S-4/A 1 d289676ds4a.htm S-4/A S-4/A
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As filed with the Securities and Exchange Commission on April 14, 2017

Registration No. 333-216439

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Amendment No. 1 to

FORM S-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

Forest City Realty Trust, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Maryland   6798   47-4113168
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code)
  (I.R.S. Employer
Identification No.)

 

 

Terminal Tower, 50 Public Square, Suite 1100

Cleveland, Ohio 44113

(216) 621-6060

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

 

FCE Statutory Agent, Inc.

Terminal Tower, 50 Public Square, Suite 1360

Cleveland, Ohio 44113

(216) 621-6060

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copies to:

 

Joseph B. Frumkin, Esq.

Benjamin R. Weber, Esq.

Krishna Veeraraghavan, Esq.

Sullivan & Cromwell LLP

125 Broad Street

New York, New York 10004-2498

(212) 558-4000

 

Robert G. O’Brien

Executive Vice President and

Chief Financial Officer

Forest City Realty Trust, Inc.

Terminal Tower

50 Public Square, Suite 1360

Cleveland, Ohio 44113-2267

(216) 621-6060

 

 

Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable after this registration statement is declared effective and the satisfaction or waiver of all of the conditions to the proposed reclassification described in the enclosed proxy statement/prospectus.

If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box.  ☐

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act of 1933, as amended (the “Securities Act”), check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act (check one):

 

Large accelerated filer      Accelerated filer  
Non-accelerated filer   ☐  (do not check if a smaller reporting company)    Smaller reporting company  
Emerging growth company       

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.  ☐

If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:

Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer)  ☐

Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer)  ☐

 

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


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Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. The proxy statement/prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation or sale is not permitted.

 

PRELIMINARY — SUBJECT TO COMPLETION — DATED APRIL 14, 2017

 

LOGO

PROXY STATEMENT FOR FOREST CITY REALTY TRUST, INC.

ANNUAL MEETING OF STOCKHOLDERS TO BE HELD [], 2017

PROSPECTUS FOR FOREST CITY REALTY TRUST, INC.

24,612,501 SHARES OF CLASS A COMMON STOCK (NYSE: FCE.A)

 

 

Dear Fellow Stockholder:

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 [●], 2017 at [●] 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.

Holders of Class A Common Stock and Class B Common Stock each will vote on the reclassification proposal separately as a class. RMS, Limited Partnership (“RMS”), the beneficial owner of a majority of the issued and outstanding Class B shares, has entered into a definitive reclassification agreement (the “Reclassification Agreement”) with the Company to vote the Class B shares beneficially owned by RMS in favor of the reclassification proposal (on the terms and subject to the conditions set forth in such agreement). A Special Committee of Class A directors has unanimously recommended that the Board determine that the charter amendments by which the reclassification will be effectuated are advisable and in the best interests of the Company, and the Board has determined that the Reclassification Agreement and the transactions contemplated thereby, including the reclassification and each of the charter amendments by which it will be effectuated, are advisable, fair and in the best interests of the Company and its stockholders. Accordingly, the Board has recommended that you vote “FOR” the proposal to approve the reclassification.

Your vote is very important. We urge you to read the accompanying proxy statement/prospectus carefully, and to use the Company’s proxy card to authorize a proxy to vote for the Company’s nominees and in accordance with the Board’s recommendations on the other proposals, as soon as possible, by telephone or via the internet, or by signing, dating and returning the enclosed proxy card in the postage-paid envelope provided, whether or not you plan to attend the 2017 annual meeting. Further instructions on how to vote are provided on the proxy card.

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.

Sincerely,

James A. Ratner

Chairman

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined that this proxy statement/prospectus is accurate or complete. Any representation to the contrary is a criminal offense.

 

 

The reclassification described herein involves risks. See “Risk Factors” beginning on page [].

This document is dated [], 2017, and is first being mailed to stockholders on or about [], 2017.


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FOREST CITY REALTY TRUST, INC.

Notice of Annual Meeting of Stockholders

To Be Held [], 2017

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 [●], 2017 at [●] p.m., Eastern Time (the “Annual Meeting”), for the purpose of considering and acting upon:

(1) The election of thirteen directors, with the Company’s 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 Company’s 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 Company’s stockholders will have an advisory, non-binding vote on the compensation of the Company’s 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.

(5) The proposal (the “Reclassification Proposal”) to amend and restate the Company’s charter as set forth in the Articles of Amendment and Restatement in substantially the form attached to the accompanying proxy statement/prospectus as Annex A, which amendment and restatement would effectuate the reclassification described in the accompanying proxy statement/prospectus.

(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 [●], 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 Company’s and RMS’s 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.

 

 

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The proxy statement/prospectus accompanying this notice provides detailed information about the foregoing proposals and the Annual Meeting. We encourage you to read the entire proxy statement/prospectus carefully, including all its annexes, and we especially encourage you to read the section entitled “Risk Factors” beginning on page [].

BY THE ORDER OF THE BOARD OF DIRECTORS

Jeffrey P. Sabatine, Interim Secretary

Cleveland, Ohio

[●], 2017

IMPORTANT: It is important that your stock be represented at the Annual Meeting. Whether or not you intend to be present, please mark, date and sign the appropriate enclosed WHITE proxy card(s) and send them by return mail in the enclosed envelope, which requires no postage if mailed in the United States.

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:

48 Wall Street

New York, New York 10005

Stockholders Call Toll Free: (866) 796-7179

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING TO BE HELD ON [], 2017

The Proxy Statement, WHITE Proxy Card, Annual Report on Form 10-K, Summary Annual Report and Supplemental Package are available on the Investor Relations page at www.forestcity.net.

 

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REFERENCES TO ADDITIONAL INFORMATION

This proxy statement/prospectus incorporates by reference important business and financial information about the Company from other documents that the Company has filed with the U.S. Securities and Exchange Commission (the “SEC”) that are not included in or delivered with this proxy statement/prospectus. This allows us to disclose important business and financial information to you by referring you to those documents rather than repeating them in full in this proxy statement/prospectus. The information incorporated by reference is considered to be part of this proxy statement/prospectus and later information filed with the SEC will update or supersede this information. For a listing of documents incorporated by reference herein, please see the section entitled “Where You Can Find More Information” beginning on page [●]. This information is available for you to review free of charge at the SEC’s public reference room located at 100 F Street, N.E., Room 1580, Washington, D.C. 20549, and through the SEC’s internet site at www.sec.gov. Please call the SEC at 1-800-SEC-0330 for further information on the Public Reference Room.

You may request copies of this proxy statement/prospectus and any of the documents incorporated by reference herein or other information concerning the Company, without charge, upon written or oral request to the Company’s principal executive offices at the following address and telephone number:

Jeffrey B. Linton

Forest City Realty Trust, Inc.

Terminal Tower, 50 Public Square, Suite 1100

Cleveland, Ohio 44113

Telephone: (216) 621-6060

jeffreylinton@forestcity.net

In addition, if you have questions about the reclassification described herein or about this proxy statement/prospectus, would like additional copies of this proxy statement/prospectus, any of the documents incorporated by reference herein, or need to obtain WHITE proxy cards or other information related to the proxy solicitation, please contact our proxy solicitor in writing or by telephone at the following address and telephone number:

D.F. King & Co., Inc.

48 Wall Street

New York, New York 10005

Stockholders Call Toll Free: (866) 796-7179

You will not be charged for any of these documents that you request.

If you would like to request documents, please do so by [], 2017 in order to receive them before the Annual Meeting.

ABOUT THIS PROXY STATEMENT/PROSPECTUS

This document, which forms part of a registration statement on Form S-4 filed with the SEC by the Company (File No. 333-216439), constitutes a prospectus of the Company under Section 5 of the Securities Act of 1933, as amended, with respect to the Class A Common Stock into which the shares of Class B Common Stock will be reclassified and exchanged if the reclassification described herein is completed. This document also constitutes a proxy statement of the Company under Section 14(a) of the Securities Exchange Act of 1934, as amended.

RMS, Limited Partnership has supplied all information contained or incorporated by reference herein relating to RMS, Limited Partnership.

 

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You should rely only on the information contained or incorporated by reference herein in connection with any vote, the giving or withholding of any proxy or any investment decision in connection with the reclassification described herein. No one has been authorized to provide you with information that is different from that contained or incorporated by reference herein. This proxy statement/prospectus is dated [●], 2017, and you should not assume that the information contained herein is accurate as of any date other than such date unless otherwise specifically provided herein. Further, you should not assume that the information incorporated by reference herein is accurate as of any date other than the date of the incorporated document. The mailing of this proxy statement/prospectus to stockholders will not create any implication to the contrary. This proxy statement/prospectus does not constitute an offer to sell, or a solicitation of an offer to buy, any securities, or the solicitation of a proxy, in any jurisdiction in which or from any person to whom it is unlawful to make any such offer or solicitation in such jurisdiction.

 

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TABLE OF CONTENTS

 

     Page  

Frequently Used Terms

     1  

Solicitation of Proxies

     3  

Questions and Answers About the Reclassification

     3  

Questions and Answers About this Proxy Statement/Prospectus and the Annual Meeting

     7  

Summary

     13  

Information about the Company

     13  

Risk Factors

     13  

2017 Annual Meeting of Stockholders

     13  

Annual Report and Proxy Materials

     13  

Proposals to be Considered and Voted Upon and Board Recommendations

     14  

Recent Corporate Actions

     14  

Election of Directors

     15  

Executive Compensation

     15  

The Reclassification

     17  

Financial Opinions

     21  

Material U.S. Federal Income Tax Consequences of the Reclassification

     22  

Shares Owned by Directors and Executive Officers

     22  

Litigation Related to the Reclassification

     22  

Selected Historical Consolidated Financial Data

     24  

Summary Unaudited Pro Forma Condensed Financial Data

     26  

Comparative Historical and Pro Forma Per Share Data

     27  

Historical Market Prices and Dividend Data

     28  

Special Note Regarding Forward-Looking Statements

     29  

Risk Factors

     30  

The Annual Meeting

     33  

Place, Date and Time

     33  

Purpose of the Annual Meeting

     33  

Recommendations of the Board

     33  

Record Date; Stock Entitled to Vote

     33  

Quorum

     34  

Required Vote; Abstentions and Broker Non-Votes

     34  

Voting by the Company’s Directors and Executive Officers

     34  

How to Vote

     35  

No Appraisal Rights

     35  

Results of the Annual Meeting

     36  

The Reclassification

     37  

Information about the Company

     37  

Structure of the Reclassification

     37  

Background of the Reclassification

     38  

Reasons for the Reclassification

     44  

The Irrevocable Proxy

     47  

The Voting and Support Agreement

     47  

The Reimbursement Agreement

     47  

Opinion of Lazard

     48  

Opinion of Houlihan Lokey

     53  

 

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Recommendations of the Special Committee and of the Board

     63  

Certain Effects of the Reclassification

     63  

Regulatory Matters

     63  

Interests of Certain Persons in the Reclassification

     63  

Transmittal Procedures

     64  

Delisting of Class B Common Stock

     64  

Accounting Treatment of the Reclassification

     64  

The Reclassification Agreement

     66  

Explanatory Note Regarding the Reclassification Agreement

     66  

Material Obligations of the Company and RMS under the Reclassification Agreement

     66  

Termination

     67  

Efforts to Hold Stockholder Vote

     67  

No Change in Board Recommendation

     67  

Representations and Warranties

     68  

Conditions to the Company and RMS’s Obligation to Complete the Reclassification

     69  

Amendments and Waivers

     69  

Material U.S. Federal Income Tax Consequences

     70  

U.S. Federal Income Tax Consequences of the Reclassification

     71  

Taxation of the Company as a Real Estate Investment Trust

     73  

Other Tax Consequences

     80  

Unaudited Pro Forma Condensed Consolidated Balance Sheet

     81  

Comparison of Stockholder Rights

     84  

Description of Class A Common Stock

     87  

Certain Provisions of Maryland Law and Our Charter and Bylaws

     92  

Security Ownership of Certain Beneficial Owners And Management

     97  

Policies With Respect to Certain Activities

     101  

Legal Matters

     104  

Experts

     105  

Limitation of Liability and Indemnification of Directors and Officers

     106  

Proposal 1 – Election of Directors

     108  

Director Compensation

     123  

Corporate Governance

     126  

Meetings and Committees of the Board

     132  

Compensation Committee Interlocks & Insider Participation

     138  

Compensation Discussion & Analysis

     139  

Introduction

     139  

Executive Summary

     139  

Our Commitment to Sound Corporate Governance

     145  

Executive Compensation Core Principles

     146  

Target Executive Officer Pay Levels & Relevant Employment Market

     148  

Components of the Executive Compensation Program

     149  

Additional Executive Compensation Policies

     160  

Plan Design as it Pertains to Risk

     163  

Tax & Accounting Implications

     163  

 

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     Page  

Compensation Committee Report

     164  

Potential Payments upon Termination or Change of Control

     165  

Executive Compensation Tables

     176  

Equity Compensation Plan Information

     182  

Proposal 2 – Approval (on an advisory, non-binding basis) of the compensation of the Company’s Named Executive Officers

     183  

Proposal 3 – Vote (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 Company’s Named Executive Officers

     185  

Proposal 4 – Ratification of the Appointment of PricewaterhouseCoopers LLP as Independent Registered Public Accounting Firm for the year ending December 31, 2017

     186  

Audit Committee Report

     188  

Independent Registered Public Accounting Firm Fees & Services

     189  

Certain Relationships & Related Transactions

     190  

Section 16(a) Beneficial Ownership Reporting Compliance

     194  

Proposal 5 – The Reclassification Proposal

     195  

Proposal 6 – The Adjournment Proposal

     196  

Where You Can Find More Information

     197  

Stockholder Proposals and Director Nominations for the 2018 Annual Meeting

     198  

Other Business

     199  

ANNEXES

  

Annex  A – Proposed Amended and Restated Charter of Forest City Realty Trust, Inc

     A-1  

Annex B – Reclassification Agreement

     B-1  

Annex C – Irrevocable Proxy

     C-1  

Annex D – Opinion of Lazard Frères & Co. LLC

     D-1  

Annex E – Opinion of Houlihan Lokey Capital, Inc.

     E-1  

Annex  F – Information Concerning Participants in the Company’s Solicitation of Proxies

     F-1  

Annex  G – Reconciliation of Funds From Operations (FFO) and Operating FFO

     G-1  

Annex  H – Reconciliation of Net Operating Income (NOI) and Comparable NOI

     H-1  

Annex  I – Reconciliation of Net Debt to Adjusted Earnings before Interest, Taxes, Depreciation and Amortization (EBITDA)

     I-1  

 

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FREQUENTLY USED TERMS

This proxy statement/prospectus generally does not use technical defined terms, but a few frequently used terms may be helpful for you to have in mind at the outset. Unless otherwise specified or if the context so requires, the following terms have the meanings set forth below for purposes of this proxy statement/prospectus:

Annual Meeting” refers to the 2017 annual meeting of stockholders of the Company, 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 [●], 2017 at [●] p.m., Eastern Time.

Class A Common Stock” refers to Class A Common Stock, par value $0.01 per share, of the Company. Shares of Class A Common Stock are sometimes referred to herein as Class A shares.

Class B Common Stock” refers to Class B Common Stock, par value $0.01 per share, of the Company. Shares of Class B Common Stock are sometimes referred to herein as Class B shares.

Common Stock” refers to the Class A Common Stock together with the Class B Common Stock.

Effective Time” means the effective time of the filing with, and the acceptance for record by, the State Department of Assessments and Taxation of Maryland of the Articles of Amendment and Restatement of the Company.

Exchange Ratio” means 1.31:1 and refers to the number of Class A shares that will be issued for each Class B share if the Reclassification occurs.

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 Agreement” refers to the Reclassification Agreement, dated December 5, 2016, between the Company and RMS, as it may be amended from time to time.

Reclassification Amendment” means the amendment and restatement of the Company’s charter substantially in the form of Articles of Amendment and Restatement attached to this proxy statement/prospectus as Annex A.

Reclassification Proposal” refers to the proposal to approve the Reclassification Amendment.

Reclassification” means the proposed reclassification and exchange of each share of Class B Common Stock issued and outstanding immediately prior to the Effective Time into 1.31 shares of Class A Common Stock and the transactions contemplated thereby, including the Reclassification Amendment. The Reclassification will become effective at the Effective Time.

Record Date” refers to [●], 2017. Only holders of Common Stock as of the close of business in Cleveland, Ohio on the Record Date will be entitled to notice of and to vote at the Annual Meeting and any postponement or adjournment thereof.

 

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Reimbursement Agreement” refers to the Reimbursement Agreement, dated October 24, 2016, between the Company and RMS, as it may be amended from time to time.

RMS” means RMS, Limited Partnership, an Ohio limited partnership.

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 Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder) with RMS for the purpose of acquiring, holding or disposing of Class B Common Stock.

Special Committee” means the Special Committee of Class A directors consisting of Arthur F. Anton, Scott S. Cowen and Michael P. Esposito, Jr.

 

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SOLICITATION OF PROXIES

The Company is furnishing this proxy statement/prospectus to you in connection with the solicitation by the Board of proxies for use at the Annual Meeting. The Company will bear the cost of the solicitation of proxies through use of this proxy statement/prospectus, including reimbursement of brokers and other persons holding stock in their names, or in the names of nominees, at approved rates, for their expenses for sending proxy materials to principals and obtaining their proxies. The Company has retained D.F. King & Co., Inc. (“D.F. King & Co.”) to solicit proxies on behalf of the Company for an estimated fee of $25,000 plus reimbursement of reasonable out-of-pocket expenses. In addition, the Company’s regular employees may solicit proxies personally, or by mail, telephone, or electronic transmission, without additional compensation.

At 11:59 p.m., Eastern Time, on December 31, 2015 (the “Merger Effective Time”), pursuant to an Agreement and Plan of Merger, dated as of September 15, 2015 (the “Merger Agreement”), by and among our predecessor, Forest City Enterprises, Inc., an Ohio corporation (“FCE”), Forest City Realty Trust, Inc., a Maryland corporation (“FCRT”), FCILP, LLC, a Delaware limited liability company, and FCE Merger Sub, Inc., an Ohio corporation (“Merger Sub”), Merger Sub merged with and into FCE, with FCE surviving as a wholly-owned subsidiary of FCRT (the “Merger”). The Merger was completed as part of the plan to reorganize the business operations of FCE to facilitate its qualification as a Real Estate Investment Trust (“REIT”) for U.S. federal income tax purposes.

Unless otherwise specifically stated or the context otherwise requires, all references in this proxy statement/prospectus to the “Company,” “Forest City,” “we,” “our,” “us” and similar terms refer to FCE and its consolidated subsidiaries prior to the Merger Effective Time and FCRT and its consolidated subsidiaries as of the Merger Effective Time and thereafter.

QUESTIONS AND ANSWERS ABOUT THE RECLASSIFICATION

The following are answers to some questions that you, as a stockholder, may have regarding the Reclassification Proposal. The Company urges you to read carefully the remainder of this proxy statement/prospectus because the information in this section does not provide all the information that might be important to you with respect to the Reclassification Proposal. Additional important information is also contained in the Annexes to, and the documents incorporated by reference into, this proxy statement/prospectus.

 

Q.

What is the Reclassification Proposal?

 

A.

The Reclassification Proposal refers to the proposal to approve the amendment and restatement of the Company’s charter in substantially the form of Articles of Amendment and Restatement attached to this proxy statement/prospectus as Annex A, which we refer to as the Reclassification Amendment. At the effective time of the filing with, and the acceptance for record by, the State Department of Assessments and Taxation of Maryland of the Articles of Amendment and Restatement of the Company, which we refer to as the Effective Time, 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, which we refer to as the Reclassification, thereby eliminating the Company’s dual-class stock structure.

 

Q.

What votes are required for approval of the Reclassification Proposal?

 

A.

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 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 Company’s and RMS’s 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

 

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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).

The votes in respect of Class A shares beneficially owned and voted by RMS and beneficially owned and voted by Ratner Family Members will be excluded for purposes of tabulating the vote with respect to the majority of the minority stockholder approval.

 

 

Q:

Why does the Reclassification Proposal include an amendment to the Company’s charter?

 

A.

The Reclassification Proposal, which would eliminate the Company’s existing dual-class stock structure, requires a charter amendment for three reasons.

First, the Reclassification Proposal contemplates the use of a reclassification as the means for the Company to cause all of the outstanding Class B shares to be reclassified and exchanged into Class A shares and thus to eliminate the Company’s dual-class stock structure. Under Maryland law, a charter amendment is required to implement the Reclassification, and an amendment of this type requires stockholder approval.

Second, Section 6.2.1 of the Company’s existing charter provides (a) that, except as otherwise provided in the charter, the Class A shares and the Class B shares will be identical in all respects and (b) that holders of the shares of each class 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 the classes (we sometimes refer to this as the “Equal Treatment Provision”). Under the Reclassification Proposal, the holders of Class B shares and the holders of Class A shares will not be treated in an identical manner. Among other things, as a result of the Reclassification, the holders of Class B shares will forego their existing rights as a class (a) to elect up to 75% of the members of the Company’s Board and (b) to cast ten votes per share, and, in exchange for these concessions, they will be receiving 1.31 Class A shares for each outstanding Class B share. As a result of the Reclassification, the holders of Class A shares will be receiving the right to in the future elect all of the members of the Company’s Board, rather than the right to elect only 25% of the members of the Board (rounded up to the nearest whole number of directors) that they currently enjoy and will no longer have low-vote shares on all other matters for which stockholder approval is required or sought. Because both the holders of Class B shares and the holders of Class A shares are being treated differently in the Reclassification, it is necessary to eliminate the Equal Treatment Provision in order to implement the Reclassification.

Third, the Company’s existing charter includes various provisions setting forth the relative rights of holders of Class B shares and holders of Class A shares and the terms of the Company’s dual-class stock structure, which provisions are not necessary to, or consistent with, having a single class of stock as contemplated by the Reclassification. Examples include a provision granting the holders of Class B shares the right, at their election, and without the approval of the Company, to convert those shares to Class A shares on a one-for-one basis (Section 6.2.2 of the charter, which we sometimes refer to as the “Share Conversion Provision”), a provision specifying that the holders of Class A shares are entitled to elect 25% (rounded up to the nearest whole number) of the members of the Company’s Board of Directors and that the holders of Class B shares are entitled to elect the remaining Board members, as noted above, and a provision granting holders of Class B shares ten votes per share on any matter on which stockholders are entitled to vote, also noted above (Section 6.2.3(a)(iii) of the charter). The proposed charter amendment eliminates these various provisions because, following the Reclassification, there will no longer be any outstanding Class B shares and the Company will no longer have a dual-class stock structure.

Article VIII of the Company’s 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.

 

 

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Q.

Was a Special Committee of the Board formed?

 

A.

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. (the “Special Committee”), each of whom also is an independent director, to explore the possibility of eliminating the Company’s dual-class stock structure. Dr. Cowen was selected to serve as Chairman of the Special Committee. On December 5, 2016, the Board authorized and approved the Reclassification Agreement upon the unanimous recommendation of the Special Committee. Additional detail regarding the Special Committee process and the recommendations thereof is provided in the sections of this proxy statement/prospectus entitled “The Reclassification—Background of the Reclassification” and “The Reclassification—Reasons for the Reclassification.”

 

Q.

What will happen to Class A shares if the Reclassification is completed?

 

A.

Each share of Class A Common Stock issued and outstanding immediately prior to the Effective Time will continue in existence as a share of Class A Common Stock after the Effective Time. Immediately following the Effective Time, the Class A Common Stock will be the sole class of the Company’s common stock issued and outstanding, and each Class A share will entitle the holder thereof to one vote upon each matter brought before a meeting of stockholders.

 

Q.

What will happen to Class B shares if the Reclassification is completed?

 

A.

At the Effective Time, each share of Class B Common Stock issued and outstanding immediately prior to the Effective Time will automatically be reclassified and exchanged into 1.31 shares of Class A Common Stock.

 

Q.

I hold Class B shares. Will I receive fractional shares upon completion of the Reclassification?

 

A.

No. All fractional shares of Class A Common Stock that you would otherwise be entitled to receive as a result of the Reclassification will be aggregated and, if a fractional share results from such aggregation, you will be entitled to receive, in lieu thereof, an amount in cash without interest determined as follows: the Company’s 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.

 

Q.

When is the Reclassification expected to be completed?

 

A.

If the Reclassification Proposal is approved, and the majority of the minority stockholder approval is obtained, and the other conditions to closing are either waived or satisfied, the Company expects to complete the Reclassification promptly after the Annual Meeting. However, it is possible that factors outside the control of the Company could result in the Reclassification being completed at a later time, or not being completed at all.

 

Q.

What happens if the Reclassification is not completed?

 

A.

If the Reclassification is not completed for any reason or no reason, both classes of Common Stock will remain issued and outstanding and continue to be listed and traded on the New York Stock Exchange (the “NYSE”).

 

Q.

If I do not favor the Reclassification, am I entitled to appraisal rights as a stockholder?

 

A.

No dissenters’ or appraisal rights, or rights of objecting stockholders under Title 3, Subtitle 2 of the Maryland General Corporation Law (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.

 

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Q.

Are there any risks that I should consider as a stockholder in deciding how to vote?

 

A.

Yes. You should read and carefully consider the risk factors set forth in the section entitled “Risk Factors” beginning on page [●]. You also should read and carefully consider the risk factors of the Company contained in the documents that are incorporated by reference herein.

 

Q.

Are any stockholders already committed to vote in favor of the Reclassification Proposal?

 

A.

Yes. Pursuant to the Reclassification Agreement, RMS agreed, among other things, to vote all shares of Class B Common Stock beneficially owned by RMS, representing approximately [●]% 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). Additional detail regarding the Reclassification Agreement is provided in the section entitled “The Reclassification Agreement” beginning on page [●].

In addition, on December 5, 2016, the Company entered into a Voting and Support Agreement (the “Voting and Support Agreement”) with Scopia Capital Management LP and Scopia Management, Inc., on behalf of themselves and their controlled affiliates (collectively, 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 the Scopia Parties “FOR” the Reclassification Proposal. Additional detail regarding the Voting and Support Agreement is provided in the section entitled “The Reclassification–The Voting and Support Agreement” beginning on page [●].

 

Q:

When did the Company adopt the dual-class stock structure?

 

A.

In 1983, with the approval of its Board of Directors and shareholders, FCE, the Company’s predecessor, engaged in a recapitalization pursuant to which each then outstanding share of FCE common stock was split into one share of FCE Class A common stock and one share of FCE Class B common stock. As part of the recapitalization, the shareholders adopted amended articles of incorporation that included shareholder rights, including the relative voting rights and the right to convert FCE Class B common stock into FCE Class A common stock, substantially similar to those currently associated with the Company’s existing shares of Class A Common Stock and Class B Common Stock into which FCE shares were converted (in the Merger effected on December 31, 2015, which was completed as part of the plan to reorganize the business operations of FCE to facilitate its qualification as a REIT for U.S. federal income tax purposes).

The holders of the shares of Class A common stock and Class B common stock of FCE issued in the stock split, like the holders of the Company’s Class A shares and Class B shares today, generally were entitled to receive the same dividends per share if and to the extent dividends were declared and paid. However, in connection with the two-for-one stock split, the articles of incorporation of FCE were amended to provide that for a period of five years ending January 31, 1988 (FCE then being on a January 31 fiscal year), if and to the extent dividends were declared, holders of the FCE Class A common stock would be entitled to cash dividends of $0.06 per share in each fiscal year before any cash dividends could be paid to the holders of FCE Class B common stock. This dividend preference provided a financial benefit to FCE shareholders who, after the two-for-one stock split, elected to convert their new shares of FCE Class B common stock to shares of FCE Class A common stock. Ultimately, the holders of the vast majority of the shares of Class B common stock of FCE issued in the stock split – other than shareholders who were Ratner Family Members, most of whom retained their shares of FCE Class B common stock – converted those shares into shares of Class A common stock of FCE and derived the benefit of the dividend preference, a benefit not shared by the FCE Class B shareholders (primarily Ratner Family Members) who retained the Class B common stock of FCE received by them in the stock split.

 

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QUESTIONS AND ANSWERS ABOUT THIS PROXY STATEMENT/PROSPECTUS AND THE ANNUAL MEETING

The following are answers to some questions that you, as a stockholder, may have regarding this proxy statement/prospectus and the Annual Meeting. The Company urges you to read carefully the remainder of this proxy statement/prospectus because the information in this section does not provide all the information that might be important to you with respect to the Annual Meeting. Additional important information is also contained in the Annexes to, and the documents incorporated by reference into, this proxy statement/prospectus.

 

Q.

Why am I receiving this proxy statement/prospectus?

 

A.

You are receiving this proxy statement/prospectus because you owned Class A shares and/or Class B shares at the close of business on the Record Date, which entitles you to notice of and to vote at the Annual Meeting. This proxy statement/prospectus describes the matters on which we would like you to vote and provides information on those matters, and you should read it carefully. The enclosed WHITE proxy card allows you to vote your shares without attending the Annual Meeting.

 

Q.

Has the Company been notified that a stockholder intends to propose alternative director nominees at the Annual Meeting?

 

A.

Land & Buildings Capital Growth Fund, L.P. (“Land and Buildings”) has previously submitted to the Company a notice of its intent to nominate three Class A director nominees for election at the Annual Meeting. However, as of the date hereof, Land and Buildings has not filed a proxy statement indicating that Land and Buildings intends to pursue a contested solicitation in connection with the Annual Meeting.

 

Q.

Where and when is the Annual Meeting?

 

A.

The Annual Meeting 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 [●], 2017 at [●] p.m., Eastern Time.

 

Q.

Who can attend the Annual Meeting?

 

A.

All owners of Class A Common Stock and/or Class B Common Stock at the close of business on the Record Date, or their duly authorized proxies, are invited to attend the Annual Meeting. If you beneficially own Class A shares and/or Class B shares held in the name of your broker, bank, trust or other nominee, you must bring proof of ownership (e.g., a current brokerage statement) in order to be admitted to the Annual Meeting. Persons who are not owners of our Common Stock may attend only if invited by our Board of Directors.

 

Q.

Who can vote at the Annual Meeting?

 

A.

Only stockholders of record at the close of business on the Record Date or their duly authorized proxies will be entitled to vote at the Annual Meeting. If you are not a stockholder of record but hold shares of Common Stock through your broker, bank, trust or other nominee, you may vote your shares in person only if you obtain a legal proxy from the broker, bank, trust or other nominee that holds your shares authorizing you to vote the shares, a process that may take several days. We will begin mailing or delivering this proxy statement/prospectus on or about [●], 2017 to stockholders of record at the close of business on the Record Date.

 

Q.

How many shares of Common Stock are entitled to vote at the Annual Meeting?

 

A.

As of the Record Date, there were [●] shares of Class A Common Stock and [●] shares of Class B Common Stock outstanding and entitled to vote at the Annual Meeting.

 

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Q.

What constitutes a quorum?

 

A.

In order to carry out the business of the Annual Meeting, we must have a quorum. This means that the presence, in person or by proxy, of stockholders entitled to cast a majority of all the votes entitled to be cast on any matter at the Annual Meeting is required in order to carry out the business of the Annual Meeting. Broker non-votes and abstentions will be counted for purposes of determining whether a quorum is present. A broker non-vote occurs when a broker, bank, trust or other nominee does not vote shares that it holds in “street name” on behalf of a beneficial owner with respect to a particular non-routine proposal because the beneficial owner has not provided voting instructions to the nominee with respect to such proposal, but the broker, bank, trust or other nominee votes shares that it holds in “street name” on behalf of a beneficial owner with respect to at least one other proposal, because either the beneficial owner has provided voting instructions to the nominee with respect to such proposal or the proposal is routine, such that the nominee may cast a vote on behalf of the beneficial owner even without receiving voting instructions. If the Annual Meeting is contested, for any accounts to which brokers deliver competing sets of proxy materials, the NYSE rules governing brokers’ discretionary authority will not permit such brokers to exercise discretionary authority regarding any of the proposals to be voted on at the Annual Meeting. Accordingly, if the Annual Meeting is contested and you hold your shares of Common Stock in street name with a broker, bank, trust or other nominee, they can only exercise your right to vote with respect to any proposal to be voted on at the Annual Meeting if they receive instructions from you.

 

Q.

What matters will be considered at the Annual Meeting?

 

A.

Stockholders will be asked to consider and vote upon the following proposals:

 

   

Proposal 1 – Election of Directors: 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, with the Company’s nominees being those named in this proxy statement/prospectus;

 

   

Proposal 2 – Non-Binding Advisory Vote to Approve Executive Compensation: Approval (on an advisory, non-binding basis) of the compensation of the Company’s Named Executive Officers, as described in this proxy statement/prospectus;

 

   

Proposal 3 – Non-Binding Advisory Vote on the Frequency of the Approval of Executive Compensation: The vote (on an advisory, non-binding basis) on the frequency of which the Company’s stockholders will have an advisory, non-binding vote on the compensation of the Company’s Named Executive Officers;

 

   

Proposal 4 – Ratification of Appointment of PricewaterhouseCoopers LLP: Ratification of the appointment of PricewaterhouseCoopers LLP as the independent registered public accounting firm for the Company for the year ending December 31, 2017;

 

   

Proposal 5 – Reclassification Proposal: Proposal to approve the amendment and restatement of the Company’s charter as set forth in the Articles of Amendment and Restatement, in substantially the form attached to this proxy statement/prospectus as Annex A, which we refer to as the Reclassification Amendment; and

 

   

Proposal 6 – Adjournment Proposal: 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 (which we refer to as the “Adjournment Proposal”).

 

Q.

How does the Board recommend that I vote?

 

A.

The Board recommends that:

 

   

Holders of Class A Common Stock vote “FOR” the Class A director nominees named in this proxy statement/prospectus; and

 

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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 “FOR” each of the following proposals:

 

   

FOR” the approval of the compensation of the Company’s Named Executive Officers, as described in this proxy statement/prospectus;

 

   

Every One Year” as the preferred frequency for advisory votes on the compensation of the Company’s 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.

 

Q.

What stockholder vote is required to approve each proposal brought before the Annual Meeting?

 

A.

The stockholder vote required to approve each proposal is as follows:

 

   

Proposal 1 – Election of Directors: The nominees receiving the greatest number of votes cast at the Annual Meeting 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.

 

   

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 Company’s 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.

 

   

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 on this proposal.

 

   

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 the Reclassification Proposal. In addition, under the Reclassification Agreement, it is a condition precedent to the Company’s and RMS’s obligation to complete the Reclassification that the majority of the minority stockholder approval be obtained. Abstentions and broker non-votes, if any, will have the effect of votes “AGAINST” this proposal.

 

   

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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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. Directors will be elected on a plurality basis. This means that the four Class A candidates receiving the highest number of “FOR” votes will be elected as Class A directors and the nine Class B candidates receiving the highest number of “FOR” votes will be elected as Class B directors. A properly executed proxy card marked “WITHHOLD” with respect to the election of a director nominee will be counted for purposes of determining if there is a quorum at the Annual Meeting, but will not be considered to have been voted for or against the director nominee. Withhold votes and broker non-votes, if any, will have no effect on the outcome of the election.

 

Q.

What happens if I sell my shares before the Annual Meeting?

 

A.

The Record Date for stockholders entitled to vote at the Annual Meeting is [●], 2017, which is earlier than the date of the Annual Meeting. If you sell or otherwise transfer your shares after the Record Date but before the Annual Meeting, unless special arrangements (such as provision of a proxy) are made between you and the person to whom you transfer your shares and each of you notifies the Corporate Secretary in writing of such special arrangements, you will retain your right to vote such shares at the Annual Meeting but will otherwise have transferred ownership of your shares.

 

Q.

How do I vote or authorize a proxy to vote my shares?

 

A.

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:

 

   

Submit a proxy by Mail: sign, date and mail in the enclosed WHITE proxy card using the accompanying envelope;

 

   

Submit a proxy by Telephone: submit a proxy by calling 1-800-690-6903; or

 

   

Submit a proxy via the internet: connect to the internet site www.proxyvote.com and follow the directions provided.

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/prospectus. 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 [●], 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 elect to vote by proxy, the proxy holders will vote your shares based on your directions. The proxy holders will vote all proxies in their discretion on any other matters that may properly come before the Annual Meeting.

 

Q.

If my shares are held in “street name” by my broker, bank, trustee or nominee, will my broker, bank, trustee or nominee vote my shares for me?

 

A.

If your shares are held in “street name” (that is, through a broker, bank, trustee or other holder of record), you will receive a voting instruction card or other information from your broker, bank, trustee or other holder of record seeking instructions from you as to how your shares should be voted, and, to vote your shares, you must provide your broker, bank, trustee or other holder of record with instructions on how to vote them. Please follow the voting instructions provided by your broker, bank, trustee or other holder of record. Please note that you may not vote shares held in “street name” by returning a WHITE proxy card directly to the Company or by voting in person at the Annual Meeting unless you provide a “legal proxy,” which you must obtain from your broker, bank, trustee or other holder of record. Further, brokers, banks, trustees or other holders of record who hold Class A shares and/or Class B shares on your behalf may not give a proxy to vote those shares without specific voting instructions from you.

 

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If the Annual Meeting is contested, for any accounts to which brokers deliver competing sets of proxy materials, the NYSE rules governing brokers’ discretionary authority will not permit such brokers to exercise discretionary authority regarding any of the proposals to be voted on at the Annual Meeting.

If the Annual Meeting is not contested, if you do not instruct your broker, trustee or other holder of record on how to vote your shares, they will only be able to vote your shares on the proposal to ratify the appointment of PricewaterhouseCoopers LLP as independent registered public accounting firm for the Company for the year ending December 31, 2017.

Your vote is important and we strongly encourage you to vote your shares by following the instructions provided on the enclosed WHITE voting instruction form. Please vote promptly.

 

Q.

What should I do if I receive more than one WHITE proxy card or other set of proxy materials from the Company?

 

A.

If you hold your shares in multiple accounts or registrations, or in both registered and street name, you will receive a WHITE proxy card for each account. Please sign, date and return all WHITE proxy cards you receive from the Company. If you choose to authorize your vote by phone or via the internet, please vote once for each WHITE proxy card you receive. Only your latest-dated proxy for each account will be voted.

 

Q.

Can I change my vote after I have returned a proxy or voting instruction card?

 

A.

Yes. In the event you deliver a duly executed proxy and subsequently change your mind on a matter, you may revoke your proxy prior to the close of voting at the Annual Meeting. You may revoke your proxy or change your vote in any of the following five ways:

 

   

Connect to the website at www.proxyvote.com by 11:59 p.m., Eastern Time, on [●], 2017;

 

   

Call 1-800-690-6903 by 11:59 p.m., Eastern Time, on [●], 2017;

 

   

Deliver a duly executed proxy bearing a later date;

 

   

Deliver a written revocation to the Secretary; or

 

   

Vote in person at the Annual Meeting.

You will not revoke a proxy merely by attending the Annual Meeting. To revoke a proxy, you must take one of the actions described above.

 

Q.

How are my shares voted if I submit a WHITE proxy card but do not specify how I want to vote?

 

A.

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 Company’s nominees for director; “FOR” advisory approval of the compensation of the Company’s Named Executive Officers; “FOR” the option of “Every One Year” as the preferred frequency for advisory votes on the compensation of the Company’s 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.

 

Q.

Who will solicit and pay the cost of soliciting proxies?

 

A.

The Company has engaged D.F. King & Co. to assist in the solicitation of proxies. The Company will pay D.F. King & Co. an estimated fee of $25,000, plus reasonable expenses, for these services. The Company has also agreed to indemnify D.F. King & Co. against certain losses, costs and expenses. In addition, the Company’s directors, officers and employees may solicit proxies personally, or by mail, telephone or electronic transmission, but no additional compensation will be paid to them.

 

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Our aggregate expenses, including those of D.F. King & Co., related to our solicitation of proxies have not been in excess of those normally spent for an annual meeting of stockholders notwithstanding the possible contested solicitation. Annex F sets forth information relating to certain of our directors and officers 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.

 

Q.

What should I do now?

 

A.

You should read this proxy statement/prospectus carefully in its entirety, including the Annexes, and return your completed, signed and dated WHITE proxy card(s) by mail in the enclosed postage-paid envelope or submit your voting instructions by telephone or via the internet as soon as possible so that your Class A shares and/or Class B shares will be voted in accordance with your instructions.

 

Q.

Who can help answer my questions about the Annual Meeting or the Reclassification Proposal?

 

A.

If you have questions about the Reclassification or the other matters to be voted on at the Annual Meeting or desire additional copies of this proxy statement/prospectus or additional WHITE proxy cards, you should contact our proxy solicitor:

D.F. King & Co., Inc.

48 Wall Street

New York, New York 10005

Stockholders Call Toll Free: (866) 796-7179

 

Q.

Where can I find the voting results of the Annual Meeting?

 

A.

We plan to announce preliminary voting results at the Annual Meeting and publish final results on a Form 8-K filed with the SEC promptly after the Annual Meeting.

 

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SUMMARY

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 []. 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 [●])

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 Company’s 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 Company’s 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 [●])

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 [●])

 

 

Date and Time:

  

Record Date:

 

[●], 2017 at [●] pm, Eastern Time

  

[●], 2017

 

Place:

  

Webcast:

 

6th floor Riverview Room of the Ritz-Carlton Hotel, Tower City Center, 1515 West Third Street, Cleveland, Ohio 44113

  

A webcast of the Annual Meeting will be accessible via the investor relations page of the Company’s internet site, www.forestcity.net

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.

 



 

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Proposals to be Considered and Voted Upon and Board Recommendations

 

Proposal

  

Description

  

Board
Recommendation

  

Page

 
1   

Election of Directors.

   FOR EACH NOMINEE RECOMMENDED BY YOUR BOARD      [●]  
2   

Approval (on an advisory, non-binding basis) of the compensation of the Company’s Named Executive Officers, as described in this proxy statement/prospectus.

   FOR      [●]  
3   

Vote (on an advisory, non-binding basis) on the frequency of which the Company’s stockholders will have an advisory, non-binding vote on the compensation of the Company’s Named Executive Officers.

   Every One Year      [●]  
4   

Ratification of the appointment of PricewaterhouseCoopers LLP as independent registered public accounting firm for the Company for the year ending December 31, 2017.

   FOR      [●]  
5   

The Reclassification Proposal.

   FOR      [●]  
6   

The Adjournment Proposal.

   FOR      [●]  

Recent Corporate Actions

 

1.

Successfully completed the Merger, in connection with our plan to convert to REIT status commencing with the year ending December 31, 2016.

 

2.

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 [●]).

 

3.

Reinstituted a quarterly dividend in the first quarter of 2016.

 

4.

Implemented a new organizational structure to improve efficiencies and operating margins.

 

5.

Established new segment reporting to align to our new organizational structure, based on the Company’s real estate operations, real estate development and corporate support service functions.

 

6.

Entered into an agreement to effect the Reclassification, subject to stockholder approval at the Annual Meeting (see page [●]).

 

7.

Agreed to implement a majority voting standard in uncontested elections of directors with a resignation policy, effective upon the effective date of the Reclassification.

 

8.

Appointed a non-executive Chairman of the Board.

 



 

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Election of Directors (See page [])

 

Nominee

    Class       Director Since        Independent        

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

 

Arthur F. Anton

    A       2010        Yes        

Kenneth J. Bacon

    A       2012        Yes        

Scott S. Cowen

    A       1989        Yes        

Michael P. Esposito, Jr.

    A       1995        Yes        

Christine R. Detrick

    B       2014        Yes        

Deborah L. Harmon

    B       2008        Yes        

David J. LaRue

    B       2011        No        

Brian J. Ratner

    B       1993        No        

Deborah Ratner Salzberg

    B       1995        No        

James A. Ratner

    B       2017        No        

Ronald A. Ratner

    B       1985        No        

[●]

    B       N/A             

[●]

    B       N/A             
                                

Executive Compensation (See page [])

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:

 

•    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.

  

•    Attract and retain highly-talented employees to lead our continued growth and success and reward them for their contributions toward that success.

•    Avoid unnecessary or excessive risk taking.

  

•    Provide competitive pay aligned with performance in support of long-term stockholder value.

Key Components of our Executive Compensation Program:

 

Component

 

Component Objective

 

Performance Linkage

Base Salary  

Provide base pay commensurate with level of responsibility, experience and individual performance

 

Partially linked (merit increases tied to individual performance)

     
Annual Short-Term Incentives   Align pay with the attainment of specified business objectives at the corporate, department, regional and/or individual levels  

Strongly linked

     
Long-Term Incentives  

Align pay with achievement of strategic goals and long-term stockholder value creation

 

Minimally (restricted stock) to Strongly (cash and performance shares) linked

     
Benefits & Perquisites  

Provide for health, welfare and retirement needs at a reasonable shared cost

 

Minimally or not linked

 



 

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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 Company’s performance and which the Compensation Committee considers when making compensation decisions:

 

Key Metric   Year Ended December 31,      Change  
  2016     2015     

Funds From Operations (“FFO”) (1)(2)

  $ 241,733,000     $ 505,682,000        (52.2 )% 

Operating FFO (“OFFO”) (1)

  $ 386,461,000     $ 337,601,000        14.5

FFO per share (on a fully-diluted basis) (1)(2)

  $ 0.92     $ 1.98        (53.5 )% 

OFFO per share (on a fully-diluted basis) (1)

  $ 1.46     $ 1.36        7.4

Comparable Net Operating Income (1)

  $ 585,389,000     $ 567,015,000        3.2

Net Debt to Adjusted EBITDA(3)

    8.92                   

 

(1)

These measures are financial measures not presented in accordance with Generally Accepted Accounting Principles. See pages [●] and Annexes G, H and I of this proxy statement/prospectus for additional information on these measures.

(2)

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.

(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 [●] for the definition of Net Debt to Adjusted EBITDA as presented in this table.

 

Key Metric   

Stock Price

December 31,

     TSR  
   2016      2015      2014      1-Year     3-Year (1)  

Total Shareholder Return (“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.

Please see the “Compensation Discussion and Analysis” section beginning on page [] of this proxy statement/prospectus and the Executive Compensation Tables beginning on page [] for a more detailed description of our executive compensation program and practices.

 



 

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The Reclassification (See page [])

Structure of the Reclassification (See page [●])

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 Company’s 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 Company’s and RMS’s 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 Company’s 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.”

Reasons for the Reclassification (See page [●])

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:

 

   

the benefits of aligning voting rights with economic ownership;

 

   

the realignment of RMS’s voting power and economic interests;

 

   

RMS’s board designation rights;

 

   

the Special Committee process;

 

   

the potential for improvement of liquidity and increased trading efficiencies;

 

   

the potential increased attractiveness to institutional investors of a single-class stock structure;

 

   

the benefits of improved governance;

 

   

that approval of both current classes of Common Stock is required;

 



 

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that the Company’s and RMS’s obligation to consummate the Reclassification under the Reclassification Agreement is conditioned on the receipt of a majority of the minority stockholder approval;

 

   

the elimination of potential investor confusion regarding the Company’s capital structure;

 

   

the increased strategic flexibility; and

 

   

the opinion of Lazard Frères & Co. LLC (“Lazard”).

The Special Committee and the Board also considered the following factors:

 

   

the current equivalent economic rights of the Class A Common Stock and the Class B Common Stock;

 

   

that the Scopia Parties (as defined below in “—The Voting and Support Agreement”) support the Reclassification Proposal and agreed to vote in its favor;

 

   

certain historical trading price and trading volume differentials of the Class A Common Stock and the Class B Common Stock;

 

   

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;

 

   

the fact that both the Equal Treatment Provision and the Share Conversion Provision in the Company’s charter would be eliminated as part of the Reclassification;

 

   

the fact that the Class B Common Stock has significantly less trading liquidity than the Class A Common Stock; and

 

   

the interests of the Company’s officers and directors and RMS in the Reclassification.

Further, the Special Committee and the Board considered certain potentially negative factors:

 

   

the risk that the Reclassification might not be completed in a timely manner or at all; and

 

    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:

 

   

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 Reclassification—Reasons for the Reclassification,” “The Reclassification—Opinion of Lazard” and “The Reclassification—Opinion of Houlihan Lokey.”

Required Vote (See page [●])

The Reclassification Proposal, which would eliminate the Company’s existing dual-class stock structure, includes a charter amendment.

Article VIII of the Company’s 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 Company’s 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,

 



 

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privileges or restrictions of such class relative to the shares of any other class. The proposed amendment of the Company’s 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 Company’s 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 Company’s 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 Company’s charter must be approved separately by the holders of each of the Class A shares and Class B shares.

The Reclassification Agreement (See page [●])

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 [●]% 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 RMS’s proxy for purposes of voting in favor of the Reclassification Proposal.

The Voting and Support Agreement (See page [●])

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:

 

   

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 [●]% 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 [●])

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

 



 

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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 Reclassification—The Reimbursement Agreement” beginning on page [●] for a more detailed discussion of the Reimbursement Agreement.

Interests of Certain Persons in the Reclassification (See page [●])

The Company’s 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 Reclassification—Interests of Certain Persons in the Reclassification” beginning on page [●].

Conditions to the Company’s Obligation to Complete the Reclassification (See page [●])

The Company’s obligation to complete the Reclassification pursuant to the Reclassification Agreement is subject to customary conditions, including, among others:

 

   

the effectiveness of the Company’s 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 [●])

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 [●])

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.

 



 

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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 [●])

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 [●])

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 Lazard’s 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 Lazard’s opinion is qualified in its entirety by reference to the full text of the opinion. We encourage you to read Lazard’s opinion, and the section entitled “The Reclassification—Opinion of Lazard” beginning on page [], carefully and in their entirety. Lazard’s 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. Lazard’s 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 [●])

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 Lokey’s 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.

 



 

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Houlihan Lokey’s 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 Lokey’s 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 Lokey’s 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 Reclassification—Opinion of Houlihan Lokey.

Material U.S. Federal Income Tax Consequences of the Reclassification (See page [●])

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 holder’s 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 [●] Class A shares and the [●] Class B shares issued and outstanding as of the Record Date, the issued and outstanding Class A shares represent approximately [●]% and [●]% of the outstanding economic and voting interest in the Company, respectively, and the issued and outstanding Class B shares represent approximately [●]% and [●]% of the outstanding economic and voting interest in the Company, respectively.

At the close of business on the Record Date, the Company’s directors and executive officers and their affiliates were entitled to vote [●] Class A shares and [●] Class B shares. This represents approximately [●]% of the issued and outstanding Class A shares and [●]% of the issued and outstanding Class B shares as of the Record Date.

Litigation Related to the Reclassification (See page [●])

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 Company’s charter, including

 



 

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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.

The defendants believe that both of these actions are without merit and intend to defend against them vigorously.

 



 

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SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA

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 Company’s 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 Company’s 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 Company’s 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 Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016, including the sections entitled “Management’s 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 [●].

 

    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     $ —       $ —       $ —       $ —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 



 

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     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.

 



 

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SUMMARY UNAUDITED PRO FORMA CONDENSED FINANCIAL DATA

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  
  

 

 

 

 



 

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COMPARATIVE HISTORICAL AND PRO FORMA PER SHARE DATA

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 [●] 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.

 

     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.

 

     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  

 



 

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HISTORICAL MARKET PRICES AND DIVIDEND DATA

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.

 

      Class A Common Stock     Class B Common Stock  
      High      Low      Dividend     High      Low      Dividend  

Fiscal Year Ending December 31, 2017

                    

First Quarter

   $ 23.42      $ 20.25      $ 0.09     $ 30.32      $ 26.25      $ 0.09  

Fiscal Year Ended December 31, 2016

                            

Fourth Quarter

   $ 23.08      $ 17.79      $ 0.06     $ 28.41      $ 18.00      $ 0.06  

Third Quarter

   $ 24.22      $ 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) [●], 2017, the last practicable trading day prior to the date of this proxy statement/prospectus.

 

      Class A Common
Stock
     Class B Common
Stock
 

December 5, 2016

   $ 18.75      $ 19.25  

[●], 2017

   $ [●]      $ [●]  

 



 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s documents filed with the SEC, including the Company’s 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.

 

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RISK FACTORS

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 [●], 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 Company’s 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 [●].

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 Company’s 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 [●] Class A shares and [●] Class B shares, which represents approximately [●]% 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 beneficially own [●] Class A shares, which will represent approximately [●]% voting interest in the Company (based on RMS’s 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 Company’s 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 Company’s 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 Company’s Corporate Governance and Nominating Committee to stand for election as directors at the 2020 and 2021 annual stockholder meetings.

 

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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 Company’s 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 Company’s 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 Company’s 2017, 2018 and 2019 annual stockholders meetings. See the section of this proxy statement/prospectus entitled “The Reclassification—Interests 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 RMS’s 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 Company’s 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 Company’s 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 RMS’s 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 Company’s 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

 

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officers, directors, employees, beneficiaries, trustees, representatives and agents) for reasonable and documented fees and out-of-pocket expenses of RMS’s 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 Company’s 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 Company’s 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 Company’s 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 [●] 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 two putative class action lawsuits brought by purported Class A stockholders as well as a derivative lawsuit challenging the proposed Reclassification, seeking, among other things, to enjoin the completion of the Reclassification on the terms described in this proxy statement/prospectus. The outcome of such litigation is uncertain. If dismissals are not granted or settlements are 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 Company’s management, RMS, or members of the Ratner, Miller and Shafran families in connection with the Reclassification.

For more detailed information regarding the lawsuits noted above, see the section of this proxy statement/prospectus entitled “The Reclassification—Litigation Related to the Reclassification.”

 

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THE ANNUAL MEETING

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 [●], 2017 at [●] 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 Company’s Named Executive Officers, as defined in this proxy statement/prospectus;

 

   

the vote (on an advisory, non-binding basis) on the frequency of which the Company’s stockholders will have an advisory, non-binding vote on the compensation of the Company’s 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 “FOR” each of the following proposals:

 

   

FOR” the approval of the compensation of the Company’s Named Executive Officers, as described in this proxy statement/prospectus;

 

   

Every One Year” as the preferred frequency for advisory votes on the compensation of the Company’s 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 [●], 2017 are entitled to notice of, and to vote at, the Annual Meeting and at any postponement or adjournment thereof.

 

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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 Company’s 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.

 

   

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.

 

   

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.

 

   

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.

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 Company’s Directors and Executive Officers

As of the Record Date, the directors and executive officers of the Company and their affiliates as a group beneficially owned and were entitled to vote [●] shares of Class A Common Stock and [●] shares of Class B Common Stock, representing [●]% of the issued and outstanding Class A shares and [●]% of the issued and

 

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outstanding Class B shares and [●]% 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 [●]% of the total outstanding Class A shares as of the Record Date and [●]% 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:

 

   

Submit a proxy by Mail: sign, date and mail in your WHITE proxy card using the accompanying envelope;

 

   

Submit a proxy by Telephone: submit a proxy by calling 1-800-690-6903; or

 

   

Submit a proxy via the internet: connect to the internet site www.proxyvote.com and follow the directions provided.

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 [●], 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 Company’s nominees for director; “FOR” advisory approval of the compensation of the Company’s Named Executive Officers; for the option of “Every One Year” as the preferred frequency for advisory votes on the compensation of the Company’s 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.

 

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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.

 

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THE RECLASSIFICATION

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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s existing dual-class stock structure, includes a charter amendment.

Article VIII of the Company’s 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

 

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charter, of any shares of outstanding stock, so long as the requisite stockholder approval is obtained. The terms of the Company’s 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, privileges or restrictions of such class relative to the shares of any other class. The proposed amendment of the Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s equity capital structure and considered whether maintaining the dual-class structure of the Company’s 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 Company’s dual-class stock structure. These discussions, and the input received, focused on the merits and considerations of maintaining or eliminating the Company’s dual-class stock structure, including whether the Company’s 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 Company’s equity value.

On August 18, 2016, the Board discussed whether it should explore the possibility of eliminating the Company’s 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 Company’s dual-class stock structure so long as the economics of doing so were acceptable to RMS and the transaction eliminating the Company’s dual-class stock structure was approved by the Company’s 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 Company’s dual-class stock structure, and authorized the Special Committee to retain legal counsel and financial advisors at the Company’s 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 RMS’s 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 RMS’s controlling families to analyze a potential reclassification, and resolved to reimburse RMS for reasonable costs and expenses incurred by RMS in

 

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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 Company’s 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. 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 RMS’s 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 Company’s 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 Committee’s 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.

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

 

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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 Stanley’s perspectives on the potential reclassification and the differences between the Special Committee’s 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 RMS’s 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 Company’s 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 Committee’s financial perspective than to RMS’s 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.

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

 

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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

 

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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 Company’s 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 RMS’s 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 Committee’s 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 Company’s 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 Company’s General Counsel, and representatives of Lazard, Sullivan & Cromwell, and Venable LLP (“Venable”), the Company’s 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 Lazard’s 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 Lokey’s 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

 

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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.

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 Reclassification—The 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 ReclassificationThe 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:

 

   

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.

 

   

Realignment of RMS’s 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, RMS’s voting power would be reduced to align with its economic interests.

 

   

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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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 Company’s 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 Company’s 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.

 

   

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).

 

   

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.

 

   

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.

 

   

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.

 

   

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 Company’s and RMS’s obligation to consummate the Reclassification that the majority of the minority stockholder approval be obtained.

 

   

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.

 

   

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.

 

   

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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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 Reclassification—Opinion of Lazard.”

The Special Committee and the Board also considered the following factors:

 

   

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 Company’s charter;

 

   

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;

 

   

certain historical trading price and trading volume differentials of the Class A Common Stock and Class B Common Stock;

 

   

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;

 

   

the fact that both the Equal Treatment Provision and the Share Conversion Provision in the Company’s charter would be eliminated as part of the Reclassification;

 

   

the fact that the Class B Common Stock has significantly less trading liquidity than the Class A Common Stock; and

 

   

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.

Further, the Special Committee and the Board considered the following potentially negative factors:

 

   

the risk that the Reclassification might not be completed in a timely manner or at all; and

 

   

the risks described in the section of this proxy statement/prospectus entitled “Risk Factors.”

In addition to the foregoing factors, the Board considered the following material factor:

 

   

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 Reclassification—Opinion of Houlihan Lokey.

 

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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 RMS’s 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 [●]% 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 Company’s 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 RMS’s 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 Company’s 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 Company’s 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.

 

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The Reimbursement Agreement was filed as Exhibit 10.51 to the Company’s 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 Lazard’s 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 Lazard’s opinion set forth in this proxy statement/prospectus is qualified in its entirety by reference to the full text of Lazard’s written opinion attached as Annex D. We encourage you to read Lazard’s opinion and this section carefully and in their entirety.

Lazard’s 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 Lazard’s 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. Lazard’s 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. Lazard’s 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 Lazard’s opinion. Lazard assumed no responsibility for updating or revising its opinion based on circumstances or events occurring after the date of Lazard’s opinion. Lazard’s 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 Lazard’s opinion. We encourage you to read Lazard’s written opinion carefully in its entirety.

In connection with its opinion, Lazard:

 

   

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;

 

   

Reviewed certain publicly available historical business and financial information relating to the Company;

 

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Reviewed various financial forecasts and other data provided to Lazard by the Company relating to the business of the Company;

 

   

Held discussions with members of the senior management of the Company with respect to the business and prospects of the Company;

 

   

Reviewed the financial terms of comparable transactions Lazard believed to be generally relevant;

 

   

Reviewed public information with respect to certain other companies with multiple classes of publicly traded stock Lazard believed to be generally relevant;

 

   

Reviewed historical stock prices and trading volumes of Class A Common Stock and Class B Common Stock;

 

   

Reviewed the potential pro forma financial impact of the Reclassification on the capitalization and ownership of the Company; and

 

   

Conducted such other financial studies, analyses and investigations as Lazard deemed appropriate.

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 Lazard’s 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 Lazard’s 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 Lazard’s 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 Lazard’s 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. Lazard’s 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 Lazard’s 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.

 

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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 Lazard’s 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 Lazard’s 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 Lazard’s 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 Lazard’s analyses and reviews. The estimates contained in Lazard’s 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 Lazard’s 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, Lazard’s 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 Lazard’s 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 Lazard’s 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 Lazard’s 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 where (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,

 

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(ii) the company’s dual-class structure was put in 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 company’s 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 Lazard’s 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:

 

     High Vote
Premium
to Low Vote
Trading Price
    Implied Aggregate
Premium as
Percentage of
Market Cap
 

Particularly Comparable Precedent Transactions

    

Stewart Information Services Corporation

     34.8     1.5

Hubbell Incorporated

     28.3     3.5

Sotheby’s Holdings, Inc.

     15.3     4.3

Robert Mondavi Corporation

     16.5     5.7

Iteris Holdings, Inc.

     10.0     0.4

Reader’s Digest Association, Inc.

     29.8     3.6

E-Z-EM, Inc.

     0     0

Dairy Mart Convenience Stores, Inc.

     10.0     3.0

Remington Oil and Gas Corporation

     26.6     4.2

Other Comparable Precedent Transactions

    

Aaron’s Inc.

     0     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

 

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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 Company’s 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 Company’s in-the-money convertible senior notes) to be received by holders of Class B Common Stock in the Reclassification.

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 Lazard’s 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 Lazard’s 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%.

 

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Miscellaneous

In connection with Lazard’s services as the Special Committee’s 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 Lazard’s 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 Lazard’s engagement and to indemnify Lazard and certain related persons under certain circumstances against certain liabilities that may arise from or relate to Lazard’s 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 Lazard’s services as the Special Committee’s financial advisor as noted above) was approximately $8.7 million. 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 Lazard’s 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 arm’s-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.

Lazard’s 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, Lazard’s 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 Lokey’s written opinion addressed to the Board dated December 5,

 

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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 Lokey’s 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 Lokey’s 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 Lokey’s 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

 

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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 Lokey’s 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 Lokey’s 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 Lokey’s 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

 

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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 Lokey’s 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 Lokey’s 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 Lokey’s 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 Lokey’s 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 Company’s or any other party’s security holders or other constituents vis-à-vis any other class or group of the Company’s or such other party’s 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 Lokey’s 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 Lokey’s analyses are inherently subject to substantial uncertainty.

Houlihan Lokey’s opinion was only one of many factors considered by the Board in evaluating the proposed Reclassification. Neither Houlihan Lokey’s opinion nor its analyses were determinative of the Exchange Ratio or

 

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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 Lokey’s 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 Lokey’s analyses is not a complete description of the analyses underlying Houlihan Lokey’s 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 Lokey’s 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 Lokey’s 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 Lokey’s 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 Lokey’s 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.

 

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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 company’s 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

  

Aaron’s, 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

  

Pilgrim’s 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 Reader’s 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

 

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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 Reader’s 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

 

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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 company’s 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

 

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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 Lokey’s 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 )% 

 

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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 Lokey’s 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 Lokey’s engagement letter and the balance of which became payable upon the delivery of Houlihan Lokey’s opinion. No portion of Houlihan Lokey’s 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 Lokey’s engagement.

In the ordinary course of business, certain of Houlihan Lokey’s 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.

 

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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 Company’s 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 Company’s and RMS’s 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 Company’s 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.

 

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As of the Record Date, RMS beneficially owned [●]% of the outstanding Class A shares and [●]% 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 Company’s 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 Company’s 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 hired [●] 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 agent’s 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 Company’s 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

 

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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 Company’s 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.

The defendants believe that both of these actions are without merit and intend to defend against them vigorously.

 

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THE RECLASSIFICATION AGREEMENT

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

 

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to the Company’s 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 Company’s 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:

 

   

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

 

   

may apply standards of materiality in a way that is different from what may be viewed as material by you or other investors.

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:

 

   

valid existence and corporate power and authority;

 

   

capital structure;

 

   

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;

 

   

consents and approvals relating to the Reclassification;

 

   

accuracy of information supplied or to be supplied in the registration statement and this proxy statement/prospectus;

 

   

the Board’s 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;

 

   

absence of certain litigation; and

 

   

receipt of opinions from Lazard and Houlihan Lokey.

The representations and warranties made by RMS in the Reclassification Agreement relate to, among other topics, the following:

 

   

title to the shares of Common Stock beneficially owned by RMS;

 

   

valid existence and corporate power and authority;

 

   

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;

 

   

accuracy of information supplied or to be supplied in the registration statement and this proxy statement/prospectus;

 

   

absence of certain litigation; and

 

   

absence of finders’ fees.

Conditions to the Company and RMS’s Obligation to Complete the Reclassification

Under the terms of the Reclassification Agreement, the Company and RMS’s obligation to complete the Reclassification is subject to customary conditions, including, among others:

 

   

the effectiveness of the Company’s 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 Reclassification becoming effective; and

 

   

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.

Under the terms of the Reclassification Agreement, the Company’s obligation to complete the Reclassification is also subject to, among others, the following customary condition:

 

   

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.

Under the terms of the Reclassification Agreement, RMS’s obligation to complete the Reclassification is also subject to, among others, the following customary condition:

 

   

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.

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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MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES

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 holder’s 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:

 

   

dealers in securities or currencies;

 

   

traders in securities that elect to use a mark-to-market method of accounting for such traders’ securities holdings;

 

   

banks;

 

   

insurance companies;

 

   

tax-exempt organizations;

 

   

persons liable for the alternative minimum tax;

 

   

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;

 

   

persons that purchase or sell shares of Class B Common Stock as part of a wash sale for tax purposes; and

 

   

U.S. shareholders (as defined below) whose functional currency is not the U.S. dollar.

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 Company’s ability to qualify to be taxed as a REIT and/or the U.S. federal income tax consequences to the Company’s 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 Company’s 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 partner’s 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:

 

   

a citizen or resident of the United States,

 

   

a domestic corporation,

 

   

an estate whose income is subject to U.S. federal income taxation regardless of the income’s source, or

 

   

a trust if a United States court can exercise primary supervision over the trust’s 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 shareholder’s 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 REIT’s 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. shareholder’s 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 individual’s 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 Company’s 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 holder’s 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 Company’s 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 Company’s 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 Company’s 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:

 

   

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.

 

   

Second, under certain circumstances, the Company may have to pay the alternative minimum tax on the Company’s items of tax preference.

 

   

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.

 

   

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.

 

   

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 Qualification—Income Tests,” but has nonetheless maintained the Company’s 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 Company’s gross income over the amount of gross income that is qualifying income for purposes of the 75% test, and (ii) 95% of the Company’s 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 Company’s profitability.

 

   

Sixth, if the Company should fail to distribute during each calendar year at least the sum of (1) 85% of the Company’s real estate investment trust ordinary income for that year, (2) 95% of the Company’s 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.

 

   

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.

 

   

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.

 

   

Ninth, if the Company receives non-arm’s-length income from a TRS (as defined under “—Requirements for Qualification—Asset 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 Company’s non-arm’s-length income.

 

   

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.

 

   

Eleventh, if the Company fails to satisfy any provision of the Code that would result in the Company’s 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.

Requirements for Qualification

The Code defines a real estate investment trust as a corporation, trust or association:

 

   

that is managed by one or more trustees or directors;

 

   

the beneficial ownership of which is evidenced by transferable shares, or by transferable certificates of beneficial interest;

 

   

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;

 

   

the beneficial ownership of which is held by 100 or more persons;

 

   

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

 

   

that meets certain other tests, including tests described below regarding the nature of its income and assets.

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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s TRSs will also be taxable, either (1) to the Company to the extent the dividend is retained by the Company, or (2) to the Company’s shareholders to the extent the dividends received from the TRS are paid to the Company’s 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 issuer’s 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 Company’s assets (25% with respect to the Company’s 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 Company’s 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 Company’s qualification as a real estate investment trust, the Company annually must satisfy two gross income requirements.

 

   

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.

 

   

Second, at least 95% of the Company’s 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.

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.

 

   

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.

 

   

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.”

 

   

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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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 Company’s assets or liabilities. The Company’s 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.

 

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“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:

 

   

The Company’s failure to meet the income tests was due to reasonable cause and not due to willful neglect; and

 

   

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 Company’s gross income over the amount of gross income that is qualifying income for purposes of the 75% test, and (ii) 95% of the Company’s 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 Company’s 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.

 

   

First, at least 75% of the value of the Company’s total assets must be represented by real estate assets, including (a) real estate assets held by the Company’s disregarded entity subsidiaries (if any), the Company’s 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 Company’s 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.

 

   

Second, not more than 25% of the Company’s total assets may be represented by securities other than those in the 75% asset class (except that not more than 25% of the Company’s total assets may be represented by “nonqualified” debt instruments issued by publicly offered real estate investment trusts).

 

   

Third, not more than 20% of the Company’s total assets may constitute securities issued by TRSs (25% with respect to the Company’s taxable years ending on or before December 31, 2017) and of the investments included in the 25% asset class, the value of any one issuer’s 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 Company’s total assets. In addition, not more than 25% of the value of the Company’s total assets may consist of “nonqualified” publicly offered REIT debt, as defined in Section 856(c)(5)(L) of the Code.

 

   

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 Company’s interest in the assets of any partnership or limited liability company in which the Company owns an interest will be based on the Company’s proportionate interest in any securities issued by the partnership or limited liability company, excluding for this purpose certain securities described in the Code.

 

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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 REIT’s nonqualifying assets (i) does not exceed the lesser of (a) 1% of the total value of the REIT’s 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 Company’s shareholders in an amount at least equal to (1) the sum of (a) 90% of the Company’s “real estate investment trust taxable income,” computed without regard to the dividends paid deduction and the Company’s net capital gain, and (b) 90% of the Company’s 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 Company’s 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 Company’s ordinary income for that year, (b) 95% of the Company’s 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.

 

 

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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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s 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.

 

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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET

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:

 

   

the accompanying notes to the Unaudited Pro Forma Condensed Consolidated Balance Sheet;

 

   

the Company’s historical consolidated financial statements as of and for the year ended December 31, 2016, included in the Company’s annual report on Form 10-K and incorporated by reference into this proxy statement/prospectus; and

 

   

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.

 

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Forest City Realty Trust, Inc. and Subsidiaries

Unaudited Pro Forma Consolidated Balance Sheet

As of December 31, 2016

 

     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  
  

 

 

   

 

 

   

 

 

 

 

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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.

 

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COMPARISON OF STOCKHOLDER RIGHTS

Following the Reclassification, the rights of each holder of Class A shares 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 Company’s 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.

  

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 Company’s 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 Company’s bylaws, and the nomination has not been withdrawn at least 10 days prior to the date that the Company’s 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

  

Effective upon Completion
of the Reclassification

     
    

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.

  

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.

     
Class Protection Provision:   

The Company’s 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.

  

The class protection provision is specific to the Company’s dual-class stock structure and, therefore, will be eliminated as part of the Reclassification.

 

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Prior to the Reclassification

  

Effective upon Completion
of the Reclassification

     
Equal Treatment Provision:   

The Company’s 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.

  

The Equal Treatment Provision is specific to the Company’s dual-class stock structure and, therefore, will be eliminated as part of the Reclassification.

     
Share Conversion Provision:   

The Company’s 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 holder’s sole discretion and at such holder’s option, convert any whole number or all of such holder’s 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.

  

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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DESCRIPTION OF CLASS A COMMON STOCK

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 Company’s authorized capital stock will consist of:

 

   

371,000,000 shares of Class A Common Stock, par value $0.01 per share; and

 

   

20,000,000 shares of Preferred Stock, par value $0.01 per share

The Class A Common Stock will continue to be listed on the NYSE under the symbol “FCE.A” and will be the Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s 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:

 

   

no individual’s 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

 

   

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 Company’s 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 stockholder’s 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 Company’s 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 person’s or entity’s 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:

 

   

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

 

   

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).

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

 

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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 Company’s 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 Company’s 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 Company’s 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 stockholder’s 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 stockholder’s beneficial ownership on the Company’s 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 Company’s 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 Company’s 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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CERTAIN PROVISIONS OF MARYLAND LAW AND OUR CHARTER AND BYLAWS

This section describes the certain terms and provisions of Maryland law and of the Company’s 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 Company’s 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 Company’s 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 Company’s bylaws, and the nomination has not been withdrawn at least 10 days prior to the date that the Company’s 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:

 

   

any person who beneficially owns, directly or indirectly, 10% or more of the voting power of the corporation’s outstanding voting stock; or

 

   

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:

 

   

80% of the votes entitled to be cast by holders of outstanding shares of voting stock of the corporation; and

 

   

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.

These supermajority approval requirements do not apply if, among other conditions, the corporation’s 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 corporation’s 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 Company’s 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 corporation’s 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 Company’s 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:

 

   

a classified board;

 

   

a two-thirds vote requirement for removing a director;

 

   

a requirement that the number of directors be fixed only by vote of the board of directors;

 

   

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

 

   

a majority requirement for the calling of a special meeting of stockholders.

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 corporation’s 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.

 

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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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s proxy statement is released to the stockholders for the preceding year’s 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 Company’s 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 stockholder’s 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.

 

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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 Company’s directors, officers or other employees to the Company or to the Company’s stockholders, (c) any action asserting a claim against the Company or any of the Company’s 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 Company’s 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 Stock—Restrictions on Ownership and Transfer”.

REIT Qualification

The charter provides that the Board may revoke or otherwise terminate the Company’s real estate investment trust election under the Code, without approval of the Company’s stockholders, if it determines that it is no longer in the Company’s best interests to continue to be qualified as a real estate investment trust under the Code.

 

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

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.

 

     Number of Shares of Common Stock Beneficially Owned  
Name   Class A
Common
Stock
(a)(c)
    Percent
of
Class
(a)
    Class A Assuming
Conversion of
Class B by the
Beneficial Owner
(b)(c)
   

Percent

of
Class
(b)

   

Class B

Common Stock

   

Percent

of Class

 

Arthur F. Anton

    74,995 (1)      0.03     74,995       0.03     —         0.00

Scott S. Cowen

    80,585 (2)      0.03     80,585       0.03     —         0.00

Michael P. Esposito, Jr.

    194,710 (3)      0.08     194,710       0.08     —         0.00

Stan Ross

    110,705 (4)      0.05     110,705       0.05     —         0.00

Kenneth J. Bacon

    35,931 (5)      0.01     35,931       0.01     —         0.00

Christine R. Detrick

    22,670 (6)      0.01     22,670       0.01     —         0.00

Deborah L. Harmon

    58,223 (7)      0.02     58,223       0.02     —         0.00

David J. LaRue

    665,590 (8)      0.28     667,025       0.28     1,435       0.01

Brian J. Ratner

    1,895,144 (9)      0.78     15,399,182 (9)(10)      6.04     13,504,041 (10)      71.88

Deborah Ratner Salzberg

    1,988,677 (11)      0.82     15,766,222 (11)(12)      6.17     13,777,545 (12)      73.33

James A. Ratner

    1,323,409 (13)      0.55     2,926,909 (13)(14)      1.20     1,603,500 (14)      8.53

Ronald A. Ratner

    1,073,322 (15)      0.44     15,770,168 (15)(16)      6.15     14,696,846 (16)      78.22

OTHER NAMED EXECUTIVE OFFICERS

                                               

Robert G. O’Brien

    596,128 (17)      0.25     596,128       0.25     —         0.00

Duane F. Bishop

    62,238 (18)      0.03     62,238       0.03     —         0.00

ALL DIRECTORS, NOMINEES AND EXECUTIVE OFFICERS AS A GROUP (18 in number)

    7,708,842 (19)      3.16     24,078,021 (19)(20)      9.25     16,369,179 (20)      87.12

 

(1)

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.

(2)

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.

(3)

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.

(4)

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.

(5)

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.

(6)

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.

(7)

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.

(8)

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.

(9)

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. M