Filed Pursuant to Rule 424(b)(3)
Registration No. 333-137296

TO THE SHAREHOLDERS OF

LEXINGTON CORPORATE PROPERTIES TRUST AND

NEWKIRK REALTY TRUST, INC.

 

After careful consideration, the board of trustees of Lexington Corporate Properties Trust, or Lexington, and the board of directors of Newkirk Realty Trust, Inc., or Newkirk, have determined that the merger of the two companies is in the best interests of our respective shareholders and have approved a merger agreement authorizing the merger of Newkirk with and into Lexington. We are sending you this joint proxy statement/prospectus to ask you to vote FOR the approval of the merger, and to cordially invite you to attend special meetings of the companies to be held at the dates, times and places set forth below.

 

The boards of both Newkirk and Lexington believe the merger represents a strategic combination that will create one of the largest and best-positioned net lease REITs in the United States. The combined company will own more than 350 properties located across 44 states with a presence in the nation’s premier growth markets and will have a high-quality and diversified tenant base. Moreover, both boards believe that the combination will create a well-capitalized platform with significantly increased scale and liquidity. We believe this financial flexibility coupled with a highly-experienced management team will enable the combined company to exploit a wide range of equity and debt investment opportunities, including institutional joint ventures and acquisitions of large portfolios and other real estate companies, and pursue both traditional and opportunistic single tenant related lines of business for direct ownership or in joint ventures with other capital sources. For these reasons the boards of both companies believe that the merger of Newkirk and Lexington holds the potential to significantly enhance long-term growth opportunities thereby creating substantial value for shareholders.

 

If the merger is completed, Newkirk stockholders will receive Lexington common shares in exchange for their shares of Newkirk common stock. Each share of Newkirk common stock will be converted into the right to receive 0.80 Lexington common shares. The value of the Lexington common shares to be received by Newkirk stockholders is dependent on the market price of Lexington common shares at the time of the merger as the exchange ratio is fixed. Upon completion of the merger and based on the number of Lexington common shares and shares of Newkirk common stock outstanding on October 13, 2006, we estimate, assuming redemption of all operating partnership units for Lexington common shares but not the conversion of Lexington’s 6.50% Series C Cumulative Convertible Preferred Stock, that Newkirk’s former stockholders and operating partnership unitholders will own approximately 46.7%, and Lexington shareholders and operating partnership unitholders will own approximately 53.3%, of the combined company on a fully diluted basis. There will also be a 0.80 for 1 reverse split of the units of Newkirk Master Limited Partnership (which we refer to as MLP units) so that after the merger each MLP unit will be redeemable at the holder’s option for cash, based on the value of one Lexington common share, or, at Lexington’s option, for one Lexington common share. Lexington’s shareholders will continue to own their existing shares. Lexington common shares are listed on the New York Stock Exchange under the symbol “LXP.” Upon completion of the merger, Lexington will change its name to Lexington Realty Trust, and Newkirk common stock, which is listed on the New York Stock Exchange under the symbol “NKT,” will be delisted.

 

If the merger is completed, Lexington intends, at the sole discretion of Lexington’s board of trustees, to make a one-time special dividend/distribution of $0.17 per Lexington common share/operating partnership unit to the holders thereof on a record date on or prior to the completion of the merger. Following the merger, although annual cash dividends will continue to be set at the sole discretion of Lexington’s board of trustees, we anticipate that Lexington’s annual cash dividend will be increased to $1.50 per share.

 

Lexington will hold a special meeting of shareholders and Newkirk will hold a special meeting of stockholders in order to obtain those approvals necessary to consummate the merger and to approve certain other matters as described in this joint proxy statement/prospectus. At the Lexington special meeting, Lexington will ask its common shareholders to approve the merger agreement and the transactions contemplated by the merger agreement, including the merger, the issuance of Lexington common shares and the amendment and restatement of Lexington’s Declaration of Trust in connection with the merger, and to vote on the other Lexington special meeting matters described in this joint proxy statement/prospectus. At the Newkirk special meeting, Newkirk will ask its voting stockholders to approve the merger agreement and the transactions

contemplated by the merger agreement, including the merger and to vote on the other Newkirk special meeting matters described in this joint proxy statement/prospectus.

 

More information about Lexington, Newkirk and the proposed merger is contained in this joint proxy statement/prospectus. We urge you to read this joint proxy statement/prospectus carefully, including “Risk Factors — Risks Relating to the Merger” for a discussion of the risks relating to the merger. You may obtain additional information about Lexington and Newkirk from the documents that each company has filed with the Securities and Exchange Commission. See “Where You Can Find More Information.”

 

Your vote is very important. We cannot complete the merger without the affirmative vote of at least a majority of the votes entitled to be cast by the holders of (a) the outstanding Lexington common shares, and (b) the outstanding shares of Newkirk common stock and the Newkirk special voting preferred stock, voting together as a class. In order for the merger to proceed, the stockholders of Newkirk must approve the merger agreement and the transactions contemplated by the merger agreement, including the merger and the other Newkirk special meeting matters, and the Lexington shareholders must approve the merger agreement and the transactions contemplated thereby, including the merger, the issuance of Lexington common shares and the amendment and restatement of Lexington’s Declaration of Trust and the other Lexington special meeting matters.

 

Whether or not you plan to attend the special meeting, we request that you cast your vote by either completing and returning the enclosed proxy card as promptly as possible or, if you are a Lexington common shareholder, by submitting your proxy or voting instructions by telephone or Internet. If you do not return or submit the proxy or vote in person at the Newkirk special meeting or the Lexington special meeting, the effect will be the same as a vote against the proposal to approve the merger agreement and the transactions contemplated by the merger agreement. The enclosed proxy card contains instructions regarding voting. The dates, times and places of the special meetings are as follows:

 

 

We are very excited about the combined company’s future and the opportunities the proposed merger brings to both Newkirk stockholders and Lexington shareholders, and we thank you for your consideration and continued support.

 

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this joint proxy statement/prospectus. Any representation to the contrary is a criminal offense.

 

This joint proxy statement/prospectus is dated October 16, 2006, and will first be mailed to Newkirk stockholders and Lexington shareholders on or about October 18, 2006.

REFERENCES TO ADDITIONAL INFORMATION

 

Except where we indicate otherwise, as used in this joint proxy statement/prospectus, “Lexington” refers to Lexington Corporate Properties Trust and its consolidated subsidiaries and “Newkirk” refers to Newkirk Realty Trust, Inc. and its consolidated subsidiaries. This joint proxy statement/prospectus incorporates important business and financial information about Lexington from documents that it has filed with the Securities and Exchange Commission, referred to as the SEC, but that have not been included in or delivered with this joint proxy statement/prospectus. This joint proxy statement/prospectus incorporates the annual report on Form 10-K/A of Lexington for the fiscal year ended December 31, 2005 and the quarterly reports on Form 10-Q of Lexington for the quarters ended March 31, 2006 and June 30, 2006. For a list of documents incorporated by reference into this joint proxy statement/prospectus and how you may obtain them, see “Where You Can Find More Information.”

 

This information is available to you without charge upon your written or oral request. You can obtain the documents incorporated by reference into this joint proxy statement/prospectus by accessing the SEC’s website maintained at “www.sec.gov.”

 

In addition, Lexington’s SEC filings are available to the public on Lexington’s website, www.lxp.com, and Newkirk’s SEC filings are available to the public on Newkirk’s website, www.newkirkreit.com. Information contained on Lexington’s website, Newkirk’s website or the website of any other person is not incorporated by reference into this joint proxy statement/prospectus, and you should not consider information contained on those websites as part of this joint proxy statement/prospectus.

 

Lexington will provide you with copies of this information relating to Lexington, without charge, if you request them in writing or by telephone from:

 

Lexington Corporate Properties Trust
One Penn Plaza, Suite 4015
New York, New York 10119-4015
Attention: Investor Relations
Telephone: (212) 692-7200

 

Newkirk will provide you with copies of this information relating to Newkirk, without charge, if you request them in writing or by telephone from:

 

Newkirk Realty Trust, Inc.
7 Bulfinch Place, Suite 500
Boston, Massachusetts 02114
Attention: Investor Relations
Telephone: (617) 570-4680

 

If you would like to request documents, please do so by November 13, 2006, in order to receive them before the special meetings.

 

Lexington has supplied all information contained in or incorporated by reference in this joint proxy statement/prospectus relating to Lexington, and Newkirk has supplied all information contained in this joint proxy statement/prospectus relating to Newkirk.

NEWKIRK REALTY TRUST, INC.

7 Bulfinch Place, Suite 500

Boston, Massachusetts 02114

 

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

 

NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders (the “Newkirk special meeting”) of NEWKIRK REALTY TRUST, INC., a Maryland corporation, will be held at the 11th Floor Conference Center in the offices of Katten Muchin Rosenman LLP, 575 Madison Avenue, New York, New York 10022, on November 20, 2006 at 10:00 a.m. local time, to consider and act upon the following:

 

(1) To consider and vote on the approval of the Agreement and Plan of Merger, dated as of July 23, 2006, by and among Lexington Corporate Properties Trust and Newkirk Realty Trust, Inc., as amended, a copy of which is attached as Annex A to the accompanying joint proxy statement/prospectus and the transactions contemplated thereby, including the merger of Newkirk with and into Lexington;

 

(2) The adjournment or postponement of the special meeting, if necessary, to permit further solicitation of proxies if there are not sufficient votes at the time of the special meeting to approve the proposals; and

 

(3) To transact such other business as may properly come before the special meeting or any adjournments or postponements of the special meeting.

 

Only holders of shares of common stock, par value $0.01 per share, of record at the close of business on October 13, 2006 and NKT Advisors, LLC, as the holder of Newkirk’s Special Voting Preferred Stock, shall be entitled to receive notice of, and to vote at, the Newkirk special meeting, and at any adjournment or postponement thereof. In the joint proxy statement/prospectus, we refer to the Newkirk common stock and the Newkirk special voting preferred stock, collectively, as the Newkirk voting stock.

 

IT IS IMPORTANT THAT YOUR NEWKIRK VOTING STOCK BE REPRESENTED AND VOTED AT THE SPECIAL MEETING. WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING, PLEASE INSTRUCT THE PROXY HOLDERS HOW TO VOTE YOUR SHARES BY:

 

MARKING, SIGNING, DATING AND PROMPTLY RETURNING the enclosed proxy card in the postage-paid envelope (it requires no postage if mailed in the United States).

 

Any proxy or instruction may be revoked at any time before its exercise at the special meeting. Please authorize your proxy as instructed above so that your shares of common stock will be represented and voted at the special meeting.

 

By order of the Board of Directors,

 

Carolyn B. Tiffany

Secretary

LEXINGTON CORPORATE PROPERTIES TRUST

One Penn Plaza, Suite 4015

New York, New York 10119-4015

 

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

 

To the shareholders of Lexington Corporate Properties Trust:

 

Lexington will hold a special meeting of its shareholders at 11:30 a.m. local time, on November 20, 2006, at the New York offices of Paul, Hastings, Janofsky & Walker LLP, located at 75 East 55th Street, New York, New York 10022, unless postponed or adjourned to a later date. The Lexington special meeting will be held for the following purposes:

 

(1) To consider and vote on the approval of the Agreement and Plan of Merger, dated as of July 23, 2006, by and among Lexington Corporate Properties Trust and Newkirk Realty Trust, Inc., as amended, a copy of which is attached as Annex A to the accompanying joint proxy statement/prospectus, and the transactions contemplated thereby, including the merger of Newkirk with and into Lexington, the adoption of the Amended and Restated Declaration of Trust (a copy of which is attached as Annex B) and the issuance of Lexington common shares under and as contemplated by the merger agreement;

 

(2) The adjournment or postponement of the special meeting, if necessary, to permit further solicitation of proxies if there are not sufficient votes at the time of the special meeting to approve the proposals; and

 

(3) To transact such other business as may properly come before the special meeting or any adjournments or postponements of the special meeting.

 

Only holders of record of Lexington common shares at the close of business on October 13, 2006, the record date for the Lexington special meeting, are entitled to notice of, and to vote at, the special meeting and any adjournments or postponements of the meeting.

 

IT IS IMPORTANT THAT YOUR LEXINGTON COMMON SHARES BE REPRESENTED AND VOTED AT THE SPECIAL MEETING. WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING, PLEASE INSTRUCT THE PROXY HOLDERS HOW TO VOTE YOUR SHARES IN ONE OF THE FOLLOWING WAYS:

 

 

Any proxy or instruction may be revoked at any time before its exercise at the special meeting. Please authorize your proxy using one of the methods set forth above so that your common shares will be represented and voted at the special meeting.

 

By Order of the Board of Trustees,

 

Paul R. Wood

Vice President, Chief Accounting Officer and Secretary

 

TABLE OF CONTENTS

 

 

About the Special Meetings

 

 

SUMMARY

 

The Companies

 

The Special Meetings

 

Lexington Special Meeting; Quorum and Required Vote (see page 31)

 

Proxy Solicitation Costs (See page 32)

 

Newkirk Special Meeting; Quorum and Required Vote (see page 33)

 

The Merger

 

Treatment of Newkirk Common Stock (see page 70)

 

Conversion of Newkirk Special Voting Preferred Stock (See page 81)

 

Payment of Dividends (See page 73)

 

Recommendation of Lexington’s Board of Trustees and Lexington’s Reasons for the Merger (see page 44)

 

Recommendation of Newkirk’s Board of Directors and Newkirk’s Reasons for the Merger (see page 47)

	•	the appointment of Mr. Ashner, the current Chairman and Chief Executive Officer of Newkirk, as Executive Chairman and Director of Strategic Transactions of Lexington pursuant to an employment agreement to be signed upon completion of the merger;
	•	the receipt by NKT Advisors of $12.5 million for terminating its advisory agreement with Newkirk and the MLP. Vornado, an affiliate of Newkirk board member and Lexington board designee Clifford Broser, as well as a significant security holder of Newkirk, owns a 20% interest in NKT Advisors and will be entitled to receive up to $2.5 million of the termination fee being paid to NKT Advisors. Winthrop will receive $4.4 million of the $12.5 million payment for termination of Newkirk’s advisory agreement with NKT Advisors. Mr. Ashner is Chairman and Chief Executive Officer of NKT Advisors and Chief Executive Officer of Winthrop and he and other executive officers of Newkirk own a 28% minority economic interest in NKT Advisors and a 7.3% interest in Winthrop;
	•	the early termination of a lock up agreement restricting the sale of 4,375,000 shares of Newkirk common stock owned by Winthrop. As of September 1, 2006, 468,750 of the shares owned by Winthrop were subject to forfeiture during a period expiring on November 7, 2008 and, upon closing of the merger, the forfeiture provisions will terminate. If the merger does not occur, these shares will be released from the forfeiture restrictions at the rate of 17,361 shares per month;

	•	the continuation for one year of existing property management agreements between Winthrop Management LP, an affiliate of Mr. Ashner, and the MLP and the retention of Winthrop Management LP as a property manager on all properties acquired by Lexington during that period where a property manager is retained;
	•	the granting by Lexington of exemptions from its 9.8% ownership limitation to two significant security holders in Newkirk, Apollo and its affiliates and Vornado Realty L.P., an affiliate of Vornado. Apollo and Vornado were each previously granted ownership waivers by Newkirk in connection with Newkirk’s initial public offering. Clifford Broser, a Newkirk director and a Lexington trustee designee, is affiliated with Vornado;
	•	the early termination of lock up agreements with respect to shares of Newkirk common stock issuable to certain officers and directors of Newkirk with respect to approximately 747,542 post-reverse split MLP units. The lock up agreement restricting the sale of common shares by Mr. Ashner will continue in full effect;
	•	the continued indemnification of current directors and officers of Newkirk and NKT Advisors under the merger agreement and the provision of directors’ and officers’ liability insurance to these individuals and this entity; and
	•	the entry into the voting agreements described below.

 

Voting Agreements (see page 80)

 

Registration Rights Agreement (see page 82)

 

Exclusivity Agreement (see page 80)

	•	a property that is either (a) triple net leased or (b) one in which a single tenant leases at least 85% of the rentable square footage of the property and, in addition to base rent, the tenant is required to pay some or all of the operating expenses for the property, and, in both (a) and (b) the lease has a remaining term, exclusive of all unexercised renewal terms, of more than 18 months;
	•	management agreements and master leases with terms of greater than three years where a manager or master lessee bears all operating expenses of the property and pays the owner a fixed return;
	•	securities of companies including, without limitation, corporations, partnerships and limited liability companies, whether or not publicly traded, that are primarily invested in assets that meet the two requirements listed above; and
	•	all re-tenanting and redevelopment associated with such properties, agreements and leases, and all activities incidental thereto.

 

Amendments to Lexington’s Governing Documents in the Merger (see page 91)

 

Opinions of Financial Advisors

 

Opinion of Lexington’s Financial Advisor (see page 49)

 

Opinion of Newkirk’s Financial Advisor (see page 58)

 

The Merger Agreement

	•	the approval by Newkirk voting stockholders of the merger agreement, the merger and the related transactions;
	•	the approval by the Lexington common shareholders of the merger agreement, the merger and the related transactions, including the adoption of the Amended and Restated Declaration of Trust and the issuance of Lexington common shares under and as contemplated by the merger agreement;
	•	the approval for listing on the New York Stock Exchange of the Lexington common shares to be issued under and as contemplated by the merger agreement (which approval was obtained on October 10, 2006);
	•	the absence of legal prohibitions to the merger;
	•	the continued effectiveness of the registration statement of which this joint proxy statement/prospectus is a part;
	•	the accuracy of each company’s representations and warranties;
	•	the performance by each company of its obligations under the merger agreement;
	•	the absence of any material adverse effect on Lexington or Newkirk between July 23, 2006 and the date on which the merger is completed;
	•	the receipt of legal opinions from counsel to each company as to the qualification of the merger as a reorganization under the Internal Revenue Code and as to each company’s qualification as a REIT under the Internal Revenue Code; and
	•	approval of the amended and restated MLP partnership agreement.

	•	any merger or business combination (other than the merger discussed in this joint proxy statement/prospectus) involving either Lexington or Newkirk;
	•	any sale of 25% or more of the assets of either Lexington or Newkirk; or
	•	any tender offer or exchange offer for 25% or more of the voting power of outstanding equity securities of either Lexington or Newkirk.

	•	the merger is not completed on or before March 31, 2007, other than due to a breach of the merger agreement by the party seeking to terminate the merger agreement;
	•	a legal prohibition to the merger has become final and non-appealable;
	•	a breach by the other party of any of its representations, warranties or agreements under the merger agreement such that a condition to completing the merger cannot be satisfied by the earlier of March 31, 2007 or 60 days after delivery of notice of such breach; or
	•	the necessary approval of the other party’s shareholders or stockholders is not obtained at the other party’s special meeting.

Other Information

 

For Lexington

		Years Ended December 31,																				Six Months Ended June 30,
		2005				2004				2003				2002				2001				2006				2005
		(In thousands, except per share data)																				(In thousands, except
																						per share data)
Total gross revenues		$	197,132			$	143,364			$	105,974			$	85,093			$	74,602			$	105,657			$	85,325
Expenses applicable to revenues			(94,400	)			(49,684	)			(33,696	)			(25,760	)			(21,594	)			(55,863	)			(36,295	)
Interest and amortization expense			(65,065	)			(44,857	)			(34,168	)			(32,354	)			(29,416	)			(35,446	)			(27,782	)
Income from continuing operations			18,192				35,293				24,411				22,409				15,180				10,263				18,172
Total discontinued operations			14,503				9,514				9,238				8,186				2,882				21,335				7,303
Net income			32,695				44,807				33,649				30,595				18,062				31,598				25,475
Net income allocable to common shareholders			16,260				37,862				30,257				29,902				15,353				23,380				17,257
Income from continuing operations per common share — basic			0.04				0.61				0.62				0.80				0.64				0.04				0.20
Income from continuing operations per common share — diluted			0.04				0.59				0.61				0.79				0.63				0.04				0.20
Income from discontinued operations — basic			0.29				0.20				0.27				0.31				0.15				0.41				0.15
Income from discontinued operations — diluted			0.29				0.21				0.27				0.30				0.14				0.41				0.13
Net income per common share — basic			0.33				0.81				0.89				1.11				0.79				0.45				0.35
Net income per common share — diluted			0.33				0.80				0.88				1.09				0.77				0.45				0.33
Cash dividends declared per common share			1.445				1.410				1.355				1.325				1.290				0.73				0.72
Net cash provided by operating activities			105,457				90,736				68,883				56,834				40,750				53,784				50,417
Net cash used in investing activities			(643,777	)			(202,425	)			(295,621	)			(106,166	)			(63,794	)			(22,092	)			(622,518	)

		Years Ended December 31,																				Six Months Ended June 30,
		2005				2004				2003				2002				2001				2006				2005
		(In thousands, except per share data)																				(In thousands, except
																						per share data)
Net cash provided by (used in) financing activities			444,878				242,723				228,986				47,566				32,115				(30,889	)			467,524
Ratio of earnings to combined fixed charges and preferred dividends			1.15				1.57				1.59				1.82				1.47				1.27				1.50
Real estate assets, net			1,641,927				1,227,262				1,001,772				779,150				714,047				1,619,398				1,699,403
Investments in non-consolidated entities			191,146				132,738				69,225				54,261				48,764				186,391				159,387
Total assets			2,160,232				1,697,086				1,207,411				902,471				822,153				2,140,997				2,184,249
Mortgages, notes payable and credit facility, including discontinued operations			1,170,560				765,909				551,385				491,517				455,771				1,156,975				1,235,004
Shareholders’ equity			891,310				847,290				579,848				332,976				266,713				887,334				860,170
Preferred share liquidation preference			234,000				214,000				79,000				—				25,000				234,000				234,000

 

For Newkirk

		The																				The Previous
		Company(1)				The Predecessor(2)																Predecessor
		Period				Period
		November 7,				January 1,																				Six Months				Six Months
		2005 to				2005 to				Year Ended				Year Ended				Year Ended				Year Ended				Ended				Ended
		December 31,				November 6,				December 31,				December 31,				December 31,				December 31,				June 30,				June 30,
		2005				2005				2004				2003				2002				2001(3)				2006				2005
		(In thousands, except per share data)
Total revenues		$	31,739			$	177,452			$	211,679			$	225,942			$	216,688			$	258,975			$	116,121			$	104,670
Income from continuing operations before minority interest			1,626				40,753				86,456				91,054				88,425				102,049				43,815				34,136
Income from continuing operations			144				24,815				67,972				72,757				77,740				46,387				12,176				24,824
Income from discontinued operations			1,205				18,356				69,836				72,407				45,122				3,224				2,450				1,035
Net income			1,349				43,171				137,808				145,164				122,862				49,611				14,626				25,859
Net income per common share			0.07				—				—				—				—				—				0.63				—
Weighted average common shares outstanding			19,375				—				—				—				—				—				19,375				—
Distribution declared per share			0.27				—				—				—				—				—				0.80				—
Net cash provided by operating activities			29,445				113,018				154,372				160,802				146,070				—				81,744				74,967
Net cash provided by (used in) investing activities			(40,066	)			60,788				92,103				61,392				11,080				—				(180,145	)			(69	)
Net cash provided by (used in) financing activities			125,872				(135,558	)			(257,861	)			(214,834	)			(123,698	)			—				(27,810	)			(82,144	)
Real estate investments, net of accumulated depreciation			943,992				—				1,032,797				1,129,237				1,203,890				1,001,321				1,012,917				974,139
Total assets			1,345,084				—				1,237,129				1,384,094				1,476,623				1,476,922				1,428,054				1,178,120
Total debt			770,786				—				907,339				1,104,231				1,238,494				1,024,539				801,600				844,522
Partners’ equity			—				—				203,785				98,864				(6,104	)			257,518				—				209,116
Stockholders’ equity			176,041				—				—				—				—				—				177,154				—

(1)		Represents historical financial data of Newkirk as adjusted for material discontinued operations.
(2)		Represents historical financial data for the Newkirk Master Limited Partnership and its subsidiaries as adjusted for material discontinued operations.
(3)		The combined consolidated balance sheet at December 31, 2001 and the combined consolidated operating results for the year ended December 31, 2001 are not comparable to the consolidated balance sheet data at December 31, 2002 and the consolidated operating data results for the year ended December 31, 2002. The Previous Predecessor Entity amounts include assets that were not transferred to the Newkirk Master Limited Partnership and certain discontinued operations, and the Newkirk Master Limited Partnership amounts include assets that were contributed to the Newkirk Master Limited Partnership by partners other than the Previous Predecessor Entity.

 

Selected Unaudited Pro Forma Consolidated Financial and Other Data

		Lexington/Newkirk
		Pro Forma Combined
		Year Ended				Six Months Ended
		December 31,				June 30,
		2005				2006
		(Unaudited, dollars in thousands)
Total gross revenues		$	332,892			$	183,722
Expenses applicable to revenues			(172,028	)			(97,304	)
Interest and amortization expense			(125,722	)			(60,695	)
Income from continuing operations			9,224				13,293
Income (loss) from continuing operations per common share — basic			(0.11	)			0.08
Income (loss) from continuing operations per common share — diluted			(0.24	)			0.08
Real estate assets, net							3,037,065
Investments in non-consolidated entities							224,637
Total assets							4,366,769
Mortgages, notes payable and credit facility payable							1,952,686
Shareholders’ equity							1,194,904

 

Comparative Per Share Data

		Six Months Ended				Year Ended
		June 30,				December 31,
		2006				2005
Lexington — Historical
Income from continuing operations per common share — basic		$	0.04			$	0.04
Income from continuing operations per common share — diluted			0.04				0.04
Book value per share at period end			12.32				12.60
Newkirk — Historical
Income per basic share from continuing operations		$	0.63			$	0.39
Income per diluted share from continuing operations			0.63				0.39
Book value per share at period end			9.14				9.09
Unaudited Pro Forma Combined
Income (loss) from continuing operations per common share — basic		$	0.08			$	(0.11	)
Income (loss) from continuing operations per common share — diluted			0.08				(0.24	)
Book value per share at June 30, 2006			14.02				N/A
Unaudited Pro Forma Combined — Newkirk Equivalents (A)
Income (loss) from continuing operations per common share — basic		$	0.06			$	(0.09	)
Income (loss) from continuing operations per common share — diluted			0.06				(0.19	)
Book value per share at June 30, 2006			11.22				N/A

(A)		Represents unaudited pro forma combined amounts multiplied by the exchange ratio of 0.80 of a Lexington common share for each outstanding share of Newkirk common stock.

Market Prices and Dividend Information

		Lexington Common Shares													Newkirk Common Stock(1)
		High				Low				Dividends					High				Low				Dividends
2005
First Quarter		$	23.90			$	20.17			$	0	.36				—				—				—
Second Quarter		$	24.47			$	21.68			$	0	.36				—				—				—
Third Quarter		$	25.26			$	21.50			$	0	.36				—				—				—
Fourth Quarter		$	23.78			$	20.26			$	0	.36			$	16.14			$	15.00			$	0.27
2006
First Quarter		$	22.90			$	19.64			$	0	.365			$	19.22			$	15.47			$	0.40
Second Quarter		$	22.15			$	19.87			$	0	.365			$	19.00			$	16.60			$	0.40
Third Quarter		$	21.90			$	19.53			$	0	.365			$	18.40			$	15.66			$	0.40
Fourth Quarter (through the date of this joint proxy/statement prospectus)		$	20.70			$	21.41						(2)		$	16.82			$	16.25					(2)

(1)		Newkirk closed its initial public offering on November 7, 2005. Prior to that date, Newkirk’s common stock was not publicly traded.
(2)		Please see “Questions and Answers About the Mergers” for a description of the dividends anticipated to be paid by Lexington and Newkirk to holders of Lexington common shares and Newkirk common stock, respectively, for periods prior to the effective date of the merger.

		Lexington				Newkirk				Newkirk
		Common				Common				Pro Forma
		Shares				Stock				Equivalent
At July 21, 2006		$	20.97			$	16.95			$	16.78
At October 12, 2006		$	21.05			$	16.50			$	16.84

 

Dividend Policies

 

The merger involves certain risks and other adverse factors. You are urged to read this joint proxy statement/prospectus carefully in its entirety, including all annexes and supplements hereto and including the matters addressed in “Warning About Forward-Looking Statements,” and should carefully consider the following risk factors in evaluating the merger.

 

The risks below relate primarily to the merger and the combined company resulting from the merger. This section does not review risks relating to the existing businesses of Lexington and Newkirk, which risks will also affect the combined entity, and which, with respect to Lexington, are incorporated by reference in this joint proxy statement/prospectus from other filings of Lexington with the SEC and which, with respect to Newkirk, can be found in the latest annual report on Form 10-K filed by Newkirk with the SEC, and the other information included in this joint proxy statement/prospectus.

 

The operations of Lexington and Newkirk may not be integrated successfully, and the intended benefits of the merger may not be realized.

 

The merger will present challenges to management, including the integration of the operations and properties of Lexington and Newkirk. The merger will also pose other risks commonly associated with similar transactions, including unanticipated liabilities, unexpected costs and the diversion of management’s attention to the integration of the operations of Lexington and Newkirk. Any difficulties that the combined company encounters in the transition and integration processes, and any level of integration that is not successfully achieved, could have an adverse effect on the revenue, level of expenses and operating results of the combined company. The combined company may also experience operational interruptions or the loss of key employees, tenants and customers. As a result, notwithstanding our expectations, the combined company may not realize any of the anticipated benefits or cost savings of the merger.

 

The market value of the Lexington common shares that Newkirk common stockholders will receive depends on what the market price of Lexington common shares will be at the effective time of the merger and will decrease if the market value of Lexington common shares decreases.

 

The market value of the Lexington common shares that Newkirk common stockholders will receive as part of the merger consideration depends on what the trading price of Lexington common shares will be at the effective time of the merger. The 0.80 exchange ratio that determines the number of Lexington common shares that Newkirk common stockholders are entitled to receive in the merger is fixed. This means that there is no “price protection” mechanism in the merger agreement that would adjust the number of Lexington common shares that Newkirk common stockholders may receive in the merger as a result of increases or decreases in the trading price of Lexington common shares. If Lexington’s common share price decreases, then the market value of the merger consideration payable to Newkirk common stockholders will also decrease. For historical and current market prices of Lexington common shares and shares of Newkirk common stock, please see “Market Prices and Dividend Information.”

 

Lexington and Newkirk expect to incur significant costs and expenses in connection with the merger, which could result in the combined company not realizing some or all of the anticipated benefits of the merger.

 

Lexington and Newkirk are expected to incur one-time, pre-tax closing costs of approximately $35.5 million in connection with the merger. These costs include a $12.5 million termination payment to NKT Advisors, the external advisor of Newkirk, investment banking expenses, legal and accounting fees, debt assumption fees, printing expenses and other related charges incurred and expected to be incurred by Lexington and Newkirk. Completion of the merger could trigger a mandatory prepayment (including a penalty in some cases) of Lexington and Newkirk debt unless appropriate lender consents or waivers are received. If those consents and waivers cannot be obtained prior to completion of the merger, the existing Lexington and Newkirk debt might need to be prepaid and/or refinanced. Lexington also expects to incur one-time cash and

non-cash costs related to the integration of Lexington and Newkirk, which cannot be estimated at this time. There can be no assurance that the costs incurred by Lexington and Newkirk in connection with the merger will not be higher than expected or that the combined company will not incur additional unanticipated costs and expenses in connection with the merger.

 

Directors and officers of Newkirk and certain security holders have interests in the merger that may be different from, or in addition to, the interests of Newkirk common stockholders generally.

 

Directors and officers of Newkirk and certain security holders have interests in the merger that may be different from, or in addition to, the interests of Newkirk common stockholders generally. Newkirk’s board of directors was aware of these interests and considered them, among other matters, in approving the merger agreement, the merger and the related transactions and making their recommendations. These interests include:

 

 

For the above reasons, the directors and officers of Newkirk are more likely to vote to approve the merger agreement, the merger and the related transactions than if they did not have these interests. Newkirk common stockholders should consider whether these interests may have influenced these directors and officers to

support or recommend approval of the merger agreement, the merger and the related transactions. See “The Merger — Interests of Newkirk Executive Officers and Directors in the Merger.”

 

Failure to complete the merger could negatively impact the price of Lexington common shares and/or Newkirk common stock and future business and operations.

 

It is possible that the merger may not be completed. The parties’ obligations to complete the merger are subject to the satisfaction or waiver of specified conditions, some of which are beyond the control of Lexington and Newkirk. For example, the merger is conditioned on the receipt of the required approvals of Lexington shareholders and Newkirk stockholders. If these approvals are not received, the merger cannot be completed even if all of the other conditions to the merger are satisfied or waived. If the merger is not completed for any reason, Lexington and/or Newkirk may be subject to a number of material risks, including the following:

 

 

Further, if the merger is terminated and either Lexington’s board of trustees or Newkirk’s board of directors determines to seek another merger or business combination, there can be no assurance that it will be able to find a party willing to pay an equivalent or more attractive price than the price to be paid in the merger. In addition, while the merger agreement is in effect and subject to specified exceptions, each of Lexington and Newkirk is prohibited from soliciting, initiating or encouraging or entering into any alternative acquisition transactions, such as a merger, sale of assets or other business combination, with any party other than Lexington or Newkirk, as the case may be. See “The Merger Agreement — Conduct of Business Pending the Merger — No Solicitation.”

 

Lexington or Newkirk may incur substantial expenses and payments if the merger does not occur, which could discourage other potential parties to business combinations with Lexington or Newkirk which might otherwise be desirable to the shareholders of Lexington or the stockholders of Newkirk.

 

Lexington and Newkirk already have incurred substantial expenses in connection with the merger. Neither Lexington nor Newkirk can assure you that the merger will be consummated. The merger agreement provides for Lexington or Newkirk to pay expenses of the other party of up to $5 million to the other party if the merger agreement is terminated by Lexington or Newkirk under specified circumstances. The merger agreement also provides for Newkirk or Lexington to pay a termination fee of $25 million to the other party if the merger agreement is terminated by Newkirk or Lexington under specified circumstances in which either party enters into an alternative business combination with a third party within six months of termination of the merger agreement. The termination fee will be reduced by any prior expense payments by the paying party.

 

These termination payments may discourage some third party proposals to enter into business combinations that Lexington shareholders or Newkirk stockholders may otherwise find desirable to the extent that a potential acquiror would not be willing to assume the $25 million termination fee. See “The Merger Agreement — Termination of the Merger Agreement”.

 

After the merger is completed, Newkirk common stockholders will become shareholders of Lexington and will have different rights that may be less advantageous than their current rights.

 

After the closing of the merger, Newkirk common stockholders will become Lexington common shareholders. Lexington is a Maryland real estate investment trust and Newkirk is a Maryland corporation.

Differences in Lexington’s Declaration of Trust and By-laws and Newkirk’s Charter and By-laws will result in changes to the rights of Newkirk common stockholders when they become Lexington common shareholders. A Newkirk common stockholder may conclude that its current rights under Newkirk’s Charter and By-laws are more advantageous than the rights they may have under Lexington’s Declaration of Trust and By-laws. See “Comparison of the Rights of Lexington Common Shareholders and Newkirk Common Stockholders.”

 

The merger will result in a reduction in per share distributions for Newkirk common stockholders after the merger.

 

Assuming Lexington makes quarterly cash dividends at the rate of $0.375 per common share after the merger, this dividend, from a Newkirk common stockholder’s perspective, would be equivalent to a quarterly distribution payment of $0.30 per share of Newkirk common stock based on the exchange ratio of 0.80, which is 25% less than Newkirk’s current quarterly dividend of $0.40 per share of Newkirk common stock.

 

The parties have agreed to delay the closing until on or about December 29, 2006. However, neither party will have the right to terminate the merger agreement after the satisfaction date due to the occurrence of a material adverse effect with respect to the other party, or the material breach by the other party of its representations or warranties or under the merger agreement.

 

The parties expect that all conditions to closing the merger will be satisfied when and if shareholders and stockholders approve the merger at the November 20, 2006 special meetings. The parties have agreed to delay the closing until on or about December 29, 2006. However, after the satisfaction date, neither party will have the right to terminate the merger agreement due to the occurrence of a material adverse effect with respect to the other party or the material breach by the other party of its representations or warranties under the merger agreement.

 

Primary term rents on many Newkirk properties are substantially higher than contractual renewal rates.

 

As of August 1, 2006, leases on approximately 8,640,728 square feet of Newkirk’s properties representing approximately $172,580,489 of annual rental income were scheduled to expire by the end of 2009. Upon expiration of their initial term, substantially all leases can be renewed at the option of the tenants for one or more renewal terms. As of August 1, 2006, for Newkirk leases scheduled to expire through 2009, the weighted average current rent per square foot was $19.97 while the contractual renewal rent per square foot for those properties was $8.84. These numbers do not include 566,836 square feet of vacant space and 707,000 square feet of space sold in September 2006.

 

Uncertainties relating to lease renewals and re-letting of space; as of August 1, 2006, 72% of Newkirk’s leases were scheduled to expire over the next three years which could unfavorably affect the combined company’s financial performance.

 

Upon the expiration of current leases for space located in the combined company’s properties, it may not be able to re-let all or a portion of that space, or the terms of re-letting (including the cost of concessions to tenants) may be less favorable to the combined company than current lease terms. If the combined company is unable to re-let promptly all or a substantial portion of the space located in its properties or if the rental rates it receives upon re-letting are significantly lower than current rates, the combined company’s net income and ability to make expected distributions to its shareholders will be adversely affected due to the resulting reduction in rent receipts and increase in its property operating costs. There can be no assurance that the combined company will be able to retain tenants in any of its properties upon the expiration of their leases.

 

This risk is increased in the case of Newkirk’s properties because the current term of many of the leases for its properties will expire over the next three years and the renewal rates are substantially lower than the current rates, as noted above. As of August 1, 2006, based upon the then current annualized rent, the weighted average remaining lease term for Newkirk’s properties was approximately 3.6 years and 72% of its current

leases were scheduled to expire by the end of 2009. These amounts are based on Newkirk’s consolidated rental income which includes rent attributable to properties partially owned by unaffiliated third parties. If the combined company is unable to promptly relet or renew leases for all or a substantial portion of the space subject to expiring leases or if its reserves for these purposes prove inadequate, the combined company’s revenue, net income, available cash and ability to make expected distributions to shareholders could be adversely affected. In addition, if it becomes necessary for the combined company to make capital expenditures for tenant improvements, leasing commissions and tenant inducements in order to re-lease space, the combined company’s revenue, net income and cash available for future investment could be adversely affected.

 

Investment grade tenants will represent a smaller portion of annualized base rent of the combined company than of the annualized base rent of Newkirk.

 

Following the merger and based on June 30, 2006 annualized rents, investment grade tenants, in the aggregate, will represent approximately 56% of annualized base rent of the combined company, as compared with 74% of Newkirk’s annualized base rents and 40% of Lexington’s base rents prior to the merger.

 

Inability to carry out our growth strategy.

 

The combined company’s growth strategy will be based on the acquisition and development of additional properties and related assets, including acquisitions of large portfolios and real estate companies and acquisitions through co-investment programs such as joint ventures. In the context of the combined company’s business plan, “development” generally means an expansion or renovation of an existing property or the acquisition of a newly constructed property. The combined company may provide a developer with a commitment to acquire a property upon completion of construction of a property and commencement of rent from the tenant. The combined company’s plan to grow through the acquisition and development of new properties could be adversely affected by trends in the real estate and financing businesses. The consummation of any future acquisitions will be subject to satisfactory completion of an extensive valuation analysis and due diligence review and to the negotiation of definitive documentation. The combined company’s ability to implement its strategy may be impeded because it may have difficulty finding new properties and investments at attractive prices that meet its investment criteria, negotiating with new or existing tenants or securing acceptable financing. If the combined company is unable to carry out its strategy, its financial condition and results of operations could be adversely affected.

 

Acquisitions of additional properties entail the risk that investments will fail to perform in accordance with expectations, including operating and leasing expectations. Redevelopment and new project development are subject to numerous risks, including risks of construction delays, cost overruns or force majeure events that may increase project costs, new project commencement risks such as the receipt of zoning, occupancy and other required governmental approvals and permits, and the incurrence of development costs in connection with projects that are not pursued to completion.

 

Some of the combined company’s acquisitions and developments may be financed using the proceeds of periodic equity or debt offerings, lines of credit or other forms of secured or unsecured financing that may result in a risk that permanent financing for newly acquired projects might not be available or would be available only on disadvantageous terms. If permanent debt or equity financing is not available on acceptable terms to refinance acquisitions undertaken without permanent financing, further acquisitions may be curtailed or cash available for distribution to shareholders may be adversely affected.

 

Concentration of ownership by certain investors, including joint venture partners; voting rights of MLP unitholders.

 

After the consummation of the merger, (i) Michael L. Ashner, and Winthrop will collectively own 3,583,000 Lexington common shares and (ii) Michael L. Ashner, other executives and employees of NKT Advisors, Vornado and Apollo will collectively own 28,431,920 voting MLP units which are redeemable for, at the election of Lexington, cash or Lexington common shares. Accordingly, on a fully-diluted basis, Michael

L. Ashner, other executive officers and employees of NKT Advisors, Apollo, Vornado and Winthrop will collectively hold a 29.1% ownership interest in Lexington. As holders of voting MLP units, Mr. Ashner, other executives and employees of NKT Advisors, Vornado and Apollo, as well as other holders of voting MLP units, will have the right to direct the voting of Lexington’s special voting preferred stock. Holders of Lexington’s operating partnership interests do not have voting rights.

 

After the consummation of the merger, Robert Roskind will own 834,911 Lexington common shares and 1,565,282 units of limited partnership interest which are redeemable for, at the election of Lexington, cash or Lexington common shares. On a fully diluted basis, Mr. Roskind will hold a 2.2% ownership interest in Lexington.

 

The joint ventures described below each have a provision in their respective joint venture agreements permitting the joint venture partner to sell its equity position to Lexington. In the event that any of the joint venture partners exercises its right to sell its equity position to Lexington, and Lexington elects to fund the acquisition of such equity position with Lexington common shares, such venture partner could acquire a large concentration of Lexington common shares.

 

In 1999, Lexington entered into a joint venture agreement with The Comptroller of the State of New York as trustee of The Common Retirement Fund, or “CRF,” to acquire properties. This joint venture and a separate partnership established by the partners has made investments in 13 (one of which was sold in 2005) properties for an aggregated capitalized cost of $409.1 million and no additional investments will be made unless they are made pursuant to a tax-free exchange. Lexington has a 331/3% equity interest in this joint venture. In December 2001, Lexington formed a second joint venture with CRF to acquire additional properties in an aggregate amount of up to approximately $560.0 million. Lexington has a 25% equity interest in this joint venture. As of June 30, 2006, this second joint venture has invested in 13 properties for an aggregate capitalized cost of $421.6 million.

 

Under these joint venture agreements, CRF has the right to sell its equity position in the joint ventures to Lexington and, after the closing of the merger, to the combined company. In the event CRF exercises its right to sell its equity interest in either joint venture to Lexington, Lexington may, at its option, either issue common shares to CRF for the fair market value of CRF’s equity position, based upon a formula contained in the respective joint venture agreement, or pay cash to CRF equal to 110% of the fair market value of CRF’s equity position. Lexington has the right not to accept any property in the joint ventures (thereby reducing the fair market value of CRF’s equity position) that does not meet certain underwriting criteria. In addition, the joint venture agreements contain a mutual buy-sell provision in which either CRF or Lexington can force the sale of any property.

 

In October 2003, Lexington entered into a joint venture agreement with CLPF-LXP/Lion Venture GP, LLC, or “Clarion,” which has made investments in 17 properties for an aggregate capitalized cost of $486.9 million. No additional investments will be made unless they are made pursuant to a tax-free exchange or upon the mutual agreement of Clarion and Lexington. Lexington has a 30% equity interest in this joint venture. Under the joint venture agreement, Clarion has the right to sell its equity position in the joint venture to Lexington and, after the closing of the merger, the combined company. In the event Clarion exercises its right to sell its equity interest in the joint venture to Lexington, Lexington may, at its option, either issue common shares to Clarion for the fair market value of Clarion’s equity position, based upon a formula contained in the partnership agreement, or pay cash to Clarion equal to 100% of the fair market value of Clarion’s equity position. Lexington has the right not to accept any property in the joint venture (thereby reducing the fair market value of Clarion’s equity position) that does not meet certain underwriting criteria. In addition, the joint venture agreement contains a mutual buy-sell provision in which either Clarion or Lexington can force the sale of any property.

 

In June 2004, Lexington entered in a joint venture agreement with the Utah State Retirement Investment Fund, or “Utah,” which was expanded in December 2004, to acquire properties in an aggregate amount of up to approximately $345.0 million. As of June 30, 2006, this joint venture has made investments in 15 properties for an aggregate capitalized cost of $241.7 million. Lexington has a 30% equity interest in this joint venture. Under the joint venture agreement, Utah has the right to sell its equity position in the joint venture to

Lexington. This right becomes effective upon the occurrence of certain conditions. In the event Utah exercises its right to sell its equity interest in the joint venture to Lexington, Lexington may, at its option, either issue common shares to Utah for the fair market value of Utah’s equity position, based upon a formula contained in the joint venture agreement, or pay cash to Utah equal to 100% of the fair market value of Utah’s equity position. Lexington has the right not to accept any property in the joint venture (thereby reducing the fair market value of Utah’s equity position) that does not meet certain underwriting criteria. In addition, the joint venture agreement contains a mutual buy-sell provision in which either Utah or Lexington can force the sale of any property.

 

Dilution of common shares.

 

The combined company’s future growth will depend in part on its ability to raise additional capital. If the combined company raises additional capital through the issuance of equity securities, the interests of holders of the combined company’s common shares could be diluted. Likewise, the combined company’s board of trustees will be authorized to cause the combined company to issue preferred shares in one or more series, the holders of which would be entitled to dividends and voting and other rights as the combined company’s board of trustees determines, and which could be senior to or convertible into the combined company’s common shares. Accordingly, an issuance by the combined company of preferred shares could be dilutive to or otherwise adversely affect the interests of holders of the combined company’s common shares.

 

The combined company’s Series C Preferred Shares will be capable of being converted by the holder, at its option, into the combined company’s common shares at an initial conversion rate of 1.87966 common shares per $50.00 liquidation preference (after the assumed payment of the special dividend and assuming no other dividend is paid), which is equivalent to an initial conversion price of approximately $26.60 per common share (subject to adjustment in certain events). Depending upon the number of Series C Preferred Shares being converted at one time, a conversion of Series C Preferred Shares could be dilutive to or otherwise adversely affect the interests of holders of the combined company’s common shares.

 

Under Lexington’s joint venture agreements, Lexington’s joint venture partners have the right to sell their equity position in the applicable joint venture to Lexington. In the event one of Lexington’s joint venture partners exercises its right to sell its equity interest in the applicable joint venture to Lexington, Lexington may, at its option, either issue Lexington common shares to the exercising joint venture partner for the fair market value of the exercising joint venture partner’s equity position, based upon a formula contained in the applicable joint venture agreement, or pay cash to the exercising joint venture partner equal to either: (i) 110% of the fair market value of the exercising joint venture partner’s equity position with respect to Lexington’s joint ventures with CRF, or (ii) 100% of the fair market value of the exercising joint venture partner’s equity position with respect to Lion and Utah. An exercise by one or more of Lexington’s joint venture partners and, after the merger, the combined company’s election to satisfy an exercise with its common shares could be dilutive to or otherwise adversely affect the interests of holders of the combined company’s common shares.

 

Following the closing of the merger, an aggregate of approximately 41,673,386 common shares will be issuable upon: (i) the exchange of all outstanding units of limited partnership interests in Lexington’s operating partnership subsidiaries (5,622,694 common shares); (ii) the redemption of all outstanding units of limited partnership interests in the MLP (36,032,192 common shares); and (iii) the exercise of outstanding options under Lexington’s equity-based award plans (18,500 common shares). Depending upon the number of such securities exchanged or exercised at one time, an exchange or exercise of such securities could be dilutive to or otherwise adversely affect the interests of holders of the combined company’s common shares.

 

Securities eligible for future sale may have adverse effects on our share price.

 

As described in the preceding risk factor, following the closing of the merger, an aggregate of up to approximately 36,032,192 common shares will be issuable on the redemption for common shares of outstanding MLP units. Lexington and Newkirk have agreed to file a registration statement that would allow up to 36,000,000 of these Lexington common shares to be sold. Lexington has also agreed to file a registration statement that would allow the sale of 3,500,000 Lexington common shares that will be owned by Winthrop

following the merger, which shares were previously subject to a lock up agreement that will terminate on closing of the merger. The sale of these shares could result in a decrease in the market price of Lexington common shares.

 

Limited control over joint venture investments.

 

Lexington’s joint venture investments will constitute a significant portion of the combined company’s assets and will constitute a significant component of Lexington’s growth strategy. Lexington’s joint venture investments may involve risks not otherwise present for investments made solely by Lexington, including the possibility that Lexington’s joint venture partner might, at any time, become bankrupt, have different interests or goals than the combined company does, or take action contrary to the combined company’s instructions, requests, policies or objectives, including the combined company’s policy with respect to maintaining its qualification as a REIT. Other risks of joint venture investments include impasse on decisions, such as a sale, because neither the combined company nor a joint venture partner have full control over the joint venture. Also, there will be no limitation under the combined company’s organizational documents as to the amount of funds that may be invested in joint ventures.

 

One of the joint ventures, 111 Debt Holdings LLC, is owned equally by the MLP and WRT Realty L.P., a subsidiary of Winthrop. This joint venture is managed by an investment committee which consists of five members, two members appointed by each of the MLP and Winthrop and the fifth member appointed by FUR Holdings LLC, the primary owner of the current external advisors of both Newkirk and Winthrop. Each investment in excess of $20.0 million to be made by this joint venture, as well as additional material matters, requires the consent of three members of the investment committee appointed by the MLP and Winthrop. Accordingly, the joint venture may not take certain actions or invest in certain assets even if the MLP believes it to be in its best interest.

 

Joint venture investments may conflict with our ability to make attractive investments.

 

Under the terms of Lexington’s active joint venture with CRF, the combined company will be required to first offer to the joint venture 50% of the combined company’s opportunities to acquire office and industrial properties requiring a minimum investment of $15.0 million which are net leased primarily to investment grade tenants for a minimum term of 10 years, are available for immediate delivery and satisfy other specified investment criteria.

 

Similarly, under the terms of Lexington’s joint venture with Utah, unless 75% of Utah’s capital commitment is funded, the combined company will be required to first offer to the joint venture all of the combined company’s opportunities to acquire certain office, bulk warehouse and distribution properties requiring an investment of $8.0 million to $30.0 million which are net leased primarily to non-investment grade tenants for a minimum term of at least nine years and satisfy other specified investment criteria, subject also to the combined company’s obligation to first offer such opportunities to Lexington’s joint venture with CRF.

 

Lexington’s board of trustees adopted a conflicts policy with respect to Lexington and LSAC, a real estate investment company externally advised by Lexington. Under the conflicts policy the combined company will be required to first offer to LSAC, subject to the first offer rights of CRF and Utah, all of the combined company’s opportunities to acquire: (i) general purpose real estate net leased to unrated or below investment grade credit tenants; (ii) net leased special purpose real estate located in the United States, such as medical buildings, theaters, hotels and auto dealerships; (iii) net leased properties located in the Americas outside of the United States with rent payments denominated in United States dollars with such properties typically leased to U.S. companies; (iv) specialized facilities in the United States supported by net leases or other contracts where a significant portion of the facility’s value is in equipment or other improvements, such as power generation assets and cell phone towers; and (v) net leased equipment and major capital assets that are integral to the operations of LSAC’s tenants and LSAC’s real estate investments. To the extent that a specific investment opportunity, which is not otherwise subject to a first offer obligation to Lexington’s joint ventures with CRF or Utah, is determined to be suitable to the combined company and LSAC, the investment

opportunity will be allocated to LSAC. If full allocation to LSAC is not reasonably practicable (for example, if LSAC does not have sufficient capital), the combined company may allocate a portion of the investment to itself after determining in good faith that such allocation is fair and reasonable. The combined company will apply the foregoing allocation procedures between LSAC and any investment funds or programs, companies or vehicles or other entities that the combined company controls which have overlapping investment objectives with LSAC.

 

Only if a joint venture partner elects not to approve the applicable joint venture’s pursuit of an acquisition opportunity or the applicable exclusivity conditions have expired may the combined company pursue the opportunity directly. As a result of the foregoing rights of first offer, the combined company may not be able to make attractive acquisitions directly and may only receive a minority interest in such acquisitions through the combined company’s minority interest in these joint ventures.

 

Conflicts of interest with respect to sales and refinancings.

 

E. Robert Roskind and Richard J. Rouse, the combined company’s Co-Vice Chairman, and Co-Vice Chairman and Chief Investment Officer, respectively, will continue to own limited partnership interests in certain operating partnerships of the combined company after the merger, and as a result, may face different and more adverse tax consequences than the combined company’s other shareholders will if the combined company sells certain properties or reduces mortgage indebtedness on certain properties. Those individuals may, therefore, have different objectives than the combined company’s other shareholders regarding the appropriate pricing and timing of any sale of such properties or reduction of mortgage debt.

 

Accordingly, there may be instances in which the combined company may not sell a property or pay down the debt on a property even though doing so would be advantageous to the combined company’s other shareholders. In the event of an appearance of a conflict of interest, the conflicted trustee or officer must recuse himself or herself from any decision making or seek a waiver of our Code of Business Conduct and Ethics.

 

The combined company will be dependent upon its key personnel and the terms of Mr. Ashner’s employment agreement affect Lexington’s ability to make certain investments.

 

The combined company will be dependent upon key personnel whose continued service is not guaranteed. The combined company will be dependent on its executive officers for strategic business direction and real estate experience. Lexington previously entered into employment agreements with E. Robert Roskind, Lexington’s Chairman, Richard J. Rouse, Lexington Vice Chairman and Chief Investment Officer, T. Wilson Eglin, Lexington’s Chief Executive Officer, President and Chief Operating Officer, Patrick Carroll, Lexington’s Executive Vice President, Chief Financial Officer and Treasurer, and John B. Vander Zwaag, Lexington’s Executive Vice President. Upon the closing of the merger, the combined company will enter into an employment agreement with Michael L. Ashner, Newkirk’s Chairman and Chief Executive Officer. Pursuant to Mr. Ashner’s employment agreement, Mr. Ashner may voluntarily terminate his employment with the combined company and become entitled to receive a substantial severance payment if the combined company acquires or makes an investment in a non-net lease business opportunity during the term of Mr. Ashner’s employment. This provision in Mr. Ashner’s agreement may cause the combined company not to avail itself of those other business opportunities due to the potential consequences of acquiring such non-net lease business opportunities. (See “The Merger Agreement — Ancillary Agreements — Michael L. Ashner Employment

Agreement.”) Upon consummation of the merger, the following executive officers have agreed to assume the following positions at the combined company:

 

 

The combined company’s inability to retain the services of any of these executives or the combined company’s loss of any of their services after the merger could adversely impact the operations of the combined company. The combined company will not have key man life insurance coverage on its executive officers upon completion of the merger.

 

Certain limitations will exist with respect to a third party’s ability to acquire the combined company or effectuate a change in control.

 

Limitations imposed to protect the combined company’s REIT status.  In order to protect the combined company against the loss of its REIT status, its Declaration of Trust (attached as Annex B) will limit any shareholder from owning more than 9.8% in value of the combined company’s outstanding shares, subject to certain exceptions. The ownership limit may have the effect of precluding acquisition of control of the combined company.

 

Severance Payments under Employment Agreements.  Substantial termination payments may be required to be paid under the provisions of employment agreements with certain executives of the combined company upon a change of control. Accordingly, these payments may discourage a third party from acquiring the combined company.

 

Limitation due to the combined company’s ability to issue preferred shares.  The combined company’s Declaration of Trust will authorize the board of trustees to issue preferred shares, without limitation as to amount. The board of trustees will be able to establish the preferences and rights of any preferred shares issued which could have the effect of delaying or preventing someone from taking control of the combined company, even if a change in control were in its shareholders’ best interests.

 

Limitation imposed by the Maryland Business Combination Act.  The Maryland General Corporation Law, as applicable to Maryland REITs, establishes special restrictions against “business combinations” between a Maryland REIT and “interested shareholders” or their affiliates unless an exemption is applicable. An interested shareholder includes a person who beneficially owns, and an affiliate or associate of the trust who, at any time within the two-year period prior to the date in question, was the beneficial owner of, 10% or more of the voting power of Lexington’s then-outstanding voting shares, but a person is not an interested shareholder if the board of trustees approved in advance the transaction by which he otherwise would have been an interested shareholder. Among other things, Maryland law prohibits (for a period of five years) a merger and certain other transactions between a Maryland REIT and an interested shareholder. The five-year period runs from the most recent date on which the interested shareholder became an interested shareholder. Thereafter, any such business combination must be recommended by the board of trustees and approved by two super-majority shareholder votes unless, among other conditions, the common shareholders receive a minimum price for their shares and the consideration is received in cash or in the same form as previously paid by the interested shareholder for its shares. The statute permits various exemptions from its provisions, including business combinations that are exempted by the board of trustees prior to the time that the interested

shareholder becomes an interested shareholder. The business combination statute could have the effect of discouraging offers to acquire the combined company and of increasing the difficulty of consummating any such offers, even if the combined company’s acquisition would be in its shareholders’ best interests. In connection with the merger, certain holders of Newkirk voting stock have been granted a limited exemption from the definition of “interested shareholder.”

 

Maryland Control Share Acquisition Act.  Maryland law provides that “control shares” of a REIT acquired in a “control share acquisition” shall have no voting rights except to the extent approved by a vote of two-thirds of the vote eligible to be cast on the matter under the Maryland Control Share Acquisition Act. “Control Shares” means shares that, if aggregated with all other shares previously acquired by the acquirer or in respect of which the acquirer is able to exercise or direct the exercise of voting power (except solely by virtue of a revocable proxy), would entitle the acquirer to exercise voting power in electing trustees within one of the following ranges of voting power: one-tenth or more but less than one-third, one-third or more but less than a majority or a majority or more of all voting power. Control shares do not include shares the acquiring person is then entitled to vote as a result of having previously obtained shareholder approval. A “control share acquisition” means the acquisition of control shares, subject to certain exceptions. If voting rights of control shares acquired in a control share acquisition are not approved at a shareholders’ meeting, then subject to certain conditions and limitations the issuer may redeem any or all of the control shares for fair value. If voting rights of such control shares are approved at a shareholders’ meeting and the acquirer becomes entitled to vote a majority of the shares entitled to vote, all other shareholders may exercise appraisal rights. Any control shares acquired in a control share acquisition which are not exempt under the combined company’s By-laws will be subject to the Maryland Control Share Acquisition Act. Lexington’s By-laws contain a provision exempting from the Maryland Control Share Acquisition Act any and all acquisitions by any person of its shares. Lexington cannot assure you that this provision will not be amended or eliminated at any time in the future.

 

Many factors can have an adverse effect on the market value of the combined company’s securities.

 

A number of factors might adversely affect the price of the combined company’s securities, many of which are beyond its control. These factors include:

 

 

The market value of Lexington’s common shares is based primarily upon the market’s perception of the combined company’s growth potential and its current and potential future earnings and cash distributions. Consequently, the combined company’s common shares may trade at prices that are higher or lower than its net asset value per common share. If the combined company’s future earnings or cash distributions are less than expected, it is likely that the market price of the combined company’s common shares will diminish.

 

The Lexington special meeting will be held at the New York offices of Paul, Hastings, Janofsky & Walker LLP, located at 75 East 55th Street, New York, New York 10022, at 11:30 a.m. local time on November 20, 2006. The special meeting may be adjourned or postponed to another date and/or place for proper purposes. At the Lexington special meeting, holders of Lexington common shares will consider and vote on the merger agreement, the merger and the related transactions, including the adoption of the Amended and Restated Declaration of Trust and the issuance of Lexington common shares under and as contemplated by the merger agreement. The Lexington common shareholders are also being asked to vote on a proposal to adjourn the Lexington special meeting for the purpose of allowing additional time for the solicitation of additional votes to approve the merger agreement, the merger and the related transactions, including the adoption of the Amended and Restated Declaration of Trust and the issuance of Lexington common shares under and as contemplated by the merger agreement.

 

You are entitled to vote your Lexington common shares if Lexington’s shareholder records showed that you held your Lexington common shares as of the close of business on October 13, 2006. At the close of business on that date, a total of 53,110,833 Lexington common shares were outstanding and entitled to vote. Each Lexington common share has one vote. The enclosed proxy card shows the number of Lexington common shares that you are entitled to vote.

 

If you hold your Lexington common shares in your name as a holder of record, you may instruct the proxy holders how to vote your Lexington common shares by signing, dating and mailing the proxy card in the postage-paid envelope that we have provided to you. You may also instruct the proxy holders how to vote by telephone or through the internet by following the instructions on your proxy card. The proxy holders will vote your Lexington common shares as provided by those instructions. If you give Lexington a signed proxy without giving specific voting instructions, your Lexington common shares will be voted by the proxy holders in favor of all the proposals being voted on at the special meeting. If your Lexington common shares are held by a broker, bank or other nominee, you will receive instructions from your broker, bank or nominee that you must follow to have your Lexington common shares voted.

 

A quorum of common shareholders is required to hold a valid meeting. The holders of a majority of the outstanding common shares entitled to vote at the Lexington special meeting must be present in person or by proxy to constitute a quorum for the transaction of business at the Lexington special meeting. All Lexington common shares represented at the Lexington special meeting, including abstentions and “broker non-votes,” will be treated as shares that are present and entitled to vote for purposes of determining the presence of a quorum.

 

As of the record date for the Lexington special meeting, Lexington trustees, executive officers and their affiliates beneficially owned 2,418,108 Lexington common shares (excluding share options and operating partnership units held by them), representing approximately 4.6% of the outstanding Lexington’s common shares entitled to vote at the Lexington special meeting.

 

Approval of the merger agreement, the merger and the related transactions, including the adoption of the Amended and Restated Declaration of Trust and the issuance of the Lexington common shares, requires the affirmative vote of the holders of at least a majority of the Lexington common shares entitled to vote on the proposal. The affirmative vote of a majority of the votes cast by the holders of the Lexington common shares present either in person or by proxy at the Lexington special meeting is required to approve, if necessary, the extension of the solicitation period and the adjournment of the Lexington special meeting.

 

Abstentions by holders of Lexington common shares not be counted as votes cast. Thus, such abstentions will have the effect of a vote against the merger proposal and will have no effect on the proposal for extension of the solicitation period and on the adjournment of the Lexington special meeting.

 

Under the listing requirements of the NYSE, brokers who hold Lexington common shares in “street name” for a beneficial owner of those shares typically have the authority to vote in their discretion on “routine” proposals when they have not received instructions from beneficial owners. However, brokers are not allowed to exercise their voting discretion with respect to the approval of matters that the NYSE determines to be “non-routine,” such as approval of the issuance of Lexington common shares under and as contemplated by the merger agreement, and the approval of the merger agreement, the merger and the related transactions without specific instructions from the beneficial owner. These non-voted shares are referred to as “broker non-votes.” If your broker holds your Lexington common shares in “street name,” your broker will vote your shares only if you provide instructions on how to vote by filling out the voter instruction form sent to you by your broker with this joint proxy statement/prospectus. Broker non-votes will not be counted as votes cast at the Lexington special meeting. Thus, such non-votes will have the effect of a vote against the merger proposal and will have no effect on the proposal for extension of the solicitation period and the adjournment of the Lexington special meeting. The proposal to adjourn the meeting or to extend the solicitation may be deemed a “routine” proposal and, if so, your broker may vote your Lexington common shares with respect to such proposal.

 

We are not now aware of any matters to be presented at the Lexington special meeting except for those described in this joint proxy statement/prospectus. If any other matter not described in this joint proxy statement/prospectus is properly presented at the meeting, the proxy holders will use their discretion to determine how to vote your Lexington common shares. If the meeting is adjourned or postponed, your Lexington common shares may be voted by the proxy holders on the new meeting date as well, unless you have revoked your proxy instructions before that date.

 

To revoke your proxy instructions, you must: (i) so advise Lexington’s Secretary, Paul R. Wood, c/o Lexington Corporate Properties Trust, One Penn Plaza, Suite 4015, New York, New York 10119-4015 in writing before your Lexington common shares have been voted by the proxy holders at the meeting; (ii) execute and deliver a subsequently dated proxy; or (iii) attend the meeting and vote your Lexington common shares in person. If you hold shares in “street name” and you would like to revoke earlier proxy instructions, please check with your broker and follow the voting procedures your broker provides.

 

The accompanying proxy is being solicited on behalf of Lexington’s board of trustees. Each of Lexington and Newkirk will pay one-half of the expense of preparing, printing and mailing the proxy and materials used in the solicitation. MacKenzie Partners, Inc. has been retained by Lexington and Newkirk to aid in the solicitation of proxies from their respective shareholders for an aggregate fee of $15,500 and the reimbursement of out-of-pocket expenses. Proxies may also be solicited from Lexington shareholders by personal interview, telephone and telegram by Lexington trustees, officers and employees, who will not receive additional compensation for performing that service. Arrangements also will be made with brokerage houses and other custodians, nominees and fiduciaries for the forwarding of proxy materials to the beneficial owners of Lexington shares held by those persons, and Lexington will reimburse them for any reasonable expenses that they incur.

 

The Newkirk special meeting will be held at 10:00 a.m. local time on November 20, 2006. The special meeting may be adjourned or postponed to another date and/or place for proper purposes. At the Newkirk special meeting, holders of Newkirk voting stock will consider and vote on a proposal to approve the merger agreement, the merger and the related transactions. The Newkirk voting stockholders are also being asked to vote on a proposal to adjourn the Newkirk special meeting for the purpose of allowing additional time for the solicitation of additional votes to approve the merger agreement, the merger and the related transactions.

 

You are entitled to vote your shares of Newkirk voting stock if the Newkirk voting stockholder records showed that you held your shares of Newkirk voting stock as of the close of business on October 13, 2006. At the close of business on that date, there were 19,375,000 shares of Newkirk common stock outstanding and entitled to vote, and there were 45,000,000 votes entitled to be cast by the Newkirk special voting preferred stock. The enclosed proxy card shows the number of shares of Newkirk voting stock that you are entitled to vote.

 

If you hold your shares of Newkirk voting stock in your name as a holder of record, you may instruct the proxy holders how to vote your shares of Newkirk voting stock by signing, dating and mailing the proxy card in the postage-paid envelope that we have provided to you. The proxy holders will vote your shares of Newkirk voting stock as provided by those instructions. If you give Newkirk a signed proxy without giving specific voting instructions, your shares of Newkirk voting stock will be voted by the proxy holders in favor of all the proposals being voted on at the special meeting. If your shares of Newkirk voting stock are held by a broker, bank or other nominee, you will receive instructions from your nominee that you must follow to have your shares of Newkirk voting stock voted.

 

A quorum of voting stockholders is required to hold a valid meeting. The holders of shares of Newkirk voting stock entitled to cast at least a majority of the votes at the Newkirk special meeting must be present in person or by proxy to constitute a quorum for the transaction of business at the Newkirk special meeting. All shares of Newkirk voting stock represented at the Newkirk special meeting, including abstentions and “broker non-votes,” will be treated as shares that are present and entitled to vote for purposes of determining the presence of a quorum.

 

Approval of the merger agreement, the merger and the related transactions requires the affirmative vote of at least a majority of the votes entitled to be cast by holders of shares of Newkirk voting stock at the Newkirk special meeting. The affirmative vote of a majority of votes cast by the holders of a majority of the Newkirk common stock, voting either in person or by proxy at the Newkirk special meeting, is required to approve, if necessary, the extension of the solicitation period and the adjournment of the Newkirk special meeting.

 

As of the record date for the Newkirk special meeting, Newkirk directors, executive officers and their affiliates beneficially owned, including MLP units held by them, 16,778,947 shares of Newkirk voting stock, representing approximately 26.1% of the votes entitled to be cast by holders of the shares of Newkirk voting stock at the Newkirk special meeting. Beneficial owners of approximately 46.3% of Newkirk’s voting shares have agreed to vote in favor of the merger.

 

Abstentions by holders of shares of Newkirk voting stock will not be counted as votes cast. Thus, such non-votes will have the effect of a vote against the merger proposal and will have no effect on the proposal for extension of the solicitation period and the adjournment of the Newkirk special meeting.

 

Under the listing requirements of the NYSE, brokers who hold shares of Newkirk common stock in “street name” for a beneficial owner of those shares typically have the authority to vote in their discretion on “routine” proposals when they have not received instructions from beneficial owners. However, brokers are not allowed to exercise their voting discretion with respect to the approval of matter that the NYSE determines to be “non-routine,” such as approval of the merger agreement, the merger and the related transactions, without specific instructions from the beneficial owner. These non-voted shares are referred to as “broker non-votes.” If your broker holds your shares of Newkirk common stock in “street name,” your broker will vote your shares only if you provide instructions on how to vote by filling out the voter instruction form sent to you by your broker with this joint proxy statement/prospectus. Broker non-votes will not be counted as votes cast at the Newkirk special meeting. Thus, such non-votes will have the effect of a vote against the merger proposal and will have no effect on the proposal for extension of the solicitation period and the adjournment of the Newkirk special meeting. The proposal to adjourn the meeting or to extend the solicitation may be deemed a “routine” proposal and, if so, your broker may vote your Newkirk common stock with respect to such proposal.

 

We are not now aware of any matters to be presented at the Newkirk special meeting except for those described in this joint proxy statement/prospectus. If any other matter not described in this joint proxy statement/prospectus is properly presented at the meeting, the proxy holders will use their discretion to determine how to vote your shares of Newkirk voting stock. If the meeting is adjourned or postponed, your shares of Newkirk voting stock may be voted by the proxy holders on the new meeting date as well, unless you have revoked your proxy instructions before that date.

 

To revoke your proxy instructions, you must: (i) so advise the Secretary of Newkirk, Carolyn B. Tiffany, c/o Newkirk Realty Trust, Inc., 7 Bulfinch Place, Suite 500, Boston, MA 02114, in writing or by facsimile before your shares of Newkirk voting stock have been voted by the proxy holders at the meeting; (ii) execute and deliver a subsequently dated proxy; or (iii) attend the meeting and vote your shares of Newkirk voting stock in person. If you hold shares in “street name” and you would like to revoke earlier proxy instructions, please check with your broker and follow the voting procedures your broker provides.

 

The accompanying proxy is being solicited on behalf of Newkirk’s board of directors. Each of Lexington and Newkirk will pay one-half of the expense of preparing, printing and mailing the proxy and materials used in the solicitation. MacKenzie Partners, Inc. has been retained by Lexington and Newkirk to aid in the solicitation of proxies from their respective shareholders and stockholders for an aggregate fee of $15,500 and the reimbursement of out-of-pocket expenses. Proxies may also be solicited from Newkirk stockholders by personal interview, telephone and telegram by Newkirk directors, officers and employees, who will not receive additional compensation for performing that service. Arrangements also will be made with brokerage houses and other custodians, nominees and fiduciaries for the forwarding of proxy materials to the beneficial owners of Newkirk shares held by those persons, and Newkirk will reimburse them for any reasonable expenses that they incur.

 

In pursuing its strategy for enhancing shareholder value, Lexington regularly considered opportunities for acquisitions, joint ventures and other significant transactions.

 

Lexington’s senior management believed that its business plan was sound and offered opportunities for future growth, but it believed that it would be difficult to replicate the significant growth Lexington experienced in 2004 and 2005. Lexington’s common shares reached an all-time high closing price of $25.19 on July 12, 2005.

 

Between July 12, 2005 and December 31, 2005, the per share price of Lexington’s common shares declined approximately 15% to $21.30, at which point Lexington did not believe that either the implied value of its assets based on private market transactions, or the unique value of its large, high-quality portfolio of single-tenant net lease properties, had been appropriately reflected in its stock price.

 

Lexington’s senior management believed that the influx of foreign and institutional investors seeking alternatives to stock and bond investments had created highly favorable market conditions for the disposition of real estate investments. Senior management had been capitalizing on this market opportunity by accelerating disposition activity and recycling capital. At the same time, due to historically low capitalization rates, Lexington faced increased reinvestment risk with proceeds from asset sales and believed it would be difficult to achieve rates of return commensurate with its past performance. Furthermore, the concern over rising interest rates was causing public investors to view the net lease sector less favorably.

 

During the fourth quarter of 2005, Lexington met with several investment banks to discuss alternatives to enhance shareholder value. In November 2005, representatives of Wachovia Securities met with E. Robert Roskind, Lexington’s Chairman, and T. Wilson Eglin, Lexington’s Chief Executive Officer, President and Chief Operating Officer, to discuss potential opportunities for a strategic transaction involving Lexington.

 

By the end of 2005, Lexington senior management believed that market conditions existed that could potentially lead to a strategic transaction that enhanced shareholder value relative to what Lexington could achieve going forward in the then current competitive acquisition environment and limited growth opportunities. Accordingly, Lexington’s senior management determined to actively investigate the feasibility and potential value of a sale or other strategic transaction involving Lexington.

 

At a regularly scheduled meeting of Lexington’s board of trustees on January 16, 2006, Mr. Roskind and Mr. Eglin informed Lexington’s board of trustees that Lexington’s senior management had discussions regarding potential strategic alternatives for Lexington with Wachovia Securities. At that meeting, Lexington’s board of trustees authorized management to continue such discussions with its financial advisor, Wachovia Securities.

 

On February 17, 2006, Mr. Roskind received a call from a large institutional real estate investor (which we refer to as “Bidder A”). Bidder A indicated that it would be interested in evaluating a strategic transaction with Lexington, including a sale of Lexington, and estimated that it valued Lexington at approximately $24.00 per share. Mr. Roskind informed Bidder A that Lexington would consider Bidder A’s indication of interest and would contact Bidder A if Lexington were willing to allow Bidder A to formally evaluate Lexington.

 

A special meeting of Lexington’s board of trustees was held on February 24, 2006, at which meeting Wachovia Securities was to discuss with Lexington’s board of trustees certain potential strategic transactions involving Lexington. At the meeting, Mr. Eglin suggested that Lexington explore an additional potential strategic transaction involving a joint venture or series of joint ventures with respect to all or substantially all of Lexington’s wholly-owned assets and a related share repurchase and/or special dividend. Lexington’s board of trustees asked Wachovia Securities to delay its presentation until the next meeting of Lexington’s board of trustees and tabled a vote on whether to retain Wachovia Securities. Until the March 14, 2006 regularly scheduled meeting of Lexington’s board of trustees, senior management worked with Wachovia Securities and

Paul Hastings to determine the range of potential strategic transactions available to Lexington, including the feasibility of the joint venture alternative.

 

On March 13, 2006, Lexington executed a confidentiality agreement with Bidder A. Lexington informed Bidder A that it expected to engage a financial advisor and that Bidder A would be contacted by such advisor.

 

At the March 14, 2006 meeting, Lexington’s senior management proposed that Lexington’s board of trustees retain Wachovia Securities to act as Lexington’s financial advisor with respect to potential strategic transactions that would enhance value for Lexington’s shareholders. Representatives of Wachovia Securities discussed the current REIT market environment and the market’s perspective of Lexington. Wachovia Securities also discussed a process by which Lexington could explore certain strategic alternatives without initially making a public announcement.

 

Lexington’s board of trustees discussed various alternatives to enhance shareholder value, including continuing to operate Lexington under management’s current business plan, an outright sale of Lexington for cash or an alternative strategic transaction. Lexington’s board of trustees discussed the risks and benefits of each of these alternatives and strategies, including the challenges that the size of Lexington’s portfolio could present with respect to a sale of Lexington. Lexington’s board also discussed additional strategies that it might pursue to enhance shareholder value, including the potential sale of a large number of non-core assets followed by a special dividend to shareholders.

 

Lexington’s board of trustees discussed a variety of potential transaction parties which Lexington and Wachovia Securities collectively believed had sufficient assets, or access to sufficient capital, to consummate an acquisition of Lexington. Wachovia Securities next discussed the process and timing of a potential strategic transaction, including the benefits of a non-public auction process in which the universe of potential parties to a transaction could be narrowed following receipt of indications of interest. Wachovia Securities explained that a non-public auction process could maximize shareholder value while reducing disruption to Lexington and its management and reducing business and market risk that could affect consummation of a transaction.

 

At the close of the March 14, 2006 meeting, Lexington’s board of trustees unanimously determined that Lexington should undertake a formal process to explore strategic alternatives, potentially including a sale or other strategic transaction. Lexington’s board of trustees authorized senior management to engage Wachovia Securities as Lexington’s strategic financial advisor subject to the negotiation and execution of mutually satisfactory engagement letters. Lexington and Wachovia Securities entered into an engagement letter on April 19, 2006.

 

During the weeks prior to the March 14 board meeting and through the remainder of March and most of April 2006, Lexington’s senior management worked with Wachovia Securities and considered approximately 50 potential qualified transaction parties. These entities included Bidder A, a broad cross-section of public REITs, other public companies, pension funds, pension fund advisors, closed-end investment funds, open-end fund sponsors, commingled/closed-end funds and buyout funds. Lexington’s senior management and Wachovia Securities approached 33 entities that Lexington and Wachovia Securities collectively believed were qualified to complete a strategic transaction with Lexington. Concurrently, Lexington’s general counsel and Paul Hastings prepared a form of confidentiality agreement that Wachovia Securities distributed to 28 of these entities. Lexington negotiated and executed confidentiality agreements with 19 of these entities, 18 of which ultimately conducted at least some due diligence and discussed with Wachovia Securities the possibility of a strategic transaction.

 

During this period, an online data room was prepared to facilitate access to due diligence materials by those potential transaction parties that had executed confidentiality agreements and had elected to move forward in the process. A bid-procedures letter was distributed to the 33 interested transaction parties. The letter set a deadline of April 21, 2006 for transaction parties to submit nonbinding preliminary indications of interest to enter into a negotiated strategic transaction with Lexington.

 

Newkirk was not initially identified as a potential qualified transaction party, but at the suggestion of a potential qualified transaction party, who turned down the invitation to participate in the bid process, Wachovia

Securities subsequently approached Newkirk to participate in Lexington’s confidential process. On March 17, 2006, Newkirk signed a confidentiality agreement with Lexington.

 

Between March 17, 2006 and May 8, 2006, management of Newkirk periodically advised members of Newkirk’s board of directors on an informal basis as to Newkirk’s interest in pursuing a strategic transaction with Lexington and the status of discussions with Lexington.

 

From March 28, 2006 through July 21, 2006, members of Newkirk’s management and representatives of Bear Stearns, Katten Muchin and Post Heymann & Koffler LLP (which we refer to as Post Heymann) conducted a due diligence review of, among other things, Lexington’s business and operations, financial condition and material contracts.

 

On April 21, 2006, Lexington received three written non-binding, preliminary indications of interest to engage in a strategic transaction with Lexington. Two bidders, including Bidder A, indicated interest in acquiring all of Lexington’s outstanding common shares for cash at a per share valuation of $23.00 and $24.50. The third bidder, Newkirk, indicated interest in a merger with Lexington with an exchange ratio of 0.81 Lexington common shares for each share of Newkirk common stock. Based on the closing price of Lexington common shares and Newkirk common stock on April 21, 2006, Newkirk’s offer valued Lexington’s common shares at $22.44 per share.

 

Bidder A indicated that it was interested in acquiring all of Lexington’s outstanding common shares and operating partnership units for a cash purchase price of $24.50 for each share and each unit. Bidder A further indicated that it was willing to structure the transaction in a manner that would be tax-efficient for holders of Lexington’s operating partnership units by offering them the opportunity to exchange their operating partnership units for senior preferred partnership units. Bidder A did not provide extensive detail regarding such tax structuring, stating only that these units would earn a fixed rate of return to be agreed upon with Lexington.

 

The second bidder (which we refer to as “Bidder B”) indicated that it was interested in acquiring Lexington for a cash purchase price of $23.00 for each share and operating partnership unit. Bidder B indicated that it would review additional information regarding the tax position of the holders of Lexington’s operating partnership units and would make a proposal for them as part of its final bid.

 

Lexington’s board of trustees met on April 24, 2006 to discuss and evaluate the various bidders and the relative merits of their respective proposals. At the request of Mr. Roskind, the Chairman of Lexington’s board of trustees, Stanley R. Perla, an independent trustee of Lexington, did not participate in the meeting because of his position as Director of Internal Audit of Vornado, a significant equity holder of Newkirk.

 

At the request of Lexington’s board of trustees, Wachovia Securities and Paul Hastings also participated in the April 24 meeting. Messrs. Roskind and Eglin and representatives from Wachovia Securities summarized the three indications of interest. Wachovia Securities also presented an overview of Newkirk. Lexington’s board of trustees discussed the relative strengths and weaknesses of the various bids. Bidder A and Bidder B had indicated that they were willing to acquire Lexington for cash; however, the per share price indicated by Bidder B was significantly lower than that of Bidder A. Wachovia Securities informed Lexington’s board of trustees that it believed that both Bidder A and Bidder B had access to sufficient capital to close a transaction, and it believed Bidder A had conducted significantly more due diligence than Bidder B.

 

Lexington’s board of trustees then discussed with Wachovia Securities whether Bidder B might be willing to increase its bid to a more competitive level if allowed to enter into the next round of the process. Mr. Roskind explained that, in recent conversations, Bidder B had specifically indicated that it would have difficulty increasing the valuation set forth in its initial bid letter and that it was, therefore, unlikely to increase its offer price. Based on Lexington’s board of trustees’ evaluation of the three proposals and the discussions with Lexington’s senior management and Wachovia Securities, Lexington’s board of trustees determined to proceed with a subsequent round of negotiations with Bidder A and Newkirk.

 

Members of Lexington’s senior management who were participating in the meeting were then excused from the meeting so that the independent trustees (except for Mr. Perla who did not attend the meeting) could discuss the strategic transaction process and their fiduciary duties with Paul Hastings. The independent trustees

determined that because of potential perceived conflicts of interest between Lexington’s shareholders and Lexington’s executive officers (who may have been entitled to a severance payment in the event of a “change of control” of Lexington) it was appropriate to form a special committee of Lexington’s board of trustees consisting of Geoffrey Dohrmann, James Grosfeld, Kevin Lynch (later appointed chairman) and Seth M. Zachary (which we refer to as the Lexington special committee). Carl D. Glickman recused himself from participating on the Lexington special committee because of his relationship with Bear Stearns. The Lexington special committee was authorized to analyze the proposed terms and conditions of potential strategic transactions involving Lexington, to retain outside experts, advisors and consultants at its discretion for the purpose of analyzing strategic alternative transactions and to make a recommendation to Lexington’s board of trustees whether it was in the best interests of Lexington to enter into any particular strategic transaction.

 

Lexington’s special committee determined that Lexington’s senior management should continue leading Lexington’s investigation of a strategic transaction under Lexington’s special committee’s supervision and that the Lexington special committee should meet regularly during the course of the strategic transaction process to carry out its oversight of the process. The Lexington special committee discussed, but never definitively determined, committee fees (in lieu of the per meeting fees otherwise previously approved by Lexington’s board of trustees for committee meetings generally) equal to $35,000 per member and an additional $15,000 to the chairman. On September 8, 2006, Lexington’s board of trustees, upon a recommendation from Lexington’s special committee, approved the fees as discussed by Lexington’s special committee.

 

Following the April 24, 2006 meeting, Wachovia Securities delivered a bid-procedures letter to Bidder A and Newkirk, indicating that “best and final” bids would be due on Friday, May 19, 2006. From April 24 through May 19, Lexington’s senior management and other key employees met separately with each of the two final-round bidders in a series of bidder-specific due diligence meetings.

 

On May 3, 2006, Lexington posted a draft cash merger agreement on its online data room.

 

On May 4, 2006, Lexington’s special committee met to receive an update from senior management and Wachovia Securities on the status of the strategic transaction process. Paul Hastings advised Lexington’s special committee that Bidder A was a client of Paul Hastings and as a result of Mr. Zachary’s position as chairman of Paul Hastings, Mr. Zachary would participate in the evaluation of the proposal by Bidder A, but would not participate in any vote on Bidder A’s proposal.

 

At the May 4, 2006 meeting, Wachovia Securities updated Lexington’s special committee on the strategic transaction process and the status of the two bidders.

 

On May 5, 2006, Lexington distributed a draft stock merger agreement to Newkirk.

 

On May 7, 2006, Messrs. Roskind and Eglin had dinner with representatives of Bidder A.

 

On May 8, 2006, Lexington, Wachovia Securities and Paul Hastings met with Newkirk, Bear Stearns and Katten Muchin, counsel to Newkirk, to discuss Newkirk’s comments to the draft stock merger agreement.

 

Also, on May 8, 2006, at a meeting of Newkirk’s board of directors, Peter Braverman, the President of Newkirk confirmed with each board member that they had received Lexington’s Annual Report on Form 10-K and materials prepared by Wachovia Securities for distribution to potential purchasers of Lexington. At the meeting Mr. Braverman further updated Newkirk’s board of directors with respect to the discussions to date between Newkirk’s management and Lexington’s management with respect to the possible acquisition of, or business combination with, Lexington. In particular, Mr. Braverman advised Newkirk’s board of directors that Lexington had retained Wachovia Securities to seek strategic transactions and that, in connection therewith, Newkirk had entered into a confidentiality agreement with Lexington pursuant to which Newkirk received certain information regarding Lexington. Mr. Braverman further advised the board that in connection with management’s review of Lexington, management believed that the leverage required to acquire Lexington in a cash transaction would not be advantageous to Newkirk and discussions had begun with Lexington’s management about business combinations. In this regard, Mr. Braverman advised that a proposed merger with Lexington was being discussed with Lexington as the surviving entity. At the May 8, 2006 meeting, Newkirk’s

board of directors was advised that Lexington had established a timetable under which final offers were to be made by May 19, 2006. The board established a special committee consisting of Newkirk’s independent directors to review the transaction. The special committee authorized Newkirk management to continue discussions with Lexington and to update the committee on a regular basis. Also at the May 8, 2006 meeting Newkirk’s board of directors agreed to formally retain Bear Stearns as its investment advisor in connection with the proposed transaction with Lexington.

 

Newkirk’s special committee met on each of May 10, 12 and 15, 2006 and were provided with updates from Newkirk’s management as to the status of negotiations with Lexington at each meeting.

 

On May 10, 2006, counsel for Bidder A delivered to Paul Hastings a brief memo outlining certain points of Bidder A’s bid and a revised draft of the merger agreement.

 

At the May 10, 2006 meeting, the members of Newkirk’s special committee elected Richard Frary as chairman of the special committee.

 

On May 10, 2006, members of the board of Newkirk were provided with a legal memorandum outlining their fiduciary duties with respect to the proposed merger.

 

On May 11, 2006, Lexington’s special committee met to receive an update from senior management and Wachovia Securities on the status of the strategic transaction process. The special committee discussed issues associated with comparing the potential two final bids since one involved cash and the other involved stock.

 

On May 12, 2006, counsel for Newkirk delivered to Paul Hastings a revised draft of the merger agreement based on the discussions at the May 8, 2006 meeting.

 

On May 14, 2006, Newkirk informed Messrs. Roskind and Eglin and Wachovia Securities that it would consider revising its initial indication of interest to include alternative strategic transactions providing Lexington shareholders with a combination of cash and stock in the combined company.

 

On May 15, 2006, Bidder A informed Wachovia Securities that it would not be able to support a valuation at the price indicated in its bid letter, and that, as a result, it was withdrawing from the strategic transaction process. Bidder B was therefore approached to re-enter the process.

 

At the May 15, 2006 meeting of Newkirk’s special committee, management advised the special committee of the possibility of considering alternative proposals providing Lexington shareholders with a combination of cash and stock in the combined company. The special committee authorized management to explore these alternative proposals with Lexington.

 

Also on May 15, 2006, Newkirk’s attorneys delivered to Paul Hastings draft merger agreements contemplating the range of proposals then being considered.

 

On May 16, 2006, Newkirk indicated that it was interested only in a stock for stock merger.

 

On May 16, 2006, the members of Newkirk’s board were provided with financial analyses prepared by management and Bear Stearns reviewing the transaction and various valuation analyses of Newkirk, Lexington and the combined company.

 

On May 17, 2006, the full Newkirk board met and received a presentation first from management and then from Bear Stearns reviewing the transaction and various valuation analyses of Newkirk, Lexington and the combined company. A representative of Post Heymann advised the board as to the basic terms of the proposed merger agreement including closing conditions, non-solicitation and fiduciary out provisions, as well as termination rights and termination fees and answered questions from Newkirk’s directors regarding various aspects of the merger agreement. Following the presentations of management and Bear Stearns, the Newkirk directors who were not on the special committee left the meeting. Thereafter, the special committee discussed with Bear Stearns, among other things, the information presented by management and Bear Stearns and the matters described below under “— Recommendation of Newkirk’s Board of Directors and Newkirk’s Reasons for the Merger.” The special committee, by unanimous vote, then recommended that Newkirk’s board of directors approve the submission by Newkirk of a proposal to Lexington to effect the merger of Newkirk with

and into Lexington, subject to the issuance by Bear Stearns of a fairness opinion and the entry into of a definitive merger agreement providing for an exchange ratio of 0.80 to 1, the appointment of Michael L. Ashner as Chairman of the surviving entity and representation on the board of the surviving entity of designees of Newkirk.

 

Immediately following the special committee meeting on May 17, 2006, the board of directors of Newkirk, by unanimous vote, authorized the submission by management of a merger proposal with Lexington on the terms recommended by the special committee.

 

From May 17, 2006 through June 28, 2006 Newkirk management promptly updated the special committee members as to developments relating to the proposed transaction with Lexington.

 

On May 18, 2006, Newkirk delivered to Paul Hastings a revised draft merger agreement for its original proposal which included, among other revisions, a provision allowing Lexington to pay up to $32,500,000 in “change of control” payments to its executives in connection with the proposed merger and up to $6,000,000 in excise taxes incurred by the executives in connection with such payments, and to vest all of the restricted stock issued by Lexington, in exchange for a waiver by each executive of any rights triggered by the proposed merger under their employment agreements with Lexington.

 

On May 19, 2006, Bear Stearns delivered Newkirk’s final bid in accordance with Wachovia Securities bid instructions, together with another draft of the stock merger agreement. Newkirk proposed a stock for stock merger whereby each share of Newkirk common stock would be exchanged for 0.80 Lexington common shares.

 

Later on May 19, 2006, Lexington’s board of trustees held a special meeting to discuss Newkirk’s final bid. Mr. Perla did not attend this meeting, but Mr. Glickman did attend. The board of trustees requested an update on the possibility of inviting Bidder B back into the strategic transaction process. Mr. Roskind informed Lexington’s board of trustees that Bidder B indicated that it was currently bidding in another strategic transaction process. Bidder B informed Mr. Roskind that if it was not successful in the other strategic transaction process, it would be in a position to conduct further due diligence on Lexington to determine whether it could revise its preliminary indication of interest. Lexington’s board of trustees, including the members of Lexington’s special committee, authorized Lexington’s management and Wachovia Securities to invite Bidder B back into the strategic transaction process.

 

Also, at the May 19, 2006 special meeting, Lexington’s senior management and Lexington’s board of trustees discussed Newkirk’s requirement that, after giving effect to payments and vesting provisions contained in Newkirk’s draft merger agreement, Lexington’s executive officers waive any rights triggered by the proposed merger under the executive’s employment agreements with Lexington.

 

Between May 19, 2006 and May 23, 2006, Lexington’s senior management and Wachovia Securities met with representatives of Newkirk and Bear Stearns to discuss the proposed merger. In addition, during this period, Paul Hastings and Katten Muchin continued to negotiate the terms of the draft merger agreement.

 

From May 19, 2006 through July 21, 2006, members of Lexington’s management and Newkirk’s management met on numerous occasions both in person and telephonically, independently and together with their respective counsel and/or financial advisors, to negotiate the terms of the merger agreement.

 

On May 23, 2006, at a regularly scheduled meeting of Lexington’s board of trustees, which included Messrs. Glickman and Perla, Lexington’s senior management and Wachovia Securities updated the board of trustees on the status of the strategic transaction process, including the Newkirk bid.

 

At the meeting, Mr. Roskind informed Lexington’s board of trustees that Bidder B requested at least a week to conduct further due diligence in order to determine whether it could revise its preliminary indication of interest. During this period, Lexington management and Paul Hastings conducted additional in-depth due diligence on Newkirk.

 

On May 30, 2006, Messrs. Roskind, Eglin and Glickman met with Mr. Ashner. Later on May 30, 2006, Messrs. Roskind, Eglin, Grosfeld and Lynch met with Mr. Ashner.

Between May 30, 2006 and June 9, 2006, Lexington’s senior management, together with Wachovia Securities and Paul Hastings, met on several occasions with Newkirk’s senior management, as well as Bear Stearns and Katten Muchin Rosenman, to negotiate the terms of the merger agreement and ancillary documents. During this time period, Bidder B informed Lexington that it would not be in a position to revise its preliminary indication of interest.

 

On June 9, 2006, Mr. Lynch, as chairman of the compensation committee of Lexington’s board of trustees, requested that Lexington’s general counsel contact FPL Partners, an independent compensation consultant, to arrange for a call between a representative of FPL Partners and Mr. Lynch regarding the payment and waiver under Lexington’s employment agreements proposed by Newkirk.

 

On June 13, 2006, Lexington’s full board of trustees held a special meeting to discuss Newkirk’s proposal. Messrs. Perla and Glickman recused themselves from the meeting. Lexington’s senior management provided Lexington’s board of trustees with a status update of the negotiations with Newkirk. Lexington’s senior management reported that it was working through the accounting treatment of the proposed merger with Lexington’s independent registered public accounting firm, KPMG LLP.

 

At this meeting, Wachovia Securities discussed Newkirk and the proposed merger with Lexington’s board of trustees. The board of trustees then discussed in detail the impact of the accounting treatment of the proposed merger.

 

On June 14, 2006, Mr. Roskind cancelled a special meeting of Lexington’s board of trustees scheduled for June 15, 2006 to allow Lexington’s senior management and KPMG LLP sufficient time to complete a review of the accounting treatment of the proposed merger.

 

On June 20, 2006, Mr. Lynch conducted a telephone interview with FPL Partners and authorized Lexington’s general counsel to continue to provide FPL Partners with documentation of the employment arrangements of Lexington’s executive officers.

 

At a June 22, 2006 meeting of the Lexington special committee, Paul Hastings reviewed with the committee the terms of the then current draft of the merger agreement in detail. Lexington’s senior management then left the meeting and the special committee met in executive session. The Lexington special committee then reviewed the activity of the Lexington special committee to date and the existing employment arrangements with Lexington’s executive officers and discussed the possible role of FPL Partners in assisting the Lexington special committee in reviewing the employment arrangements.

 

On June 27, 2006, Lexington’s board of trustees held a special meeting. Messrs. Perla and Glickman were not present at the special meeting. Lexington’s senior management and Wachovia Securities updated the board of trustees with respect to the progress of the merger negotiations. Following the special meeting, Lexington’s special committee met outside of the presence of Lexington’s senior management to discuss the potential merger with Wachovia Securities and Paul Hastings.

 

Later on June 27, 2006, Mr. Lynch formally engaged FPL Partners to review the employment arrangements with Lexington’s executive officers and to assist Lexington’s special committee in determining whether any payments should be made to Lexington’s executive officers in connection with the proposed merger.

 

On June 28, 2006, Newkirk’s board of directors was provided with further analyses from Bear Stearns incorporating updated financial information prepared by Newkirk management with respect to the valuation of Newkirk, Lexington and the combined company. The updated analyses were substantially identical to those previously provided except they were updated to provide for potential change in control compensation payments to Lexington’s management as well as details on transactions consummated by Lexington and Newkirk from May 17, 2006 to June 28, 2006.

 

On June 29, 2006, at a special meeting of both Newkirk’s special committee and Newkirk’s board of directors, representatives of management and Bear Stearns made a further presentation to the full board of directors similar to the presentation made at the May 17, 2006 meeting. The presentation provided updated financial information to provide for potential change in control compensation payments to Lexington’s

management as well details on transactions consummated by Lexington and Newkirk from May 17, 2006 to June 29, 2006. The board again had the opportunity to discuss the merger with management and Bear Stearns.

 

On June 29, 2006, Lexington’s board of trustees held a special meeting. Mr. Perla was not present at the special meeting, but Mr. Glickman was in attendance for part of the meeting. Paul Hastings and Mr. Glickman reminded Lexington’s board of Trustees that Mr. Glickman would participate in parts of the meeting, but would recuse himself in the event of a vote on any transaction involving Newkirk. Wachovia Securities discussed financial analyses of Lexington, Newkirk and the combined company resulting from the proposed merger. Lexington’s board of trustees engaged in an extended discussion regarding Wachovia Securities’ presentation. Paul Hastings then reviewed the status of Lexington’s and Paul Hastings’ due diligence of Newkirk and the terms of the merger agreement. Paul Hastings noted that due to Mr. Ashner’s exclusivity agreement with Winthrop, Newkirk was requiring that, in the event Mr. Ashner terminated his employment with Lexington to preserve such exclusivity agreement, Mr. Ashner would be entitled to a full severance payment. Lexington’s board of trustees requested that Lexington’s senior management negotiate the point with Newkirk so that Mr. Ashner would only be entitled to receive a portion of his severance payment. Mr. Glickman, members of Lexington’s management and Wachovia Securities left the meeting so the Lexington special committee could meet with Paul Hastings.

 

At the conclusion of the June 29th meeting, the Lexington special committee met with senior management and Wachovia Securities. The Lexington special committee observed that while the transaction structure appeared to be beneficial to Lexington and accomplished many of the goals originally expressed when the board determined to explore strategic alternatives, the financial modeling used in the presentation was based on the assumption that Lexington’s investments would remain static. The special committee requested a review of the impact of the merger assuming that Lexington was able to implement senior management’s expected growth strategy.

 

Between June 29, 2006 and July 5, 2006, Paul Hastings had several conversations with Katten Muchin to negotiate issues in the draft merger agreement, including, in each case, among others, the scope of the representations and warranties being made by each company and the covenants of each company prior to closing.

 

On July 5, 2006, Lexington’s special committee met with Paul Hastings and FPL Partners. FPL Partners presented the results of its review of the employment arrangements with Lexington’s executive officers. Lexington’s special committee determined that, in light of such review, no additional compensation should be payable to Lexington’s executive officers in connection with the proposed merger.

 

On July 12, 2006, Lexington’s special committee held another meeting. At the meeting, Lexington’s senior management provided a supplemental presentation to the special committee regarding the positive, negative and neutral impacts of the potential merger on certain of Lexington’s corporate objectives.

 

On July 13, 2006, representatives of Newkirk and Lexington’s management, along with representatives of Wachovia Securities and Bear Stearns, met. At the meeting, Lexington provided Newkirk with a copy of material provided to Lexington’s special committee at its July 12, 2006 meeting.

 

On the evening of July 13, 2006, Messrs. Roskind and Eglin had dinner with Mr. Ashner to discuss the terms of the proposed merger.

 

On July 14, 2006, Bidder A contacted Mr. Roskind about the possibility of reentering the confidential process.

 

On July 18, 2006, Lexington and Bidder A amended the confidentiality agreement between them to allow Bidder A additional time to complete its review of Lexington.

 

Prior to a July 19, 2006 meeting of Lexington’s special committee, Lexington’s executive officers informed Mr. Lynch that they would waive any rights triggered by the proposed merger under the employment agreements.

At the July 19, 2006 meeting, Lexington’s special committee met with Paul Hastings and FPL Partners to discuss the terms of waiver agreements with Lexington’s executive officers and the proposed employment agreement with Mr. Ashner.

 

On July 20, 2006, Newkirk’s board of directors was provided with further analyses incorporating the final merger terms prepared by Newkirk management and Bear Stearns with respect to the valuation of Newkirk, Lexington and the combined company. The updated analyses were substantially similar to those previously provided except they included revised models utilizing updated information provided by Lexington’s management as well as materials provided by Lexington to its special committee on July 12th, eliminated the $32,500,000 in “change of control” payments to Lexington executives and up to $6,000,000 in excise taxes incurred by the executives in connection with such payments, and took into account a special $0.17 per share dividend to Lexington shareholders.

 

On July 21, 2006, Lexington’s board of trustees held a meeting to consider the proposed merger. Messrs. Glickman and Perla were not in attendance because of the potential conflicts of interest discussed above. Mr. Roskind informed Lexington’s board of trustees that he did not believe Bidder A would make an additional bid for Lexington. Mr. Roskind provided an update on the status of the negotiations regarding the merger agreement, including that, in exchange for a waiver by the executive officers of any rights under their employment agreements, Newkirk agreed that Lexington could pay a special dividend of $0.17 per common share prior to the closing. After presentations from Lexington’s senior management, Wachovia Securities and Paul Hastings, each member of Lexington’s special committee recommended the proposed merger, as described by Lexington’s senior management, Wachovia Securities and Paul Hastings, to Lexington’s board of trustees. Lexington’s board of trustees agreed to meet on July 23, 2006 to allow time for Lexington’s senior management and Paul Hastings to finalize the merger agreement and ancillary documents and Wachovia Securities to prepare for the meeting.

 

On July 21, 2006, at special meetings of each of Newkirk’s board of directors and the special committee, representatives of Newkirk management and Bear Stearns made a presentation describing the July 20th analyses. The board was advised that the updated analyses were substantially similar to those previously provided except they included revised models utilizing updated information provided by Lexington’s management as well as materials provided by Lexington to its special committee on July 12th, eliminated the $32,500,000 in “change of control” payments to Lexington executives and up to $6,000,000 in excise taxes incurred by the executives in connection with such payments, and took into account a special $.17 per share dividend to Lexington shareholders. The board again had the opportunity to discuss the merger with management and Bear Stearns. Also at the July 21, 2006 meeting, Mr. Ashner recommended that, in light of the substantial time commitments required of the special committee, the board approve the payment of a fee of $50,000 for each special committee member and $100,000 for the chairman of the special committee. The board approved these payments.

 

Between July 21, 2006 and July 23, 2006, Lexington, Newkirk and their respective counsel negotiated the outstanding terms of the merger agreement and the ancillary documents, finalized the schedules and resolved certain diligence issues.

 

On July 23, 2006, Lexington’s board of trustees held a meeting to consider the proposed merger. Mr. Perla attended the meeting, but Mr. Glickman did not attend the meeting. Representatives of Wachovia Securities and Paul Hastings also participated in the meeting. In advance of the meeting, each member of Lexington’s board received a copy of the merger agreement and related documents and an updated presentation to be made by Wachovia Securities. At the meeting, Mr. Roskind informed Lexington’s board of trustees that Bidder A would not make a formal proposal or bid. Wachovia Securities then reviewed the terms of the proposed merger agreement and Paul Hastings again reviewed Lexington’s trustees’ standard of conduct and the duties of trustees relating to the proposed merger under Maryland law. During the meeting, Wachovia Securities rendered an oral opinion to Lexington’s board of trustees, subsequently confirmed in a written opinion, to the effect that, as of July 23, 2006, subject to and based on the assumptions made, procedures followed, matters considered and limitations on the opinion and the review undertaken, as set forth in the opinion, the 0.80 exchange ratio pursuant to the merger agreement was fair, from a financial point of view, to Lexington. After

asking several questions regarding the accounting treatment of the proposed merger, Mr. Perla recused himself from the meeting.

 

Also on July 23, 2006, a special meeting of the board of directors of Newkirk was held. Participating at the meetings were representatives of Bear Stearns, Katten Muchin and Post Heymann. In advance of the meeting, each member of Newkirk’s board received a copy of the merger agreement and related documents. Representatives of Katten Muchin advised the board that the terms of the merger agreement were consistent with those outlined at the May 17, 2006 meeting and customary for transactions of the nature of the merger. At the meeting, Bear Stearns provided its oral opinion (which was subsequently confirmed in writing) to the effect that, as of that date and subject to and based on the assumptions made, procedures followed, matters considered and limitations of the review undertaken as set forth in its opinion, the consideration to be received by public holders of shares of Newkirk common stock pursuant to the merger agreement who were not entering into voting or other agreements in connection with the Merger, was fair, from a financial point of view, to such holders. The special committee of Newkirk’s board of directors, by unanimous vote, recommended that the board of directors of Newkirk approve the merger agreement and, following such recommendation, the board of directors, by unanimous vote, approved the merger agreement and the merger. Newkirk’s board of directors also resolved to recommend that Newkirk stockholders adopt the merger agreement and authorized Newkirk management to execute and deliver the merger agreement and the agreements contemplated thereby.

 

Lexington’s board of trustees then discussed at length the terms of the proposed merger and a variety of positive and negative considerations concerning the transaction and the overall strategic alternatives available to Lexington. These factors are described in more detail below under the heading “— Factors Considered by Lexington’s Board of Trustees and Reasons for the Merger.”

 

At the conclusion of the July 23, 2006 meeting, the members of Lexington’s board of trustees still present at the meeting unanimously approved, among other things, the merger agreement and the merger and directed that the merger agreement and the merger be submitted for consideration by Lexington’s common shareholders at a special meeting of such shareholders.

 

Late in the evening of July 23, 2006, Lexington and Newkirk executed the merger agreement and issued a joint press release announcing the transaction.

 

On September 11, 2006, Newkirk and Lexington entered into Amendment No. 1 to the merger agreement which extended the outside closing date from January 31, 2007 to March 31, 2007 and also clarified the respective obligations of the parties with respect to the registration statement that would be filed on behalf of the MLP unitholders.

 

On October 13, 2006, Newkirk and Lexington entered into Amendment No. 2 to the merger agreement which (i) clarified that the holders of common partnership units in Lexington’s operating partnerships will receive a special distribution of $0.17 per share payable by Lexington prior to the closing of the merger if declared and paid by Lexington and (ii) delays the closing until on or about December 29, 2006, unless the parties otherwise agree to accelerate the closing date.

 

Recommendation of Lexington’s Board of Trustees.

 

Lexington’s board of trustees has approved the merger agreement, the merger and the related transactions and declared that the merger agreement, the merger and the related transactions, including the adoption of the Amended and Restated Declaration of Trust, are advisable and fair to, and in the best interests of, Lexington and its shareholders. Lexington’s board of trustees recommends that Lexington common shareholders vote “FOR” approval of the merger agreement, the merger and the related transactions, including the adoption of the Amended and Restated Declaration of Trust and the issuance of Lexington common shares under and as contemplated by the merger agreement.

Lexington’s Reasons for the Merger.

 

In determining whether to approve the merger agreement, the merger and the related transactions, Lexington’s board of trustees considered a variety of factors that might impact the short-term and long-term interests of Lexington and its shareholders. As part of its deliberations, Lexington’s board of trustees took into consideration the support of the merger by Lexington’s senior management and considered the historical, recent and prospective financial condition, results of operations, property holdings, share price, capitalization, and operating, strategic and financial risks of Lexington and Newkirk, considered separately for each entity and on a combined basis for the combined company.

 

Benefits of the Merger.

 

In connection with its determination, Lexington’s board of trustees consulted with Lexington’s senior management, as well as its financial and legal advisors, and considered a number of factors, including, among others, the following positive factors (the order does not reflect the relative significance):

 

 

 

 

 

Risks of the Merger.

 

Lexington’s board of trustees recognized that there are risks associated with the merger and the merger agreement, including the following risks (the order does not reflect the relative significance):

 

 

 

 

The above discussion of the factors considered by Lexington’s board of trustees is not intended to be exhaustive, but does set forth the principal positive and negative factors considered by Lexington’s board of trustees. Lexington’s board of trustees approved the merger agreement, the merger and the related transactions and recommended approval by Lexington’s shareholders of the merger agreement, the merger and the related transactions, including the adoption of the Amended and Restated Declaration of Trust and the Amended and Restated By-laws and the issuance of Lexington common shares under and as contemplated by the merger agreement in light of the various factors described above and other factors that each member of Lexington’s board of trustees believed to be appropriate.

 

In view of the wide variety of factors considered by Lexington’s board of trustees with its evaluation of the merger and the complexity of these matters, Lexington’s board of trustees did not consider it practical and did not attempt to quantify, rank or otherwise assign relative weights to the specific factors it considered in reaching its decision. Rather, Lexington’s board of trustees made its recommendation based on the totality of information presented to and the investigation conducted by it. In considering the factors discussed above, individual trustees may have given different weights to different factors.

 

 

Recommendation of Newkirk’s Board of Directors.

 

Newkirk’s board of directors, upon the recommendation of Newkirk’s special committee, has unanimously approved the merger agreement, the merger and the related transactions and declared that the merger agreement, the merger and the related transactions are advisable and fair to, and in the best interests of, Newkirk and its stockholders. Newkirk’s board of directors recommends that holders of Newkirk’s voting securities vote “FOR” approval of the merger agreement, the merger and the related transactions.

 

Newkirk’s Reasons for the Merger.

 

In determining whether to approve the merger agreement, the merger and the related transactions, Newkirk’s board of directors considered a variety of factors that might impact the long-term as well as short-term interests of Newkirk and its stockholders. In its deliberations, Newkirk’s board of directors considered the support of the merger by Newkirk’s senior management, the historical, recent and prospective financial condition, results of operations, property holdings, share price, capitalization, and operating, strategic and financial risks of Lexington and Newkirk, considered separately for each entity and on a combined basis for the combined company.

 

Benefits of the Merger.

 

In making the determination described above, Newkirk’s board of directors consulted with its legal advisors, accountants and financial advisors. Newkirk’s board of directors considered a number of factors, including the following principal positive factors (the order does not reflect the relative significance):

 

 

 

 

 

Risks of the Merger.

 

Newkirk’s board of directors recognized that there are risks associated with the merger and the merger agreement, including the following risks (the order does not reflect the relative significance):

 

 

 

The above discussion of the factors considered by Newkirk’s board of directors is not intended to be exhaustive, but does set forth the principal positive and negative factors considered by Newkirk’s board of directors. Newkirk’s board of directors approved the merger agreement, the merger and the related transactions and recommended approval by Newkirk’s stockholders of the merger agreement, the merger and the related transactions in light of the various factors described above and other factors that each member of Newkirk’s board of directors believed to be appropriate.

 

In view of the wide variety of factors considered by Newkirk’s board of directors with its evaluation of the merger and the complexity of these matters, Newkirk’s board of directors did not consider it practical and did not attempt to quantify, rank or otherwise assign relative weights to the specific factors it considered in reaching its decision. Rather, Newkirk’s board of directors made its recommendation based on the totality of information presented to and the investigation conducted by it. In considering the factors discussed above, individual trustees may have given different weights to different factors.

 

 

Overview

 

Pursuant to an engagement letter dated April 17, 2006, Lexington’s board of trustees retained Wachovia Securities to act as its financial advisor to assist Lexington in exploring strategic alternatives to enhance shareholder value. In selecting Wachovia Securities, Lexington’s board of trustees considered, among other things, the fact that Wachovia Securities is an internationally recognized investment banking firm with substantial experience advising companies in the real estate industry as well as substantial experience providing strategic advisory services. Wachovia Securities, as part of its investment banking business, is continuously engaged in the evaluation of businesses and their debt and equity securities in connection with mergers and acquisitions; underwritings, private placements and other securities offerings; senior credit financings; valuations; and general corporate advisory services.

 

At the July 23, 2006 meeting of Lexington’s board of trustees, Wachovia Securities rendered its opinion to Lexington’s board of trustees, that as of July 23, 2006, and subject to and based on the assumptions made, procedures followed, matters considered and limitations on the review undertaken, in its opinion, the 0.80 to 1 exchange ratio pursuant to the merger agreement was fair, from a financial point of view to Lexington.

The full text of Wachovia Securities’ opinion, dated July 23, 2006, which sets forth, among other things, the assumptions made, procedures followed, matters considered and limitations on the review undertaken by Wachovia Securities, is attached as Annex D to this joint proxy statement/prospectus. We urge you to read the opinion carefully and in its entirety. This summary is qualified in its entirety by reference to the full text of the opinion.

 

Wachovia Securities’ opinion does not address the merits of the underlying decision by Lexington to enter into the merger agreement and does not and shall not constitute a recommendation to any holders of Lexington common shares as to how they should vote in connection with the merger.

 

Although Wachovia Securities evaluated the fairness of the exchange ratio, from a financial point of view, to Lexington, the exchange ratio itself was determined by Lexington and Newkirk through arm’s-length negotiations. Lexington did not provide specific instructions to, or place any limitations on, Wachovia Securities with respect to the procedures to be followed or factors to be considered by it in performing its analyses or providing its opinion.

 

In arriving at its opinion, Wachovia Securities, among other things:

 

 

In connection with its review, Wachovia Securities relied upon the accuracy and completeness of the foregoing financial and other information, and did not assume any responsibility for any independent verification of such information. Wachovia Securities also assumed the accuracy and completeness of the financial forecasts provided by Lexington and Newkirk for purposes of its opinion. With respect to the financial forecasts, Wachovia Securities assumed that the estimates and judgments expressed by management of each of Newkirk and Lexington in such forecasts were reasonably formulated and that they were the best currently available estimates and judgments of the respective managements of each of Lexington and Newkirk regarding the anticipated future financial performance, in the case of Lexington, Lexington, in the case of Newkirk, Lexington and Newkirk and, in the case of the combined company following the merger, Lexington, and that such combined company forecasts will be realized in the amount and timeframes contemplated thereby. Wachovia Securities assumes no responsibility for and expressed no view as to any such forecasts or the assumptions upon which they are based. In arriving at its opinion, Wachovia Securities did not prepare or obtain any independent evaluations or appraisals of the assets or liabilities of either Lexington or Newkirk nor was Wachovia Securities provided with any such evaluations or appraisals.

 

In rendering its opinion, Wachovia Securities assumed that the merger will be consummated on the terms described in the merger agreement, without waiver of any material terms or conditions, and that in the course of obtaining any necessary legal, regulatory or third-party consents or approvals, no restrictions will be imposed that will have an adverse effect on the merger, Lexington or other actions contemplated by the merger agreement in any respect meaningful to Wachovia Securities’ opinion. Wachovia Securities’ opinion was necessarily based on economic, market, financial and other conditions and the information made available to Wachovia Securities’ as of July 23, 2006. Wachovia Securities’ opinion did not address any of the provisions of the Second Amended and Restated Newkirk Partnership Agreement.

 

Wachovia Securities’ opinion did not address the merits of the underlying decision by Lexington to enter into the merger agreement and does not and shall not constitute a recommendation to any holders of Lexington common shares as to how they should vote in connection with the merger. In addition, Wachovia Securities did not express any opinion with respect to the prices at which Lexington common shares will trade at any time.

 

The following summaries of Wachovia Securities’ financial analyses present some information in tabular format. In order to fully understand the financial analyses used by Wachovia Securities, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses. Accordingly, the analyses listed in the tables and described below must be considered as a whole. Considering any portion of such analyses and the factors considered, without considering all analyses and factors, could create a misleading or incomplete view of the process underlying Wachovia Securities’ opinion.

 

Lexington Analysis

 

Historical Stock Trading Analysis.  Wachovia Securities reviewed the closing trading prices of Lexington common shares for the 12-month period ended July 21, 2006, the last trading day prior to the announcement of the merger. Wachovia Securities compared the high and low closing prices over such 12-month period to Lexington’s common share closing price of $20.97 on July 21, 2006. The following table summarizes this review.

 

Analyst Consensus Net Asset Value Analysis.  Wachovia Securities reviewed equity research analyst estimates of net asset value per share for Lexington. Wachovia Securities compared the high and low of the analyst estimates to Lexington’s common share closing price of $20.97 on July 21, 2006, the last trading day prior to the announcement of the merger. The following table summarizes this review.

 

 

Comparable Companies Analysis.  Using publicly available information, including estimated funds from operations (“FFO”) per share for 2006 published by First Call Corporation, a division of Thomson Financial Services (“First Call”), Wachovia Securities analyzed certain trading multiples of selected publicly traded net lease REITs that it believed were reasonably comparable to Lexington. These companies included the following:

 

 

For each of the comparable companies, Wachovia Securities calculated the multiple of equity market price to the consensus estimate of its 2006 FFO per share, as reported by First Call, based on the closing share prices as of July 21, 2006. Wachovia Securities calculated the high and low trading multiples for the comparable companies and applied these multiples to the consensus First Call 2006 FFO per share estimate for Lexington of $1.91 which resulted in the following range of implied share prices for each Lexington common share:

 

 

None of the companies utilized in the above analyses for comparative purposes is identical to Lexington. Accordingly, a complete analysis of the results of the foregoing calculations cannot be limited to a quantitative review of such results and involves complex considerations and judgments concerning the differences in the financial and operating characteristics of the comparable companies and other factors that could affect the public trading value of the comparable companies as well as the potential trading value of Lexington.

 

Precedent Transactions Analysis.  Using publicly available information, including FFO estimates published by First Call, Wachovia Securities examined selected transactions involving publicly traded real estate companies announced since January 2001. The selected precedent transactions included the following:

 

 

For each of the selected precedent transactions, Wachovia Securities calculated the multiple of the equity transaction price to the target company’s forward 12-month FFO per share based upon First Call consensus estimates. Wachovia Securities determined the high and low multiples for the precedent transactions and

applied these figures to the consensus First Call 2006 FFO estimate for Lexington of $1.91 per share to arrive at the following range of implied share prices for each Lexington common share:

 

 

Premiums Paid Analysis.  Wachovia Securities reviewed the same transactions used in the precedent transactions analysis to determine the premium or discount paid by the acquiror relative to the closing market price of the target company’s common shares for the day prior and relative to the average of the closing market prices of the target company’s common shares for the 10 trading days prior to the public announcement of the respective transaction.

 

Using publicly available information, Wachovia Securities calculated, among other things, the high and low premium paid in these selected transactions and applied these figures to the closing price of Lexington common shares on July 21, 2006 and to the average closing price of Lexington common shares for the 10 trading days ended July 21, 2006. This analysis resulted in the following range of implied share prices for each Lexington common share:

 

 

Dividend Discount Analysis.  Wachovia Securities performed a dividend discount analysis of Lexington’s common shares using First Call consensus FFO per share estimates through 2008, grown at 3.0% per year thereafter, and Lexington management’s projected dividends per share for 2006 through 2010. Wachovia Securities calculated the implied present values of projected cash dividends for Lexington for 2006 through 2010 using discount rates ranging from 9.0% to 11.0%. Wachovia Securities then calculated implied terminal values in 2010 based on multiples ranging from 9.5x to 11.5x 2011 FFO per share. These implied terminal values were then discounted at discount rates ranging from 9.0% to 11.0% to arrive at implied present values. Wachovia Securities derived a range of implied per share prices for Lexington common shares based on the sum of the respective implied present value of Lexington’s projected cash dividends and the implied present value of Lexington’s terminal value in 2010. Discount rates utilized in this analysis were derived from historic REIT equity returns and FFO multiples were derived based upon current and historic trading levels of Lexington common shares. This analysis resulted in the following range of implied share prices for each Lexington common share:

 

 

Newkirk Analysis

 

Historical Stock Trading Analysis.  Wachovia Securities reviewed the closing trading prices of Newkirk common stock from November 1, 2005, the pricing date of Newkirk’s IPO, through July 21, 2006, the last trading day prior to the announcement of the merger. Wachovia Securities compared the high and low closing

prices over such period to the Newkirk common stock’s closing price of $16.95 on July 21, 2006. The following table summarizes this review.