Voluntary
for Good
Reason
|
|
|
Involuntary
without
Cause
|
|
|
Involuntary
with Cause
|
|
|
Death
|
|
|
Disability
|
|
|
Change of
Control
|
David J. LaRue
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
694,660
|
|
|
$
|
|
|
|
At discretion of
Committee
|
Robert G. OBrien
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
555,719
|
|
|
$
|
|
|
|
At discretion of
Committee
|
James A. Ratner
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
277,860
|
|
|
$
|
277,860
|
|
|
At discretion of
Committee
|
Ronald A. Ratner
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
277,860
|
|
|
$
|
277,860
|
|
|
At discretion of
Committee
|
Duane F.
Bishop
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
444,580
|
|
|
$
|
444,580
|
|
|
At discretion of
Committee
|
As noted earlier in the CD&A, each of our NEOs is eligible for a special one-time
Outperformance Plan award opportunity for the 2015 2017 performance cycle consisting of a performance share grant. Under the terms of the Outperformance Plan performance share grants, eligible NEOs would be able to receive a pro-rated
performance share award in the event of retirement, death or disability, provided the executive had completed at least one year of the performance period. In the event of retirement, a pro-rated award could be earned based on the actual results of
the performance cycle and determined after the end of each cycle, provided the executive was retirement eligible (age 65 or older and with five or more years of service) as of their termination date. As of December 31, 2016, only James
A. Ratner and Ronald A. Ratner had met the definition of retirement and would be eligible for such pro-rated payments. However, actual performance for the Outperformance Plan award cycle was below threshold as of December 31, 2016,
indicating no shares would have vested. In the event of death or disability as of December 31, 2016, the executive or their estate would be eligible to receive a pro-rated award of 24/36ths of a target number of performance shares. The
Compensation Committee would retain discretion to reduce the amount of any award earned.
In the event of involuntary
termination without cause, each NEO would be eligible to receive a pro-rated share award at the end of each performance period based on actual performance for that cycle only if at least half of the performance period had elapsed, as was the case as
of December 31, 2016. However, actual performance as of fiscal year-end 2016 was such that no payment would have been earned. Except as otherwise noted below, for voluntary terminations or involuntary terminations with cause, none of the NEOs
would have been eligible to receive a pro-rated performance share award. In terms of change of control, no specific payment trigger
173
provisions exist under the Stock Plan or performance share agreements or in any employment agreements we have with our NEOs, but the Compensation Committee retains discretion to award a payment
if so inclined.
Under the terms of their employment agreements, David J. LaRue and Robert G. OBrien would be able
to vest in a performance share award based on actual performance if they terminated their employment due to disability, involuntarily without cause or voluntarily by the executive for good reason if their termination occurred within the
second half of the performance cycle, subject to an executed release of claims. As of December 31, 2016, David J. LaRue and Robert G. OBrien would have been eligible for such pro-rated awards based on actual performance at the end of the
cycle. In the event of termination due to disability, the provisions under the employment agreements for each of David J. LaRue and Robert G. OBrien would govern and a pro-rated award using actual performance through December 31, 2016
would have been used to calculate the amount earned. Since actual performance was below the threshold required for payment, no share awards would have been earned for involuntary termination without cause and no share awards would have vested for
David J. LaRue or Robert G. OBrien due to voluntary termination for good reason or due to disability.
Elective Deferred Compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination Event
|
|
Named Executive
Officer
|
|
Retirement
|
|
|
Voluntary
|
|
|
Involuntary
without
Cause
|
|
|
Involuntary
with Cause
|
|
|
Death
(1)
|
|
|
Disability
|
|
|
Change of
Control
|
|
David J. LaRue
|
|
$
|
653,270
|
|
|
$
|
653,270
|
|
|
$
|
653,270
|
|
|
$
|
653,270
|
|
|
$
|
653,270
|
|
|
$
|
653,270
|
|
|
$
|
653,270
|
|
Robert G. OBrien
|
|
$
|
576,780
|
|
|
$
|
576,780
|
|
|
$
|
576,780
|
|
|
$
|
576,780
|
|
|
$
|
576,780
|
|
|
$
|
576,780
|
|
|
$
|
576,780
|
|
James A. Ratner
|
|
$
|
376,499
|
|
|
$
|
376,499
|
|
|
$
|
376,499
|
|
|
$
|
376,499
|
|
|
$
|
376,499
|
|
|
$
|
376,499
|
|
|
$
|
376,499
|
|
Ronald A. Ratner
|
|
$
|
1,314,760
|
|
|
$
|
1,314,760
|
|
|
$
|
1,314,760
|
|
|
$
|
1,314,760
|
|
|
$
|
1,314,760
|
|
|
$
|
1.314,760
|
|
|
$
|
1,314,760
|
|
Duane F.
Bishop
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
In the event of retirement, voluntary termination, involuntary termination with or without cause, death, disability or change
of control, each of the participating NEOs, or their beneficiaries, would be eligible to receive their nonqualified deferred compensation balances, which include their elective deferrals plus any aggregate earnings, as indicated in the table above.
In all circumstances, payments of elective deferrals will be paid in accordance with each NEOs election.
Nonqualified Supplemental Retirement
Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination Event
|
|
Named Executive
Officer
|
|
Retirement
(1)
|
|
|
Voluntary
(1)
|
|
|
Involuntary
without
Cause
(1)
|
|
|
Involuntary
with Cause
(2)
|
|
Death
(3)
|
|
|
Disability
(1)
|
|
|
Change of
Control
|
|
David J. LaRue
|
|
$
|
182,380
|
|
|
$
|
182,380
|
|
|
$
|
182,380
|
|
|
At discretion
of Committee
|
|
$
|
182,380
|
|
|
$
|
182,380
|
|
|
$
|
|
|
Robert G. OBrien
|
|
$
|
182,380
|
|
|
$
|
182,380
|
|
|
$
|
182,380
|
|
|
At discretion
of Committee
|
|
$
|
182,380
|
|
|
$
|
182,380
|
|
|
$
|
|
|
James A. Ratner
|
|
$
|
550,653
|
|
|
$
|
550,653
|
|
|
$
|
550,653
|
|
|
At discretion
of Committee
|
|
$
|
550,653
|
|
|
$
|
550,653
|
|
|
$
|
|
|
Ronald A. Ratner
|
|
$
|
549,143
|
|
|
$
|
549,143
|
|
|
$
|
549,143
|
|
|
At discretion
of Committee
|
|
$
|
549,143
|
|
|
$
|
549,143
|
|
|
$
|
|
|
Duane F.
Bishop
|
|
$
|
61,143
|
|
|
$
|
61,143
|
|
|
$
|
61,143
|
|
|
At discretion
of Committee
|
|
$
|
61,143
|
|
|
$
|
61,143
|
|
|
$
|
|
|
(2)
|
Paid at the discretion of the Compensation Committee.
|
(3)
|
Paid to estate if vested.
|
174
Nonqualified Supplemental Retirement Plan benefit payments would typically be
made over a ten-year period. In the event of death, payment would be made in the form of a lump-sum. In case of an involuntary termination with cause, all or a portion of the supplemental retirement benefit may be forfeited at the discretion of the
Compensation Committee. All NEOs had vested in this benefit as of December 31, 2016 and would be eligible to receive the payments shown. However, David J. LaRue, Robert G. OBrien and Duane F. Bishop each were under age 60 as of this date,
and hence do not qualify for commencement of any payments under the plan at this time.
Death Benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination Event
|
|
Named Executive
Officer
|
|
Retirement
(1)
|
|
|
Voluntary
(1)
|
|
|
Involuntary
without
Cause
(1)
|
|
|
Involuntary
with
Cause
(1)
|
|
|
Death
(2)
|
|
|
Disability
(1)
|
|
|
Change of
Control
(3)
|
|
David J. LaRue
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3,750,000
|
|
|
$
|
|
|
|
$
|
|
|
Robert G. OBrien
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,915,000
|
|
|
$
|
|
|
|
$
|
|
|
James A. Ratner
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,500,000
|
|
|
$
|
|
|
|
$
|
|
|
Ronald A. Ratner
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,500,000
|
|
|
$
|
|
|
|
$
|
|
|
Duane F. Bishop
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
(2)
|
Equivalent to five year salary continuation paid to estate in the event of death while actively employed by
the Company. Since James A. Ratner resigned on December 31, 2016, this benefit will no longer be in effect as of January 1, 2017.
|
In the event of death while employed by the Company, the estates of each of our NEOs, with the exception of Duane F. Bishop,
would be able to receive a death benefit equal to five years worth of salary continuation as shown in the above table.
Other Benefits and
Perquisites
The Company maintains a severance plan with salary continuation benefits calculated based on years of
service. The amounts shown in the following table for James A. Ratner, Ronald A. Ratner and Duane F. Bishop were calculated based on each NEOs tenure with our Company as of December 31, 2016. Under the severance plan, salary continuation
would only be paid for involuntary termination without cause.
In lieu of the severance benefits provided under the
severance plan, per the terms of their employment agreements, David J. LaRue and Robert G. OBrien would be entitled to severance in the event of termination due to disability, involuntary termination without cause, or voluntary termination by
the executive for good reason. Under these termination scenarios and subject to the execution of a release of claims, Messrs. LaRue and OBrien would be eligible to receive the amounts shown in the table which follows. The
employment agreements do not provide for tax gross-ups associated with severance payments.
175
The amounts shown in the following table reflect the severance each NEO would be
entitled to in the event of a termination on December 31, 2016.
Severance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination Event
|
|
Named
Executive
Officer
|
|
Retirement
(1)
|
|
|
Voluntary
for Good
Reason
(1)
|
|
|
Involuntary
without
Cause
(1)(2)
|
|
|
Involuntary
with Cause
|
|
|
Death
|
|
|
Disability
(1)
|
|
|
Change of
Control
|
|
David J. LaRue
|
|
$
|
|
|
|
$
|
3,792,767
|
|
|
$
|
3,792,767
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3,792,767
|
|
|
$
|
|
|
Robert G. OBrien
|
|
$
|
|
|
|
$
|
2,585,487
|
|
|
$
|
2,585,487
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,585,487
|
|
|
$
|
|
|
James A. Ratner
|
|
$
|
|
|
|
$
|
|
|
|
$
|
807,692
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Ronald A. Ratner
|
|
$
|
|
|
|
$
|
|
|
|
$
|
826,923
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Duane F. Bishop
|
|
$
|
|
|
|
$
|
|
|
|
$
|
557,692
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
(1)
|
Per their employment agreements, the severance amounts shown for David J. LaRue and Robert G. OBrien
include the following:
|
|
|
|
|
|
|
|
|
|
Employment Agreement Provision
|
|
David J. LaRue
|
|
|
Robert G. OBrien
|
|
Two Times Base Salary
|
|
$
|
1,500,000
|
|
|
$
|
1,166,000
|
|
Two times Average of Prior three years STIP
|
|
$
|
2,225,213
|
|
|
$
|
1,351,688
|
|
Two times an amount equal to 12 monthly medical and dental COBRA premiums and long-term care premiums based on the
level of coverage in effect immediately prior to the date of termination.
|
|
$
|
67,554
|
|
|
$
|
67,799
|
|
(1)
|
The severance amounts shown for Messrs. LaRue and OBrien do not include the value of accelerated
restricted stock/performance shares or stock options as of December 31, 2016 on the basis of terminations resulting from disability, involuntarily without cause or voluntarily by the executive for good reason. Instead, these
amounts, if any, are included in the
Equity Awards - Unvested Stock Options Granted 2013 to 2016
,
Equity Awards Performance Shares
, and
Equity Awards Restricted Stock
tables of
this
Potential Payments Upon Termination or Change of Control
section of the proxy statement/prospectus. Similarly, the value of any 2016 STIP or 2013 - 2016 Cash LTIP amounts payable to Messrs. LaRue and OBrien resulting
from their employment agreements is shown in the CD&A portion of this proxy statement/prospectus. Any amounts attributable to the 2014 - 2017, the 2015 - 2017 and the 2016 - 2018 Cash LTIP cycles are included in the
Cash-Based Long-Term
Incentive Plan
tables of this
Potential Payments Upon Termination or Change of Control
section of this proxy statement/prospectus.
|
(2)
|
Per the terms of the severance plan for our associates, the severance amounts shown for James A. Ratner,
Ronald A. Ratner and Duane F. Bishop are calculated on the basis of years of service with the Company.
|
Payment of premiums associated with long-term care insurance would cease upon termination, retirement or death for James A.
Ratner and Ronald A. Ratner. However, the executive and/or his surviving dependents could elect to continue coverage at their own expense. Continuation of medical, dental and vision coverage under COBRA would be available for a period of up to 18
months for all eligible associates including our NEOs.
176
Summary of All Potential Payments upon Termination
The following table summarizes all payments to NEOs that we would have made for various termination events as of
December 31, 2016. As noted previously, certain of these payments would have been earned by our executives as part of the completion of the performance period. These amounts are included in the totals below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination Event
|
|
Name
|
|
Retirement
|
|
|
Voluntary
for Good
Reason
|
|
|
Involuntary
without
Cause
|
|
|
Involuntary
with Cause
|
|
|
Death
|
|
|
Disability
|
|
|
Change of
Control
|
|
David J. LaRue
|
|
$
|
835,650
|
|
|
$
|
6,867,978
|
|
|
$
|
6,867,978
|
|
|
$
|
653,270
|
|
|
$
|
9,333,650
|
|
|
$
|
7,569,424
|
|
|
$
|
653,270
|
|
Robert G. OBrien
|
|
$
|
759,160
|
|
|
$
|
5,517,786
|
|
|
$
|
5,517,786
|
|
|
$
|
576,780
|
|
|
$
|
7,232,925
|
|
|
$
|
5,808,688
|
|
|
$
|
576,780
|
|
James A. Ratner
|
|
$
|
1,969,246
|
|
|
$
|
927,152
|
|
|
$
|
2,557,226
|
|
|
$
|
376,499
|
|
|
$
|
5,448,011
|
|
|
$
|
2,853,299
|
|
|
$
|
376,499
|
|
Ronald A. Ratner
|
|
$
|
2,905,997
|
|
|
$
|
1,863,903
|
|
|
$
|
3,513,208
|
|
|
$
|
1,314,760
|
|
|
$
|
6,384,762
|
|
|
$
|
3,790,050
|
|
|
$
|
1,314,760
|
|
Duane F. Bishop
|
|
$
|
61,143
|
|
|
$
|
61,143
|
|
|
$
|
1,320,011
|
|
|
$
|
|
|
|
$
|
1,714,554
|
|
|
$
|
1,714,554
|
|
|
$
|
|
|
177
E
XECUTIVE
C
OMPENSATION
T
ABLES
The following tables present compensation information for our Principal Executive Officer
(PEO), Principal Financial Officer (PFO) and the three other most highly compensated executive officers (collectively, our NEOs).
Summary Compensation Table
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name and Principal
Position
|
|
Year
|
|
|
Salary
($)
|
|
|
Bonus
($)
|
|
|
Stock
Awards
($)(2)
|
|
|
Option
Awards
($)(3)
|
|
|
Non-Equity
Incentive Plan
Compensation
($)(4)
|
|
|
Change
in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings
($)(5)
|
|
|
All
Other
Compensation
($)(6)
|
|
|
Total
($)
|
|
|
|
|
|
|
|
Annual
|
|
|
Long-Term
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David J. LaRue
President and Chief Executive Officer (PEO)
|
|
|
2016
2015
2014
|
|
|
$
$
$
|
735,577
675,000
600,000
|
|
|
$
$
$
|
450,000
|
|
|
$
$
$
|
1,572,961
3,478,514
700,779
|
|
|
$
$
$
|
719,989
|
|
|
$
$
$
|
1,104,431
1,033,388
1,200,000
|
|
|
$
$
$
|
200,000
375,000
|
|
|
$
$
$
|
12,828
10,710
7,946
|
|
|
$
$
$
|
55,499
54,799
52,412
|
|
|
$
$
$
|
3,681,296
5,627,411
3,731,126
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert G. OBrien Executive Vice President and Chief Financial Officer (PFO)
|
|
|
2016
2015
2014
|
|
|
$
$
$
|
580,480
563,327
550,000
|
|
|
$
$
$
|
412,500
|
|
|
$
$
$
|
671,101
2,574,638
781,854
|
|
|
$
$
$
|
366,662
|
|
|
$
$
$
|
660,393
667,139
700,000
|
|
|
$
$
$
|
100,000
190,000
|
|
|
$
$
$
|
11,647
9,725
7,214
|
|
|
$
$
$
|
55,621
55,501
53,264
|
|
|
$
$
$
|
2,079,242
4,060,330
2,871,494
|
|
|
|
|
|
|
|
|
|
|
|
|
James A. Ratner
Executive Vice President
|
|
|
2016
2015
2014
|
|
|
$
$
$
|
500,000
500,000
500,000
|
|
|
$
$
$
|
500,000
375,000
|
|
|
$
$
$
|
559,253
1,413,259
324,421
|
|
|
$
$
$
|
333,324
|
|
|
$
$
$
|
566,375
588,825
550,000
|
|
|
$
$
$
|
90,000
155,000
|
|
|
$
$
$
|
14,102
11,777
8,715
|
|
|
$
$
$
|
49,719
52,112
51,862
|
|
|
$
$
$
|
2,279,449
2,720,973
2,143,322
|
|
|
|
|
|
|
|
|
|
|
|
|
Ronald A. Ratner
Executive Vice President
|
|
|
2016
2015
2014
|
|
|
$
$
$
|
500,000
500,000
500,000
|
|
|
$
$
$
|
375,000
|
|
|
$
$
$
|
559,253
1,413,259
324,421
|
|
|
$
$
$
|
333,324
|
|
|
$
$
$
|
566,375
588,825
575,000
|
|
|
$
$
$
|
90,000
155,000
|
|
|
$
$
$
|
28,560
23,846
17,684
|
|
|
$
$
$
|
52,163
52,163
48,842
|
|
|
$
$
$
|
1,796,351
2,733,093
2,174,271
|
|
|
|
|
|
|
|
|
|
|
|
|
Duane F. Bishop
Executive Vice President and Chief Operating Officer (POO)
(1)
|
|
|
2016
|
|
|
$
|
497,116
|
|
|
$
|
|
|
|
$
|
559,253
|
|
|
$
|
|
|
|
$
|
572,238
|
|
|
$
|
38,144
|
|
|
$
|
920
|
|
|
$
|
50,642
|
|
|
$
|
1,718,313
|
|
(1)
|
Duane F. Bishop was not a Named Executive Officer in 2014 and 2015.
|
(2)
|
Represents the aggregate grant-date fair value of restricted stock awards and performance shares computed in
accordance with accounting guidance for share-based payments. The grant-date fair value of restricted stock awards is equal to the closing price of the Class A Common Stock on the date of grant. The grant-date fair value of performance shares,
which have a market condition, is based on a Monte Carlo simulation. The amounts in this column for 2016 reflect the aggregate grant-date fair value of restricted stock awards granted to: David J. LaRue - $703,123; Robert G. OBrien - $299,986;
James A. Ratner $249,982; Ronald A. Ratner - $249,982; and Duane F. Bishop - $249,982; and the aggregate grant-date fair value of performance shares granted to: David J. LaRue - $869,838; Robert G. OBrien - $371,115; James A. Ratner -
$309,271; Ronald A. Ratner - $309,271; and Duane F. Bishop - $309,271. At the maximum number of shares achievable, the aggregate grant-date fair value of the performance shares granted in 2016 would have been: David J. LaRue - $1,739,676; Robert G.
OBrien - $742,230; James A. Ratner - $618,542; Ronald A. Ratner - $618,542; and Duane F. Bishop - $618,542.
|
(3)
|
Represents the aggregate grant-date fair value of stock options computed in accordance with accounting guidance
for share-based payments. The fair value of stock options is estimated using the Black-Scholes option pricing model. The assumptions used in the fair value calculations are described in Note Q, Stock-Based Compensation, to our
consolidated financial statements for the year ended December 31, 2016, which are included in our Annual Report on Form 10-K, filed with the SEC.
|
(4)
|
Represents the cash awards earned during the year shown under our STIP and LTIP by the NEO. The awards are paid
in the following year. The STIP and LTIP programs are discussed in greater detail in the CD&A section of this proxy statement.
|
(5)
|
Represents the amount of above-market earnings on the NEOs nonqualified deferred compensation balances
which are reported in the Nonqualified Deferred Compensation table included in this section of the proxy statement. The earnings credited to each NEOs nonqualified deferred compensation accounts were earned at the same rates as all other
participants in the same plans. The amount of above-market earnings was computed to be the amount by which the actual earnings exceeded what the earnings would have been had we used 120% times the Federal Long-Term Rates published by the Internal
Revenue Service in accordance with Section 1274(d) of the Internal Revenue Code.
|
178
(6)
|
The detail of All Other Compensation is shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other Compensation
|
|
David J.
LaRue
($)
|
|
|
Robert G.
OBrien
($)
|
|
|
James A.
Ratner
($)
|
|
|
Ronald A.
Ratner
($)
|
|
|
Duane F.
Bishop
($)
|
|
Matching
contribution to 401(k) plan
|
|
$
|
3,500
|
|
|
$
|
3,500
|
|
|
$
|
3,500
|
|
|
$
|
3,500
|
|
|
$
|
3,500
|
|
Imputed
income of group term life insurance
|
|
$
|
2,322
|
|
|
$
|
2,322
|
|
|
$
|
4,944
|
|
|
$
|
4,953
|
|
|
$
|
1,242
|
|
Auto
allowance
|
|
$
|
12,960
|
|
|
$
|
12,960
|
|
|
$
|
12,960
|
|
|
$
|
12,960
|
|
|
$
|
12,960
|
|
Executive
health subsidy
|
|
$
|
30,000
|
|
|
$
|
30,000
|
|
|
$
|
25,000
|
|
|
$
|
25,000
|
|
|
$
|
30,000
|
|
Long-term
care insurance premiums
|
|
$
|
3,777
|
|
|
$
|
3,899
|
|
|
$
|
3,315
|
|
|
$
|
5,750
|
|
|
$
|
|
|
Club
dues
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Parking allowance
|
|
$
|
2,940
|
|
|
$
|
2,940
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,940
|
|
Total
|
|
$
|
55,499
|
|
|
$
|
55,621
|
|
|
$
|
49,719
|
|
|
$
|
52,163
|
|
|
$
|
50,642
|
|
Our employment agreement with Ronald A. Ratner, effective January 1, 2016, provides for
annual salary of $500,000. This agreement is automatically renewable for one-year terms unless otherwise terminated and provide that upon the death of such executive while in the employ of the Company, his beneficiary would receive an annual death
benefit for five years equal to his annual base salary at time of death.
Prior to his resignation, effective at 11:59
p.m., Eastern Time, on December 31, 2016, to become non-executive Chairman of our Board, we had an employment agreement with James A. Ratner, effective January 1, 2016, which provided for the same salary, automatic renewal and death
benefit terms as the employment agreement with Ronald A. Ratner. Upon his resignation, the employment agreement with James A. Ratner was terminated.
Our employment agreements with David J. LaRue and Robert G. OBrien, effective January 1, 2016, are automatically
renewable for one-year terms unless otherwise terminated. The agreements provide for an annual base salary of at least $675,000 for David J. LaRue and at least $566,500 for Robert G. OBrien, subject to adjustments at the discretion of the
Compensation Committee. In 2016, the Compensation Committee adjusted the base salary of David J. LaRue to $750,000, effective February 28, 2016, and the base salary of Robert G. OBrien to $583,000, effective February 28, 2016. Both
David J. LaRue and Robert G. OBrien have separate death benefit agreements providing that upon their death while in the employ of the Company, their beneficiary will receive an annual death benefit for five years equal to their annual base
salary at the time of death.
179
Executive Compensation Tables
(continued)
For a discussion of the terms of the awards in the following table, see the CD&A section of this proxy statement/prospectus.
Grants of Plan-Based Awards in 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Grant
Date
|
|
|
Estimated Future
Payouts Under
Non-Equity Incentive Plan
Awards
(1)
|
|
|
Estimated Future Payouts
Under Equity Incentive
Plan
Awards
(2)
|
|
|
All
Other
Stock
Awards:
Number
of
Shares
of Stock
or Units
|
|
|
All Other
Option
Awards:
Number of
Securities
Underlying
Options
|
|
|
Exercise
or Base
Price of
Option
Awards
|
|
|
Grant
Date
Fair
Value of
Stock
and
Option
Awards
|
|
|
|
Threshold
|
|
|
Target
|
|
|
Maximum
|
|
|
Threshold
|
|
|
Target
|
|
|
Maximum
|
|
|
|
|
|
|
|
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
(#)
|
|
|
(#)
|
|
|
(#)
|
|
|
(#)
|
|
|
(#)
|
|
|
($/Sh)
|
|
|
($)
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David J.
LaRue
|
|
|
3/23/2016
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
12,591
|
|
|
|
50,367
|
|
|
|
100,734
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
869,838
|
|
|
|
|
3/23/2016
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,578
|
|
|
|
|
|
|
$
|
|
|
|
$
|
703,123
|
|
|
|
|
STIP
|
|
|
$
|
243,750
|
|
|
$
|
975,000
|
|
|
$
|
1,950,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
LTIP
|
|
|
$
|
527,344
|
|
|
$
|
1,054,688
|
|
|
$
|
2,109,375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert G.
OBrien
|
|
|
3/23/2016
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
5,372
|
|
|
|
21,489
|
|
|
|
42,978
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
371,115
|
|
|
|
|
3/23/2016
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,326
|
|
|
|
|
|
|
$
|
|
|
|
$
|
299,986
|
|
|
|
|
STIP
|
|
|
$
|
145,750
|
|
|
$
|
583,000
|
|
|
$
|
1,166,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
LTIP
|
|
|
$
|
218,625
|
|
|
$
|
437,250
|
|
|
$
|
874,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James A.
Ratner
|
|
|
3/23/2016
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
4,477
|
|
|
|
17,908
|
|
|
|
35,816
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
309,271
|
|
|
|
|
3/23/2016
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,938
|
|
|
|
|
|
|
$
|
|
|
|
$
|
249,982
|
|
|
|
|
STIP
|
|
|
$
|
125,000
|
|
|
$
|
500,000
|
|
|
$
|
1,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
LTIP
|
|
|
$
|
62,500
|
|
|
$
|
125,000
|
|
|
$
|
250,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ronald A.
Ratner
|
|
|
3/23/2016
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
4,477
|
|
|
|
17,908
|
|
|
|
35,816
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
309,271
|
|
|
|
|
3/23/2016
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,938
|
|
|
|
|
|
|
$
|
|
|
|
$
|
249,982
|
|
|
|
|
STIP
|
|
|
$
|
125,000
|
|
|
$
|
500,000
|
|
|
$
|
1,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
LTIP
|
|
|
$
|
187,500
|
|
|
$
|
375,000
|
|
|
$
|
750,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Duane F.
Bishop
|
|
|
3/23/2016
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
4,477
|
|
|
|
17,908
|
|
|
|
35,816
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
309,271
|
|
|
|
|
3/23/2016
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,938
|
|
|
|
|
|
|
$
|
|
|
|
$
|
249,982
|
|
|
|
|
STIP
|
|
|
$
|
112,500
|
|
|
$
|
500,000
|
|
|
$
|
1,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
LTIP
|
|
|
$
|
187,500
|
|
|
$
|
375,000
|
|
|
$
|
750,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
(1)
|
The STIP cash award for the year ended December 31, 2016 for David J. LaRue, Robert G. OBrien, James
A. Ratner and Ronald A. Ratner was based on two equally weighted Company-wide metrics: Operating FFO per share and Net Debt to Adjusted EBITDA. For Duane F. Bishop, 45% of his STIP award was based on Operating FFO per share, 45% on Net Debt to
Adjusted EBITDA, and 10% on performance relative to individual objectives. The threshold payment of 25% of a target dollar award for each Company-wide metric was based on achievement of 90% of the goal for that metric. The maximum award for each of
the metrics is 200% of the target. The LTIP cash award is for the performance period from January 1, 2016 through December 31, 2018. The award will be determined by two equally weighted Company-wide metrics: Cumulative FFO per share and
Compound Annual Growth in Net Asset Value per share. The threshold payment of 50% of a target dollar award for each Company-wide metric is based on achievement of 90% of the goal for that metric. The maximum award for each of the metrics is 200% of
the target.
|
(2)
|
The amounts shown in these columns relate to performance shares granted in 2016 for the performance period from
January 1, 2016 through December 31, 2018. The performance shares were granted at target and the ultimate number of shares earned can range from 0% to 200% depending upon the degree the performance goals are met at the end of the
performance period. The performance metric is TSR relative to our peers. The threshold level represents 25% of target and the maximum level represents 200% of target.
|
(3)
|
The grant-date fair value of restricted stock awards was $20.94 per share, which equaled the closing price of
the Class A Common Stock on the date of grant. The grant-date fair value of the performance share grant (at target) was based on a Monte Carlo simulation and was calculated to be $17.27.
|
180
Executive Compensation Tables
(continued)
Outstanding Equity Awards at Fiscal Year-End 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Grant Date
|
|
|
Option Awards
(1)
|
|
|
Stock Awards
|
|
|
|
|
|
|
|
|
|
|
Equity Incentive Plan
Awards
|
|
|
|
Number of
Securities
Underlying
Unexercised
Options
Exercisable
as of
December 31,
2016
|
|
|
Number of
Securities
Underlying
Unexercised
Options
Unexercisable
as of
December 31,
2016
|
|
|
Option
Exercise
Price
|
|
|
Option
Expiration
Date
|
|
|
Number
of
Shares
or Units
of Stock
That
Have
Not
Vested
|
|
|
Market
Value of
Shares or
Units of
Stock
That
Have Not
Vested
|
|
|
Number
of
Unearned
Shares,
Units or
Other
Rights
That
Have Not
Vested
|
|
|
Market or
Payout
Value of
Unearned
Shares,
Units or
Other
Rights
That
Have Not
Vested
|
|
|
|
|
|
|
(#)
|
|
|
(#)
|
|
|
($)
|
|
|
|
|
|
(#)
(2)
|
|
|
($)
(3)
|
|
|
(#)
(4)
|
|
|
($)
(5)
|
|
|
|
|
|
|
|
|
|
|
|
David J. LaRue
|
|
|
3/29/2007
|
|
|
|
25,200
|
|
|
|
|
|
|
$
|
65.35
|
|
|
|
3/29/2017
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
6/18/2008
|
|
|
|
28,059
|
|
|
|
|
|
|
$
|
36.38
|
|
|
|
6/18/2018
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
4/14/2010
|
|
|
|
26,893
|
|
|
|
|
|
|
$
|
15.89
|
|
|
|
4/14/2020
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
4/13/2011
|
|
|
|
64,277
|
|
|
|
|
|
|
$
|
17.72
|
|
|
|
4/13/2021
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
4/11/2012
|
|
|
|
77,945
|
|
|
|
|
|
|
$
|
14.74
|
|
|
|
4/11/2022
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
4/8/2013
|
|
|
|
32,815
|
|
|
|
32,815
|
|
|
$
|
17.60
|
|
|
|
4/8/2023
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
3/28/2014
|
|
|
|
15,522
|
|
|
|
46,568
|
|
|
$
|
18.73
|
|
|
|
3/28/2024
|
|
|
|
|
|
|
$
|
|
|
|
|
9,610
|
|
|
$
|
200,272
|
|
|
|
3/26/2015
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
24,675
|
|
|
$
|
514,227
|
|
|
|
8,225
|
|
|
$
|
171,409
|
|
|
|
3/27/2015
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
20,000
|
|
|
$
|
416,800
|
|
|
|
3/23/2016
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
33,578
|
|
|
$
|
699,766
|
|
|
|
12,591
|
|
|
$
|
262,396
|
|
|
|
|
|
|
|
|
|
|
|
Robert G. OBrien
|
|
|
3/29/2007
|
|
|
|
25,200
|
|
|
|
|
|
|
$
|
65.35
|
|
|
|
3/29/2017
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
6/18/2008
|
|
|
|
28,059
|
|
|
|
|
|
|
$
|
36.38
|
|
|
|
6/18/2018
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
4/21/2009
|
|
|
|
7,011
|
|
|
|
|
|
|
$
|
7.80
|
|
|
|
4/21/2019
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
4/14/2010
|
|
|
|
26,893
|
|
|
|
|
|
|
$
|
15.89
|
|
|
|
4/14/2020
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
4/13/2011
|
|
|
|
38,547
|
|
|
|
|
|
|
$
|
17.72
|
|
|
|
4/13/2021
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
4/11/2012
|
|
|
|
39,694
|
|
|
|
|
|
|
$
|
14.74
|
|
|
|
4/11/2022
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
4/8/2013
|
|
|
|
16,711
|
|
|
|
16,711
|
|
|
$
|
17.60
|
|
|
|
4/8/2023
|
|
|
|
24,148
|
|
|
$
|
503,244
|
|
|
|
|
|
|
$
|
|
|
|
|
3/28/2014
|
|
|
|
7,905
|
|
|
|
23,715
|
|
|
$
|
18.73
|
|
|
|
3/28/2024
|
|
|
|
17,018
|
|
|
$
|
354,655
|
|
|
|
4,894
|
|
|
$
|
101,991
|
|
|
|
3/26/2015
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
24,451
|
|
|
$
|
509,559
|
|
|
|
3,834
|
|
|
$
|
79,901
|
|
|
|
3/27/2015
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
16,000
|
|
|
$
|
333,440
|
|
|
|
3/23/2016
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
14,326
|
|
|
$
|
298,554
|
|
|
|
5,372
|
|
|
$
|
111,952
|
|
|
|
|
|
|
|
|
|
|
|
James A. Ratner
|
|
|
3/29/2007
|
|
|
|
25,200
|
|
|
|
|
|
|
$
|
65.35
|
|
|
|
3/29/2017
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
6/18/2008
|
|
|
|
17,721
|
|
|
|
|
|
|
$
|
36.38
|
|
|
|
6/18/2018
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
4/21/2009
|
|
|
|
21,797
|
|
|
|
|
|
|
$
|
7.80
|
|
|
|
4/21/2019
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
4/14/2010
|
|
|
|
36,635
|
|
|
|
|
|
|
$
|
15.89
|
|
|
|
4/14/2020
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
4/13/2011
|
|
|
|
24,103
|
|
|
|
|
|
|
$
|
17.72
|
|
|
|
4/13/2021
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
4/11/2012
|
|
|
|
32,477
|
|
|
|
|
|
|
$
|
14.74
|
|
|
|
4/11/2022
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
4/8/2013
|
|
|
|
15,192
|
|
|
|
15,192
|
|
|
$
|
17.60
|
|
|
|
4/8/2023
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
3/28/2014
|
|
|
|
7,186
|
|
|
|
21,559
|
|
|
$
|
18.73
|
|
|
|
3/28/2024
|
|
|
|
|
|
|
$
|
|
|
|
|
4,449
|
|
|
$
|
92,717
|
|
|
|
3/26/2015
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
10,155
|
|
|
$
|
211,630
|
|
|
|
3,384
|
|
|
$
|
70,523
|
|
|
|
3/27/2015
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
8,000
|
|
|
$
|
166,720
|
|
|
|
3/23/2016
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
11,938
|
|
|
$
|
248,788
|
|
|
|
4,477
|
|
|
$
|
93,301
|
|
|
|
|
|
|
|
|
|
|
|
Ronald A. Ratner
|
|
|
3/29/2007
|
|
|
|
25,200
|
|
|
|
|
|
|
$
|
65.35
|
|
|
|
3/29/2017
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
6/18/2008
|
|
|
|
17,721
|
|
|
|
|
|
|
$
|
36.38
|
|
|
|
6/18/2018
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
4/21/2009
|
|
|
|
21,797
|
|
|
|
|
|
|
$
|
7.80
|
|
|
|
4/21/2019
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
4/14/2010
|
|
|
|
36,635
|
|
|
|
|
|
|
$
|
15.89
|
|
|
|
4/14/2020
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
4/13/2011
|
|
|
|
24,103
|
|
|
|
|
|
|
$
|
17.72
|
|
|
|
4/13/2021
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
4/11/2012
|
|
|
|
32,477
|
|
|
|
|
|
|
$
|
14.74
|
|
|
|
4/11/2022
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
4/8/2013
|
|
|
|
15,192
|
|
|
|
15,192
|
|
|
$
|
17.60
|
|
|
|
4/8/2023
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
3/28/2014
|
|
|
|
7,186
|
|
|
|
21,559
|
|
|
$
|
18.73
|
|
|
|
3/28/2024
|
|
|
|
|
|
|
$
|
|
|
|
|
4,449
|
|
|
$
|
92,717
|
|
|
|
3/26/2015
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
10,155
|
|
|
$
|
211,630
|
|
|
|
3,384
|
|
|
$
|
70,523
|
|
|
|
3/27/2015
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
8,000
|
|
|
$
|
166,720
|
|
|
|
3/23/2016
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
11,938
|
|
|
$
|
248,788
|
|
|
|
4,477
|
|
|
$
|
93,301
|
|
181
Executive Compensation Tables
(continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Grant Date
|
|
|
Option Awards
(1)
|
|
|
Stock Awards
|
|
|
|
|
|
|
|
|
|
|
Equity Incentive Plan
Awards
|
|
|
|
Number of
Securities
Underlying
Unexercised
Options
Exercisable
as of
December 31,
2016
|
|
|
Number of
Securities
Underlying
Unexercised
Options
Unexercisable
as of
December 31,
2016
|
|
|
Option
Exercise
Price
|
|
|
Option
Expiration
Date
|
|
|
Number
of
Shares
or Units
of Stock
That
Have
Not
Vested
|
|
|
Market
Value of
Shares or
Units of
Stock
That
Have Not
Vested
|
|
|
Number
of
Unearned
Shares,
Units or
Other
Rights
That
Have Not
Vested
|
|
|
Market or
Payout
Value of
Unearned
Shares,
Units or
Other
Rights
That
Have Not
Vested
|
|
|
|
|
|
|
(#)
|
|
|
(#)
|
|
|
($)
|
|
|
|
|
|
(#)
(2)
|
|
|
($)
(3)
|
|
|
(#)
(4)
|
|
|
($)
(5)
|
|
Duane F. Bishop
|
|
|
3/29/2007
|
|
|
|
10,000
|
|
|
|
|
|
|
$
|
65.35
|
|
|
|
3/29/2017
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
6/18/2008
|
|
|
|
7,107
|
|
|
|
|
|
|
$
|
36.38
|
|
|
|
6/18/2018
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
4/8/2013
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
3,658
|
|
|
$
|
76,233
|
|
|
|
|
|
|
$
|
|
|
|
|
3/28/2014
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
6,223
|
|
|
$
|
129,687
|
|
|
|
2,064
|
|
|
$
|
43,014
|
|
|
|
3/26/2015
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
4,445
|
|
|
$
|
92,634
|
|
|
|
1,481
|
|
|
$
|
30,864
|
|
|
|
3/27/2015
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
12,800
|
|
|
$
|
266,752
|
|
|
|
3/23/2016
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
11,938
|
|
|
$
|
248,788
|
|
|
|
4,477
|
|
|
$
|
93,301
|
|
(1)
|
All the option awards shown in the above schedule vest 25% at the second anniversary, 25% at the third
anniversary and 50% at the fourth anniversary of the grant date.
|
(2)
|
The shares in this column represent restricted stock awards. For grants prior to 2015, shares vest 25% at the
second anniversary, 25% at the third anniversary and 50% at the fourth anniversary of the grant date. For the 2015 and 2016 grants, shares vest 25% at the first anniversary, 25% at the second anniversary and 50% at the third anniversary of the grant
date.
|
(3)
|
The market value of shares in this column is based on the closing price of our Class A Common Stock of
$20.84 on December 31, 2016.
|
(4)
|
The shares in this column represent the underlying shares of Class A Common Stock issuable upon the payout
of performance shares. The 2013 grant vested in February 2017 and is presented here at its actual payout of 0% of target because the minimum performance goals for this grant were not achieved. The March 28, 2014, March 26, 2015, and
March 23, 2016 grants assume a payout at threshold (at 25% of target). The March 27, 2015 grant assumes a payout at threshold (at 40% of target). The performance shares granted on April 8, 2013 have a performance period from
February 1, 2013 through December 31, 2016, the performance shares granted on March 28, 2014 have a performance period from January 1, 2014 through December 31, 2017, the performance shares granted on March 26 and 27,
2015 have a performance period from January 1, 2015 through December 31, 2017, and the performance shares granted on March 23, 2016 have a performance period from January 1, 2016 through December 31, 2018. The vesting and
actual payout of the performance shares will be determined after the end of the respective performance periods.
|
(5)
|
This column reports the product of the number of unearned performance shares multiplied by the closing market
price of our Class A Common Stock of $20.84 on December 31, 2016.
|
182
Executive Compensation Tables
(continued)
Option Exercises and Stock Vested
For the year ended December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Option Awards
|
|
|
Stock Awards
|
|
|
|
|
|
|
|
|
|
Number of Shares
Acquired on
Exercise
|
|
|
Value Realized on
Exercise
|
|
|
Number of Shares
Acquired on
Vesting
|
|
|
Value Realized on
Vesting
|
|
|
|
(#)
|
|
|
($)
|
|
|
(#)
|
|
|
($)
(1)
|
|
David J. LaRue
|
|
|
23,172
|
|
|
$
|
235,434
|
|
|
|
69,121
|
|
|
$
|
1,263,537
|
|
Robert G.
OBrien
|
|
|
|
|
|
$
|
|
|
|
|
85,740
|
|
|
$
|
1,701,248
|
|
James A.
Ratner
|
|
|
|
|
|
$
|
|
|
|
|
28,756
|
|
|
$
|
525,544
|
|
Ronald A.
Ratner
|
|
|
|
|
|
$
|
|
|
|
|
28,756
|
|
|
$
|
525,544
|
|
Duane F.
Bishop
|
|
|
|
|
|
$
|
|
|
|
|
20,196
|
|
|
$
|
390,770
|
|
(1)
|
The value realized on vesting represents the product of the number of shares vested and the closing price of
the Class A Common Stock on the vesting date.
|
Nonqualified Deferred Compensation
For the year ended December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Executive
Contributions
in Last FY
|
|
|
Registrant
Contributions
in Last FY
|
|
|
Aggregate
Earnings
in Last FY
|
|
|
Aggregate
Withdrawals/
Distributions
|
|
|
Aggregate
Balance at
Last FYE
|
|
|
|
($)
(1)
|
|
|
($)
(2)
|
|
|
($)
(3)
|
|
|
($)
|
|
|
($)
(4)
|
|
David J. LaRue
|
|
$
|
|
|
|
$
|
|
|
|
$
|
34,447
|
|
|
$
|
|
|
|
$
|
835,650
|
|
Robert G.
OBrien
|
|
$
|
|
|
|
$
|
|
|
|
$
|
31,286
|
|
|
$
|
|
|
|
$
|
759,160
|
|
James A.
Ratner
|
|
$
|
|
|
|
$
|
|
|
|
$
|
38,057
|
|
|
$
|
|
|
|
$
|
927,152
|
|
Ronald A.
Ratner
|
|
$
|
|
|
|
$
|
|
|
|
$
|
76,768
|
|
|
$
|
|
|
|
$
|
1,863,903
|
|
Duane F.
Bishop
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,498
|
|
|
$
|
|
|
|
$
|
61,143
|
|
(1)
|
The NEOs may defer a portion of their annual salary, bonus or short-term incentive compensation, up to a
maximum of $100,000 per year, under our elective deferred compensation plan for executives. Amounts deferred under this plan earn interest at a rate equal to the average of the Moodys Rates. The rate is updated every calendar quarter using the
first published Moodys rates of the new quarter. Interest rates ranged from 3.97% to 4.71% during the year ended December 31, 2016. Interest is credited to the executives accounts biweekly and compounded quarterly. The cumulative
deferrals and earnings thereon will be paid to the NEOs in accordance with the elections they made defining the time of payment and form of payment.
|
(2)
|
The NEOs participate in the Unfunded Nonqualified Supplemental Retirement Plan for a select group of executives
and other members of management. The plan provides for the accrual of a discretionary contribution by us to the executives account plus interest on the account balance. The Company suspended the discretionary contributions in 2008, and there
have been no contributions since that time. Interest is credited as of the end of the fiscal year and is computed on the beginning-of-year account balance at a rate equal to the average of the quarterly Moodys Rates used in our elective
deferred compensation plan for executives (see note 1). The interest rate used for the year ended December 31, 2016 was 4.26%. Participants in the plan become 50% vested in the accumulated benefits after 10 years of service and then after each
of the next five years of service until becoming 100% vested after 15 years of service. All of the NEOs are participants and are 100% vested. Benefits are payable in installments over a 10-year period upon the later of the date of termination or the
attainment of age 60.
|
(3)
|
The amount of earnings reported in this column that are deemed to be above-market earnings are reported in the
Summary Compensation Table, and are as follows: David J. LaRue - $12,828; Robert G. OBrien - $11,647; James A. Ratner - $14,102; Ronald A. Ratner - $28,560; and Duane F. Bishop - $920.
|
(4)
|
Prior years accumulation of executive contributions and our contributions included in this column have
been reported in prior years Summary Compensation Tables to the extent these NEOs were required to be disclosed. Accumulated earnings from prior years included in this column have not been reported in prior years Summary Compensation
Tables, except for above-market earnings.
|
183
E
QUITY
C
OMPENSATION
P
LAN
I
NFORMATION
The information presented in the following table is as of December 31, 2016.
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan category
|
|
Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights
|
|
|
Weighted-average
exercise price of
outstanding
options, warrants
and rights
|
|
|
Number of securities remaining
available for future issuance under
equity compensation
plans (excluding securities reflected
in the first column)
|
|
Equity compensation plan approved by security holders (1)
|
|
|
2,548,031
|
|
|
$
|
31.29
|
|
|
|
5,351,237
|
|
Equity compensation plan not approved by security holders (2)
|
|
|
16,820
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,564,851
|
|
|
|
|
|
|
|
5,351,237
|
|
(1)
|
Our Stock Plan was approved by the stockholders in 1994 and was last amended and restated by stockholder
approval on June 13, 2013, further amended on December 17, 2013 and assumed by Forest City Realty Trust, Inc., effective January 1, 2016. The Compensation Committee of the Board of Directors administers the plan. Under the plan, we
may award Class A stock options, restricted shares/units and performance shares to our employees and nonemployee directors. The maximum number of shares that may be awarded under the plan is 21,750,000. The maximum award to an individual during
any calendar year is 500,000 stock options and 500,000 of the aggregate performance-based restricted shares and performance shares. Also, the aggregate grant-date fair value of awards granted to a nonemployee director during any calendar year is
limited to $250,000. Anti-dilution provisions in the plan adjust the share maximums, outstanding awarded options and related exercise prices for stock splits or stock dividends. Each option grant has a maximum term of 10 years. The Compensation
Committee determines vesting schedules for each award.
|
(2)
|
This represents phantom shares of Class A Common Stock accumulated by our nonemployee directors under
their deferred compensation plan. Their plan is described in the
Director Compensation
section of this proxy statement/prospectus.
|
184
P
ROPOSAL
2 A
PPROVAL
(
ON
AN
ADVISORY
,
NON
-
BINDING
BASIS
)
OF
THE
COMPENSATION
OF
THE
C
OMPANY
S
N
AMED
E
XECUTIVE
O
FFICERS
As
required by Section 14A of the Exchange Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act, we are providing our stockholders with an opportunity to vote to approve, on an advisory, non-binding basis, the compensation of our
NEOs as disclosed in this proxy statement/prospectus in accordance with the compensation disclosure rules of the SEC.
As
described in detail under the heading
Compensation Discussion & Analysis
(
CD&A
), we seek to closely align the interests of our NEOs with the interests of our stockholders. Our compensation programs
are designed to reward our NEOs for the achievement of short-term and long-term strategic and operational goals that lead to long-term value creation, while at the same time avoiding the encouragement of unnecessary or excessive risk-taking. Please
read the CD&A in this proxy statement/prospectus for additional and more detailed descriptions of our executive compensation programs.
During 2016, the Compensation Committees independent compensation advisor, Pearl Meyer, reviewed the existing executive
compensation program and reaffirmed that the program is fundamentally sound, reinforces key business objectives, and provides for competitive pay opportunities that are aligned with short-term and strategic objectives in support of long-term value
creation.
This is evidenced by the following policies and practices listed below.
|
|
|
Our Stock Plan prohibits all repricing of options and cash repurchases of underwater options without prior
stockholder approval.
|
|
|
|
Our Board of Directors approved our Hedging and Pledging Policy, which has been in place since mid-2013.
Further information is included under the
Additional Executive Compensation Policies
portion of the CD&A section of this proxy statement/prospectus.
|
|
|
|
Approximately 20 key executives are subject to stock ownership guidelines and stock holding requirements as
outlined under the
Additional Executive Compensation Policies
portion of the CD&A section of this proxy statement/prospectus. This includes our President & CEO, David J. LaRue, whose requirements were recently
increased to a share equivalent of approximately six times his base salary.
|
|
|
|
We have maintained a clawback policy for compensation paid to certain executive officers since 2011, including
our NEOs. Additional information is included under the
Additional Executive Compensation Policies
portion of the CD&A section of this proxy statement/prospectus.
|
|
|
|
The majority of the total direct compensation opportunity for our key executives including our NEOs continues
to be variable at risk pay. Over 65% of our CEO David J. LaRues target total direct compensation opportunity is comprised of at risk pay. Over 60% is tied to long-term incentives and equity. Similarly, Robert G.
OBrien, James A. Ratner, Ronald A. Ratner and Duane F. Bishop each have a total direct compensation opportunity in which over 60% is represented by at risk pay. Half of their target total direct compensation opportunity is based on
long-term incentives and equity.
|
|
|
|
Performance share grants are provided to our NEOs in support of greater pay alignment with stockholder
interests. Performance share grants will vest based on a relative total stockholder return metric (defined as change in stock price plus dividends paid) comparing the returns of our Class A Common Stock to that of all companies in the NAREIT
All Equity REIT Index. In support of creating meaningful and challenging goals, the Compensation Committee approved a requirement whereby a target level of performance shares will vest only if our TSR ranks in the 60
th
percentile relative to companies in the NAREIT Index for a multi-year performance period coinciding with our strategic planning cycles. Consistent with this element of pay for performance, no
performance shares vested for the 2013 2016 performance cycle since we did not achieve a threshold level of performance.
|
185
|
|
|
To further enhance transparency, beginning in 2015 the Compensation Committee approved an approach whereby
Cash LTIP cycles were tied to two equally-weighted internally focused metrics. This was in lieu of an enabling formula which had been used in prior Cash LTIP cycles. The Compensation Committee believes the use of two internally focused metrics,
coupled with the use of a relative TSR metric for performance shares, provides an appropriate balance for our executives long-term incentive opportunity.
|
|
|
|
During 2016, the Compensation Committee approved equity grants to our NEOs and other senior executives and
managers who participate in our LTIP. These grants were made in connection with a value-based percentage of pay formula approach that had been developed by Pearl Meyer, the Compensation Committees independent advisor. The number of shares
granted to NEOs and other senior executives and managers who participate in the LTIP, and our outside Directors, represented a run rate (defined as total shares issued divided by total shares of common stock outstanding) of approximately 0.40%. This
run rate was within acceptable parameters for our industry as determined by benchmark data and stockholder advisory firms.
|
|
|
|
In early 2017, as well as in prior years, our Audit and Compensation Committees collectively reviewed the
results of a risk analysis prepared by our management and which was separately reviewed by the Compensation Committees independent compensation advisor, and concluded that our compensation programs and policies do not create inappropriate
risks that are likely to have a material adverse effect on the Company. In arriving at this conclusion the Audit and Compensation Committees considered a number of risk factors as well as mitigation strategies that have been implemented, including
compensation clawback provisions and the use of stock ownership requirements. The risk analysis is discussed in greater detail in the CD&A.
|
The vote on this resolution is not intended to address any specific element of compensation; rather, the vote relates to the
compensation of our NEOs, as described in this proxy statement/prospectus in accordance with the compensation disclosure rules of the SEC. The vote is advisory, which means that the vote is not binding on the Company, our Board of Directors or the
Compensation Committee. To the extent there is any significant vote against our NEOs compensation as disclosed in this proxy statement/prospectus, the Compensation Committee will evaluate whether any actions are necessary to address the
concerns of stockholders.
As announced in our Current Report on Form 8-K filed with the SEC on June 14, 2011 and
consistent with the stockholders vote on the matter, the Board of Directors determined to hold an advisory vote to approve the compensation of our NEOs every year until the next vote on the frequency of such advisory vote, which will occur at
the Annual Meeting.
The affirmative vote of a majority of all of the votes cast at the Annual Meeting is required for
approval of this Proposal 2.
Brokers will not be able to exercise their discretion to vote uninstructed shares for
this proposal. Therefore, if your shares are to be represented by a broker at the Annual Meeting, you must provide specific voting instructions if you wish to vote upon this proposal.
Accordingly, we ask our stockholders to vote on the following resolution at the Annual Meeting:
RESOLVED, that the Companys stockholders approve, on an advisory, non-binding basis, the compensation of the Companys NEOs,
as disclosed in the Companys Proxy Statement/Prospectus for the 2017 Annual Meeting of Stockholders pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the Compensation Discussion and Analysis,
the 2016 Summary Compensation Table and the other related tables and disclosures.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
A VOTE
FOR
THE APPROVAL (ON AN ADVISORY, NON-BINDING BASIS) OF THE COMPENSATION OF OUR NEOs, AS DISCLOSED IN THIS PROXY STATEMENT/PROSPECTUS.
186
P
ROPOSAL
3 V
OTE
(
ON
AN
ADVISORY
,
NON
-
BINDING
BASIS
)
ON
THE
FREQUENCY
OF
WHICH
THE
STOCKHOLDERS
WILL
HAVE
AN
ADVISORY
,
NON
-
BINDING
VOTE
ON
THE
COMPENSATION
OF
THE
C
OMPANY
S
N
AMED
E
XECUTIVE
O
FFICERS
The Dodd-Frank Wall Street Reform and Consumer Protection Act and Section 14A of the Exchange Act provide that every six years
stockholders must be given the opportunity to vote, on a non-binding, advisory basis, for their preference as to how frequently we should seek future advisory votes on the compensation of our Named Executive Officers as disclosed in accordance with
the compensation disclosure rules of the SEC. By voting with respect to this Proposal 3, stockholders may indicate whether they would prefer that we conduct future advisory votes on the compensation of our Named Executive Officers once every one,
two, or three years. Stockholders also may, if they wish, abstain from casting a vote on this proposal.
After careful
consideration, our Board of Directors has determined that an annual advisory vote on the compensation of our Named Executive Officers is still the most appropriate alternative for the Company. An annual vote will allow our stockholders to provide
timely, direct input on the Companys executive compensation philosophy, policies and practices as disclosed in the proxy statement each year. The Board believes that an annual vote is therefore consistent with the Companys efforts to
engage in an ongoing dialogue with our stockholders on executive compensation and corporate governance matters.
The
Company recognizes that the stockholders may have different views as to the best approach for the Company, and therefore we look forward to hearing from our stockholders as to their preferences on the frequency of an advisory vote on executive
compensation.
This vote is advisory and not binding on the Company or our Board of Directors in any way. The Board of
Directors and the Compensation Committee will take into account the outcome of the vote, however, when considering the frequency of future advisory votes on executive compensation. The Board may decide that it is in the best interests of the Company
to hold an advisory vote on the compensation of our Named Executive Officers more or less frequently than the frequency receiving the most votes cast by our stockholders. Stockholders may cast a vote on the preferred voting frequency by selecting
the option of one year, two years, or three years (or abstain) when voting in response to the resolution set forth below.
RESOLVED,
that the stockholders of the Company determine, on an advisory basis, that the option of one year, two years, or three years that receives a majority of all the votes cast, or, in the event that no option receives a majority of the votes cast, the
option that receives the most votes, to be the preferred frequency with which the Company is to hold a stockholder vote to approve the compensation of the Companys Named Executive Officers, as disclosed pursuant to the Securities and Exchange
Commissions compensation disclosure rules.
The proxy card provides stockholders with the opportunity to
choose among four options (holding the vote every one, two or three years, or abstaining) and, therefore, stockholders will not be voting to approve or disapprove the recommendation of the Board.
Brokers will not be able to exercise their
discretion to vote uninstructed shares for this proposal. Therefore, if your shares are to be represented by a broker at the Annual Meeting, you must provide specific voting instructions if you wish to vote upon this proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE OPTION OF
EVERY ONE YEAR
AS THE
PREFERRED FREQUENCY FOR ADVISORY VOTES ON THE COMPENSATION OF THE COMPANYS NAMED EXECUTIVE OFFICERS.
187
P
ROPOSAL
4 R
ATIFICATION
OF
THE
A
PPOINTMENT
OF
P
RICEWATERHOUSE
C
OOPERS
LLP
AS
I
NDEPENDENT
R
EGISTERED
P
UBLIC
A
CCOUNTING
F
IRM
FOR
THE
YEAR
ENDING
D
ECEMBER
31, 2017
The Audit Committee is directly responsible for the appointment, compensation (including approval of the audit fee), retention
and oversight of the independent registered public accounting firm retained to audit our financial statements. The Audit Committee appointed PricewaterhouseCoopers LLP (
PWC
) as the independent registered public accounting firm for
the Company for the year ending December 31, 2017. PWC has served as the Companys independent auditor since 1989.
Although stockholder approval of this appointment is not required by our bylaws or otherwise, the Board is submitting this
proposal as a matter of good corporate governance. The Board believes stockholders should have the opportunity to express their views on the appointment of our independent auditor. If the appointment is not ratified, the Audit Committee will
consider the voting results in determining whether to retain PWC. Even if the appointment is ratified, the Audit Committee, in its sole discretion, may change the appointment at any time during the year, if it determines that such a change is in the
best interests of the Company and its stockholders.
In connection with appointing PWC, the Audit Committee annually
reviews their independence and performance in deciding whether to retain PWC. During this review, the Audit Committee considers, among others, the following factors:
|
|
|
PWCs qualifications, reputation for integrity and competence in the areas of accounting and auditing and
the real estate industry;
|
|
|
|
PWCs independence and objectivity;
|
|
|
|
PWCs familiarity of our business and financial affairs;
|
|
|
|
the appropriateness of PWCs fees for audit and non-audit services, both on an absolute basis and as
compared to peer firms;
|
|
|
|
PWCs tenure as the Companys independent registered accounting firm;
|
|
|
|
data related to audit quality and performance, including PWCs recent Public Company Accounting Oversight
Board inspection reports;
|
|
|
|
PWCs historical and recent performance of our integrated audit; and
|
|
|
|
the results of a report from PWC describing all relationships between the independent auditor and the Company.
|
In connection with the Audit Committees oversight role of the independent auditor, the Audit
Committee also:
|
|
|
meets independently, at least quarterly, with PWC, senior management and internal audit personnel;
|
|
|
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interviews and approves the lead engagement partner with each rotation; and
|
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reviews and approves the scope and related fees of non-audit services, paying particular attention to the
impact of PWCs independence.
|
The Audit Committee believes the continued retention of PWC to serve
as our independent auditor is in the best interests of the Company and its stockholders.
PWC has indicated that a
representative will attend the Annual Meeting to respond to appropriate questions from stockholders. Their representative will also have the opportunity to make a statement at the meeting.
188
The affirmative vote of a majority of all of the votes cast at the Annual Meeting
is required for the ratification of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the year ending December 31, 2017. Abstentions and broker non-votes, if any, will not be counted as votes cast and, as a
result, will have no effect on the result of the vote on this proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT OUR
STOCKHOLDERS VOTE
FOR
THE RATIFICATION OF THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM.
189
A
UDIT
C
OMMITTEE
R
EPORT
The Audit Committee (the Audit Committee) of the Board of Directors of Forest City Realty Trust, Inc.
(Forest City) assists the Board in fulfilling its responsibility for oversight of the accounting, financial reporting, data processing, regulatory and internal control environments and the appointment, oversight and approval of the
compensation of the Companys independent registered accounting firm. Management has the primary responsibility for establishing and maintaining adequate internal financial controls, for preparing the financial statements and for the public
financial reporting process. The Companys independent registered public accounting firm is responsible for expressing opinions on the conformity of the Companys audited financial statements with generally accepted accounting principles
and on the effectiveness of the Companys internal control over financial reporting.
The Audit Committee meets at
least quarterly, to review all financial information prior to its release and inclusion in the Companys public filings. The Audit Committee meets independently with management, internal audit and the independent registered public accounting
firm at least quarterly, or on a more frequent basis if requested by any of the applicable parties.
The Audit Committee
has received and reviewed the written disclosures and letter of independence from PricewaterhouseCoopers LLP, as required by the Public Company Accounting Oversight Board and has discussed with PricewaterhouseCoopers LLP their independence. The
Audit Committee has also considered whether the non-audit services provided by PricewaterhouseCoopers LLP are compliant with maintaining their independence.
The Audit Committee has discussed with PricewaterhouseCoopers LLP their judgments as to the quality, not just the
acceptability, of the Companys accounting principles and underlying estimates in its financial statements, and the matters required to be discussed by Auditing Standard 1301, Communication with Audit Committees.
The Audit Committee has reviewed and discussed our audited financial statements as of and for the year ended December 31,
2016, managements report on the design and effectiveness of our internal controls over financial reporting as of December 31, 2016, and PricewaterhouseCoopers LLPs audit of internal control over financial reporting with management
and the independent registered public accounting firm.
Based on the review and discussions described in this report, and
subject to the limitations on the role and responsibilities of the Audit Committee referred to above and in the Audit Committee Charter, the Audit Committee recommended to the Board that the audited financial statements and managements report
on the design and effectiveness of internal controls over financial reporting be included in the Companys Annual Report on Form 10-K for the year ended December 31, 2016, for filing with the Securities and Exchange Commission.
The Audit Committee reviews and reassesses the adequacy of its charter on an annual basis. All members of the Audit Committee
are independent directors and meet the independence requirements for audit committees under the New York Stock Exchange Rules and the Securities Exchange Act of 1934.
|
|
|
|
|
|
|
Michael P. Esposito, Jr. (Chairman)
|
|
Arthur F. Anton
|
|
Kenneth J. Bacon
|
|
Stan Ross
|
The foregoing Audit Committee Report shall not be deemed
incorporated by reference by any general statement incorporating by reference this proxy statement/prospectus into any filing under the Securities Act or under the Exchange Act, except to the extent that we specifically incorporate the information
by reference, and shall not otherwise be deemed filed under such Acts.
190
I
NDEPENDENT
R
EGISTERED
P
UBLIC
A
CCOUNTING
F
IRM
F
EES
& S
ERVICES
The Audit Committee of the Board of Directors considers and pre-approves any audit, non-audit and tax services to be performed
by our independent registered public accounting firm. The Audit Committee has considered whether the non-audit services are compatible with maintaining the independence of the independent registered public accounting firm.
The aggregate fees billed (or expected to be billed) to us for professional services rendered by PricewaterhouseCoopers LLP,
all of which have been approved by the Audit Committee, for the years ended December 31, 2016 and 2015, are as follows:
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
Audit fees
|
|
$
|
4,163,400
|
|
|
$
|
4,678,000
|
|
Audit-related fees
|
|
|
419,606
|
|
|
|
937,845
|
|
Tax fees
|
|
|
661,205
|
|
|
|
2,280,034
|
|
All other fees
|
|
|
7,096
|
|
|
|
7,096
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,251,307
|
|
|
$
|
7,902,975
|
|
|
|
|
|
|
|
|
|
|
Audit fees
: Professional services relating to audits of our annual consolidated
financial statements and internal controls over financial reporting, reviews of our quarterly SEC filings, issuance of comfort letters, consents and income tax provision procedures.
Audit-related fees
: Audit and other assurance services relating to individual real estate properties that are required
primarily under mortgage or partnership agreements and accounting related REIT conversion services (2016 - $70,106; 2015 - $344,845). There were no fees for services relating to financial information design and implementation.
Tax fees
: Professional services relating primarily to tax compliance, consulting fees and tax related REIT conversion
services (2016 - $163,388; 2015 - $2,170,211).
All other fees
: Other fees include annual subscriptions to
accounting research tools.
191
C
ERTAIN
R
ELATIONSHIPS
&
R
ELATED
T
RANSACTIONS
We require each of our directors and executive officers to
complete a questionnaire on an annual basis, which includes questions regarding related person transactions. In addition, we have a formal policy with respect to related person transactions that requires the Corporate Governance and Nominating
Committee to review and approve any transaction greater than $120,000 in which we were or will be a participant and in which a related person had or will have a direct or indirect material interest. Related persons include any of our executive
officers, directors or nominees for director and their immediate family members, any shareholder owning in excess of 5% of our Common Stock and any family members of any such stockholder or an entity in which any of the foregoing has a substantial
ownership interest. In reviewing and approving a related person transaction, the Corporate Governance and Nominating Committee considers, among other things, if the transaction is on terms comparable to those that could be obtained in arms
length dealings with an unrelated third party. All related person transactions are disclosed to the Corporate Governance and Nominating Committee.
The Compensation Committee, comprised solely of independent directors and which uses the advice of outside counsel and
compensation consultants, annually reviews the salaries and incentives paid to the executive officers disclosed under the section entitled
Family Relationships
below.
The transactions with Bruce C. Ratner and his affiliates set forth below were contemplated as part of the restructuring of the
ownership interests held by Bruce C. Ratner and the conditions under which such transactions would take place were provided for in a master contribution and sale agreement (the Master Contribution and Sale Agreement). Because of the
importance and nature of the Master Contribution and Sale Agreement, the transaction was specifically reviewed and approved during the year ended January 31, 2007 by a special committee of the Board comprised solely of independent directors.
The Reimbursement Agreement
On October 24, 2016, the Company entered into a Reimbursement Agreement with RMS. On the terms and subject to the
conditions set forth therein, the Company agreed to reimburse the Reimbursed Persons for certain costs, fees, expenses, losses, damages and liabilities. Specifically, the Company agreed to reimburse RMS (together with its officers, directors,
employees, beneficiaries, trustees, representatives and agents) for reasonable and documented fees and out-of-pocket expenses of RMSs financial, legal and public relations advisors incurred in evaluating and negotiating the Reclassification.
In addition, the Company agreed to reimburse the Reimbursed Persons for (i) reasonable costs and expenses incurred by each Reimbursed Person in connection with any Proceeding (as defined in the Reimbursement Agreement) to which such Reimbursed
Person is a party or otherwise involved in and (ii) any losses, damages or liabilities actually and reasonably suffered or incurred in any such Proceeding by a Reimbursed Person. As of December 31, 2016, the Company incurred an aggregate amount
of $1,541,500 in reimbursements to RMS. For more information on the Reimbursement Agreement, see the section of this proxy statement/prospectus entitled
The Reimbursement Agreement
.
The Reclassification Agreement
On December 5, 2016, the Company entered into a Reclassification Agreement with RMS. The Reclassification Agreement
provides that, at the Effective Time, as defined in the Agreement, following the satisfaction of the conditions thereto, each share of Class B Common Stock issued and outstanding immediately prior to the Effective Time will be reclassified and
exchanged into 1.31 shares of Class A Common Stock, with a right to cash in lieu of fractional shares. For more information on the Reclassification Agreement, see the section of this proxy statement/prospectus entitled
The
Reclassification Agreement
.
192
Transactions with RMS Investment Corp.
During 2014, we entered into an agreement with RMS Investment Corp. (RMSIC) and Van Aken Shopping Center, Ltd
(VASC), an affiliate of RMSIC, to provide various real estate services to RMSIC and VASC for the planning and redevelopment of a shopping center located in Shaker Heights, Ohio. RMSIC is controlled by the four children of Charles A.
Ratner, our former Chairman; the two children of James Ratner, our non-executive Chairman; the two children of Ronald Ratner, our Executive Vice President - Development and Director; Deborah Ratner Salzberg, our Executive Vice President and
Director; Brian J. Ratner, our Executive Vice President and Director; the four children of Ruth Miller, the deceased sister of Albert B. Ratner, a Co-Chairman Emeritus of our Board; and Samuel H. Miller, a Co-Chairman Emeritus of our Board, as
trustee. Pursuant to the agreement, RMSIC and VASC reimburse us at fair market rates for the real estate services provided. The aggregate amount paid by RMSIC to the Company since the beginning of the Companys 2016 fiscal year is $283,350.
Family Relationships
Deborah Ratner Salzberg and Brian J. Ratner, each an Executive Vice President and Director, are the children of Albert B.
Ratner, who serves as a Co-Chairman Emeritus of our Board. During the year ended December 31, 2016, Deborah Ratner Salzberg earned a salary of $437,014, an annual incentive (STIP) of $430,924 and a long term incentive (LTIP) of $32,540. During
the year ended December 31, 2016, Brian Ratner earned a salary of $457,269, an annual incentive (STIP) of $394,579 and a long term incentive (LTIP) of $39,311. Ms. Ratner Salzberg and Mr. Ratner are also eligible for equity awards on
the same basis as other senior management.
James LaRue, brother of David J. LaRue, our President, CEO and Director, is
employed as Director - Asset Management of Forest City Commercial Management, LLC, one of our subsidiaries. Kevin L. Ratner and Jonathan Ratner, sons of Charles A. Ratner, are employed, respectively, as Executive Vice President of the Companys
West Coast Division and as Executive Vice President - Residential Asset Management. None of these individuals are executive officers of the Company. The compensation, perquisites and benefits provided to these three individuals were substantially
comparable to those provided to other employees with similar qualifications, responsibilities and experience. During the year ended December 31, 2016, each of James LaRue, Kevin L. Ratner and Jonathan Ratner earned compensation, including
perquisites and benefits, paid by the Company in excess of $120,000, but none earned as much as the lowest compensated NEO as disclosed in the
Summary Compensation Table
section of this proxy statement/prospectus.
Employment Agreements
In
addition to the employment agreements with certain NEOs as disclosed in the narrative section to the Summary Compensation Table elsewhere in this proxy statement, we currently have employment agreements with Albert B. Ratner, our Co-Chairman
Emeritus, Samuel H. Miller, our Co-Chairman Emeritus, and Bruce C. Ratner, our Executive Vice President. In addition, we had an employment agreement with Charles A. Ratner that terminated upon his retirement effective at 11:59 pm, Eastern Time, on
December 31, 2016.
The employment agreements with Albert B. Ratner and Samuel H. Miller provide for annual salaries
of $425,000 and $375,000, respectively, and that upon death while such individual is actively employed with the Company, his beneficiary(ies) will receive annual death benefits of $475,000 and $425,000, respectively, for five years. The employment
agreements are renewable annually. Prior to his retirement on December 31, 2016, Charles A. Ratners employment agreement provided for an annual salary of $400,000. Although Messrs. A. Ratner, S. Miller and C. Ratner do not participate in
a formal bonus plan, an annual bonus may be awarded on a discretionary basis as reviewed by the Compensation Committee. During the year ended December 31, 2016, Messrs. A. Ratner, Miller and C. Ratner did not receive any cash bonuses or
equity-based awards. Each of the foregoing individuals were also eligible for benefits and perquisites on the same basis as other senior management.
193
The employment agreement with Bruce C. Ratner provides for an annual salary of
$450,000. The employment agreement is renewable annually. Mr. Ratner is eligible to receive a bonus and equity-based awards, as well as benefits and perquisites commensurate with other senior management executives. During the year ended
December 31, 2016, Mr. Ratner did not receive a cash bonus or any equity-based awards.
Non-Compete Arrangement
Pursuant to his employment agreement, Bruce C. Ratner agreed that during his employment with us, and for a two-year period
following thereafter, he will not engage in any activity that competes with our business. If we terminate Mr. Ratners employment without cause, the two-year period will be reduced to one year. Mr. Ratner also agreed that he will not
directly or indirectly induce any of our employees, or any of our affiliates, to terminate their employment or other relationships with us and will not employ or offer employment to any person who was employed by us or our subsidiaries unless such
person has ceased to be employed by us or our affiliates for a period of at least one year. Mr. Ratner owns, and will continue to own, a certain property that was not transferred to us. This property may be managed, developed, expanded,
operated and sold independently of our business. Should Mr. Ratner sell the property, he may purchase additional property, to effectuate a Section 1031 tax deferred exchange under the Internal Revenue Code, with the prior approval of the
Audit Committee. Except for this property or any potential purchase of property to effect a tax-deferred transaction or any transaction approved by the Audit Committee, Mr. Ratner will engage in all business activities of the type conducted by
us only through and on behalf of us, as long as he is employed by us.
Transactions with Bruce C. Ratner and His Affiliates
During the fiscal year ended January 31, 2007, we entered into the Master Contribution and Sale Agreement with Bruce C.
Ratner pursuant to which the parties agreed to restructure their ownership interests in a total of 30 retail, office and residential operating properties and certain service companies that were owned jointly by us and Mr. Ratner. Pursuant to
the Master Contribution and Sale Agreement, Mr. Ratner, certain entities and individuals affiliated with him, including members of his family and/or trusts for the benefit of such family members (BCR Entities), and certain entities
affiliated with Forest City (FCE Entities) either contributed their interests in these operating properties and service companies to Forest City Master Associates III, LLC (Master III), a limited liability company that is
owned jointly by the FCE Entities and the BCR Entities but is controlled by us, or in some cases, the BCR Entities transferred their interests for cash consideration.
In connection with the Master Contribution and Sale Agreement, the parties and their respective affiliates also entered into
several additional related agreements, including a Registration Rights Agreement, a Tax Protection Agreement and the Master III Operating Agreement. Under the Master III Operating Agreement, we issued Mr. Ratner and the BCR Entities 3,894,232
Class A Common Units (Units) in Master III. Certain of the BCR Entities exchanged 247,477 of the Units for cash and shares of our Class A Common Stock in July 2008, 673,565 of the Units for shares of our Class A Common
Stock in June 2014 and 1,032,402 of the Units for shares of our Class A Common Stock in September 2015. During the year ended December 31, 2016, the BCR Entities received a distribution preference pursuant to the Master Contribution and
Sale Agreement in the amount of $659,868 as a result of the dividends paid on shares of the Companys Class A Common Stock, of which amount, Mr. Ratners interest was $62,427.
Under the terms of the Master Contribution and Sale Agreement, we agreed with Mr. Ratner and the BCR Entities to a method
for valuing and possibly restructuring certain properties that were under development. Each of the development projects shall remain owned jointly until the individual development project has been completed and achieves stabilization.
When a development project achieves stabilization, it will be valued, either by negotiation, through arbitration or by obtaining a bona fide third-party offer. Once each projects value has been determined, we may, in our
discretion, cause that project to be contributed to Master III in exchange for additional Units, sold to Master III for cash, sold to the third party or remain jointly owned by us and Mr. Ratner.
194
During 2008, two of the development properties,
New York Times
, an office
building located in Manhattan, New York, and
Twelve MetroTech Center
, an office building located in Brooklyn, New York, achieved stabilization, and, in accordance with the terms of the Master Contribution and Sale Agreement, we caused the
respective FCE Entities to acquire the interest of the BCR Entities in those two properties for cash. Under the terms of the redemption agreements, the applicable BCR Entities assigned their interests in the two projects to the respective FCE
Entities and will receive approximately $121,000,000 over a 15-year period. During the year ended December 31, 2016, no redemption distribution installment payments were paid.
During the year ended December 31, 2014, in accordance with the Master Contribution and Sale Agreement, we accrued an
$11,000,000 development fee payable to Mr. Ratner related to
Westchesters Ridge Hill
, a regional mall in Yonkers, New York, as certain milestones had been reached in the development and operation of the property. In December 2015,
we caused certain of our affiliates to acquire the BCR Entities interests in
Westchesters Ridge Hill
, for $10. In January 2016, we paid the $11,000,000 development fee to Mr. Ratner.
In January 2016, we closed on the sale of
625 Fulton Avenue
, a development site in Brooklyn, New York. Pursuant to the
terms of the Master Contribution and Sale Agreement, we are required to make a $6,238,000 tax indemnity payment to the BCR Entities, of which amount Mr. Ratner will receive $124,760. The payment, which was accrued during the three months ending
March 31, 2016, was paid in four quarterly installments of $1,559,382 commencing in April 2016, with the last installment paid in January 2017.
In January 2017, we closed on the sale of
Shops at Bruckner Boulevard
, a retail shopping center in Bronx, New York.
Pursuant to the terms of the Master Contribution and Sale Agreement, we expect to be required to make a $482,000 tax indemnity payment to the BCR Entities. The payment will be accrued during the three months ending March 31, 2017 and will be
paid in four quarterly installments of commencing in April 2017, with the last installment paid in January 2018.
One
remaining development property, the air rights for any future residential vertical development at
East River Plaza,
continued to be owned or otherwise pursued jointly by the relevant FCE Entities and BCR Entities. The operating agreement
related to such property generally requires the FCE Entities to provide all equity contributions for the property on behalf of the FCE Entities and BCR Entities and entitles the FCE Entities to a preferred return on the outstanding balance of such
advances made on behalf of the BCR Entities prior to the BCR Entities sharing in cash distributions.
On January 13,
2015, RRG Sterling Owner, LLC, a subsidiary of Master III, acquired 500 Sterling Place, an apartment building in Brooklyn, New York from a third-party developer for a purchase price of $48,075,000. The Property was acquired using the proceeds of,
and is subject to, a mortgage loan in the original principal amount of $36,000,000 and a current balance of approximately $34,642,000. It is proposed that certain BCR Entities enter into an exchange transaction with Master III where such BCR
Entities will exchange Units in consideration for 100% of the membership interests in the sole member and 100% owner of RRG Sterling Owner, LLC. The number of Units to be exchanged will be based upon the net equity value of 500 Sterling Place as
determined using a third party appraisal, plus transaction costs, including transfer taxes (approximately $1,470,150) and legal fees (approximately $10,000), less the total amount of a down payment BCR already made on the Property ($1,200,000). The
BCR Entities have agreed upon a $20 per Unit value for purposes of determining the number of Units to exchange. As a result of the proposed exchange, the ultimate ownership of 500 Sterling Place will transfer from Master III to the BCR Entities,
subject to the aforementioned mortgage loan.
Transactions with BrownFlynn, Ltd
Since 2012, we have engaged BrownFlynn, Ltd (BrownFlynn) for various services relating to our corporate social
responsibility activities, communications and reporting. Barbara Brown, sister of Robert G. OBrien, our Executive Vice President and Chief Financial Officer, is a principal and co-owner of BrownFlynn. The aggregate amount due and expected to
be due to BrownFlynn since the beginning of the Companys 2016 fiscal year is approximately $255,400.
195
S
ECTION
16(a) B
ENEFICIAL
O
WNERSHIP
R
EPORTING
C
OMPLIANCE
Section 16(a) of the Exchange Act
requires our directors, executive officers, and beneficial owners of more than 10% of a registered class of our equity securities to file with the SEC and the NYSE initial reports of beneficial ownership and reports of changes in ownership of common
shares and other equity securities of ours. Executive officers, directors and owners of more than 10% of the common shares are required by SEC regulations to furnish us with copies of all forms they file pursuant to Section 16(a).
To our knowledge, based solely on review of the copies of such reports furnished to us and written representations that no
other reports were required during the year ended December 31, 2016, all Section 16(a) filing requirements applicable to our executive officers, directors and greater than 10% beneficial owners were complied with the following exceptions:
due to an administrative oversight by the Company, the Form 4s reporting the vesting in February 2016 of performance stock units granted in April 2012 to Duane Bishop, Robert OBrien, David LaRue, Charles Obert, Geralyn Presti, Brian Ratner,
James Ratner, Ronald Ratner and Deborah Ratner-Salzberg were not timely filed; and Mr. Bishop did not report a sale of 2,000 shares in August 2016, but will report such sale on a Form 5.
196
P
ROPOSAL
5 T
HE
R
ECLASSIFICATION
P
ROPOSAL
As discussed throughout this proxy statement/prospectus, the
Company is asking stockholders to approve the Reclassification Proposal. Holders of Class A shares and/or Class B shares should read this proxy statement/prospectus carefully and in its entirety, including the Annexes, for more detailed
information concerning the Reclassification.
THE BOARD RECOMMENDS THAT YOU VOTE
FOR
THE
RECLASSIFICATION PROPOSAL.
197
P
ROPOSAL
6 T
HE
A
DJOURNMENT
P
ROPOSAL
While the Board recommends that stockholders vote
FOR
the approval of Reclassification Proposal at the Annual Meeting, it is possible there will not be sufficient votes to approve such proposal. If there were not sufficient votes to approve the Reclassification Proposal at
the Annual Meeting and the Adjournment Proposal were to pass, the Company may solicit and obtain additional votes and reconvene the Annual Meeting at a later time, provided that pursuant to the Reclassification Agreement the Company will not
postpone, adjourn or recess the Annual Meeting to a date later than twenty (20) days after the date of the Annual Meeting without the prior written consent of RMS, which consent shall not be unreasonably withheld, conditioned or delayed.
Stockholders are being asked to grant authority to proxy holders to vote in favor of one or more adjournments of the Annual
Meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the Annual Meeting to approve the Reclassification Proposal. Holders of Class A Common Stock and holders of Class B Common Stock
will vote together on the Adjournment Proposal, with each holder of Class A Common Stock entitled to one vote per Class A share and each holder of Class B Common Stock entitled to ten votes per Class B share. Approval of the Adjournment
Proposal requires the affirmative vote of a majority of the votes cast on the matter by the holders of Common Stock represented, in person or by proxy, at the Annual Meeting. If a quorum is not established, the chairman of the Annual Meeting has the
power to adjourn the Annual Meeting to a date not more than 120 days after the original record date without notice other than announcement at the meeting.
Approval of the Adjournment Proposal will require the affirmative vote of a majority of the votes cast on the matter by the
holders of Class A Common Stock and Class B Common Stock represented, in person or by proxy, at the Annual Meeting, voting together as a single voting group.
Any signed proxies received by the Company in which no voting instructions are provided on such matter will be voted
FOR
the Adjournment Proposal. Any postponement or adjournment of the Annual Meeting for the purpose of soliciting additional proxies will allow stockholders who have already sent in their proxies to revoke them at any time
prior to their use at the Annual Meeting, as postponed or adjourned.
THE BOARD RECOMMENDS THAT YOU VOTE
FOR
THE ADJOURNMENT PROPOSAL.
198
W
HERE
Y
OU
C
AN
F
IND
M
ORE
I
NFORMATION
The Company files reports, proxy statements and
other information with the SEC. You may read and copy any document the Company files with the SEC at the SECs Public Reference Room at 100 F Street N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on
the Public Reference Room. The Companys filings are also available to the public without charge from the SECs internet site at http://www.sec.gov or from the Companys internet site at http://www.forestcity.net. The Companys
Corporate Governance Guidelines, Code of Legal and Ethical Conduct and Board of Directors committee charters are also available on the Companys internet site at http://www.forestcity.net or in print upon written request addressed to Corporate
Secretary, Forest City Realty Trust, Inc., Terminal Tower, 50 Public Square, Suite 1360, Cleveland, Ohio 44113. The information in, or that can be accessed through, the Companys internet site is not a part of this proxy statement/prospectus,
and all references herein to internet sites are inactive textual references only.
The SEC allows the Company to
incorporate by reference the information the Company files with it, which means that the Company can disclose important business and financial information to you by referring you to those documents. The information incorporated by reference is
considered to be part of this proxy statement/prospectus, except for any information superseded by information in this proxy statement/prospectus. This proxy statement/prospectus incorporates by reference the documents set forth below that have
previously been filed with the SEC:
|
|
|
Annual Report on Form
10-K
for the fiscal year ended December 31,
2016; and
|
|
|
|
Current reports on Form
8-K
filed on January 3, 2017, March 1,
2017 (other than the portions of such document not deemed to be filed) and April 24, 2017.
|
The Company
is also incorporating by reference all additional documents that the Company files with the SEC pursuant to Sections 13(a), 13(c), 14, or 15(d) of the Exchange Act between the date of this proxy statement/prospectus and the date of the Annual
Meeting.
If you would like to request documents, including any documents the Company may subsequently file with the SEC
before the Annual Meeting, please do so by June 2, 2017, so that you will receive them before the Annual Meeting.
Any
statement contained in a document incorporated or deemed to be incorporated by reference into this proxy statement/prospectus will be deemed to be modified or superseded for purposes of this proxy statement/prospectus to the extent that a statement
contained in this proxy statement/prospectus or any other subsequently filed document that is deemed to be incorporated by reference into this proxy statement/prospectus modifies or supersedes the statement. Any statement so modified or superseded
will not be deemed, except as so modified or superseded, to constitute a part of this proxy statement/prospectus.
199
S
TOCKHOLDER
P
ROPOSALS
AND
D
IRECTOR
N
OMINATIONS
FOR
THE
2018 A
NNUAL
M
EETING
Pursuant to our current bylaws, if a stockholder wishes to present other business or nominate a director candidate for
consideration by stockholders at the 2018 annual meeting, we must receive proper written notice of any such business or nomination no earlier than 150 days and no later than 120 days prior to the first anniversary of the date this proxy
statement/prospectus for the preceding years annual meeting is released to stockholders. As such, any notice given by a stockholder must be delivered to us between December 3, 2017 and 5:00 p.m., Eastern Time, on January 2, 2018 to be
presented at the 2018 annual meeting. If the 2018 annual meeting is advanced or delayed by more than 30 days from the first anniversary of the date of this years Annual Meeting, we must receive notice no earlier than 150 days prior to the date
of such meeting and not later than 5:00 p.m., Eastern Time, on the later of 120 days prior to the date of such annual meeting, as originally convened, or the tenth day following public announcement of the 2018 annual meeting date. If a stockholder
fails to give timely notice as required by our bylaws, the nominee or proposal will be excluded from consideration at the meeting.
In addition, notice of any stockholder proposal or nomination of a director candidate must contain certain information
specified in our bylaws about the stockholder, its affiliates and any proposed business or nominee, including information about the economic interest of the stockholder, its affiliates and any proposed nominee in the Company.
Stockholders interested in presenting a proposal for inclusion in our proxy statement and form of proxy relating to the 2018
annual meeting may do so by following the procedures in Rule 14a-8 under the Exchange Act. To be eligible for inclusion, stockholder proposals must be received by us at the address listed below not later than January 2, 2018.
Notice of stockholder proposals and director candidate nominations should be submitted to:
Corporate Secretary
Forest City
Realty Trust, Inc.
Terminal Tower
50 Public Square, Suite 1360
Cleveland, Ohio 44113
200
O
THER
B
USINESS
We do not anticipate that matters other than those described in this proxy statement/prospectus will be brought before the
meeting for action, but if any other matters should properly come before the meeting, it is intended that votes thereon will be cast pursuant to said proxies in accordance with the discretion of the proxy holders.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Jeffrey P. Sabatine
Jeffrey P. Sabatine, Interim Secretary
Cleveland, Ohio
May 1, 2017
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A
NNEX
A
PROPOSED AMENDED AND RESTATED CHARTER OF FOREST CITY REALTY TRUST, INC.
[Form of]
FOREST
CITY REALTY TRUST, INC.
ARTICLES OF AMENDMENT AND RESTATEMENT
FIRST
: Forest City Realty Trust, Inc., a Maryland corporation (the Corporation), desires to amend and
restate its charter as currently in effect and as hereinafter amended.
SECOND
: The following provisions are
all the provisions of the charter currently in effect and as hereinafter amended:
ARTICLE I
INCORPORATOR
Jeffrey M. Keehn, whose address is c/o Venable LLP, 750 E. Pratt Street, Baltimore, Maryland 21202, being at least 18
years of age, formed a corporation under the general laws of the State of Maryland on May 29, 2015.
ARTICLE II
NAME
The
name of the corporation (the Corporation) is:
Forest City Realty Trust, Inc.
ARTICLE III
PURPOSE
The purposes for which the Corporation is formed are to engage in any lawful act or activity (including, without
limitation or obligation, engaging in business as a real estate investment trust under the Internal Revenue Code of 1986, as amended, or any successor statute (the Code)) for which corporations may be organized under the general laws of
the State of Maryland as now or hereafter in force. For purposes of the charter of the Corporation (as the term charter is defined in the Maryland General Corporation Law, as amended from time to time (the MGCL), the
Charter), the term REIT means a real estate investment trust under Sections 856 through 860 of the Code or any successor provisions.
ARTICLE IV
PRINCIPAL
OFFICE IN STATE AND RESIDENT AGENT
The address of the principal office of the Corporation in the State of Maryland is
c/o CSC-Lawyers Incorporating Service Company, 7 St. Paul Street, Suite 820, Baltimore, Maryland 21202. The name and address of the resident agent of the Corporation in the State of Maryland are CSC-Lawyers Incorporating Service Company, 7 St.
Paul Street, Suite 820, Baltimore, Maryland 21202. The resident agent is a Maryland corporation.
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ARTICLE V
PROVISIONS FOR DEFINING, LIMITING
AND REGULATING CERTAIN POWERS OF THE
CORPORATION AND OF THE STOCKHOLDERS AND DIRECTORS
Section 5.1
Number of Directors
. The business and affairs of the Corporation shall be
managed under the direction of the Board of Directors. The number of directors of the Corporation initially shall be 13, which number may only be increased or decreased pursuant to the Bylaws of the Corporation (the Bylaws), but
shall never be less than the minimum number required by the MGCL.
Section 5.2
Extraordinary
Actions
. Notwithstanding any provision of law permitting or requiring any action to be taken or approved by the affirmative vote of stockholders entitled to cast a greater number of votes, any such action shall be effective and valid if
declared advisable by the Board of Directors and taken or approved by the affirmative vote of stockholders entitled to cast a majority of all the votes entitled to be cast on the matter.
Section 5.3
Authorization by Board of Stock Issuance
. The Board of Directors may authorize
the issuance from time to time of shares of stock of the Corporation of any class or series, whether now or hereafter authorized, or securities or rights convertible into shares of its stock of any class or series, whether now or hereafter
authorized, for such consideration as the Board of Directors may deem advisable (or without consideration in the case of a stock split or stock dividend), subject to such restrictions or limitations, if any, as may be set forth in the Charter or the
Bylaws.
Section 5.4
Preemptive and Appraisal Rights
. Except as may be provided by the
Board of Directors in setting the terms of classified or reclassified shares of stock pursuant to Section 6.5 or as may otherwise be provided by a contract approved by the Board of Directors, no holder of shares of stock of the Corporation
shall, as such holder, have any preemptive right to purchase or subscribe for any additional shares of stock of the Corporation or any other security of the Corporation which it may issue or sell. Holders of shares of stock shall not be
entitled to exercise any rights of an objecting stockholder provided for under Title 3, Subtitle 2 of the MGCL or any successor statute unless the Board of Directors, upon the affirmative vote of a majority of the Board of Directors and
upon such terms and conditions as specified by the Board of Directors, shall determine that such rights apply, with respect to all or any shares of all or any classes or series of stock, to one or more transactions occurring after the date of such
determination in connection with which holders of such shares would otherwise be entitled to exercise such rights.
Section 5.5
Indemnification
. The Corporation shall have the power, to the maximum extent
permitted by Maryland law in effect from time to time, to obligate itself to indemnify, and to pay or reimburse reasonable expenses in advance of final disposition of a proceeding to, (a) any individual who is a present or former director or
officer of the Corporation or (b) any individual who, while a director or officer of the Corporation and at the request of the Corporation, serves or has served as a director, officer, member, manager, partner or trustee of another corporation,
real estate investment trust, limited liability company, partnership, joint venture, trust, employee benefit plan or any other enterprise from and against any claim or liability to which such person may become subject or which such person may incur
by reason of his or her service in such capacity. The Corporation shall have the power, with the approval of the Board of Directors, to provide such indemnification and advancement of expenses to a person who served a predecessor of the
Corporation in any of the capacities described in (a) or (b) above and to any employee or agent of the Corporation or a predecessor of the Corporation.
Section 5.6
Determinations by Board
. The determination as to any of the following matters,
made by or pursuant to the direction of the Board of Directors, shall be final and conclusive and shall be binding upon the Corporation and every holder of shares of its stock: the amount of the net income of the Corporation for any period and
the amount of assets at any time legally available for the payment of dividends, acquisition of its stock or the payment of other distributions on its stock; the amount of paid-in surplus, net assets, other surplus, cash
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flow, funds from operations, adjusted funds from operations, net profit, net assets in excess of capital, undivided profits or excess of profits over losses on sales of assets; the amount,
purpose, time of creation, increase or decrease, alteration or cancellation of any reserves or charges and the propriety thereof (whether or not any obligation or liability for which such reserves or charges shall have been created shall have been
set aside, paid or discharged); any interpretation or resolution of any ambiguity with respect to any provision of the Charter or of the Bylaws; the number of shares of stock of any class or series of the Corporation; the fair value, or any sale,
bid or asked price to be applied in determining the fair value, of any asset owned or held by the Corporation or of any shares of stock of the Corporation; any matter relating to the acquisition, holding and disposition of any assets by the
Corporation; any interpretation of the terms and conditions of one or more agreements with any person, corporation, association, company, trust, partnership (limited or general) or other entity; the compensation of directors, officers, employees or
agents of the Corporation; or any other matter relating to the business and affairs of the Corporation or required or permitted by applicable law, the Charter or Bylaws or otherwise to be determined by the Board of Directors.
Section 5.7
REIT Qualification
. If the Corporation elects to qualify for U.S. federal
income tax treatment as a REIT, the Board of Directors shall use its reasonable best efforts to take such actions as are necessary or appropriate to preserve the status of the Corporation as a REIT; however, if the Board of Directors determines that
it is no longer in the best interests of the Corporation to attempt to, or continue to, qualify as a REIT, the Board of Directors may revoke or otherwise terminate the Corporations REIT election pursuant to Section 856(g) of the
Code. The Board of Directors, in its sole and absolute discretion, also may (a) determine that compliance with any restriction or limitation on stock ownership and transfers set forth in Article VII is no longer required for REIT
qualification and (b) make any other determination or take any other action pursuant to Article VII.
Section
5.8
Removal of Directors
. Subject to the rights of holders of shares of one or more classes or series of Preferred Stock (as defined below) to elect or remove one or more directors elected by such class or series
of Preferred Stock, any director may be removed from office at any time by the affirmative vote of a majority of all the votes entitled to be cast generally in the election of directors, with or without cause.
Section 5.9
Corporate Opportunities
. The Corporation shall have the power, by resolution of
the Board of Directors, to renounce any interest or expectancy of the Corporation in, or in being offered an opportunity to participate in, business opportunities or classes or categories of business opportunities that are presented to the
Corporation or developed by or presented to one or more directors or officers of the Corporation.
ARTICLE VI
STOCK
Section 6.1
Authorized Shares
. The Corporation has authority to issue 391,000,000 shares of
stock, consisting of 371,000,000 shares of Class A Common Stock, $0.01 par value per share (Class A Common Stock), and 20,000,000 shares of Preferred Stock, $0.01 par value per share (together with any shares of stock hereinafter
classified by the Board of Directors pursuant to this Article VI, Preferred Stock). The aggregate par value of all authorized shares of stock having par value is $3,910,000. If shares of one class of stock are classified or reclassified
into shares of another class of stock pursuant to Section 6.2, 6.3 or 6.5 of this Article VI, the number of authorized shares of the former class shall be automatically decreased and the number of shares of the latter class shall be automatically
increased, in each case by the number of shares so classified or reclassified, so that the aggregate number of shares of stock of all classes that the Corporation has authority to issue shall not be more than the total number of shares of stock set
forth in the first sentence of this paragraph. The Board of Directors, with the approval of a majority of the entire Board and without any action by the stockholders of the Corporation, may amend the Charter from time to time to increase or decrease
the aggregate number of shares of stock or the number of shares of stock of any class or series that the Corporation has authority to issue.
Section 6.2
Class A Common Stock
. The Board of Directors may reclassify any unissued shares
of Class A Common Stock and further reclassify any previously classified or reclassified but unissued shares of Class A
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Common Stock of any class or series from time to time into one or more classes or series of stock. Subject to the provisions of Article VII and except as may otherwise be specified in the
Charter, each share of Class A Common Stock shall entitle the holder thereof to one vote.
Section
6.3
Preferred Stock
. The Board of Directors may classify any unissued shares of Preferred Stock and reclassify any previously classified but unissued shares of Preferred Stock of any class or series from time to
time into one or more classes or series of stock.
Section 6.4
Reclassification
. As
provided for in the Reclassification Agreement, dated as of December 5, 2016, between the Corporation and RMS, Limited Partnership, an Ohio limited partnership, immediately upon the effectiveness of these Articles of Amendment and Restatement
pursuant to the MGCL (the Effective Time), and without any further action on the part of the Corporation or its stockholders, each share of Class B Common Stock of the Corporation, par value $0.01 per share (Class B Common
Stock), issued and outstanding immediately prior to the Effective Time shall be exchanged and reclassified into 1.31 shares of validly issued, fully paid and nonassessable Class A Common Stock. The Corporation shall not issue fractional
shares or scrip as the result of the reclassification of the shares of Class B Common Stock, but shall arrange for the disposition of fractional shares on behalf of those holders of the Class B Common Stock at the Effective Time who would otherwise
be entitled to fractional shares as a result of the reclassification of such shares.
Section
6.5
Classified or Reclassified Shares
. Prior to the issuance of classified or reclassified shares of any class or series of stock, the Board of Directors by resolution shall: (a) designate that class or series to
distinguish it from all other classes and series of stock of the Corporation; (b) specify the number of shares to be included in the class or series; (c) set or change, subject to the provisions of Article VII and subject to the express terms of any
class or series of stock of the Corporation outstanding at the time, the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications and terms and conditions of redemption
for each class or series; and (d) cause the Corporation to file articles supplementary with the State Department of Assessments and Taxation of Maryland (the SDAT). Any of the terms of any class or series of stock set or changed pursuant
to clause (c) of this Section 6.5 may be made dependent upon facts or events ascertainable outside the Charter (including determinations by the Board of Directors or other facts or events within the control of the Corporation) and may vary among
holders thereof, provided that the manner in which such facts, events or variations shall operate upon the terms of such class or series of stock is clearly and expressly set forth in the articles supplementary or other Charter document.
Section 6.6
Stockholders Consent in Lieu of Meeting
. Any action required or permitted
to be taken at any meeting of the holders of Class A Common Stock entitled to vote generally in the election of directors may be taken without a meeting by consent, in writing or by electronic transmission, in any manner and by any vote permitted by
the MGCL and set forth in the Bylaws.
Section 6.7
Charter and Bylaws
. The rights of
all stockholders and the terms of all shares of stock of the Corporation are subject to the provisions of the Charter and the Bylaws. Subject to the second sentence of Article XV of the Bylaws (or any successor provision relating to amendments to
the minimum number of directors), the Board of Directors shall have the exclusive power to make, alter, amend or repeal the Bylaws.
Section 6.8
Distributions
. The Board of Directors from time to time may authorize the
Corporation to declare and pay to stockholders such dividends or other distributions in cash or other assets of the Corporation or in securities of the Corporation, including in shares of one class or series of the Corporations stock payable
to holders of shares of another class or series of stock of the Corporation, or from any other source as the Board of Directors in its sole and absolute discretion shall determine. The exercise of the powers and rights of the Board of Directors
pursuant to this Section 6.8 shall be subject to the provisions of any class or series of shares of the Corporations stock at the time outstanding.
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ARTICLE VII
RESTRICTIONS ON TRANSFER AND OWNERSHIP OF SHARES OF STOCK
Section 7.1
Definitions
. For the purpose of this Article VII, the following terms
shall have the following meanings:
Aggregate Stock Ownership Limit
. The term Aggregate Stock Ownership
Limit shall mean 9.8 percent in value of the aggregate of the outstanding shares of Capital Stock, or such other percentage determined by the Board of Directors in accordance with Section 7.2.8 of the Charter. The value of the
outstanding shares of Capital Stock shall be determined by the Board of Directors, which determination shall be final and conclusive for all purposes hereof. For the purposes of determining the percentage ownership of Capital Stock by any
Person, shares of Capital Stock that may be acquired upon conversion, exchange or exercise of any securities of the Corporation directly or constructively held by such Person, but not shares of Capital Stock issuable with respect to the conversion,
exchange or exercise of securities for the Corporation held by other Persons, shall be deemed to be outstanding prior to conversion, exchange or exercise.
Beneficial Ownership
. The term Beneficial Ownership shall mean ownership of Capital Stock by a Person,
whether the interest in the shares of Capital Stock is held directly or indirectly (including by a nominee), and shall include interests that would be treated as owned through the application of Section 544 of the Code, as modified by
Section 856(h)(1)(B) of the Code. The terms Beneficial Owner, Beneficially Owns and Beneficially Owned shall have the correlative meanings.
Business Day
. The term Business Day shall mean any day, other than a Saturday or Sunday, that is
neither a legal holiday nor a day on which banking institutions in Ohio are authorized or required by law, regulation or executive order to close.
Capital Stock
. The term Capital Stock shall mean all classes or series of stock of the Corporation,
including, without limitation, Class A Common Stock and Preferred Stock.
Charitable Beneficiary
. The term
Charitable Beneficiary shall mean one or more beneficiaries of the Trust as determined pursuant to Section 7.3.6, provided that each such organization must be as described in Section 501(c)(3) of the Code and contributions to
each such organization must be eligible for deduction under each of Sections 170(b)(1)(A), 2055 and 2522 of the Code.
Common Stock Ownership Limit
. The term Common Stock Ownership Limit shall mean 9.8 percent (in value
or in number of shares, whichever is more restrictive) of the aggregate of the outstanding shares of Class A Common Stock, or such other percentage determined by the Board of Directors in accordance with Section 7.2.8 of the Charter. The
number and value of the outstanding shares of Class A Common Stock shall be determined by the Board of Directors, which determination shall be final and conclusive for all purposes hereof. For purposes of determining the percentage ownership of
Class A Common Stock by any Person, shares of Class A Common Stock that may be acquired upon conversion, exchange or exercise of any securities of the Corporation directly or constructively held by such Person, but not shares of Class A Common Stock
issuable with respect to the conversion, exchange or exercise of securities for the Corporation held by other Persons, shall be deemed to be outstanding prior to conversion, exchange or exercise.
Constructive Ownership
. The term Constructive Ownership shall mean ownership of Capital Stock by a
Person, whether the interest in the shares of Capital Stock is held directly or indirectly (including by a nominee), and shall include interests that would be treated as owned through the application of Section 318(a) of the Code, as modified
by Section 856(d)(5) of the Code. The terms Constructive Owner, Constructively Owns and Constructively Owned shall have the correlative meanings.
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Excepted Holder
. The term Excepted Holder shall mean a
stockholder of the Corporation for whom an Excepted Holder Limit is created by the Charter or by the Board of Directors pursuant to Section 7.2.7.
Excepted Holder Limit
. The term Excepted Holder Limit shall mean, provided that the affected Excepted
Holder agrees to comply with the requirements established by the Board of Directors pursuant to Section 7.2.7 and subject to adjustment pursuant to Section 7.2.7, the percentage limit established by the Board of Directors pursuant to
Section 7.2.7.
Initial Date
. The term Initial Date shall mean the first date on which the
Corporation shall have more than one holder of Class A Common Stock.
Market Price
. The term Market
Price on any date shall mean, with respect to any class or series of outstanding shares of Capital Stock, the Closing Price for such Capital Stock on such date. The Closing Price on any date shall mean the last sale price for
such Capital Stock, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, for such Capital Stock, in either case as reported in the principal consolidated transaction reporting
system with respect to securities listed or admitted to trading on the NYSE or, if such Capital Stock is not listed or admitted to trading on the NYSE, as reported on the principal consolidated transaction reporting system with respect to securities
listed on the principal national securities exchange on which such Capital Stock is listed or admitted to trading or, if such Capital Stock is not listed or admitted to trading on any national securities exchange, the last quoted price, or, if not
so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by the principal automated quotation system that may then be in use or, if such Capital Stock is not quoted by any such system, the average of
the closing bid and asked prices as furnished by a professional market maker making a market in such Capital Stock selected by the Board of Directors or, in the event that no trading price is available for such Capital Stock, the fair market value
of the Capital Stock, as determined by the Board of Directors.
NYSE
. The term NYSE shall mean the
New York Stock Exchange.
Person
. The term Person shall mean an individual, corporation,
partnership, limited liability company, estate, trust (including a trust qualified under Sections 401(a) or 501(c)(17) of the Code), a portion of a trust permanently set aside for or to be used exclusively for the purposes described in
Section 642(c) of the Code, association, private foundation within the meaning of Section 509(a) of the Code, joint stock company or other entity and also includes a group as that term is used for purposes of Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended, and a group to which an Excepted Holder Limit applies.
Prohibited
Owner
. The term Prohibited Owner shall mean, with respect to any purported Transfer, any Person who, but for the provisions of this Article VII, would Beneficially Own or Constructively Own shares of Capital Stock in
violation of Section 7.2.1, and if appropriate in the context, shall also mean any Person who would have been the record owner of the shares that the Prohibited Owner would have so owned.
Restriction Termination Date
. The term Restriction Termination Date shall mean the first day after the
Initial Date on which the Board of Directors determines pursuant to Section 5.7 of the Charter that it is no longer in the best interests of the Corporation to attempt to, or continue to, qualify as a REIT or that compliance with any
restriction or limitation on Beneficial Ownership, Constructive Ownership and Transfers of shares of Capital Stock set forth herein is no longer required in order for the Corporation to qualify as a REIT.
Transfer
. The term Transfer shall mean any issuance, sale, transfer, redemption, gift, assignment,
devise or other disposition, as well as any other event that causes any Person to acquire or possess Beneficial Ownership or Constructive Ownership, or any agreement to take any such action or cause any such event, of Capital Stock or the right to
vote or receive dividends on Capital Stock, including (a) the granting or exercise of any option (or any disposition of any option), (b) any disposition of any securities or rights convertible into or exchangeable for Capital Stock or any
interest in Capital Stock or any exercise of any such conversion or exchange right and
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(c) Transfers of interests in other entities that result in changes in Beneficial Ownership or Constructive Ownership of Capital Stock; in each case, whether voluntary or involuntary,
whether owned of record, Constructively Owned or Beneficially Owned and whether by operation of law or otherwise. The terms Transferring and Transferred shall have the correlative meanings.
Trust
. The term Trust shall mean any trust provided for in Section 7.3.1.
Trustee
. The term Trustee shall mean the Person unaffiliated with the Corporation and a Prohibited
Owner that is appointed by the Corporation to serve as trustee of the Trust.
Section
7.2
Capital Stock
.
Section 7.2.1
Ownership
Limitations
. During the period commencing on the Initial Date and prior to the Restriction Termination Date, but subject to Section 7.4:
(a)
Basic Restrictions
.
(i) (1) No Person, other than an Excepted Holder, shall Beneficially Own or Constructively Own
shares of Capital Stock in excess of the Aggregate Stock Ownership Limit, (2) no Person, other than an Excepted Holder, shall Beneficially Own or Constructively Own shares of Class A Common Stock in excess of the Common Stock Ownership Limit
and (3) no Excepted Holder shall Beneficially Own or Constructively Own shares of Capital Stock in excess of the Excepted Holder Limit for such Excepted Holder.
(ii) No Person shall Beneficially Own or Constructively Own shares of Capital Stock to the extent that
such Beneficial Ownership or Constructive Ownership of Capital Stock would result in the Corporation being closely held within the meaning of Section 856(h) of the Code (without regard to whether the ownership interest is held
during the last half of a taxable year), or otherwise failing to qualify as a REIT (including, but not limited to, Beneficial Ownership or Constructive Ownership that would result in the Corporation owning (actually or Constructively) an interest in
a tenant that is described in Section 856(d)(2)(B) of the Code if the income derived by the Corporation from such tenant would cause the Corporation to fail to satisfy any of the gross income requirements of Section 856(c) of the Code).
(iii) Any Transfer of shares of Capital Stock that, if effective, would result in the Capital
Stock being beneficially owned by less than 100 Persons (determined under the principles of Section 856(a)(5) of the Code) shall be void
ab initio
, and the intended transferee shall acquire no rights in such shares of Capital Stock.
(b)
Transfer in Trust
. If any Transfer of shares of Capital Stock
occurs which, if effective, would result in any Person Beneficially Owning or Constructively Owning shares of Capital Stock in violation of Section 7.2.1(a)(i) or (ii),
(i) then that number of shares of the Capital Stock the Beneficial Ownership or Constructive Ownership
of which otherwise would cause such Person to violate Section 7.2.1(a)(i) or (ii) (rounded up to the nearest whole share) shall be automatically transferred to a Trust for the benefit of a Charitable Beneficiary, as described in
Section 7.3, effective as of the close of business on the Business Day prior to the date of such Transfer, and such Person shall acquire no rights in such shares; or
(ii) if the transfer to the Trust described in clause (i) of this sentence would not be effective
for any reason to prevent the violation of Section 7.2.1(a)(i) or (ii), then the Transfer of that number of shares of Capital Stock that otherwise would cause any Person to violate Section 7.2.1(a)(i) or (ii) shall be void
ab
initio
, and the intended transferee shall acquire no rights in such shares of Capital Stock.
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(iii) To the extent that, upon a transfer of shares of
Capital Stock pursuant to this Section 7.2.1(b), a violation of any provision of this Article VII would nonetheless be continuing (for example where the ownership of shares of Capital Stock by a single Trust would violate the 100
stockholder requirement applicable to REITs), then shares of Capital Stock shall be transferred to that number of Trusts, each having a distinct Trustee and a Charitable Beneficiary or Charitable Beneficiaries that are distinct from those of each
other Trust, such that there is no violation of any provision of this Article VII.
Section 7.2.2
Remedies for Breach
. If the Board of Directors shall at any time
determine that a Transfer or other event has taken place that results in a violation of Section 7.2.1 or that a Person intends to acquire or has attempted to acquire Beneficial Ownership or Constructive Ownership of any shares of Capital Stock
in violation of Section 7.2.1 (whether or not such violation is intended), the Board of Directors shall take such action as it deems advisable to refuse to give effect to or to prevent such Transfer or other event, including, without
limitation, causing the Corporation to redeem shares, refusing to give effect to such Transfer on the books of the Corporation or instituting proceedings to enjoin such Transfer or other event;
provided
,
however
, that any Transfer or
attempted Transfer or other event in violation of Section 7.2.1 shall automatically result in the transfer to the Trust described above, and, where applicable, such Transfer (or other event) shall be void
ab initio
as provided above
irrespective of any action (or non-action) by the Board of Directors.
Section 7.2.3
Notice
of Restricted Transfer
. Any Person who acquires or attempts or intends to acquire Beneficial Ownership or Constructive Ownership of shares of Capital Stock that will or may violate Section 7.2.1(a) or any Person who would have owned
shares of Capital Stock that resulted in a transfer to the Trust pursuant to the provisions of Section 7.2.1(b) shall immediately give written notice to the Corporation of such event or, in the case of such a proposed or attempted transaction,
give at least 15 days prior written notice, and shall provide to the Corporation such other information as the Corporation may request in order to determine the effect, if any, of such Transfer on the Corporations status as a REIT.
Section 7.2.4
Owners Required To Provide Information
. From the Initial Date and prior
to the Restriction Termination Date:
(a) every owner of five percent or more (or such lower
percentage as required by the Code or the U.S. Treasury Department regulations promulgated thereunder) of the outstanding shares of Capital Stock, within 30 days after the end of each taxable year, shall give written notice to the Corporation
stating the name and address of such owner, the number of shares of Capital Stock Beneficially Owned and a description of the manner in which such shares are held. Each such owner shall provide to the Corporation such additional information as
the Corporation may request in order to determine the effect, if any, of such Beneficial Ownership on the Corporations status as a REIT and to ensure compliance with the Aggregate Stock Ownership Limit and the Common Stock Ownership Limit; and
(b) each Person who is a Beneficial Owner or Constructive Owner of Capital Stock and each Person
(including the stockholder of record) who is holding Capital Stock for a Beneficial Owner or Constructive Owner shall provide to the Corporation such information as the Corporation may request, in order to determine the Corporations status as
a REIT and to comply with the requirements of any taxing authority or governmental authority or to determine such compliance and to ensure compliance with the Aggregate Stock Ownership Limit and the Common Stock Ownership Limit.
Section 7.2.5
Remedies Not Limited
. Subject to Section 5.7 of the Charter,
nothing contained in this Section 7.2 shall limit the authority of the Board of Directors to take such other action as it deems necessary or advisable to protect the Corporation in preserving the Corporations status as a REIT.
Section 7.2.6
Ambiguity
. In the case of an ambiguity in the application of any of the
provisions of this Section 7.2, Section 7.3 or any definition contained in Section 7.1, the Board of Directors may determine the application of the provisions of this Section 7.2 or Section 7.3 or any such definition with
respect to any situation
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based on the facts known to it. In the event Section 7.2 or Section 7.3 requires an action by the Board of Directors and the Charter fails to provide specific guidance with respect
to such action, the Board of Directors may determine the action to be taken so long as such action is not contrary to the provisions of Sections 7.1, 7.2 or 7.3. Absent a decision to the contrary by the Board of Directors, if a Person
would have (but for the remedies set forth in Section 7.2.2) acquired Beneficial Ownership or Constructive Ownership of Capital Stock in violation of Section 7.2.1, such remedies (as applicable) shall apply first to the shares of Capital
Stock that, but for such remedies, would have been actually owned by such Person, and second to shares of Capital Stock that, but for such remedies, would have been Beneficially Owned or Constructively Owned (but not actually owned) by such Person,
pro rata
among the Persons who actually own such shares of Capital Stock based upon the relative number of the shares of Capital Stock held by each such Person.
Section 7.2.7
Exceptions
.
(a) Subject to Section 7.2.1(a)(ii), the Board of Directors may exempt (prospectively or
retroactively) a Person from the Aggregate Stock Ownership Limit and the Common Stock Ownership Limit, as the case may be, and may establish or increase an Excepted Holder Limit for such Person if:
(i) the Board of Directors obtains such representations and undertakings from such Person as are
reasonably necessary for the Board to ascertain that no individuals Beneficial or Constructive Ownership of such shares of Capital Stock will violate Section 7.2.1(a)(ii);
(ii) such Person does not and represents that it will not own, actually or Constructively, an interest
in a tenant of the Corporation (or a tenant of any entity owned or controlled by the Corporation) that would cause the Corporation to own, actually or Constructively, more than a 9.9% interest (as set forth in Section 856(d)(2)(B) of the Code)
in such tenant and the Board of Directors obtains such representations and undertakings from such Person as are reasonably necessary to ascertain this fact (for this purpose, a tenant from whom the Corporation (or an entity owned or controlled by
the Corporation) derives (and is expected to continue to derive) a sufficiently small amount of revenue such that, in the judgment of the Board, rent from such tenant would not adversely affect the Corporations ability to qualify as a REIT
shall not be treated as a tenant of the Corporation); and
(iii) such Person agrees that any
violation or attempted violation of such representations or undertakings (or other action which is contrary to the restrictions contained in Sections 7.2.1 through 7.2.6) will result in such shares of Capital Stock being automatically
transferred to a Trust in accordance with Sections 7.2.1(b) and 7.3.
(b) Prior to granting
any exception pursuant to Section 7.2.7(a), the Board of Directors may require a ruling from the Internal Revenue Service, or an opinion of counsel, in either case in form and substance satisfactory to the Board of Directors, as it may deem
necessary or advisable in order to determine or ensure the Corporations status as a REIT. Notwithstanding the receipt of any ruling or opinion, the Board of Directors may impose such conditions or restrictions as it deems appropriate in
connection with granting such exception.
(c) Subject to Section 7.2.1(a)(ii), an underwriter
or placement agent that participates in a public offering or a private placement of Capital Stock (or securities convertible into or exchangeable for Capital Stock) may Beneficially Own or Constructively Own shares of Capital Stock (or securities
convertible into or exchangeable for Capital Stock) in excess of the Aggregate Stock Ownership Limit, the Common Stock Ownership Limit, or both such limits, but only to the extent necessary to facilitate such public offering or private placement.
(d) The Board of Directors may only reduce the Excepted Holder Limit for an Excepted
Holder: (1) with the written consent of such Excepted Holder at any time, or (2) pursuant to the terms and conditions of the agreements and undertakings entered into with such Excepted Holder in connection with the establishment of
the Excepted Holder Limit for that Excepted Holder. No Excepted Holder Limit shall be reduced to a percentage that is less than the Common Stock Ownership Limit.
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Section 7.2.8
Increase or Decrease in Common Stock
Ownership or Aggregate Stock Ownership Limits
. Subject to Section 7.2.1(a)(ii) and this Section 7.2.8, the Board of Directors may from time to time increase or decrease the Common Stock Ownership Limit and the Aggregate Stock
Ownership Limit for one or more Persons and increase or decrease the Common Stock Ownership Limit and the Aggregate Stock Ownership Limit for all other Persons. No decreased Common Stock Ownership Limit or Aggregate Stock Ownership Limit will
be effective for any Person whose percentage of ownership of Capital Stock is in excess of such decreased Common Stock Ownership Limit or Aggregate Stock Ownership Limit, as applicable, until such time as such Persons percentage of ownership
of Capital Stock equals or falls below the decreased Common Stock Ownership Limit or Aggregate Stock Ownership Limit, as applicable;
provided
,
however
, any further acquisition of Capital Stock by any such Person (other than a Person
for whom an exemption has been granted pursuant to Section 7.2.7(a) or an Excepted Holder) in excess of the Capital Stock owned by such person on the date the decreased Common Stock Ownership Limit or Aggregate Stock Ownership Limit, as
applicable, became effective will be in violation of the Common Stock Ownership Limit or Aggregate Stock Ownership Limit. No increase to the Common Stock Ownership Limit or Aggregate Stock Ownership Limit may be approved if the new Common Stock
Ownership Limit and/or Aggregate Stock Ownership Limit would allow five or fewer Persons to Beneficially Own, in the aggregate, more than 49.9% in value of the outstanding Capital Stock.
Section 7.2.9
Legend
. Each certificate for shares of Capital Stock, if certificated,
or the notice in lieu of a certificate shall bear substantially the following legend:
The shares
represented by this certificate are subject to restrictions on Beneficial Ownership and Constructive Ownership and Transfer for the purpose, among others, of the Corporations maintenance of its status as a Real Estate Investment Trust under
the Internal Revenue Code of 1986, as amended (the Code). Subject to certain further restrictions and except as expressly provided in the Corporations Charter, (i) no Person may Beneficially Own or Constructively Own
shares of the Corporations Class A Common Stock in excess of the Common Stock Ownership Limit, unless such Person is an Excepted Holder (in which case the Excepted Holder Limit shall be applicable); (ii) no Person may Beneficially Own or
Constructively Own shares of Capital Stock of the Corporation in excess of the Aggregate Stock Ownership Limit, unless such Person is an Excepted Holder (in which case the Excepted Holder Limit shall be applicable); (iii) no Person may
Beneficially Own or Constructively Own Capital Stock that would result in the Corporation being closely held under Section 856(h) of the Code or otherwise cause the Corporation to fail to qualify as a REIT; and (iv) no Person
may Transfer shares of Capital Stock if such Transfer would result in the Capital Stock of the Corporation being owned by fewer than 100 Persons. Any Person who Beneficially Owns or Constructively Owns or attempts or intends to Beneficially Own
or Constructively Own shares of Capital Stock which cause or will cause a Person to Beneficially Own or Constructively Own shares of Capital Stock in excess or in violation of the above limitations must immediately notify the Corporation. If
any of the restrictions on transfer or ownership provided in (i), (ii) or (iii) above are violated, the shares of Capital Stock in excess or in violation of the above limitations will be automatically transferred to a Trustee of a Trust for the
benefit of one or more Charitable Beneficiaries. In addition, the Corporation may redeem shares upon the terms and conditions specified by the Board of Directors in its sole and absolute discretion if the Board of Directors determines that
ownership or a Transfer or other event may violate the restrictions described above. Furthermore, if the ownership restriction provided in (iv) above would be violated, or upon the occurrence of certain events, attempted Transfers in
violation of the restrictions described above may be void
ab initio
. All capitalized terms in this legend have the meanings given to them in the Charter of the Corporation, as the same may be amended from time to time, a copy of which,
including the restrictions on transfer and ownership, will be furnished to each holder of shares of Capital Stock of the Corporation on request and without charge. Requests for such a copy may be directed to the Secretary of the Corporation at
its principal office.
Instead of the foregoing legend, the certificate or notice may state that the Corporation will
furnish a full statement about certain restrictions on ownership and transferability to a stockholder on request and without charge.
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Section 7.3
Transfer of Capital Stock in Trust
.
Section 7.3.1
Ownership in Trust
. Upon any purported Transfer or other event
described in Section 7.2.1(b) that would result in a transfer of shares of Capital Stock to a Trust, such shares of Capital Stock shall be deemed to have been transferred to the Trustee as trustee of a Trust for the exclusive benefit of one or
more Charitable Beneficiaries. Such transfer to the Trustee shall be deemed to be effective as of the close of business on the Business Day prior to the purported Transfer or other event that results in the transfer to the Trust pursuant to
Section 7.2.1(b). The Trustee shall be appointed by the Corporation and shall be a Person unaffiliated with the Corporation and any Prohibited Owner. Each Charitable Beneficiary shall be designated by the Corporation as provided in
Section 7.3.6.
Section 7.3.2
Status of Shares Held by the Trustee
. Shares of
Capital Stock held by the Trustee shall be issued and outstanding shares of Capital Stock of the Corporation. The Prohibited Owner shall have no rights in the shares held by the Trustee. The Prohibited Owner shall not benefit economically
from ownership of any shares held in trust by the Trustee, shall have no rights to dividends or other distributions and shall not possess any rights to vote or other rights attributable to the shares held in the Trust.
Section 7.3.3
Dividend and Voting Rights
. The Trustee shall have all voting rights and
rights to dividends or other distributions with respect to shares of Capital Stock held in the Trust, which rights shall be exercised for the exclusive benefit of the Charitable Beneficiary. Any dividend or other distribution paid prior to the
discovery by the Corporation that the shares of Capital Stock have been transferred to the Trustee shall be paid by the recipient of such dividend or distribution to the Trustee upon demand, and any dividend or other distribution authorized but
unpaid shall be paid when due to the Trustee. Any dividend or distribution so paid to the Trustee shall be held in trust for the Charitable Beneficiary. The Prohibited Owner shall have no voting rights with respect to shares of Capital
Stock held in the Trust and, subject to Maryland law, effective as of the date that the shares of Capital Stock have been transferred to the Trust, the Trustee shall have the authority (at the Trustees sole and absolute discretion) (i) to
rescind as void any vote cast by a Prohibited Owner prior to the discovery by the Corporation that the shares of Capital Stock have been transferred to the Trust and (ii) to recast such vote in accordance with the desires of the Trustee acting
for the benefit of the Charitable Beneficiary;
provided
,
however
, that if the Corporation has already taken irreversible corporate action, then the Trustee shall not have the authority to rescind and recast such
vote. Notwithstanding the provisions of this Article VII, until the Corporation has received notification that shares of Capital Stock have been transferred into a Trust, the Corporation shall be entitled to rely on its stock transfer and
other stockholder records for purposes of preparing lists of stockholders entitled to vote at meetings, determining the validity and authority of proxies and otherwise conducting votes and determining the other rights of stockholders.
Section 7.3.4
Sale of Shares by Trustee
. Within 20 days of receiving notice from the
Corporation that shares of Capital Stock have been transferred to the Trust, the Trustee of the Trust shall sell the shares held in the Trust to a person, designated by the Trustee, whose ownership of the shares will not violate the ownership
limitations set forth in Section 7.2.1(a). Upon such sale, the interest of the Charitable Beneficiary in the shares sold shall terminate and the Trustee shall distribute the net proceeds of the sale to the Prohibited Owner and to the
Charitable Beneficiary as provided in this Section 7.3.4. The Prohibited Owner shall receive the lesser of (1) the price paid by the Prohibited Owner for the shares or, if the Prohibited Owner did not give value for the shares in
connection with the event causing the shares to be held in the Trust (
e.g.
, in the case of a gift, devise or other such transaction), the Market Price of the shares on the day of the event causing the shares to be held in the Trust and
(2) the price per share received by the Trustee (net of any commissions and other expenses of sale) from the sale or other disposition of the shares held in the Trust. The Trustee may reduce the amount payable to the Prohibited Owner by
the amount of dividends and distributions which have been paid to the Prohibited Owner and are owed by the Prohibited Owner to the Trustee pursuant to Section 7.3.3 of this Article VII. Any net sales proceeds in excess of the amount
payable to the Prohibited Owner shall be retained by or immediately paid to the Charitable Beneficiary. If, prior to the discovery by the Corporation that shares of Capital Stock have been transferred to the Trustee, such shares are sold by a
Prohibited Owner, then (i) such shares shall be deemed to
A-11
have been sold on behalf of the Trust and (ii) to the extent that the Prohibited Owner received an amount for such shares that exceeds the amount that such Prohibited Owner was entitled to
receive pursuant to this Section 7.3.4, such excess shall be paid to the Trustee upon demand.
Section 7.3.5
Purchase Right in Stock Transferred to the Trustee
. Shares of Capital
Stock transferred to the Trustee shall be deemed to have been offered for sale to the Corporation, or its designee, at a price per share equal to the lesser of (i) the price per share in the transaction that resulted in such transfer to the
Trust (or, in the case of a devise or gift, the Market Price at the time of such devise or gift) and (ii) the Market Price on the date the Corporation, or its designee, accepts such offer. The Corporation may reduce the amount payable to
the Prohibited Owner by the amount of dividends and distributions which have been paid to the Prohibited Owner and are owed by the Prohibited Owner to the Trustee pursuant to Section 7.3.3 of this Article VII. The Corporation may pay
the amount of such reduction to the Trustee for the benefit of the Charitable Beneficiary. The Corporation shall have the right to accept such offer until the Trustee has sold the shares held in the Trust pursuant to
Section 7.3.4. Upon such a sale to the Corporation, the interest of the Charitable Beneficiary in the shares sold shall terminate and the Trustee shall distribute the net proceeds of the sale to the Prohibited Owner.
Section 7.3.6
Designation of Charitable Beneficiaries
. By written notice to the
Trustee, the Corporation shall designate one or more nonprofit organizations to be the Charitable Beneficiary or Charitable Beneficiaries of the interest in the Trust such that (i) the shares of Capital Stock held in the Trust would not violate
the restrictions set forth in Section 7.2.1(a) in the hands of such Charitable Beneficiary or Charitable Beneficiaries and (ii) each such organization must be as described in Section 501(c)(3) of the Code and contributions to each
such organization must be eligible for deduction under each of Sections 170(b)(1)(A), 2055 and 2522 of the Code. Neither the failure of the Corporation to make such designation nor the failure of the Corporation to appoint the Trustee
before the automatic transfer provided in Section 7.2.1(b) shall make such transfer ineffective, provided that the Corporation thereafter makes such designation and appointment.
Section 7.4
NYSE Transactions
. Nothing in this Article VII shall preclude the
settlement of any transaction entered into through the facilities of the NYSE or any other national securities exchange or automated inter-dealer quotation system. The fact that the settlement of any transaction occurs shall not negate the
effect of any other provision of this Article VII and any transferee in such a transaction shall be subject to all of the provisions and limitations set forth in this Article VII.
Section 7.5
Enforcement
. The Corporation is authorized specifically to seek equitable
relief, including injunctive relief, to enforce the provisions of this Article VII.
Section
7.6
Non-Waiver
. No delay or failure on the part of the Corporation or the Board of Directors in exercising any right hereunder shall operate as a waiver of any right of the Corporation or the Board of Directors, as
the case may be, except to the extent specifically waived in writing.
ARTICLE VIII
AMENDMENTS
The Corporation reserves the right from time to time to make any amendment to the Charter, now or hereafter authorized by law,
including any amendment altering the terms or contract rights, as expressly set forth in the Charter, of any shares of outstanding stock. All rights and powers conferred by the Charter on stockholders, directors and officers are granted subject
to this reservation. Except for those amendments permitted to be made without stockholder approval under Maryland law or by specific provision in the Charter, any amendment to the Charter shall be valid only if declared advisable by the Board
of Directors and approved by the affirmative vote of holders of shares entitled to cast a majority of all the votes entitled to be cast on the matter.
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ARTICLE IX
LIMITATION OF LIABILITY
To the maximum extent that Maryland law in effect from time to time permits limitation of the liability of directors and
officers of a corporation, no present or former director or officer of the Corporation shall be liable to the Corporation or its stockholders for money damages. Neither the amendment nor repeal of this Article IX, nor the adoption or
amendment of any other provision of the Charter or Bylaws inconsistent with this Article IX, shall apply to or affect in any respect the applicability of the preceding sentence with respect to any act or failure to act which occurred prior to
such amendment, repeal or adoption.
THIRD
: The amendment to and restatement of the charter as hereinabove set
forth have been duly advised by the Board of Directors and approved by the stockholders of the Corporation as required by law.
FOURTH
: The current address of the principal office of the Corporation is as set forth in Article IV of the
foregoing amendment and restatement of the charter.
FIFTH
: The name and address of the Corporations
current resident agent are as set forth in Article IV of the foregoing amendment and restatement of the charter.
SIXTH
: The number of directors of the Corporation is currently 13, and the names of the current directors are as
follows:
[TO INSERT NAMES OF THEN-SERVING DIRECTORS]
SEVENTH
: The total number of shares of capital stock which the Corporation had authority to issue immediately prior to
the foregoing amendment and restatement of the charter was 447,000,000, consisting of 371,000,000 shares of Class A Common Stock, $0.01 par value per share, 56,000,000 shares of Class B Common Stock, $0.01 par value per share, and 20,000,000 shares
of Preferred Stock, $0.01 par value per share. The aggregate par value of all shares of stock having par value was $4,470,000.
EIGHTH
: The total number of shares of stock which the Corporation has authority to issue pursuant to the foregoing
amendment and restatement of the charter is 391,000,000, consisting of 371,000,000 shares of Class A Common Stock, $0.01 par value per share, and 20,000,000 shares of Preferred Stock, $0.01 par value per share. The aggregate par value of all
authorized shares of stock having par value is $3,910,000.
NINTH
: The undersigned acknowledges these Articles
of Amendment and Restatement to be the corporate act of the Corporation and as to all matters or facts required to be verified under oath, the undersigned acknowledges that, to the best of his knowledge, information and belief, these matters and
facts are true in all material respects and that this statement is made under the penalties for perjury.
[
SIGNATURE PAGE FOLLOWS
]
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IN WITNESS WHEREOF, the Corporation has caused these Articles of Amendment and
Restatement to be signed in its name and on its behalf by its [ ] and attested to by its [ ] on this [ ] day of [ ], 2017.
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ATTEST:
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FOREST CITY REALTY TRUST, INC.
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By:
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[ ]
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[ ]
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[ ]
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[ ]
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A-14
A
NNEX
B
RECLASSIFICATION AGREEMENT
RECLASSIFICATION AGREEMENT
by and between
FOREST
CITY REALTY TRUST, INC.
and
RMS, LIMITED PARTNERSHIP
Dated as of December 5, 2016
B-1
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TABLE OF CONTENTS
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Page
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ARTICLE I
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DEFINITIONS
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Section 1.1
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Definitions
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B-5
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Section 1.2
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Interpretation
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B-8
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ARTICLE II
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THE CLOSING; EFFECT ON CAPITAL STOCK
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Section 2.1
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Closing
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B-8
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Section 2.2
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Reclassification of Capital Stock
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B-9
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Section 2.3
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Delivery of Consideration; No Fractional Shares
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B-9
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Section 2.4
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Agent Arrangements
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B-9
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Section 2.5
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Tax Withholding
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B-10
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ARTICLE III
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REPRESENTATIONS AND WARRANTIES OF THE COMPANY
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Section 3.1
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Corporate Power and Authority
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B-10
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Section 3.2
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Capitalization
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B-10
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Section 3.3
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Conflicts; Consents and Approvals
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B-11
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Section 3.4
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Board Recommendation
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B-11
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Section 3.5
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Registration Statement/Proxy Statement
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B-11
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Section 3.6
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Opinions
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B-11
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Section 3.7
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Litigation
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B-12
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ARTICLE IV
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REPRESENTATIONS AND WARRANTIES OF RMS
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Section 4.1
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Title to Shares
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B-12
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Section 4.2
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Power and Authority
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B-12
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Section 4.3
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Conflicts; Consents and Approvals
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B-12
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Section 4.4
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Litigation
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B-13
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Section 4.5
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Registration Statement/Proxy Statement
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B-13
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Section 4.6
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Finders Fees
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B-13
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ARTICLE V
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COVENANTS
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Section 5.1
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2017 Annual Meeting
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B-13
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Section 5.2
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Registration Statement; Proxy Materials
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B-13
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Section 5.3
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Voting; Restriction on Transfers and Pledges; Irrevocable Proxy
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B-14
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Section 5.4
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Section 16 Matters
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B-15
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Section 5.5
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Further Assurances
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B-15
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Section 5.6
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Release
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B-16
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Section 5.7
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Public Announcement
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B-16
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Section 5.8
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Governance Matters
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B-16
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B-2
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ARTICLE VI
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CONDITIONS PRECEDENT
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Section 6.1
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Conditions to Each Partys Obligation
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B-17
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Section 6.2
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Additional Conditions to the Companys Obligation
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B-18
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Section 6.3
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Additional Conditions to RMSs Obligation
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B-18
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ARTICLE VII
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TERMINATION
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Section 7.1
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Termination
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B-19
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Section 7.2
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Notice of Termination
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B-20
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Section 7.3
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Effect of Termination and Abandonment
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B-20
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ARTICLE VIII
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MISCELLANEOUS
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Section 8.1
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Counterparts
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B-20
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Section 8.2
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Entire Agreement
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B-20
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Section 8.3
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Severability
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B-20
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Section 8.4
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Third-Party Beneficiaries
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B-21
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Section 8.5
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Governing Law; Jurisdiction; WAIVER OF JURY TRIAL
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B-21
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Section 8.6
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Specific Performance
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B-21
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Section 8.7
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Amendment
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B-21
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Section 8.8
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Notices
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Section 8.9
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Assignment
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Section 8.10
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Fees and Expenses
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Section 8.11
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Waiver
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Annex A Form of Proposed Amendments
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Annex B Form of Irrevocable Proxy
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Annex C Form of Proposed Bylaws
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Annex D Amendment to Corporate Governance Guidelines
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This RECLASSIFICATION AGREEMENT (this
Agreement
) is made and
entered into as of December 5, 2016, by and between Forest City Realty Trust, Inc., a Maryland corporation (the
Company
), and RMS, Limited Partnership, an Ohio limited partnership (
RMS
);
WHEREAS, as of December 2, 2016, there were 241,552,912 shares of Class A Common Stock of the Company, $0.01 par value per
share (the
Class A Common Stock
), issued and outstanding and 18,788,169 shares of Class B Common Stock of the Company, $0.01 par value per share (the
Class B Common Stock
), issued and outstanding;
WHEREAS, as of December 5, 2016, RMS, together with other Ratner Family Members, own beneficially, and RMS has the sole power
to vote or direct the voting of 17,373,203 shares of Class B Common Stock;
WHEREAS, the Board of Directors of the Company
(the
Board
), following receipt of the unanimous recommendation of a special committee of the Board comprised solely of independent directors elected by the holders of Class A Common Stock (the
Special
Committee
), has declared that the amendment and restatement of the charter of the Company (the
Charter
), substantially in the form attached hereto as
Annex A
(the
Articles of Amendment and
Restatement
), and the amendment and restatement of the Charter contemplated thereby (the
Proposed Amendments
), are advisable and in the best interests of the Company, and resolved to recommend that the Stockholders
approve the Proposed Amendments pursuant to which, at the Effective Time, among other things, each share of Class B Common Stock issued and outstanding immediately prior to the Effective Time shall, without any action on the part of the holder
thereof, be reclassified and exchanged into 1.31 shares of Class A Common Stock (such ratio of 1:1.31, the
Exchange Ratio
);
WHEREAS, the Special Committee has received the opinion of Lazard Frères & Co. LLC, financial advisor to the
Special Committee, dated the date hereof, to the effect that, subject to the assumptions, limitations, qualifications and other matters considered in connection with the preparation of such opinion, as of the date of such opinion, the Exchange Ratio
in the Reclassification is fair, from a financial point of view, to the holders of Class A Common Stock (other than the RMS Group) (solely in their capacity as holders of shares of Class A Common Stock, with respect to such Class A Common Stock and
without taking into account any shares of Class B Common Stock held by such holders), and the Board has received the opinion of Houlihan Lokey Capital, Inc., dated the date hereof, to the effect that, subject to the assumptions, limitations,
qualifications and other matters considered in connection with the preparation of such opinion, as of the date of such opinion, the Exchange Ratio in the Reclassification is fair, from a financial point of view, to holders of Class B Common Stock
(other than the RMS Group) (solely in their capacity as holders of shares of Class B Common Stock, with respect to such Class B Common Stock and without taking into account any shares of Class A Common Stock held by such holders);
WHEREAS, on the date hereof, Bruce C. Ratner has submitted notice of his resignation as a director to the Board, which
resignation shall take effect on December 31, 2016;
WHEREAS, on the date hereof, Charles A. Ratner has informed the Board
that he will retire as a director to the Board and such retirement shall take effect on December 31, 2016 in accordance with the terms of this Agreement;
WHEREAS, the Company desires to obtain RMSs support of the Proposed Amendments, and the parties intend that the
irrevocable appointment of proxies by RMS pursuant to the RMS Proxy be coupled with an interest by virtue of RMSs entering into this Agreement, and the voting obligations contained herein; and
WHEREAS, the Reclassification is intended to constitute a reorganization of the Company within the meaning of Section
368(a)(1)(E) of the Internal Revenue Code of 1986, as amended.
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NOW, THEREFORE, in consideration of the foregoing and the mutual representations,
warranties, covenants, agreements and conditions set forth in this Agreement, the Company and RMS agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1
Definitions
. As used in this Agreement, the following
terms shall have the meanings set forth below:
2017 Annual Meeting
means the Companys 2017
annual meeting of Stockholders, including any postponement or adjournment thereof.
2018 Annual Meeting
means the Companys 2018 annual meeting of Stockholders, including any postponement or adjournment thereof.
2019 Annual Meeting
means the Companys 2019 annual meeting of Stockholders, including any
postponement or adjournment thereof.
2020 Annual Meeting
means the Companys 2020 annual meeting
of Stockholders, including any postponement or adjournment thereof.
2021 Annual Meeting
means the
Companys 2021 annual meeting of Stockholders, including any postponement or adjournment thereof.
2022
Annual Meeting
means the Companys 2022 annual meeting of Stockholders, including any postponement or adjournment thereof.
Agent
has the meaning set forth in
Section 2.4(a)
.
Agreement
has the meaning set forth in the Preamble.
Articles of Amendment and Restatement
has the meaning set forth in the Recitals.
beneficially own
and
beneficial ownership
shall have the meanings ascribed to such terms
in Rule 13d-3 under the Exchange Act, except that such terms shall also include options, warrants, swaps, derivatives, convertible securities, stock appreciation rights and other rights or instruments, whether real or synthetic.
Board
has the meaning set forth in the Recitals.
Business Day
means any day other than a day on which commercial banks in the State of Maryland are
authorized or obligated by Law to be closed.
Charter
has the meaning set forth in the Recitals.
Claims
has the meaning set forth in
Section 5.6
.
Class A Common Stock
has the meaning set forth in the Recitals.
Class B Common Stock
has the meaning set forth in the Recitals.
Class B Record Holders
has the meaning set forth in
Section 2.4(b)
.
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Closing
has the meaning set forth in
Section 2.1
.
Closing Date
has the meaning set forth in
Section 2.1
.
Company
has the meaning set forth in the Preamble.
Company Bylaws
has the meaning set forth in
Section 3.3
.
Company Securities
means (i) any shares of capital stock or other equity interests of the Company, (ii) any
other securities of the Company granting voting rights, (iii) any warrants, options, convertible or exchangeable securities, subscriptions, calls or other rights (including any preemptive or similar rights) to subscribe for or purchase or acquire
any of the securities described in the foregoing clauses (i) and (ii) or (iv) any security, instrument or agreement granting economic rights or benefits based upon the value or price of, or the value or price of which is determined by reference to,
any of the securities described in the foregoing clauses (i) through (iii), regardless of whether such security, instrument or agreement is or may be settled in securities, cash or other assets.
Continuing RMS Designees
means two individuals designated by RMS reasonably acceptable to the Corporate
Governance and Nominating Committee (it being understood that any individual who is then an Initial RMS Designee shall be deemed to be reasonably acceptable to the Corporate Governance and Nominating Committee unless such individual shall have been
indicted or convicted of a felony) or, if RMS fails to make such designation 15 Business Days prior to the first anniversary of mailing of the Companys proxy statement with respect to the 2019 Annual Meeting, two individuals who are Ratner
Family Members who shall be designated by the Board);
provided
, however, that if a Continuing RMS Designee that is a director (i) prior to the 2022 Annual Meeting, voluntarily resigns as director of the Company, becomes unable to serve as a
director of the Company as a result of incapacity, dies, or (ii) prior to the 2021 Annual Meeting, indicates to RMS and the Board in writing that he or she is unwilling to stand for election as a director of the Company at the 2020 Annual Meeting or
2021 Annual Meeting, as the case may be, or fails to be re-elected as a director at any annual meeting of Stockholders at which such Continuing RMS Designee was nominated for election pursuant to
Section 5.8(d)
(and the Board accepts such
Continuing RMS Designees resignation, in the event there was no election contest at such annual meeting and such Continuing RMS Designee was standing for re-election) then, in each case, such person shall no longer be a Continuing RMS Designee
and RMS shall be entitled to designate a replacement individual reasonably acceptable to the Corporate Governance and Nominating Committee, who shall thereupon be deemed to be a Continuing RMS Designee.
Corporate Governance and Nominating Committee
means the Corporate Governance and Nominating Committee of
the Board.
Effective Time
has the meaning set forth in
Section 2.2(a)
.
Encumbrances
means any and all liens, charges, security interests, claims, pledges, encumbrances,
assessments, options, deeds of trust, judgments, voting trusts, charges and other similar restrictions.
Exchange
Act
has the meaning set forth in
Section 3.5(a)
.
Exchange Ratio
has the meaning set
forth in
Section 2.2(b)
.
Governmental Authority
means any (a) regional, federal, state,
provincial, local, foreign or international government, governmental or quasi-governmental authority, regulatory authority or administrative agency or (b) court, tribunal, arbitrator, arbitral body (public or private) or self-regulatory
organization.
Governmental Order
means any order, ruling, writ, judgment, injunction, decree,
stipulation, approval, authorization or determination entered by any Governmental Authority.
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Initial RMS Designee
means each of Brian J. Ratner, James A.
Ratner, Ronald A. Ratner and Deborah Ratner Salzberg;
provided
,
however
, that if an Initial RMS Designee that is a director (i) prior to the 2020 Annual Meeting, voluntarily resigns as director of the Company, becomes unable to serve
as a director of the Company as a result of incapacity, or dies, or (ii) prior to the 2019 Annual Meeting, indicates to RMS and the Board in writing that he or she is unwilling to stand for election as a director of the Company at the 2017 Annual
Meeting, 2018 Annual Meeting, or 2019 Annual Meeting, as the case may be, or fails to be re-elected as a director at any annual meeting of Stockholders at which such Initial RMS Designee was nominated for election pursuant to
Section 5.8(c)
(and the Board accepts such Initial RMS Designees resignation, in the event there was no election contest at such annual meeting and such Initial RMS Designee was standing for re-election), then, in each case, such person shall no longer be an
Initial RMS Designee, RMS shall be entitled to designate a replacement individual reasonably acceptable to the Corporate Governance and Nominating Committee and such individual shall thereupon be deemed to be an Initial RMS Designee.
Law
means all applicable provisions of any law (including common law), statutes, constitutions,
treaties, rules, regulations, ordinances, codes or Governmental Order.
Legal Restraint
has the meaning
set forth in
Section 6.1(c)
.
MGCL
means the Maryland General Corporation Law.
NYSE
has the meaning set forth in
Section 3.3
.
Outside Date
has the meaning set forth in
Section 7.1(d)
.
person
means an individual, corporation, partnership, limited liability company, joint venture,
association, trust, unincorporated organization or other entity.
Proposed Amendments
has the meaning
set forth in the Recitals.
Proxy Statement
has the meaning set forth in
Section 3.5(a)
.
Ratner Family Member
means any person who or which is any of the following: (i) a Ratner Patriarch, (ii) a
direct or indirect descendant of a Ratner Patriarch (whether adoptive or biological), (iii) a current or former spouse of any of the foregoing, (iv) the estate of any of the foregoing, (v) any entity described in Section 501(c)(3) of the Internal
Revenue Code which is controlled by any or all of the persons referenced in clauses (i) through (iii) above or clause (vii) below, (vi) a trust established by any of the foregoing primarily for the benefit of any or all of the persons referenced in
clauses (i) through (v) above or clause (vii) below or for charitable purposes, or (vii) any corporation, partnership, limited liability company or other entity that is controlled by one or more Ratner Family Members.
Ratner Patriarch
means each of Mr. Max Ratner, Mr. Leonard Ratner, Mr. Nathan P. Shafran and
Mr. Samuel H. Miller.
Reclassification
means the transactions contemplated by virtue of the
effectiveness of the Proposed Amendments, as set forth in
Section 2.2(b)
.
Registration
Statement
has the meaning set forth in
Section 3.5(a)
.
Reimbursement Agreement
means
that certain Reimbursement Agreement, dated October 24, 2016, by and between the Company and RMS.
Representative
means, with respect to any person, such persons directors, officers, employees,
agents, advisors, attorneys, accountants, members, partners and other representatives.
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Requisite Stockholder Approval
has the meaning set forth in
Section 5.1
.
RMS
has the meaning set forth in the Preamble.
RMS Group
means, collectively, RMS, each general and limited partner of RMS, and any other person that acts
as a group (within the meaning of Section 13(d) of the Exchange Act) with RMS for the purpose of acquiring, holding or disposing of Class B Common Stock.
RMS Proxy
has the meaning set forth in
Section 5.3(d)
.
RMS Shares
means all shares of Class A Common Stock and Class B Common Stock from time to time beneficially
owned by RMS.
SDAT
means the State Department of Assessments and Taxation of Maryland.
SEC
has the meaning set forth in
Section 3.3
.
Securities Act
has the meaning set forth in
Section 3.5(a)
.
Stockholders
means the stockholders of the Company at the time of reference thereto.
Special Committee
has the meaning set forth in the Recitals.
Section 1.2
Interpretation
. When a reference is made in this
Agreement to Sections or Annexes, such reference shall be to a Section of or Annex to this Agreement unless otherwise indicated. The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement. The term parties shall mean the Company and RMS, and the term party shall be deemed to refer to either the Company or RMS, as the case may be. Whenever the
words include, includes or including are used in this Agreement, they shall be deemed to be followed by the words without limitation. Except as otherwise specified, any reference to a contract,
instrument or other document as of a given date means the contract, instrument or other document as amended, supplemented and modified. Words in singular will be held to include the plural and vice versa and a word of one gender will be held to
include the other genders as the context requires. The word or will not be exclusive. The phrases the date of this Agreement and the date hereof shall be deemed to refer to the date set forth on the
cover of this Agreement. The parties agree that this Agreement is the product of discussions and negotiations between the parties and their respective advisors, each of the parties was represented by counsel in connection therewith and,
accordingly, this Agreement and any document generated in connection herewith shall be construed without regard to any presumption or rule requiring construction or interpretation against the party drafting or causing any document to be drafted.
ARTICLE II
THE
CLOSING; EFFECT ON CAPITAL STOCK
Section
2.1
Closing
. Unless another time, date or place is mutually agreed in writing between the Company and RMS, the closing of the Reclassification (the
Closing
) shall take
place at the offices of Sullivan & Cromwell LLP, 125 Broad Street, New York, NY, commencing at 9:00 a.m., Eastern Time, on the earliest practicable day (but no later than the third Business Day) following satisfaction or waiver of the conditions
set forth in
ARTICLE VI
(other than those conditions that by their nature are to be satisfied at the Closing, but subject to the satisfaction or waiver of those conditions). The date on which the Closing occurs shall be the
Closing Date
.
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Section 2.2
Reclassification of
Capital Stock
.
(a) At the Closing, the Company shall file the Articles
of Amendment and Restatement with the SDAT and the Proposed Amendments shall become effective on the date and at the time of the acceptance for record of the Articles of Amendment and Restatement by the SDAT (the
Effective Time
).
(b) As of the Effective Time, pursuant to Section 6.4 of Article VI of the
Charter, each share of Class B Common Stock issued and outstanding immediately prior to the Effective Time shall, without any action on the part of the holder thereof, be reclassified and exchanged into 1.31 shares of Class A Common Stock (the
Exchange Ratio
). From and after the Effective Time, shares of Class B Common Stock shall no longer be deemed to be outstanding as Class B Common Stock, and all rights of the holders of Class B Common Stock shall cease and
become rights of holders of Class A Common Stock, except for the right to shares of Class A Common Stock and cash in lieu of fractional shares of Class A Common Stock in accordance with the Reclassification.
Section 2.3
Delivery of Consideration
; No Fractional
Shares
. No later than the Closing Date, the Company will instruct the transfer agent to create book-entries in respect of each share of Class A Common Stock into which the issued and outstanding shares of Class B Common Stock have been
exchanged for and reclassified pursuant to the Reclassification, which shares of Class A Common Stock shall be uncertificated. No fractional shares of Class A Common Stock shall be issued in the Reclassification. All fractional shares of
Class A Common Stock that a holder of shares of Class B Common Stock would otherwise be entitled to receive as a result of the Reclassification shall be aggregated and, if a fractional share results from such aggregation, such holder shall be
entitled to receive, in lieu thereof, an amount in cash without interest determined as follows: the Agent shall (i) aggregate such fractional interests, (ii) sell the shares resulting therefrom and (iii) allocate and distribute the net proceeds
received from the sale (after deducting commissions and other expenses arising from such sale), without interest, among the holders of the fractional interests as their respective interests appear.
Section 2.4
Agent Arrangements
.
(a) Prior to the Closing, subject to
Section 2.4(c)
, the Company shall
enter into an agreement with a bank, trust company or other appropriate service provider (the
Agent
), which agreement shall provide, among other things, for the replacement of book-entries with respect to shares of Class B Common
Stock held in book-entry form with book-entries in respect of each share of Class A Common Stock into which the issued and outstanding shares of Class B Common Stock have been exchanged and reclassified, in accordance with
Section 2.2(b)
.
(b) As soon as is reasonably practicable after
the Effective Time, the Company shall cause the Agent to transmit to each holder of record of outstanding book-entry shares of Class B Common Stock immediately prior to the Effective Time (such holders, the
Class B Record Holders
)
a customary letter to book-entry shareholders.
(c) Upon receipt of an
appropriate agents message or other electronic confirmation from a Class B Record Holder, and such other documents as may be reasonably required by the Agent or the Company, the Agent shall register in the name of such Class B Record
Holder the shares of Class A Common Stock into which each share of Class B Common Stock represented by such book-entry has been exchanged and reclassified, as set forth in
Section 2.2(b)
and subject to
Section 2.5
. Until receipt
of an appropriate agents message or other electronic confirmation, each book-entry that formerly represented a share of Class B Common Stock shall be deemed, from and after the Effective Time, to represent the shares of Class A Common Stock
into which such share of Class B Common Stock has been exchanged and reclassified, as set forth in
Section 2.2(b)
and subject to
Section 2.5
.
(d) No dividends or other distributions that are declared or paid on the Class
A Common Stock with a record date after the Effective Time will be paid to former holders of Class B Common Stock that have been reclassified into Class A Common Stock until such persons take appropriate action with respect to their book-entry
shares in accordance with this
Section 2.4
. Upon such appropriate action being taken, there shall be
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paid to the person in whose name the book-entry in respect of such Class A Common Stock has been made any dividends or other distributions which shall have become payable with respect to the
Class A Common Stock in respect of a record date after the Effective Time, without interest. In the event that any book-entry in respect of shares of Class A Common Stock is to be made in a name other than, with respect shares of Class B Common
Stock held in uncertificated book-entry form, that appearing in such book-entry, it shall be a condition of the creation of such book-entry that the person making such request (i) shall pay to the Agent any transfer or other taxes required by reason
of the registration of such shares of Class A Common Stock in a name other than that of the registered holder, or (ii) shall establish to the satisfaction of the Agent that such transfer or other tax has been paid or is not
applicable. Notwithstanding the foregoing, neither the Agent nor any party hereto shall be liable to a former holder of Class B Common Stock for any shares of Class A Common Stock or dividends or other distributions thereon delivered to a
public official pursuant to any applicable escheat Laws.
Section
2.5
Tax Withholding
. The Company and the Agent shall be entitled to deduct and withhold from amounts otherwise payable pursuant to this Agreement, any taxes that are required to be deducted
or withheld under applicable tax Law with respect to the making of such payment. To the extent that amounts are so deducted or withheld, such amounts shall be treated for all purposes of this Agreement as having been paid to the person in
respect of which such deduction and withholding were made.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
In order to induce RMS to enter into this Agreement, the Company hereby represents and warrants to RMS as follows:
Section 3.1
Corporate Power and Authority
. The Company is a duly
organized and validly existing corporation under the Laws of the State of Maryland and in good standing with the SDAT. The Company has all requisite corporate power and authority to enter into and deliver this Agreement, to perform its
obligations hereunder and to consummate the transactions contemplated by this Agreement and the RMS Proxy. The execution, delivery and performance of this Agreement and the RMS Proxy by the Company have been duly authorized by all necessary
corporate action on the part of the Company, subject to receipt of the Requisite Stockholder Approval at a meeting of Stockholders duly called and held at which a quorum was established. This Agreement and the RMS Proxy have been duly executed
and delivered by the Company and (assuming due authorization, execution and delivery by RMS) constitutes the legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms, subject to (i) applicable
bankruptcy, insolvency, fraudulent conveyance, moratorium and other similar Laws and (ii) general principles of equity, including equitable defenses and limits as to the availability of equitable remedies, whether such principles are considered in a
proceeding at law or in equity.
Section 3.2
Capitalization
.
(a) As of the date of this Agreement, the Companys authorized capital
stock consists solely of (i) 20,000,000 shares of preferred stock, $0.01 par value per share (the
Preferred Stock
), (ii) 371,000,000 shares of Class A Common Stock and (iii) 56,000,000 shares of Class B Common
Stock. As of December 2, 2016, (1) no shares of Preferred Stock were issued and outstanding, (2) 241,552,912 shares of Class A Common Stock were issued and outstanding and (3) 18,788,169 shares of Class B Common Stock were issued
and outstanding.
(b) Upon consummation of the Reclassification, the shares
of Class A Common Stock into which the shares of Class B Common Stock are being exchanged and reclassified pursuant to the Proposed Amendments will be duly authorized, validly issued, fully paid and nonassessable and will not have been issued in
violation of any preemptive rights or similar rights.
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Section 3.3
Conflicts; Consents
and Approvals
. The execution and delivery of this Agreement and the RMS Proxy by the Company, and the consummation of the Reclassification and the other transactions contemplated hereby and thereby by the Company do not and will not (a)
violate, conflict with, or result in a breach of any provision of, or constitute a default under the Charter or the Companys Amended and Restated Bylaws (the
Company Bylaws
), (b) violate, or conflict with, or result in a
breach of any provision of, or constitute a default (or an event which, with the giving of notice or lapse of time or both, would become a default) under, or entitle any party to terminate, accelerate, modify or call a default under, or result in
the creation of any Encumbrance upon any of the properties or assets of the Company under, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, deed of trust, license, contract, undertaking, agreement, lease or other
instrument or obligation to which the Company is a party (other than any compensation or similar plan or arrangement), (c) violate any Law applicable to the Company, or (d) subject to the Requisite Stockholder Approval, the filing of the
Proposed Amendments with the SDAT, compliance with the Securities Act and the Exchange Act, including required filings with the U.S. Securities and Exchange Commission (the
SEC
), required filings pursuant to state securities or
blue sky Laws and the approval by the New York Stock Exchange (the
NYSE
) of the shares of Class A Common Stock into which the Class B Common Stock shall be exchanged and reclassified by virtue of the Proposed
Amendments for listing (subject to official notice of issuance), require any action or consent or approval of, or review by, or registration or material filing by the Company with, any Governmental Authority, except, with respect to clauses (b), (c)
and (d), as would not reasonably be expected to, individually or in the aggregate, have a material adverse effect on the Company or prevent or materially impair or materially delay the consummation of the Reclassification and the other transactions
contemplated hereby.
Section 3.4
Board Recommendation
. In
accordance with the applicable provisions of the MGCL, the Charter and the Company Bylaws, the Board, at a meeting duly called and held, following receipt of the unanimous recommendation of the Special Committee, adopted resolutions
(a) approving this Agreement, the Reclassification, the RMS Proxy and the other transactions contemplated hereby and thereby, including the adoption of the Proposed Amendments and the issuance of the shares of Class A Common Stock in connection
with the Reclassification, (b) declaring the Proposed Amendments advisable and (c) directing that the Proposed Amendments to be submitted to the Stockholders with a recommendation of the Board that the Stockholders approve the Proposed Amendments.
Section 3.5
Registration Statement/Proxy Statement
.
(a) The Registration Statement on Form S-4 to be filed with the SEC by the
Company, as amended or supplemented from time to time (as so amended and supplemented, the
Registration Statement
), which shall include a proxy statement in connection with the 2017 Annual Meeting (the
Proxy
Statement
), will comply as to form, in all material respects, with the requirements of the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder (the
Exchange Act
), and the
Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder (the
Securities Act
), as the case may be.
(b) Notwithstanding
Section 3.5(a)
, no representation or warranty is
made by the Company with respect to information supplied by RMS or any of its Representatives acting on RMSs behalf, in each case, expressly for inclusion or incorporation by reference in the Registration Statement or the Proxy Statement.
Section 3.6
Opinions
. The Special Committee has received the
opinion of Lazard Frères & Co. LLC, financial advisor to the Special Committee, dated the date hereof, to the effect that, subject to the assumptions, limitations, qualifications and other matters considered in connection with the
preparation of such opinion, as of the date of such opinion, the Exchange Ratio in the Reclassification is fair, from a financial point of view, to the holders of Class A Common Stock (other than the RMS Group) (solely in their capacity as holders
of shares of Class A Common Stock, with respect to such Class A Common Stock and without taking into account any shares of Class B Common Stock held by such holders), and the Board has received the opinion of Houlihan Lokey Capital, Inc., dated the
date hereof, to the effect that, subject to the assumptions, limitations,
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qualifications and other matters considered in connection with the preparation of such opinion, as of the date of such opinion, the Exchange Ratio in the Reclassification is fair, from a
financial point of view, to holders of Class B Common Stock (other than the RMS Group) (solely in their capacity as holders of shares of Class B Common Stock, with respect to such Class B Common Stock and without taking into account any shares
of Class A Common Stock held by such holders).
Section
3.7
Litigation
. As of the date immediately preceding the date hereof, there are no actions, suits or proceedings pending or, to the knowledge of the Company, threatened, against the Company,
at Law or in equity, or before any Governmental Authority, that would reasonably be expected to, individually or in the aggregate, prevent or materially impair or materially delay the consummation of the Reclassification and the other transactions
contemplated by this Agreement and the RMS Proxy.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF RMS
In order to induce the Company to enter into this Agreement, RMS represents and warrants to the Company as follows:
Section 4.1
Title to Shares
. As of the date hereof, RMS owns beneficially 7,496,806 shares
of Class A Common Stock and RMS owns beneficially, and RMS has the sole power to vote or direct the voting of, 17,373,203 shares of Class B Common Stock (the
Existing
RMS Shares
). Except as disclosed
in the Schedule 13D filed by RMS with the SEC prior to the date hereof, as of the date hereof, RMS is not a party or subject to any option, warrant, purchase right, subscription right, conversion right, exchange right, preemptive right, right of
first refusal, call right or other similar right that could require RMS to sell, transfer or otherwise dispose of any shares of Class B Common Stock. Except as disclosed in the Schedule 13D filed by RMS with the SEC prior to the date hereof, as
of the date hereof, RMS is not a party to any voting trust, proxy or other agreement or understanding with respect to the voting of any shares of Class B Common Stock, other than this Agreement and the irrevocable proxy delivered pursuant to
Section
5.3(d)
. RMS does not hold, own, or have the power to vote, directly or indirectly, any Company Securities other than the Existing RMS Shares.
Section 4.2
Power and Authority
. RMS is a duly organized and validly existing limited
partnership under the Laws of the State of Ohio and in good standing under the Laws of the State of Ohio. RMS has full organizational power and authority to enter into and deliver this Agreement and the RMS Proxy, to perform its obligations
hereunder and thereunder and to consummate the Reclassification and the other transactions contemplated by this Agreement and the RMS Proxy. The execution, delivery and performance of this Agreement and the RMS Proxy by RMS has been duly
authorized by all necessary partnership action on the part of RMS. Except as has already been obtained, no vote or consent of any Representative of RMS (in their capacity as such) is necessary for RMS to enter into and deliver this Agreement
and the RMS Proxy, to perform its obligations hereunder and thereunder and to consummate the Reclassification and the other transactions contemplated by this Agreement and the RMS Proxy. This Agreement and the RMS Proxy have been duly executed
and delivered by RMS, and (assuming due authorization, execution and delivery by the Company) constitutes the legal, valid and binding obligation of RMS, enforceable against it in accordance with its terms, subject to (a) applicable bankruptcy,
insolvency, fraudulent conveyance, moratorium and other similar Laws and (b) general principles of equity, including equitable defenses and limits as to the availability of equitable remedies, whether such principles are considered in a proceeding
at Law or in equity.
Section 4.3
Conflicts; Consents and Approvals
. The execution and
delivery of this Agreement and the RMS Proxy by RMS, and the consummation of the Reclassification and the other transactions contemplated hereby and thereby by RMS do not and will not (a) violate, conflict with, or result in a breach of any
provision of, or constitute a default under any governing or organizational documents of RMS, (b) violate any Law applicable to RMS or (c) require any action or consent or approval of, or review by, or registration or material
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filing by RMS with, any Governmental Authority except, with respect to clauses (b) and (c), as would not reasonably be expected to, individually or in the aggregate, have a material adverse
effect on RMS or prevent or materially impair or materially delay the consummation of the Reclassification and the other transactions contemplated by this Agreement and the RMS Proxy.
Section 4.4
Litigation
. As of the date immediately preceding the date hereof, there are no
actions, suits or proceedings pending or, to the knowledge of the RMS, threatened, against RMS, at Law or in equity, or before any Governmental Authority, that would reasonably be expected to, individually or in the aggregate, prevent or materially
impair or materially delay the consummation of the Reclassification and the other transactions contemplated by this Agreement and the RMS Proxy.
Section 4.5
Registration Statement/Proxy Statement
. Any statements made or incorporated by
reference in the Registration Statement or the Proxy Statement based on information supplied by RMS, or any of its Representatives acting on its behalf, in each case, for inclusion or incorporation by reference therein, will not, on the date of its
filing or at the time it becomes effective under the Securities Act or on the date the Proxy Statement or any amendment or supplement is mailed to the Stockholders or at the time of the 2017 Annual Meeting, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading.
Section 4.6
Finders
Fees
. Other than Morgan
Stanley & Co. LLC, there is no investment banker, broker, finder or other intermediary that has been retained by or is authorized to act on behalf of RMS who might be entitled to any fee or commission from the Company upon consummation of the
Reclassification.
ARTICLE V
COVENANTS
Section 5.1
2017 Annual Meeting
. The Company shall submit to
Stockholders at the 2017 Annual Meeting a proposal seeking the approval of the Proposed Amendments by (a) the holders of a majority of the issued and outstanding shares of Class A Common Stock, voting as a separate voting class, and (b) the
holders of a majority of the issued and outstanding shares of Class B Common Stock, voting as a separate voting class (the
Requisite Stockholder Approval
). The Company shall use reasonable efforts to cause the 2017 Annual
Meeting to be held on or before May 25, 2017 (and if the Company is unable to hold the 2017 Annual Meeting on or before such date, the Company shall use reasonable best efforts to cause the 2017 Annual Meeting to be held as promptly as practicable
thereafter). The Company shall not recess, adjourn or postpone the 2017 Annual Meeting to a date later than 20 days after the originally scheduled date of the 2017 Annual Meeting without the prior written consent of RMS, which consent shall not be
unreasonably withheld, conditioned or delayed.
Section 5.2
Registration
Statement; Proxy Materials
.
(a) The Company shall prepare and file
with the SEC the Registration Statement, which shall include the Proxy Statement, and the Company shall use its reasonable best efforts to have the Registration Statement declared effective under the Securities Act promptly after such filing, and
thereafter mail the Proxy Statement to the Stockholders in connection with the 2017 Annual Meeting. The Proxy Statement shall include (i) the determination of the Board that this Agreement and the transactions contemplated hereby, including the
Reclassification, are advisable, fair and in the best interests of the Company and the Stockholders, and (ii) the recommendation of the Special Committee to the Board that the Board determine that the Proposed Amendments are advisable and in the
best interests of the Company and the recommendation of the Board to the Stockholders that they approve the Proposed Amendments. The Company and RMS agree that, if the Proxy Statement is required to have more than one proposal with respect to
the approval of the Proposed Amendments or any other matters in connection with the Reclassification or the other transactions contemplated by this Agreement, the Company may condition any such proposal on the approval by the Stockholders of any
other such proposal.
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(b) The Company and RMS shall
cooperate and consult with each other in the preparation of the Registration Statement and the Proxy Statement. Without limiting the generality of the foregoing, RMS shall (i) furnish to the Company the information relating to RMS required by
the Exchange Act and the Securities Act to be set forth in the Registration Statement and the Proxy Statement, and (ii) cooperate with the Company in responding to any comments made by the staff of the SEC with respect thereto. RMS and its
counsel shall be given a reasonable opportunity to review and comment on the Registration Statement and the Proxy Statement and any amendments or supplements thereto (which comments the Company will consider in good faith) before the filing thereof
with the SEC. Any reference in the Registration Statement and the Proxy Statement and any amendments or supplements thereto to the Ratner Family or the RMS Group shall be subject to the prior written approval of RMS, such consent not to be
unreasonably withheld, delayed or conditioned. The Company will promptly notify RMS of the receipt of any comments from the staff of the SEC with respect to the Registration Statement or the Proxy Statement and of any request by the staff of
the SEC for amendments of, or supplements to, the Registration Statement or the Proxy Statement. The Company shall have no liability for statements made in the Proxy Statement or the Registration Statement based on information or materials
provided by or on behalf of RMS or its Representatives expressly for inclusion or incorporation by reference in the Proxy Statement or the Registration Statement.
Section 5.3
Voting; Restriction on Transfers and Pledges; Irrevocable
Proxy
.
(a) Until the earlier of (i) the Closing Date and (ii) the
termination of this Agreement pursuant to
ARTICLE VII
, RMS hereby irrevocably and unconditionally agrees, at the 2017 Annual Meeting and at any special meeting of the Stockholders called with the approval of RMS for the purposes of obtaining
Requisite Stockholder Approval, however called, including any postponement or adjournment thereof, in each case to the extent relating to or reasonably expected to affect or concern the Reclassification, that RMS shall, in each case to the fullest
extent that RMS is entitled to vote the RMS Shares:
(i) appear, in person or by proxy, at each such meeting or
otherwise cause the RMS Shares to be counted as present thereat for purposes of determining a quorum; and
(ii) vote (or cause to be voted), in person or by proxy
(returned sufficiently in advance of the deadline for proxy voting for the Company to have the reasonable opportunity to verify receipt), the RMS Shares (A) in favor of approving the Proposed Amendments and any action reasonably requested by the
Company in furtherance of the foregoing, including any proposal to postpone or adjourn any meeting of the Stockholders at which the Proposed Amendments are submitted for the consideration and vote of the Stockholders to a later date if there are not
sufficient votes for approval of such matters or to establish a quorum on the date on which the meeting is held, provided that the Company shall not postpone, adjourn or recess any such meeting to a date later than 20 days after the originally
scheduled date thereof without the prior written consent of RMS, which consent shall not be unreasonably withheld, conditioned or delayed; (B) unless otherwise directed in writing by the Special Committee, against any action, agreement or
transaction that would reasonably be expected to (1) be inconsistent with or contrary to the terms and conditions of the Proposed Amendments or (2) result in any of the conditions set forth in
ARTICLE VI
not being satisfied on or before the
Outside Date; (C) unless otherwise directed in writing by the Special Committee, against any nominees for election as directors of the Company at the 2017 Annual Meeting other than those nominees recommended by the Board or required to be
recommended by the Board in accordance with Section 5.3(c)
;
and (D) against any other action, agreement or transaction involving the Company or any of its subsidiaries, including any change in the present capitalization of the Company or
any amendment or other change to the Charter (other than the Proposed Amendments) or the Company Bylaws, that is intended, or would reasonably be expected, to prevent or impair or delay the consummation of the Reclassification or the other
transactions contemplated by this Agreement or the performance by the Company or by RMS of its obligations under this Agreement.
(b) RMS hereby covenants and agrees that, except for this Agreement, RMS has
not taken and, prior to the earlier of the Closing or the termination of this Agreement pursuant to
ARTICLE VII
, shall not take
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any action that would make any representation or warranty of RMS contained herein untrue or incorrect or have the effect of preventing or disabling RMS from performing any of its obligations
under this Agreement.
(c) The Company hereby covenants and agrees that,
except for this Agreement, the Company has not taken and, prior to the earlier of the Closing or the termination of this Agreement pursuant to
ARTICLE VII
, shall not take any action that would make any representation or warranty of the
Company contained herein untrue or incorrect or have the effect of preventing or disabling the Company from performing any of its obligations under this Agreement.
(d) Concurrently with the execution of this Agreement, RMS has executed and
delivered to the Company an irrevocable proxy, in the form attached hereto as
Annex B
(the
RMS Proxy
). RMS hereby represents that all proxies (other than the RMS Proxy), powers of attorney, instructions or other
requests given by or on behalf of RMS prior to the execution of this Agreement in respect of the voting of RMS Shares, if any, are not irrevocable, RMS hereby revokes (or shall cause to be revoked) any and all previous proxies, powers of attorney,
instructions and other requests with respect to the RMS Shares to the extent inconsistent with the RMS Proxy.
(e) RMS hereby covenants and agrees that, prior to the earlier of the Closing
or the termination of this Agreement pursuant to
ARTICLE VII
, it shall not, directly or indirectly (i) grant any proxies or enter into any voting trust or other agreement or arrangement with respect to the voting of any shares of Class B
Common Stock, (ii) pledge, hypothecate, convert, sell, exchange, donate, assign, transfer, distribute, Encumber or otherwise dispose of, or enter into any contract, option or other arrangement or understanding with respect to the direct or indirect
pledge, hypothecation, conversion, sale, exchange, donation, assignment, transfer, distribution, Encumbrance or other disposition of, any shares Class B Common Stock, or (iii) enter into any hedging, derivative, swap or other financial risk
management contract with respect to any shares of Class B Common Stock;
provided
,
however
, that RMS shall be entitled to take any of the actions set forth in this
Section 5.3(e)
so long as the covenant and agreement contained in
Section 5.3(f)
remains satisfied;
(f) RMS hereby covenants and
agrees that, until the earlier of the Closing or the termination of this Agreement pursuant to
ARTICLE VII
, RMS shall continue to hold the power to vote or direct the voting of at least a majority of the issued and outstanding Class B Common
Stock.
Section 5.4
Section 16 Matters
. Prior to the Closing,
the Company shall take all such steps as may be required to cause the transactions contemplated by this Agreement, including any dispositions or deemed dispositions of the shares of Class B Common Stock and acquisitions or deemed acquisitions of
Class A Common Stock by each individual who is or will be subject to the reporting requirements of Section 16(a) of the Exchange Act with respect to the Company to be exempt under Rule 16b-3 promulgated under the Exchange Act.
Section 5.5
Further Assurances
.
(a) Each of the parties hereto shall use all reasonable best efforts to take,
or cause to be taken, all action, and do or cause to be done all things necessary, proper or advisable under applicable Law, as may be required to carry out the provisions of this Agreement and to consummate and make effective the transactions
contemplated by this Agreement.
(b) Each of the parties hereto agrees to
cooperate and use its reasonable best efforts, at the Companys expense, to contest and resist any action, including administrative or judicial action, and to have vacated, lifted, reversed or overturned as promptly as possible any decree,
judgment, injunction or other order (whether temporary, preliminary or permanent) that is in effect that restricts, prevents or prohibits the consummation of any of the transactions contemplated by this Agreement, including by pursuing all
reasonably available avenues of administrative and judicial appeal;
provided
, that nothing in this
Section 5.5(b)
shall prevent any party from entering into a settlement or otherwise disposing of any action with the consent of the
other party not to be unreasonably withheld, delayed or conditioned.
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Section 5.6
Release
; REIT
Ownership Exemption. Effective as of the Closing, RMS, on the one hand, and the Company, on the other hand, hereby releases and forever discharges, the other and its predecessors and successors and assigns from any and all rights, claims,
demands, judgments, obligations, liabilities and damages, whether accrued or unaccrued, asserted or unasserted, fixed or contingent, and whether known or unknown relating to the Company or RMS, which ever existed or then exists, by any reason
whatsoever, relating to any fact, situation, circumstance, status, event, act, failure to act or transaction occurring at or prior to the Closing (collectively,
Claims
) in connection with this Agreement and the Reclassification;
provided
, that, nothing contained in this
Section 5.6
shall be deemed to release any party from any of its obligations under this Agreement or the RMS Proxy continuing, or arising, after the Closing;
provided
,
further
,
that this
Section 5.6
shall not be deemed to release or discharge any individual from any Claim arising from or relating to an action of such individual undertaken in his or her status as a current or former director, officer, employee or
agent of the Company or any subsidiary of the Company which such individual is or was serving at the request of the Company. The Company agrees and acknowledges that the REIT Ownership Exemption, dated November 13, 2015, in favor of the Ratner
Family Group (as defined therein) will remains in full force and effect after the Effective Time and, from and after the Effective Time, each reference therein to Common Stock shall be deemed a reference to Class A Common Stock.
Section 5.7
Public Announcement
. The parties hereby approve of the
issuance of the public announcement of this Agreement as previously reviewed and agreed between them and the Special Committee and shall consult with, and, except in each such case as may be required by any applicable Law, obtain the approval of the
other (which approval will not be unreasonably withheld, delayed or conditioned) and of the Special Committee before issuing any other press release or making any other public announcement (or written communication required to be filed with the SEC
pursuant to Rule 425 or the proxy rules of the SEC) with respect to this Agreement;
provided
, no such prior approval shall be required with respect to the issuance of any press release or the making of any other public announcement (or
written communication) that is consistent in all material respects with a press release or other public announcement (or written communication) previously approved in accordance with this
Section 5.7
.
Section 5.8
Governance Matters
.
(a) RMS shall take all actions necessary to cause Bruce C. Ratner to resign
from the Board effective no later than December 31, 2016.
(b) RMS shall
take all actions necessary to cause Charles A. Ratner to retire from the Board effective December 31, 2016. The Board shall prior to December 31, 2016 fill the vacancy created by Charles A. Ratners retirement by electing James A. Ratner
to the Board, and James A. Ratner shall have resigned as an officer of the Company at or before the time he is appointed to the Board. From his election until the 2019 Annual Meeting, unless his service as a director earlier terminates, the
Company shall take all necessary actions to elect James A. Ratner to serve as non-executive Chairman of the Board.
(c) The Board (and all applicable committees thereof) shall nominate each
Initial RMS Designee for election as a director of the Company at each of the 2017 Annual Meeting, 2018 Annual Meeting and 2019 Annual Meeting and recommend to the Stockholders that they vote to elect each Initial RMS Designee at such annual
meeting. The Company agrees to include in the Companys proxy statement with respect to each such annual meeting each Initial RMS Designee in the slate of nominees recommended by the Board (and all applicable committees thereof). If, prior
to the 2020 Annual Meeting, an Initial RMS Designee who is a director voluntarily resigns as a director of the Company, becomes unable to serve as a director of the Company as a result of incapacity or dies, the Board shall promptly elect a
replacement Initial RMS Designee as a director of the Company. In the event that any person seeks to remove any Initial RMS Designee as a director of the Company prior to the 2020 Annual Meeting, the Board (and all applicable committees
thereof) shall recommend, and the Board and the Company shall solicit Stockholders, against the removal of such Initial RMS Designee.
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(d) The Board (and all applicable
committees thereof) shall nominate each Continuing RMS Designee for election as a director of the Company at each of the 2020 Annual Meeting and the 2021 Annual Meeting, and recommend to the Stockholders that they vote to elect each Continuing RMS
Designee at such annual meeting. The Company agrees to include in the Companys proxy statement with respect to each such annual meeting each Continuing RMS Designee in the slate of nominees recommended by the Board (and all applicable
committees thereof). If, prior to the 2022 Annual Meeting, a Continuing RMS Designee who is a director voluntarily resigns as director of the Company, becomes unable to serve as a director of the Company as a result of incapacity or dies, the
Board shall promptly elect a replacement Continuing RMS Designee as a director of the Company. In the event that any person seeks to remove any Continuing RMS Designee as a director of the Company prior to the 2022 Annual Meeting, the Board
(and all applicable committees thereof) shall recommend and the Board and the Company shall solicit Stockholders against the removal of such Continuing RMS Designee for election as a director of the Company. Notwithstanding anything to the
contrary contained in this
Section
5.8(d)
, any obligation of the Company and the Board (or any committee thereof) contained in this
Section 5.8(d)
shall immediately and permanently terminate in the event that at any
time after the Effective Time the Ratner Family Members, in the aggregate, cease to beneficially own 18,153,421 shares of Class A Common Stock (adjusted for any stock dividend, stock split, reverse stock split or similar transaction after the date
hereof) (or any successor security). In connection with each of the 2020 Annual Meeting and the 2021 Annual Meeting, the Board shall be entitled to request from RMS information setting forth the beneficial ownership of shares of Class A Common Stock
(or any successor security) by the Ratner Family Members.
(e) The Board
will recommend and solicit proxies for the election of each person nominated pursuant to
Section 5.8(c)
or
Section 5.8(d)
at the 2017 Annual Meeting, 2018 Annual Meeting, 2019 Annual Meeting, 2020 Annual Meeting and 2021 Annual
Meeting, as applicable, in the same manner as for the other nominees nominated for election by the Board (or any committee thereof) as a director.
(f) Notwithstanding anything to the contrary, the Board shall have no
obligation pursuant to this
Section 5.8
to nominate, and the Board shall have no obligation to recommend and solicit proxies for the election of any person nominated in accordance with
Section 5.8(c)
and/or
Section 5.8(d)
from
and after the date such person shall fail to be elected as a director at any annual meeting of Stockholders at which such person was nominated for election as a director pursuant to this
Section 5.8
(and the Board accepts such persons
resignation, in the event there was no election contest at such annual meeting and such person was standing for re-election).
(g) The Board shall resolve to amend and restate the Company Bylaws, effective
as of the Effective Time, substantially in the form set forth in
Annex C
.
(h) At the Effective Time, the Company shall amend the Companys Corporate
Governance Guidelines to add the provision set forth in
Annex D
.
ARTICLE VI
CONDITIONS PRECEDENT
Section 6.1
Conditions to Each Party
s
Obligation
. The respective obligation of each party to effect the Reclassification shall be subject to the satisfaction or, to the extent permitted by Law, waiver at or prior to the Closing of the following conditions:
(a)
Requisite Stockholder Approval
. The Requisite Stockholder
Approval shall have been obtained, and the holders of a majority of the issued and outstanding shares of Class A Common Stock entitled to vote thereon, excluding shares of Class A Common Stock beneficially owned by RMS and Ratner Family Members,
shall have voted for the approval of the Proposed Amendments.
(b)
Registration Statement
. The Registration Statement shall have
been declared effective and shall be effective at the Effective Time, and no stop order suspending effectiveness shall have been issued, no action, suit, proceeding or investigation by the SEC to suspend the effectiveness thereof shall have been
initiated and be continuing.
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(c)
No Injunctions or
Restraints
. No Governmental Order issued by any court of competent jurisdiction or other Governmental Authority or other restraint or prohibition under Law preventing the consummation of the Reclassification, the Proposed Amendments
becoming effective or the other transactions contemplated by this Agreement (any of the foregoing, a
Legal Restraint
) shall have been issued or come into effect.
(d)
Listing
. The shares of Class A Common Stock into which the
Class B Common Stock shall be exchanged and reclassified pursuant to the Reclassification shall have been approved for listing on the NYSE, subject to official notice of issuance.
Section 6.2
Additional Conditions to the Company
s
Obligation
. The obligation of the Company to effect the Reclassification shall be subject to the satisfaction or, to the extent permitted by Law, waiver at or prior to the Closing Date of the following additional conditions:
(a)
Representations and Warranties
. (i) Each of the representations
and warranties of RMS contained in
Section 4.1
,
Section 4.2
and
Section 4.3(a)
shall be true and correct in all respects (except for any
de minimis
inaccuracies) on the date of this Agreement and on and as of the Closing
Date as if made on and as of such date (other than to the extent that any such representation and warranty, by its terms, is expressly limited to a specific date, in which case such representation and warranty shall be true and correct in all
respects (except for any
de minimis
inaccuracies) as of such date) and (ii) each of the other representations and warranties of RMS contained in this Agreement shall be true and correct in all material respects on the date of this Agreement
and on and as of the Closing Date as if made on and as of such date (other than to the extent that any such representation and warranty, by its terms, is expressly limited to a specific date, in which case such representation and warranty shall be
true and correct in all material respects as of such date);
provided
, that no representation or warranty of RMS contained in ARTICLE IV shall be deemed untrue or incorrect, and RMS shall not be deemed to have breached any such representation
or warranty, in each case for purposes of the conditions set forth in this
Section 6.2(a)
, unless the failure of such representation or warranty to be true or correct, individually or in the aggregate, would be of material significance
to the party adversely affected in the context of the transactions contemplated by this Agreement.
(b)
Performance of Obligations
. RMS shall have performed in all
material respects each of its agreements contained in this Agreement and the RMS Proxy required to be performed at or prior to the Closing.
(c)
Officer
s Certificate
. The Company shall
have received a certificate of RMS, signed by a General Partner of RMS and dated as of the Closing Date, certifying that the conditions set forth in
Section 6.2(a)
and
Section 6.2(b)
have been satisfied.
Section 6.3
Additional Conditions to RMS
s
Obligation
. The obligations of RMS to effect the Reclassification shall be subject to the satisfaction or, to the extent permitted by Law, waiver at or prior to the Closing Date of the following additional conditions:
(a)
Representations and Warranties
. (i) Each of the representations
and warranties of the Company contained in
Section 3.1
,
Section 3.2(a)
and
Section 3.3(a)
shall be true and correct in all respects (except for any
de minimis
inaccuracies) on the date of this Agreement and on and as
of the Closing Date as if made on and as of such date (other than to the extent that any such representation and warranty, by its terms, is expressly limited to a specific date, in which case such representation and warranty shall be true and
correct in all respects (except for any
de minimis
inaccuracies) as of such date) and (ii) each of the other representations and warranties of the Company contained in this Agreement shall be true and correct in all material respects on the
date of this Agreement and on and as of the Closing Date as if made on and as of such date (other than to the extent that any such representation or warranty, by its terms, is expressly limited to a specific date, in which case such representation
or warranty shall be true and correct in all material respects as of such date);
provided
, that no representation or warranty of the Company contained in
ARTICLE III
shall be deemed untrue or incorrect, and
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the Company shall not be deemed to have breached any such representation or warranty, in each case for purposes of the conditions set forth in this
Section 6.3(a)
, unless the failure of
such representation or warranty to be true or correct, individually or in the aggregate, would be of material significance to the party adversely affected in the context of the transactions contemplated by this Agreement.
(b)
Performance of Obligations
. The Board and the Company shall
have performed in all respects each of their agreements contained in
Sections 5.8(b)
and
5.8(c)
of this Agreement and shall have performed in all material respects all of their other agreements contained in this Agreement required
to be performed at or prior to the Closing Date.
(c)
Officers
Certificate
. RMS shall have received a certificate of the Company signed by an executive officer of the Company for and on behalf of the Company and dated as of the Closing Date certifying that the conditions set forth in
Section
6.3(a)
and
Section 6.3(b)
have been satisfied.
ARTICLE VII
TERMINATION
Section 7.1
Termination
. Notwithstanding anything to the contrary
contained herein, this Agreement may be terminated and the transactions contemplated hereby abandoned at any time prior to the Closing:
(a) by mutual written consent of the Company and RMS;
(b) by the Company, if there has been any breach by RMS of any representation,
warranty, covenant or agreement of RMS contained in this Agreement which breach (i) would prevent the satisfaction of any of the conditions set forth in
Section 6.1
or
Section
6.2
and (ii) has not been waived by the
Company or cured by RMS within sixty days after RMSs receipt of written notice thereof from the Company or is incapable of being cured;
provided
, that the right to terminate this Agreement pursuant to this
Section 7.1(b)
shall
not be available to the Company at any time that the Company is in material breach of any representation, warranty, covenant or agreement of the Company hereunder, which material breach has not been waived by RMS or, if capable of cure, has not been
cured by the Company;
(c) by RMS, if there has been any breach by the
Company of any representation, warranty, covenant or agreement of the Company contained in this Agreement which breach (i) would prevent the satisfaction of any of the conditions set forth in
Section 6.1
or
Section 6.3
and (ii)
has not been waived by RMS or cured by the Company within sixty days after the Companys receipt of written notice thereof from RMS or is incapable of being cured;
provided
, that the right to terminate this Agreement pursuant to this
Section 7.1(c)
shall not be available to RMS at any time that RMS is in material breach of any representation, warranty, covenant or agreement of RMS hereunder, which material breach has not been waived by the Company or, if capable of cure,
has not been cured by RMS;
(d) by the Company or RMS, if the Closing does
not occur on or prior to July 31, 2017, subject to any extensions of such date as may be mutually agreed by the parties in writing (the
Outside Date
);
provided
, that no party shall be entitled to terminate this
Agreement pursuant to this
Section 7.1(d)
if such party is then in breach of any representation, warranty, covenant or agreement hereunder, which breach has been the cause of or resulted in the failure of the transactions contemplated hereby
to be consummated on or prior to the Outside Date;
(e) by the Company or
RMS, if the Requisite Stockholder Approval shall not have been obtained at the 2017 Annual Meeting or at any special meeting of the Stockholders called for the purposes of obtaining Requisite Stockholder Approval;
provided
, that the right to
terminate this Agreement pursuant to this
Section 7.1(e)
shall not be available to any party whose failure to fulfill any obligation under this Agreement or the RMS Proxy has been the cause of or resulted in the failure to obtain the
Requisite Stockholder Approval; or
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(f) by the Company or RMS, if any
Legal Restraint shall have been issued or come into effect, and such Legal Restraint shall have become final and non-appealable;
provided
, that the right to terminate this Agreement pursuant to this
Section 7.1(f)
shall not be
available to any party that is in material breach of its obligations pursuant to
Section 5.5(b)
, which material breach has not been waived by the other party or, if capable of cure, has not been cured.
provided
,
however
, that the Company shall not consent to or exercise any right to terminate this Agreement under this
Section
7.1
unless and until such action is approved by the Special Committee.
Section
7.2
Notice of Termination
. In the event of a termination by the Company or RMS pursuant to this
ARTICLE VII
, written notice thereof shall forthwith be given to the other party, and
the transactions contemplated by this Agreement shall be terminated, without further action by any party.
Section
7.3
Effect of Termination and Abandonment
. If this Agreement is terminated and the transactions contemplated hereby are abandoned as described in this
ARTICLE VII
, this Agreement
shall become void, and of no further force and effect;
provided
, that this
Section 7.3
and
ARTICLE VIII
shall survive such termination. Nothing in this
ARTICLE VII
shall be deemed to release any party from any
liability for any breach by such party of the terms and provisions of this Agreement.
ARTICLE VIII
MISCELLANEOUS
Section 8.1
Counterparts
. This Agreement may be executed in any
number of counterparts (including by facsimile, portable document format (.pdf) or other electronic transmission), each of which shall be an original, and which together shall constitute one and the same Agreement.
Section 8.2
Entire Agreement
. This Agreement (including the Annexes
attached hereto), the Reimbursement Agreement and the RMS Proxy constitute the entire agreement among the parties, and supersede any prior agreements, understandings, arrangements or representations, by or among the parties, written and oral, with
respect to the subject matter hereof.
Section
8.3
Severability
. If any term or other provision of this Agreement is determined by a court of competent jurisdiction to be invalid, illegal or incapable of being enforced as a result of any
Law or public policy, all other terms and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially
adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of
the parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated hereby are consummated as originally intended to the greatest extent possible. Notwithstanding anything contained herein, in no event
shall the Company be required to perform its obligations under
Section 5.1
or
Section
5.2
or, to the extent related to either of
Section 5.1
or
Section 5.2
, under
Section 5.5
, if (a) a court of competent
jurisdiction or other Governmental Authority (i) prior to obtaining the Requisite Stockholder Approval, declares that the RMS Proxy or any of the provisions related thereto contained herein (including
Section
5.3(d)
), are
invalid, illegal, void or unenforceable or (ii) prior to the Closing, declares that any of the provisions contained in
Section 5.3(a)
or
Section 5.3(e)
are invalid, illegal, void or unenforceable and (b) RMS fails to perform such
obligations that have been found to be invalid, illegal, void or unenforceable by a court of competent jurisdiction or other Governmental Authority in any respect that would reasonably be expected, individually or in the aggregate, to prevent or
materially impair or materially delay the consummation of the Reclassification or the other transactions contemplated by this Agreement and the RMS Proxy.
B-20
Section 8.4
Third-Party
Beneficiaries
. Nothing in this Agreement, express or implied, is intended or shall be construed to create any third-party beneficiaries (except that the Special Committee shall be a third-party beneficiary of this Agreement in respect of
all rights and powers afforded to the Special Committee hereunder).
Section
8.5
Governing Law; Jurisdiction; WAIVER OF JURY TRIAL
. This Agreement shall be governed by the internal laws of the State of Maryland, without giving effect to the conflict of laws
principles thereof. Each party irrevocably and unconditionally consents to submit to the exclusive jurisdiction of the Circuit Court for Baltimore City (Maryland) and the United States District Court for the District of Maryland (Baltimore
Division), for any action or proceeding, arising out of or relating to this Agreement, and the actions contemplated by this Agreement (and agrees not to commence any action except in any such court);
provided
, that, with respect to any such
action or proceeding filed in the Circuit Court for Baltimore City (Maryland), the parties will jointly request an assignment to the Business and Technology Case Management Program pursuant to Rule 16-308 of the Maryland Rules of
Procedure. Each party irrevocably and unconditionally waives any objection to the laying of venue of any action or proceeding in the Circuit Court for Baltimore City (Maryland) or the United States District Court for the District of Maryland
(Baltimore Division), and further, irrevocably and unconditionally waives, and agrees not to plead or claim in any such court, that any action or proceeding brought in any such court has been brought in an inconvenient forum. EACH PARTY
IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY, IN CONNECTION WITH ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, AND THE ACTIONS CONTEMPLATED BY THIS AGREEMENT.
Section 8.6
Specific Performance
. The parties acknowledge and agree
that irreparable damage would occur in the event that any provision of this Agreement were not performed in accordance with its specific terms or was otherwise breached, and that monetary damages, even if available, would not be an adequate remedy
therefor. It is accordingly agreed that, prior to the termination of this Agreement pursuant to
ARTICLE VII
, the parties shall be entitled to seek an injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the performance of terms and provisions of this Agreement, without proof of actual damages (and each party hereby waives any requirement for the securing or posting of any bond in connection with such remedy), this being in addition to
any other remedy to which they are entitled at Law or in equity. The parties further agree not to assert that a remedy of specific enforcement is unenforceable, invalid, contrary to Law or inequitable for any reason, nor to assert that a remedy
of monetary damages would provide an adequate remedy for any such breach.
Section
8.7
Amendment
. This Agreement may not be altered, amended or supplemented, except by an agreement in writing signed by the parties hereto;
provided
, that the Company shall not agree
to amend this Agreement unless and until such amendment is approved by the Special Committee.
Section
8.8
Notices
. All notices, requests, claims, demands and other communications hereunder shall be in writing, and shall be given or made (and shall be deemed to have been duly given or made
upon receipt) by delivery in person, by facsimile, by courier service or by registered or certified mail (postage prepaid, return receipt, requested) to the respective parties at the following addresses (or at such other address for a party as shall
be specified in a notice given in accordance with this
Section 8.8
):
if to RMS, to
:
RMS, Limited Partnership
Terminal Tower, Suite 1600
50
Public Square
Cleveland, OH 44113
Attention: Bruce Geier
Facsimile: 216-575-1395
Phone:
216-416-3475
B-21
with a copy, which shall not constitute notice, to:
Fried, Frank, Harris, Shriver and Jacobson, LLP
One New York Plaza
New York,
NY 10004-1980
Attention: Philip Richter
Warren de Wied
Email: philip.richter@friedfrank.com
warren.dewied@friedfrank.com
if to the Company, to
:
Forest City Realty Trust, Inc.
Terminal Tower
50 Public
Square, Suite 1100
Cleveland, OH 44113
Attention: General Counsel
Facsimile: 216 263-6208
Phone:
216-621-6060
with a copy, which shall not constitute notice, to:
Sullivan & Cromwell LLP
125 Broad Street
New York, NY
10004-2498
Attention: Joseph B. Frumkin
Benjamin R. Weber
Krishna
Veeraraghavan
Email: frumkinj@sullcrom.com
weberb@sullcrom.com
veeraraghavank@sullcrom.com
Section 8.9
Assignment
. Neither this Agreement, nor any of the
rights, interests or obligations hereunder, shall be assigned by (i) the Company (whether by operation of Law or otherwise) without the prior written consent of RMS and the Special Committee, or (ii) RMS (whether by operation of Law or otherwise)
without the prior written consent of the Company and the Special Committee;
provided
, that a merger or consolidation involving the Company shall be permissible without the consent of RMS hereunder and RMS may assign its rights under
Section
5.8
hereunder to another entity controlled by Ratner Family Members without the consent of the Company. Subject to the preceding sentence, this Agreement shall be binding upon, inure to the benefit of and be
enforceable by the parties, and their respective successors and permitted assigns. Any assignment or purported assignment in violation of this provision shall be void and of no effect.
Section 8.10
Fees and Expenses
. Except as expressly provided herein
or in the Reimbursement Agreement, all costs and expenses incurred in connection with this Agreement and the transactions contemplated by this Agreement shall be the responsibility of, and shall be paid by the party incurring such fees or expenses,
whether or not the transactions contemplated by this Agreement are consummated.
Section
8.11
Waiver
. No failure or delay on the part of any party in exercising any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of
any such power, right or privilege preclude any other or further exercise thereof or of any other right, power or privilege. All rights and remedies existing under this Agreement are cumulative to, and not exclusive of, any rights or remedies
B-22
otherwise available. The Company shall not waive any right or condition to its obligations under this Agreement unless and until such waiver is approved by the Special Committee.
[
Signature Page Follows
]
B-23
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed and delivered as of the date first above written.
|
|
|
|
|
FOREST CITY REALTY TRUST, INC.
|
|
|
By:
|
|
/s/ David J. LaRue
|
|
|
Name:
|
|
David J. LaRue
|
|
|
Title:
|
|
President and Chief Executive Officer
|
|
RMS, LIMITED PARTNERSHIP
|
|
|
By:
|
|
/s/ Joan K. Shafran
|
|
|
Name:
|
|
Joan K. Shafran
|
|
|
Title:
|
|
General Partner
|
|
|
By:
|
|
/s/ Abraham Miller
|
|
|
Name:
|
|
Abraham Miller
|
|
|
Title:
|
|
General Partner
|
|
|
By:
|
|
/s/ Sam Miller
|
|
|
Name:
|
|
Sam Miller
|
|
|
Title:
|
|
General Partner
|
|
|
By:
|
|
/s/ Charles A. Ratner
|
|
|
Name:
|
|
Charles A. Ratner
|
|
|
Title:
|
|
General Partner
|
|
|
By:
|
|
/s/ Ronald A. Ratner
|
|
|
Name:
|
|
Ronald A. Ratner
|
|
|
Title:
|
|
General Partner
|
|
|
By:
|
|
/s/ Deborah Ratner Salzberg
|
|
|
Name:
|
|
Deborah Ratner Salzberg
|
|
|
Title:
|
|
General Partner
|
|
|
By:
|
|
/s/ Brian Ratner
|
|
|
Name:
|
|
Brian Ratner
|
|
|
Title:
|
|
General Partner
|
[
Signature Page to Reclassification Agreement
]
B-24
ANNEX A
[FORM OF PROPOSED AMENDMENTS]
[Attached]
B-25
ANNEX B
[FORM OF IRREVOCABLE PROXY]
[Attached]
B-26
ANNEX C
[FORM OF AMENDED AND RESTATED BYLAWS]
[Attached]
B-27
ANNEX D
[
AMENDMENT TO CORPORATE GOVERNANCE GUIDELINES
]
If an incumbent director fails to receive the required vote for re-election in accordance with the Bylaws of the Company, he or she shall
offer to resign from the Board, and the Corporate Governance and Nominating Committee will consider such offer to resign, will determine whether to accept such directors resignation and will submit such recommendation for consideration by the
Board. The director whose offer to resign is under consideration shall not participate in any deliberation or vote of the Corporate Governance and Nominating Committee or Board regarding that offer to resign. Notwithstanding the foregoing,
in the event that no nominee for director receives the vote required in the Bylaws, the Corporate Governance and Nominating Committee shall make a final determination as to whether to recommend to the Board whether to accept any or all offers to
resign, including those offers to resign from members of the Corporate Governance and Nominating Committee. The Corporate Governance and Nominating Committee and the Board may consider any factors they deem relevant in deciding whether to
accept a directors resignation. Within 90 days after the date of certification of the election results, the Board will disclose its decision in a press release, filing with the U.S. Securities and Exchange Commission or by other public
announcement. If such incumbent directors offer to resign is not accepted by the Board, such director will continue to serve until his or her successor is elected and qualifies, or his or her death, resignation, retirement or removal,
whichever event shall occur first. If a directors offer to resign is accepted by the Board, or if a nominee for director is not elected and the nominee is not an incumbent director, then the Board, in its sole discretion, may fill any
resulting vacancy pursuant to the Bylaws.
B-28
A
NNEX
C
IRREVOCABLE PROXY
This IRREVOCABLE PROXY (this
Irrevocable Proxy
), is made and entered into as of December 5, 2016, by
and between Forest City Realty Trust, Inc., a Maryland corporation (the
Company
), and RMS, Limited Partnership, an Ohio limited partnership (
RMS
). Capitalized terms used but not defined herein shall have the
respective meanings given to such terms in the Reclassification Agreement.
WHEREAS, the Company and RMS have entered into
that certain Reclassification Agreement, dated as of the date hereof (the
Reclassification Agreement
), pursuant to which, among other things, each share of Class B Common Stock issued and outstanding immediately prior to the
Effective Time shall, without any action on the part of the holder thereof, be reclassified and exchanged into 1.31 shares of Class A Common Stock;
WHEREAS, pursuant to Section 5.3 of the Reclassification Agreement, RMS has agreed to certain voting obligations with
respect to the RMS Shares, as more specifically set forth therein, and this Irrevocable Proxy constitutes the RMS Proxy for purposes of the Reclassification Agreement; and
WHEREAS, the parties intend that this Irrevocable Proxy shall be a proxy created under and pursuant to
Section 2-507 of the MGCL, and that the irrevocable appointment of proxies by RMS pursuant to this Irrevocable Proxy are intended to be coupled with an interest by virtue of RMSs entering into the Reclassification Agreement and the voting
obligations contained therein.
NOW, THEREFORE, in consideration of the foregoing and the mutual representations,
warranties, covenants and agreements contained herein, and intending to be legally bound hereby, the parties hereto hereby agree as follows:
ARTICLE 1
PROXY
1.1
Proxy
. RMS hereby irrevocably appoints (to the fullest extent permitted by the
MGCL) as its proxy David J. LaRue and Robert G. OBrien, or either of them, in their respective capacities as officers of the Company, and any individual who shall hereafter succeed any such officer of the Company, and any other person
designated in writing by the Company (the
Proxies
), with full power of substitution and resubstitution in each of them, to cast on behalf of RMS all votes that RMS is entitled to cast with respect to the RMS Shares in accordance
with Section 5.3(a) of the Reclassification Agreement at the 2017 Annual Meeting and at any special meeting of the Stockholders called with the approval of RMS for the purposes of obtaining Requisite Stockholder Approval, however called,
including any postponement or adjournment thereof, in each case to the extent relating to or reasonably expected to affect or concern the Reclassification, at which any of the matters described in Section 5.3(a) of the Reclassification
Agreement are to be considered.
1.2
Action by Proxies
. Any instruction pursuant to the
proxy and power of attorney granted in
Section 1.1
may be given by any of the Proxies, acting individually.
1.3
Consideration
. This Irrevocable Proxy is coupled with an interest by virtue of, among other
things, the voting obligations of RMS set forth in the Reclassification Agreement, was given by RMS to induce the Company to enter into the Reclassification Agreement and, pursuant to Section 2-507(d) of the MGCL, shall be irrevocable.
C-1
ARTICLE 2
COVENANTS
2.1
Further Assurances
. Each of the parties hereto shall use its reasonable best efforts to
take, or cause to be taken, all appropriate action, to do or cause to be done all things necessary, proper or advisable under applicable Law, and to execute and deliver such documents and other papers, as may be required to carry out the provisions
of this Irrevocable Proxy.
ARTICLE 3
TERM
3.1
Term
. The proxy granted pursuant to
Section 1.1
shall be effective on the date
first set forth above and shall survive until the Closing (whereupon this Irrevocable Proxy shall terminate automatically and be without further force and effect), unless terminated earlier pursuant to
Section 3.2
(the
Term
). The appointment of the Proxies is intended to remain valid for the entire duration of the Term, in accordance with Section 2-507(b) of the MGCL.
3.2
Termination
. This Irrevocable Proxy shall be terminated automatically upon the termination
of the Reclassification Agreement in accordance with its terms.
ARTICLE 4
MISCELLANEOUS
4.1
Specific Performance
. The parties acknowledge and agree that irreparable damage would occur
in the event that any of the provisions of this Irrevocable Proxy were not performed in accordance with their specific terms or were otherwise breached, and that monetary damages, even if available, would not be an adequate remedy therefor. It is
accordingly agreed that, prior to the termination of this Irrevocable Proxy pursuant to
Section 3.2
, the parties shall be entitled to seek an injunction or injunctions to prevent breaches of this Irrevocable Proxy and to enforce
specifically the performance of terms and provisions of this Irrevocable Proxy, without proof of actual damages (and each party hereby waives any requirement for the securing or posting of any bond in connection with such remedy), this being in
addition to any other remedy to which they are entitled at law or in equity. The parties further agree not to assert that a remedy of specific enforcement is unenforceable, invalid, contrary to Law or inequitable for any reason, nor to assert that a
remedy of monetary damages would provide an adequate remedy for any such breach.
4.2
Successors and Assigns
. Neither this Irrevocable Proxy, nor any of the rights, interests or obligations hereunder, shall be assigned by (i) the Company (whether by operation of Law or otherwise) without the prior written consent of RMS
and the Special Committee, or (ii) RMS (whether by operation of Law or otherwise) without the prior written consent of the Company and the Special Committee;
provided
that a merger or consolidation involving the Company shall be
permissible without the consent of RMS hereunder. Subject to the preceding sentence, this Irrevocable Proxy shall be binding upon, inure to the benefit of and be enforceable by the parties, and their respective successors and permitted assigns. Any
assignment or purported assignment in violation of this provision shall be void and of no effect. Nothing herein shall be interpreted to preclude any of the actions contemplated by clauses (i), (ii) or (iii) of Section 5.3(e) of the
Reclassification Agreement to the extent that such actions are permitted pursuant to the proviso set forth in Section 5.3(e) of the Reclassification Agreement.
4.3
No Third Party Beneficiaries
. Nothing in this Irrevocable Proxy, express or implied, is
intended or shall be construed to create any third party beneficiaries (except that the Special Committee shall be a third-party beneficiary of this Irrevocable Proxy in respect of all rights and powers afforded to the Special Committee hereunder).
C-2
4.4
Notices
. All notices, requests, claims,
demands and other communications hereunder shall be given in accordance with Section 8.8 of the Reclassification Agreement.
4.5
Governing Law; Jurisdiction; WAIVER OF JURY TRIAL
. This Irrevocable Proxy shall be governed
by the internal laws of the State of Maryland, without giving effect to the conflict of laws principles thereof. Each party irrevocably and unconditionally consents to submit to the exclusive jurisdiction of the Circuit Court for Baltimore City
(Maryland) and the United States District Court for the District of Maryland (Baltimore Division), for any action or proceeding, arising out of or relating to this Irrevocable Proxy, and the actions contemplated by this Irrevocable Proxy (and agrees
not to commence any action except in any such court);
provided
, that, with respect to any such action or proceeding filed in the Circuit Court for Baltimore City (Maryland), the parties will jointly request an assignment to the Business and
Technology Case Management Program pursuant to Rule 16-308 of the Maryland Rules of Procedure. Each party irrevocably and unconditionally waives any objection to the laying of venue of any action or proceeding in the Circuit Court for Baltimore City
(Maryland) or the United States District Court for the District of Maryland (Baltimore Division), and further, irrevocably and unconditionally waives, and agrees not to plead or claim in any such court, that any action or proceeding brought in any
such court has been brought in an inconvenient forum. EACH PARTY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY, IN CONNECTION WITH ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS IRREVOCABLE PROXY, AND
THE ACTIONS CONTEMPLATED BY THIS IRREVOCABLE PROXY.
4.6
Entire Agreement
. The
Reclassification Agreement (including the exhibits and annexes attached thereto), the Reimbursement Agreement and this Irrevocable Proxy constitute the entire agreement among the parties, and supersede all prior agreements, understandings,
arrangements or representations, by or among the parties, written and oral, with respect to the subject matter hereof.
4.7
Amendments
. This Irrevocable Proxy may not be altered, amended or supplemented, except by
an agreement in writing signed by each of the parties hereto;
provided
, that the Company shall not agree to amend this Irrevocable Proxy unless and until such amendment is approved by the Special Committee.
4.8
Severability
. If any term or other provision of this Irrevocable Proxy is determined by a
court of competent jurisdiction to be invalid, illegal or incapable of being enforced by any Law or public policy, all other terms and provisions of this Irrevocable Proxy shall nevertheless remain in full force and effect so long as the economic or
legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Irrevocable Proxy so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated hereby are consummated as originally
contemplated to the greatest extent possible.
4.9
Counterparts
. This Irrevocable Proxy may
be executed in any number of counterparts (including by facsimile, portable document format (.pdf) or other electronic transmission), which together shall constitute one and the same Irrevocable Proxy. The parties may execute more than one copy of
the Irrevocable Proxy, each of which shall constitute an original.
[Signature Page Follows]
C-3
IN WITNESS WHEREOF, the parties hereto have caused this Irrevocable Proxy to be
duly executed and delivered as of the date first written above.
|
|
|
|
|
FOREST CITY REALTY TRUST, INC.
|
|
|
By:
|
|
/s/ David J. LaRue
|
|
|
Name:
|
|
David J. LaRue
|
|
|
Title:
|
|
President and Chief Executive Officer
|
|
RMS, LIMITED PARTNERSHIP
|
|
|
By:
|
|
/s/ Joan K. Shafran
|
|
|
Name:
|
|
Joan K. Shafran
|
|
|
Title:
|
|
General Partner
|
|
|
By:
|
|
/s/ Abraham Miller
|
|
|
Name:
|
|
Abraham Miller
|
|
|
Title:
|
|
General Partner
|
|
|
By:
|
|
/s/ Sam Miller
|
|
|
Name:
|
|
Sam Miller
|
|
|
Title:
|
|
General Partner
|
|
|
By:
|
|
/s/ Charles A. Ratner
|
|
|
Name:
|
|
Charles A. Ratner
|
|
|
Title:
|
|
General Partner
|
|
|
By:
|
|
/s/ Ronald A. Ratner
|
|
|
Name:
|
|
Ronald A. Ratner
|
|
|
Title:
|
|
General Partner
|
|
|
By:
|
|
/s/ Deborah Ratner Salzberg
|
|
|
Name:
|
|
Deborah Ratner Salzberg
|
|
|
Title:
|
|
General Partner
|
|
|
By:
|
|
/s/ Brian Ratner
|
|
|
Name:
|
|
Brian Ratner
|
|
|
Title:
|
|
General Partner
|
[Signature Page to Irrevocable Proxy]
C-4
A
NNEX
D
OPINION OF LAZARD
[Letterhead of Lazard Frères & Co. LLC]
December 5, 2016
The Special
Committee of the Board of Directors
Forest City Realty Trust, Inc.
Terminal Tower
50 Public Square,
Suite 1100
Cleveland, Ohio 44113
Dear Members of the Special Committee:
We understand that Forest City Realty Trust, Inc., a Maryland corporation (the Company) and RMS, Limited
Partnership, an Ohio limited partnership, propose to enter into a Reclassification Agreement (the Agreement). Pursuant to the Agreement, each outstanding share of Class B Common Stock, par value $0.01 per share, of the Company (the
Class B Common Stock) will be reclassified and exchanged into 1.31 shares of Class A Common Stock (the Exchange Ratio), par value $0.01 per share, of the Company (the Class A Common Stock) in accordance with the
Articles of Amendment and Restatement (as defined below) (the Transaction). The terms and conditions of the Transaction are more fully set forth in the Agreement.
The Special Committee of the Board of Directors of Company (the Special Committee) has requested our opinion as of
the date hereof as to the fairness, from a financial point of view, to holders of Class A Common Stock (other than Class A Common Stock held by the RMS Group (as defined in the Agreement) (Excluded Holders)) solely in their capacity as
holders of Class A Common Stock, with respect to such Class A Common Stock and without taking into account any Class B Common Stock held by such holders, of the Exchange Ratio provided for in the Transaction.
In connection with this opinion, we have:
|
(i)
|
Reviewed the financial terms and conditions of a draft, dated December 4, 2016, of the Agreement, including
the Articles of Amendment and Restatement (the Articles of Amendment and Restatement) attached thereto;
|
|
(ii)
|
Reviewed certain publicly available historical business and financial information relating to the Company;
|
|
(iii)
|
Reviewed various financial forecasts and other data provided to us by the Company relating to the business of
the Company;
|
|
(iv)
|
Held discussions with members of the senior management of the Company with respect to the business and
prospects of the Company;
|
|
(v)
|
Reviewed public information with respect to certain other companies with multiple classes of publicly traded
stock we believe to be generally relevant;
|
|
(vi)
|
Reviewed the financial terms of certain comparable transactions we believe to be generally relevant;
|
|
(vii)
|
Reviewed historical stock prices and trading volumes of Class A Common Stock and Class B Common Stock;
|
D-1
The Special Committee of the Board of Directors
Forest City Realty Trust, Inc.
December 5, 2016
Page
2
|
(viii)
|
Reviewed the potential pro forma financial impact of the Transaction on the capitalization and ownership of
the Company; and
|
|
(ix)
|
Conducted such other financial studies, analyses and investigations as we deemed appropriate.
|
We have assumed and relied upon the accuracy and completeness of the foregoing information, without
independent verification of such information. We have not conducted any independent valuation or appraisal of any of the assets or liabilities (contingent or otherwise) of the Company or concerning the solvency or fair value of the Company, and we
have not been furnished with any such valuation or appraisal. With respect to the financial forecasts reviewed by us, we have assumed, with the consent of the Special Committee, that they have been reasonably prepared on bases reflecting the best
currently available estimates and judgments as to the future financial performance of the Company. We assume no responsibility for and express no view as to any such forecasts or the assumptions on which they are based. We note that, in our
judgment, the financial analyses typically utilized in the analysis of change of control merger and acquisition transactions are not applicable in considering reclassification transactions such as the Transaction and our conclusion with respect to
fairness has instead relied on analysis of the Transaction in the context of similar reclassification transactions.
Further, our opinion is necessarily based on economic, monetary, market and other conditions as in effect on, and the
information made available to us as of, the date hereof. We assume no responsibility for updating or revising our opinion based on circumstances or events occurring after the date hereof. We do not express any opinion as to the prices at which
shares of Class A Common Stock or Class B Common Stock may trade at any time subsequent to the announcement of the Transaction. In connection with our engagement, we were not authorized to, and we did not, solicit indications of interest from third
parties regarding a potential transaction with the Company. In addition, our opinion does not address the relative merits of the Transaction as compared to any other transaction or business strategy in which the Company might engage or the merits of
the underlying decision by the Company to engage in the Transaction.
In rendering our opinion, we have assumed, with the
consent of the Special Committee, that the Transaction will be consummated on the terms described in the Agreement, without any waiver or modification of any terms or conditions material to our analyses. Representatives of the Company have advised
us, and we have assumed, that the Agreement, when executed, will conform to the draft reviewed by us in all respects material to our analyses. We also have assumed, with the consent of the Special Committee, that obtaining any necessary approvals
and consents for the Transaction will not have an adverse effect on the Company or the Transaction. We further have assumed, with the consent of the Special Committee, that the Transaction will qualify for U.S. federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended. We do not express any opinion as to any tax or other consequences that might result from the Transaction, nor does our opinion address any legal,
tax, regulatory or accounting matters, as to which we understand that the Special Committee obtained such advice as it deemed necessary from qualified professionals. We express no view or opinion as to any terms or other aspects (other than the
Exchange Ratio to the extent expressly specified herein) of the Transaction, including, without limitation, the fairness of the Exchange Ratio to holders of Class B Common Stock, or the relative fairness of the consideration to be received in the
Transaction by the holders of Class B Common Stock, on the one hand, and the holders of Class A Common Stock, on the other hand. In addition, we express no view or opinion as to the fairness of the amount or nature of, or any other aspects relating
to, the compensation to any officers, directors or employees of any parties to the Transaction, or class of such persons, relative to the Exchange Ratio or otherwise.
Lazard Frères & Co. LLC (Lazard) is acting as financial advisor to the Special Committee in connection
with the Transaction and will receive a fee for such services, a portion of which is payable upon the rendering of
D-2
The Special Committee of the Board of Directors
Forest City Realty Trust, Inc.
December 5, 2016
Page
3
this opinion and a
substantial portion of which is contingent upon the closing of the Transaction. We in the past have provided, currently are providing and in the future may provide certain investment banking services to the Company and certain of its affiliates, for
which we have received and may receive compensation, including, during the past two years, having advised the Company in connection with convertible debt transactions in 2015 and 2016. In addition, in the ordinary course, Lazard and our affiliates
and employees may trade securities of the Company and certain of its affiliates for their own accounts and for the accounts of their customers, may at any time hold a long or short position in such securities, and may also trade and hold securities
on behalf of the Company, and certain of its affiliates. The issuance of this opinion was approved by the Opinion Committee of Lazard.
Our engagement and the opinion expressed herein are for the benefit of the Special Committee and the Board of Directors of the
Company (in each case, in its capacity as such) and our opinion is rendered to the Special Committee and the Board of Directors of the Company in connection with their evaluation of the Transaction. Our opinion is not intended to and does not
constitute a recommendation to any stockholder as to how such stockholder should vote or act with respect to the Transaction or any matter relating thereto.
Based on and subject to the foregoing, we are of the opinion that, as of the date hereof, the Exchange Ratio provided for in
the Transaction is fair, from a financial point of view, to the holders of Class A Common Stock (other than Excluded Holders), solely in their capacity as holders of Class A Common Stock, with respect to such Class A Common Stock and without taking
into account any Class B Common Stock held by such holders.
|
|
|
Very truly yours,
|
|
LAZARD FRERES & CO. LLC
|
|
|
By
|
|
/s/ Albert H. Garner
|
|
|
Albert H. Garner
Managing Director
|
D-3
A
NNEX
E
OPINION OF HOULIHAN LOKEY
[Letterhead of Houlihan Lokey Capital, Inc.]
December 5, 2016
The Board of
Directors of Forest City Realty Trust, Inc.
Terminal Tower, 50 Public Square, Suite 1100
Cleveland, OH 44113
Dear Board
of Directors:
We understand that Forest City Realty Trust, Inc. (the Company) proposes to effect a
reclassification (the Transaction) pursuant to the Agreement (as defined below) whereby each outstanding share of Class B Common Stock, par value $0.01 per share, of the Company (the Class B Common Stock) will be reclassified
and exchanged into 1.31 shares (the Exchange Ratio) of Class A Common Stock, par value $0.01 per share, of the Company (the Class A Common Stock). We also understand that approximately 92.5% of the Class B Common Stock is
owned by RMS, Limited Partnership, the general and limited partners of RMS, Limited Partnership and certain other persons that act as a group (within the meaning of Section 13(d) of the Securities Exchange Act of 1934) with RMS, Limited
Partnership for the purpose of acquiring, holding or disposing of Class B Common Stock (collectively RMS).
The Board of Directors of the Company (the Board) has requested that Houlihan Lokey Capital, Inc. (Houlihan
Lokey) provide an opinion (the Opinion) to the Board as to whether, as of the date hereof, the Exchange Ratio provided for in the Transaction pursuant to the Agreement is fair to the holders of Class B Common Stock (other than RMS)
(solely in their capacity as holders of shares of Class B Common Stock, with respect to such Class B Common Stock, and without taking into account any shares of Class A Common Stock held by such holders), from a financial point of view.
In connection with this Opinion, we have made such reviews, analyses and inquiries as we have deemed necessary and appropriate under the
circumstances. Among other things, we have:
|
1.
|
reviewed the following agreements and documents:
|
|
a.
|
Draft dated December 4, 2016 of the Reclassification Agreement, by and between the Company and RMS, Limited
Partnership, dated as of December , 2016 (the Agreement);
|
|
b.
|
Draft dated December 1, 2016 of Forest City Realty Trust, Inc. Articles of Amendment and Restatement;
|
|
c.
|
Draft dated December 1, 2016 of Forest City Realty Trust, Inc. Amended and Restated By laws;
|
|
d.
|
Forest City Realty Trust, Inc. Articles of Amendment and Restatement dated December 7, 2015; and
|
|
e.
|
Forest City Realty Trust, Inc. Amended and Restated Bylaws (as in effect upon the execution and delivery of
the Agreement);
|
E-1
The Board of Directors of Forest City Realty Trust, Inc.
December 5, 2016
|
2.
|
reviewed certain publicly available business and financial information relating to the Company that we deemed
to be relevant;
|
|
3.
|
spoken with certain members of the management of the Company and certain of its representatives and advisors
regarding the capital structure of the Company, the Transaction and related matters;
|
|
4.
|
considered the publicly available financial terms of certain (i) mergers and acquisitions transactions and
(ii) reclassification transactions that, in each case, we deemed to be relevant;
|
|
5.
|
reviewed the current and historical market prices and trading volume for Class A Common Stock and Class B
Common Stock, and the current and historical market prices and trading volume of the publicly traded securities of certain other companies that we deemed to be relevant; and
|
|
6.
|
conducted such other financial studies, analyses and inquiries and considered such other information and
factors as we deemed appropriate.
|
We have relied upon and assumed, without independent verification,
the accuracy and completeness of all data, material and other information furnished, or otherwise made available, to us, discussed with or reviewed by us, or publicly available, and do not assume any responsibility with respect to such data,
material and other information. We have relied upon and assumed, without independent verification, that there (i) has been no change in the business, assets, liabilities, financial condition, results of operations, cash flows or prospects of the
Company since the respective dates of the most recent financial statements and other information, financial or otherwise, provided to us, and (ii) is no information or any facts that would make any of the information reviewed by us incomplete or
misleading, in each case, that would be material to our analyses or this Opinion.
We have relied upon and assumed,
without independent verification, that, to the extent material to our analyses or this Opinion, (a) the representations and warranties of all parties to the Agreement and all other related documents and instruments that are referred to therein are
true and correct, (b) each party to the Agreement and such other related documents and instruments will fully and timely perform all of the covenants and agreements required to be performed by such party, (c) all conditions to the consummation of
the Transaction will be satisfied without waiver thereof, and (d) the Transaction will be consummated in a timely manner in accordance with the terms described in the Agreement and such other related documents and instruments, without any amendments
or modifications thereto. We have also assumed, with the consent of the Board, that the Transaction will qualify as a tax-free transaction. We have relied upon and assumed, without independent verification, that (i) the Transaction will be
consummated in a manner that complies in all respects with all applicable federal and state statutes, rules and regulations, and (ii) all governmental, regulatory, and other consents and approvals necessary for the consummation of the Transaction
will be obtained and that no delay, limitations, restrictions or conditions will be imposed or amendments, modifications or waivers made that would have an effect on the Transaction or the Company or any expected benefits of the Transaction that
would be material to our analyses or this Opinion. In addition, we have relied upon and assumed, without independent verification, that the final forms of any draft documents identified above will not differ in any respect from the drafts of said
documents in any respect material to our analyses or this Opinion.
Furthermore, in connection with this Opinion, we have
not been requested to make, and have not made, any physical inspection or independent appraisal or evaluation of any of the assets, properties or liabilities (fixed, contingent, derivative, off-balance-sheet or otherwise) of the Company or any other
party, nor were we provided with any such appraisal or evaluation. We did not estimate, and express no opinion regarding, the liquidation value of any entity or business. We have undertaken no independent analysis of any potential or actual
litigation, regulatory action, possible unasserted claims or other contingent liabilities, to which the Company is or may be a party or is or may be subject, or of any governmental investigation of any possible unasserted claims or other contingent
liabilities to which the Company is or may be a party or is or may be subject. In reaching our
E-2
The Board of Directors of Forest City Realty Trust, Inc.
December 5, 2016
conclusion hereunder, we have not performed any intrinsic valuation analyses of the Company in light of the nature of the Transaction, in which the holders of Class B Common Stock are (i)
increasing their equity ownership percentage in the Company, and (ii) receiving shares of Class A Common Stock, which class of equity securities is (a) more liquid than Class B Common Stock, and (b) economically identical to that of the Class B
Common Stock, and such holders are not otherwise receiving cash and/or securities in another entity.
We have not been
requested to, and did not, (a) initiate or participate in any discussions or negotiations with, or solicit any indications of interest from, third parties with respect to the Transaction, the securities, assets, businesses or operations of the
Company or any other party, or any alternatives to the Transaction, (b) negotiate the terms of the Transaction, or (c) advise the Special Committee, Board or any other party with respect to alternatives to the Transaction. This Opinion is
necessarily based on financial, economic, market and other conditions as in effect on, and the information made available to us as of, the date hereof. We have not undertaken, and are under no obligation, to update, revise, reaffirm or withdraw this
Opinion, or otherwise comment on or consider events occurring or coming to our attention after the date hereof. We are not expressing any opinion as to what the value of Class A Common Stock actually will be when issued pursuant to the Transaction
or the price or range of prices at which Class A Common Stock or Class B Common Stock may be purchased or sold, or otherwise be transferable, at any time. We have assumed that the Class A Common Stock to be issued in the Transaction to the holders
of Class B Common Stock will be listed on the New York Stock Exchange.
This Opinion is furnished for the use of the Board
(in its capacity as such in connection with its evaluation of the Transaction) and may not be used for any other purpose without our prior written consent, other than for inclusion in any proxy statement/prospectus required to be filed by the
Company with the Securities and Exchange Commission and delivered to the holders of Class A Common Stock and Class B Common Stock in connection with the Transaction to the extent contemplated by the letter agreement dated December 1, 2016 between
the Company and Houlihan Lokey. This Opinion is not intended to be, and does not constitute, a recommendation to the Special Committee, the Board, any security holder or any other party as to how to act or vote with respect to any matter relating to
the Transaction or otherwise.
In the ordinary course of business, certain of our employees and affiliates, as well as
investment funds in which they may have financial interests or with which they may co-invest, may acquire, hold or sell, long or short positions, or trade, in debt, equity, and other securities and financial instruments (including loans and other
obligations) of, or investments in, the Company or any other party that may be involved in the Transaction and their respective affiliates or any currency or commodity that may be involved in the Transaction.
Houlihan Lokey has in the past provided investment banking services to an indirect subsidiary of the Company, for which
Houlihan Lokey has received compensation. Houlihan Lokey and certain of its affiliates may provide investment banking, financial advisory and/or other financial or consulting services to the Company, other participants in the Transaction or certain
of their respective affiliates in the future, for which Houlihan Lokey and its affiliates may receive compensation. Furthermore, in connection with bankruptcies, restructurings, and similar matters, Houlihan Lokey and certain of its affiliates may
have in the past acted, may currently be acting and may in the future act as financial advisor to debtors, creditors, equity holders, trustees, agents and other interested parties (including, without limitation, formal and informal committees or
groups of creditors) in such bankruptcies, restructuring or similar matters that may have included or represented and may include or represent, directly or indirectly, or may be or have been adverse to, the Company, other participants in the
Transaction or certain of their respective affiliates, for which advice and services Houlihan Lokey and its affiliates have received and may receive compensation.
E-3
The Board of Directors of Forest City Realty Trust, Inc.
December 5, 2016
Houlihan Lokey will receive a fee for rendering this Opinion, which is not
contingent upon the successful completion of the Transaction. The Company has agreed to reimburse certain of our expenses and to indemnify us and certain related parties for certain potential liabilities arising out of our engagement.
We have not been requested to opine as to, and this Opinion does not express an opinion as to or otherwise address, among
other things: (i) the underlying business decision of the Special Committee, the Board, the Company, its security holders or any other party to proceed with or effect the Transaction, (ii) the terms of any arrangements, understandings, agreements or
documents related to, or the form, structure or any other portion or aspect of, the Transaction or otherwise (other than the Exchange Ratio to the extent expressly specified herein), (iii) the fairness of any portion or aspect of the Transaction to
the holders of any class of securities, creditors or other constituencies of the Company, or to any other party, except if and only to the extent expressly set forth in the last sentence of this Opinion, (iv) the relative merits of the Transaction
as compared to any alternative business strategies or transactions that might be available for the Company any other party, (v) the fairness of any portion or aspect of the Transaction to any one class or group of the Companys or any other
partys security holders or other constituents vis-à-vis any other class or group of the Companys or such other partys security holders or other constituents (including, without limitation, the allocation of any consideration
amongst or within such classes or groups of security holders or other constituents), (vi) whether or not the Company, its security holders or any other party is receiving or paying reasonably equivalent value in the Transaction, (vii) the solvency,
creditworthiness or fair value of the Company, or any other participant in the Transaction, or any of their respective assets, under any applicable laws relating to bankruptcy, insolvency, fraudulent conveyance or similar matters, or (viii) the
fairness, financial or otherwise, of the amount, nature or any other aspect of any compensation to or consideration payable to or received by any officers, directors or employees of any party to the Transaction, any class of such persons or any
other party, relative to the Exchange Ratio or otherwise. Furthermore, no opinion, counsel or interpretation is intended in matters that constitute legal, regulatory, accounting, insurance, tax or other similar professional advice. It is assumed
that such opinions, counsel or interpretations have been or will be obtained from the appropriate professional sources. Furthermore, we have relied, with the consent of the Board, on the assessments by the Special Committee, the Company, and their
respective advisors, as to all legal, regulatory, accounting, insurance and tax matters with respect to the Company and the Transaction or otherwise. The issuance of this Opinion was approved by a committee authorized to approve opinions of this
nature.
Based upon and subject to the foregoing, and in reliance thereon, it is our opinion that, as of the date hereof,
the Exchange Ratio provided for in the Transaction pursuant to the Agreement is fair to the holders of Class B Common Stock (other than RMS) (solely in their capacity as holders of shares of Class B Common Stock, with respect to such Class B Common
Stock, and without taking into account any shares of Class A Common Stock held by such holders), from a financial point of view.
Very
truly yours,
/s/ HOULIHAN LOKEY CAPITAL, INC.
HOULIHAN LOKEY CAPITAL, INC.
E-4
A
NNEX
F
I
NFORMATION
C
ONCERNING
P
ARTICIPANTS
IN
THE
C
OMPANY
S
S
OLICITATION
OF
P
ROXIES
The
following tables set forth the name and business address of our directors and nominees and the name, present principal occupation and business address of our officers and employees who, under the rules of the SEC, are considered to be
participants in our solicitation of proxies from our stockholders in connection with the Annual Meeting.
Directors and Nominees
The principal occupations of our directors who are considered participants in our solicitation are set forth under
the section above titled
Proposal 1 Election of DirectorsDirector Nominee Biographies
of this proxy statement/prospectus. The name and business addresses, and address of the organization of employment, of our
directors and nominees are as follows:
|
|
|
Name
|
|
Business Address
|
|
|
Arthur F. Anton
|
|
Swagelok Company, 29500 Solon Road, Solon, OH 44139
|
|
|
Scott S. Cowen
|
|
Office of the President Emeritus, Tulane University, 1555 Poydras Street, Suite 700, New Orleans, LA 70112
|
|
|
Michael P. Esposito, Jr.
|
|
Syncora Guarantee, 135 W. 50th Street, 20th Floor, New York, NY 10020
|
|
|
Stan Ross
|
|
Ernst & Young, 2029 Century Park East, Suite 1530, Los Angeles, CA 90067
|
|
|
Kenneth J. Bacon
|
|
RailField Partners, 4600 East-West Highway, Suite 610, Bethesda, MD 20814
|
|
|
Z. Jamie Behar
|
|
Forest City Realty Trust, Inc., Terminal Tower, 50 Public Square, Suite 1100, Cleveland, Ohio 44113
|
|
|
Christine R. Detrick
|
|
Forest City Realty Trust, Inc., Terminal Tower, 50 Public Square, Suite 1100, Cleveland, Ohio 44113
|
|
|
Deborah L. Harmon
|
|
Artemis Real Estate Partners, 5404 Wisconsin Avenue, Suite 1150, Chevy Chase, MD 20815
|
|
|
David J. LaRue
|
|
Forest City Realty Trust, Inc., Terminal Tower, 50 Public Square, Suite 1100 Cleveland, Ohio 44113
|
|
|
Craig Macnab
|
|
Forest City Realty Trust, Inc., Terminal Tower, 50 Public Square, Suite 1100, Cleveland, Ohio 44113
|
|
|
Brian J. Ratner
|
|
Forest City Realty Trust, Inc., 1800 Main Street, Suite 250, Dallas, TX 75201
|
|
|
Deborah Ratner Salzberg
|
|
Forest City Realty Trust, Inc., 301 Water Street, SE, Suite 201, Washington, DC 20003
|
|
|
James A. Ratner
|
|
Forest City Realty Trust, Inc., Terminal Tower, 50 Public Square, Suite 1100 Cleveland, Ohio 44113
|
|
|
Ronald A. Ratner
|
|
Forest City Realty Trust, Inc., Terminal Tower, 50 Public Square, Suite 1100 Cleveland, Ohio 44113
|
F-1
Executive Officers and Other Employees
The principal occupations of our executive officers and employees who are considered participants in our
solicitation of proxies are set forth below. The principal occupation refers to such persons position with the Company, and the business address for each person is Forest City Realty Trust, Inc. Terminal Tower, 50 Public Square, Suite 1100
Cleveland, Ohio 44113.
|
|
|
Name
|
|
Principal Occupation
|
|
|
David J. LaRue
|
|
CEO and President
|
|
|
Robert G. OBrien
|
|
Executive Vice President and Chief Financial Officer
|
Information Regarding Ownership of Company Securities by Participants
The number of shares of our Common Stock held by our Directors and Named Executive Officers as of January 31, 2017 is set
forth under the section of this proxy statement/prospectus entitled
Security Ownership of Certain Beneficial Owners and Management
. No participant owns any securities of the Company of record that such participant does not own
beneficially.
F-2
Information Regarding Transactions in Company Securities by Participants
The following table sets forth information regarding purchases and sales of our securities by each of the participants listed
above under
Directors and Nominees
and
Executive Officers and Employees
during the past two years. Unless otherwise indicated, all transactions were in the public market or pursuant to our equity compensation
plans and none of the purchase price or market value of those securities is represented by funds borrowed or otherwise obtained for the purpose of acquiring or holding such securities.
Shares of Common Stock Purchased or Sold (April 13, 2015 April 13, 2017)
|
|
|
|
|
|
|
Name
|
|
Transaction Date
|
|
# Shares
|
|
Transaction Description
|
|
|
|
|
Arthur F. Anton
|
|
3/23/2016
|
|
5,969
|
|
Acquisition - Restricted Stock Grant
|
|
|
12/9/2016
|
|
15,000
|
|
Acquisition - Open Market Purchase
|
|
|
3/24/2017
|
|
5,726
|
|
Acquisition - Restricted Stock Grant
|
|
|
|
|
Scott S. Cowen
|
|
9/11/2015
|
|
3,000
|
|
Acquisition - Open Market Purchase
|
|
|
3/23/2016
|
|
5,969
|
|
Acquisition - Restricted Stock Grant
|
|
|
12/7/2016
|
|
7,000
|
|
Acquisition - Open Market Purchase
|
|
|
3/6/2017
|
|
6,000
|
|
Acquisition - Open Market Purchase
|
|
|
3/24/2017
|
|
5,726
|
|
Acquisition - Restricted Stock Grant
|
|
|
|
|
Michael P. Esposito, Jr.
|
|
3/18/2016
|
|
20.506
|
|
Acquisition - Dividend Reinvestment
|
|
|
3/23/2016
|
|
5,969
|
|
Acquisition - Restricted Stock Grant
|
|
|
6/24/2016
|
|
7.572
|
|
Acquisition - Dividend Reinvestment
|
|
|
3/24/2017
|
|
5,726
|
|
Acquisition - Restricted Stock Grant
|
|
|
|
|
Stan Ross
|
|
11/20/2015
|
|
3,930
|
|
Disposition - Stock Gift
|
|
|
11/30/2015
|
|
4,200
|
|
Acquisition - Stock Option Exercise
|
|
|
3/18/2016
|
|
90.294
|
|
Acquisition - Dividend Reinvestment of Deferred Compensation Plan
|
|
|
3/23/2016
|
|
2984
|
|
Acquisition - Restricted Stock Grant
|
|
|
3/23/2016
|
|
12,510
|
|
Acquisition - Stock Option Grant
|
|
|
6/24/2016
|
|
37.792
|
|
Acquisition - Dividend Reinvestment of Deferred Compensation Plan
|
|
|
9/16/2016
|
|
33.228
|
|
Acquisition - Dividend Reinvestment of Deferred Compensation Plan
|
|
|
12/23/2016
|
|
37.482
|
|
Acquisition - Dividend Reinvestment of Deferred Compensation Plan
|
|
|
3/24/2017
|
|
5,726
|
|
Acquisition - Restricted Stock Grant
|
|
|
3/27/2017
|
|
51.845
|
|
Acquisition - Dividend Reinvestment of Deferred Compensation Plan
|
|
|
|
|
Kenneth J. Bacon
|
|
3/23/2016
|
|
5,969
|
|
Acquisition - Restricted Stock Grant
|
|
|
3/24/2017
|
|
5,726
|
|
Acquisition - Restricted Stock Grant
|
|
|
|
|
Christine R. Detrick
|
|
3/23/2016
|
|
5,969
|
|
Acquisition - Restricted Stock Grant
|
|
|
12/7/2016
|
|
4,850
|
|
Acquisition - Open Market Purchase
|
|
|
3/24/2017
|
|
5,726
|
|
Acquisition - Restricted Stock Grant
|
F-3
|
|
|
|
|
|
|
Name
|
|
Transaction Date
|
|
# Shares
|
|
Transaction Description
|
|
|
|
|
Deborah L. Harmon
|
|
5/20/2015
|
|
639.932
|
|
Acquisition - Deferral of Quarterly Directors Fees under Forest City Realty Trust, Inc.s Corporation Deferred Compensation
Plan
|
|
|
8/19/2015
|
|
646.831
|
|
Acquisition - Deferral of Quarterly Directors Fees under Forest City Realty Trust, Inc.s Corporation
Deferred Compensation Plan
|
|
|
11/18/2015
|
|
704.887
|
|
Acquisition - Deferral of Quarterly Directors Fees under Forest City Realty Trust, Inc.s Corporation
Deferred Compensation Plan
|
|
|
2/18/2016
|
|
453.657
|
|
Acquisition - Deferral of Quarterly Directors Fees under Forest City Realty Trust, Inc.s Corporation
Deferred Compensation Plan
|
|
|
3/18/2016
|
|
22.128
|
|
Acquisition - Dividend Reinvestment of Deferred Compensation Plan
|
|
|
3/23/2016
|
|
2,984
|
|
Acquisition - Restricted Stock Grant
|
|
|
3/23/2016
|
|
12,510
|
|
Acquisition - Stock Option Grant
|
|
|
5/25/2016
|
|
367.98
|
|
Acquisition - Deferral of Quarterly Directors Fees under Forest City Realty Trust, Inc.s Corporation
Deferred Compensation Plan
|
|
|
6/24/2016
|
|
9.004
|
|
Acquisition - Dividend Reinvestment of Deferred Compensation Plan
|
|
|
8/18/2016
|
|
355.58
|
|
Acquisition - Deferral of Quarterly Directors Fees under Forest City Realty Trust, Inc.s Corporation
Deferred Compensation Plan
|
|
|
9/16/2016
|
|
10.068
|
|
Acquisition - Dividend Reinvestment of Deferred Compensation Plan
|
|
|
11/30/2016
|
|
433.565
|
|
Acquisition - Deferral of Quarterly Directors Fees under Forest City Realty Trust, Inc.s Corporation
Deferred Compensation Plan
|
|
|
12/23/2016
|
|
12.653
|
|
Acquisition - Dividend Reinvestment of Deferred Compensation Plan
|
|
|
3/1/2017
|
|
355.58
|
|
Acquisition - Deferral of Quarterly Directors Fees under Forest City Realty Trust, Inc.s Corporation
Deferred Compensation Plan
|
|
|
3/24/2017
|
|
26,112
|
|
Acquisition - Stock Option Grant
|
|
|
3/27/2017
|
|
18.968
|
|
Acquisition - Dividend Reinvestment of Deferred Compensation Plan
|
|
|
|
|
David J. LaRue
|
|
4/13/2015
|
|
16,603
|
|
Disposition - Surrender of Shares to Satisfy Tax Withholding on Vesting of Restricted Shares
|
|
|
2/17/2016
|
|
60,896
|
|
Acquisition - Vesting of Performance Share Grant
|
|
|
2/17/2016
|
|
28,896
|
|
Disposition - Surrender of Shares to Satisfy Tax Withholding on Vesting of Performance Shares
|
|
|
3/18/2016
|
|
565.380
|
|
Acquisition - Dividend Reinvestment of Shares Held Directly and Indirectly
|
|
|
3/21/2016
|
|
10,000
|
|
Acquisition - Open Market Purchase
|
|
|
3/21/2016
|
|
7,019
|
|
Acquisition - Stock Option Exercise
|
|
|
3/21/2016
|
|
9,142
|
|
Acquisition - Stock Option Exercise
|
|
|
3/21/2016
|
|
9,425
|
|
Disposition - Surrender of Shares to Satisfy Tax Withholding in Accordance With the Process of
Attestation
|
F-4
|
|
|
|
|
|
|
Name
|
|
Transaction Date
|
|
# Shares
|
|
Transaction Description
|
|
|
3/23/2016
|
|
7,011
|
|
Acquisition - Cashless Stock Option Exercise
|
|
|
3/23/2016
|
|
4,700
|
|
Disposition - Cashless Stock Option Exercise; Sale to Cover Taxes
|
|
|
3/23/2016
|
|
33,578
|
|
Acquisition - Restricted Stock Grant
|
|
|
3/23/2016
|
|
50,367
|
|
Acquisition - Performance Share Grant
|
|
|
3/26/2016
|
|
3,903
|
|
Disposition - Surrender of Shares to Satisfy Tax Withholding on Vesting of Restricted Shares
|
|
|
6/24/2016
|
|
199.504
|
|
Acquisition - Dividend Reinvestment of Shares Held Directly and Indirectly
|
|
|
9/16/2016
|
|
197.488
|
|
Acquisition - Dividend Reinvestment of Shares Held Directly and Indirectly
|
|
|
12/23/2016
|
|
217.660
|
|
Acquisition - Dividend Reinvestment of Shares Held Directly and Indirectly
|
|
|
3/23/2017
|
|
4,025
|
|
Disposition - Surrender of Shares to Satisfy Tax Withholding on Vesting of Restricted Shares
|
|
|
3/24/2017
|
|
32,209
|
|
Acquisition - Restricted Stock Grant
|
|
|
3/24/2017
|
|
48,313
|
|
Acquisition - Performance Share Grant
|
|
|
3/26/2017
|
|
3,944
|
|
Disposition - Surrender of Shares to Satisfy Tax Withholding on Vesting of Restricted Shares
|
|
|
3/27/2017
|
|
311.388
|
|
Acquisition - Dividend Reinvestment of Shares Held Directly and Indirectly
|
|
|
3/27/2017
|
|
131.7955
|
|
Acquisition - Dividend Reinvestment of Shares through Forest City Realty Trust, Inc.s 401k
Plan
|
|
|
|
|
Brian J. Ratner
|
|
9/24/2015
|
|
1,596
|
|
Disposition - Open Market Sale
|
|
|
9/24/2015
|
|
17,904
|
|
Disposition - Open Market Sale
|
|
|
12/3/2015
|
|
1,045
|
|
Disposition - Stock Gift
|
|
|
2/17/2016
|
|
12,348
|
|
Acquisition - Vesting of Performance Share Grant
|
|
|
2/17/2016
|
|
3,378
|
|
Disposition - Surrender of Shares to Satisfy Tax Withholding on Vesting of Performance Shares
|
|
|
3/23/2016
|
|
7,306
|
|
Acquisition - Restricted Stock Grant
|
|
|
3/23/2016
|
|
7,306
|
|
Acquisition - Performance Share Grant
|
|
|
12/7/2016
|
|
800
|
|
Disposition - Stock Gift
|
|
|
12/9/2016
|
|
20,000
|
|
Disposition - Stock Gift
|
|
|
3/23/2017
|
|
500
|
|
Disposition - Surrender of Shares to Satisfy Tax Withholding on Vesting of Restricted Shares
|
|
|
3/24/2017
|
|
7,218
|
|
Acquisition - Restricted Stock Grant
|
|
|
3/24/2017
|
|
7,218
|
|
Acquisition - Performance Share Grant
|
|
|
3/26/2017
|
|
430
|
|
Disposition - Surrender of Shares to Satisfy Tax Withholding on Vesting of Restricted Shares
|
|
|
3/28/2017
|
|
548
|
|
Disposition - Surrender of Shares to Satisfy Tax Withholding on Vesting of Restricted Shares
|
|
|
4/8/2017
|
|
1,169
|
|
Disposition - Surrender of Shares to Satisfy Tax Withholding on Vesting of Restricted Shares
|
|
|
|
|
Deborah Ratner Salzberg
|
|
12/15/2015
|
|
18,000
|
|
Disposition - Gift of Stock
|
|
|
2/17/2016
|
|
9,916
|
|
Acquisition - Vesting of Performance Share
Grant
|
F-5
|
|
|
|
|
|
|
Name
|
|
Transaction Date
|
|
# Shares
|
|
Transaction Description
|
|
|
2/17/2016
|
|
3,332
|
|
Disposition - Surrender of Shares to Satisfy Tax Withholding on Vesting of Performance Shares
|
|
|
3/23/2016
|
|
7,002
|
|
Acquisition - Restricted Stock Grant
|
|
|
3/23/2016
|
|
7,002
|
|
Acquisition - Performance Share Grant
|
|
|
3/26/2016
|
|
484
|
|
Disposition - Surrender of Shares to Satisfy Tax Withholding on Vesting of Restricted Shares
|
|
|
3/28/2016
|
|
557
|
|
Disposition - Surrender of Shares to Satisfy Tax Withholding on Vesting of Restricted Shares
|
|
|
4/8/2016
|
|
577
|
|
Disposition - Surrender of Shares to Satisfy Tax Withholding on Vesting of Restricted Shares
|
|
|
4/11/2016
|
|
1,337
|
|
Disposition - Surrender of Shares to Satisfy Tax Withholding on Vesting of Restricted Shares
|
|
|
12/14/2016
|
|
23,000
|
|
Disposition - Gift of Stock
|
|
|
3/23/2017
|
|
588
|
|
Disposition - Surrender of Shares to Satisfy Tax Withholding on Vesting of Restricted Shares
|
|
|
3/24/2017
|
|
6,918
|
|
Acquisition - Restricted Stock Grant
|
|
|
3/24/2017
|
|
6,918
|
|
Acquisition - Performance Share Grant
|
|
|
3/26/2017
|
|
484
|
|
Disposition - Surrender of Shares to Satisfy Tax Withholding on Vesting of Restricted Shares
|
|
|
3/28/2017
|
|
557
|
|
Disposition - Surrender of Shares to Satisfy Tax Withholding on Vesting of Restricted Shares
|
|
|
4/8/2017
|
|
1,154
|
|
Disposition - Surrender of Shares to Satisfy Tax Withholding on Vesting of Restricted Shares
|
|
|
|
|
James A. Ratner
|
|
9/24/2015
|
|
37,000
|
|
Disposition - Open Market Sale
|
|
|
12/3/2015
|
|
22,750
|
|
Disposition - Stock Gift
|
|
|
12/3/2015
|
|
16,728
|
|
Disposition - Stock Gift
|
|
|
2/17/2016
|
|
25,372
|
|
Acquisition - Vesting of Performance Share Grant
|
|
|
3/23/2016
|
|
11,938
|
|
Acquisition - Restricted Stock Grant
|
|
|
3/23/2016
|
|
17,908
|
|
Acquisition - Performance Share Grant
|
|
|
3/26/2016
|
|
1,606
|
|
Disposition - Surrender of Shares to Satisfy Tax Withholding on Vesting of Restricted Shares
|
|
|
12/7/2016
|
|
6,000
|
|
Disposition - Stock Gift
|
|
|
12/30/2016
|
|
39,000
|
|
Disposition - Stock Gift
|
|
|
3/24/2017
|
|
11,452
|
|
Acquisition - Restricted Stock Grant
|
|
|
|
|
Ronald A. Ratner
|
|
2/17/2016
|
|
25,372
|
|
Acquisition - Vesting of Performance Share Grant
|
|
|
3/23/2016
|
|
11,938
|
|
Acquisition - Restricted Stock Grant
|
|
|
3/23/2016
|
|
17,908
|
|
Acquisition - Performance Share Grant
|
|
|
3/26/2016
|
|
1,606
|
|
Disposition - Surrender of Shares to Satisfy Tax Withholding on Vesting of Restricted Shares
|
|
|
12/9/2016
|
|
31,600
|
|
Disposition - Gift of Stock
|
|
|
3/23/2017
|
|
996
|
|
Disposition - Surrender of Shares to Satisfy Tax Withholding on Vesting of Restricted Shares
|
|
|
3/24/2017
|
|
11,452
|
|
Acquisition - Restricted Stock Grant
|
|
|
3/24/2017
|
|
17,178
|
|
Acquisition - Performance Share Grant
|
|
|
3/26/2017
|
|
1,129
|
|
Disposition - Surrender of Shares to Satisfy Tax Withholding on Vesting of Restricted
Shares
|
F-6
|
|
|
|
|
|
|
Name
|
|
Transaction Date
|
|
# Shares
|
|
Transaction Description
|
|
|
|
|
Robert G. O Brien
|
|
4/13/2015
|
|
15,598
|
|
Disposition - Surrender of Shares to Satisfy Tax Withholding on Vesting of Restricted Shares
|
|
|
12/21/2015
|
|
7,019
|
|
Acquisition - Stock Option Exercise
|
|
|
12/21/2015
|
|
9,142
|
|
Acquisition - Stock Option Exercise
|
|
|
12/21/2015
|
|
5,643
|
|
Acquisition - Stock Option Exercise
|
|
|
12/22/2015
|
|
10,284
|
|
Disposition - Stock Gift
|
|
|
12/28/2015
|
|
14,626
|
|
Disposition - Open Market Sale
|
|
|
1/14/2016
|
|
4,230
|
|
Transfer - Stock Gift to Children (shares are beneficially owned)
|
|
|
2/17/2016
|
|
31,011
|
|
Acquisition - Vesting of Performance Share Grant
|
|
|
2/17/2016
|
|
13,558
|
|
Disposition - Surrender of Shares to Satisfy Tax Withholding on Vesting of Performance Shares
|
|
|
3/23/2016
|
|
14,326
|
|
Acquisition - Restricted Stock Grant
|
|
|
3/23/2016
|
|
21,489
|
|
Acquisition - Performance Share Grant
|
|
|
3/26/2016
|
|
3,868
|
|
Disposition - Surrender of Shares to Satisfy Tax Withholding on Vesting of Restricted Shares
|
|
|
3/28/2016
|
|
2,692
|
|
Disposition - Surrender of Shares to Satisfy Tax Withholding on Vesting of Restricted Shares
|
|
|
4/8/2016
|
|
5,730
|
|
Disposition - Surrender of Shares to Satisfy Tax Withholding on Vesting of Restricted Shares
|
|
|
4/11/2016
|
|
13,682
|
|
Disposition - Surrender of Shares to Satisfy Tax Withholding on Vesting of Restricted Shares
|
|
|
3/23/2017
|
|
1,195
|
|
Disposition - Surrender of Shares to Satisfy Tax Withholding on Vesting of Restricted Shares
|
|
|
3/24/2017
|
|
13,353
|
|
Acquisition - Restricted Stock Grant
|
|
|
3/24/2017
|
|
20,029
|
|
Acquisition - Performance Share Grant
|
|
|
3/26/2017
|
|
2,836
|
|
Disposition - Surrender of Shares to Satisfy Tax Withholding on Vesting of Restricted Shares
|
|
|
3/28/2017
|
|
2,721
|
|
Disposition - Surrender of Shares to Satisfy Tax Withholding on Vesting of Restricted Shares
|
|
|
4/8/2017
|
|
11,579
|
|
Disposition - Surrender of Shares to Satisfy Tax Withholding on Vesting of Restricted Shares
|
Miscellaneous Information Concerning Participants
Other than as set forth in this Annex F or otherwise disclosed in the proxy statement/prospectus, no person listed above under
Directors and Nominees and Executive Officers and Other Employees or their associates beneficially owns (within the meaning of Rule 13d-3 under the Exchange Act), directly or indirectly, any shares or other
securities of the Company or any of our subsidiaries. Furthermore, except as described in this Annex F or otherwise disclosed in the proxy statement/prospectus, no such person or any of their associates is either a party to any transaction or series
of similar transactions in the last fiscal year, or any currently proposed transaction or series of similar transactions (1) to which the Company or any of its subsidiaries was or is to be a party, (2) in which the amount involved exceeds
$120,000 and (3) in which such person or associate had or will have a direct or indirect material interest.
Except
as described in this Annex F or otherwise disclosed in the proxy statement/prospectus, no person listed above under Directors and Nominees and Executive Officers and Other Employees or any of his or her associates has entered
into any arrangement or understanding with any person with respect to (1) any future
F-7
employment with the Company or its affiliates, or (2) any future transactions to which the Company or any of its affiliates will or may be a party. Except as described in this Annex F or
otherwise disclosed in the proxy statement/prospectus, there are no contracts, arrangements or understandings by any of the persons listed under Directors and Nominees and Executive Officers and Other Employees within the
past year with any person with respect to any of our securities, including, but not limited to, joint ventures, loan or option arrangements, puts or calls, guarantees against loss or guarantees of profit, division of losses or profits, or the giving
or withholding of proxies.
Except as described in this Annex F or otherwise disclosed in the proxy statement/prospectus,
no persons listed under Directors and Nominees and Executive Officers and Other Employees has any substantial interest, direct or indirect, by security holdings or otherwise, in any matter to be acted upon at the Annual
Meeting (and no other person who is a party to an arrangement or understanding pursuant to which a nominee for election as director is proposed to be elected, has any such interests).
F-8
A
NNEX
G
Forest City Realty Trust, Inc. and Subsidiaries
Reconciliation of Net Earnings (Loss) (GAAP) to Funds From Operations (FFO) (non-GAAP)
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(in thousands)
|
|
Net earnings (loss) attributable to Forest City Realty Trust, Inc.
|
|
$
|
(158,402
|
)
|
|
$
|
496,042
|
|
Depreciation and Amortizationreal estate
|
|
|
318,635
|
|
|
|
337,740
|
|
Gain on disposition of full or partial interests in rental properties
|
|
|
(129,367
|
)
|
|
|
(22,039
|
)
|
Impairment of depreciable rental properties
|
|
|
155,595
|
|
|
|
447,587
|
|
Income tax expense (benefit) adjustments current and deferred
|
|
|
|
|
|
|
|
|
Gain on disposition of full or partial interests in rental properties
|
|
|
55,272
|
|
|
|
8,549
|
|
Impairment of depreciable rental properties
|
|
|
|
|
|
|
(173,590
|
)
|
One-time adjustment to deferred taxes related to REIT conversion
|
|
|
|
|
|
|
(588,607
|
|
|
|
|
|
|
|
|
|
|
FFO attributable to Forest City Realty Trust, Inc.
|
|
$
|
241,733
|
|
|
$
|
505,682
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of FFO to Operating FFO
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(in thousands)
|
|
FFO attributable to Forest City Realty Trust, Inc.
|
|
$
|
241,733
|
|
|
$
|
505,682
|
|
Impairment of non-depreciable real estate
|
|
|
307,630
|
|
|
|
17,691
|
|
Write-offs of abandoned development projects and demolition costs
|
|
|
10,659
|
|
|
|
19,609
|
|
Tax credit income
|
|
|
(12,126
|
)
|
|
|
(14,807
|
)
|
Loss on extinguishment of debt
|
|
|
33,863
|
|
|
|
65,103
|
|
Change in fair market value of nondesignated hedges
|
|
|
95
|
|
|
|
(4,850
|
)
|
Interest rate swap breakage fee
|
|
|
24,635
|
|
|
|
|
|
Gain on change in control of interests
|
|
|
|
|
|
|
(486,279
|
)
|
Net (gain) loss on disposition of partial interest in development projects
|
|
|
(136,687
|
)
|
|
|
|
|
Net gain on disposition of partial interest in other investment - Nets
|
|
|
(136,247
|
)
|
|
|
|
|
Straight-line rent adjustments
|
|
|
(10,108
|
)
|
|
|
(4,497
|
)
|
Participation payments
|
|
|
73
|
|
|
|
1,013
|
|
Organizational transformation and termination benefits
|
|
|
31,708
|
|
|
|
48,125
|
|
Nets Pre-tax FFO
|
|
|
1,400
|
|
|
|
40,760
|
|
Income tax expense on FFO
|
|
|
29,833
|
|
|
|
150,051
|
|
|
|
|
|
|
|
|
|
|
Operating FFO attributable to Forest City Realty Trust, Inc.
|
|
$
|
386,461
|
|
|
$
|
337,601
|
|
|
|
|
|
|
|
|
|
|
G-1
A
NNEX
H
Forest City Realty Trust, Inc. and Subsidiaries
Reconciliation of Comparable Net Operating Income to total Net Operating Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Operating Income
(in thousands)
|
|
|
Comparable
NOI %
Change
|
|
|
|
Year Ended December 31, 2016
|
|
|
Year Ended December 31, 2015
|
|
|
|
|
Comparable
|
|
|
Non-
Comparable
|
|
|
Total
|
|
|
Comparable
|
|
|
Non-
Comparable
|
|
|
Total
|
|
|
Office
|
|
$
|
254,087
|
|
|
$
|
17,224
|
|
|
$
|
271,311
|
|
|
$
|
245,221
|
|
|
$
|
7,644
|
|
|
$
|
252,865
|
|
|
|
3.6
|
%
|
Retail
|
|
|
162,912
|
|
|
|
2,291
|
|
|
|
165,203
|
|
|
|
158,845
|
|
|
|
16,561
|
|
|
|
175,406
|
|
|
|
2.6
|
%
|
Apartments
|
|
|
168,390
|
|
|
|
11,310
|
|
|
|
179,700
|
|
|
|
162,949
|
|
|
|
(2,780
|
)
|
|
|
160,169
|
|
|
|
3.3
|
%
|
Federally Assisted Housing
|
|
|
|
|
|
|
19,693
|
|
|
|
19,693
|
|
|
|
|
|
|
|
19,602
|
|
|
|
19,602
|
|
|
|
|
|
Other NOI:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Straight-line rent adjustments
|
|
|
|
|
|
|
9,194
|
|
|
|
9,194
|
|
|
|
|
|
|
|
4,068
|
|
|
|
4,068
|
|
|
|
|
|
Participation payments
|
|
|
|
|
|
|
(73
|
)
|
|
|
(73
|
)
|
|
|
|
|
|
|
(1,013
|
)
|
|
|
(1,013
|
)
|
|
|
|
|
Other Operations
|
|
|
|
|
|
|
(629
|
)
|
|
|
(629
|
)
|
|
|
|
|
|
|
(18,051
|
)
|
|
|
(18,051
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
585,389
|
|
|
|
59,010
|
|
|
|
644,399
|
|
|
|
567,015
|
|
|
|
26,031
|
|
|
|
593,046
|
|
|
|
3.2
|
%
|
Recently-Opened Properties/Redevelopment
|
|
|
|
|
|
|
3,965
|
|
|
|
3,965
|
|
|
|
|
|
|
|
10,361
|
|
|
|
10,361
|
|
|
|
|
|
Development Segment
|
|
|
|
|
|
|
(28,676
|
)
|
|
|
(28,676
|
)
|
|
|
|
|
|
|
(41,499
|
)
|
|
|
(41,499
|
)
|
|
|
|
|
Other Segment
|
|
|
|
|
|
|
2,502
|
|
|
|
2,502
|
|
|
|
|
|
|
|
47,825
|
|
|
|
47,825
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grand Total
|
|
$
|
585,389
|
|
|
$
|
36,801
|
|
|
$
|
622,190
|
|
|
$
|
567,015
|
|
|
$
|
42,718
|
|
|
$
|
609,733
|
|
|
|
3.2
|
%
|
|
|
|
|
|
|
|
|
|
Reconciliation of Earnings (Loss) Before Income Taxes (GAAP) to Net Operating Income (non-GAAP)
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(in thousands)
|
|
Loss before income taxes (GAAP)
|
|
$
|
(454,173
|
)
|
|
$
|
(38,035
|
)
|
(Earnings) loss from unconsolidated entities
|
|
|
263,533
|
|
|
|
(28,762
|
)
|
|
|
|
|
|
|
|
|
|
Loss before income taxes and earnings (loss) from unconsolidated entities
|
|
|
(190,640
|
)
|
|
|
(66,797
|
)
|
Land sales
|
|
|
(48,078
|
)
|
|
|
(79,169
|
)
|
Cost of land sales
|
|
|
13,661
|
|
|
|
31,413
|
|
Other land development revenues
|
|
|
(10,183
|
)
|
|
|
(8,254
|
)
|
Other land development expenses
|
|
|
8,923
|
|
|
|
9,753
|
|
Corporate general and administrative expenses
|
|
|
62,683
|
|
|
|
51,974
|
|
Organizational transformation and termination benefits
|
|
|
31,708
|
|
|
|
48,125
|
|
Depreciation and amortization
|
|
|
250,848
|
|
|
|
252,925
|
|
Write-offs of abandoned development projects and demolition costs
|
|
|
10,348
|
|
|
|
9,534
|
|
Impairment of real estate
|
|
|
156,825
|
|
|
|
451,434
|
|
Interest and other income
|
|
|
(46,229
|
)
|
|
|
(37,739
|
)
|
(Gains) loss on change in control of interests
|
|
|
|
|
|
|
(486,279
|
)
|
Interest expense
|
|
|
131,441
|
|
|
|
157,166
|
|
Interest rate swap breakage fee
|
|
|
24,635
|
|
|
|
|
|
Amortization of mortgage procurement costs
|
|
|
5,719
|
|
|
|
7,549
|
|
Loss on extinguishment of debt
|
|
|
32,960
|
|
|
|
65,086
|
|
NOI related to unconsolidated
entities
(1)
|
|
|
223,592
|
|
|
|
213,590
|
|
NOI related to noncontrolling
interest
(2)
|
|
|
(37,221
|
)
|
|
|
(32,521
|
)
|
NOI related to discontinued
operations
(3)
|
|
|
1,198
|
|
|
|
21,943
|
|
|
|
|
|
|
|
|
|
|
Net Operating Income attributable to Forest City Realty Trust, Inc.
|
|
$
|
622,190
|
|
|
$
|
609,733
|
|
|
|
|
|
|
|
|
|
|
H-1
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
(1) NOI related to unconsolidated entities:
|
|
|
|
|
|
|
|
|
Equity in earnings (GAAP)
|
|
$
|
29,701
|
|
|
$
|
22,313
|
|
Exclude non-NOI activity from unconsolidated entities:
|
|
|
|
|
|
|
|
|
Land and non-rental activity, net
|
|
|
(3,658
|
)
|
|
|
(3,756
|
)
|
Interest and other income
|
|
|
(2,544
|
)
|
|
|
(1,779
|
)
|
Write offs of abandoned development projects
|
|
|
327
|
|
|
|
10,191
|
|
Depreciation and amortization
|
|
|
97,423
|
|
|
|
88,455
|
|
Interest expense and extinguishment of debt
|
|
|
102,343
|
|
|
|
98,166
|
|
|
|
|
|
|
|
|
|
|
NOI related to unconsolidated entities
|
|
$
|
223,592
|
|
|
$
|
213,590
|
|
|
|
|
|
|
|
|
|
|
(2) NOI related to noncontrolling interest
|
|
|
|
|
|
|
|
|
Earnings from continuing operations attributable to noncontrolling interests (GAAP)
|
|
$
|
(6,078
|
)
|
|
$
|
(13,258
|
)
|
Exclude non-NOI activity from noncontrolling interests:
|
|
|
|
|
|
|
|
|
Land and non-rental activity, net
|
|
|
3,882
|
|
|
|
4,979
|
|
Interest and other income
|
|
|
1,600
|
|
|
|
2,105
|
|
Write offs of abandoned development projects
|
|
|
(16
|
)
|
|
|
(116
|
)
|
Depreciation and amortization
|
|
|
(23,617
|
)
|
|
|
(16,354
|
)
|
Interest expense and extinguishment of debt
|
|
|
(12,807
|
)
|
|
|
(9,877
|
)
|
Impairment of real estate
|
|
|
|
|
|
|
|
|
Loss on disposition of full or partial interests in development projects
|
|
|
|
|
|
|
|
|
Gain (loss) on disposition of full or partial interests in rental properties
|
|
|
(185
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOI related to noncontrolling interest
|
|
$
|
(37,221
|
)
|
|
$
|
(32,521
|
)
|
|
|
|
|
|
|
|
|
|
(3) NOI related to discontinued operations
|
|
|
|
|
|
|
|
|
Operating loss from discontinued operations, net of tax (GAAP)
|
|
$
|
(1,126
|
)
|
|
$
|
(27,520
|
)
|
Less loss from discontinued operations attributable to noncontrolling interests
|
|
|
776
|
|
|
|
16,962
|
|
Exclude non-NOI activity from discontinued operations (net of noncontrolling interest):
|
|
|
|
|
|
|
|
|
Land and non-rental activity, net
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
56
|
|
|
|
20,330
|
|
Interest expense and extinguishment of debt
|
|
|
1,738
|
|
|
|
18,861
|
|
Income tax benefit
|
|
|
(246
|
)
|
|
|
(6,690
|
)
|
|
|
|
|
|
|
|
|
|
NOI related to discontinued operations
|
|
$
|
1,198
|
|
|
$
|
21,943
|
|
|
|
|
|
|
|
|
|
|
H-2
ANNEX I
Reconciliation of Net Earnings (Loss) to EBITDA
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
|
2016
|
|
Net loss attributable to Forest City Realty Trust, Inc.
|
|
$
|
(158,402
|
)
|
Depreciation and amortization
|
|
|
321,749
|
|
Interest expense
|
|
|
221,812
|
|
Interest rate swap breakage fee
|
|
|
24,635
|
|
Amortization of mortgage procurement costs
|
|
|
8,680
|
|
Income tax expense
|
|
|
85,105
|
|
|
|
|
|
|
EBITDA attributable to Forest City Realty Trust, Inc.
|
|
$
|
503,579
|
|
Impairment of real estate
|
|
|
463,225
|
|
Net loss on extinguishment of debt
|
|
|
33,863
|
|
Net gain on disposition of interest in development project
|
|
|
(136,687
|
)
|
Net gain on disposition of partial interest in other investment - Nets
|
|
|
(136,247
|
)
|
Net gain on disposition of full or partial interests in rental properties
|
|
|
(129,367
|
)
|
Nets pre-tax EBITDA
|
|
|
1,400
|
|
|
|
|
|
|
Adjusted EBITDA attributable to Forest City Realty Trust, Inc.
|
|
$
|
599,766
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2016
|
|
Nonrecourse mortgage debt and notes payable, net
|
|
$
|
5,063,175
|
|
Revolving credit facility
|
|
|
|
|
Term loan facility, net
|
|
|
333,268
|
|
Convertible senior debt, net
|
|
|
112,181
|
|
|
|
|
|
|
Total debt
|
|
$
|
5,508,624
|
|
Less cash and equivalents
|
|
|
(221,478
|
)
|
Add unamortized mortgage procurement costs
|
|
|
60,306
|
|
|
|
|
|
|
Net Debt
|
|
$
|
5,347,452
|
|
|
|
|
|
|
Net Debt to Adjusted EBITDA (Annualized)
|
|
|
8.92
|
x
|
|
|
|
|
|
I-1
Forest City Ent (NYSE:FCE.B)
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