-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Js03HrYFoaNMv6BYnnAhG+/H/j14XQWHGxZ2a5Eu4vbGIQX6lDSLuyu2/bMvgaOz rxmBUQ0RMOQEfMa6Qxv9ew== 0000726728-99-000004.txt : 19990125 0000726728-99-000004.hdr.sgml : 19990125 ACCESSION NUMBER: 0000726728-99-000004 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19990121 ITEM INFORMATION: FILED AS OF DATE: 19990122 FILER: COMPANY DATA: COMPANY CONFORMED NAME: REALTY INCOME CORP CENTRAL INDEX KEY: 0000726728 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 330580106 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 001-13374 FILM NUMBER: 99509605 BUSINESS ADDRESS: STREET 1: 220 W CREST ST CITY: ESCONDIDO STATE: CA ZIP: 92025-1707 BUSINESS PHONE: 6197412111 MAIL ADDRESS: STREET 1: 220 WEST CREST ST CITY: ESCONDIDO STATE: CA ZIP: 92025-1707 8-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of report: January 21, 1999 REALTY INCOME CORPORATION ------------------------- (Exact name of registrant as specified in its charter) Maryland 1-13318 33-0580106 -------- ------- ---------- (State of (Commission File Number) (IRS Employer Incorporation) Identification No.) 220 West Crest Street, Escondido, California 92025 (Address of principal executive offices) (Zip Code) (760) 741-740-2111 ------------------ (Registrant's telephone number, including area code) None ---- (former name or former address, if changed since last report) Item 5. Other Events. ------------ Realty Income Corporation (the "Company") is filing this Current Report on Form 8-K in connection with the issuance of $20,000,000 principal amount of 8% Notes due January 15, 2009 (the "Notes"), pursuant to the shelf registration statement on Form S-3 under the Securities Act of 1933, as amended (the "1933 Act"), filed with the Securities and Exchange Commission (the "Commission") on August 25, 1997 (File No. 333-34311), as amended by Amendment No. 1 filed with the Commission on September 16, 1997 (as so amended, the "Registration Statement"). The exhibits listed below are being listed herewith in lieu of filing them as an exhibit to the Registration Statement, and, since this form is incorporated by reference in the Registration Statement, such exhibits are set forth in full in the Registration Statement. Item 7. Exhibits. -------- 1.1 Purchase Agreement, dated January 15, 1999, between Donaldson, Lufkin & Jenrette Securities Corporation (as Representative of the Underwriter named on Schedule A thereto), and the Company. 4.1 Form of Indenture dated as of October 28, 1998 between the Company and The Bank of New York (filed as an exhibit to Realty Income's Form 8-K, filed on October 28, 1998 and incorporated herein by reference). 4.2 Pricing Committee Resolutions and Form of 8% Note due 2009. 5.1 Opinion of Latham & Watkins. 5.2 Opinion of Ballard Spahr Andrews and Ingersoll 23.1 Consent of Latham & Watkins (contained in the opinion filed as Exhibit 5.1 hereto). 23.2 Consent of Ballard Spahr Andrews & Ingersoll (contained in the opinion filed as Exhibit 5.2 hereto). SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. Dated: January 21, 1999 REALTY INCOME CORPORATION By: /s/ Michael R. Pfeiffer, Esq. ----------------------------- Name: Michael R. Pfeiffer, Esq. Title: Senior Vice President, General Counsel and Secretary EXHIBIT INDEX Exhibit No. Description - ---------- ----------- 1.1 Purchase Agreement, dated January 15, 1999, between Donaldson, Lufkin & Jenrette Securities Corporation (as Representative of the Underwriter named on Schedule A thereto), and the Company. 4.1 Form of Indenture dated as of October 28, 1998 between the Company and The Bank of New York (filed as an exhibit to Realty Income's Form 8-K, filed on October 28, 1998 and incorporated herein by reference). 4.2 Pricing Committee Resolutions and Form of 8% Note due 2009. 5.1 Opinion of Latham & Watkins. 5.2 Opinion of Ballard Spahr Andrews and Ingersoll 23.1 Consent of Latham & Watkins (contained in the opinion filed as Exhibit 5.1 hereto). 23.2 Consent of Ballard Spahr Andrews & Ingersoll (contained in the opinion filed as Exhibit 5.2 hereto). EX-1.1 2 Exhibit 1.1 $20,000,000 REALTY INCOME CORPORATION 8% Notes due 2009 PURCHASE AGREEMENT January 15, 1999 Table of Contents Page ---- THE PURCHASE AGREEMENT 1 SECTION 1. Representations and Warranties 3 (a) Representations and Warranties by the Company 3 (i) Compliance with Registration Requirements 3 (ii) Incorporated Documents 4 (iii) Independent Accountants 5 (iv) Financial Statements 5 (v) No Material Adverse Change in Business 5 (vi) Good Standing of the Company 6 (vii) Good Standing of Subsidiaries 6 (viii) Capitalization 7 (ix) Authorization of Agreement 7 (x) Authorization of Common Stock 7 (xi) Absence of Defaults and Conflicts 7 (xii) Absence of Labor Dispute 8 (xiii) Absence of Proceedings 9 (xiv) Accuracy of Exhibits 9 (xv) Possession of Intellectual Property 9 (xvi) Absence of Further Requirements 10 (xvii) Possession of Licenses and Permits 10 (xviii) Investment Company Act 10 (xix) Partnership Agreements 11 (xx) Properties 11 (xxi) Insurance 13 (xxii) Environmental Matters 13 (xxiii) Qualification as a Real Estate Investment Trust 15 (xxiv) Registration Rights 15 (xxv) Tax Treatment of Certain Entities 16 (xxvi) Indenture 16 (xxvii) Securities 16 (xxviii) Description of Indenture and Securities 17 (xxix) Ranking of Securities 17 (xxx) Prior Registration Statement 17 (b) Officer's Certificates 17 SECTION 2. Sale and Delivery to Underwriter; Closing 17 (a) Securities 17 (b) Payment 17 (c) Denominations; Registration 18 SECTION 3. Covenants of the Company 18 (a) Compliance with Securities Regulations and Commission Requests 18 (b) Filing of Amendments 18 (c) Rule 434 19 (d) Delivery of Registration Statements 19 (e) Delivery of Prospectuses 19 (f) Continued Compliance with Securities Laws 19 (g) Blue Sky Qualifications 20 (h) Rule 158 20 (i) Use of Proceeds 20 (j) Reporting Requirements 20 (k) Restriction on Sale of Securities 20 SECTION 4. Payment of Expenses 21 (a) Expenses 21 (b) Termination of Agreement 22 SECTION 5. Conditions of Underwriter's Obligations 22 (a) Effectiveness of Registration Statement 22 (b) Opinions of Counsel for Company 22 (c) Opinion of Counsel for Underwriter 22 (d) Officers' Certificate 23 (e) Accountant's Comfort Letter 23 (f) Rating Requirement 24 (g) Letter Regarding Compliance with the Acquisition Credit Agreement 24 (h) Letter Regarding Waiver from Lock-Up 24 (i) Additional Documents 24 (j) Termination of Agreement 24 SECTION 6. Indemnification 25 (a) Indemnification of Underwriter 25 (b) Indemnification of Company, Directors and Officers 26 (c) Actions against Parties; Notification 26 (d) Settlement without Consent if Failure to Reimburse 27 SECTION 7. Contribution 27 SECTION 8. Representations, Warranties and Agreements to Survive Delivery 29 SECTION 9. Termination of Agreement 29 (a) Termination; General 29 (b) Liabilities 30 SECTION 10. Notices 30 SECTION 11. Parties 30 SECTION 12. GOVERNING LAW AND TIME 31 SECTION 13. Effect of Headings and Table of Contents 31 $20,000,000 REALTY INCOME CORPORATION (a Maryland corporation) 8% Notes due 2009 PURCHASE AGREEMENT January 15, 1999 Donaldson, Lufkin & Jenrette Securities Corporation as Representative of the Underwriter 277 Park Avenue New York, New York 10172 Ladies and Gentlemen: Realty Income Corporation, a Maryland corporation (the "Company"), confirms its agreement with the Underwriter named in Schedule A hereto (the "Underwriter"), for whom Donaldson, Lufkin & Jenrette Securities Corporation ("Donaldson, Lufkin & Jenrette") is acting as representative (in such capacity, the "Representative"), with respect to the sale by the Company and the purchase by the Underwriter of $20,000,000 aggregate principal amount of the Company's 8% Notes due 2009 (the "Notes" or the "Securities"). The Securities are to be issued pursuant to an indenture dated as of October 28, 1998 (the "Indenture") between the Company and The Bank of New York, as trustee (the "Trustee"). The Company understands that the Underwriter proposes to make a public offering of the Securities as soon as the Representative deems advisable after this Agreement has been executed and delivered. The Company has filed with the Securities and Exchange Commission (the "Commission") a registration statement on Form S- 3 (No. 333-34311) and Amendment No. 1 thereto covering the registration of, among other things, the Securities under the Securities Act of 1933, as amended (the "1933 Act"), in each case including the related preliminary prospectus or prospectuses. Promptly after execution and delivery of this Agreement, the Company will either (i) prepare and file a prospectus supplement and, if required by Rule 424(b) (as defined below), a prospectus in accordance with the provisions of Rule 415 ("Rule 415") of the rules and regulations of the Commission under the 1933 Act (the "1933 Act Regulations") and paragraph (b) of Rule 424 ("Rule Page 1 424(b)") of the 1933 Act Regulations or (ii) if the Company has elected to rely upon Rule 434 ("Rule 434") of the 1933 Act Regulations, prepare and file a term sheet (a "Term Sheet") in accordance with the provisions of Rule 434 and Rule 424(b). The information included in such Term Sheet that was omitted from such registration statement at the time it became effective but that is deemed to be part of such registration statement at the time the Term Sheet is filed with the Commission pursuant to paragraph (d) of Rule 434 is referred to as "Rule 434 Information." Each prospectus, together with any related prospectus supplement, relating to the Securities used before such registration statement became effective, and each prospectus, together with the related prospectus supplement, relating to the Securities that omitted the Rule 434 Information or that was captioned "Subject to Completion" that was used after such effectiveness and prior to the execution and delivery of this Agreement, is herein called, together with the documents incorporated by reference therein pursuant to Item 12 of Form S-3 under the 1933 Act, a "preliminary prospectus." Such registration statement, as amended and including the exhibits thereto, schedules, if any, and the documents incorporated by reference therein pursuant to Item 12 of Form S-3 under the 1933 Act, at the time it became effective and including, if applicable, the Rule 434 Information, is herein called the "Registration Statement." Any registration statement filed pursuant to Rule 462(b) of the 1933 Act Regulations is herein referred to as the "Rule 462(b) Registration Statement," and after such filing the term "Registration Statement" shall include the Rule 462(b) Registration Statement. The prospectus dated October 1, 1997 and the final prospectus supplement relating to the offering of the Securities, including the documents incorporated by reference therein pursuant to Item 12 of Form S-3 under the 1933 Act, in the form first furnished to the Underwriter for use in connection with the offering of the Securities are herein called, collectively, the "Prospectus." If Rule 434 is relied on, the term "Prospectus" shall refer to the prospectus dated October 1, 1997 and the Term Sheet and all documents incorporated by reference therein pursuant to Item 12 of Form S-3, and all references in this Agreement to the date of the Prospectus shall mean the date of the Term Sheet. For purposes of this Agreement, all references to the Registration Statement, any preliminary prospectus, the Prospectus or any Term Sheet or any amendment or supplement to any of the foregoing shall be deemed to include any copy filed with the Commission pursuant to its Electronic Data Gathering, Analysis and Retrieval system ("EDGAR"). All references in this Agreement to financial statements and schedules and other information which is "described," "disclosed," "contained," "included" or "stated" in the Registration Statement, any preliminary prospectus or the Prospectus (or other references of like import) shall be deemed Page 2 to mean and include all such financial statements and schedules and other information which is incorporated or deemed to be incorporated by reference in the Registration Statement, any preliminary prospectus or the Prospectus, as the case may be; and all references in this Agreement to amendments or supplements to the Registration Statement, any preliminary prospectus or the Prospectus shall be deemed to mean and include the filing of any document under the Securities Exchange Act of 1934, as amended (the "1934 Act"), which is incorporated or deemed to be incorporated by reference in the Registration Statement, such preliminary prospectus or the Prospectus, as the case may be. All references in this Agreement to properties or improvements "owned by" or "of" the Company or any of its subsidiaries shall be deemed to mean and include all properties and improvements which are leased by the Company or any of its subsidiaries, as lessee. As used in this Agreement, the term "Consolidation" means the merger of 25 limited partnerships (the "Partnerships") and RIC Properties Ltd., a California limited partnership ("RIC Properties"), into the Company on August 15, 1994; "Merger" means the merger of R.I.C. Advisor, Inc., a California corporation (the "Advisor"), into the Company on August 17, 1995; and "Reincorporation" means the reincorporation of the Company in the State of Maryland, which was effectuated by merging the Company into Realty Income of Maryland, Inc., a Maryland corporation (the "Maryland Corporation") which subsequently changed its name to Realty Income Corporation, with the Maryland Corporation as the surviving corporation of such merger. SECTION 1. Representations and Warranties. (a) Representations and Warranties by the Company. The Company represents and warrants to the Underwriter as of the date hereof and as of the Closing Time referred to in Section 2(b) hereof, and agrees with the Underwriter, as follows: (i) Compliance with Registration Requirements. The Company meets the requirements for use of Form S-3 under the 1933 Act. Each of the Registration Statement and any Rule 462(b) Registration Statement has become effective under the 1933 Act and no stop order suspending the effectiveness of the Registration Statement or any Rule 462(b) Registration Statement has been issued under the 1933 Act and no proceedings for that purpose have been instituted or are pending or, to the knowledge of the Company, are threatened by the Commission, and any request on the part of the Commission for additional information has been complied with. The Indenture has been duly Page 3 qualified under the Trust Indenture Act of 1939, as amended (the "1939 Act"), and the Trustee has duly filed with the Commission a Statement of Eligibility on Form T-1 as part of the Registration Statement. At the respective times the Registration Statement, any Rule 462(b) Registration Statement and any post-effective amendments thereto became effective, at the date hereof and at the Closing Time, the Registration Statement, any Rule 462(b) Registration Statement and any amendments and supplements thereto complied and will comply in all material respects with the applicable requirements of the 1933 Act and the 1933 Act Regulations and the 1939 Act and the rules and regulations of the Commission under the 1939 Act (the "1939 Act Regulations"), and did not and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and, at the date hereof and at the Closing Time, neither the Prospectus nor any amendments or supplements thereto contained or will contain any untrue statement of a material fact or omitted or will omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that the representations and warranties in this paragraph shall not apply to statements in or omissions from the Registration Statement or Prospectus made in reliance upon and in conformity with information furnished to the Company in writing by Donaldson, Lufkin & Jenrette expressly for use in the Registration Statement or Prospectus. Each preliminary prospectus and Prospectus filed as part of the Registration Statement as originally filed or as part of any amendment thereto, or filed pursuant to Rule 424 under the 1933 Act, complied when so filed in all material respects with the 1933 Act and the 1933 Act Regulations and, if applicable, each preliminary prospectus and the Prospectus delivered to the Underwriter for use in connection with this offering was identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR except to the extent permitted by Regulation S-T. (ii) Incorporated Documents. The documents incorporated or deemed to be incorporated by reference in the Registration Statement and the Prospectus, at the time they were or hereafter are filed with the Commission, complied and will comply in all material respects with the requirements of the 1934 Act and the rules and regulations of the Commission thereunder (the "1934 Act Regulations"), and, when read together with Page 4 the other information in the Prospectus, at the date hereof and at the Closing Time, did not and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. (iii) Independent Accountants. The accountants who certified the financial statements and supporting schedules included in the Registration Statement are independent public accountants as required by the 1933 Act and the 1933 Act Regulations. (iv) Financial Statements. The consolidated financial statements of the Company included in the Registration Statement and the Prospectus, together with the related schedule and notes, present fairly the financial position of the Company and its subsidiaries at the dates indicated and the consolidated statements of income, stockholders' equity and cash flows of the Company and its subsidiaries for the periods specified; said consolidated financial statements have been prepared in conformity with generally accepted accounting principles ("GAAP") applied on a consistent basis throughout the periods involved. The supporting schedules included in the Registration Statement present fairly in accordance with GAAP the information required to be stated therein. The selected financial data, if any, and summary financial information, if any, included in the Prospectus present fairly the information shown therein and have been compiled on a basis consistent with that of the audited financial statements included in the Registration Statement. The Company's ratios of earnings to fixed charges (actual and, if any, pro forma) included in the Prospectus have been calculated in compliance with Item 503(d) of Regulation S-K of the Commission. (v) No Material Adverse Change in Business. Since the respective dates as of which information is given in the Registration Statement and the Prospectus, except as otherwise stated therein, (A) there has been no material adverse change in the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Company and its subsidiaries considered as one enterprise (a "Material Adverse Effect"), whether or not arising in the ordinary course of business, (B) there have been no transactions entered into by the Company or any of its subsidiaries, other than those in the ordinary course of business, which are material with respect to the Company and its Page 5 subsidiaries considered as one enterprise, and (C) except for regular monthly distributions on the Common Stock, par value $1.00 per share, of the Company (the "Common Stock") in amounts per share that are consistent with past practice, there has been no dividend or distribution of any kind declared, paid or made by the Company on any class of its stock. (vi) Good Standing of the Company. The Company is a corporation duly organized and validly existing under the laws of the State of Maryland and is in good standing with the State Department of Assessments and Taxation of Maryland and has corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Prospectus and to enter into and perform its obligations under this Agreement; and the Company is duly qualified as a foreign corporation to transact business and is in good standing in each other jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure so to qualify or to be in good standing would not result in a Material Adverse Effect. (vii) Good Standing of Subsidiaries. The only subsidiaries of the Company are Realty Income Texas Properties, L.P., a Delaware limited partnership, and Realty Income Texas Properties, Inc., a Delaware corporation, and the Company does not hold any equity interest in any corporation, limited liability company, partnership, joint venture or entity other than such subsidiaries. Each subsidiary of the Company has been duly organized and is validly existing as a partnership or corporation, as the case may be, in good standing under the laws of the state of its organization and has power and authority as a partnership or corporation, as the case may be, to own, lease and operate its properties and to conduct its business as described in the Prospectus; each such subsidiary is duly qualified as a foreign partnership or corporation, as the case may be, to transact business and is in good standing in each other jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure so to qualify or to be in good standing would not result in a Material Adverse Effect; except as otherwise disclosed in the Registration Statement, all of the issued and outstanding partnership interests and shares of capital stock, as the case may be, of each such subsidiary have been duly authorized (if Page 6 applicable) and validly issued and are fully paid and are non-assessable (except to the extent that the general partners of subsidiaries which are partnerships may be liable for the obligations of such partnerships) and are owned by the Company, directly or through subsidiaries, free and clear of any security interest, mortgage, pledge, lien, encumbrance, claim or equity; none of the outstanding partnership interests or shares of capital stock, as the case may be, of such subsidiaries were issued in violation of preemptive or other similar rights arising by operation of law, under the partnership agreement or charter or bylaws, as the case may be, of any such subsidiary or under any agreement or instrument to which the Company or any such subsidiary is a party. (viii) Capitalization. The authorized stock of the Company and the issued and outstanding stock of the Company are as set forth in the line items "Preferred Stock" and "Common Stock" under the caption "Consolidated Balance Sheets" in the Quarterly Report on Form 10-Q for the quarter ended September 30, 1998 (except for subsequent issuances, if any, pursuant to employee benefit plans referred to in the Prospectus or pursuant to the exercise of options referred to in the Prospectus). (ix) Authorization of Agreement. This Agreement has been duly authorized, executed and delivered by the Company. (x) Authorization of Common Stock. The shares of issued and outstanding Common Stock have been duly authorized and validly issued and are fully paid and non-assessable; none of the outstanding shares of Common Stock was issued in violation of preemptive or other similar rights arising by operation of law, under the charter or bylaws of the Company, under any agreement or instrument to which the Company or any of its subsidiaries is a party or otherwise. (xi) Absence of Defaults and Conflicts. Neither the Company nor any of its subsidiaries is in violation of its charter or bylaws or its partnership agreement, as the case may be, or in default in the performance or observance of any obligation, agreement, covenant or condition contained in any contract, indenture, mortgage, deed of trust, loan or credit agreement, note, lease or other agreement or instrument to which the Company or any of its subsidiaries is a party or by which any of them may be bound, or to which any of the respective properties or assets of the Company or any Page 7 subsidiary is subject (collectively, "Agreements and Instruments"), except for such defaults that would not have a Material Adverse Effect; and the execution, delivery and performance of this Agreement, the Indenture and the Securities and the consummation of the transactions contemplated herein and therein (including the use of the proceeds from the sale of the Securities to repay borrowings under the Amended and Restated Revolving Credit Agreement dated as of December 30, 1997 among the Company, the banks named therein and The Bank of New York, as agent and swing line bank and BNY Capital Markets, Inc., as arranger, as amended by that certain letter agreement dated as of November 13, 1998 extending the termination date and increasing the commitments for certain lenders therein (as so amended, the "Acquisition Credit Agreement"), as described in the Prospectus under the caption "Use of Proceeds" but excluding any use of proceeds for other general corporate purposes for which specific corporate authorization may be required) and compliance by the Company with its obligations hereunder and thereunder have been duly authorized by all necessary corporate action and do not and will not, whether with or without the giving of notice or passage of time or both, conflict with or constitute a breach of, or default or Repayment Event (as defined below) under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any subsidiary pursuant to, any Agreement or Instrument, except for such conflicts, breaches or defaults or liens, charges or encumbrances that, individually or in the aggregate, would not have a Material Adverse Effect, nor will such action result in any violation of the provisions of the charter or bylaws of the Company or any applicable law, rule, regulation, or governmental or court judgment, order, writ or decree. As used herein, a "Repayment Event" means any event or condition which gives the holder of any note, debenture or other evidence of indebtedness (or any person acting on such holder's behalf) the right to require the repurchase, redemption or repayment of all or a portion of such indebtedness by the Company or any subsidiary of the Company or any of its subsidiaries. (xii) Absence of Labor Dispute. No labor dispute with the employees of the Company or any subsidiary of the Company exists or, to the best knowledge of the Company, is imminent; and the Company is not aware of any existing or imminent labor disturbance by the employees of any of its or any subsidiary's tenants, which, in either case, could reasonably be expected, Page 8 individually or in the aggregate, to result in a Material Adverse Effect. (xiii) Absence of Proceedings. The Company has not received any notice of any action, suit, proceeding, inquiry or investigation before or by any court or governmental agency or body, domestic or foreign, and, to the best knowledge of the Company, there is no such proceeding now pending or threatened, against or affecting the Company or any of its subsidiaries, which is required to be disclosed in the Registration Statement (other than as disclosed therein), or which could reasonably be expected to result in a Material Adverse Effect, or which could reasonably be expected to materially and adversely affect the consummation of this Agreement or the performance by the Company of its obligations under this Agreement, the Indenture or the Securities; the aggregate of all pending legal or governmental proceedings to which the Company or any subsidiary is a party or of which any of their respective property or assets is the subject which are not described in the Registration Statement, including ordinary routine litigation incidental to the business, could not reasonably be expected to result in a Material Adverse Effect. (xiv) Accuracy of Exhibits. There are no contracts or documents which are required to be described in the Registration Statement, the Prospectus or the documents incorporated by reference therein or to be filed as exhibits thereto which have not been so described and filed as required. (xv) Possession of Intellectual Property. The Company and its subsidiaries own or possess, or can acquire on reasonable terms, adequate patents, patent rights, licenses, inventions, copyrights, know-how (including trade secrets and other unpatented and/or unpatentable proprietary or confidential information, systems or procedures), trademarks, service marks, trade names or other intellectual property (collectively, "Intellectual Property") necessary to carry on the business now operated by them, and neither the Company nor any of its subsidiaries has received any notice or is otherwise aware of any infringement of or conflict with asserted rights of others with respect to any Intellectual Property or of any facts or circumstances which would render any Intellectual Property invalid or inadequate to protect the interest of the Company or any of its subsidiaries therein, and which infringement or conflict (if the subject of any Page 9 unfavorable decision, ruling or finding) or invalidity or inadequacy, singly or in the aggregate, would result in a Material Adverse Effect. (xvi) Absence of Further Requirements. No filing with, or authorization, approval, consent, license, order, registration, qualification or decree of, any court or governmental authority or agency is necessary or required for the performance by the Company of its obligations under this Agreement, the Indenture or the Securities, in connection with the offering, issuance or sale of the Securities hereunder or the consummation of the other transactions contemplated by this Agreement, the Indenture or the Securities, except such as have been already made or obtained under the 1933 Act, the 1933 Act Regulations, the 1939 Act and the 1939 Act Regulations or as may be required under state securities laws. (xvii) Possession of Licenses and Permits. The Company and its subsidiaries possess such permits, licenses, approvals, consents and other authorizations (collectively, "Governmental Licenses") issued by the appropriate federal, state, local or foreign regulatory agencies or bodies necessary to conduct the business now operated by them and the Company and its subsidiaries are in compliance with the terms and conditions of all such Governmental Licenses, except where the failure so to possess or comply would not, singly or in the aggregate, have a Material Adverse Effect; all of the Governmental Licenses are valid and in full force and effect, except where the invalidity of such Governmental Licenses or the failure of such Governmental Licenses to be in full force and effect would not, singly or in the aggregate, have a Material Adverse Effect; and neither the Company nor any of its subsidiaries has received any notice of proceedings relating to the revocation or modification of any such Governmental Licenses which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would result in a Material Adverse Effect. (xviii) Investment Company Act. The Company is not, and upon the issuance and sale of the Securities as herein contemplated and the application of the net proceeds therefrom as described in the Prospectus will not be, an "investment company" as such term is defined in the Investment Company Act of 1940, as amended (the "1940 Act"). Page 10 (xix) Partnership Agreements. Each of the partnership and, if applicable, joint venture agreements to which the Company or any of its subsidiaries is a party has been duly authorized, executed and delivered by the Company or the relevant subsidiary, as the case may be, and constitutes the valid and binding agreement of the Company or such subsidiary, as the case may be, enforceable in accordance with its terms, except as the enforcement thereof may be limited by (A) the effect of bankruptcy, insolvency or other similar laws now or hereafter in effect relating to or affecting creditors' rights generally or (B) the effect of general principles of equity, and the execution, delivery and performance of such agreements did not, at the time of execution and delivery, and does not constitute a breach of or default under the charter or bylaws or partnership agreement, as the case may be, of the Company or any of its subsidiaries or any of the Agreements and Instruments or any law, administrative regulation or administrative or court order or decree. (xx) Properties. Except as otherwise disclosed in the Prospectus: (i) the Company and its subsidiaries have good and marketable title (either in fee simple or pursuant to a valid leasehold interest) to all properties and assets described in the Prospectus as being owned or leased, as the case may be, by them and to all properties reflected in the Company's most recent consolidated financial statements included in the Prospectus, and neither the Company nor any of its subsidiaries has received notice of any claim that has been or may be asserted by anyone adverse to the rights of the Company or any subsidiary with respect to any such properties or assets (or any such lease) or affecting or questioning the rights of the Company or any such subsidiary to the continued ownership, lease, possession or occupancy of such property or assets, except for such claims that would not, singly or in the aggregate, have a Material Adverse Effect; (ii) all liens, charges, encumbrances, claims or restrictions on or affecting the properties and assets of the Company or any of its subsidiaries which are required to be disclosed in the Registration Statement or the Prospectus are disclosed therein, and all such liens, charges, encumbrances, claims or restrictions which are not disclosed in the Prospectus could not reasonably be expected, singly or in the aggregate, to have a Material Adverse Effect; (iii) no person or entity, including, without limitation, any tenant under any of the leases pursuant to which the Company or any of its subsidiaries leases (as lessor) any of its properties Page 11 (whether directly or indirectly through other partnerships, joint ventures or otherwise) has an option or right of first refusal or any other right to purchase any of such properties, except for such options, rights of first refusal or other rights to purchase which, individually or in the aggregate, are not material with respect to the Company and its subsidiaries considered as one enterprise; (iv) to the Company's best knowledge, each of the properties of the Company or any of its subsidiaries has access to public rights of way, either directly or through insured easements, except where the failure to have such access would not, singly or in the aggregate, have a Material Adverse Effect; (v) to the Company's best knowledge, each of the properties of the Company or any of its subsidiaries is served by all public utilities necessary for the current operations on such property in sufficient quantities for such operations, except where the failure to have such public utilities would not, singly or in the aggregate, have a Material Adverse Effect; (vi) to the best knowledge of the Company, each of the properties of the Company or any of its subsidiaries complies with all applicable codes and zoning and subdivision laws and regulations, except for such failures to comply which would not, either individually or in the aggregate, have a Material Adverse Effect; (vii) all of the leases under which the Company or any of its subsidiaries holds or uses any real property or improvements or any equipment relating to such real property or improvements are in full force and effect, except where the failure to be in full force and effect would not, singly or in the aggregate, have a Material Adverse Effect, and neither the Company nor any of its subsidiaries is in default in the payment of any amounts due under any such leases or in any other default thereunder and the Company knows of no event which, with the passage of time or the giving of notice or both, would constitute a default under any such lease, except such defaults that would not, individually or in the aggregate, have a Material Adverse Effect; (viii) to the best knowledge of the Company, there is no pending or threatened condemnation, zoning change, or other proceeding or action that could in any manner affect the size of, use of, improvements on, construction on or access to the properties of the Company or any of its subsidiaries, except such proceedings or actions that, either singly or in the aggregate, would not have a Material Adverse Effect; and (ix) neither the Company nor any of its subsidiaries nor any lessee of any of the real property or improvements of the Company or any of its subsidiaries is in default in the payment of any Page 12 amounts due or in any other default under any of the leases pursuant to which the Company or any of its subsidiaries leases (as lessor) any of its real property or improvements (whether directly or indirectly through partnerships, joint ventures or otherwise), and the Company knows of no event which, with the passage of time or the giving of notice or both, would constitute such a default under any of such leases, except such defaults as would not, individually or in the aggregate, have a Material Adverse Effect. (xxi) Insurance. With such exceptions as would not, individually or in the aggregate, have a Material Adverse Effect, the Company and its subsidiaries have title insurance on all real property and improvements described in the Prospectus as being owned or leased under a ground lease, as the case may be, by them and to all real property and improvements reflected in the Company's most recent consolidated financial statements included in the Prospectus in an amount at least equal to the original cost of acquisition and the Company and its subsidiaries are entitled to all benefits of the insured thereunder, and each such property is insured by extended coverage hazard and casualty insurance in amounts and on such terms as are customarily carried by lessors of properties similar to those owned by the Company and its subsidiaries (in the markets in which the Company's and subsidiaries' respective properties are located), and the Company and its subsidiaries carry comprehensive general liability insurance and such other insurance as is customarily carried by lessors of properties similar to those owned by the Company and its subsidiaries in amounts and on such terms as are customarily carried by lessors of properties similar to those owned by the Company and its subsidiaries (in the markets in which the Company's and its subsidiaries' respective properties are located) and the Company or one of its subsidiaries is named as an additional insured on all policies required under the leases for such properties. (xxii) Environmental Matters. Except as otherwise disclosed in the Prospectus: (i) all real property and improvements owned or leased by the Company or any of its subsidiaries, including, without limitation, the Environment (as defined below) associated with such real property and improvements, is free of any Contaminant (as defined below), except such Contaminants which, individually or in the aggregate, would not have a Material Adverse Effect; (ii) neither the Company, nor any of its subsidiaries nor any Partnership has caused or suffered to exist or occur Page 13 any Release (as defined below) of any Contaminant into the Environment or any other condition that, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect or could result in any violation of any Environmental Laws (as defined below) or constitute a health, safety or environmental hazard to any person or property except for such violations or hazards that could not reasonably be expected to have a Material Adverse Effect; (iii) neither the Company nor any of its subsidiaries is aware of any notice from any governmental body claiming any violation of any Environmental Laws or requiring or calling attention to the need for any work, repairs, construction, alterations, removal or remedial action or installation on or in connection with such real property or improve ments, whether in connection with the presence of asbestos-containing materials in such properties or otherwise, except for such violations, work, repairs, construction, alterations, removal or remedial actions or installations as would not, individually or in the aggregate, have a Material Adverse Effect; (iv) any such work, repairs, construction, alterations, removal or remedial action or installation, if required, would not result in the incurrence of liabilities, which, individually or in the aggregate, would have a Material Adverse Effect; (v) neither the Company nor any of its subsidiaries has caused or suffered to exist or occur any condition on any of the properties or improvements of the Company or any of its subsidiaries that could give rise to the imposition of any Lien (as defined below) under any Environmental Laws, except such Liens which, individually or in the aggregate, would not have a Material Adverse Effect; and (vi) to the Company's best knowledge, no real property or improvements owned or leased by the Company or any of its subsidiaries is being used or has been used for manufacturing or for any other operations that involve or involved the use, handling, transportation, storage, treatment or disposal of any Contaminant, where such operations require or required permits or are or were otherwise regulated pursuant to the Environmental Laws and where such permits have not been or were not obtained or such regulations are not being or were not complied with, except in all instances where any failure to obtain a permit or comply with any regulation could not reasonably be expected, singly or in the aggregate, to have a Material Adverse Effect. "Contaminant" means any pollutant, hazardous substance, toxic substance, hazardous waste, special waste, petroleum or petroleum-derived substance or waste, asbestos or asbestos-containing materials, PCBs, lead, pesticides Page 14 or radioactive materials or any constituent of any such substance or waste, including any such substance identified or regulated under any Environmental Law. "Environmental Laws" means the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. 9601 et seq., the Resource Conservation and Recovery Act, 42 U.S.C. 6901, et seq., the Clean Air Act, 42 U.S.C. 7401, et seq., the Clean Water Act, 33 U.S.C. 1251, et seq., the Toxic Substances Control Act, 15 U.S.C. 2601, et seq., the Occupational Safety and Health Act, 29 U.S.C. 651, et seq., and all other federal, state and local laws, ordinances, regulations, rules, orders, decisions, permits, and the like, which are directed at the protection of human health or the Environment. "Lien" means, with respect to any asset, any mortgage, deed of trust, lien, pledge, encumbrance, charge or security interest in or on such asset. "Environment" means any surface water, drinking water, ground water, land surface, subsurface strata, river sediment, buildings, structures, and ambient, workplace and indoor air. "Release" means any spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping, emanating or disposing of any Contaminant into the Environment, including, without limitation, the abandonment or discard of barrels, containers, tanks or other receptacles containing or previously containing any Contaminant or any release, emission or discharge as those terms are defined or used in any Environmental Law. (xxiii) Qualification as a Real Estate Investment Trust. The Company was and is organized in conformity with the requirements for qualification and taxation as a "real estate investment trust" under the Internal Revenue Code of 1986, as amended (the "Code"); the Company at all times has met and continues to meet all the requirements of the Code for qualification and taxation as a "real estate investment trust"; the Company's method of operation will enable it to meet the requirements for qualification and taxation as a "real estate investment trust" under the Code; and the Company is qualified as a "real estate investment trust" under the Code and will be so qualified for the taxable year in which sales of the Securities occur. (xxiv) Registration Rights. There are no persons with registration or other similar rights to have any securities registered pursuant to the Registration Statement or otherwise registered by the Company under the 1933 Act, or included in the offering contemplated hereby. Page 15 (xxv) Tax Treatment of Certain Entities. Each of R.I.C. Trade Center, Ltd., Empire Business Center, Ltd., and Silverton Business Center, Ltd., each a California limited partnership (the "Sub-Limited Partnerships"), was, from the time of the Consoli dation through and including the time of its merger into the Company, treated as a partnership (rather than as an association taxable as a corporation) for federal income tax purposes. The Company's ownership interests in three properties held through tenancies in common with unrelated third parties (which are the only properties which, since the Consolidation, have been held in tenancies in common with unrelated third parties) have not been, since the Consolidation, and will not be treated as ownership interests in associations taxable as corporations for federal income tax purposes. Realty Income Texas Properties, L.P., a Delaware limited partnership, is not and has never been treated as an association taxable as a corporation for federal income tax purposes. Realty Income Texas Properties, Inc., a Delaware corporation, is and has been at all times treated as a "qualified REIT subsidiary" within the meaning of Section 856(i) of the Code. (xxvi) Indenture. The Indenture has been duly qualified under the 1939 Act. The Indenture has been duly authorized, executed and delivered by the Company and constitutes a valid and binding agreement of the Company, enforceable against the Company in accordance with its terms, except as the enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting creditor's rights generally or by general equitable principles. (xxvii) Securities. The Securities have been duly authorized by the Company and, at the Closing Time, will have been duly executed by the Company and, when authenticated in the manner provided for in the Indenture and delivered against payment of the purchase price therefor specified in this Agreement, will constitute valid and binding obligations of the Company, enforceable against the Company in accordance with their terms, except as the enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting creditors' rights generally or by general equitable principles, and will be entitled to the benefits of the Indenture. Page 16 (xxviii) Description of Indenture and Securities. The Securities and the Indenture will conform in all material respects to the respective statements relating thereto contained in the Prospectus and will be in substantially the respective forms filed or incorporated by reference, as the case may be, as exhibits to the Registration Statement. (xxix) Ranking of Securities. The Securities rank and will rank on a parity with all unsecured indebtedness of the Company (other than subordinated indebtedness of the Company) that is outstanding on the date hereof or that may be incurred hereafter, and senior to all subordinated indebtedness of the Company that is outstanding on the date hereof or that may be incurred hereafter. (xxx) Prior Registration Statement. All of the securities previously registered by the Company under its registration statement on Form S-3 (No. 33-95374), as amended, have been issued and sold. (b) Officer's Certificates. Any certificate signed by any officer of the Company and delivered to the Representative or to counsel for the Underwriter shall be deemed a representation and warranty by the Company to the Underwriter as to the matters covered thereby. SECTION 2. Sale and Delivery to Underwriter; Closing. (a) Securities. On the basis of the representations and warranties herein contained and subject to the terms and conditions herein set forth, the Company agrees to sell to the Underwriter and the Underwriter agrees to purchase from the Company, at the price set forth in Schedule B, the aggregate principal amount of Securities set forth in Schedule A opposite the name of the Underwriter. (b) Payment. Payment of the purchase price for, and delivery of certificates for, the Securities shall be made at the office of Latham & Watkins, 650 Town Center Drive, 20th Floor, Costa Mesa, California 92626-1925, or at such other place as shall be agreed upon by the Representative and the Company, at 6:00 A.M. (California time) on the third (fourth, if the pricing occurs after 4:30 P.M. New York City time, on any given day) business day after the date hereof, or such other time not later than ten business days after such date as shall be agreed upon by the Representative and the Company (such time and date of payment and delivery being herein called "Closing Time"). Payment shall be made to the Company by wire transfer of immediately available funds to an account at a bank designated by the Company, against delivery to the Representative for the Page 17 account of the Underwriter of certificates for the Securities to be purchased by it. (c) Denominations; Registration. Certificates for the Securities shall be in such denominations and registered in such names as the Representative may request in writing at least one full business day before the Closing Time. The certificates for the Securities will be made available for examination and packaging by the Representative in The City of New York not later than 2:00 P.M. (New York City time) on the business day prior to the Closing Time. SECTION 3. Covenants of the Company. The Company covenants with the Underwriter as follows: (a) Compliance with Securities Regulations and Commission Requests. The Company, subject to Section 3(b), will notify the Representative immediately, and confirm the notice in writing, (i) when any post-effective amendment to the Registration Statement or any Rule 462(b) Registration Statement shall become effective or any supplement to the Prospectus, any Term Sheet or any amended Prospectus shall have been filed, (ii) of the receipt of any comments from the Commission, (iii) of any request by the Commission for any amendment to the Registration Statement or any Rule 462(b) Registration Statement or any amendment or supplement to the Prospectus or for additional information, and (iv) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or any Rule 462(b) Registration Statement or of any order preventing or suspending the use of any preliminary prospectus, or of the suspension of the qualification of the Securities for offering or sale in any jurisdiction, or of the initiation or threatening of any proceedings for any of such purposes. The Company will promptly effect the filings necessary pursuant to Rule 424(b) and, if applicable, will take such steps as it deems necessary to ascertain promptly whether the form of prospectus supplement, prospectus or term sheet transmitted for filing under Rule 424(b) was received for filing by the Commission and, in the event that it was not, it will promptly file such prospectus supplement, prospectus or term sheet, as the case may be. The Company will make every reasonable effort to prevent the issuance of any stop order and, if any stop order is issued, to obtain the lifting thereof at the earliest possible moment. (b) Filing of Amendments. The Company will give the Representative notice of its intention to file or prepare any amendment to the Registration Statement (including any filing under Rule 462(b)), any Term Sheet or any amendment, supplement or revision to either the prospectus included in the Registration Statement at the time it became effective or to the Prospectus, whether pursuant to the 1933 Act, the 1934 Act or otherwise, will Page 18 furnish the Representative with copies of any such documents a reasonable amount of time prior to such proposed filing or use, as the case may be, and will not file or use any such document to which the Representative or counsel for the Underwriter shall object. (c) Rule 434. If the Company uses Rule 434, it will comply with the requirements of such Rule. (d) Delivery of Registration Statements. The Company has furnished or will deliver to the Representative and counsel for the Underwriter, without charge, as many signed and conformed copies of the Registration Statement as originally filed and of each amendment thereto (including exhibits filed therewith or incorporated by reference therein and documents incorporated or deemed to be incorporated by reference therein) as the Representative and counsel for the Underwriter may reasonably request. If applicable, the copies of the Registration Statement and each amendment thereto furnished to the Underwriter will be identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, if any, except to the extent permitted by Regulation S-T. (e) Delivery of Prospectuses. The Company has delivered to the Underwriter, without charge, as many copies of each preliminary prospectus as such Underwriter reasonably requested, and the Company hereby consents to the use of such copies for purposes permitted by the 1933 Act. The Company will furnish to the Underwriter, without charge, during the period when the Prospectus is required to be delivered under the 1933 Act or the 1934 Act, such number of copies of the Prospectus (as amended or supplemented) as such Underwriter may reasonably request. If applicable, the Prospectus and any amendments or supplements thereto furnished to the Underwriter will be identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, if any, except to the extent permitted by Regulation S-T. (f) Continued Compliance with Securities Laws. The Company will comply with the 1933 Act and the 1933 Act Regulations and the 1934 Act and the 1934 Act Regulations so as to permit the completion of the distribution of the Securities as contemplated in this Agreement and in the Prospectus. If at any time when a prospectus is required by the 1933 Act to be delivered in connection with sales of the Securities, any event shall occur or condition shall exist as a result of which it is necessary, in the opinion of counsel for the Underwriter or for the Company, to amend the Registration Statement or amend or supplement the Prospectus in order that the Prospectus will not include any untrue statements of a material fact or omit to state a material fact necessary in order to make the statements therein not misleading in the light of the circumstances existing at the Page 19 time it is delivered to a purchaser, or if it shall be necessary, in the opinion of any such counsel, at any such time to amend the Registration Statement or amend or supplement the Prospectus in order to comply with the requirements of the 1933 Act or the 1933 Act Regulations, the Company will promptly prepare and file with the Commission, subject to Section 3(b), such amendment or supplement as may be necessary to correct such statement or omission or to make the Registration Statement or the Prospectus comply with such requirements, and the Company will furnish to the Underwriter such number of copies of such amendment or supplement as the Underwriter may reasonably request. (g) Blue Sky Qualifications. The Company will use its best efforts, in cooperation with the Underwriter, to qualify the Securities for offering and sale under the applicable securities laws of such states and other jurisdictions of the United States as the Representative may designate and to maintain such qualifications in effect for a period of not less than one year from the date hereof; provided, however, that the Company shall not be obligated to file any general consent to service of process or to qualify as a foreign corporation or as a dealer in securities in any jurisdiction in which it is not so qualified or to subject itself to taxation in respect of doing business in any jurisdiction in which it is not otherwise so subject. In each jurisdiction in which the Securities have been so qualified, the Company will file such statements and reports as may be required by the laws of such jurisdiction to continue such qualification in effect for a period of not less than one year from the date hereof. (h) Rule 158. The Company will timely file such reports pursuant to the 1934 Act as are necessary in order to make generally available to its security holders as soon as practicable an earning statement for the purposes of, and to provide the benefits contemplated by, the last paragraph of Section 11(a) of the 1933 Act. (i) Use of Proceeds. The Company will use the net proceeds received by it from the sale of the Securities in the manner specified in the Prospectus under "Use of Proceeds." (j) Reporting Requirements. The Company, during the period when the Prospectus is required to be delivered under the 1933 Act or the 1934 Act, will file all documents required to be filed with the Commission pursuant to the 1934 Act within the time periods required by the 1934 Act and the 1934 Act Regulations. (k) Restriction on Sale of Securities. During the period from the date of this Agreement through and including the Closing Time, the Company will not, without the prior written consent of Donaldson, Lufkin & Jenrette, (i) offer, pledge, sell, Page 20 contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any Securities or substantially similar securities of the Company or any securities convertible into, or exercisable or exchangeable for, any of the foregoing, or file any registration statement under the 1933 Act with respect to any of the foregoing, or (ii) enter into any swap or any other agreement or transaction that transfers, in whole or in part, directly or indirectly, the economic consequence of ownership of any Securities or substantially similar securities of the Company, whether any such swap, agreement or transaction described in clause (i) or (ii) above is to be settled by delivery of Securities, other securities, in cash or otherwise, other than the Securities sold to the Underwriter pursuant to this Agreement. SECTION 4. Payment of Expenses (a) Expenses. The Company will pay all expenses incident to the performance of its obligations under this Agreement, including (i) the word processing, printing and filing of the Registration Statement (including financial statements and exhibits) as originally filed and of each amendment thereto, (ii) the printing and delivery to the Underwriter of this Agreement, the Indenture and such other documents as may be required in connection with the offering, purchase, sale, issuance or delivery of the Securities, (iii) the preparation, issuance and delivery of the certificates for the Securities to the Underwriter, including any transfer taxes or other duties payable upon the sale of the Securities to the Underwriter, (iv) the fees and disbursements of the Company's counsel, accountants and other advisors, (v) the qualification of the Securities under securities laws in accordance with the provisions of Section 3(g) hereof, including filing fees and the reasonable fees and disbursements of counsel for the Underwriter in connection therewith, (vi) the printing and delivery to the Underwriter of copies of each preliminary prospectus, any Term Sheet and the Prospectus and any amendments or supplements thereto, (vii) the fees and expenses of any transfer agent or registrar for the Securities, (viii) if required, the filing fees incident to, and the reasonable fees and disbursements of counsel to the Underwriter (such fees and disbursements not to exceed $10,000) in connection with, the review, if any, by the National Association of Securities Dealers, Inc. (the "NASD") of the terms of the sale of the Securities, (ix) the fees and expenses of the Trustee, including, if required, the fees and disbursements of counsel for the Trustee in connection with the Indenture and the Securities, (x) any fees payable in connection with the rating of the Securities or in connection with any listing of the Securities on a securities exchange and (xi) and the fees and Page 21 expenses of any depositary in connection with holding the Securities in book-entry form. (b) Termination of Agreement. If this Agreement is terminated by the Representative in accordance with the provisions of Section 5 or Section 9(a)(i) or 9(a)(v) hereof, the Company shall reimburse the Underwriter for all of its out-of- pocket expenses, including the reasonable fees and disbursements of counsel for the Underwriter. SECTION 5. Conditions of Underwriter's Obligations. The obligations of the Underwriter hereunder are subject to the accuracy of the representations and warranties of the Company contained in Section 1 hereof or in certificates of any officer of the Company or any subsidiary of the Company delivered pursuant to the provisions hereof, to the performance by the Company of its covenants and other obligations hereunder, and to the following further conditions: (a) Effectiveness of Registration Statement. The Registration Statement, including any Rule 462(b) Registration Statement, has become effective not later than 5:30 P.M. on the date hereof and at Closing Time no stop order suspending the effectiveness of the Registration Statement or any Rule 462(b) Registration Statement shall have been issued under the 1933 Act or proceedings therefor initiated or threatened by the Commission, and any request on the part of the Commission for additional information shall have been complied with to the reasonable satisfaction of counsel to the Underwriter. If required by the 1933 Act or the 1933 Act Regulations, the Prospectus shall have been filed with the Commission in accordance with Rule 424(b) and, if the Company has elected to rely upon Rule 434, a Term Sheet shall have been filed with the Commission in accordance with Rule 434 and Rule 424(b). (b) Opinions of Counsel for Company. At Closing Time, the Representative shall have received the favorable opinions, dated as of Closing Time, of Latham & Watkins, counsel for the Company, Michael R. Pfeiffer, Senior Vice President, General Counsel and Secretary of the Company, and Ballard Spahr Andrews & Ingersoll, special Maryland counsel to the Company, each in form and substance satisfactory to counsel for the Underwriter, to the effect set forth in Exhibits A, B and C hereto, respectively, and to such further effect as counsel to the Underwriter may reasonably request pursuant to Section 5(i). (c) Opinion of Counsel for Underwriter. At Closing Time, the Representative shall have received the favorable opinion, dated as of Closing Time, of Brown & Wood llp, counsel for the Underwriter, with respect to the matters set Page 22 forth in clauses (iii), (iv), (xii), (xiii), (xiv), (xv) and the antepenultimate paragraph of Exhibit A and the first sentence of clause (i) of Exhibit C. In giving such opinion such counsel may rely, as to all matters arising under or governed by the laws of the State of Maryland, upon the opinion of Ballard Spahr Andrews & Ingersoll delivered pursuant to Section 5(b) and, as to all matters governed by the laws of other jurisdictions (other than the law of the State of New York and the federal law of the United States) upon the opinions of counsel satisfactory to you. Such counsel may also state that, insofar as such opinion involves factual matters, they have relied, to the extent they deem proper, upon certificates of officers of the Company and its subsidiaries and certificates of public officials. (d) Officers' Certificate. At Closing Time there shall not have been, since the date hereof or since the respective dates as of which information is given in the Prospectus, any material adverse change in the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Company and its subsidiaries considered as one enterprise, whether or not arising in the ordinary course of business, and the Representative shall have received a certificate of the Chairman or the President of the Company and of the chief financial or chief accounting officer of the Company, dated as of Closing Time, to the effect that (i) there has been no such material adverse change, (ii) the representations and warranties in Section 1 hereof are true and correct with the same force and effect as though expressly made at and as of Closing Time, (iii) the Company has complied with all agreements and satisfied all conditions on its part to be performed or satisfied at or prior to Closing Time, and (iv) no stop order suspending the effectiveness of the Registration Statement or any Rule 462(b) Registration Statement has been issued and no proceedings for that purpose have been initiated or, to the best of their knowledge, threatened by the Commission. (e) Accountant's Comfort Letter. At the Closing Time, the Representative shall have received from KPMG LLP a letter dated as of the Closing Time, in form and substance satisfactory to the Representative, together with signed or reproduced copies of such letter for the Underwriter, containing statements and information of the type ordinarily included in accountants' "comfort letters" to Underwriter with respect to the financial statements, and certain financial information contained in the Registration Statement and the Prospectus. Page 23 (f) Rating Requirement. At the date of this Agreement and at the Closing Time, the Securities shall be rated at least Baa3 by Moody's Investor's Service Inc., BBB- by Standard & Poor's Corporation and BBB by Duff & Phelps, and the Company shall have delivered to the Representative a letter, dated the Closing Time, from each such rating agency, or other evidence satisfactory to the Representative, confirming that the Securities have such ratings. (g) Letter Regarding Compliance with the Acquisition Credit Agreement. Prior to the Closing Time, the Representative shall have received a letter, executed by Agent (as defined in the Acquisition Credit Agreement) to the effect that the Agent has reviewed the preliminary prospectus relating to the Securities or the Prospectus and has determined that the agreements and covenants entered into the connection with the Securities and the Indenture are no more restrictive on the Company than the agreements and covenants in the Acquisition Credit Agreement. (h) Letter Regarding Waiver from Lock-Up. Prior to the Closing Time, the Representative shall have received a written waiver executed by Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") to the effect that Merrill Lynch consents to offering hereby and has waived the 90 day prohibition on the sale of debt securities contained in the Purchase Agreement dated October 23, 1998 among the Company and Merrill Lynch, A.G. Edwards & Sons, Inc., PaineWebber Incorporated, Donaldson, Lufkin & Jenrette Securities Corporation, EVEREN Securities, Inc., Sutro & Co. Incorporated and Wheat First Securities, Inc., as representatives of the several underwriters named in Schedule A thereto. (i) Additional Documents. At Closing Time, counsel for the Underwriter shall have been furnished with such documents and opinions as they may reasonably require for the purpose of enabling them to pass upon the issuance and sale of the Securities as herein contemplated, or in order to evidence the accuracy of any of the representations or warranties, or the fulfillment of any of the conditions, herein contained; and all proceedings taken by the Company in connection with the issuance and sale of the Securities as herein contemplated shall be satisfactory in form and substance to the Representative and counsel for the Underwriter. (j) Termination of Agreement. If any condition specified in this Section shall not have been fulfilled when and as required to be fulfilled, this Agreement may be terminated by the Representative by notice to the Company at Page 24 any time at or prior to Closing Time and such termination shall be without liability of any party to any other party except as provided in Section 4 and except that Sections 6 and 7 shall survive any such termination and remain in full force and effect. SECTION 6. Indemnification. (a) Indemnification of Underwriter. The Company agrees to indemnify and hold harmless the Underwriter and each person, if any, who controls the Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act as follows: (i) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, arising out of any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement (or any amendment thereto), including the Rule 434 Information, if applicable, or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading or arising out of any untrue statement or alleged untrue statement of a material fact included in any preliminary prospectus or the Prospectus (or any amendment or supplement thereto), or the omission or alleged omission therefrom of a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; (ii) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, to the extent of the aggregate amount paid in settlement of any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or of any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, provided that (subject to Section 6(d) below) any such settlement is effected with the written consent of the Company; and (iii) against any and all expense whatsoever, as incurred (including the fees and disbursements of counsel chosen by Donaldson, Lufkin & Jenrette), reasonably incurred in investigating, preparing or defending against any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, to the extent that any such expense is not paid under (i) or (ii) above; Page 25 provided, however, that this indemnity agreement shall not apply to any loss, liability, claim, damage or expense to the extent arising out of any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with written information furnished to the Company by the Underwriter through Donaldson, Lufkfin & Jenrette expressly for use in the Registration Statement (or any amendment thereto) or any preliminary prospectus or the Prospectus (or any amendment or supplement thereto); and provided further that this indemnity agreement with respect to any preliminary prospectus shall not inure to the benefit of the Underwriter, or any person controlling the Underwriter, if a copy of the Prospectus (as then amended or supplemented if the Company shall have furnished any such amendments or supplements thereto, but excluding documents incorporated or deemed to be incorporated by reference therein) was not sent or given by or on behalf of the Underwriter to such person, if such is required by law, at or prior to the written confirmation of the sale of such Securities to such person and if the Prospectus (as so amended or supplemented, if applicable) would have corrected the defect giving rise to such loss, liability, claim, damage or expense, except that this proviso shall not be applicable if such defect shall have been corrected in a document which is incorporated or deemed to be incorporated by reference in the Prospectus. (b) Indemnification of Company, Directors and Officers. The Underwriter agrees to indemnify and hold harmless the Company, its directors, each of its officers who signed the Registration Statement, and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act against any and all loss, liability, claim, damage and expense described in the indemnity contained in subsection (a) of this Section, as incurred, but only with respect to untrue statements or omissions, or alleged untrue statements or omissions, made in the Registration Statement (or any amendment thereto), including the Rule 434 Information, if applicable, or any preliminary prospectus or the Prospectus (or any amendment or supplement thereto) in reliance upon and in conformity with written information furnished to the Company by the Underwriter through Donaldson, Lufkin & Jenrette expressly for use in the Registration Statement (or any amendment thereto) or such preliminary prospectus or the Prospectus (or any amendment or supplement thereto). (c) Actions against Parties; Notification. Each indemnified party shall give notice as promptly as reasonably practicable to each indemnifying party of any action commenced against it in respect of which indemnity may be sought hereunder, but failure to so notify an indemnifying party shall not relieve such indemnifying party from any liability hereunder to the extent it is not materially prejudiced as a result thereof and in any event shall not relieve it from any liability which it may have Page 26 otherwise than on account of this indemnity agreement. In the case of parties indemnified pursuant to Section 6(a) above, counsel to the indemnified parties shall be selected by Donaldson, Lufkin & Jenrette, and, in the case of parties indemnified pursuant to Section 6(b) above, counsel to the indemnified parties shall be selected by the Company. An indemnifying party may participate at its own expense in the defense of any such action; provided, however, that counsel to the indemnifying party shall not (except with the consent of the indemnified party) also be counsel to the indemnified party. In no event shall the indemnifying parties be liable for fees and expenses of more than one counsel (in addition to any local counsel) separate from their own counsel for all indemnified parties in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances. No indemnifying party shall, without the prior written consent of the indemnified parties, settle or compromise or consent to the entry of any judgment with respect to any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever in respect of which indemnification or contribution could be sought under this Section 6 or Section 7 hereof (whether or not the indemnified parties are actual or potential parties thereto), unless such settlement, compromise or consent (i) includes an unconditional release of each indemnified party from all liability arising out of such litigation, investigation, proceeding or claim and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any indemnified party. (d) Settlement without Consent if Failure to Reimburse. If at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel, such indemnifying party agrees that it shall be liable for any settlement of the nature contemplated by Section 6(a)(ii) effected without its written consent if (i) such settlement is entered into more than 60 days after receipt by such indemnifying party of the aforesaid request, (ii) such indemnifying party shall have received notice of the terms of such settlement at least 45 days prior to such settlement being entered into and (iii) such indemnifying party shall not have reimbursed such indemnified party in accordance with such request prior to the date of such settlement. SECTION 7. Contribution. If the indemnification provided for in Section 6 hereof is for any reason unavailable to or insufficient to hold harmless an indemnified party in respect of any losses, liabilities, claims, damages or expenses referred to therein, then each indemnifying party shall contribute to the aggregate amount of such losses, liabilities, claims, damages and expenses incurred by such indemnified party, as incurred, (i) in Page 27 such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Underwriter on the other hand from the offering of the Securities pursuant to this Agreement or (ii) if the allocation provided by clause (i) is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company on the one hand and of the Underwriter on the other hand in connection with the statements or omissions which resulted in such losses, liabilities, claims, damages or expenses, as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Underwriter on the other hand in connection with the offering of the Securities pursuant to this Agreement shall be deemed to be in the same respective proportions as the total net proceeds from the offering of the Securities pursuant to this Agreement (before deducting expenses) received by the Company and the total underwriting discount received by the Underwriter, in each case as set forth on the cover of the Prospectus (or, if Rule 434 is used, the corresponding location on the Term Sheet) bear to the aggregate initial public offering price of the Securities as set forth on such cover (or corresponding location on the Term Sheet, as the case may be). The relative fault of the Company on the one hand and the Underwriter on the other hand shall be determined by reference to, among other things, whether any such untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by the Company or by the Underwriter and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Underwriter agree that it would not be just and equitable if contribution pursuant to this Section 7 were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to above in this Section 7. The aggregate amount of losses, liabilities, claims, damages and expenses incurred by an indemnified party and referred to above in this Section 7 shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in investigating, preparing or defending against any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue or alleged untrue statement or omission or alleged omission. Notwithstanding the provisions of this Section 7, the Underwriter shall not be required to contribute any amount in excess of the amount by which the total price at which the Page 28 Securities underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages which the Underwriter has otherwise been required to pay by reason of any such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this Section 7, each person, if any, who controls the Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have the same rights to contribution as the Underwriter, and each director of the Company, each officer of the Company who signed the Registration Statement, and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have the same rights to contribution as the Company. SECTION 8. Representations, Warranties and Agreements to Survive Delivery. All representations, warranties and agreements contained in this Agreement or in certificates of officers of the Company submitted pursuant hereto shall remain operative and in full force and effect, regardless of any investigation made by or on behalf of the Underwriter or controlling person, or by or on behalf of the Company, and shall survive delivery of the Securities to the Underwriter. SECTION 9. Termination of Agreement. (a) Termination; General. The Representative may terminate this Agreement, by notice to the Company, at any time at or prior to Closing Time (i) if there has been, since the time of execution of this Agreement or since the respective dates as of which information is given in the Prospectus, any material adverse change in the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Company and its subsidiaries considered as one enterprise, whether or not arising in the ordinary course of business, or (ii) if there has occurred any material adverse change in the financial markets in the United States or the international financial markets, any outbreak of hostilities or escalation thereof or other calamity or crisis or any change or development involving a prospective change in national or international political, financial or economic conditions, in each case the effect of which is such as to make it, in the judgment of the Representative, impracticable to market the Securities or to enforce contracts for the sale of the Securities, or (iii) if trading in any securities of the Company has been suspended or limited by the Commission, the New York Stock Exchange or the Page 29 Nasdaq National Market, or if trading generally on the American Stock Exchange or the New York Stock Exchange or in the Nasdaq National Market has been suspended or limited, or minimum or maximum prices for trading have been fixed, or maximum ranges for prices have been required, by any of said exchanges or by such system or by order of the Commission, the National Association of Securities Dealers, Inc. or any other governmental authority, or (iv) if a banking moratorium has been declared by either Federal, California or New York authorities, or (v) if since the date of this Agreement, there has occurred a downgrading in the rating assigned to the Securities or any of the Company's other debt securities by any nationally recognized securities rating agency, or such securities rating agency has publicly announced that it has under surveillance or review, with possible negative implications or without indicating the direction of the possible change, its rating of the Securities or any of the Company's other debt securities. (b) Liabilities. If this Agreement is terminated pursuant to this Section, such termination shall be without liability of any party to any other party except as provided in Section 4 hereof, and provided further that Sections 6 and 7 shall survive such termination and remain in full force and effect. SECTION 10. Notices. All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given if mailed or transmitted by any standard form of telecommunication. Notices to the Underwriter shall be directed to the Representative at 277 Park Avenue, New York, New York 10172, attention of Eric Anderson; and notices to the Company shall be directed to it at Realty Income Corporation, 220 West Crest Street, Escondido, California 92025-1725, attention of Legal Department. SECTION 11. Parties. This Agreement shall inure to the benefit of and be binding upon the Underwriter and the Company and their respective successors. Nothing expressed or mentioned in this Agreement is intended or shall be construed to give any person, firm or corporation, other than the Underwriter and the Company and their respective successors and the controlling persons and officers and directors referred to in Sections 6 and 7 and their heirs and legal representatives, any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision herein contained. This Agreement and all conditions and provisions hereof are intended to be for the sole and exclusive benefit of the Underwriter and the Company and their respective successors, and said controlling persons and officers and directors and their heirs and legal representatives, and for the benefit of no other person, firm or corporation. No purchaser of Securities from the Underwriter shall be deemed to be a successor by reason merely of such purchase. Page 30 SECTION 12. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED IN SAID STATE. EXCEPT AS OTHERWISE SET FORTH HEREIN, SPECIFIED TIMES OF DAY REFER TO NEW YORK CITY TIME. SECTION 13. Effect of Headings and Table of Contents. The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. If the foregoing is in accordance with your understanding of our agreement, please sign and return to the Company a counterpart hereof, whereupon this instrument, along with all counterparts, will become a binding agreement between the Underwriter and the Company in accordance with its terms. Very truly yours, REALTY INCOME CORPORATION By: --------------------------- Michael R. Pfeiffer Senior Vice President, General Counsel and Secretary CONFIRMED AND ACCEPTED, as of the date first above written: DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION By: ------------------------- Name: Eric Anderson Title: Managing Director As Representative of the Underwriter named in Schedule A hereto. SCHEDULE A Name of Underwriter Aggregate - ------------------- Principal Amount of Securities ---------- Donaldson, Lufkin & Jenrette Securities Corporation $20,000,000 =========== Page 31 SCHEDULE B Price Schedule -------------- 1. The initial public offering price for the Securities shall be 98.757% of the principal amount thereof, plus accrued interest from January 21, 1999. 2. The underwriting discount for the Securities shall be 0.65% of the principal amount thereof. Accordingly, the purchase price to be paid for the Securities by the Underwriter shall be 98.107% of the principal amount thereof. Page 32 Exhibit A FORM OF OPINION OF LATHAM & WATKINS TO BE DELIVERED PURSUANT TO SECTION 5(b) (i) Based solely on certificates from public officials, the Company is duly qualified as a foreign corporation to transact business and is in good standing in the State of California. (ii) None of the outstanding shares of stock of the Company was issued, to the best of our knowledge and information, in violation of preemptive rights or other similar rights arising under any agreement or instrument to which the Company or any of its subsidiaries is a party. (iii) Each of the Registration Statement and any Rule 462(b) Registration Statement has been declared effective under the 1933 Act; to the best of our knowledge and information, the Prospectus has been filed pursuant to Rule 424(b) under the 1933 Act in the manner and within the time period required by Rule 424(b); and, to the best of our knowledge and information, no stop order suspending the effectiveness of either the Registration Statement or any Rule 462(b) Registration Statement has been issued under the 1933 Act or proceedings therefor initiated or threatened by the Commission. (iv) Each of the Registration Statement, any Rule 462(b) Registration Statement and the Prospectus (in each case excluding the documents incorporated or deemed to be incorporated by reference therein and the financial statements, supporting schedules and other financial data included or incorporated by reference therein and excluding any Statement of Eligibility on Form T-1 (a "Form T-1"), as to which no opinion need be rendered), as of their respective effective or issue dates, complied as to form in all material respects with the applicable requirements of the 1933 Act and the 1933 Act Regulations. (v) The documents incorporated or deemed to be incorporated by reference in the Prospectus (other than the financial statements, supporting schedules and other financial data therein, as to which no opinion need be rendered), when they were filed with the Commission, complied as to form in all material respects with the applicable requirements of the 1934 Act and the 1934 Act Regulations. (vi) The information in the Prospectus under "Certain Federal Income Tax Considerations" and the information Page 33 in the Company's 1997 Form 10-K under "Business--Other Items-- Taxation of the Company" and "Business--Other Items--Effect of Distribution Requirements," in each case to the extent that it constitutes matters of law, summaries of legal matters or legal conclusions, has been reviewed by us and is correct in all material respects. (vii) No authorization, approval, consent or order of any federal, New York or California state governmental authority or agency (other than under the 1933 Act, the 1933 Act Regulations, the 1939 Act and 1939 Act Regulations, which have been obtained, or as may be required under the securities or blue sky laws of the various states, as to which we express no opinion) is required in connection with the due authorization, execution or delivery of the Purchase Agreement, the Indenture or the Securities or for the offering, issuance or sale of the Securities; (viii) The execution, delivery and performance on or prior to the date hereof of the Purchase Agreement, the Indenture and the Securities by the Company (including the issuance and sale of the Securities to the Underwriter and the use of the proceeds from the sale of the Securities as described in the Prospectus under the caption "Use of Proceeds") will not, whether with or without the giving of notice or lapse of time or both, constitute a breach or violation of, or default or Repayment Event under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any of its subsidiaries pursuant to, the Acquisition Credit Agreement, or the indenture dated as of May 6, 1997 between the Company and the Bank of New York, as trustee (the "1997 Indenture"), or any securities outstanding under the 1997 Indenture, nor to the best of our knowledge and information, any applicable provision of any federal, State of New York or State of California law, statute, administrative regulation or administrative or court decree applicable to the Company. The execution, delivery and performance on or prior to the date hereof of the Purchase Agreement and the Securities by the Company (including the issuance and sale of the Securities to the Underwriter and the use of the proceeds from the sale of the Securities as described in the Prospectus under the caption "Use of Proceeds") will not, whether with or without the giving of notice or lapse of time or both, constitute a breach or violation of, or default or Repayment Event under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any of its subsidiaries pursuant to the Indenture or any securities outstanding under the Indenture. (ix) The Company is not an "investment company" as such term is defined in the 1940 Act. Page 34 (x) Commencing with the Company's taxable year ended December 31, 1994, the Company has been organized in conformity with the requirements for qualification and taxation as a real estate investment trust under the Code and its proposed method of operation will enable the Company to meet the requirements for qualification and taxation as a real estate investment trust under the Code. (xi) Realty Income Texas Properties, L.P., a Delaware limited partnership, is not and has never been treated as an association taxable as a corporation for federal income tax purposes. Realty Income Texas Properties, Inc., a Delaware corporation, is and has, at all times during its existence, been treated as a "qualified REIT subsidiary" within the meaning of Section 856(i) of the Code. (xii) Assuming the due authorization, execution and delivery of the Indenture by the Company under the laws of the State of Maryland and the due authorization, execution and delivery of the Indenture by the Trustee, the Indenture constitutes a valid and binding agreement of the Company, enforceable against the Company in accordance with its terms, except as the enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting creditors' rights generally or by general equitable principles. (xiii) Assuming the due authorization and execution of the Securities by the Company under the laws of the State of Maryland, the Securities, when authenticated by the Trustee in the manner provided in the Indenture (assuming the due authorization, execution and delivery of the Indenture by the Trustee) and delivered against payment of the purchase price therefor specified in the Purchase Agreement, will constitute valid and binding obligations of the Company, enforceable against the Company in accordance with their terms, and will be entitled to the benefits of the Indenture, except as the enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting creditor's rights generally or by general equitable principles, and will be entitled to the benefits of the Indenture. (xiv) The Indenture has been qualified under the 1939 Act. (xv) The Securities and the Indenture conform in all material respects to the descriptions thereof contained in the Prospectus. Although we are not passing upon, and do not assume any responsibility for, the accuracy, completeness or fairness of the statements contained in the Registration Statement or the Page 35 Prospectus and have not made any independent judgment, check or verification thereof (except with respect to the opinion set forth in paragraphs (vi), (x), (xi), and (xv) hereof), we have, however, participated in conferences with certain officers and other representatives of the Company, representatives of KPMG LLP and your representatives at which the Registration Statement, any Rule 462(b) Registration Statement and the Prospectus (including, in each case, the documents incorporated or deemed to be incorporated by reference therein) and any amendments or supplements to any of the foregoing and related matters were discussed, and in the course of such conferences (relying in connection with questions of materiality on representations of factual matters of officers and other representatives of the Company), nothing has come to our attention which has led us to believe that the Registration Statement, any Rule 462(b) Registration Statement or any amendment thereto (except for the financial statements, supporting schedules and other financial data included therein and any Form T-1, as to which we express no belief), as of the time the Registration Statement, any such Rule 462(b) Registration Statement or any such post-effective or other amendment thereto became effective, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading, or that the Prospectus or any amendment or supplement thereto (except for the financial statements, supporting schedules and other financial data included therein, as to which we express no belief), as of January 15, 1999 or as of the Closing Time, contained or contains an untrue statement of a material fact or omitted or omits to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. In rendering such opinion, such counsel may rely insofar as such opinion involves factual matters, to the extent they deem proper, on certificates of responsible officers of the Company and public officials. Such opinion shall not state that it is to be governed or qualified by, or that it is otherwise subject to, any treatise, written policy or other document relating to legal opinions, including, without limitation, the Legal Opinion Accord of the ABA Section of Business Law (1991). Such opinion shall state that, insofar as it concerns the Indenture and the Securities, such counsel has assumed that the Indenture and the Securities are governed by the laws of the State of California. The matters set forth in (vi), (x) and (xi) above may be covered in one or more separate legal opinions, which may be subject to such assumptions, limitations and qualifications as shall be satisfactory to counsel for the Underwriter. In particular, the opinions set forth in paragraphs (vi), (x) and (xi) above (the "Tax Opinions") may be conditioned upon certain representations made by the Company as to factual matters through a certificate of an officer of the Company (the "Officer's Page 36 Certificate"). In addition, the Tax Opinions may be based upon the factual representations of the Company concerning its business and properties as set forth in the Registration Statement and Prospectus. The Tax Opinions may state that they relate only to the federal income tax laws of the United States and such counsel need not express any opinion with respect to the applicability thereto, or the effect thereon, of other federal laws, the laws of any state or other jurisdiction or as to any matters of municipal law or the laws of any other local agencies within any state. The Tax Opinions may state that they are based on various statutory provisions, regulations promulgated thereunder and interpretations thereof by the Internal Revenue Service and the courts having jurisdiction over such matters, all of which are subject to change either prospectively or retroactively, that any such change may affect the conclusions stated therein, and that any variation or difference in the facts from those set forth in the Registration Statement, the Prospectus or the Officer's Certificate may affect the conclusions stated therein. Moreover, the Tax Opinions may state that the Company's qualification and taxation as a real estate investment trust depends upon the Company's ability to meet (through actual annual operating results, distribution levels and diversity of stock ownership) the various qualification tests imposed under the Code, the results of which have not been and will not be reviewed by such counsel, and, accordingly, no assurance can be given that the actual results of the Company's operation for any one taxable year will satisfy such requirements. Page 37 Exhibit B FORM OF OPINION OF MICHAEL R. PFEIFFER TO BE DELIVERED PURSUANT TO SECTION 5(b) (i) The Company is duly qualified as a foreign corporation to transact business and is in good standing in each jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure so to qualify or to be in good standing would not have a Material Adverse Effect. (ii) The only subsidiaries of the Company are Realty Income Texas Properties, L.P., a Delaware limited partnership and Realty Income Texas Properties, Inc., a Delaware corporation. Each of Realty Income Texas Properties, L.P. and Realty Income Texas Properties, Inc. has been duly organized and is validly existing as a partnership or corporation, as the case may be, in good standing under the laws of the State of Delaware, has power and authority as a partnership or corporation, as the case may be, to own, lease and operate its properties and to conduct its business as described in the Registration Statement and each such subsidiary is duly qualified as a foreign partnership or corpora- tion, as the case may be, to transact business and is in good standing in each other jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where failure to so qualify or to be in good standing would not result in a Material Adverse Effect; and all of the issued and outstanding partnership interests and shares of capital stock, as the case may be, of each of Realty Income Texas Properties, L.P. and Realty Income Texas Properties, Inc. have been duly authorized (if applicable) and validly issued, are fully paid and non-assessable (except to the extent that the general partners of Realty Income Texas Properties, L.P. may be liable for the obligations of such partnership) and, to the best of my knowledge and information, are owned by the Company, directly or through subsidiaries, free and clear of any security interest, mortgage, pledge, lien, encumbrance, claim or equity. (iii) The information in the Company's annual report on Form 10-K for the fiscal year ended December 31, 1997 under "Business--Other Items--Environmental Liabilities," to the extent that it constitutes matters of law, summaries of legal matters, instruments or agreements or legal proceedings, or legal conclusions, has been reviewed by me and is correct in all material respects. (iv) To the best of my knowledge and information, there is not pending or threatened any action, suit, proceeding, Page 38 inquiry or investigation to which the Company or any subsidiary is a party, or to which the property of the Company or any subsidiary is subject, before or brought by any court or governmental agency or authority, which could reasonably be expected to result in a Material Adverse Effect, or which could reasonably be expected to materially and adversely affect the properties or assets thereof or the consummation of the Purchase Agreement or the performance by the Company of its obligations under the Purchase Agreement, the Indenture or the Securities. (v) All descriptions in the Prospectus of leases, contracts and other documents to which the Company or any subsidiary is a party are accurate in all material respects. (vi) To the best of my knowledge and information, there are no franchises, contracts, indentures, mortgages, loan agreements, notes, leases or other instruments required to be described in the Registration Statement or to be filed as exhibits thereto other than those described therein or filed or incorporated by reference as exhibits thereto, and the descriptions thereof or references thereto are correct in all material respects. (vii) To the best of my knowledge and information, neither the Company nor any of its subsidiaries is in violation of its charter or bylaws or its partnership agreement, as applicable, and no default by the Company or any of its subsidiaries exists in the due performance or observance of any material obligation, agreement, covenant or condition contained in any contract, indenture, mortgage, loan agreement, note, lease or other agreement or instrument that is described or referred to in the Registration Statement or the Prospectus or filed or incorporated by reference as an exhibit to the Registration Statement. (viii) The execution, delivery and performance of the Purchase Agreement, the Indenture and the Securities by the Company (including the issuance and sale of the Securities to the Underwriter and the use of the proceeds from the sale of the Securities as described in the Prospectus under the caption "Use of Proceeds") and compliance by the Company with its obligations under the Purchase Agreement, the Indenture and the Securities will not, whether with or without the giving of notice or lapse of time or both, constitute a breach or violation of, or default or Repayment Event under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any of its subsidiaries pursuant to, any contract, indenture, mortgage, deed of trust, loan or credit agreement, note, lease or any other agreement or instrument, known to me, to which the Company or any of its subsidiaries is a party or by which it or any of them may be bound or to which any of the property or assets of the Company or any of its subsidiaries is subject, except for such breaches, violations or defaults or Page 39 liens, charges or encumbrances that, individually or in the aggregate, would not have a Material Adverse Effect, nor will such action result in any violation of the provisions of the charter or bylaws of the Company or the partnership agreement or charter or bylaws, as the case may be, of any of its subsidiaries, or, to the best of my knowledge and information, any applicable provision of any law, statute or administrative regulation of the State of California, or, to the best of my knowledge and information, any judgment, order, writ or decree of any government instrumentality or court, domestic or foreign, applicable to the Company or any of its subsidiaries or any of their respective properties, assets or operations. In rendering such opinion, such counsel may rely as to matters of fact (but not as to legal conclusions), to the extent he deems proper, on certificates of responsible officers of the Company and public officials. Such opinion shall not state that it is to be governed or qualified by, or that it is otherwise subject to, any treatise, written policy or other document relating to legal opinions, including, without limitation, the Legal Opinion Accord of the ABA Section of Business Law (1991). Page 40 Exhibit C FORM OF OPINION OF BALLARD SPAHR ANDREWS & INGERSOLL TO BE DELIVERED PURSUANT TO SECTION 5(b) (i) The Company has been duly incorporated and is validly existing under the laws of the State of Maryland and is in good standing with the State Department of Assessments and Taxation of Maryland. The Company has the corporate power to own, lease and operate its current properties and to conduct its business as described in the Prospectus and to enter into and perform its obligations under the Purchase Agreement, the Indenture and the Securities. (ii) The authorized, issued and outstanding stock of the Company is as set forth in the line items "Preferred Stock" and "Common Stock" under the caption "Consolidated Balance Sheets" in the Quarterly Report on Form 10-Q for the quarter ended September 30, 1998 (except for subsequent issuances pursuant to employee benefit plans or the exercise of options referred to in the Prospectus and the forfeiture of 82 shares of Common Stock by a terminated employee). The shares of issued and outstanding Common Stock (the "Outstanding Shares") have been duly authorized and validly issued and are fully paid and non- assessable and none of the Outstanding Shares was issued in violation of preemptive rights arising under the Maryland General Corporation Law (the "MGCL") or the charter or bylaws of the Company. (iii) The Purchase Agreement and the Indenture have been duly authorized, executed and delivered by the Company. (iv) No authorization, approval, consent or order of any Maryland state government authority or agency (other than as may be required under Maryland securities or blue sky laws) is required in connection with the due authorization, execution or delivery of the Purchase Agreement, the Indenture or the Securities or for the offering, issuance or sale of the Securities. (v) The execution, delivery and performance of the Purchase Agreement, the Indenture and the Securities by the Company (including the issuance and sale of the Securities to the Underwriter and the use of the proceeds from the sale of the Securities as described in the Prospectus under the caption "Use of Proceeds") do not result in any violation of the provisions of the charter or bylaws or, so far as is known to such counsel, any applicable provision of any Maryland law, statute, Page 41 administrative regulation or administrative or court decree applicable to the Company. (vi) The Securities have been duly authorized and executed by the Company and, when duly authenticated by the Trustee in the manner provided in the Indenture (assuming the due authorization, execution and delivery of the Indenture by the Trustee) and delivered against payment of the purchase price therefor specified in the Purchase Agreement. (vii) In rendering such opinion, such counsel shall state that each of Latham & Watkins and Brown & Wood LLP, in rendering their opinions pursuant to the Purchase Agreement, may rely upon such opinion of special Maryland counsel as to all matters arising under or governed by the laws of the State of Maryland. In addition, in rendering such opinion, such counsel may rely insofar as such opinion involves factual matters, to the extent they deem proper, on certificates of responsible officers of the Company and public officials. Such opinion shall not state that it is to be governed or qualified by, or that it is otherwise subject to, any treatise, written policy or other document relating to legal opinions, including, without limitation, the Legal Opinion Accord of the ABA Section of Business Law (1991). Page 42 EX-4.1 3 Exhibit 4.1 Form of Indenture dated as of October 28, 1998 between the Company and The Bank of New York (filed as an exhibit to Realty Income's Form 8-K, filed on October 28, 1998 and incorporated herein by reference). EX-4.2 4 Exhibit 4.2 Pricing Committee Resolutions and Form of 8% Note due 2009. RESOLUTIONS OF THE PRICING COMMITTEE OF THE BOARD OF DIRECTORS OF REALTY INCOME CORPORATION WHEREAS, in resolutions adopted on July 15, 1997 (the "Resolutions"), the Board of Directors authorized the registration, issuance and sale of up to $300 million of securities, such securities to be either debt securities, common stock or preferred stock (collectively, the "Securities"); and WHEREAS, pursuant to the Resolutions, the Company filed with the Securities and Exchange Commission (the "Commission") a registration statement on Form S-3 (File No. 333-34311) (as amended, the "Registration Statement") relating to the Securities and the Commission declared the Registration Statement effective on September 16, 1997; WHEREAS, the Board of Directors has determined to issue a series of debt securities to be known as the 8% Notes due 2009 (the "Notes") pursuant to an indenture dated as of October 28, 1998 (the "Indenture"), between the Company and The Bank of New York, as Trustee (the "Trustee"), and to offer and sell the Notes to Donaldson, Lufkin & Jenrette Securities Corporation (the "Underwriter"), pursuant to a purchase agreement (the "Purchase Agreement") between the Company and the Underwriter for reoffering by the Underwriter to the public; and WHEREAS, pursuant to resolutions adopted by the Board of Directors on January 13, 1999, the Board of Directors established a Pricing Committee of the Board of Directors for the purpose of approving, among other things, the amount, manner and terms of the issuance and sale of the Notes and appointed William E. Clark, Thomas A. Lewis, Richard J. VanDerhoff and Willard H. Smith to serve on such committee. NOW THEREFORE, BE IT RESOLVED, that in accordance with Section 301 of the Indenture, the form and terms of the Notes are hereby established (capitalized terms used in these resolutions and not otherwise defined herein having the same definitions as in the Indenture): 1. The Notes shall constitute a series of Securities having the title "8% Notes due 2009." 2. The aggregate principal amount of Notes that may be authenticated and delivered under the Indenture (except for Notes authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Notes pursuant to Sections 304, 305, 306, 906, 1107 or 1305 of the Indenture) shall be limited in aggregate principal amount to $20,000,000. Such series may not be reopened for the issuance of additional Securities of such series. 3. The entire outstanding principal of the Notes shall be payable on January 15, 2009 (the "Maturity Date"). 4. The rate at which the Notes shall bear interest shall be 8% per annum; the date from which such interest shall accrue shall be January 21, 1999, the Interest Payment Dates on which such interest will be payable shall be January 15 and July 15 of each year, beginning July 15, 1999; the Regular Record Dates for the interest payable on the Notes on any Interest Payment Date shall be January 1 or July 1, as the case may be, immediately preceding the applicable Interest Payment Date; and the basis upon which interest shall be calculated shall be that of a 360-day year consisting of twelve 30-day months. If any principal of or premium, if any, or interest on any of the Notes is not paid when due, then such overdue principal and, to the extent permitted by law, such overdue premium or interest, as the case may be, shall bear interest, until paid or until such payment is duly provided for, at the rate of 8% per annum. 5. The place where the principal of, premium, if any, and interest on the Notes shall be payable, where Notes may be surrendered for the registration of transfer or exchange, and where notices or demands to or upon the Company in respect of the Notes and the Indenture may be served shall be the office or agency maintained by the Company for such purpose in the Borough of Manhattan, The City of New York, which shall initially be the Corporate Trust Office of the Trustee at 101 Barclay St., Floor 21 West, New York, New York 10286. 6. The Notes shall be redeemable at any time at the option of the Company, in whole or from time to time in part, at a Redemption Price (payable in Dollars) equal to the sum of (i) the principal amount of the Notes being redeemed plus accrued interest thereon to the Redemption Date and (ii) the Make-Whole Amount (as defined in the form of Note attached hereto as Exhibit A), if any, with respect to such Notes; provided that installments of interest on Notes whose Stated Maturity is on or prior to the relevant Redemption Date shall be payable to the Holders of such Notes (or one or more Predecessor Securities) registered as such at the close of business on the relevant record dates according to their terms and the provisions of Section 307 of the Indenture. As used in the Indenture and these resolutions, all references to "premium" and "premium, if any" on the Notes, and all similar references with respect to the Notes, shall be deemed to refer to and include the Make-Whole Amount, if any. 7. The Notes shall not be redeemable at the option of any Holder thereof, upon the occurrence of any particular circumstance or otherwise. The Notes will not have the benefit of any mandatory sinking fund. 8. The Notes shall be issued in denominations of $1,000 and any integral multiples thereof. 9. The Trustee shall be the initial Security Registrar, transfer agent and Paying Agent for the Notes. 10. The entire outstanding principal amount of the Notes shall be payable upon declaration of acceleration of the maturity of the Notes pursuant to Section 502 of the Indenture. 11. Payment of the principal of, premium, if any, and interest on the Notes shall be made in Dollars, and the Notes shall be denominated in Dollars. 12. The amount of payments of principal of, premium, if any, and interest on the Notes shall not be determined with reference to an index, formula or other similar method. 13. Payments of the principal of, premium, if any, and interest on the Notes shall be made in Dollars, and the Holders have no right to elect the currency in which such payments are made. 14. In addition to the covenants of the Company set forth in the Indenture, the covenants set forth in the form of Note attached hereto as Exhibit A under the captions "Limitation on Incurrence of Total Debt," "Limitation on Incurrence of Secured Debt," "Debt Service Coverage " and "Maintenance of Total Unencumbered Assets" (collectively, the "Additional Covenants") shall be and hereby are added to the Indenture for the benefit of the Notes, and the Additional Covenants, together with the defined terms (the "Additional Definitions") set forth in such form of Note under the caption "Certain Definitions," are hereby incorporated by reference in and made a part of these resolutions and the Indenture as if set forth in full herein and therein; provided that the Additional Covenants shall only be effective for so long as any of the Notes is Outstanding; and provided, further, that except as set forth in (23) below, the definitions of "Subsidiary" set forth in the form of Note attached hereto as Exhibit A shall only be applicable with respect to the Additional Covenants, insofar as they pertain to the Notes, and the Additional Definitions. 15. The Notes shall be issuable only as Registered Securities without coupons and shall initially be issued in permanent global form (the "Global Note"). Beneficial owners of interests in the Global Note may exchange such interests for Notes of like tenor of any authorized denomination only under the circumstances provided in Section 305 of the Indenture. The Depository Trust Company ("DTC") shall be the initial depository with respect to the Global Note. 16. The Notes will not be issuable as Bearer Securities, and a temporary global certificate will not be issued. 17. Except as otherwise provided in the Indenture and in these resolutions with respect to the payment of Defaulted Interest, interest on any Note shall be payable only to the Person in whose name that Note (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest. Payments of principal, premium, if any, and interest in respect of the Notes will be made by the Company by wire transfer of immediately available funds; provided that, in the event that any Notes are issued in definitive certificated form, the Holders thereof shall have given appropriate wire transfer instructions to the Company and, in the event that such wire transfer instructions shall not have been given to the Company by the Holder of any Note issued in definitive certificated form, payments of interest on such Note may be made by mailing a check for such interest to the address of such Holder as it appears on the Security Register. 18. Sections 1402 and 1403 of the Indenture shall be applicable to the Notes, and the provisions of Section 1403 shall also be applicable with respect to the Company's obligations under the Additional Covenants; provided that the Company shall be entitled to effect defeasance or covenant defeasance only with respect to all, and not less than all, of the Notes. 19. The Notes will be authenticated and delivered as provided in Section 303 of the Indenture. 20. The Company shall not be required to pay Additional Amounts with respect to the Notes as contemplated by Section 1010 of the Indenture. 21. The Notes shall not be convertible into Common Stock or Preferred Stock. 22. The Notes will be direct, senior unsecured obligations of the Company and will rank equally with all other senior unsecured indebtedness of the Company from time to time outstanding. 23. Insofar as Section 801 of the Indenture is applicable to the Notes, the term "Subsidiary," as used in Section 801(2) of the Indenture, shall have the meaning set forth in the form of Note attached hereto as Exhibit A (instead of the meaning set forth in Section 101 of the Indenture), and the term "indebtedness," as used in Section 801(2), shall be deemed to include "Debt" and "Secured Debt" (as such terms are defined in the form of Note attached hereto as Exhibit A). 24. The provisions of Section 1011 of the Indenture shall be applicable with respect to any term, provision or condition set forth in the Additional Covenants, in addition to any term, provision and condition set forth in Sections 1004 to 1008, inclusive, of the Indenture. 25. The Notes shall have such additional terms as are set forth in the form of Note attached hereto as Exhibit A, which terms are hereby incorporated by reference in and made a part of these resolutions and the Indenture as if set forth in full herein and therein. RESOLVED, that the public offering price of the Notes shall be 98.757% of the principal amount thereof plus accrued interest from January 21, 1999, and the Notes shall be sold to the Underwriter at a price equal to 98.107% of the principal amount thereof. RESOLVED, that the form of Purchase Agreement presented to and reviewed by this committee, and the form of Note attached hereto as Exhibit A, be, and each of them hereby is, approved (it being understood that, in the event that Notes are ever issued in definitive certificated form, the legends appearing as the first two paragraphs on the first page of such form of Notes may be removed); and the form and terms of the Indenture, and the execution and delivery thereof by the Company, are hereby authorized, approved, ratified and reconfirmed in all respects. RESOLVED, that each of the Chairman of the Board, Chief Executive Officer, President, any Senior Vice President, Secretary and Treasurer of the Company be, and each of them acting singly, hereby is, authorized and directed, in the name and on behalf of the Company and where appropriate under its corporate seal, attested by its Secretary or Treasurer, to execute and deliver the Notes and the Purchase Agreement in substantially the forms approved hereby, with such changes as shall have been approved by the executing officer, such approval to be conclusively evidenced by the execution thereof (it being understood that any signatures, attestations and corporate seals appearing on the Notes may be facsimiles thereof). RESOLVED, that the prospectus dated October 1, 1997 and prospectus supplement dated January 15, 1999 relating to the Notes be, and the same hereby are, ratified and approved in all respects. RESOLVED, that all officers of the Company be, and each of them hereby is, authorized, in the name and on behalf of the Company, to make, execute and deliver or cause to be made, executed and delivered, and to evidence the approval of the Board of Directors of, all such officers' certificates, depository agreements, letters of representation or other agreements or arrangements necessary or appropriate in connection with the administration of any book-entry arrangements for the Notes, and such other agreements, undertakings, documents or instruments, and to perform all such acts and make all such payments, as may, in the judgment of such officer, be necessary, appropriate or desirable to effectuate the purpose of these resolutions, including the performance of the obligations of the Company under the Indenture, the Notes, the Purchase Agreement and any other agreement, undertaking, document or instrument referred to herein or therein. RESOLVED, that any and all actions heretofore taken by the officers of the Company pursuant to the authority conferred by the preceding resolutions and consistent therewith is ratified, approved and confirmed. FORM OF 8% NOTE DUE 2009 PRINCIPAL AMOUNT $20,000,000 REGISTERED NO.: R-1 CUSIP NO.: 756109 AD 6 REALTY INCOME CORPORATION 8% NOTES DUE 2009 THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING SET FORTH IN THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE OF A DEPOSITARY. THIS SECURITY IS EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITARY OR ITS NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND, UNLESS AND UNTIL IT IS EXCHANGED FOR SECURITIES IN DEFINITIVE FORM AS AFORESAID, MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ITS NOMINEE TO A SUCCESSOR DEPOSITARY OR ITS NOMINEE. UNLESS THIS SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY ("DTC"), 55 WATER STREET, NEW YORK, NEW YORK TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY SUCH SECURITY ISSUED IS REGISTERED IN THE NAME OF CEDE & CO., OR SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL, SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. Realty Income Corporation, a Maryland corporation (the "Company," which term shall include any successor under the Indenture hereinafter referred to), for value received, hereby promises to pay to Cede & Co., or registered assigns, the principal sum of Twenty Million Dollars on January 15, 2009, and to pay interest thereon from January 21, 1999, or from the most recent date to which interest has been paid or duly provided for, semi-annually in arrears on January 15 and July 15 of each year (each, an "Interest Payment Date"), commencing July 15, 1999, at the rate of 8% per annum, until the entire principal amount hereof is paid or made available for payment. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in the Indenture, be paid to the Person in whose name this Note (or one or more Predecessor Securities) is registered in the Security Register applicable to the Notes at the close of business on the Regular Record Date for such interest, which shall be January 1 or July 1, as the case may be, immediately preceding the applicable Interest Payment Date. Any such interest not so punctually paid or duly provided for shall forthwith cease to be payable to the Holder on such Regular Record Date, and may either be paid to the Person in whose name this Note (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of Notes of this series not less than 10 days prior to such Special Record Date, or may be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Notes may be listed, and upon such notice as may be required by such exchange, all as more fully provided in the Indenture. Interest will be computed on the basis of a 360-day year of twelve 30-day months. If any principal of or premium, if any, or interest on any of the Notes is not paid when due, then such overdue principal and, to the extent permitted by law, such overdue premium or interest, as the case may be, shall bear interest, until paid or until such payment is duly provided for, at the rate of 8% per annum. Payments of principal, premium, if any, and interest in respect of this Note will be made by the Company in Dollars by wire transfer of immediately available funds; provided that, in the event that this Note is issued in definitive certificated form, the Holder hereof shall have given appropriate wire transfer instructions to the Company and, in the event that such wire transfer instructions shall not have been given to the Company by the Holder of any Note issued in definitive certificated form, payments of interest on such Note may be made by mailing a check for such interest to the address of such Holder as it appears on the Security Register. The place where the principal of, premium, if any, and interest on this Note shall be payable, where this Note may be surrendered for the registration of transfer or exchange and where notices or demands to or upon the Company in respect of the Notes and the Indenture may be served shall be the office or agency maintained by the Company for such purpose in the Borough of Manhattan, The City of New York, which shall initially be the Corporate Trust Office of the Trustee at 101 Barclay St., Floor 21 West, New York, New York 10286. This Note is one of a duly authorized issue of Securities of the Company (herein called the "Notes"), issued as a series of Securities under an indenture dated as of October 28, 1998 (the "Indenture"), between the Company and The Bank of New York, as trustee (the "Trustee," which term includes any successor trustee under the Indenture with respect to the Notes), to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee and the Holders of the Notes and of the terms upon which the Notes are, and are to be, authenticated and delivered. This Note is one of the duly authorized series designated as the "8% Notes due 2009," limited (subject to exceptions provided in the Indenture) in aggregate principal amount to $20,000,000. All terms used in this Note which are defined in the Indenture and not defined herein shall have the meanings assigned to them in the Indenture. The Notes may be redeemed at any time at the option of the Company, in whole or from time to time in part, at a Redemption Price equal to the sum of (i) the principal amount of the Notes being redeemed plus accrued interest thereon to the Redemption Date and (ii) the Make-Whole Amount, if any, with respect to such Notes (the "Redemption Price"); provided that installments of interest on Notes whose Stated Maturity is on or prior to the relevant Redemption Date shall be payable to the Holders of such Notes (or one or more Predecessor Securities) registered as such at the close of business on the relevant record dates according to their terms and the Indenture. If notice has been given as provided in the Indenture and funds for the redemption of any Notes called for redemption shall have been made available on the Redemption Date referred to in such notice, such Notes will cease to bear interest on the date fixed for such redemption specified in such notice and the only right of the Holders of such Notes will be to receive payment of the Redemption Price. Notice of any optional redemption of any Notes will be given to Holders at their addresses, as shown in the Security Register for the Notes, not more than 60 nor less than 30 days prior to the date fixed for redemption. The notice of redemption will specify, among other items, the Redemption Price and the principal amount of the Notes held by such Holder to be redeemed. The Indenture contains provisions for defeasance at any time of (a) the entire indebtedness of the Company on the Notes and (b) certain restrictive covenants and the related defaults and Events of Default applicable to the Company, in each case, upon compliance by the Company with certain conditions set forth in the Indenture, which provisions apply to this Note. In addition to the covenants of the Company contained in the Indenture, the Company makes the following covenants with respect to, and for the benefit of the Holders of, the Notes: Limitation on Incurrence of Total Debt. The Company will not, and will not permit any Subsidiary to, incur any Debt, other than Intercompany Debt, if, immediately after giving effect to the incurrence of such additional Debt and the application of the proceeds therefrom on a pro forma basis, the aggregate principal amount of all outstanding Debt of the Company and its Subsidiaries on a consolidated basis determined in accordance with GAAP is greater than 60% of the sum of (i) the Company's Total Assets as of the end of the latest fiscal quarter covered in the Company's Annual Report on Form 10-K or Quarterly Report on Form 10-Q, as the case may be, most recently filed with the Commission (or, if such filing is not required under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), with the Trustee) prior to the incurrence of such additional Debt and (ii) the increase, if any, in Total Assets from the end of such quarter including, without limitation, any increase in Total Assets caused by the application of the proceeds of such additional Debt (such increase together with the Company's Total Assets is referred to as the "Adjusted Total Assets"). Limitation on Incurrence of Secured Debt. The Company will not, and will not permit any Subsidiary to, incur any Secured Debt, other than Intercompany Debt, if, immediately after giving effect to the incurrence of such additional Secured Debt and the application of the proceeds therefrom on a pro forma basis, the aggregate principal amount of all outstanding Secured Debt of the Company and its Subsidiaries on a consolidated basis determined in accordance with GAAP is greater than 40% of the Company's Adjusted Total Assets. Debt Service Coverage. The Company will not, and will not permit any Subsidiary to, incur any Debt, other than Intercompany Debt, if the ratio of Consolidated Income Available for Debt Service to the Annual Debt Service Charge for the period consisting of the four consecutive fiscal quarters most recently ended prior to the date on which such additional Debt is to be incurred is less than 1.5 to 1.0, on a pro forma basis after giving effect to the incurrence of such Debt and the application of the proceeds therefrom, and calculated on the assumption that (i) such Debt and any other Debt incurred by the Company or any of its Subsidiaries since the first day of such four-quarter period and the application of the proceeds therefrom (including to refinance other Debt since the first day of such four-quarter period) had occurred on the first day of such period, (ii) the repayment or retirement of any other Debt of the Company or any of its Subsidiaries since the first day of such four-quarter period had occurred on the first day of such period (except that, in making such computation, the amount of Debt under any revolving credit facility, line of credit or similar facility shall be computed based upon the average daily balance of such Debt during such period), and (iii) in the case of any acquisition or disposition by the Company or any Subsidiary of any asset or group of assets since the first day of such four- quarter period, including, without limitation, by merger, stock purchase or sale, or asset purchase or sale, such acquisition or disposition had occurred on the first day of such period with the appropriate adjustments with respect to such acquisition or disposition being included in such pro forma calculation. If the Debt giving rise to the need to make the foregoing calculation or any other Debt incurred after the first day of the relevant four- quarter period bears interest at a floating rate then, for purposes of calculating the Annual Debt Service Charge, the interest rate on such Debt shall be computed on a pro forma basis as if the average interest rate which would have been in effect during the entire such four-quarter period had been the applicable rate for the entire such period. Maintenance of Total Unencumbered Assets. The Company will maintain at all times Total Unencumbered Assets of not less than 150% of the aggregate outstanding principal amount of the Unsecured Debt of the Company and its Subsidiaries, computed on a consolidated basis in accordance with GAAP. Certain Definitions. As used herein, the following terms will have the meanings set forth below: "Annual Debt Service Charge" as of any date means the amount which is expensed in any 12-month period for interest on Debt of the Company and its Subsidiaries. "Business Day" means any day, other than a Saturday or a Sunday, that is not a day on which banking institutions in The City of New York are authorized or required by law, regulation or executive order to close. "Consolidated Income Available for Debt Service" for any period means Consolidated Net Income plus, without duplication, amounts which have been deducted in determining Consolidated Net Income during such period for (i) Consolidated Interest Expense, (ii) provisions for taxes of the Company and its Subsidiaries based on income, (iii) amortization (other than amortization of debt discount) and depreciation, (iv) provisions for losses from sales or joint ventures, (v) provisions for impairment losses, (vi) increases in deferred taxes and other non-cash charges, (vii) charges resulting from a change in accounting principles, and (viii) charges for early extinguishment of debt, and less, without duplication, amounts which have been added in determining Consolidated Net Income during such period for (a) provisions for gains from sales or joint ventures, and (b) decreases in deferred taxes and other non- cash items. "Consolidated Interest Expense" for any period, and without duplication, means all interest (including the interest component of rentals on capitalized leases, letter of credit fees, commitment fees and other like financial charges) and all amortization of debt discount on all Debt (including, without limitation, payment-in-kind, zero coupon and other like securities) but excluding legal fees, title insurance charges, other out-of-pocket fees and expenses incurred in connection with the issuance of Debt and the amortization of any such debt issuance costs that are capitalized, all determined for the Company and its Subsidiaries on a consolidated basis in accordance with GAAP. "Consolidated Net Income" for any period means the amount of consolidated net income (or loss) of the Company and its Subsidiaries for such period determined on a consolidated basis in accordance with GAAP. "Debt" means any indebtedness of the Company or any Subsidiary, whether or not contingent, in respect of (i) money borrowed or evidenced by bonds, notes, debentures or similar instruments, (ii) indebtedness secured by any mortgage, pledge, lien, charge, encumbrance, trust deed, deed of trust, deed to secure debt, security agreement or any security interest existing on property owned by the Company or any Subsidiary, (iii) letters of credit or amounts representing the balance deferred and unpaid of the purchase price of any property except any such balance that constitutes an accrued expense or trade payable or (iv) any lease of property by the Company or any Subsidiary as lessee that is reflected on the Company's consolidated balance sheet as a capitalized lease in accordance with GAAP, in the case of items of indebtedness under (i) through (iii) above to the extent that any such items (other than letters of credit) would appear as liabilities on the Company's consolidated balance sheet in accordance with GAAP, and also includes, to the extent not otherwise included, any obligation of the Company or any Subsidiary to be liable for, or to pay, as obligor, guarantor or otherwise (other than for purposes of collection in the ordinary course of business), indebtedness of another person (other than the Company or any Subsidiary) of the type referred to in (i), (ii), (iii) or (iv) above (it being understood that Debt shall be deemed to be incurred by the Company or any Subsidiary whenever the Company or such Subsidiary shall create, assume, guarantee or otherwise become liable in respect thereof). "Executive Group" means, collectively, those individuals holding the offices of Chairman, Vice-Chairman, Chief Executive Officer, President, Chief Operating Officer or any Vice President of the Company. "Intercompany Debt" means indebtedness owed by the Company or any Subsidiary solely to the Company or any Subsidiary. "Make-Whole Amount" means, in connection with any optional redemption of any Notes, the excess, if any, of (i) the aggregate present value as of the date of such redemption of each dollar of principal being redeemed and the amount of interest (exclusive of interest accrued to the date of redemption) that would have been payable in respect of each such dollar if such redemption had not been made, determined by discounting, on a semi-annual basis, such principal and interest at the Reinvestment Rate (determined on the third Business Day preceding the date such notice of redemption is given) from the respective dates on which such principal and interest would have been payable if such redemption had not been made to the date of redemption over (ii) the aggregate principal amount of the Notes being redeemed. All references herein and in the Indenture to "premium" or "premium, if any" on the Notes, and all similar references with respect to the Notes, shall be deemed to refer to and include the Make-Whole Amount, if any. "Reinvestment Rate" means .25% plus the arithmetic mean of the yields under the heading "Week Ending" published in the most recent Statistical Release under the caption "Treasury Constant Maturities" for the maturity (rounded to the nearest month) corresponding to the remaining life to maturity of the Notes, as of the payment date of the principal being redeemed. If no maturity exactly corresponds to such maturity, yields for the two published maturities most closely corresponding to such maturity shall be calculated pursuant to the immediately preceding sentence and the Reinvestment Rate shall be interpolated or extrapolated from such yields on a straight-line basis, rounding in each of such relevant periods to the nearest month. For the purposes of calculating the Reinvestment Rate, the most recent Statistical Release published prior to the date of determination of the Make-Whole Amount shall be used. "Secured Debt" means Debt secured by any mortgage, lien, charge, encumbrance, trust deed, deed of trust, deed to secure debt, security agreement, pledge, conditional sale or other title retention agreement, capitalized lease or other security interest or agreement granting or conveying security title to or a security interest in real property or other tangible assets. "Statistical Release" means the statistical release designated "H.15(519)" or any successor publication which is published weekly by the Federal Reserve System and which reports yields on actively traded U.S. government securities adjusted to constant maturities, or, if such statistical release is not published at the time of any determination under the Indenture, then such other reasonably comparable index which shall be designated by the Company. "Subsidiary" means (i) any corporation, partnership, joint venture, limited liability company or other entity the majority of the shares, if any, of the non-voting capital stock or other equivalent ownership interests of which (except directors' qualifying shares) are at the time directly or indirectly owned by the Company, and the majority of the shares of the voting capital stock or other equivalent ownership interests of which (except for directors' qualifying shares) are at the time directly or indirectly owned by the Company, any other Subsidiary or Subsidiaries, and/or one or more individuals of the Executive Group (or, in the event of death or disability of any of such individuals, his/her respective legal representative(s), or such individuals' successors in office as an officer of the Company), and (ii) any other entity the accounts of which are consolidated with the accounts of the Company. This definition shall apply only for purposes of the covenants set forth above under the captions "Limitation on Incurrence of Total Debt," "Limitation on Incurrence of Secured Debt," "Debt Service Coverage," and "Maintenance of Total Unencumbered Assets," the other definitions set forth herein under the caption "Certain Definitions," and, insofar as Section 801 of the Indenture is applicable to the Notes, the term "Subsidiary," as used in Section 801(2) of the Indenture, shall have the meaning set forth in this definition (instead of the meaning set forth in Section 101 of the Indenture). "Total Assets" as of any date means the sum of (i) Undepreciated Real Estate Assets and (ii) all other assets of the Company and its Subsidiaries determined on a consolidated basis in accordance with GAAP (but excluding accounts receivable and intangibles). "Total Unencumbered Assets" as of any date means Total Assets minus the value of any properties of the Company and its Subsidiaries that are encumbered by any mortgage, charge, pledge, lien, security interest, trust deed, deed of trust, deed to secure debt, security agreement or other encumbrance of any kind (other than those relating to Intercompany Debt), including the value of any stock of any Subsidiary that is so encumbered determined on a consolidated basis in accordance with GAAP. For purposes of this definition, the value of each property shall be equal to the purchase price or cost of each such property and the value of any stock subject to any encumbrance shall be determined by reference to the value of the properties owned by the issuer of such stock as aforesaid. "Undepreciated Real Estate Assets" as of any date means the amount of real estate assets of the Company and its Subsidiaries on such date, before depreciation and amortization, determined on a consolidated basis in accordance with GAAP. "Unsecured Debt" means Debt of the Company or any Subsidiary that is not Secured Debt. If an Event of Default with respect to the Notes shall occur and be continuing, the principal of the Notes may be declared due and payable in the manner and with the effect provided in the Indenture. As provided in and subject to the provisions of the Indenture, the Holder of this Note shall not have the right to institute any proceeding with respect to the Indenture or for the appointment of a receiver or trustee or for any other remedy thereunder, unless such Holder shall have previously given the Trustee written notice of a continuing Event of Default with respect to the Notes, the Holders of not less than 25% in principal amount of the Notes at the time Outstanding shall have made written request to the Trustee to institute proceedings in respect of such Event of Default as Trustee and offered the Trustee reasonable indemnity and the Trustee shall not have received from the Holders of a majority in principal amount of the Notes at the time Outstanding a direction inconsistent with such request, and shall have failed to institute any such proceeding, for 60 days after receipt of such notice, request and offer of indemnity. The foregoing shall not apply to any suit instituted by the Holder of this Note for the enforcement of any payment of principal of, or premium, if any, or interest on, this Note on or after the respective due dates therefor. The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Notes under the Indenture at any time by the Company and the Trustee with the consent of the Holders of not less than a majority in aggregate principal amount of the Outstanding Notes. The Indenture also contains provisions permitting the Holders of not less than a majority in principal amount of the Notes at the time Outstanding, on behalf of the Holders of all Notes, to waive compliance by the Company with certain provisions of the Indenture. Furthermore, provisions in the Indenture permit the Holders of not less than a majority of the aggregate principal amount of the Outstanding Notes to waive, in certain circumstances, on behalf of all Holders of the Notes, certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Note shall be conclusive and binding upon such Holder and upon all future Holders of this Note and of any Note issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Note. No reference herein to the Indenture and no provision of this Note or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of, and premium, if any, and interest on, this Note at the times, places and rate, and in the coin or currency, herein prescribed. As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Note is registrable in the Security Register, upon surrender of this Note for registration of transfer at the office or agency of the Company in any Place of Payment for the Notes, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar for the Notes duly executed by, the Holder hereof or his or her attorney duly authorized in writing, and thereupon one or more new Notes of authorized denominations and for the same aggregate principal amount will be issued to the designated transferee or transferees. As provided in the Indenture and subject to certain limitations therein set forth, Notes of this series are exchangeable for a like aggregate principal amount of Notes of this series of different authorized denominations, as requested by the Holder surrendering the same. The Notes of this series are issuable only in registered form without coupons in denominations of $1,000 and any integral multiple thereof. No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. Prior to due presentment of this Note for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Note is registered as the owner hereof for all purposes, whether or not this Note be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary. No recourse shall be had for the payment of the principal of, or premium, if any, or the interest on this Note, or for any claim based hereon, or otherwise in respect hereof, or based on or in respect of the Indenture or any indenture supplemental thereto, against any past, present or future stockholder, employee, officer or director, as such, of the Company or of any successor, either directly or through the Company or any successor, whether by virtue of any constitution, statute or rule of law or by the enforcement of any assessment or penalty or otherwise, all such liability being, by the acceptance hereof and as part of the consideration for the issue hereof, expressly waived and released. THE INDENTURE AND THE NOTES, INCLUDING THIS NOTE, SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Notes as a convenience to the Holders of the Notes. No representation is made as to the correctness or accuracy of such CUSIP numbers as printed on the Notes, and reliance may be placed only on the other identification numbers printed hereon. Unless the certificate of authentication hereon has been executed by the Trustee by manual signature of one of its authorized signatories, this Note shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. The headings included in this Note are for convenience only and shall not affect the construction hereof. IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed under its corporate seal. REALTY INCOME CORPORATION [SEAL] By: ------------------------- Thomas A. Lewis Chairman of the Board and Chief Executive Officer Attest: By: ------------------------- Michael R. Pfeiffer Senior Vice President, General Counsel and Secretary TRUSTEE'S CERTIFICATE OF AUTHENTICATION: This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture. THE BANK OF NEW YORK, as Trustee By: ---------------------- Authorized Signatory Dated: January , 1999 ASSIGNMENT FORM FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers to PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE - ----------------------------------------------------------------- - ----------------------------------------------------------------- - ----------------------------------------------------------------- (Please Print or Typewrite Name and Address including Zip Code of Assignee) the within Note of REALTY INCOME CORPORATION, and _______________ hereby does irrevocably constitute and appoint __________________ _________________________________________________________________ Attorney to transfer said Note on the books of the within-named Company with full power of substitution in the premises. Dated: ----------------- --------------------------------- --------------------------------- NOTICE: The signature to this assignment must correspond with the name as it appears on the first page of the within Note in every particular, without alteration or enlargement or any change whatever. Signature Guaranty -------------------------------- (Signature must be guaranteed by a participant in a signature guarantee medallion program) EX-5.1 5 Exhibit 5.1 Opinion of Latham & Watkins. [LETTERHEAD] January 21,1999 Realty Income Corporation 220 West Crest Street Escondido, California 92025 Re: Registration Statement No. 333-34311; $20,000,000 Aggregate Principal Amount of 8% Notes due 2009 ------------------------------------------------- Ladies and Gentlemen: We have acted as special counsel to you in connection with the issuance of $20,000,000 aggregate principal amount of 8% Notes due 2009 (the "Securities"), pursuant to a registration statement on Form S-3 under the Securities Act of 1933, as amended (the "1933 Act"), filed with the Securities and Exchange Commission (the "Commission") on August 25, 1997 (File No. 333- 34311), as amended by Amendment No. 1 filed with the Commission on September 16, 1997 (as so amended, the "Registration Statement") and a prospectus supplement dated January 15, 1999 and a related prospectus dated October 1, 1997 (collectively the "Prospectus"). Except as otherwise expressly indicated, the terms Registration Statement and Prospectus shall include all documents incorporated by reference therein. As such counsel, we have made such legal and factual examinations and inquiries as we have deemed necessary or appropriate for purposes of this opinion. In our examination, we have assumed the genuineness of all signatures, the authenticity of all documents submitted to us as originals, and the conformity to authentic original documents of all documents submitted to us as copies. As to facts material to the opinions, statements and assumptions expressed herein, we have, with your consent, relied upon oral or written statements and representations of officers and other representatives of the Company and others. In addition, we have obtained and relied upon such certificates and assurances from public officials as we have deemed necessary. We are opining herein as to the effect on the subject transaction only of the internal laws of the State of New York, and we express no opinion with respect to the applicability thereto, or the effect thereon, of the laws of any other jurisdiction or as to any matters of municipal law or the laws of any local agencies within any state. Various issues concerning Maryland law are addressed in the opinion of Ballard Spahr Andrews & Ingersoll, LLP, which has been separately provided to you, and we express no opinion with respect to those matters. Capitalized terms used herein without definition have the meanings assigned to them in the Purchase Agreement. Subject to the foregoing and the other matters set forth herein, it is our opinion that, as of the date hereof: 1. Assuming the due authorization, execution and delivery of the Indenture by the Company under the laws of the State of Maryland and the due authorization, execution and delivery of the Indenture by the Trustee, the Indenture constitutes a valid and binding agreement of the Company, enforceable against the Company in accordance with its terms. 2. Assuming the due authorization and execution of the Securities by the Company under the laws of the State of Maryland, the Securities, when authenticated by the Trustee in the manner provided in the Indenture (assuming the due authorization, execution and delivery of the Indenture by the Trustee) and delivered against payment of the purchase price therefor specified in the Purchase Agreement, will constitute valid and binding obligations of the Company, enforceable against the Company in accordance with their terms. The opinions rendered in the foregoing paragraphs relating to the enforceability of the Indenture and the Securities, respectively, are subject to the following exceptions, limitations and qualifications: (i) the effect of bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to or affecting the rights and remedies of creditors; (ii) the effect of general principles of equity, whether enforcement is considered in a proceeding in equity or law, and the discretion of the court before which any proceeding therefor may be brought; (iii) the unenforceability under certain circumstances under law or court decisions of provisions providing for the indemnification of or contribution to a party with respect to a liability where such indemnification or contribution is contrary to public policy; (iv) we express no opinion concerning the enforceability of the waiver of rights or defenses contained in Section 514 of the Indenture; and (v) we express no opinion with respect to whether acceleration of the Securities may affect the collectibility of that portion of the stated principal amount thereof which might be determined to constitute unearned interest thereon. To the extent that the obligations of the Company under the Indenture may be dependent upon such matters, we assume for purposes of this opinion that the Trustee under the Indenture is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization; that the Trustee has complied with any applicable requirement to file returns and pay taxes under the Franchise Tax Law of the State of California; that the Trustee is duly qualified to engage in the activities contemplated by the Indenture; that the Indenture has been duly authorized, executed and delivered by the Trustee and constitutes a legally valid, binding and enforceable obligation of the Trustee enforceable against the Trustee in accordance with its terms; and the Trustee is in compliance, generally and with respect to acting as trustee under the Indenture, with all applicable laws and regulations; and that the Trustee has the requisite organizational and legal power and authority to perform its obligations under the Indenture. We consent to your filing this opinion as an exhibit to a current report on Form 8-K and to the reference to our firm in the prospectus supplement dated January 15, 1999 contained under the heading "Legal Matters." Very truly yours, /s/ LATHAM & WATKINS EX-5.2 6 Exhibit 5.2 Opinion of Ballard Spahr Andrews and Ingersoll [LETTERHEAD] FILE NUMBER 863100 January 21, 1999 Realty Income Corporation 220 West Crest Street Escondido, California 92025 Re: Registration Statement on Form S-3 Registration No. 333-34311 ---------------------------------- Ladies and Gentlemen: We have served as Maryland counsel to Realty Income Corporation, a Maryland corporation (the "Company"), in connection with certain matters of Maryland law arising out of the Company's registration statement on Form S-3 (No. 333-34311), and all amendments thereto (the "Registration Statement"), previously declared effective by the Securities and Exchange Commission (the "Commission") under the Securities Act of 1933, as amended (the "1933 Act"), relating to the proposed public offering of securities of the Company that may be offered and sold by the Company from time to time as set forth in the prospectus dated October 1, 1997 which forms a part of the Registration Statement (the "Base Prospectus"). This opinion is rendered in connection with the sale and issuance of up to $20,000,000 of the Company's 8% Notes due 2009 (the "Notes"), as described in a Prospectus Supplement dated October 23, 1998 (the "Prospectus Supplement" and, together with the Base Prospectus, the "Prospectus"). Capitalized terms used but not defined herein shall have the meanings given to them in the Registration Statement. In connection with our representation of the Company, and as a basis for the opinion hereinafter set forth, we have examined originals, or copies certified or otherwise identified to our satisfaction, of the following documents (hereinafter collectively referred to as the "Documents"): 1. The Registration Statement and the related form of Prospectus in the form in which it was transmitted to the Commission, under the 1933 Act; 2. A certificate representing the Notes, certified as of a recent date by the Secretary of the Company. 3. The charter of the Company (the "Charter"), certified as of a recent date by the State Department of Assessments and Taxation of Maryland (the "SDAT"); 4. The Bylaws of the Company (the "Bylaws"), certified as of a recent date by its Secretary; 5. Resolutions adopted by the Board of Directors of the Company (the "Board"), relating to the sale, issuance and registration of the Notes, certified as of a recent date by the Secretary of the Company; 6. Resolutions adopted by the Pricing Committee of the Board, relating to the terms of the Notes, including the interest rate thereunder and the price thereof, certified as of a recent date by the Secretary of the Company; 7. A certificate of the SDAT as to the good standing of the Company, dated as of a recent date; 8. A certificate executed by Michael R. Pfeiffer, Secretary of the Company, dated as of a recent date; 9. An indenture, dated October 28, 1998 (the "Indenture"), between the Company and The Bank of New York, as Trustee, as supplemented and/or amended; 10. An Officer's Certificate, dated January 21, 1999, pursuant to Section 301 of the Indenture; 11. The Company's Current Report on Form 8-K filed with the Commission on January 21, 1999 (the "8-K"); and 12. Such other documents and matters as we have deemed necessary or appropriate to express the opinion set forth in this letter, subject to the assumptions, limitations and qualifications stated herein. In expressing the opinion set forth below, we have assumed, and so far as is known to us there are no facts inconsistent with, the following: 1. Each individual executing any of the Documents, whether on behalf of such individual or another person, is legally competent to do so. 2. Each individual executing any of the Documents on behalf of a party (other than the Company) is duly authorized to do so. 3. Each of the parties (other than the Company) executing any of the Documents has duly and validly executed and delivered each of the Documents to which such party is a signatory, and such party's obligations set forth therein are legal, valid and binding and are enforceable in accordance with all stated terms 4. All Documents submitted to us as originals are authentic. The form and content of the Documents submitted to us as unexecuted drafts do not differ in any respect relevant to this opinion from the form and content of such Documents as executed and delivered. All Documents submitted to us as certified or photostatic copies conform to the original documents. All signatures on all such Documents are genuine. All public records reviewed or relied upon by us or on our behalf are true and complete. All statements and information contained in the Documents are true and complete. There has been no oral or written modification or amendment to any of the Documents, and there has been no waiver of any provision of any of the Documents, by action or omission of the parties or otherwise. The phrase "known to us" is limited to the actual knowledge, without independent inquiry, of the lawyers at our firm who have performed legal services in connection with the issuance of this opinion. Based upon the foregoing, and subject to the assumptions, limitations and qualifications stated herein, it is our opinion that: 1. The Company is a corporation duly incorporated and existing under and by virtue of the laws of the State of Maryland and is in good standing with the SDAT. 2. The Notes have been duly authorized, and upon the due execution, countersignature and delivery of the Notes in certificated form, or the issuance of the Notes in uncertificated form, in accordance with the Indenture, the Notes will be duly and validly issued. The foregoing opinion is limited to the substantive laws of the State of Maryland and we do not express any opinion herein concerning any other law. We express no opinion as to the applicability or effect of any federal or state securities laws, including the securities laws of the State of Maryland, or as to federal or state laws regarding fraudulent transfers. To the extent that any matter as to which our opinion is expressed herein would be governed by any jurisdiction other than the State of Maryland, we do not express any opinion on such matter. We assume no obligation to supplement this opinion if any applicable law changes after the date hereof or if we become aware of any fact that might change the opinion expressed herein after the date hereof. This opinion is being furnished to you for your submission to the Commission as an exhibit to the 8-K and incorporation by reference into the Registration Statement and, accordingly, may not be relied upon by, quoted in any manner to, or delivered to any other person or entity (other than Latham & Watkins, counsel to the Company) without, in each instance, our prior written consent. We hereby consent to the filing of this opinion as an exhibit to the 8-K and to the use of the name of our firm therein. In giving this consent, we do not admit that we are within the category of persons whose consent is required by Section 7 of the 1933 Act. Very truly yours, /s/ BALLARD, SPAHR, ANDREWS & INGERSOLL -----END PRIVACY-ENHANCED MESSAGE-----