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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2003
COMMISSION FILE NUMBER: 1-13762
RECKSON OPERATING PARTNERSHIP, L. P.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 11-3233647
- -------- ----------
(STATE OR OTHER JURISDICTION (IRS EMPLOYER IDENTIFICATION NUMBER)
OF INCORPORATION OR ORGANIZATION)
225 BROADHOLLOW ROAD, MELVILLE, NY 11747
- ---------------------------------- -----
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)
(631) 694-6900
(REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE)
---------------------------------------------
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS) YES _X_ NO___, AND (2) HAS BEEN
SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES _X_ NO ___.
INDICATE BY CHECK MARK WHETHER THE REGISTRANT IS AN ACCELERATED FILER (AS
DEFINED IN RULE 126.2 OF THE EXCHANGE ACT).
YES _X_ NO ___
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RECKSON OPERATING PARTNERSHIP, L.P.
QUARTERLY REPORT
FOR THE THREE MONTHS ENDED JUNE 30, 2003
TABLE OF CONTENTS
INDEX PAGE
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PART I. FINANCIAL INFORMATION
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Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 2003 (unaudited) and December 31, 2002.................... 3
Consolidated Statements of Income for the three and six months ended
June 30, 2003 and 2002 (unaudited) ............................................................. 4
Consolidated Statements of Cash Flows for the six months ended
June 30, 2003 and 2002 (unaudited) ............................................................. 5
Notes to the Consolidated Financial Statements (unaudited) .......................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................ 18
Item 3. Quantitative and Qualitative Disclosures about Market Risk........................................... 33
Item 4. Controls and Procedures.............................................................................. 34
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PART II. OTHER INFORMATION
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Item 1. Legal Proceedings.................................................................................... 39
Item 2. Changes in Securities and Use of Proceeds............................................................ 39
Item 3. Defaults Upon Senior Securities...................................................................... 39
Item 4. Submission of Matters to a Vote of Securities Holders................................................ 39
Item 5. Other Information.................................................................................... 39
Item 6. Exhibits and Reports on Form 8-K..................................................................... 39
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SIGNATURES 40
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2
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
RECKSON OPERATING PARTNERSHIP, L.P.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS EXCEPT UNIT AMOUNTS)
JUNE 30, 2003
ASSETS (UNAUDITED) DECEMBER 31, 2002
------------------- -------------------
Commercial real estate properties, at cost
Land ............................................................. $ 423,036 $ 418,040
Buildings and improvements ....................................... 2,448,379 2,415,252
Developments in progress:
Land ............................................................. 88,388 92,924
Development costs ................................................ 23,743 28,311
Furniture, fixtures and equipment ..................................... 12,572 13,595
----------- -----------
2,996,118 2,968,122
Less accumulated depreciation ......................................... (501,122) (454,018)
----------- -----------
2,494,996 2,514,104
Investments in real estate joint ventures ............................. 5,709 6,116
Investment in mortgage notes and notes receivable ..................... 54,600 54,547
Cash and cash equivalents ............................................. 24,922 30,576
Tenant receivables .................................................... 7,724 14,050
Investments in service companies and affiliate loans and joint ventures 77,284 78,104
Deferred rents receivable ............................................. 116,573 107,366
Prepaid expenses and other assets ..................................... 54,910 36,846
Contract and land deposits and pre-acquisition costs .................. 208 240
Deferred lease and loan costs ......................................... 68,727 70,103
----------- -----------
TOTAL ASSETS ..................................................... $ 2,905,653 $ 2,912,052
=========== ===========
LIABILITIES
Mortgage notes payable ................................................ $ 734,134 $ 740,012
Unsecured credit facility ............................................. 322,000 267,000
Senior unsecured notes ................................................ 499,374 499,305
Accrued expenses and other liabilities ................................ 79,424 90,320
Distributions payable ................................................. 31,471 31,575
----------- -----------
TOTAL LIABILITIES ................................................ 1,666,403 1,628,212
----------- -----------
Minority partners' interests in consolidated partnerships ............. 240,452 242,934
----------- -----------
Commitments and contingencies ......................................... -- --
PARTNERS' CAPITAL
Preferred Capital, 10,854,162 units issued and outstanding ............ 281,690 281,690
General Partners' Capital:
Class A common units, 48,000,995 and 48,246,083 units issued and
outstanding, respectively ........................................... 450,121 478,121
Class B common units, 9,915,313 units issued and outstanding ........ 200,726 209,675
Limited Partners' Capital:
Class A common units, 7,276,224 units issued and outstanding ....... 66,261 71,420
----------- -----------
TOTAL PARTNERS' CAPITAL ............................................ 998,798 1,040,906
----------- -----------
TOTAL LIABILITIES AND PARTNERS' CAPITAL .......................... $ 2,905,653 $ 2,912,052
=========== ===========
(see accompanying notes to financial statements)
3
RECKSON OPERATING PARTNERSHIP, L.P.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED AND IN THOUSANDS, EXCEPT UNIT DATA)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- ----------------------------
2003 2002 2003 2002
------------ ------------ ------------ ------------
REVENUES:
Property operating revenues:
Base rents ................................................. $ 107,127 $ 108,867 $ 214,605 $ 215,250
Tenant escalations and reimbursements ...................... 15,377 14,062 31,340 29,383
------------ ------------ ------------ ------------
Total property operating revenues ............................... 122,504 122,929 245,945 244,633
Interest income on mortgage notes and notes receivable
(including $1,045, $1,071, $2,078 and $2,130, respectively
from related parties) ....................................... 1,559 1,565 3,090 3,121
Investment and other income ..................................... 3,349 284 9,137 818
------------ ------------ ------------ ------------
TOTAL REVENUES ............................................. 127,412 124,778 258,172 248,572
------------ ------------ ------------ ------------
EXPENSES:
Property operating expenses ..................................... 46,568 41,431 94,402 83,326
Marketing, general and administrative ........................... 9,390 7,650 17,649 14,745
Interest ........................................................ 22,896 22,124 45,746 43,120
Depreciation and amortization ................................... 29,903 27,836 61,887 53,766
------------ ------------ ------------ ------------
TOTAL EXPENSES ............................................. 108,757 99,041 219,684 194,957
------------ ------------ ------------ ------------
Income before minority interests, distributions to preferred
unit holders, equity (loss) in earnings of real estate
joint ventures and service companies, gain on sales of
depreciable real estate assets and discontinued operations .. 18,655 25,737 38,488 53,615
Minority partners' interests in consolidated partnerships ....... (4,335) (4,813) (9,025) (9,933)
Equity (loss) in earnings of real estate joint ventures and
service companies (including $0 and $58, $0 and
$465, respectively from related parties) .................... (270) 159 (164) 494
Gain on sales of depreciable real estate assets ................. -- -- -- 537
------------ ------------ ------------ ------------
Income before discontinued operations and distributions to
preferred unitholders ....................................... 14,050 21,083 29,299 44,713
Discontinued operations:
Income from discontinued operations ........................ -- 152 -- 386
------------ ------------ ------------ ------------
Net Income ...................................................... 14,050 21,235 29,299 45,099
Preferred unit distributions .................................... (5,591) (5,767) (11,181) (11,715)
------------ ------------ ------------ ------------
Net income allocable to common unit holders ..................... $ 8,459 $ 15,468 $ 18,118 $ 33,384
============ ============ ============ ============
Net Income allocable to:
Class A common ............................................. $ 6,643 $ 12,211 $ 14,234 $ 26,304
Class B common ............................................. 1,816 3,257 3,884 7,080
------------ ------------ ------------ ------------
Total ........................................................... $ 8,459 $ 15,468 $ 18,118 $ 33,384
============ ============ ============ ============
Net income per weighted average common units:
Class A common ............................................. $ .12 $ .21 $ .26 $ .44
Discontinued operations .................................... -- -- -- .01
Gain on sales of depreciable real estate assets ............ -- -- -- --
------------ ------------ ------------ ------------
Class A common ............................................. $ .12 $ .21 $ .26 $ .45
============ ============ ============ ============
Class B common ............................................. $ .18 $ .32 $ .39 $ .67
Discontinued operations .................................... -- -- -- .01
Gain on sales of depreciable real estate assets ............ -- -- -- .01
------------ ------------ ------------ ------------
Class B common ............................................. $ .18 $ .32 $ .39 $ .69
============ ============ ============ ============
Weighted average common units outstanding:
Class A common ............................................. 55,277,219 58,275,733 55,376,642 57,900,171
Class B common ............................................. 9,915,313 10,283,513 9,915,313 10,283,513
(see accompanying notes to financial statements)
4
RECKSON OPERATING PARTNERSHIP, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED AND IN THOUSANDS)
SIX MONTHS ENDED
JUNE 30,
--------------------------
2003 2002
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ..................................................................... $ 29,299 $ 45,099
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization ................................................ 61,887 54,167
Gain on sales of depreciable real estate assets .............................. -- (537)
Minority partners' interests in consolidated partnerships .................... 9,025 9,933
(Equity) loss in earnings of real estate joint ventures and service companies 164 (494)
Changes in operating assets and liabilities:
Prepaid expenses and other assets ............................................ (5,988) 21,202
Tenant receivables ........................................................... 6,326 (1,878)
Deferred rents receivable .................................................... (9,207) (13,175)
Accrued expenses and other liabilities ....................................... (9,149) (9,490)
--------- ---------
Net cash provided by operating activities ................................... 82,357 104,827
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CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from mortgage note receivable repayments ............................ -- 8
Additions to commercial real estate properties ............................... (25,149) (20,810)
Additions to developments in progress ........................................ (9,732) (31,809)
Purchase of commercial real estate ........................................... (6,505) --
Payment of leasing costs ..................................................... (8,765) (6,169)
Additions to furniture, fixtures and equipment ............................... (94) (64)
Distributions from investments in real estate joint ventures ................. 243 --
Proceeds from sales of real estate ........................................... -- 2,128
--------- ---------
Net cash used in investing activities ....................................... (50,002) (56,716)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on secured borrowings ..................................... (5,878) (5,094)
Payment of loan costs ........................................................ (29) (990)
(Decrease) in investments in affiliate loans and service companies ........... -- (759)
Proceeds from issuance of senior unsecured notes ............................. -- 49,432
Proceeds from of unsecured credit facility ................................... 55,000 45,000
Repayment of unsecured credit facility ....................................... -- (140,600)
Distributions to minority partners in consolidated partnerships .............. (11,507) (9,559)
Purchases of general partner common units .................................... (4,538) --
Contributions ................................................................ -- 6,014
Distributions ................................................................ (71,057) (74,047)
--------- ---------
Net cash used in financing activities ..................................... (38,009) (130,603)
--------- ---------
Net (decrease) in cash and cash equivalents ..................................... (5,654) (82,492)
Cash and cash equivalents at beginning of period ................................ 30,576 121,773
--------- ---------
Cash and cash equivalents at end of period ...................................... $ 24,922 $ 39,281
========= =========
(see accompanying notes to financial statements)
5
RECKSON OPERATING PARTNERSHIP, L.P.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2003
(UNAUDITED)
1. ORGANIZATION AND FORMATION OF THE OPERATING PARTNERSHIP
Reckson Operating Partnership, L.P. (the "Operating Partnership") commenced
operations on June 2, 1995. The sole general partner in the Operating
Partnership, Reckson Associates Realty Corp. (the "Company") is a
self-administered and self-managed real estate investment trust ("REIT").
The Operating Partnership is engaged in the ownership, management, operation,
leasing and development of commercial real estate properties, principally office
and industrial buildings and also owns certain undeveloped land (collectively,
the "Properties") located in the New York tri-state area (the "Tri-State Area").
During June 1995, the Company contributed approximately $162 million in cash to
the Operating Partnership in exchange for an approximate 73% general partnership
interest. All Properties acquired by the Company are held by or through the
Operating Partnership. In addition, in connection with the formation of the
Operating Partnership, the Operating Partnership executed various option and
purchase agreements whereby it issued common units of limited partnership
interest in the Operating Partnership ("Units") to the continuing investors and
assumed certain indebtedness in exchange for interests in certain property
partnerships, fee simple and leasehold interests in properties and development
land, certain other business assets and 100% of the non-voting preferred stock
of the management and construction companies. At June 30, 2003, the Company's
ownership percentage in the Operating Partnership was approximately 89.5%.
2. BASIS OF PRESENTATION
The accompanying consolidated financial statements include the consolidated
financial position of the Operating Partnership and its subsidiaries at June 30,
2003 and December 31, 2002 and the results of their operations for the three and
six months ended June 30, 2003 and 2002, respectively, and, their cash flows for
the six months ended June 30, 2003 and 2002, respectively. The Operating
Partnership's investments in majority owned and controlled real estate joint
ventures are reflected in the accompanying financial statements on a
consolidated basis with a reduction for minority partners' interest. The
Operating Partnership also invests in real estate joint ventures where it may
own less than a controlling interest. Such investments are also reflected in the
accompanying financial statements on the equity method of accounting. For the
periods presented prior to October 1, 2002, the operating results of Reckson
Management Group, Inc., RANY Management Group, Inc., Reckson Construction Group
New York, Inc. and Reckson Construction Group, Inc. (the "Service Companies"),
in which the Operating Partnership owned a 97% non-controlling interest, were
reflected in the accompanying financial statements on the equity method of
accounting. On October 1, 2002, the Operating Partnership acquired the remaining
3% interests in the Service Companies for an aggregate purchase price of
approximately $122,000. As a result, the Operating Partnership commenced
consolidating the operations of the Service Companies (see Note 10). All
significant inter-company balances and transactions have been eliminated in the
consolidated financial statements.
Reckson Construction Group, Inc. and Reckson Construction Group New York, Inc.
use the percentage-of-completion method for recording amounts earned on its
contracts. This method records amounts earned as revenue in the proportion that
actual costs incurred to date bear to the estimate of total costs at contract
completion.
The minority partners' interests in consolidated partnerships at June 30, 2003
represent a 49% non-affiliated interest in RT Tri-State LLC, owner of a nine
property suburban office portfolio, a 40% non-affiliated interest in Omni
Partners, L.P., owner of a 579,000 square foot suburban office property and a
49% non-affiliated interest in Metropolitan 919 Third Avenue, LLC, owner of the
property located at 919 Third Avenue, New York, NY.
The Operating Partnership follows the guidance provided for under the Financing
Accounting Standards Board ("FASB") Statement No. 66 "Accounting for Sales of
Real Estate" ("Statement No. 66"), which provides guidance on sales contracts
that are accompanied by agreements which require the seller to develop the
property in the future. Under Statement No. 66 profit is recognized and
allocated to the sale of the land and the later development or construction work
on the basis of estimated costs of each activity; the same rate of profit is
attributed to each activity. As a result, profits are recognized and reflected
over the improvement period on the basis of costs incurred (including land) as a
percentage of total costs estimated to be incurred. The Operating Partnership
uses the percentage of completion method, as the future costs of development and
profit were reliably estimated (see Note 6).
6
The accompanying interim unaudited financial statements have been prepared by
the Operating Partnership's management pursuant to the rules and regulations of
the Securities and Exchange Commission ("SEC"). Certain information and footnote
disclosure normally included in the financial statements prepared in accordance
with accounting principles generally accepted in the United States ("GAAP") may
have been condensed or omitted pursuant to such rules and regulations, although
management believes that the disclosures are adequate to make the information
presented not misleading. The unaudited financial statements as of June 30, 2003
and for the three and six month periods ended June 30, 2003 and 2002 include, in
the opinion of management, all adjustments, consisting of normal recurring
adjustments, necessary to present fairly the financial information set forth
herein. The results of operations for the interim periods are not necessarily
indicative of the results that may be expected for the year ending December 31,
2003. These financial statements should be read in conjunction with the
Operating Partnership's audited financial statements and notes thereto included
in the Operating Partnership's Form 10-K for the year ended December 31, 2002.
Recent Accounting Pronouncements
In October 2001, the FASB issued Statement No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets". Statement No. 144 provides
accounting guidance for financial accounting and reporting for the impairment or
disposal of long-lived assets. Statement No. 144 supersedes Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of". It also supersedes the accounting and reporting provisions of
Accounting Principles Board Opinion No. 30, Reporting the Results of
Operations--Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions
related to the disposal of a segment of a business. The Operating Partnership
adopted Statement No. 144 on January 1, 2002. The adoption of this statement did
not have a material effect on the results of operations or the financial
position of the Operating Partnership. The adoption of Statement No. 144 does
not have an impact on net income. Statement No. 144 only impacts the
presentation of the results of operations and gain on sales of depreciable real
estate assets for those properties sold during the period within the
consolidated statements of income.
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others" ("FIN 45"). FIN 45 significantly changes the current
practice in the accounting for, and disclosure of, guarantees. Guarantees and
indemnification agreements meeting the characteristics described in FIN 45 are
required to be initially recorded as a liability at fair value. FIN 45 also
requires a guarantor to make significant new disclosures for virtually all
guarantees even if the likelihood of the guarantor having to make payment under
the guarantee is remote. The disclosure requirements within FIN 45 are effective
for financial statements for annual or interim periods ending after December 15,
2002. The initial recognition and initial measurement provisions are applicable
on a prospective basis to guarantees issued or modified after December 31, 2002.
The Operating Partnership adopted FIN 45 on January 1, 2003. The adoption of
this interpretation did not have a material effect on the results of operations
or the financial position of the Operating Partnership.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities" ("FIN 46"), which explains how to identify variable
interest entities ("VIE") and how to assess whether to consolidate such
entities. The provisions of this interpretation are immediately effective for
VIE's formed after January 31, 2003. For VIE's formed prior to January 31, 2003,
the provisions of this interpretation apply to the first fiscal year or interim
period beginning after June 15, 2003. Management has not yet determined whether
any of its consolidated or unconsolidated subsidiaries represent VIE's pursuant
to such interpretation. Such determination could result in a change in the
Operating Partnership's consolidation policy related to such entities.
Certain prior period amounts have been reclassified to conform to the current
period presentation.
The net income allocable to common unit holders for the three month period ended
June 30, 2002 has been adjusted to record the amortization of stock loans to
certain executive and senior officers of the Company and other costs incurred by
the Company on behalf of the Operating Partnership which aggregated, in total,
approximately $938,000. Such amount also adjusted net income per weighted
average common unit by $(.01) and $(.02) with respect to the Class A common and
Class B common units, respectively.
In addition, the net income allocable to common unit holders for the six month
period ended June 30, 2002 has been adjusted to record the amortization of stock
loans to certain executive and senior officers of the Company and other costs
incurred by the Company on behalf of the Operating Partnership which aggregated,
in total, approximately $1.9 million. Such amount also adjusted net income per
weighted average common unit by $(.03) and $(.04) with respect to the Class A
common and Class B common units, respectively.
7
3. MORTGAGE NOTES PAYABLE
As of June 30, 2003, the Operating Partnership had approximately $734.1 million
of fixed rate mortgage notes which mature at various times between 2004 and
2027. The notes are secured by 21 properties with an aggregate carrying value of
approximately $1.5 billion, which are pledged as collateral against the mortgage
notes payable. In addition, approximately $44.6 million of the $734.1 million is
recourse to the Operating Partnership and certain of the mortgage notes payable
are guaranteed by certain limited partners in the Operating Partnership and/or
the Company.
The following table sets forth the Operating Partnership's mortgage notes
payable as of June 30, 2003, by scheduled maturity date (dollars in thousands):
Principal Interest Maturity Amortization
Property Outstanding Rate Date Term (Years)
- ----------------------------------------------- -------------- ----------- --------------- --------------
80 Orville Dr, Islip, NY 2,616 10.10% February, 2004 Interest only
395 North Service Road, Melville, NY 19,505 6.45% October, 2005 $34 per month
200 Summit Lake Drive, Valhalla, NY 19,160 9.25% January, 2006 25
1350 Avenue of the Americas, NY, NY 74,235 6.52% June, 2006 30
Landmark Square, Stamford, CT (a) 44,570 8.02% October, 2006 25
100 Summit Lake Drive, Valhalla, NY 18,424 8.50% April, 2007 15
333 Earle Ovington Blvd, Mitchel Field, NY (b) 53,376 7.72% August, 2007 25
810 Seventh Avenue, NY, NY 82,100 7.73% August, 2009 25
100 Wall Street, NY, NY 35,577 7.73% August, 2009 25
6900 Jericho Turnpike, Syosset, NY 7,289 8.07% July, 2010 25
6800 Jericho Turnpike, Syosset, NY 13,811 8.07% July, 2010 25
580 White Plains Road, Tarrytown, NY 12,583 7.86% September, 2010 25
919 Third Ave, NY, NY (c) 245,537 6.867% August, 2011 30
110 Bi-County Blvd., Farmingdale, NY 3,521 9.125% November, 2012 20
One Orlando Center, Orlando, FL (d) 38,067 6.82% November, 2027 28
120 West 45th Street, NY, NY (d) 63,763 6.82% November, 2027 28
-----------
Total/Weighted Average $ 734,134 7.26%
===========
- ------------------------
(a) Encompasses six Class A office properties
(b) The Operating Partnership has a 60% general partnership interest in this
property and its proportionate share of the aggregate principal amount
is approximately $32.0 million
(c) The Operating Partnership has a 51% membership interest in this property
and its proportionate share of the aggregate principal amount is
approximately $125.2 million
(d) Subject to interest rate adjustment on November 1, 2004 to the greater
of 8.82% per annum or the yield on non-callable U.S. Treasury
obligations with a term of fifteen years plus 2% per annum.
In addition, the Operating Partnership has a 60% interest in an unconsolidated
joint venture property. The Operating Partnership's share of the mortgage debt
at June 30, 2003 is approximately $8.2 million. This mortgage note payable bears
interest at 8.85% per annum and matures on September 1, 2005 at which time the
Operating Partnership's share of the mortgage debt will be approximately $6.9
million.
4. SENIOR UNSECURED NOTES
As of June 30, 2003, the Operating Partnership had outstanding approximately
$499.4 million (net of issuance discounts) of senior unsecured notes (the
"Senior Unsecured Notes"). The following table sets forth the Operating
Partnership's Senior Unsecured Notes and other related disclosures by scheduled
maturity date (dollars in thousands):
FACE
ISSUANCE AMOUNT COUPON RATE TERM MATURITY
---------------------------- --------------------- ------------------- ----------------- -------------------
March 26, 1999 $100,000 7.40% 5 years March 15, 2004
June 17, 2002 $ 50,000 6.00% 5 years June 15, 2007
August 27, 1997 $150,000 7.20% 10 years August 28, 2007
March 26, 1999 $200,000 7.75% 10 years March 15, 2009
Interest on the Senior Unsecured Notes is payable semi-annually with principal
and unpaid interest due on the scheduled maturity dates. In addition, the Senior
Unsecured Notes issued on March 26, 1999 and June 17, 2002 were issued at
aggregate discounts of $738,000 and 267,500, respectively. Such discounts are
being amortized over the term of the Senior Unsecured Notes to which they
relate.
8
5. UNSECURED CREDIT FACILITY
The Operating Partnership currently has a three year $500 million unsecured
revolving credit facility (the "Credit Facility") from JPMorgan Chase Bank, as
administrative agent, Wells Fargo Bank, National Association, as syndication
agent, and Citicorp North America, Inc. and Wachovia Bank, National Association,
as co-documentation agents. The Credit Facility matures in December 2005,
contains options for a one year extension subject to a fee of 25 basis points
and, upon receiving additional lender commitments, increasing the maximum
revolving credit amount to $750 million. In addition, borrowings under the
Credit Facility are currently priced off LIBOR plus 90 basis points and the
Credit Facility carries a facility fee of 20 basis points per annum. In the
event of a change in the Operating Partnership's unsecured credit rating the
interest rates and facility fee are subject to change. The outstanding
borrowings under the Credit Facility were $322.0 million at June 30, 2003.
The Operating Partnership utilizes the Credit Facility primarily to finance real
estate investments, fund its real estate development activities and for working
capital purposes. At June 30, 2003, the Operating Partnership had availability
under the Credit Facility to borrow approximately an additional $178.0 million,
subject to compliance with certain financial covenants.
6. COMMERCIAL REAL ESTATE INVESTMENTS
As of June 30, 2003, the Operating Partnership owned and operated 75 office
properties (inclusive of eleven office properties owned through joint ventures)
comprising approximately 13.6 million square feet, 104 industrial / R&D
properties comprising approximately 6.9 million square feet and two retail
properties comprising approximately 20,000 square feet located in the Tri-State
Area.
The Operating Partnership also owns approximately 313 acres of land in 12
separate parcels of which the Operating Partnership can develop approximately
3.1 million square feet of office space and approximately 400,000 square feet of
industrial / R&D space. The Operating Partnership is currently evaluating
alternative land uses for certain of the land holdings to realize the highest
economic value. These alternatives may include rezoning certain land parcels
from commercial to residential for potential disposition. As of June 30, 2003,
the Operating Partnership had invested approximately $112.1 million in these
development projects. Management has made subjective assessments as to the value
and recoverability of these investments based on current and proposed
development plans market comparable land values and alternative use values. As
of June 30, 2003, the Operating Partnership has capitalized approximately $4.4
million related to real estate taxes, interest and other carrying costs related
to these development projects.
During February 2003, the Operating Partnership, through Reckson Construction
Group, Inc., entered into a contract with an affiliate of First Data Corp. to
sell a 19.3-acre parcel of land located in Melville, New York and has been
retained by the purchaser to develop a build-to-suit 195,000 square foot office
building for aggregate consideration of approximately $47 million. This
transaction closed on March 11, 2003 and development of the aforementioned
office building has commenced. Net proceeds from the land sale of approximately
$18.3 million were used to establish an escrow account with a qualified
intermediary for a future exchange of real property pursuant to Section 1031 of
the Code and is included in prepaid expenses and other assets on the
accompanying balance sheet. The Code allows for the deferral of taxes related to
the gain attributable to the sale of property if such qualified identified
replacement property is identified within 45 days and acquired within 180 days
from the initial sale. The Operating Partnership has identified certain
properties and interests in properties for purposes of this exchange. In
accordance with Statement No. 66, the Operating Partnership has estimated its
pre-tax gain on this land sale and build-to-suit transaction to be approximately
$20.6 million of which $4.3 million and $10.1 million has been recognized during
the three and six months ended June 30, 2003, respectively and is included in
investment and other income on the accompanying statements of income.
Approximately $10.5 million is estimated to be earned in future periods as the
development progresses.
On May 22, 2003, the Operating Partnership, through Reckson Construction Group,
Inc., acquired two industrial redevelopment properties in Hauppauge, Long Island
encompassing approximately 100,000 square feet for total consideration of
approximately $6.5 million. This acquisition was financed from the sales
proceeds being held by the previously referenced qualified intermediary and the
properties acquired were identified, qualified replacement properties. If
Reckson Construction Group, Inc. is unable to acquire additional qualified
replacement properties or interests therein by September 7, 2003, a tax
liability of approximately $5.2 million will result from the gain recognized on
the sale proceeds received from the land sale to First Data.
On August 7, 2003, the Operating Partnership acquired a ten story, 181,800
square foot Class A office property located in Stamford, Connecticut. This
acquisition was financed, in part, through an advance under the Credit Facility
of $21.6 million and the issuance of 465,845 Class C common units of limited
partnership interest valued at $24.00 per unit
9
The Operating Partnership holds a $17.0 million interest in a note receivable
which bears interest at 12% per annum and is secured by a minority partnership
interest in Omni Partners, L.P., owner of the Omni, a 579,000 square foot Class
A office property located in Uniondale, NY (the "Omni Note"). The Operating
Partnership currently owns a 60% majority interest in Omni Partnership, L.P. and
on March 14, 2007 may exercise an option to acquire the remaining 40% interest
for a price based on 90% of the fair market value of the property. The Operating
Partnership also holds three other notes receivable aggregating $36.5 million
which bear interest at rates ranging from 10.5% to 12% per annum and are secured
in part by a minority partner's preferred unit interest in the Operating
Partnership, certain real property and a personal guarantee (the "Other Notes"
and collectively with the Omni Note, the "Note Receivable Investments"). As of
June 30, 2003, management has made subjective assessments as to the underlying
security value on the Operating Partnership's Note Receivable Investments. These
assessments indicated an excess of market value over carrying value related to
the Operating Partnership's Note Receivable Investments. Based on these
assessments, the Operating Partnership's management believes there is no
impairment to the carrying value related to the Operating Partnership's Note
Receivable Investments. The Operating Partnership also owns a 355,000 square
foot office building in Orlando, Florida. This non-core real estate holding was
acquired in May 1999 in connection with the Operating Partnership's initial New
York City portfolio acquisition. This property is cross collateralized under a
$102 million mortgage note along with one of the Operating Partnership's New
York City buildings.
The Operating Partnership also owns a 60% non-controlling interest in a 172,000
square foot office building located at 520 White Plains Road in White Plains,
New York (the "520JV"), which it manages. The remaining 40% interest is owned by
JAH Realties, L.P. Jon Halpern, the CEO and a director of HQ Global Workplaces,
is a partner in JAH Realties, L.P. As of June 30, 2003, the 520JV had total
assets of $20.1 million, a mortgage note payable of $12.3 million and other
liabilities of $503,000. The Operating Partnership's allocable share of the
520JV mortgage note payable is approximately $8.2 million. This mortgage note
payable bears interest at 8.85% per annum and matures on September 1, 2005.
During the three months ended June 30, 2003, HQ Global Workplaces, a tenant of
the 520JV surrendered approximately one-third of their premises. As a result,
the 520JV incurred a write-off of $633,000 relating to its deferred rents
receivable and incurred a net loss of approximately $497,000 and $362,000 for
the three and six months ended June 30, 2003, respectively. The operating
agreement of the 520JV requires joint decisions from all members on all
significant operating and capital decisions including sale of the property,
refinancing of the property's mortgage debt, development and approval of leasing
strategy and leasing of rentable space. As a result of the decision-making
participation relative to the operations of the property, the Operating
Partnership accounts for the 520JV under the equity method of accounting. In
accordance with the equity method of accounting the Operating Partnership's
proportionate share of the 520JV loss was approximately $270,000 and $164,000
for the three and six months ended June 30, 2003, respectively.
During September 2000, the Operating Partnership formed a joint venture (the
"Tri-State JV") with Teachers Insurance and Annuity Association ("TIAA") and
contributed nine Class A suburban office properties aggregating approximately
1.5 million square feet to the Tri-State JV for a 51% majority ownership
interest. TIAA contributed approximately $136 million for a 49% interest in the
Tri-State JV, which was then distributed to the Operating Partnership. The
Operating Partnership is responsible for managing the day-to-day operations and
business affairs of the Tri-State JV and has substantial rights in making
decisions affecting the properties such as leasing, marketing and financing. The
minority member has certain rights primarily intended to protect its investment.
For purposes of its financial statements the Operating Partnership consolidates
the Tri-State JV.
On December 21, 2001, the Operating Partnership formed a joint venture with the
New York State Teachers' Retirement Systems ("NYSTRS") (the "919JV") whereby
NYSTRS acquired a 49% indirect interest in the property located at 919 Third
Avenue, New York, NY for $220.5 million which included $122.1 million of its
proportionate share of secured mortgage debt and approximately $98.4 million of
cash which was then distributed to the Operating Partnership. The Operating
Partnership is responsible for managing the day-to-day operations and business
affairs of the 919JV and has substantial rights in making decisions affecting
the property such as developing a budget, leasing and marketing. The minority
member has certain rights primarily intended to protect its investment. For
purposes of its financial statements the Operating Partnership consolidates the
919JV.
7. PARTNERS' CAPITAL
On June 30, 2003, the Operating Partnership had issued and outstanding 9,915,313
Class B common units, all of which, are held by the Company. The distribution on
the Class B units is subject to adjustment annually based on a formula which
measures increases or decreases in the Company's Funds From Operations, as
defined, over a base year.
The Class B common units are exchangeable at any time, at the option of the
holder, into an equal number of Class A common units subject to customary
antidilution adjustments. The Operating Partnership, at its option, may redeem
any or all of the Class B common units in exchange for an equal number of Class
A common units at any time following November 23, 2003 at which time the
Operating Partnership anticipates that it will exercise its option to redeem all
of its Class B common units outstanding.
10
During June 2003, the Operating Partnership declared the following
distributions:
RECORD PAYMENT THREE MONTHS ANNUALIZED
SECURITY DISTRIBUTION DATE DATE ENDED DISTRIBUTION
-------- ------------ ---- ---- ----- ------------
Class A common unit $.4246 July 7, 2003 July 18, 2003 June 30, 2003 $1.6984
Class B common unit $.6471 July 15, 2003 July 31, 2003 July 31, 2003 $2.5884
Series A preferred unit $.476563 July 15, 2003 July 31, 2003 July 31, 2003 $1.9063
Series E preferred unit $.553125 July 15, 2003 July 31, 2003 July 31, 2003 $2.2125
The Board of Directors of the Company has authorized the purchase of up to five
million shares of the Company's Class A common stock and / or its Class B common
stock. Transactions conducted on the New York Stock Exchange will be effected in
accordance with the safe harbor provisions of the Securities Exchange Act of
1934 and may be terminated by the Company at any time. During the six months
ended June 30, 2003, under this buy-back program, the Operating Partnership
purchased 252,000 Class A common units at an average price of $18.01 per Class A
unit for an aggregate purchase price of approximately $4.5 million.
The following table sets forth the historical activity under the current
buy-back program (dollars in thousands except per unit data):
UNITS AVERAGE AGGREGATE
PURCHASED PRICE PER UNIT PURCHASE PRICE
-------------------- ---------------------- --------------------
Current program:
Class A common 2,950,400 $ 21.30 $ 62,830
Class B Common 368,200 $ 22.90 8,432
-------------------- --------------------
3,318,600 $ 71,262
==================== ====================
The Board of Directors of the Company has formed a pricing committee to consider
purchases of up to $75 million of the Company's outstanding preferred
securities.
On June 30, 2003, the Company had 8,834,500 shares of its Class A preferred
stock issued and outstanding. During the fourth quarter of 2002, the Company
purchased and retired 357,500 shares of its Class A preferred stock at $22.29
per share for approximately $8.0 million. As a result, the Operating Partnership
purchased and retired an equal number of preferred units of general partnership
interest from the Company.
On August 7, 2003, in conjunction with the Operating Partnership's acquisition
of a Class A office property located in Stamford, Connecticut (see Note 6), the
Operating Partnership issued 465,845 Class C common units of limited partnership
interest. The Class C units will receive an annual distribution of $1.87 per
unit, which amount will increase or decrease pro-rata based upon changes in the
dividend paid on the Company's Class A common stock.
The Company had historically structured long term incentive programs ("LTIP")
using restricted stock and stock loans. In July 2002, as a result of certain
provisions of the Sarbanes Oxley legislation, the Company discontinued the use
of stock loans in its LTIP. In connection with LTIP grants made prior to the
enactment of the Sarbanes Oxley legislation the Company made stock loans to
certain executive and senior officers to purchase 1,372,393 shares of its Class
A common stock at market prices ranging from $18.44 per share to $27.13 per
share. The stock loans were set to bear interest at the mid-term Applicable
Federal Rate and were secured by the shares purchased. Such stock loans
(including accrued interest) vest and are ratably forgiven each year on the
anniversary of the grant date based upon vesting periods ranging from four to
ten years based on continued service and in part on attaining certain annual
performance measures. These stock loans had an initial aggregate weighted
average vesting period of approximately nine years. Approximately $2.2 million
of compensation expense was recorded for each of the six month periods ended
June 30, 2003 and 2002, respectively related to these LTIP. Such amounts have
been included in marketing, general and administrative expenses on the
accompanying consolidated statements of income.
The outstanding stock loan balances due from the Company's executive and senior
officers aggregated approximately $13.0 million and $17.0 million at June 30,
2003 and December 31, 2002, respectively and have been included as a reduction
of general partner's capital on the accompanying consolidated balance sheets.
Other outstanding loans to the Company's executive and senior officers at June
30, 2003 amounted to approximately $1.0 million related to life insurance
contracts and approximately $2.0 million primarily related to tax payment
advances on stock compensation awards made to certain of the Company's
non-executive officers.
11
In November 2002 and March 2003 an award of rights was granted to certain
executive officers of the Company (the "2002 Rights" and "2003 Rights",
respectively and collectively, the "Rights"). Each Right represents the right to
receive, upon vesting, one share of Class A common stock if shares are then
available for grant under one of the Company's stock option plans or, if shares
are not so available, an amount of cash equivalent to the value of such stock on
the vesting date. The 2002 Rights will vest in four equal annual installments
beginning on November 14, 2003 (and shall be fully vested on November 14, 2006).
The 2003 Rights will be earned as of March 13, 2005 and will vest in three equal
annual installments beginning on March 13, 2005 (and shall be fully vested on
March 13, 2007). Dividends on the shares will be held by the Company until such
shares become vested, and will be distributed thereafter to the applicable
officer. The 2002 Rights also entitle the holder thereof to cash payments in
respect of taxes payable by the holder resulting from the Rights. The 2002
Rights aggregate 190,524 shares of the Company's Class A common stock and the
2003 Rights aggregate 60,760 shares of Class A common stock. During the three
and six months ended June 30, 2003, the Operating Partnership recorded
approximately $209,000 and $425,000 of compensation expense, respectively
related to the Rights. Such amounts have been included in marketing, general and
administrative expenses on the accompanying consolidated statements of income.
In March 2003, the Company established a new LTIP for its executive and senior
officers. The four-year plan has a core award which provides for annual stock
based compensation based upon continued service and in part based on attaining
certain annual performance measures. The plan also has a special outperformance
award, which provides for compensation to be earned at the end of a four year
period if the Company attains certain four year cumulative performance measures.
Amounts earned under the special outperformance award may be paid in cash or
stock at the discretion of the Compensation Committee of the Board. Performance
measures are based on total shareholder returns on a relative and absolute
basis. On March 13, 2003, the Company made available 1,384,102 shares of its
Class A common stock under its existing stock option plans in connection with
the core award of this LTIP for twelve of its executive and senior officers.
During May 2003 two of the Company's executive officers waived these awards
under this LTIP in their entirety, which aggregated 277,778 shares or 20% of the
core awards granted. In addition, the special outperformance awards of the LTIP
were amended to increase the per share base price above which the four year
cumulative return is measured from $18.00 to $22.40. With respect to the core
award of this LTIP, the Operating Partnership recorded approximately $1.3
million and $1.5 million of compensation expense for the three and six months
ended June 30, 2003, respectively. Such amounts have been included in marketing,
general and administrative expenses on the accompanying consolidated statements
of income. Further, no provision will be made for the special outperformance
award of this LTIP until such time as achieving the requisite performance
measures is determined to be probable.
Net income per common partnership unit is determined by allocating net income
after preferred distributions and minority partners' interest in consolidated
partnerships income to the general and limited partners' based on their weighted
average distribution per common partnership units outstanding during the
respective periods presented.
Holders of preferred units of limited and general partnership interest are
entitled to distributions based on the stated rates of return (subject to
adjustment) for those units.
On May 29, 2003, the Board of Directors of the Company appointed Mr. Peter Quick
as Lead Director and Chairman of the Nominating/Governance Committee. The
Nominating/Governance Committee as well as the Company's Audit Committee and
Compensation Committee are comprised solely of independent directors.
In addition, in May 2003, the Company revised its policy with respect to
compensation of its independent directors to provide that a substantial portion
of the independent director's compensation shall be in the form of Class A
common stock of the Company. Such common stock may not be sold until such time
as the director is no longer a member of the Company's Board.
The Operating Partnership issues additional units to the Company, and thereby
increases the Company's general partnership interest in the Operating
Partnership, with terms similar to the terms of any securities (i.e.: common
stock or preferred stock) issued by the Company (including any securities issued
by the Company upon the exercise of stock options). Any consideration received
by the Company in respect of the issuance of its securities is contributed to
the Operating Partnership. In addition, the Operating Partnership or a
subsidiary, funds the compensation of personnel, including any amounts payable
under the Company's LTIP.
As of June 30, 2003, the Company had approximately 6.6 million shares of its
Class A common stock reserved for issuance under its stock option plans, in
certain cases subject to vesting terms, at a weighted average exercise price of
$22.27 per option. In addition, the Company has approximately 295,000 shares of
its Class A common stock reserved for future issuance under its stock option
plans.
12
8. SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION (in thousands)
SIX MONTHS ENDED
JUNE 30,
---------------------
2003 2002
------- -------
Cash paid during the period for interest................................ $47,304 $45,817
======= =======
Interest capitalized during the period.................................. $ 3,675 $ 4,406
======= =======
9. SEGMENT DISCLOSURE
The Operating Partnership's portfolio consists of Class A office properties
located within the New York City metropolitan area and Class A suburban office
and industrial / R&D properties located and operated within the Tri-State Area
(the "Core Portfolio"). The Operating Partnership's portfolio also includes one
office property located in Orlando, Florida. The Operating Partnership has
managing directors who report directly to the Co-Presidents and Chief Financial
Officer of the Company who have been identified as the Chief Operating Decision
Makers due to their final authority over resource allocation decisions and
performance assessment.
The Operating Partnership does not consider (i) interest incurred on its Credit
Facility and Senior Unsecured Notes, (ii) the operating performance of the
office property located in Orlando, Florida (iii) the operating performance of
those properties reflected as discontinued operations on the Operating
Partnership's consolidated statements of operations and (iv) the operating
results of the Service Companies as part of its Core Portfolio's property
operating performance for purposes of its component disclosure set forth below.
The following table sets forth the components of the Operating Partnership's
revenues and expenses and other related disclosures for the three months ended
June 30, 2003 and 2002 (in thousands):
Three months ended
------------------------------------------------------------------------------------
June 30, 2003 June 30, 2002
----------------------------------------- -----------------------------------------
Core CONSOLIDATED Core CONSOLIDATED
Portfolio Other TOTALS Portfolio Other TOTALS
----------- ----------- ------------ ----------- ----------- ------------
REVENUES:
Base rents, tenant
escalations and reimbursements ........ $ 120,497 $ 2,007 $ 122,504 $ 120,819 $ 2,110 $ 122,929
Other income ............................ $ 1,117 $ 3,791 $ 4,908 141 1,708 1,849
----------- ----------- ----------- ----------- ----------- -----------
Total Revenues ........................ 121,614 5,798 127,412 120,960 3,818 124,778
----------- ----------- ----------- ----------- ----------- -----------
EXPENSES:
Property operating expenses ............. 45,556 1,012 46,568 39,882 1,549 41,431
Marketing, general and
administrative .......................... 4,582 4,808 9,390 4,628 3,022 7,650
Interest ................................ 12,805 10,091 22,896 12,990 9,134 22,124
Depreciation and amortization ........... 28,373 1,530 29,903 25,636 2,200 27,836
----------- ----------- ----------- ----------- ----------- -----------
Total Expenses ........................ 91,316 17,441 108,757 83,136 15,905 99,041
----------- ----------- ----------- ----------- ----------- -----------
Income (loss) before minority interests,
distributions to preferred unitholders,
equity (loss) in earnings of real estate
joint ventures and service companies,
gain on sales of depreciable real estate
assets and discontinued operations..... $ 30,298 $ (11,643) $ 18,655 $ 37,824 $ (12,087) $ 25,737
=========== =========== =========== =========== =========== ===========
Total Assets ............................ $ 2,673,194 $ 232,459 $ 2,905,653 $ 2,693,174 $ 227,610 $ 2,920,784
=========== =========== =========== =========== =========== ===========
13
The following table sets forth the components of the Operating Partnership's
revenues and expenses and other related disclosures for the six months ended
June 30, 2003 and 2002 (in thousands):
Six months ended
------------------------------------------------------------------------------------
June 30, 2003 June 30, 2002
----------------------------------------- -----------------------------------------
Core CONSOLIDATED Core CONSOLIDATED
Portfolio Other TOTALS Portfolio Other TOTALS
----------- ----------- ------------ ----------- ----------- ------------
REVENUES:
Base rents, tenant
escalations and reimbursements......... $ 242,338 $ 3,607 $ 245,945 $ 240,216 $ 4,417 $ 244,633
Other income ............................ 1,877 10,350 12,227 556 3,383 3,939
---------- ---------- ---------- ---------- ---------- ----------
Total Revenues......................... 244,215 13,957 258,172 240,772 7,800 248,572
---------- ---------- ---------- ---------- ---------- ----------
EXPENSES:
Property operating expenses.............. 92,546 1,856 94,402 80,985 2,341 83,326
Marketing, general and administrative.... 9,248 8,401 17,649 9,188 5,557 14,745
Interest................................. 25,564 20,182 45,746 25,954 17,166 43,120
Depreciation and amortization............ 58,758 3,129 61,887 50,027 3,739 53,766
---------- ---------- ---------- ---------- ---------- ----------
Total Expenses......................... 186,116 33,568 219,684 166,154 28,803 194,957
---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before minority interests,
distributions to preferred unitholders,
equity (loss) in earnings of real estate
joint ventures and service companies,
gain on sales of depreciable real estate
assets and discontinued operations..... $ 58,099 $ (19,611) $ 38,488 $ 74,618 $ (21,003) $ 53,615
========== ========== ========== ========== ========== =========
14
10. RELATED PARTY TRANSACTIONS
In connection with the IPO, the Operating Partnership was granted ten year
options to acquire ten properties (the "Option Properties") which are either
owned by certain Rechler family members who are also executive officers of the
Company, or in which the Rechler family members own a non-controlling minority
interest at a price based upon an agreed upon formula. In years prior to 2001,
one Option Property was sold by the Rechler family members to a third party and
four of the Option Properties were acquired by the Operating Partnership for an
aggregate purchase price of approximately $35 million, which included the
issuance of approximately 475,000 Units valued at approximately $8.8 million.
Currently, certain Rechler family members retain their equity interests in the
five remaining Option Properties (the "Remaining Option Properties") which were
not contributed to the Company as part of the IPO. Such options provide the
Operating Partnership the right to acquire fee interest in two of the Remaining
Option Properties and the Rechler's minority interests in three Remaining Option
Properties. During May 2003, the Independent Directors approved the exercise by
the Company of its option to acquire the Rechler's fee interest in two of the
Remaining Option Properties (225 Broad Hollow Road and 593 Acorn Street) and to
provide customary tax protection from the sale or disposition of these
properties by the Company for a five-year period. In addition, the Rechler
family members agreed to extend the term of the three remaining unexercised
options for an additional two years. Both of these properties are located on
Long Island and aggregate approximately 228,000 square feet. Aggregate
consideration to acquire the two Remaining Option Properties is approximately
$22.1 million which includes the assumption of approximately $19.0 million of
mortgage notes payable, of which the Operating Partnership anticipates to prepay
or retire approximately $6.1 million, and the issuance of approximately 145,000
Units. The Operating Partnership anticipated acquiring these two Remaining
Option Properties in July 2003 but has since determined to defer such purchases
while it evaluates the effect on the Operating Partnership of exercising these
options in relation to certain other acquisition and disposition opportunities
that have arisen.
As part of the Company's REIT structure it is provided management, leasing and
construction related services through taxable REIT subsidiaries as defined by
the Internal Revenue Code of 1986 as amended (the "Code"). These services are
currently provided by the Service Companies in which, as of September 30, 2002,
the Operating Partnership owned a 97% non-controlling interest. An entity, which
is substantially owned by certain Rechler family members who are also executive
officers of the Company owned a 3% controlling interest in the Service
Companies. In order to minimize the potential for corporate conflicts of
interests, which became possible as a result of changes to the Code that permit
REITs to own 100% of taxable REIT subsidiaries the Independent Directors of the
Company approved the purchase by the Operating Partnership of the remaining 3%
interest in the Service Companies. On October 1, 2002, the Operating Partnership
acquired such 3% interests in the Service Companies for an aggregate purchase
price of approximately $122,000. Such amount was less than the total amount of
capital contributed by the Rechler family members. As a result of the
acquisition of the remaining interests in the Service Companies, the Operating
Partnership commenced consolidating the operations of the Service Companies.
During the six months ended June 30, 2003, Reckson Construction Group, Inc.
billed approximately $231,000 of market rate services and Reckson Management
Group, Inc. billed approximately $140,000 of market rate management fees to the
Remaining Option Properties. In addition, for the six months ended June 30,
2003, Reckson Construction Group, Inc. performed market rate services,
aggregating approximately $124,000, for a property in which certain executive
officers of the Company maintain an equity interest.
Reckson Management Group, Inc. leases 43,713 square feet of office and storage
space at a Remaining Option Property located at 225 Broad Hollow Road, Melville,
New York for its corporate offices at an annual base rent of approximately $1.2
million. Reckson Management Group, Inc. also leases 10,722 square feet of
warehouse space used for equipment, materials and inventory storage at a
Remaining Option Property located at 593 Acorn Street, Deer Park, New York at an
annual base rent of approximately $72,000.
A company affiliated with an Independent Director of the Company leases 15,566
square feet in a property owned by the Operating Partnership at an annual base
rent of approximately $431,500. Reckson Strategic Venture Partners, LLC ("RSVP")
leased 5,144 square feet in one of the Operating Partnership's joint venture
properties at an annual base rent of approximately $176,000. On June 15, 2003,
this lease was mutually terminated and RSVP vacated the premises.
During 1997, the Company formed FrontLine Capital Group, formerly Reckson
Service Industries, Inc. ("FrontLine") and RSVP. RSVP is a real estate venture
capital fund which invests primarily in real estate and real estate operating
companies outside the Company's core office and industrial / R&D focus and whose
common equity is held indirectly by FrontLine. In connection with the formation
and spin-off of FrontLine, the Operating Partnership established an unsecured
credit facility with FrontLine (the "FrontLine Facility") in the amount of $100
million for FrontLine to use in its investment activities, operations and other
general corporate purposes. The Company has advanced approximately $93.4 million
under the FrontLine Facility. The Operating Partnership also approved the
funding of investments of up to $100 million relating to RSVP (the "RSVP
Commitment"), through RSVP-controlled joint ventures (for REIT-qualified
investments) or advances made to FrontLine under an unsecured loan facility (the
"RSVP Facility") having terms similar to the FrontLine Facility (advances made
under the RSVP Facility and the FrontLine Facility hereafter, the "FrontLine
Loans"). During March 2001, the Company increased the RSVP Commitment to $110
million and as of June 30, 2003 approximately $109.1 million had been funded
through the RSVP Commitment, of which $59.8 million represents investments by
the Company in RSVP-controlled (REIT-qualified) joint ventures and $49.3 million
represents loans made to FrontLine under the RSVP Facility. As of June 30, 2003
interest accrued (net of reserves) under the FrontLine Facility and the RSVP
Facility was approximately $19.6 million. RSVP retained the services of two
managing directors to manage RSVP's day-to-day operations. Prior to the spin off
of FrontLine, the Company guaranteed certain salary provisions of their
employment agreements with RSVP Holdings, LLC, RSVP's common member. The term of
these employment agreements is seven years commencing March 5, 1998 provided
however, the term may be earlier terminated after five years upon certain
circumstances. The salary for each managing director is $1 million in the first
five years and $1.6 million in years six and seven.
15
At June 30, 2001, the Company assessed the recoverability of the FrontLine Loans
and reserved approximately $3.5 million of the interest accrued during the
three-month period then ended. In addition, the Company formed a committee of
its Board of Directors, comprised solely of independent directors, to consider
any actions to be taken by the Company in connection with the FrontLine Loans
and its investments in joint ventures with RSVP. During the third quarter of
2001, the Company noted a significant deterioration in FrontLine's operations
and financial condition and, based on its assessment of value and recoverability
and considering the findings and recommendations of the committee and its
financial advisor, the Company recorded a $163 million valuation reserve charge,
inclusive of anticipated costs, in its consolidated statements of operations
relating to its investments in the FrontLine Loans and joint ventures with RSVP.
The Company has discontinued the accrual of interest income with respect to the
FrontLine Loans. The Company has also reserved against its share of GAAP equity
in earnings from the RSVP controlled joint ventures funded through the RSVP
Commitment until such income is realized through cash distributions.
At December 31, 2001, the Company, pursuant to Section 166 of the Code charged
off for tax purposes $70 million of the aforementioned reserve directly related
to the FrontLine Facility, including accrued interest. On February 14, 2002, the
Company charged off for tax purposes an additional $38 million of the reserve
directly related to the FrontLine Facility, including accrued interest and $47
million of the reserve directly related to the RSVP Facility, including accrued
interest.
FrontLine is in default under the FrontLine Loans from the Operating Partnership
and on June 12, 2002, filed a voluntary petition for relief under Chapter 11 of
the United States Bankruptcy Code.
As a result of the foregoing, the net carrying value of the Company's
investments in the FrontLine Loans and joint venture investments with RSVP,
inclusive of the Company's share of previously accrued GAAP equity in earnings
on those investments, is approximately $65 million which was reassessed with no
change by management as of June 30, 2003. Such amount has been reflected in
investments in service companies and affiliate loans and joint ventures on the
Company's consolidated balance sheet.
On or about April 29, 2003, RSVP entered into agreements regarding the
restructuring of its capital structure and arrangements with its management. In
connection with such restructuring, RSVP transferred $41 million in cash which
comprised certain un-invested capital and proceeds from the sale of certain of
the privatization assets and the assets that comprised its parking investments
valued at approximately $28.5 million to the preferred equity holders in RSVP.
In addition, RSVP agreed to redeem the preferred equity holders' interests for
an additional $95.8 million in cash, subject to a financing contingency. Funds
required for RSVP to complete the redemption transaction are anticipated to be
available from sales of the remaining privatization assets, sales of the medical
office assets and proceeds from a third party financing. RSVP also agreed to
restructure its relationship with its current managing directors, conditioned
upon the redemption of the preferred equity interests, whereby a management
company formed by the managing directors will be retained to manage RSVP. RSVP
will enter into a management agreement that will provide for an annual base
management fee, and disposition fees equal to 2% of the net proceeds received by
RSVP on asset sales. (The base fee and disposition fees together being subject
to a maximum amount over the term of the agreement of $7.5 million.) In
addition, the managing directors will retain a subordinate residual interest in
RSVP's assets. The management agreement will have a three-year term, subject to
early termination in the event of the disposition of all of the assets of RSVP.
As a result of this new arrangement, the employment contracts of the managing
directors will be terminated. RSVP is currently negotiating with a lender to
provide a portion of the proceeds needed to complete the restructuring
transaction. There can be no assurance that any of the foregoing pending
transactions will be completed. In the event that the redemption of the
preferred does not close, all parties rights shall remain unaffected, including
the rights relating to a dispute between common and preferred members over
certain provisions of the RSVP operating agreement.
Both the FrontLine Facility and the RSVP Facility terminated on June 15, 2003,
are unsecured and advances thereunder are recourse obligations of FrontLine.
Notwithstanding the valuation reserve, under the terms of the credit facilities,
interest accrues on the FrontLine Loans at a rate equal to the greater of (a)
the prime rate plus two percent and (b) 12% per annum, with the rate on amounts
that are outstanding for more than one year increasing annually at a rate of
four percent of the prior year's rate. In March 2001, the credit facilities were
amended to provide that (i) interest is payable only at maturity and (ii) the
Company may transfer all or any portion of its rights or obligations under the
credit facilities to its affiliates. The Company requested these changes as a
result of changes in REIT tax laws. As a result of FrontLine's default under the
FrontLine Loans, interest on borrowings thereunder accrue at default rates
ranging between 13% and 14.5% per annum.
Scott H. Rechler, who serves as Co-Chief Executive Officer and a director of the
Company, serves as CEO and Chairman of the Board of Directors of FrontLine and
is its sole board member. Scott H. Rechler also serves as a member of the
management committee of RSVP.
16
11. COMMITMENTS AND CONTINGENCIES
HQ Global Workplaces, Inc. ("HQ"), one of the largest providers of flexible
officing solutions in the world and which is controlled by FrontLine, currently
operates eight (formerly eleven) executive office centers in the Operating
Partnership's properties, two of which are held through joint ventures. The
leases under which these office centers operate expire between 2008 and 2011,
encompass approximately 160,600 square feet and have current contractual annual
base rents of approximately $3.8 million. On March 13, 2002, as a result of
experiencing financial difficulties, HQ voluntarily filed a petition for relief
under Chapter 11 of the U.S. Bankruptcy Code. As of June 30, 2002, HQ's leases
with the Operating Partnership were in default. Further, the Bankruptcy Court
has (i) granted HQ's petition to reject three of its leases with the Operating
Partnership, one of which is held through the 919JV and (ii) modify the terms of
the lease, which is held through the 520JV. Two of the three rejected leases
were held through wholly owned entities, aggregated approximately 23,900 square
feet and were rejected in March 2002. The Operating Partnership has since
re-leased 100% of the space related to these two rejected leases. The third
rejected lease held through the 919JV aggregated approximately 31,000 square
feet and was to provide for contractual base rents of approximately $1.9 million
for the 2003 calendar year. With respect to the lease held through the 520JV, HQ
surrendered approximately 10,500 square feet, or one-third of the total leased
premises, to the Operating Partnership. The restructured lease provides for
initial base rent of $23.25 per foot and is scheduled to expire in 2011. Of the
surrendered space, approximately 6,500 square feet has been released at $18.50
per foot to an existing tenant in the 520JV and is scheduled to expire in 2010.
Pursuant to the bankruptcy filing, HQ has been paying current rental charges
under its leases with the Operating Partnership, other than under the three
rejected leases. The Operating Partnership is in negotiation to restructure two
of the leases and leave the terms of the remaining five leases unchanged. All
negotiations with HQ are conducted by a committee designated by the Board and
chaired by an independent director. There can be no assurance as to whether any
deal will be consummated with HQ or if HQ will affirm or reject any or all of
its remaining leases with the Operating Partnership. As a result of the
foregoing, the Operating Partnership has currently established reserves of
approximately $428,000 (net of minority partners' interests and including the
Operating Partnership's share of unconsolidated joint venture interest), or 85%,
of the amounts due from HQ as of June 30, 2003.
WorldCom/MCI and its affiliates ("WorldCom"), a telecommunications company,
which leased approximately 527,000 square feet in thirteen of the Operating
Partnership's properties located throughout the Tri-State Area voluntarily filed
a petition for relief under Chapter 11 of the U.S. Bankruptcy Code on July 21,
2002. The Bankruptcy Court granted WorldCom's petition to reject four of its
leases with the Operating Partnership. The four rejected leases aggregated
approximately 282,000 square feet and were to provide for contractual base rents
of approximately $7.2 million for the 2003 calendar year. All of WorldCom's
leases are current on base rental charges through August 31, 2003, other than
under the four rejected leases and the Operating Partnership currently holds
approximately $300,000 in security deposits relating to the non-rejected leases.
The Operating Partnership has reached an agreement with WorldCom to restructure
the remaining WorldCom leases which is subject to approval of the Bankruptcy
Court. There can be no assurance as to whether any deal will be consummated with
WorldCom or if WorldCom will affirm or reject any or all of its remaining leases
with the Operating Partnership.
As of June 30, 2003, WorldCom occupied approximately 245,000 square feet of
office space with aggregate annual base rental revenues of approximately $4.1
million, or 1.1% of the Operating Partnership's total 2003 annualized rental
revenue based on base rental revenue earned on a consolidated basis.
17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the historical
financial statements of Reckson Operating Partnership, L. P. (the "Operating
Partnership") and related notes.
The Operating Partnership considers certain statements set forth herein to be
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended, with respect to the Operating Partnership's expectations for future
periods. Certain forward-looking statements, including, without limitation,
statements relating to the timing and success of acquisitions and the completion
of development or redevelopment of properties, the financing of the Operating
Partnership's operations, the ability to lease vacant space and the ability to
renew or relet space under expiring leases, involve risks and uncertainties.
Many of the forward-looking statements can be identified by the use of words
such as "believes", "may", "expects", "anticipates", "intends" or similar
expressions. Although the Operating Partnership believes that the expectations
reflected in such forward-looking statements are based on reasonable
assumptions, the actual results may differ materially from those set forth in
the forward-looking statements and the Operating Partnership can give no
assurance that its expectation will be achieved. Among those risks, trends and
uncertainties are: the general economic climate, including the conditions
affecting industries in which our principal tenants compete; changes in the
supply of and demand for office and industrial / R&D properties in the New York
Tri-State area; changes in interest rate levels; downturns in rental rate levels
in our markets and our ability to lease or re-lease space in a timely manner at
current or anticipated rental rate levels; the availability of financing to us
or our tenants; financial condition of our tenants; changes in operating costs,
including utility, security and insurance costs; repayment of debt owed to the
Operating Partnership by third parties (including FrontLine Capital Group);
risks associated with joint ventures; liability for uninsured losses or
environmental matters; and other risks associated with the development and
acquisition of properties, including risks that development may not be completed
on schedule, that the tenants will not take occupancy or pay rent, or that
development or operating costs may be greater than anticipated. Consequently,
such forward-looking statements should be regarded solely as reflections of the
Operating Partnership's current operating and development plans and estimates.
These plans and estimates are subject to revisions from time to time as
additional information becomes available, and actual results may differ from
those indicated in the referenced statements.
CRITICAL ACCOUNTING POLICIES
The consolidated financial statements of the Operating Partnership include
accounts of the Operating Partnership and all majority-owned subsidiaries. The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States ("GAAP") requires management to make
estimates and assumptions in certain circumstances that affect amounts reported
in the Operating Partnership's consolidated financial statements and related
notes. In preparing these financial statements, management has utilized
information available including its past history, industry standards and the
current economic environment among other factors in forming its estimates and
judgments of certain amounts included in the consolidated financial statements,
giving due consideration to materiality. It is possible that the ultimate
outcome as anticipated by management in formulating its estimates inherent in
these financial statements may not materialize. However, application of the
critical accounting policies below involves the exercise of judgment and use of
assumptions as to future uncertainties and, as a result, actual results could
differ from these estimates. In addition, other companies may utilize different
estimates, which may impact comparability of the Operating Partnership's results
of operations to those of companies in similar businesses.
Revenue Recognition and Accounts Receivable
Rental revenue is recognized on a straight line basis, which averages minimum
rents over the terms of the leases. The excess of rents recognized over amounts
contractually due are included in deferred rents receivable on the Operating
Partnership's balance sheets. The leases also typically provide for tenant
reimbursements of common area maintenance and other operating expenses and real
estate taxes. Ancillary and other property related income is recognized in the
period earned.
The Operating Partnership makes estimates of the collectibility of its tenant
receivables related to base rents, tenant escalations and reimbursements and
other revenue or income. The Operating Partnership specifically analyzes tenant
receivables and analyzes historical bad debts, customer credit worthiness,
current economic trends, changes in customer payment terms, publicly available
information and, to the extent available, guidance provided by the tenant when
evaluating the adequacy of its allowance for doubtful accounts. In addition,
when tenants are in bankruptcy the Operating Partnership makes estimates of the
expected recovery of pre-petition administrative and damage claims. In some
cases, the ultimate resolution of those claims can exceed a year. These
estimates have a direct impact on the Operating Partnership's net income,
because a higher bad debt reserve results in less net income.
During the three and six months ended June 30, 2003, the Operating Partnership
incurred approximately $1.6 million and $3.6 million of bad debt expense related
to tenant receivables and deferred rents receivable which accordingly reduced
total revenues and reported net income during the period.
18
The Operating Partnership records interest income on investments in mortgage
notes and notes receivable on an accrual basis of accounting. The Operating
Partnership does not accrue interest on impaired loans where, in the judgment of
management, collection of interest according to the contractual terms is
considered doubtful. Among the factors the Operating Partnership considers in
making an evaluation of the collectibility of interest are: (i) the status of
the loan, (ii) the value of the underlying collateral, (iii) the financial
condition of the borrower and (iv) anticipated future events.
Reckson Construction Group, Inc. and Reckson Construction Group New York, Inc.
use the percentage-of-completion method for recording amounts earned on its
contracts. This method records amounts earned as revenue in the proportion that
actual costs incurred to date bear to the estimate of total costs at contract
completion.
Gain on sales of real estate are recorded when title is conveyed to the buyer,
subject to the buyer's financial commitment being sufficient to provide economic
substance to the sale and the Operating Partnership having no substantial
continuing involvement with the buyer.
The Operating Partnership follows the guidance provided for under the Financing
Accounting Standards Board ("FASB") Statement No. 66 "Accounting for Sales of
Real Estate" ("Statement No. 66"), which provides guidance on sales contracts
that are accompanied by agreements which require the seller to develop the
property in the future. Under Statement No. 66 profit is recognized and
allocated to the sale of the land and the later development or construction work
on the basis of estimated costs of each activity; the same rate of profit is
attributed to each activity. As a result, profits are recognized and reflected
over the improvement period on the basis of costs incurred (including land) as a
percentage of total costs estimated to be incurred. The Operating Partnership
uses the percentage of completion method, as the future costs of development and
profit were reliably estimated.
Real Estate
Land, buildings and improvements, furniture, fixtures and equipment are recorded
at cost. Tenant improvements, which are included in buildings and improvements,
are also stated at cost. Expenditures for ordinary maintenance and repairs are
expensed to operations as incurred. Renovations and/or replacements, which
improve or extend the life of the asset are capitalized and depreciated over
their estimated useful lives.
Depreciation is computed utilizing the straight-line method over the estimated
useful lives of ten to thirty years for buildings and improvements and five to
ten years for furniture, fixtures and equipment. Tenant improvements are
amortized on a straight-line basis over the term of the related leases.
The Operating Partnership is required to make subjective assessments as to the
useful lives of its properties for purposes of determining the amount of
depreciation to reflect on an annual basis with respect to those properties.
These assessments have a direct impact on the Operating Partnership's net
income. Should the Operating Partnership lengthen the expected useful life of a
particular asset, it would be depreciated over more years, and result in less
depreciation expense and higher annual net income.
Assessment by the Operating Partnership of certain other lease related costs
must be made when the Operating Partnership has a reason to believe that the
tenant will not be able to execute under the term of the lease as originally
expected.
Long Lived Assets
On a periodic basis, management assesses whether there are any indicators that
the value of the real estate properties may be impaired. A property's value is
impaired only if management's estimate of the aggregate future cash flows
(undiscounted and without interest charges) to be generated by the property are
less than the carrying value of the property. Such cash flows consider factors
such as expected future operating income, trends and prospects, as well as the
effects of demand, competition and other factors. To the extent impairment has
occurred, the loss will be measured as the excess of the carrying amount of the
property over the fair value of the property.
The Operating Partnership is required to make subjective assessments as to
whether there are impairments in the value of its real estate properties and
other investments. These assessments have a direct impact on the Operating
Partnership's net income, because recognizing an impairment results in an
immediate negative adjustment to net income. In determining impairment, if any,
the Operating Partnership has adopted FASB Statement No. 144, "Accounting for
the Impairment or Disposal of Long Lived Assets".
19
OVERVIEW AND BACKGROUND
The Operating Partnership, which commenced operations on June 2, 1995, is
engaged in the acquisition, financing, ownership, management, operation, leasing
and development of commercial real estate properties, principally office and
industrial / R&D properties, and also owns certain undeveloped land located in
the New York tri-state area (the "Tri-State Area"). Reckson Associates Realty
Corp. (the "Company"), is a self-administered and self-managed real estate
investment trust ("REIT"), and serves as the sole general partner in the
Operating Partnership.
As of June 30, 2003, the Operating Partnership owned and operated 75 office
properties (inclusive of eleven office properties owned through joint ventures)
comprising approximately 13.6 million square feet, 104 industrial properties
comprising approximately 6.9 million square feet and two retail properties
comprising approximately 20,000 square feet located in the Tri-State Area.
The Operating Partnership also owns approximately 313 acres of land in 12
separate parcels of which the Operating Partnership can develop approximately
3.1 million square feet of office space and approximately 400,000 square feet of
industrial / R&D space. The Operating Partnership is currently evaluating
alternative land uses for certain of the land holdings to realize the highest
economic value. These alternatives may include rezoning certain land parcels
from commercial to residential for potential disposition. As of June 30, 2003,
the Operating Partnership had invested approximately $112.1 million in these
development projects. Management has made subjective assessments as to the value
and recoverability of these investments based on current and proposed
development plans market comparable land values and alternative use values. As
of June 30, 2003, the Operating Partnership has capitalized approximately $2.4
million related to real estate taxes, interest and other carrying costs related
to these development projects.
During February 2003, the Operating Partnership, through Reckson Construction
Group, Inc., entered into a contract with an affiliate of First Data Corp. to
sell a 19.3-acre parcel of land located in Melville, New York and has been
retained by the purchaser to develop a build-to-suit 195,000 square foot office
building for aggregate consideration of approximately $47 million. This
transaction closed on March 11, 2003 and development of the aforementioned
office building has commenced. Net proceeds from the land sale of approximately
$18.3 million were used to establish an escrow account with a qualified
intermediary for a future exchange of real property pursuant to Section 1031 of
the Code and is included in prepaid expenses and other assets on the
accompanying balance sheet. The Code allows for the deferral of taxes related to
the gain attributable to the sale of property if such qualified identified
replacement property is identified within 45 days and acquired within 180 days
from the initial sale. The Operating Partnership has identified certain
properties and interests in properties for purposes of this exchange. In
accordance with Statement No. 66, the Operating Partnership has estimated its
pre-tax gain on this land sale and build-to-suit transaction to be approximately
$20.6 million of which $4.3 million and $10.1 million has been recognized during
the three and six months ended June 30, 2003, respectively and is included in
investment and other income on the Operating Partnership's statements of income.
Approximately $10.5 million is estimated to be earned in future periods as the
development progresses.
On May 22, 2003, the Operating Partnership, through Reckson Construction Group,
Inc., acquired two industrial redevelopment properties in Hauppauge, Long Island
encompassing approximately 100,000 square feet for total consideration of
approximately $6.5 million. This acquisition was financed from the sales
proceeds being held by the previously referenced qualified intermediary and the
properties acquired were identified, qualified replacement properties. If
Reckson Construction Group, Inc. is unable to acquire additional qualified
replacement properties or interests therein by September 7, 2003, a tax
liability of approximately $5.2 million will result from the gain recognized on
the sale proceeds received from the land sale to First Data.
On August 7, 2003, the Operating Partnership acquired a ten story, 181,800
square foot Class A office property located in Stamford, Connecticut. This
acquisition was financed, in part, through an advance under the Credit Facility
of $21.6 million and the issuance of 465,845 Class C common units of limited
partnership interest valued at $24.00 per unit.
20
The Operating Partnership holds a $17.0 million interest in a note receivable,
which bears interest at 12% per annum and is secured by a minority partnership
interest in Omni Partners, L.P., owner of the Omni, a 579,000 square foot Class
A office property located in Uniondale, NY (the "Omni Note"). The Operating
Partnership currently owns a 60% majority interest in Omni Partnership, L.P. and
on March 14, 2007 may exercise an option to acquire the remaining 40% interest
for a price based on 90% of the fair market value of the property. The Operating
Partnership also holds three other notes receivable aggregating $36.5 million
which bear interest at rates ranging from 10.5% to 12% per annum and are secured
in part by a minority partner's preferred unit interest in the Operating
Partnership, certain real property and a personal guarantee (the "Other Notes"
and collectively with the Omni Note, the "Note Receivable Investments"). As of
June 30, 2003, management has made subjective assessments as to the underlying
security value on the Operating Partnership's Note Receivable Investments. These
assessments indicated an excess of market value over carrying value related to
the Operating Partnership's Note Receivable Investments. Based on these
assessments, the Operating Partnership's management believes there is no
impairment to the carrying value related to the Operating Partnership's Note
Receivable Investments. The Operating Partnership also owns a 355,000 square
foot office building in Orlando, Florida. This non-core real estate holding was
acquired in May 1999 in connection with the Operating Partnership's initial New
York City portfolio acquisition. This property is cross collateralized under a
$102 million mortgage note along with one of the Operating Partnership's New
York City buildings.
The Operating Partnership also owns a 60% non-controlling interest in a 172,000
square foot office building located at 520 White Plains Road in White Plains,
New York (the "520JV"), which it manages. The remaining 40% interest is owned by
JAH Realties, L.P. Jon Halpern, the CEO and a director of HQ Global Workplaces,
is a partner in JAH Realties, L.P. As of June 30, 2003, the 520JV had total
assets of $20.1 million, a mortgage note payable of $12.3 million and other
liabilities of $503,000. The Operating Partnership's allocable share of the
520JV mortgage note payable is approximately $8.2 million. This mortgage note
payable bears interest at 8.85% per annum and matures on September 1, 2005.
During the three months ended June 30, 2003, HQ Global Workplaces, a tenant of
the 520JV surrendered approximately one-third of their premises. As a result,
the 520JV incurred a write-off of $633,000 relating to its deferred rents
receivable and incurred a net loss of approximately $497,000 and $362,000 for
the three and six months ended June 30, 2003, respectively. The operating
agreement of the 520JV requires joint decisions from all members on all
significant operating and capital decisions including sale of the property,
refinancing of the property's mortgage debt, development and approval of leasing
strategy and leasing of rentable space. As a result of the decision-making
participation relative to the operations of the property, the Operating
Partnership accounts for the 520JV under the equity method of accounting. In
accordance with the equity method of accounting, the Operating Partnership's
proportionate share of the 520JV loss was approximately $270,000 and $164,000
for the three and six months ended June 30, 2003, respectively.
In connection with the IPO, the Operating Partnership was granted ten year
options to acquire ten properties (the "Option Properties") which are either
owned by certain Rechler family members who are also executive officers of the
Company, or in which the Rechler family members own a non-controlling minority
interest at a price based upon an agreed upon formula. In years prior to 2001,
one Option Property was sold by the Rechler family members to a third party and
four of the Option Properties were acquired by the Operating Partnership for an
aggregate purchase price of approximately $35 million, which included the
issuance of approximately 475,000 Units valued at approximately $8.8 million.
Currently, certain Rechler family members retain their equity interests in the
five remaining Option Properties (the "Remaining Option Properties") which were
not contributed to the Company as part of the IPO. Such options provide the
Operating Partnership the right to acquire fee interest in two of the Remaining
Option Properties and the Rechler's minority interests in three Remaining Option
Properties. During May 2003, the Independent Directors approved the exercise by
the Company of its option to acquire the Rechler's fee interest in two of the
Remaining Option Properties (225 Broad Hollow Road and 593 Acorn Street) and to
provide customary tax protection from the sale or disposition of these
properties by the Company for a five-year period. In addition, the Rechler
family members agreed to extend the term of the three remaining unexercised
options for an additional two years. Both of these properties are located on
Long Island and aggregate approximately 228,000 square feet. Aggregate
consideration to acquire the two Remaining Option Properties is approximately
$22.1 million which includes the assumption of approximately $19.0 million of
mortgage notes payable, of which the Operating Partnership anticipates to prepay
or retire approximately $6.1 million, and the issuance of approximately 145,000
Units. The Operating Partnership anticipated acquiring these two Remaining
Option Properties in July 2003 but has since determined to defer such purchases
while it evaluates the effect on the Operating Partnership of exercising these
options in relation to certain other acquisition and disposition opportunities
that have arisen.
As part of the Company's REIT structure it is provided management, leasing and
construction related services through taxable REIT subsidiaries as defined by
the Internal Revenue Code of 1986 as amended (the "Code"). These services are
currently provided by the Service Companies in which, as of September 30, 2002,
the Operating Partnership owned a 97% non-controlling interest. An entity, which
is substantially owned by certain Rechler family members who are also executive
officers of the Company owned a 3% controlling interest in the Service
Companies. In order to minimize the potential for corporate conflicts of
interests, which became possible as a result of changes to the Code that permit
REITs to own 100% of taxable REIT subsidiaries the Independent Directors of the
Company approved the purchase by the Operating Partnership of the remaining 3%
interest in the Service Companies. On October 1, 2002, the Operating Partnership
acquired such 3% interests in the Service Companies for an aggregate purchase
price of approximately $122,000. Such amount was less than the total amount of
capital contributed by the Rechler family members. As a result of the
acquisition of the remaining interests in the Service Companies, the Operating
Partnership commenced consolidating the operations of the Service Companies.
During the six months ended June 30, 2003, Reckson Construction Group, Inc.
billed approximately $231,000 of market rate services and Reckson Management
Group, Inc. billed approximately $140,000 of market rate management fees to the
21
Remaining Option Properties. In addition, for the six months ended June 30,
2003, Reckson Construction Group, Inc. performed market rate services,
aggregating approximately $124,000, for a property in which certain executive
officers of the Company maintain an equity interest.
Reckson Management Group, Inc. leases 43,713 square feet of office and storage
space at a Remaining Option Property located at 225 Broad Hollow Road, Melville,
New York for its corporate offices at an annual base rent of approximately $1.2
million. Reckson Management Group, Inc. also leases 10,722 square feet of
warehouse space used for equipment, materials and inventory storage at a
Remaining Option Property located at 593 Acorn Street, Deer Park, New York at an
annual base rent of approximately $72,000.
A company affiliated with an Independent Director of the Company leases 15,566
square feet in a property owned by the Operating Partnership at an annual base
rent of approximately $431,500. Reckson Strategic Venture Partners, LLC ("RSVP")
leased 5,144 square feet in one of the Operating Partnership's joint venture
properties at an annual base rent of approximately $176,000. On June 15, 2003,
this lease was mutually terminated and RSVP vacated the premises.
During July 1998, the Operating Partnership formed Metropolitan Partners, LLC
("Metropolitan") for the purpose of acquiring Class A office properties in New
York City. Currently the Operating Partnership owns, through Metropolitan, five
Class A office properties aggregating approximately 3.5 million square feet.
During September 2000, the Operating Partnership formed a joint venture (the
"Tri-State JV") with Teachers Insurance and Annuity Association ("TIAA") and
contributed nine Class A suburban office properties aggregating approximately
1.5 million square feet to the Tri-State JV for a 51% majority ownership
interest. TIAA contributed approximately $136 million for a 49% interest in the
Tri-State JV, which was then distributed to the Operating Partnership. The
Operating Partnership is responsible for managing the day-to-day operations and
business affairs of the Tri-State JV and has substantial rights in making
decisions affecting the properties such as leasing, marketing and financing. The
minority member has certain rights primarily intended to protect its investment.
For purposes of its financial statements the Operating Partnership consolidates
the Tri-State JV.
On December 21, 2001, the Operating Partnership formed a joint venture (the
"919JV") with the New York State Teachers' Retirement System ("NYSTRS") whereby
NYSTRS acquired a 49% indirect interest in the property located at 919 Third
Avenue, New York, NY for $220.5 million which included $122.1 million of its
proportionate share of secured mortgage debt and approximately $98.4 million of
cash which was then distributed to the Operating Partnership. The Operating
Partnership is responsible for managing the day-to-day operations and business
affairs of the 919JV and has substantial rights in making decisions affecting
the property such as developing a budget, leasing and marketing. The minority
member has certain rights primarily intended to protect its investment. For
purposes of its financial statements the Operating Partnership consolidates the
919JV.
The total market capitalization of the Operating Partnership at June 30, 2003
was approximately $3.1 billion. The Operating Partnership's total market
capitalization is calculated based on the sum of (i) the value of the Operating
Partnership's Class A common units and Class B common units (which, for this
purpose, is assumed to be the same per unit as the market value of a share of
the Company's Class A common stock and Class B common stock), (ii) the
liquidation preference values of the Operating Partnership's preferred units and
(iii) the approximately $1.4 billion (including its share of joint venture debt
and net of minority partners' interests share of joint venture debt) of debt
outstanding at June 30, 2003. As a result, the Operating Partnership's total
debt to total market capitalization ratio at June 30, 2003 equaled approximately
46.2%.
During 1997, the Company formed FrontLine Capital Group, formerly Reckson
Service Industries, Inc. ("FrontLine") and RSVP. RSVP is a real estate venture
capital fund which invests primarily in real estate and real estate operating
companies outside the Company's core office and industrial / R&D focus and whose
common equity is held indirectly by FrontLine. In connection with the formation
and spin-off of FrontLine, the Operating Partnership established an unsecured
credit facility with FrontLine (the "FrontLine Facility") in the amount of $100
million for FrontLine to use in its investment activities, operations and other
general corporate purposes. The Company has advanced approximately $93.4 million
under the FrontLine Facility. The Operating Partnership also approved the
funding of investments of up to $100 million relating to RSVP (the "RSVP
Commitment"), through RSVP-controlled joint ventures (for REIT-qualified
investments) or advances made to FrontLine under an unsecured loan facility (the
"RSVP Facility") having terms similar to the FrontLine Facility (advances made
under the RSVP Facility and the FrontLine Facility hereafter, the "FrontLine
Loans"). During March 2001, the Company increased the RSVP Commitment to $110
million and as of June 30, 2003 approximately $109.1 million had been funded
through the RSVP Commitment, of which $59.8 million represents investments by
the Company in RSVP-controlled (REIT-qualified) joint ventures and $49.3 million
represents loans made to FrontLine under the RSVP Facility. As of June 30, 2003
interest accrued (net of reserves) under the FrontLine Facility and the RSVP
Facility was approximately $19.6 million. RSVP retained the services of two
managing directors to manage RSVP's day-to-day operations. Prior to the spin off
of FrontLine, the Company guaranteed certain salary provisions of their
employment agreements with RSVP Holdings, LLC, RSVP's common member. The term of
these employment agreements is seven years commencing March 5, 1998 provided
however, the term may be earlier terminated after five years upon certain
circumstances. The salary for each managing director is $1 million in the first
five years and $1.6 million in years six and seven.
22
The following table sets forth the Operating Partnership's invested capital
(before valuation reserves) in RSVP controlled (REIT-qualified) joint ventures
and amounts which were advanced under the RSVP Commitment to FrontLine, for its
investment in RSVP controlled investments (in thousands):
RSVP controlled Amounts
joint ventures advanced Total
------------------- ------------------- --------------------
Privatization $ 21,480 $ 3,520 $ 25,000
Student Housing 18,086 3,935 22,021
Medical Offices 20,185 -- 20,185
Parking -- 9,091 9,091
Resorts -- 8,057 8,057
Net leased retail -- 3,180 3,180
Other assets and overhead -- 21,598 21,598
-------- -------- --------
$ 59,751 $ 49,381 $109,132
======== ======== ========
Included in these investments is approximately $9.6 million of cash that has
been contributed to the respective RSVP controlled joint ventures or advanced
under the RSVP Commitment to FrontLine and is being held, along with cash from
the preferred investors.
In connection with the proposed restructuring of RSVP, the Company and the
second largest creditor of FrontLine, have agreed to adjust certain allocations
to account for the overhead expenses incurred by RSVP. Such adjustment is not
expected to have a material effect on the Company's potential recovery as a
creditor of FrontLine.
At June 30, 2001, the Company assessed the recoverability of the FrontLine Loans
and reserved approximately $3.5 million of the interest accrued during the
three-month period then ended. In addition, the Company formed a committee of
its Board of Directors, comprised solely of independent directors, to consider
any actions to be taken by the Company in connection with the FrontLine Loans
and its investments in joint ventures with RSVP. During the third quarter of
2001, the Company noted a significant deterioration in FrontLine's operations
and financial condition and, based on its assessment of value and recoverability
and considering the findings and recommendations of the committee and its
financial advisor, the Company recorded a $163 million valuation reserve charge,
inclusive of anticipated costs, in its consolidated statements of operations
relating to its investments in the FrontLine Loans and joint ventures with RSVP.
The Company has discontinued the accrual of interest income with respect to the
FrontLine Loans. The Company has also reserved against its share of GAAP equity
in earnings from the RSVP controlled joint ventures funded through the RSVP
Commitment until such income is realized through cash distributions.
At December 31, 2001, the Company, pursuant to Section 166 of the Code charged
off for tax purposes $70 million of the aforementioned reserve directly related
to the FrontLine Facility, including accrued interest. On February 14, 2002, the
Company charged off for tax purposes an additional $38 million of the reserve
directly related to the FrontLine Facility, including accrued interest and $47
million of the reserve directly related to the RSVP Facility, including accrued
interest.
FrontLine is in default under the FrontLine Loans from the Operating Partnership
and on June 12, 2002, filed a voluntary petition for relief under Chapter 11 of
the United States Bankruptcy Code.
As a result of the foregoing, the net carrying value of the Company's
investments in the FrontLine Loans and joint venture investments with RSVP,
inclusive of the Company's share of previously accrued GAAP equity in earnings
on those investments, is approximately $65 million which was reassessed with no
change by management as of June 30, 2003. Such amount has been reflected in
investments in service companies and affiliate loans and joint ventures on the
Company's consolidated balance sheet.
23
On or about April 29, 2003, RSVP entered into agreements regarding the
restructuring of its capital structure and arrangements with its management. In
connection with such restructuring, RSVP transferred $41 million in cash which
comprised certain un-invested capital and proceeds from the sale of certain of
the privatization assets and the assets that comprised its parking investments
valued at approximately $28.5 million to the preferred equity holders in RSVP.
In addition, RSVP agreed to redeem the preferred equity holders' interests for
an additional $95.8 million in cash, subject to a financing contingency. Funds
required for RSVP to complete the redemption transaction are anticipated to be
available from sales of the remaining privatization assets, sales of the medical
office assets and proceeds from a third party financing. RSVP also agreed to
restructure its relationship with its current managing directors, conditioned
upon the redemption of the preferred equity interests, whereby a management
company formed by the managing directors will be retained to manage RSVP. RSVP
will enter into a management agreement that will provide for an annual base
management fee, and disposition fees equal to 2% of the net proceeds received by
RSVP on asset sales. (The base fee and disposition fees together being subject
to a maximum amount over the term of the agreement of $7.5 million.) In
addition, the managing directors will retain a subordinate residual interest in
RSVP's assets. The management agreement will have a three-year term, subject to
early termination in the event of the disposition of all of the assets of RSVP.
As a result of this new arrangement, the employment contracts of the managing
directors will be terminated. RSVP is currently negotiating with a lender to
provide a portion of the proceeds needed to complete the restructuring
transaction. There can be no assurance that any of the foregoing pending
transactions will be completed. In the event that the redemption of the
preferred does not close, all parties rights shall remain unaffected, including
the rights relating to a dispute between common and preferred members over
certain provisions of the RSVP operating agreement.
Both the FrontLine Facility and the RSVP Facility terminated on June 15, 2003,
are unsecured and advances thereunder are recourse obligations of FrontLine.
Notwithstanding the valuation reserve, under the terms of the credit facilities,
interest accrues on the FrontLine Loans at a rate equal to the greater of (a)
the prime rate plus two percent and (b) 12% per annum, with the rate on amounts
that are outstanding for more than one year increasing annually at a rate of
four percent of the prior year's rate. In March 2001, the credit facilities were
amended to provide that (i) interest is payable only at maturity and (ii) the
Company may transfer all or any portion of its rights or obligations under the
credit facilities to its affiliates. The Company requested these changes as a
result of changes in REIT tax laws. As a result of FrontLine's default under the
FrontLine Loans, interest on borrowings thereunder accrue at default rates
ranging between 13% and 14.5% per annum.
Scott H. Rechler, who serves as Co-Chief Executive Officer and a director of the
Company, serves as CEO and Chairman of the Board of Directors of FrontLine and
is its sole board member. Scott H. Rechler also serves as a member of the
management committee of RSVP.
24
RESULTS OF OPERATIONS
Three months ended June 30, 2003 as compared to the three months ended June 30,
2002:
Property operating revenues which include base rents and tenant escalations and
reimbursements ("Property Operating Revenues") decreased by approximately
$425,000 for the three months ended June 30, 2003 as compared to the 2002
period. The change in Property Operating Revenues is attributable to a decrease
in certain property occupancy rates and decreases in rental rates in certain
"same store" properties amounting to approximately $3.0 million. These decreases
were offset by built-in rent increases and escalation increases in certain of
our leases of approximately $2.6 million.
Investment and other income increased by $3.1 million. This increase is
primarily attributable to the gain recognized on the First Data land sale and
build-to-suit transaction of approximately $4.3 million. This increase in
investment and other income was offset by decreases in income generated by the
Service Companies.
Property operating expenses, real estate taxes and ground rents ("Property
Expenses") increased by $5.1 million or 12.4% for the three months ended June
30, 2003 as compared to the 2002 period. This increase includes a $3.2 million
increase in property operating expenses and a $1.9 million increase in real
estate taxes. Included in the $3.2 million of property operating expense
increase is $1.0 million attributable to increases in insurance costs. The
insurance cost increase is primarily attributable to the added cost of terrorism
insurance for our properties and a significant increase in our liability
insurance costs. The increase in insurance costs were caused by implications of
the events which occurred on September 11, 2001. The increase in real estate
taxes are attributable to the significant increase levied by certain
municipalities, particularly in New York City and Nassau County, New York which
are experiencing severe fiscal budget issues. Also included in the property
operating expense increase is approximately 892,000 of increased utility and
snow removal costs which resulted in part to energy rate increases and continued
inclement weather in the Northeast during the Spring months.
Gross Operating Margins (defined as Property Operating Revenues less Property
Expenses, taken as a percentage of Property Operating Revenues) for the three
months ended June 30, 2003 and 2002 were 62.0% and 66.3%, respectively. The
decrease in Gross Operating Margins is primarily attributable to decreases in
average occupancy of the portfolio and also as a result of increased Property
Expenses specifically relating to insurance costs, real estate taxes and
utilities and snow removal costs.
Marketing, general and administrative expenses increased by approximately $1.7
million for the three months ended June 30, 2003 as compared to the 2002 period.
The increase is in part attributable to increased compensation costs including
compensation costs associated with the Company's long term incentive programs
which commenced in March 2003 and amounted to approximately $1.3 million for the
three months ended June 30, 2003. The Company also incurred an increase of
property related marketing costs to lease space which amounted to approximately
$300,000 and increased costs related to director and officer's insurance and
director fees of $347,000 for the three months ended June 30, 2003. Marketing,
general and administrative expenses, as a percentage of total revenues were,
7.4% for the three months ended June 30, 2003 as compared to 6.1% for the 2002
period. The Operating Partnership capitalized approximately $1.3 million of
marketing, general and administrative expenses for each of the three-month
periods ended June 30, 2003 and 2002. These costs relate to leasing,
construction and development activities, which are performed by the Operating
Partnership and its subsidiaries.
Interest expense increased by approximately $772,000 for the three months ended
June 30, 2003 as compared to the 2002 period. The increase includes $637,000 of
interest on the Operating Partnership's $50 million, five-year senior unsecured
notes issued on June 17, 2002. In addition, the increase includes approximately
$346,000, which is attributable to an increase in the weighted average balance
outstanding on the Operating Partnership's unsecured credit facility. The
weighted average balance outstanding was $319.9 million for the three months
ended June 30, 2003 as compared to $218.1 million for the three months ended
June 30, 2002. These increases were offset by a decrease of approximately
$221,000 in mortgage note payable interest expense.
Six months ended June 30, 2003 as compared to the six months ended June 30,
2002:
Property Operating Revenues increased by approximately $1.3 million for the six
months ended June 30, 2003 as compared to the 2002 period. The change in
Property Operating Revenues is attributable to built-in rent increases and
escalation increases in certain of our leases of approximately $6.3 million and
$3.4 million attributable to lease up of newly developed and redeveloped
properties. These increases were offset by approximately $8.4 million related to
decreases in certain property occupancy rates, decreases in rental rates and
increases in bad debts related to tenant receivables and deferred rents
receivable.
Investment and other income increased by $8.3 million. This increase is
primarily attributable to the gain recognized on the First Data land sale and
build-to-suit transaction of approximately $10.1 million. This increase in
investment and other income was offset by decreases in income generated by the
Service Companies.
25
Property Operating Expenses increased by $11.1 million or 13.3% for the six
months ended June 30, 2003 as compared to the 2002 period. This increase
includes a $7.5 million increase in property operating expenses and a $3.6
million increase in real estate taxes. Included in the $7.5 million of property
operating expense increase is $2.4 million attributable to increases in
insurance costs. The insurance cost increase is primarily attributable to the
added cost of terrorism insurance for our properties and a significant increase
in our liability insurance costs. The increase in insurance costs were caused by
implications of the events which occurred on September 11, 2001. The increase in
real estate taxes are attributable to the significant increase levied by certain
municipalities, particularly in New York City and Nassau County, New York which
are experiencing severe fiscal budget issues. Also included in the property
operating expense increase is approximately $3.3 million of increased utility
and snow removal costs which resulted in part to rate increases and continued
inclement weather in Northeast during the Spring months. To a lesser extent,
cleaning costs increased by approximately $550,000 due to
inflationary/contractual increases and property related marketing costs
increased by approximately $334,000 resulting from a decrease in overall
occupancy.
Gross Operating Margins (defined as Property Operating Revenues less Property
Expenses, taken as a percentage of Property Operating Revenues) for the six
months ended June 30, 2003 and 2002 were 61.6% and 65.9%, respectively. The
decrease in Gross Operating Margins is primarily attributable to decreases in
average occupancy of the portfolio and also as a result of increased Property
Expenses specifically relating to insurance costs, real estate taxes and
utilities and snow removal costs.
Marketing, general and administrative expenses increased by approximately $2.9
million for the six months ended June 30, 2003 as compared to the 2002 period.
The increase is in part attributable to increased compensation costs including
compensation costs associated with the Company's long term incentive programs
which commenced in March 2003 and amounted to approximately $1.5 million for the
six months ended June 30, 2003. Marketing, general and administrative expenses,
as a percentage of total revenues were, 6.8% for the six months ended June 30,
2003 as compared to 5.9% for the 2002 period. The Operating Partnership
capitalized approximately $2.4 million of marketing, general and administrative
expenses for the six months ended June 30, 2003 as compared to $2.6 million for
the 2002 period. These costs relate to leasing, construction and development
activities, which are performed by the Operating Partnership and its
subsidiaries.
Interest expense increased by approximately $2.6 million for the six months
ended June 30, 2003 as compared to the 2002 period. The increase includes $1.4
million of interest on the Operating Partnership's $50 million, five-year senior
unsecured notes issued on June 17, 2002. The increase is also affected by the
reduction in capitalized interest expense of $731,000 attributable to a decrease
in the level of development projects. In addition, the increase includes
approximately $879,000 which is attributable to an increase in the weighted
average balance outstanding on the Operating Partnership's unsecured credit
facility. The weighted average balance outstanding was $303.0 million for the
six months ended June 30, 2003 as compared to $211.8 million for the six months
ended June 30, 2002. These increases were offset by a decrease of approximately
$431,000 in mortgage note payable interest expense.
26
Liquidity and Capital Resources
Historically, rental revenue has been the principal source of funds to pay
operating expenses, debt service and non-incremental capital expenditures,
excluding incremental capital expenditures of the Operating Partnership. The
Operating Partnership expects to meet its short-term liquidity requirements
generally through its net cash provided by operating activities along with its
unsecured credit facility described below. The credit facility contains several
financial covenants with which the Operating Partnership must be in compliance
in order to borrow funds thereunder. During certain quarterly periods, the
Operating Partnership may incur significant leasing costs as a result of
increased market demands from tenants and high levels of leasing transactions
that result from the re-tenanting of scheduled expirations of early terminations
of leases. As a result, during these periods the Operating Partnership's cash
flow from operating activities may not be sufficient to pay 100% of the
quarterly distributions due on its common units. To meet the short-term funding
requirements relating to these leasing costs, the Operating Partnership may use
proceeds of property sales or borrowings under its credit facility. The
Operating Partnership expects to meet certain of its financing requirements
through long-term secured and unsecured borrowings and the issuance of debt and
equity securities of the Operating Partnership. There can be no assurance that
there will be adequate demand for the Operating Partnership's equity at the time
or at the price in which the Operating Partnership desires to raise capital
through the sale of additional equity. In addition, when valuations for
commercial real estate properties are high, the Operating Partnership will seek
to sell certain land inventory to realize value and profit created. The
Operating Partnership will then seek opportunities to reinvest the capital
realized from these dispositions back into value-added assets in the Operating
Partnership's core Tri-State Area markets, as well as pursue its equity
repurchase program. The Operating Partnership will refinance existing mortgage
indebtedness senior unsecured notes or indebtedness under its credit facility at
maturity or retire such debt through the issuance of additional debt securities
or additional equity securities. The Operating Partnership anticipates that the
current balance of cash and cash equivalents and cash flows from operating
activities, together with cash available from borrowings, equity offerings and
proceeds from sales of land, will be adequate to meet the capital and liquidity
requirements of the Operating Partnership in both the short and long-term.
As a result of current economic conditions, certain tenants have either not
renewed their leases upon expiration or have paid the Operating Partnership to
terminate their leases. In addition, a number of U.S. companies have filed for
protection under federal bankruptcy laws. Certain of these companies are tenants
of the Operating Partnership. The Operating Partnership is subject to the risk
that other companies that are tenants of the Operating Partnership may file for
bankruptcy protection. This may have an adverse impact on the financial results
and condition of the Operating Partnership. In addition, vacancy rates in our
markets have been trending higher and in some instances our asking rents in our
markets have been trending lower and landlords are being required to grant
greater concessions such as free rent and tenant improvements. Additionally, the
Operating Partnership carries comprehensive liability, fire, extended coverage
and rental loss insurance on all of its properties. Five of the Operating
Partnership's properties are located in New York City. As a result of the events
of September 11, 2001, insurance companies are limiting coverage for acts of
terrorism in all risk policies. In November 2002, the Terrorism Risk Insurance
Act of 2002 was signed into law which, among other things, requires insurance
companies to offer coverage for losses resulting from defined "acts of
terrorism" through 2004. The Operating Partnership's current insurance coverage
provides for full replacement cost of its properties, except that the coverage
for acts of terrorism on its properties covers losses in an amount up to $300
million per occurrence. As a result, the Operating Partnership may suffer losses
from acts of terrorism that are not covered by insurance. In addition, the
mortgage loans which are secured by certain of the Operating Partnership's
properties contain customary covenants, including covenants that require the
Operating Partnership to maintain property insurance in an amount equal to
replacement cost of the properties. There can be no assurance that the lenders
under these mortgage loans will not take the position that exclusions from the
Operating Partnership's coverage for losses due to terrorist acts is a breach of
a covenant which, if uncured, could allow the lenders to declare an event of
default and accelerate repayment of the mortgage loans. Other outstanding debt
instruments contain standard cross default provisions that would be triggered in
the event of an acceleration of the mortgage loans. This matter could adversely
affect the Operating Partnership's financial results, its ability to finance and
/ or refinance its properties or to buy or sell properties.
The terrorist attacks of September 11, 2001, in New York City may adversely
effect the value of the Operating Partnership's New York City properties and its
ability to generate cash flow. There may be a decrease in demand in metropolitan
areas that are considered at risk for future terrorist attacks, and this
decrease may reduce the Operating Partnership's revenues from property rentals.
In order to qualify as a REIT for federal income tax purposes, the Company is
required to make distributions to its stockholders of at least 90% of REIT
taxable income. As a result, it is anticipated that the Operating Partnership
will make distributions in amounts sufficient to meet this requirement. The
Operating Partnership expects to use its cash flow from operating activities for
distributions to unit holders and for payment of recurring, non-incremental
revenue-generating expenditures. The Operating Partnership intends to invest
amounts accumulated for distribution in short-term investments.
27
The Operating Partnership currently has a three year $500 million unsecured
revolving credit facility (the "Credit Facility") from JPMorgan Chase Bank, as
administrative agent, Wells Fargo Bank, National Association, as syndication
agent, and Citicorp North America, Inc. and Wachovia Bank, National Association,
as co-documentation agents. The Credit Facility matures in December 2005,
contains options for a one year extension subject to a fee of 25 basis points
and, upon receiving additional lender commitments, increasing the maximum
revolving credit amount to $750 million. In addition, borrowings under the
Credit Facility are currently priced off LIBOR plus 90 basis points and the
Credit Facility carries a facility fee of 20 basis points per annum. In the
event of a change in the Operating Partnership's unsecured credit rating the
interest rates and facility fee are subject to change. The outstanding
borrowings under the Credit Facility were $322.0 million at June 30, 2003.
The Operating Partnership utilizes the Credit Facility primarily to finance real
estate investments, fund its real estate development activities and for working
capital purposes. At June 30, 2003, the Operating Partnership had availability
under the Credit Facility to borrow approximately an additional $178.0 million,
subject to compliance with certain financial covenants.
The Operating Partnership continues to seek opportunities to acquire real estate
assets in its markets. The Operating Partnership has historically sought to
acquire properties where it could use its real estate expertise to create
additional value subsequent to acquisition. As a result of increased market
values for the Operating Partnership's commercial real estate assets the
Operating Partnership has sold certain non-core assets or interests in assets
where significant value has been created. During 2000, 2001 and 2002, the
Operating Partnership has sold assets or interests in assets with aggregate
sales prices of approximately $499.8 million. The Operating Partnership has used
the proceeds from these sales primarily to pay down borrowings under the Credit
Facility, repurchase units of general partnership interest as a result of the
Company's common stock buy-back program and for general operating purposes. In
addition, during the quarterly period ended March 31, 2003, the Operating
Partnership through Reckson Construction Group, Inc. entered into a sale of a
19.3 acre land parcel and build-to-suit 195,000 square foot office building for
aggregate consideration of approximately $47.0 million.
On June 30, 2003, the Operating Partnership had issued and outstanding 9,915,313
Class B common units, all of which, are held by the Company. The distribution on
the Class B units is subject to adjustment annually based on a formula which
measures increases or decreases in the Company's Funds From Operations, as
defined, over a base year. The Class B common units currently receive an annual
distribution of $2.5884 per unit.
The Class B common units are exchangeable at any time, at the option of the
holder, into an equal number of Class A common units subject to customary
antidilution adjustments. The Operating Partnership, at its option, may redeem
any or all of the Class B common units in exchange for an equal number of Class
A common units at any time following November 23, 2003 at which time the
Operating Partnership anticipates that it will exercise its option to redeem all
of its Class B common units outstanding.
The Board of Directors of the Company has authorized the purchase of up to five
million shares of the Company's Class A common stock and / or its Class B common
stock. Transactions conducted on the New York Stock Exchange will be effected in
accordance with the safe harbor provisions of the Securities Exchange Act of
1934 and may be terminated by the Company at any time. During the six months
ended June 30, 2003, under this buy-back program, the Operating Partnership
purchased 252,000 Class A common units at an average price of $18.01 per Class A
unit for an aggregate purchase price of approximately $4.5 million.
The following table sets forth the historical activity under the current
buy-back program (dollars in thousands except per unit data):
UNITS AVERAGE AGGREGATE
PURCHASED PRICE PER UNIT PURCHASE PRICE
-------------------- ---------------------- --------------------
Current program:
Class A common 2,950,400 $ 21.30 $ 62,830
Class B Common 368,200 $ 22.90 8,432
--------- ---------
3,318,600 $ 71,262
========= =========
The Board of Directors of the Company has formed a pricing committee to consider
purchases of up to $75 million of the Company's outstanding preferred
securities.
28
On June 30, 2003, the Company had 8,834,500 shares of its Class A preferred
stock issued and outstanding. During the fourth quarter of 2002, the Company
purchased and retired 357,500 shares of its Class A preferred stock at $22.29
per share for approximately $8.0 million. As a result, the Operating Partnership
purchased and retired an equal number of preferred units of general partnership
interest from the Company.
On August 7, 2003, in conjunction with the Operating Partnership's acquisition
of a Class A office property located in Stamford, Connecticut the Operating
Partnership issued 465,845 Class C common units of limited partnership interest.
The Class C units will receive an annual distribution of $1.87 per unit, which
amount will increase or decrease pro-rata based upon changes in the dividend
paid on the Company's Class A common stock.
The Operating Partnership's indebtedness at June 30, 2003 totaled approximately
$1.4 billion (including its share of joint venture debt and net of the minority
partners' interests share of joint venture debt) and was comprised of $322.0
million outstanding under the Credit Facility, approximately $499.4 million of
senior unsecured notes and approximately $600.7 million of mortgage
indebtedness. Based on the Operating Partnership's total market capitalization
of approximately $3.1 billion at June 30, 2003 (calculated based on the sum of
(i) the value of the Operating Partnership's Class A common units and Class B
common units (which, for this purpose, is assumed to be the same per unit as the
market value of a share of the Company's Class A common stock and Class B common
stock), (ii) the liquidation preference value of the Operating Partnership's
preferred units and (iii) the $1.4 billion of debt), the Operating Partnership's
debt represented approximately 46.2% of its total market capitalization.
HQ Global Workplaces, Inc. ("HQ"), one of the largest providers of flexible
officing solutions in the world and which is controlled by FrontLine, currently
operates eight (formerly eleven) executive office centers in the Operating
Partnership's properties, two of which are held through joint ventures. The
leases under which these office centers operate expire between 2008 and 2011,
encompass approximately 160,600 square feet and have current contractual annual
base rents of approximately $3.8 million. On March 13, 2002, as a result of
experiencing financial difficulties, HQ voluntarily filed a petition for relief
under Chapter 11 of the U.S. Bankruptcy Code. As of June 30, 2002, HQ's leases
with the Operating Partnership were in default. Further, the Bankruptcy Court
has (i) granted HQ's petition to reject three of its leases with the Operating
Partnership, one of which is held through the 919JV and (ii) modify the terms of
the lease, which is held through the 520JV. Two of the three rejected leases
were held through wholly owned entities, aggregated approximately 23,900 square
feet and were rejected in March 2002. The Operating Partnership has since
re-leased 100% of the space related to these two rejected leases. The third
rejected lease held through the 919JV aggregated approximately 31,000 square
feet and was to provide for contractual base rents of approximately $1.9 million
for the 2003 calendar year. With respect to the lease held through the 520JV, HQ
surrendered approximately 10,500 square feet, or one-third of the total leased
premises, to the Operating Partnership. The restructured lease provides for
initial base rent of $23.25 per foot and is scheduled to expire in 2011. Of the
surrendered space, approximately 6,500 square feet has been released at $18.50
per foot to an existing tenant in the 520JV and is scheduled to expire in 2010.
Pursuant to the bankruptcy filing, HQ has been paying current rental charges
under its leases with the Operating Partnership, other than under the three
rejected leases. The Operating Partnership is in negotiation to restructure two
of the leases and leave the terms of the remaining five leases unchanged. All
negotiations with HQ are conducted by a committee designated by the Board and
chaired by an independent director. There can be no assurance as to whether any
deal will be consummated with HQ or if HQ will affirm or reject any or all of
its remaining leases with the Operating Partnership. As a result of the
foregoing, the Operating Partnership has currently established reserves of
approximately $428,000 (net of minority partners' interests and including the
Operating Partnership's share of unconsolidated joint venture interest), or 85%,
of the amounts due from HQ as of June 30, 2003.
WorldCom/MCI and its affiliates ("WorldCom"), a telecommunications company,
which leased approximately 527,000 square feet in thirteen of the Operating
Partnership's properties located throughout the Tri-State Area voluntarily filed
a petition for relief under Chapter 11 of the U.S. Bankruptcy Code on July 21,
2002. The Bankruptcy Court granted WorldCom's petition to reject four of its
leases with the Operating Partnership. The four rejected leases aggregated
approximately 282,000 square feet and were to provide for contractual base rents
of approximately $7.2 million for the 2003 calendar year. All of WorldCom's
leases are current on base rental charges through August 31, 2003, other than
under the four rejected leases and the Operating Partnership currently holds
approximately $300,000 in security deposits relating to the non-rejected leases.
The Operating Partnership has reached an agreement with WorldCom to restructure
the remaining WorldCom leases which is subject to approval of the Bankruptcy
Court. There can be no assurance as to whether any deal will be consummated with
WorldCom or if WorldCom will affirm or reject any or all of its remaining leases
with the Operating Partnership.
As of June 30, 2003, WorldCom occupied approximately 245,000 square feet of
office space with aggregate annual base rental revenues of approximately $4.1
million, or 1.1% of the Operating Partnership's total 2003 annualized rental
revenue based on base rental revenue earned on a consolidated basis.
29
CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
The following table sets forth the Operating Partnership's significant debt
obligations by scheduled principal cash flow payments and maturity date and its
commercial commitments by scheduled maturity at June 30, 2003 (in thousands):
MATURITY DATE
--------------------------------------------------------------------------------------
2003 2004 2005 2006 2007 THEREAFTER TOTAL
----------- ----------- ----------- ----------- ----------- ----------- -----------
Mortgage notes payable (1) $ 6,421 $ 13,169 $ 14,167 $ 13,785 $ 11,305 $ 117,390 $ 176,237
Mortgage notes payable
(2)(3) -- 2,616 18,553 129,920 60,539 346,269 557,897
Senior unsecured notes -- 100,000 -- -- 200,000 200,000 500,000
Unsecured credit facility -- -- 322,000 -- -- -- 322,000
Land lease obligations 1,357 2,811 2,814 2,795 2,735 43,276 55,788
Operating leases 690 1,313 1,359 1,407 1,455 683 6,907
Air rights lease
obligations 188 379 379 379 379 4,280 5,984
----------- ----------- ----------- ----------- ----------- ----------- -----------
$ 8,656 $ 120,288 $ 359,272 $ 148,286 $ 276,413 $ 711,898 $ 1,624,813
=========== =========== =========== =========== =========== =========== ===========
(1) Scheduled principal amortization payments
(2) Principal payments due at maturity
(3) In addition, the Operating Partnership has a 60% interest in an
unconsolidated joint venture property. The Operating Partnership's share
of the mortgage debt at June 30, 2003 is approximately $8.2 million. This
mortgage note bears interest at 8.85% per annum and matures on September
1, 2005 at which time the Operating Partnership's share of the mortgage
debt will be approximately $6.9 million.
Certain of the mortgage notes payable are guaranteed by certain limited partners
in the Operating Partnership and/or the Company. In addition, consistent with
customary practices in non-recourse lending, certain non-recourse mortgages may
be recourse to the Company under certain limited circumstances including
environmental issues and breaches of material representations.
In addition, at June 30, 2003, the Operating Partnership had approximately
$950,000 in outstanding undrawn standby letters of credit issued under the
Credit Facility. In addition, approximately $44.6 million, or 6.1%, of the
Operating Partnership's mortgage debt is recourse to the Operating Partnership.
Other Matters
Eight of the Operating Partnership's office properties which were acquired by
the issuance of Units are subject to agreements limiting the Operating
Partnership's ability to transfer them prior to agreed upon dates without the
consent of the limited partner who transferred the respective property to the
Operating Partnership. In the event the Operating Partnership transfers any of
these properties prior to the expiration of these limitations, the Operating
Partnership may be required to make a payment relating to taxes incurred by the
limited partner. These limitations expire between the remainder of 2003 and
2013.
Eleven of the Operating Partnership's office properties are held in joint
ventures which contain certain limitations on transfer. These limitations
include requiring the consent of the joint venture partner to transfer a
property prior to various specified dates ranging from 2003 to 2005, rights of
first offer, and buy / sell provisions.
On May 29, 2003, the Board of Directors of the Company appointed Mr. Peter Quick
as Lead Director and Chairman of the Nominating/Governance Committee. The
Nominating/Governance Committee as well as the Company's Audit Committee and
Compensation Committee are comprised solely of independent directors.
In addition, in May 2003, the Company revised its policy with respect to
compensation of its independent directors to provide that a substantial portion
of the independent director's compensation shall be in the form of Class A
common stock of the Company. Such common stock may not be sold until such time
as the director is no longer a member of the Company's Board.
The Company had historically structured long term incentive programs ("LTIP")
using restricted stock and stock loans. In July 2002, as a result of certain
provisions of the Sarbanes Oxley legislation, the Company discontinued the use
of stock loans in its LTIP. In connection with LTIP grants made prior to the
enactment of the Sarbanes Oxley legislation the Company made stock loans to
certain executive and senior officers to purchase 1,372,393 shares of its Class
A common stock at market prices ranging from $18.44 per share to $27.13 per
share. The stock loans were set to bear interest at the mid-term Applicable
Federal Rate and were secured by the shares purchased. Such stock loans
(including accrued interest) vest and are ratably forgiven each year on the
anniversary of the grant date based upon vesting periods ranging from four to
ten years based on continued service and in part on attaining certain annual
performance measures. These stock loans had an initial aggregate weighted
average vesting period of approximately nine years. Approximately $2.2 million
of compensation expense was recorded for each of the six month periods ended
June 30, 2003 and 2002 related to these LTIP. Such amounts have been included in
marketing, general and administrative expenses on the Operating Partnership's
consolidated statements of income.
30
The outstanding stock loan balances due from the Company's executive and senior
officers aggregated approximately $13.0 million and $17.0 million at June 30,
2003 and December 31, 2002, respectively and have been included as a reduction
of general partner's capital on the Operating Partnership's consolidated balance
sheets. Other outstanding loans to the Company's executive and senior officers
amounting to approximately $1.0 million related to life insurance contracts and
approximately $2.0 million primarily related to tax payment advances on stock
compensation awards made to certain of the Company's non-executive officers.
In November 2002 and March 2003 an award of rights was granted to certain
executive officers of the Company (the "2002 Rights" and "2003 Rights",
respectively and collectively, the "Rights"). Each Right represents the right to
receive, upon vesting, one share of Class A common stock if shares are then
available for grant under one of the Company's stock option plans or, if shares
are not so available, an amount of cash equivalent to the value of such stock on
the vesting date. The 2002 Rights will vest in four equal annual installments
beginning on November 14, 2003 (and shall be fully vested on November 14, 2006).
The 2003 Rights will be earned as of March 13, 2005 and will vest in three equal
annual installments beginning on March 13, 2005 (and shall be fully vested on
March 13, 2007). Dividends on the shares will be held by the Company until such
shares become vested, and will be distributed thereafter to the applicable
officer. The 2002 Rights also entitle the holder thereof to cash payments in
respect of taxes payable by the holder resulting from the Rights. The 2002
Rights aggregate 190,524 shares of the Company's Class A common stock and the
2003 Rights aggregate 60,760 shares of Class A common stock. During the three
and six months ended June 30, 2003, the Operating Partnership recorded
approximately $209,000 and $425,000 of compensation expense, respectively
related to the Rights. Such amounts have been included in marketing, general and
administrative expenses on the Operating Partnership's consolidated statements
of income.
In March 2003, the Company established a new LTIP for its executive and senior
officers. The four-year plan has a core award, which provides for annual stock
based compensation based upon continued service and in part based on attaining
certain annual performance measures. The plan also has a special outperformance
award which provides for compensation to be earned at the end of a four year
period if the Company attains certain four year cumulative performance measures.
Amounts earned under the special outperformance award may be paid in cash or
stock at the discretion of the Compensation Committee of the Board. Performance
measures are based on total shareholder returns on a relative and absolute
basis. On March 13, 2003, the Company made available 1,384,102 shares of its
Class A common stock under its existing stock option plans in connection with
the core award of this LTIP for twelve of its executive and senior officers.
During May 2003 two of the Company's executive officers waived these awards
under this LTIP in their entirety, which aggregated 277,778 shares or 20% of the
core awards granted. In addition, the special outperformance awards of the LTIP
were amended to increase the per share base price above which the four year
cumulative return is measured from $18.00 to $22.40. With respect to the core
award of this LTIP, the Operating Partnership recorded approximately $1.3
million and $1.5 million of compensation expense for the three and six months
ended June 30, 2003, respectively. Such amounts have been included in marketing,
general and administrative expenses on the Operating Partnership's consolidated
statements of income. Further, no provision will be made for the special
outperformance award of this LTIP until such time as achieving the requisite
performance measures is determined to be probable.
Under various Federal, state and local laws, ordinances and regulations, an
owner of real estate is liable for the costs of removal or remediation of
certain hazardous or toxic substances on or in such property. These laws often
impose such liability without regard to whether the owner knew of, or was
responsible for, the presence of such hazardous or toxic substances. The cost of
any required remediation and the owner's liability therefore as to any property
is generally not limited under such enactments and could exceed the value of the
property and/or the aggregate assets of the owner. The presence of such
substances, or the failure to properly remediate such substances, may adversely
affect the owner's ability to sell or rent such property or to borrow using such
property as collateral. Persons who arrange for the disposal or treatment of
hazardous or toxic substances may also be liable for the costs of removal or
remediation of such substances at a disposal or treatment facility, whether or
not such facility is owned or operated by such person. Certain environmental
laws govern the removal, encapsulation or disturbance of asbestos-containing
materials ("ACMs") when such materials are in poor condition, or in the event of
renovation or demolition. Such laws impose liability for release of ACMs into
the air and third parties may seek recovery from owners or operators of real
properties for personal injury associated with ACMs. In connection with the
ownership (direct or indirect), operation, management and development of real
properties, the Operating Partnership may be considered an owner or operator of
such properties or as having arranged for the disposal or treatment of hazardous
or toxic substances and, therefore, potentially liable for removal or
remediation costs, as well as certain other related costs, including
governmental fines and injuries to persons and property. All of the Operating
Partnership's office and industrial / R&D properties have been subjected to a
Phase I or similar environmental audit after April 1, 1994 (which involved
general inspections without soil sampling, ground water analysis or radon
testing and, for the Operating Partnership's properties constructed in 1978 or
earlier, survey inspections to ascertain the existence of ACMs were conducted)
completed by independent environmental consultant companies (except for 35
Pinelawn Road which was originally developed by Reckson, the Operating
Partnership's predecessor, and subjected to a Phase 1 in April 1992). These
environmental audits have not revealed any environmental liability that would
have a material adverse effect on the Operating Partnership's business.
31
Funds from Operations
Management believes that funds from operations ("FFO") is a widely recognized
and appropriate measure of performance of an operating partnership whose general
partner is an equity REIT. Although FFO is a non-GAAP financial measure, the
Operating Partnership believes it provides useful information to the Company's
shareholders, potential investors and management. The Operating Partnership
computes FFO in accordance with standards established by the National
Association of Real Estate Investment Trusts ("NAREIT"). FFO is defined by
NAREIT as net income or loss, excluding gains or losses from debt restructurings
and sales of depreciable properties, plus real estate depreciation and
amortization, and after adjustments for unconsolidated partnerships and joint
ventures. FFO does not represent cash generated from operating activities in
accordance with GAAP and is not indicative of cash available to fund cash needs.
FFO should not be considered as an alternative to net income as an indicator of
the Operating Partnership's operating performance or as an alternative to cash
flow as a measure of liquidity. FFO for the three and six month periods ended
June 30, 2003 includes gain from the sale of land in the amount of $2.2 million
and $7.7 million, respectively.
Since all companies and analysts do not calculate FFO in a similar fashion, the
Operating Partnership's calculation of FFO presented herein may not be
comparable to similarly titled measures as reported by other companies.
The following table presents the Operating Partnership's FFO calculation
(in thousands):
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ------------------
2003 2002 2003 2002
------- ------- ------- -------
Net income available to common unit holders ..... $ 8,459 $15,468 $18,118 $33,384
Adjustments for Funds From Operations:
Add:
Real estate depreciation and amortization ..... 29,127 27,041 60,454 52,362
Minority partners' interests in consolidated
partnerships ................................ 4,335 4,813 9,025 9,933
Less:
Gain on sales of depreciable real estate assets -- -- -- 537
Amounts distributable to minority partners in
consolidated partnerships ................... 6,769 6,329 13,576 12,893
------- ------- ------- -------
Funds From Operations ........................... $35,152 $40,993 $74,021 $82,249
======= ======= ======= =======
Weighted average units outstanding .............. 65,192 68,559 65,292 68,184
======= ======= ======= =======
INFLATION
The office leases generally provide for fixed base rent increases or indexed
escalations. In addition, the office leases provide for separate escalations of
real estate taxes, operating expenses and electric costs over a base amount. The
industrial / R&D leases also generally provide for fixed base rent increases,
direct pass through of certain operating expenses and separate real estate tax
escalations over a base amount. The Operating Partnership believes that
inflationary increases in expenses will be offset by contractual rent increases
and expense escalations described above. As a result of the impact of the events
of September 11, 2001, the Operating Partnership has realized increased
insurance costs, particularly relating to property and terrorism insurance, and
security costs. The Operating Partnership has included these costs as part of
its escalatable expenses. The Operating Partnership has billed these escalatable
expense items to its tenants consistent with the terms of the underlying leases
and believes they are collectible. To the extent the Operating Partnership's
properties contain vacant space, the Operating Partnership will bear such
inflationary increases in expenses.
The Credit Facility bears interest at a variable rate, which will be influenced
by changes in short-term interest rates, and is sensitive to inflation.
32
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The primary market risk facing the Operating Partnership is interest rate risk
on its long-term debt, mortgage notes and notes receivable. The Operating
Partnership will, when advantageous, hedge its interest rate risk using
financial instruments. The Operating Partnership is not subject to foreign
currency risk.
The Operating Partnership manages its exposure to interest rate risk on its
variable rate indebtedness by borrowing on a short-term basis under its Credit
Facility until such time as it is able to retire the short-term variable rate
debt with either a long-term fixed rate debt offering, long term mortgage debt,
general partner contributions or through sales or partial sales of assets.
The Operating Partnership will recognize all derivatives on the balance sheet at
fair value. Derivatives that are not hedges will be adjusted to fair value
through income. If a derivative is a hedge, depending on the nature of the
hedge, changes in the fair value of the derivative will either be offset against
the change in fair value of the hedged asset, liability or firm commitment
through earnings, or recognized in other comprehensive income until the hedged
item is recognized in earnings. The ineffective portion of a derivative's change
in fair value will be immediately recognized in earnings. As of June 30, 2003,
the Operating Partnership had no derivatives outstanding.
The fair market value ("FMV") of the Operating Partnership's long term debt,
mortgage notes and notes receivable is estimated based on discounting future
cash flows at interest rates that management believes reflects the risks
associated with long term debt, mortgage notes and notes receivable of similar
risk and duration.
The following table sets forth the Operating Partnership's long term debt
obligations by scheduled principal cash flow payments and maturity date,
weighted average interest rates and estimated FMV at June 30, 2003 (dollars in
thousands):
For The Year Ended December 31,
------------------------------------------------------------
2003 2004 2005 2006 2007 Thereafter Total (1) FMV
----------------------------------------------------------------------------------------------------
Long term debt:
Fixed rate........... $ 6,421 $ 115,785 $ 32,720 $ 143,705 $ 271,844 $ 663,659 $1,234,134 $1,254,661
Weighted average
interest rate..... 7.50% 7.47% 6.92% 7.38% 7.14% 7.32% 7.29%
Variable rate........ $ -- $ -- $ 322,000 $ -- $ -- $ -- $ 322,000 $ 322,000
Weighted average
interest rate..... -- -- 2.12% -- -- -- 2.12%
(1) Includes aggregate unamortized issuance discounts of approximately
$626,000 on the senior unsecured notes issued during March 1999 and
June 2002, which are due at maturity.
In addition, a one percent increase in the LIBOR rate would have an approximate
$3.2 million annual increase in interest expense based on $322.0 million of
variable rate debt outstanding at June 30, 2003.
The following table sets forth the Operating Partnership's mortgage notes and
note receivables by scheduled maturity date, weighted average interest rates and
estimated FMV at June 30, 2003 (dollars in thousands):
For the Year Ended December 31,
------------------------------------------------------------------
2003 2004 2005 2006 2007 Thereafter Total (1) FMV
----------------------------------------------------------------------------------------------------------
Mortgage notes and
notes receivable:
Fixed rate........... $ -- $ -- $ 36,500 $ -- $ -- $ 16,990 $ 53,490 $ 54,568
Weighted average
interest rate...... -- -- 11.32% -- -- 12.00% 11.54%
(1) Excludes interest receivables aggregating approximately $1.1
million.
33
ITEM 4. CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures designed to ensure that
information required to be disclosed in our filings under the Securities
Exchange Act of 1934 is reported within the time periods specified in the SEC's
rules and forms. In this regard, the Operating Partnership has formed a
Disclosure Committee currently comprised of all of the Company's executive
officers as well as certain other employees with knowledge of information that
may be considered in the SEC reporting process. The Committee has responsibility
for the development and assessment of the financial and non-financial
information to be included in the reports filed by the Operating Partnership
with the SEC and assists the Company's Co-Chief Executive Officers and Chief
Financial Officer in connection with their certifications contained in the
Operating Partnership's SEC reports. The Committee meets regularly and reports
to the Company's Audit Committee on a quarterly or more frequent basis. The
Company's principal executive and financial officers have evaluated, with the
participation of the Company's management, our disclosure controls and
procedures as of the end of the period covered by this Quarterly Report on Form
10-Q. Based upon the evaluation, our principal executive and financial officers
concluded that such disclosure controls and procedures are effective.
There were no changes in our internal control over financial reporting that
occurred during our most recent fiscal quarter that have materially affected, or
are reasonably likely to materially affect, our internal control over financial
reporting.
34
The following table sets forth the Operating Partnership's schedule of its top
25 tenants based on base rental revenue as of June 30, 2003:
- -------------------------------------------------------------------------------------------------------------
PERCENT OF PRO-RATA PERCENT OF CONSOLIDATED
TOTAL SHARE OF ANNUALIZED ANNUALIZED BASE
TENANT NAME (1) TENANT TYPE SQUARE FEET BASE RENTAL REVENUE RENTAL REVENUE
- -------------------------------------------------------------------------------------------------------------
* DEBEVOISE & PLIMPTON Office 465,420 3.3% 5.6%
* AMERICAN EXPRESS Office 238,342 2.0% 1.8%
BELL ATLANTIC Office 210,426 1.6% 1.4%
* SCHULTE ROTH & ZABEL Office 238,052 1.4% 2.4%
DUN & BRADSTREET CORP. Office 123,000 1.2% 1.0%
* FUJI PHOTO FILM USA Office 186,484 1.2% 1.0%
* WORLDCOM/MCI Office 244,870 1.1% 1.1%
UNITED DISTILLERS Office 137,918 1.1% 1.0%
T.D. WATERHOUSE Office 103,381 1.0% 0.8%
* PRUDENTIAL Office 127,153 0.9% 0.9%
* BANQUE NATIONALE DE PARIS Office 145,834 0.9% 1.5%
* HQ GLOBAL Office/Industrial 160,637 0.9% 0.9%
* KRAMER LEVIN NESSEN KAMIN Office 158,144 0.9% 1.4%
HELLER EHRMAN WHITE Office 64,526 0.9% 0.7%
VYTRA HEALTHCARE Office 105,613 0.8% 0.7%
P.R. NEWSWIRE ASSOCIATES Office 67,000 0.8% 0.7%
HOFFMANN-LA ROCHE INC. Office 120,736 0.7% 0.6%
LABORATORY CORP OF AMERICA Office 108,000 0.7% 0.6%
* STATE FARM Office/Industrial 184,013 0.7% 1.0%
EMI ENTERTAINMENT WORLD Office 65,844 0.7% 0.6%
ESTEE LAUDER Industrial 374,578 0.7% 0.6%
* DRAFT WORLDWIDE INC. Office 124,008 0.7% 1.1%
PRACTICING LAW INSTITUTE Office 77,500 0.7% 0.6%
LOCKHEED MARTIN CORP. Office 123,554 0.7% 0.6%
D.E.SHAW Office 70,104 0.6% 0.6%
- ----------------------------------------------------------------------------------------------------------------
(1) Ranked by pro-rata share of annualized based rental revenue adjusted for
pro rata share of joint venture interests and to reflect WorldCom/MCI and
HQ Global leases rejected to date.
* Part or all of space occupied by tenant is in a 51% or more owned joint
venture building.
HISTORICAL NON-INCREMENTAL REVENUE-GENERATING CAPITAL EXPENDITURES, TENANT
IMPROVEMENT COSTS AND LEASING COMMISSIONS
The following table sets forth annual and per square foot non-incremental
revenue-generating capital expenditures in which the , Operating Partnership
paid or accrued, during the respective periods, to retain revenues attributable
to existing leased space for the years 1999 through 2002 and for the six month
period ended June 30, 2003 for the Operating Partnership's office and industrial
/ R&D properties other than One Orlando Center in Orlando, FL:
Average YTD
1999 2000 2001 2002 1999-2002 2003
-----------------------------------------------------------------------------------
Suburban Office Properties
Total $2,298,899 $3,289,116 $4,606,069 $5,283,674 $3,869,440 $2,751,646
Per Square Foot $ 0.23 $ 0.33 $ 0.45 $0.53 $ 0.39 $ 0.27
NYC Office Properties
Total N/A $ 946,718 $1,584,501 $1,939,111 $1,490,110 $ 841,074
Per Square Foot N/A 0.38 0.45 $0.56 0.46 $ 0.24
Industrial Properties
Total $1,048,688 $ 813,431 $ 711,666 $1,881,627 $1,113,853 $ 466,192
Per Square Foot $ 0.11 $ 0.11 $ 0.11 $0.28 $ 0.15 $ 0.07
TOTAL PORTFOLIO
-----------------------------------------------------------------------------------
Total $3,347,587 $5,049,265 $6,902,236 $9,104,413 $4,058,912
Per Square Foot $ 0.17 $ 0.25 $0.34 $ 0.45 $ 0.20
35
The following table sets forth annual and per square foot non-incremental
revenue-generating tenant improvement costs and leasing commissions in which the
Operating Partnership committed to perform, during the respective periods, to
retain revenues attributable to existing leased space for the years 1999 through
2002 and for the six month period ended June 30, 2003 for the Operating
Partnership's office and industrial / R&D properties other than One Orlando
Center in Orlando, FL:
Average YTD
1999 2000 2001 2002 1999-2002 2003(2) New Renewal
-------------------------------------------------------------------------------------------------
Long Island Office Properties
Tenant Improvements $1,009,357 $2,853,706 $2,722,457 $ 1,917,466 $2,125,747 $2,401,302 $1,893,468 $ 507,834
Per Square Foot Improved $ 4.73 $ 6.99 $ 8.47 $ 7.81 $ 7.00 $ 5.90 $ 9.54 $ 2.44
Leasing Commissions $ 551,762 $2,208,604 $1,444,412 $ 1,026,970 $1,307,937 $2,014,264 $1,734,685 $ 279,579
Per Square Foot Leased $ 2.59 $ 4.96 $ 4.49 $ 4.18 $ 4.06 $ 4.95 $ 8.74 $ 1.34
-------------------------------------------------------------------------------------------------
Total Per Square Foot $ 7.32 $ 11.95 $ 12.96 $ 11.99 $ 11.06 $ 10.85 $ 18.28 $ 3.78
=================================================================================================
Westchester Office Properties
Tenant Improvements $1,316,611 $1,860,027 $2,584,728 $ 6,391,589(1) $3,038,239 $ 871,401 $ 871,401 $ 0
Per Square Foot Improved $ 5.62 $ 5.72 $ 5.91 $ 15.05 $ 8.08 $ 13.27 $ 21.34 $ 0.00
Leasing Commissions $ 457,730 $ 412,226 $1,263,012 $ 1,975,850 $1,027,204 $ 231,190 $ 207,191 $ 23,999
Per Square Foot Leased $ 1.96 $ 3.00 $ 2.89 $ 4.65 $ 3.13 $ 3.52 $ 5.07 $ 0.97
--------------------------------------------------------------------------------------------------
Total Per Square Foot $ 7.58 $ 8.72 $ 8.80 $ 19.70 $ 11.20 $ 16.79 $ 26.41 $ 0.97
==================================================================================================
Connecticut Office Properties
Tenant Improvements $ 179,043 $ 385,531 $ 213,909 $ 491,435 $ 317,480 $ 25,868 $ 15,758 $ 10,110
Per Square Foot Improved $ 4.88 $ 4.19 $ 1.46 $ 3.81 $ 3.58 $ 1.29 $ 1.24 $ 1.39
Leasing Commissions $ 110,252 $ 453,435 $ 209,322 $ 307,023 $ 270,008 $ 76,485 $ 57,855 $ 18,630
Per Square Foot Leased $ 3.00 $ 4.92 $ 1.43 $ 2.38 $ 2.93 $ 3.82 $ 4.55 $ 2.56
-------------------------------------------------------------------------------------------------
Total Per Square Foot $ 7.88 $ 9.11 $ 2.89 $ 6.19 $ 6.52 $ 5.11 $ 5.79 $ 3.95
=================================================================================================
New Jersey Office Properties
Tenant Improvements $ 454,054 $1,580,323 $1,146,385 $ 2,842,521 $1,505,821 $3,410,777 $3,086,839 $ 323,938
Per Square Foot Improved $ 2.29 $ 6.71 $ 2.92 $ 10.76 $ 5.67 $ 13.25 $ 26.91 $ 2.27
Leasing Commissions $ 787,065 $1,031,950 $1,602,962 $ 1,037,012 $1,114,747 $1,758,933 $1,041,571 $ 717,362
Per Square Foot Leased $ 3.96 $ 4.44 $ 4.08 $ 3.92 $ 4.10 $ 6.83 $ 9.09 $ 5.02
--------------------------------------------------------------------------------------------------
Total Per Square Foot $ 6.25 $ 11.15 $ 7.00 $ 14.68 $ 9.77 $ 20.08 $ 36.00 $ 7.29
=================================================================================================
New York City Office Properties
Tenant Improvements N/A $ 65,267 $ 788,930 $ 4,350,106 $1,734,768 $2,076,732 $1,936,972 $ 139,760
Per Square Foot Improved N/A $ 1.79 $ 15.69 $ 18.39 $ 11.96 $ 35.19 $ 58.24 $ 5.42
Leasing Commissions N/A $ 418,185 $1,098,829 $ 2,019,837 $1,178,950 $ 707,192 $ 677,039 $ 30,153
Per Square Foot Leased N/A $ 11.50 $ 21.86 $ 8.54 $ 13.97 $ 11.98 $ 20.36 $ 1.17
--------------------------------------------------------------------------------------------------
Total Per Square Foot N/A $ 13.29 $ 37.55 $ 26.93 $ 25.92 $ 47.17 $ 78.60 $ 6.59
=================================================================================================
Industrial Properties
Tenant Improvements $ 375,646 $ 650,216 $1,366,488 $ 1,850,812 $1,060,791 $ 926,248 $ 887,012 $ 39,236
Per Square Foot Improved $ 0.25 $ 0.95 $ 1.65 $ 1.97 $ 1.20 $ 2.33 $ 3.35 $ 0.29
Leasing Commissions $ 835,108 $ 436,506 $ 354,572 $ 890,688 $ 629,218 $ 464,371 $ 444,193 $ 20,178
Per Square Foot Leased $ 0.56 $ 0.64 $ 0.43 $ 0.95 $ 0.64 $ 1.17 $ 1.68 $ 0.15
-------------------------------------------------------------------------------------------------
Total Per Square Foot $ 0.81 $ 1.59 $ 2.08 $ 2.92 $ 1.85 $ 3.50 $ 5.03 $ 0.44
=================================================================================================
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL PORTFOLIO
Tenant Improvements $3,334,711 $7,395,070 $8,822,897 $17,843,929 $9,782,844 $9,712,328 $8,691,450 $1,020,878
Per Square Foot Improved $1.53 $ 4.15 $ 4.05 $ 7.96 $ 4.75 $ 8.05 $ 13.07 $ 1.88
Leasing Commissions $2,741,917 $4,960,906 $5,973,109 $ 7,257,379 $5,528,065 $5,252,435 $4,162,534 $1,089,901
Per Square Foot Leased $1.26 $ 3.05 $ 2.75 $ 3.24 $ 2.66 $ 4.35 $ 6.26 $ 2.01
-------------------------------------------------------------------------------------------------
Total Per Square Foot $2.79 $ 7.20 $ 6.80 $ 11.20 $ 7.41 $ 12.40 $ 19.33 $ 3.89
=================================================================================================
NOTES:
(1) Excludes tenant improvements and leasing commissions related to a 163,880
square foot leasing transaction with Fuji Photo Film U.S.A. Leasing
commissions on this transaction amounted to $5.33 per square foot and tenant
improvement allowance amounted to $40.88 per square foot.
(2) Excludes $644,445 of deferred leasing costs attributable to space marketed
but not yet leased.
36
The following table sets forth the Operating Partnership's components of its
paid or accrued non-incremental and incremental revenue-generating capital
expenditures, tenant improvements and leasing costs for the six months ended
June 30, 2003 as reported on its "Statements of Cash Flows - Investment
Activities" contained in its consolidated financial statements (in thousands):
June 30,
2003
-------
Capital expenditures:
Non-incremental ......................... $ 4,297
Incremental ............................. 899
Tenant improvements:
Non-incremental ......................... 19,901
Incremental ............................. 52
-------
Additions to commercial real estate properties $25,149
=======
Leasing costs:
Non-incremental ......................... $ 6,554
Incremental ............................. 2,211
-------
Payment of deferred leasing costs ............ $ 8,765
=======
Acquisition and development costs ............ $16,237
=======
37
The following table sets forth the Operating Partnership's lease expiration
table at July 1, 2003 for its Total Portfolio of properties, its Office
Portfolio and its Industrial / R&D Portfolio.
LEASE EXPIRATION SCHEDULE
TOTAL PORTFOLIO
-----------------------------------------------------------------------------------------
Number of Square % of Total Cumulative
Year of Leases Feet Portfolio % of Total
Expiration Expiring Expiring Sq Ft Portfolio Sq Ft
-----------------------------------------------------------------------------------------
2003 75 704,082 3.4% 3.4%
2004 183 1,511,741 7.4% 10.8%
2005 220 2,345,589 11.5% 22.3%
2006 226 2,636,183 12.9% 35.2%
2007 138 1,473,608 7.2% 42.4%
2008 127 1,591,864 7.8% 50.1%
2009 and thereafter 315 8,540,939 41.8% 91.8%
-----------------------------------------------------------------------------------------
Total/Weighted Average 1,284 18,804,006 91.8% --
-----------------------------------------------------------------------------------------
Total Portfolio Square Feet 20,474,097
-----------------------------------------------------------------------------------------
OFFICE PORTFOLIO
-----------------------------------------------------------------------------------------
Number of Square % of Total Cumulative
Year of Leases Feet Office % of Total
Expiration Expiring Expiring Sq Ft Portfolio Sq Ft
-----------------------------------------------------------------------------------------
2003 68 591,719 4.4% 4.4%
2004 145 945,855 7.0% 11.3%
2005 187 1,639,436 12.1% 23.4%
2006 171 1,557,869 11.5% 34.9%
2007 107 1,114,656 8.2% 43.1%
2008 94 893,876 6.6% 49.7%
2009 and thereafter 256 5,675,221 41.8% 91.6%
-----------------------------------------------------------------------------------------
Total/Weighted Average 1,028 12,418,632 91.6% --
-----------------------------------------------------------------------------------------
Total Office Portfolio Square Feet 13,565,420
-----------------------------------------------------------------------------------------
INDUSTRIAL/R&D PORTFOLIO
-----------------------------------------------------------------------------------------
Number of Square % of Total Cumulative
Year of Leases Feet Industrial/R&D % of Total
Expiration Expiring Expiring Sq Ft Portfolio Sq Ft
-----------------------------------------------------------------------------------------
2003 7 112,363 1.6% 1.6%
2004 38 565,886 8.2% 9.8%
2005 33 706,153 10.2% 20.0%
2006 55 1,078,314 15.6% 35.6%
2007 31 358,952 5.2% 40.8%
2008 33 697,988 10.1% 50.9%
2009 and thereafter 59 2,865,718 41.5% 92.4%
-----------------------------------------------------------------------------------------
Total/Weighted Average 256 6,385,374 92.4% --
-----------------------------------------------------------------------------------------
Total Industrial/R&D Portfolio Square 6,908,677 --
Feet
-----------------------------------------------------------------------------------------
(a) Excludes the 355,000 square foot office property located in Orlando, Florida
38
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Operating Partnership is not presently subject to any material
litigation nor, to the Operating Partnership's knowledge, is any
litigation threatened against the Operating Partnership, other than
routine actions for negligence or other claims and administrative
proceedings arising in the ordinary course of business, some of which
are expected to be covered by liability insurance and all of which
collectively are not expected to have a material adverse effect on the
liquidity, results of operations or business or financial condition of
the Operating Partnership.
Item 2. Changes in Securities and use of proceeds - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Securities Holders - None
Item 5. Other information - None
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
3.1 Supplement to the Amended and Restated Agreement of
Limited Partnership of Reckson operating Partnership,
L.P. establishing the Series C common units of limited
partnership interest.
10.1 Reckson Associates Realty Corp. amended and restated
1995 Stock Option Plan
10.2 Reckson Associates Realty Corp. amended and restated
1997 Stock Option Plan
10.3 Reckson Associates Realty Corp. amended and restated
2002 Stock Option Plan
31.1 Certification of Donald J. Rechler, Co-Chief Executive
Officer of Reckson Associates Realty Corp., the sole
general partner of Reckson Operating Partnership,
L.P., pursuant to Rule 13a - 14(a) / 15(d) - 14(a)
31.2 Certification of Scott H. Rechler, Co-Chief Executive
Officer of Reckson Associates Realty Corp., the sole
general partner of Reckson Operating Partnership,
L.P., pursuant to Rule 13a - 14(a) / 15(d) - 14(a)
31.3 Certification of Michael Maturo, Executive Vice
President, Treasurer and Chief Financial Officer of
Reckson Associates Realty Corp., the sole general
partner of Reckson Operating Partnership, L.P.,
pursuant to Rule 13a - 14(a) / 15(d) - 14(a)
32.1 Certification of Donald Rechler, Co-CEO of Reckson
Associates Realty Corp., the sole general partner of
Reckson Operating Partnership, L.P., pursuant to
Section 1350 of Chapter 63 of title 18 of the United
States Code
32.2 Certification of Scott H. Rechler, Co-CEO of Reckson
Associates Realty Corp., the sole general partner of
Reckson Operating Partnership, L.P., pursuant to
Section 1350 of Chapter 63 of title 18 of the United
States Code
32.3 Certification of Michael Maturo, Executive Vice
President, Treasurer and CFO of Reckson Associates
Realty Corp., the sole general partner of Reckson
Operating Partnership, L.P., pursuant to Section 1350
of Chapter 63 of title 18 of the United States Code
b) During the three months ended June 30, 2003 the Registrant filed
the following reports on Form 8K:
On May 7, 2003 the Registrant submitted a report on Form 8-K under
Items 7 and 9 thereof in order to file a press release announcing
Reckson Associates Realty Corp.'s consolidated financial results
for the quarter ended March 31, 2003.
On May 28, 2003 the Registrant submitted a report on Form 8-K
under Item 5 thereof in order to describe certain amendments to
Reckson Associates Realty Corp.'s Long Term Incentive Plan.
39
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
RECKSON OPERATING PARTNERSHIP, L.P.
BY: RECKSON ASSOCIATES REALTY CORP., its sole general partner
By: /s/ Scott H. Rechler By: /s/ Michael Maturo
- -------------------------------- -------------------------------------------
Scott H. Rechler, Michael Maturo, Executive Vice President,
Co-Chief Executive Officer Treasurer and Chief Financial Officer
By: /s/ Donald Rechler
- --------------------------------
Donald Rechler,
Co-Chief Executive Officer
DATE: August 8, 2003
40
EXHIBIT 3.1
SUPPLEMENT TO THE AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
RECKSON OPERATING PARTNERSHIP, L.P.
ESTABLISHING
CLASS C COMMON UNITS
OF
LIMITED PARTNERSHIP INTEREST
In accordance with Sections 4.2 and 14.1 B(3) of the Amended and
Restated Agreement of Limited Partnership, dated as of June 2, 1995, as amended
on December 6, 1995, April 13, 1998, April 20, 1998, June 30, 1998, May 24,
1999, June 2, 1999 and October 13, 2000 (the "Partnership Agreement"), the
Partnership Agreement is hereby supplemented (the "Supplement") to establish a
class of 465,845 common units of limited partnership interest of Reckson
Operating Partnership, L.P. (the "Partnership") which shall be designated "Class
C Common Units" having the rights, powers, privileges and restrictions,
qualifications and limitations as set forth below and which shall be issued to
the parties and in the amounts set forth on Schedule A hereto. Capitalized terms
used and not otherwise defined herein shall have the meanings set forth in the
Partnership Agreement.
WHEREAS, the Partnership and 1055 Stamford Associates Limited
Partnership (the "Transferor") executed a Contribution and Conveyance Agreement,
dated August 7, 2003 (the "Contribution Agreement") pursuant to which Transferor
agreed to transfer all of its right, title and interest in the property known as
1055 Washington Boulevard, Stamford, Connecticut to the Partnership.
WHEREAS, pursuant to Section 4.2 of the Partnership Agreement, the
Partnership is issuing 465,845 Class C Common Units to the Transferor with the
rights, powers, privileges and restrictions, qualifications and limitations as
set forth below pursuant to the terms of the Contribution Agreement.
NOW THEREFORE, in consideration of the mutual covenants contained
herein, and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as follows:
Section 1. Issuance of Class C Common Units
--------------------------------
Pursuant to Section 4.2 of the Partnership Agreement, the Partnership
hereby issues 465,845 Partnership Interests (the "Class C Common Units") to the
parties and in the amounts set forth on Schedule A hereto. The Class C Common
Units shall have the rights, powers, privileges, restrictions, qualifications
and limitations (including, but not limited to, limitations on transfer) of
Limited Partners under the Partnership Agreement, as supplemented and amended by
the rights, powers, privileges, restrictions, qualifications and limitations
specified in Exhibit I hereto.
The admission of the Transferor as an Additional Limited Partner of the
Partnership shall become effective as of the date of this Supplement, which
shall also be the date upon which the name of the Transferor is recorded on the
books and records of the Partnership and Exhibit A to the Partnership Agreement
is amended to reflect such admission.
Section 2. Amendment to Partnership Agreement.
-----------------------------------
Pursuant to Section 14.1.B(3) of the Partnership Agreement, the General
Partner, as general partner of the Partnership and as attorney-in-fact for its
Limited Partners, hereby amends the Partnership Agreement as follows:
(a) Article 1 of the Partnership Agreement is hereby amended
by adding the following definition of "Class C Common Units":
"Class C Common Units" means the units of limited partnership
interest issued on August 7, 2003, in connection with the
consummation of the transactions set forth in the Contribution
and Conveyance Agreement, dated August 7, 2003, between the
Partnership and 1055 Stamford Associates Limited Partnership.
(b) Section 8.6A is hereby amended by adding the following
sentence to the end of Section 8.6A:
"Notwithstanding the foregoing, with respect to the Class C
Common Units issued in connection with the provisions of the
Supplement to this Agreement made as of August 7, 2003, the
Redemption Right shall not be exercisable until on or after
that date which is one year after the date of such Supplement
(or such other date as may be mutually agreed upon by the
General Partner and the Transferor)."
Section 3. Continuation of Partnership Agreement
-------------------------------------
The Partnership Agreement and this Supplement shall be read
together and shall have the same force and effect as if the provisions of the
Partnership Agreement and this Supplement (including Exhibit I hereto) were
contained in one document. Any provisions of the Partnership Agreement not
amended by this Supplement shall remain in full force and effect as provided in
the Partnership Agreement immediately prior to the date hereof.
2
IN WITNESS WHEREOF, the parties hereto have executed this
Supplement to the Partnership Agreement as of the 7th day of August, 2003.
GENERAL PARTNER:
RECKSON ASSOCIATES REALTY CORP.
By: /s/ Scott Rechler
----------------------------------
Name: Scott Rechler
Title: Co-Chief Executive Officer
EXISTING LIMITED PARTNERS:
By: Reckson Associates Realty Corp.,
as Attorney-in-Fact for the Limited Partners
By: /s/ Scott Rechler
----------------------------------
Name: Scott Rechler
Title: Co-Chief Executive Officer
CLASS C COMMON UNIT HOLDER:
1055 STAMFORD ASSOCIATES LIMITED PARTNERSHIP
By: 1055 Stamford Corporation, its general
partner
By: /s/ Raymond W. Miller
-----------------------------------------
Name: Raymond W. Miller
Title: Vice President
3
EXHIBIT I
RECKSON OPERATING PARTNERSHIP, L.P.
DESIGNATION OF THE RIGHTS, POWERS, PRIVILEGES,
RESTRICTIONS, QUALIFICATIONS AND LIMITATIONS
OF THE CLASS C COMMON LIMITED PARTNERSHIP UNITS
The following are the terms of the Class C Common Limited Partnership
Units established pursuant to this Supplement:
1. Number. The maximum number of authorized Class C Common Limited
Partnership Units (the "Class C Common Units") shall be 465,845.
2. Distributions.
(a) Commencing from the date on which the Class C Common Units are
first issued (the "Class C Issue Date"), for any quarterly period holders of the
Class C Common Units shall be entitled to receive, if, when and as authorized by
the General Partner out of funds legally available for the payment of
distributions, cash distributions in an amount per unit equal to the product of
the distribution payable on the Common Units for the corresponding quarterly
period times 1.0984 (the "Class C Distribution Amount"). Distributions on the
Class C Common Units, if authorized, shall be payable quarterly in arrears on
such dates as may be authorized by the General Partner (any such date, a
"Distribution Payment Date"). In addition, Class C Common Units shall be
entitled to receive, if, when and as authorized by the General Partner out of
funds or other property legally available for the payment of distributions, any
special, extraordinary or other distributions payable on the Common Units which
may be made from time to time in an amount per unit equal to the amount of any
special, extraordinary or other distributions payable on the Common Units.
Distributions will be payable to the holder of the Class C Common Units with
respect to the Class C Common Units held at the close of business on the
applicable record date, which shall be such date designated by the General
Partner for the payment of distributions that is not more than 30 nor less than
10 days prior to such Distribution Payment Date (each, a "Distribution Payment
Record Date"). With regard to any distribution to the Class C Common Units, the
Distribution Payment Date shall be the same date as the date fixed for the
payment of distributions to holders of Common Units and the Distribution Payment
Record Date shall be the same date set for the record date for holders of Common
Units. In the event that distributions to holders of Common Units for any period
are paid on other than a quarterly basis, for example, on a monthly basis, then
distributions to holders of the Class C Common Units shall also be paid on a
monthly basis. Notwithstanding anything appearing to the contrary in this
Section 2(a), the distribution to be paid on Class C Common Units to any holder
thereof on the Distribution Payment Date immediately following the Class C Issue
Date shall equal the product of the Class C Distribution Amount times a
fraction, the numerator of which shall equal the number of days during the
quarterly period preceding the initial Distribution Payment Record Date that the
Class C Common Units were outstanding and the denominator of which shall equal
the number of days in the quarterly period with respect to the quarter in which
such Class C Common Units are issued.
(b) No distributions on the Class C Common Units shall be
authorized by the General Partner or be paid or set apart for payment by the
Partnership at such time as the terms and provisions of any agreement of the
Partnership, including any agreement relating to its indebtedness, prohibits
such authorization, payment or setting apart for payment or provides that such
authorization, payment or setting apart for payment would constitute a breach
thereof or a default thereunder, or if such authorization or payment shall be
restricted or prohibited by law.
(c) Distributions on the Class C Common Units will be
noncumulative. If the General Partner does not authorize a distribution on the
Class C Common Units payable on any Distribution Payment Date while any Class C
Common Unit is outstanding, then the holder of the Class C Common Units will
have no right to receive a distribution for that Distribution Payment Date, and
the Partnership will have no obligation to pay a distribution for that
Distribution Payment Date with respect to the Class C Common Units.
(d) No distributions, whether in cash, securities or property, will
be authorized or paid or set apart for payment to holders of Common Units for
any period unless for each Class C Common Unit outstanding, a distribution equal
to the Class C Distribution Amount with respect to such period has been or
contemporaneously is authorized and paid or authorized and a sum sufficient for
the payment thereof is set apart for such payment to the holder of the Class C
Common Units for the then current distribution period.
(e) Except as provided herein, Class C Common Units shall not
entitle the holder thereof to receive any distribution made in respect of Common
Units.
(f) If the Partnership shall after the Class C Issue Date subdivide
its outstanding Common Units into a greater number of units, then Class C Common
Units outstanding on the record date for the determination of common unitholders
entitled to receive such distribution, shall be subdivided at a ratio equal to
the ratio for the subdivision of the Common Units. In addition, if the
Partnership shall after the Class C Issue Date combine its Common Units into a
smaller number of units, then on the day on which such combination becomes
effective, any outstanding Class C Common Units shall be combined into a smaller
number of Class C Common Units at a ratio equal to the ratio for the combination
of the Common Units.
(g) As used in this Section 2, "set apart for payment" shall be
deemed to include, without any further action, the following: the recording by
the Partnership in its accounting ledgers of any accounting or bookkeeping entry
which indicates, pursuant to an authorization of a distribution by the General
Partner, the allocation of funds to be so paid on any series or class of units
of the Partnership.
3. Ranking. The Class C Common Units shall rank on a parity with the
Common Units in all respects except with respect to the amount (but not the
priority) of distributions which shall be payable as provided in Section 2
hereof.
4. No Liquidation Preference.
The Class C Common Units shall have no liquidation preference.
I-2
5. Conversion. Except as provided in Section 11 below, the Class C
Common Units are not convertible into any other property or securities of the
Partnership.
6. Redemption at the Option of the Partnership.
Class C Common Units will not be redeemable at the option of the
Partnership; provided, however, that the foregoing shall not prohibit the
Partnership from repurchasing Class C Common Units from the holder thereof if
and to the extent such holder agrees to sell such Units.
7. Voting Rights.
(a) Holders of Class C Common Units shall have the right to vote on
all matters submitted to a vote of the holders of Common Units; holders of Class
C Common Units and Common Units shall vote together as a single class, together
with any other class or series of units of limited partnership interest in the
Partnership upon which like voting rights have been conferred. In any matter in
which the Class C Common Units are entitled to vote, including an action by
written consent, each Class C Common Unit shall be entitled to one vote.
(b) In addition to, and not in limitation of, the provisions of
Section 7(a) above (and notwithstanding anything appearing to be contrary in the
Partnership Agreement) , the Company shall not, without the affirmative consent
of the holders of sixty-six and two-thirds percent (66 2/3%) of the then
outstanding Class C Common Units take any action that would materially and
adversely alter, change, modify or amend the rights, powers or privileges of the
Class C Common Units wherein such alteration, change, modification or amendment
would not similarly alter, change, modify or amend the rights, powers or
privileges of the Common Units; provided, however, that any alteration, change,
modification or amendment of the rights of holders of the Class C Common Units
to receive distributions as set forth in Section 2 hereof shall be deemed to be
a material and adverse alteration of the rights, powers or privileges of the
Class C Common Units hereunder.
8. Redemption at Holder's Election.
Holders of Class C Common Units shall have the right to redeem
their Class C Common Units in accordance with the Redemption Right pursuant to
Section 8.6 of the Agreement, on the same terms and subject to the same
conditions and limitations as holders of Common Units, including, without
limitation, the right of the holder to receive the Cash Amount upon the exercise
of the Redemption Right and the right of the General Partner to acquire, in its
sole and absolute discretion, any Class C Common Units that are redeemed in
accordance with the Redemption Right by paying to the Redeeming Partner either
the Cash Amount or the REIT Shares Amount. For purposes of clarification, it is
understood that the Cash Amount and the REIT Shares Amount at the date of this
Supplement are based upon a Conversion Factor of 1.0 and that such Conversion
Factor may be adjusted from time to time as provided in the Partnership
Agreement.
I-3
9. Allocations for Capital Account Purposes.
For each Class C Common Unit, holders of Class C Common Units shall
be allocated items of the Partnership's Net Income or Net Loss in accordance
with Section 6.1 of the Partnership Agreement and in amounts equal to the
product of the amounts of such items allocated to holders of Common Units for
each Common Unit times 1.0984.
10. Certain Transactions.
If the Partnership shall be a party to any transaction (including,
without limitation, a merger, consolidation, statutory unit exchange, tender
offer for all or substantially all of the Common Units, sale or transfer of all
or substantially all of the Partnership's assets or recapitalization of the
Common Units or other similar transaction) (each of the foregoing being referred
to herein as a "Transaction"), in each case as a result of which upon
consummation of such Transaction holders of Common Units are to receive stock,
securities or other property (including cash or any combination thereof), the
Partnership or its successor in such Transaction (the "Surviving Entity") shall
make appropriate provision so that upon consummation of the Transaction each
Class C Common Unit shall be entitled to receive consideration in stock,
securities or other property (including cash or any combination thereof) on the
same terms and at the same exchange rate applicable to each Common Unit;
provided further, that if upon consummation of such Transaction holders of
Common Units are to receive, in whole or in part, limited partnership units or
similar interests in the Surviving Entity, each Class C Common Unit shall be
exchanged (at the same exchange rate applicable to the exchange of Common Units
into units of the Surviving Entity) for a separate class of limited partnership
units or similar interests in the Surviving Entity (the "Conversion Units") with
rights, privileges and other terms substantially identical to those of the Class
C Common Units, including, but not limited to, the Redemption Right and the
right to a distribution per Conversion Unit per quarter equal to the product of
the distribution payable per unit on the unit into which the Common Units were
exchanged for the corresponding quarterly period times 1.0984. For purposes of
clarification, the foregoing does not limit in any manner the consent rights of
holders of Class C Common Units under the Partnership Agreement.
11. Conversion of Class C Common Units upon Acquisition by General
Partner. In the event the General Partner acquires any of the Class C Common
Units in connection with the exercise by a holder of the Redemption Right, such
Class C Common Units acquired by the General Partner shall automatically be
converted into an equal number of Common Units.
I-4
Schedule A
----------
Name and Address Number of Class C Common Units
---------------- ------------------------------
1055 Stamford Associates Limited Partnership 465,845
c/o Elder Associates
27 Congress Street
Salem, Massachusetts 01970
Sch-A
EXHIBIT 10.1
RECKSON ASSOCIATES REALTY CORP. AMENDED AND RESTATED
1995 STOCK OPTION PLAN
(AMENDED AS OF MAY 29, 2003)
ARTICLE 1. GENERAL
1.1. Purpose. The purpose of the Reckson Associates Realty Corp. 1995
Stock Option Plan (the "Plan") is to provide for certain officers, directors and
key employees, as defined in Section 1.3, of Reckson Associates Realty Corp.
(the "Company") and certain of its Affiliates (as defined below) an equity-based
incentive to maintain and enhance the performance and profitability of the
Company. It is the further purpose of this Plan to permit the granting of awards
that will constitute performance based compensation for certain executive
officers, as described in Section 162(m) of the Internal Revenue Code of 1986,
as amended (the "Code"), and regulations promulgated thereunder.
1.2. Administration.
(a) The Plan shall be administered by the Compensation Committee (the
"Committee") of the Board of Directors of the Company (the "Board"), which
Committee shall consist of two or more directors, or by the Board. It is
intended that the directors appointed to serve on the Committee shall be
"non-employee directors" (within the meaning of Rule 16b-3 promulgated under the
Securities Exchange Act of 1934 (the "Act")) and "outside directors" (within the
meaning of Code Section 162(m)); however, the mere fact that a Committee member
shall fail to qualify under either of these requirements shall not invalidate
any award made by the Committee which award is otherwise validly made under the
Plan. The members of the Committee shall be appointed by, and may be changed at
any time and from time to time in the discretion of, the Board.
(b) The Committee shall have the authority (i) to exercise all of the
powers granted to it under the Plan, (ii) to construe, interpret and implement
the Plan and any Plan Agreements (as defined below) executed pursuant to the
Plan, (iii) to prescribe, amend and rescind rules relating to the Plan, (iv) to
make any determination necessary or advisable in administering the Plan, (v) to
correct any defect, supply any omission and reconcile any inconsistency in the
Plan and (vi) to delegate to Donald J. Rechler and Scott H. Rechler (the "Proper
Officers") its authority to grant awards under the Plan to key employees,
excluding those employees who are executive officers ("Non-Executive Officers"),
provided that (a) the aggregate number of shares of Common Stock granted to any
Non-Executive Officer during any calendar year shall not exceed 100,000 shares
and (b) the Proper Officers shall report quarterly to the Committee regarding
the material terms of awards granted to any Non-Executive Officers. The
Committee shall have no authority to interpret or administer Article 5 of the
Plan or to take any action with respect to any awards thereunder.
(c) The determination of the Committee on all matters relating to the
Plan or any Plan Agreement shall be conclusive.
(d) No member of the Committee shall be liable for any action or
determination made in good faith with respect to the Plan or any award
hereunder.
(e) Notwithstanding anything to the contrary contained herein, the
Board may, in its sole discretion, at any time and from time to time, resolve to
administer the Plan, in which case, the term Committee as used herein shall be
deemed to mean the Board.
1.3. Persons Eligible for Awards. Awards under the Plan may be made to
such officers, directors and key employees ("key personnel") of the Company or
its Affiliates as the Committee shall from time to time in its sole discretion
select. No member of the Board who is not an officer or employee of the Company
or an Affiliate (an "Independent Director") shall be eligible to receive any
Awards under the Plan, except for restricted stock awards granted automatically
under the provisions of Article 5 of the Plan.
1.4. Types of Awards Under Plan.
(a) Awards may be made under the Plan in the form of (i) stock options
("options"), (ii) restricted stock awards and (iii) unrestricted stock awards,
in lieu of cash compensation, all as more fully set forth in Articles 2 and 3.
(b) Options granted under the Plan may be either (i) "nonqualified"
stock options ("NQSOs") or (ii) options intended to qualify for incentive stock
option treatment described in Code Section 422 ("ISOs"). Grants of options made
under the Plan may also be made in lieu of cash fees otherwise payable to
Directors of the Company or cash bonuses payable to employees of the Company or
any Affiliate.
(c) All options when granted are intended to be NQSOs, unless the
applicable Plan Agreement explicitly states that the option is intended to be an
ISO. If an option is intended to be an ISO, and if for any reason such option
(or any portion thereof) shall not qualify as an ISO, then, to the extent of
such nonqualification, such option (or portion) shall be regarded as a NQSO
appropriately granted under the Plan provided that such option (or portion)
otherwise meets the Plan's requirements relating to NQSOs.
1.5. Shares Available for Awards.
(a) Subject to Section 4.5 (relating to adjustments upon changes in
capitalization), as of any date the total number of shares of Common Stock with
respect to which awards may be granted under the Plan, shall equal the excess
(if any) of 750,000 shares of Common Stock, over (i) the number of shares of
Common Stock subject to outstanding awards, (ii) the number of shares in respect
of which options have been exercised, or grants of restricted or unrestricted
Common Stock have been made pursuant to the Plan, and (iii) the number of shares
issued subject to forfeiture restrictions which have lapsed.
In accordance with (and without limitation upon) the preceding
sentence, awards may be granted in respect of the following shares of Common
Stock: shares covered by previously-granted awards that have expired, terminated
or been cancelled for any reason whatsoever (other than by reason of exercise or
vesting).
2
(b) In any year, a person eligible for awards under the Plan may not be
granted options under the Plan covering a total of more than 75,000 shares of
Common Stock.
(c) Shares of Common Stock that shall be subject to issuance pursuant
to the Plan shall be authorized and unissued or treasury shares of Common Stock,
or shares of Common Stock purchased on the open market or from shareholders of
the Company for such purpose.
(d) Without limiting the generality of the foregoing, the Committee
may, with the grantee's consent, cancel any award under the Plan and issue a new
award in substitution therefor upon such terms as the Committee may in its sole
discretion determine, provided that the substituted award shall satisfy all
applicable Plan requirements as of the date such new award is made.
1.6. Definitions of Certain Terms.
(a) The term "Affiliate" as used herein means Reckson Operating
Partnership, L.P., Reckson FS Limited Partnership, RANY Management Group, Inc.,
Reckson Finance, Inc., Reckson Management Group, Inc. and Reckson Construction
Group, Inc., and any person or entity as subsequently approved by the Board
which, at the time of reference, directly, or indirectly through one or more
intermediaries, controls, is controlled by, or is under common control with, the
Company.
(b) The term "Cause" shall mean a finding by the Committee that the
recipient of an award under the Plan has (i) acted with gross negligence or
willful misconduct in connection with the performance of his material duties to
the Company or its Affiliates; (ii) defaulted in the performance of his material
duties to the Company or its Affiliates and has not corrected such action within
15 days of receipt of written notice thereof; (iii) willfully acted against the
best interests of the Company or its Affiliates, which act has had a material
and adverse impact on the financial affairs of the Company or its Affiliates; or
(iv) been convicted of a felony or committed a material act of common law fraud
against the Company, its Affiliates or their employees and such act or
conviction has, or the Committee reasonably determines will have, a material
adverse effect on the interests of the Company or its Affiliates.
(c) The term "Common Stock" as used herein means the shares of Class A
common stock of the Company as constituted on the effective date of the Plan,
and any other shares into which such common stock shall thereafter be changed by
reason of a recapitalization, merger, consolidation, split-up, combination,
exchange of shares or the like.
(d) The "fair market value" (or "FMV") as of any date and in respect of
any share of Common Stock shall be:
(i) if the Common Stock is listed for trading on the New
York Stock Exchange, the closing price, regular way, of the
Common Stock as reported on the New York Stock Exchange
Composite Tape, or if no such reported sale of the Common
Stock shall have occurred on such date, on the next preceding
date on which there was such a reported sale; or
3
(ii) the Common Stock is not so listed but is listed on
another national securities exchange or authorized for
quotation on the National Association of Securities Dealers
Inc.'s NASDAQ National Market System ("NASDAQ/NMS"), the
closing price, regular way, of the Common Stock on such
exchange or NASDAQ/NMS, as the case may be, on which the
largest number of shares of Common Stock have been traded in
the aggregate on the preceding twenty trading days, or if no
such reported sale of the Stock shall have occurred on such
date on such exchange or NASDAQ/NMS, as the case may be, on
the preceding date on which there was such a reported sale on
such exchange or NASDAQ/NMS, as the case may be; or
(iii) if the Stock is not listed for trading on a national
securities exchange or authorized for quotation on NASDAQ/NMS,
the average of the closing bid and asked prices as reported by
the National Association of Securities Dealers Automated
Quotation System ("NASDAQ") or, if no such prices shall have
been so reported for such date, on the next preceding date for
which such prices were so reported.
1.7. Agreements Evidencing Awards.
(a) Options and restricted stock awards granted under the Plan shall be
evidenced by written agreements. Any such written agreements shall (i) contain
such provisions not inconsistent with the terms of the Plan as the Committee may
in its sole discretion deem necessary or desirable and (ii) be referred to
herein as "Plan Agreements."
(b) Each Plan Agreement shall set forth the number of shares of Common
Stock subject to the award granted thereby.
(c) Each Plan Agreement with respect to the granting of an option shall
set forth the amount (the "option exercise price") payable by the grantee to the
Company in connection with the exercise of the option evidenced thereby. The
option exercise price per share shall not be less than 100% of the fair market
value of a share of Common Stock on the date the option is granted.
ARTICLE 2. STOCK OPTIONS
2.1. Option Awards.
(a) Grant of Stock Options. The Committee may grant options to purchase
shares of Common Stock in such amounts and subject to such terms and conditions
as the Committee shall from time to time in its sole discretion determine,
subject to the terms of the Plan.
(b) Dividend Equivalent Rights. To the extent expressly provided by the
Committee at the time of the grant, each NQSO granted under this Section 2.1
shall also generate Dividend Equivalent Rights ("DERs"), which shall entitle the
grantee to receive an additional share of Common Stock for each DER received
upon the exercise of the NQSO, at no additional cost, based on the formula set
forth herein. As of the last business day of each calendar quarter, the amount
of dividends paid by the Company on each share of Common Stock with respect to
that
4
quarter shall be divided by the FMV per share to determine the actual number of
DERs accruing on each share subject to the NQSO. Such amount of DERs shall be
multiplied by the number of shares covered by the NQSO to determine the number
of DERs which accrued during such quarter. The provisions of this Section 2.1(b)
shall not be amended more than once every six months other than to comport with
changes in applicable law.
For example. Assume that a grantee holds a NQSO to purchase 600 shares
of Common Stock. Further assume that the dividend per share for the first
quarter was $0.10, and that the FMV per share on the last business day of the
quarter was $20. Therefore, .005 DER would accrue per share for that quarter and
such grantee would receive three DERs for that quarter (600 X .005). For
purposes of determining how many DERs would accrue during the second quarter,
the NQSO would be considered to be for 603 shares of Common Stock.
2.2. Exercisability of Options. Subject to the other provisions of the
Plan:
(a) Exercisability Determined by Plan Agreement. Each Plan Agreement
shall set forth the period during which and the conditions subject to which the
option shall be exercisable (including, but not limited to vesting of such
options), as determined by the Committee in its discretion.
(b) Partial Exercise Permitted. Unless the applicable Plan Agreement
otherwise provides, an option granted under the Plan may be exercised from time
to time as to all or part of the full number of shares for which such option is
then exercisable, in which event the DERs relating to the portion of the option
being exercised shall also be exercised.
(c) Notice of Exercise; Exercise Date.
(i) An option shall be exercisable by the filing of a written
notice of exercise with the Company, on such form and in such
manner as the Committee shall in its sole discretion
prescribe, and by payment in accordance with Section 2.4.
(ii) Unless the applicable Plan Agreement otherwise provides,
or the Committee in its sole discretion otherwise determines,
the date of exercise of an option shall be the date the
Company receives such written notice of exercise and payment.
2.3. Limitation on Exercise. Notwithstanding any other provision of the
Plan, no Plan Agreement shall permit an ISO to be exercisable more than 10 years
after the date of grant.
2.4. Payment of Option Price.
(a) Tender Due Upon Notice of Exercise. Unless the applicable Plan
Agreement otherwise provides or the Committee in its sole discretion otherwise
determines, any written notice of exercise of an option shall be accompanied by
payment of the full purchase price for the shares being purchased.
(b) Manner of Payment. Payment of the option exercise price shall be
made in any combination of the following:
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(i) by certified or official bank check payable to the
Company (or the equivalent thereof acceptable to the
Committee);
(ii) by personal check (subject to collection), which may in
the Committee's discretion be deemed conditional;
(iii) with the consent of the Committee in its sole
discretion, by delivery of previously acquired shares of
Common Stock owned by the grantee for at least six months
having a fair market value (determined as of the option
exercise date) equal to the portion of the option exercise
price being paid thereby, provided that the Committee may
require the grantee to furnish an opinion of counsel
acceptable to the Committee to the effect that such delivery
would not result in the grantee incurring any liability under
Section 16(b) of the Act and does not require any Consent (as
defined in Section 4.2); and
(iv) with the consent of the Committee in its sole
discretion, by the full recourse promissory note and agreement
of the grantee providing for payment with interest on the
unpaid balance accruing at a rate not less than that needed to
avoid the imputation of income under Code Section 7872 and
upon such terms and conditions (including the security, if
any, therefor) as the Committee may determine; and
(v) by withholding shares of Common Stock from the shares
otherwise issuable pursuant to the exercise.
(c) Cashless Exercise. Payment in accordance with Section 2.4(b) may be
deemed to be satisfied, if and to the extent provided in the applicable Plan
Agreement, by delivery to the Company of an assignment of a sufficient amount of
the proceeds from the sale of Common Stock acquired upon exercise to pay for all
of the Common Stock acquired upon exercise and an authorization to the broker or
selling agent to pay that amount to the Company, which sale shall be made at the
grantee's direction at the time of exercise, provided that the Committee may
require the grantee to furnish an opinion of counsel acceptable to the Committee
to the effect that such delivery would not result in the grantee incurring any
liability under Section 16 of the Act and does not require any Consent (as
defined in Section 4.2).
(d) Issuance of Shares. As soon as practicable after receipt of full
payment, the Company shall, subject to the provisions of Section 4.2, deliver to
the grantee one or more certificates for the shares of Common Stock so
purchased, which certificates may bear such legends as the Company may deem
appropriate concerning restrictions on the disposition of the shares in
accordance with applicable securities laws, rules and regulations or otherwise.
2.5. Default Rules Concerning Termination of Employment.
Subject to the other provisions of the Plan and unless the applicable
Plan Agreement otherwise provides:
6
(a) General Rule. All options granted to a grantee shall terminate upon
the grantee's termination of employment for any reason except to the extent
post-employment exercise of the option is permitted in accordance with this
Section 2.5.
(b) Termination for Cause. All unexercised or unvested options granted
to a grantee shall terminate and expire on the day a grantee's employment is
terminated for Cause.
(c) Regular Termination; Leave of Absence. If the grantee's employment
terminates for any reason other than as provided in subsection (b), (d) or (f)
of this Section 2.5, any awards granted to such grantee which were exercisable
immediately prior to such termination of employment may be exercised, and any
awards subject to vesting may continue to vest, until the earlier of either: (i)
90 days after the grantee's termination of employment and (ii) the date on which
such options terminate or expire in accordance with the provisions of the Plan
(other than this Section 2.5) and the Plan Agreement; provided that the
Committee may, in its sole discretion, determine such other period for exercise
in the case of a grantee whose employment terminates solely because the
grantee's employer ceases to be an Affiliate or the grantee transfers employment
with the Company's consent to a purchaser of a business disposed of by the
Company. The Committee may, in its sole discretion, determine (i) whether any
leave of absence (including short-term or long-term disability or medical leave)
shall constitute a termination of employment for purposes of the Plan and (ii)
the effect, if any, of any such leave on outstanding awards under the Plan.
(d) Retirement. If a grantee's employment terminates by reason of
retirement (i.e., the voluntary termination of employee by a grantee after
attaining the age of 55), the options exercisable by the grantee immediately
prior to the grantee's retirement shall be exercisable by the grantee until the
earlier of (i) 36 months after the grantee's retirement and (ii) the date on
which such options terminate or expire in accordance with the provisions of the
Plan (other than this Section 2.5) and the Plan Agreement.
(e) Death After Termination. If a grantee's employment terminates in
the manner described in subsections (c) or (d) of this Section 2.5 and the
grantee dies within the period for exercise provided for therein, the options
exercisable by the grantee immediately prior to the grantee's death shall be
exercisable by the personal representative of the grantee's estate or by the
person to whom such options pass under the grantee's will (or, if applicable,
pursuant to the laws of descent and distribution) until the earlier of (i) 12
months after the grantee's death and (ii) the date on which such options
terminate or expire in accordance with the provisions of subsections (c) or (d)
of this Section 2.5.
(f) Death Before Termination. If a grantee dies while employed by the
Company or any Affiliate, all options granted to the grantee but not exercised
before the death of the grantee, whether or not exercisable by the grantee
before the grantee's death, shall immediately become and be exercisable by the
personal representative of the grantee's estate or by the person to whom such
options pass under the grantee's will (or, if applicable, pursuant to the laws
of descent and distribution) until the earlier of (i) 12 months after the
grantee's death and (ii) the date on which such options terminate or expire in
accordance with the provisions of the Plan (other than this Section 2.5) and the
Plan Agreement.
7
2.6. Special ISO Requirements. In order for a grantee to receive
special tax treatment with respect to stock acquired under an option intended to
be an ISO, the grantee of such option must be, at all times during the period
beginning on the date of grant and ending on the day three months before the
date of exercise of such option, an employee of the Company or any of the
Company's parent or subsidiary corporations (within the meaning of Code Section
424), or of a corporation or a parent or subsidiary corporation of such
corporation issuing or assuming a stock option in a transaction to which Code
Section 424(a) applies. If an option granted under the Plan is intended to be an
ISO, and if the grantee, at the time of grant, owns stock possessing more than
10% of the total combined voting power of all classes of stock of the grantee's
employer corporation or of its parent or subsidiary corporation, then (i) the
option exercise price per share shall in no event be less than 110% of the fair
market value of the Common Stock on the date of such grant and (ii) such option
shall not be exercisable after the expiration of five years after the date such
option is granted.
ARTICLE 3. RESTRICTED STOCK AND UNRESTRICTED STOCK AWARDS
3.1. Restricted Stock Awards.
(a) Grant of Awards. The Committee may grant restricted stock awards,
alone or in tandem with other awards, under the Plan in such amounts and subject
to such terms and conditions as the Committee shall from time to time in its
sole discretion determine; provided, however, that the grant of any such
restricted stock awards may be made in lieu of, or in tandem with other, cash
compensation and bonuses. The vesting of a restricted stock award granted under
the Plan may be conditioned upon the completion of a specified period of
employment with the Company or any Affiliate, upon the attainment of specified
performance goals, and/or upon such other criteria as the Committee may
determine in its sole discretion.
(b) Payment. Each Plan Agreement with respect to a restricted stock
award shall set forth the amount (if any) to be paid by the grantee with respect
to such award. If a grantee makes any payment for a restricted stock award which
does not vest, appropriate payment may be made to the grantee following the
forfeiture of such award on such terms and conditions as the Committee may
determine. The Committee shall have the authority to make or authorize loans to
finance, or to otherwise accommodate the financing of, the acquisition or
exercise of a restricted stock award.
(c) Forfeiture upon Termination of Employment. Unless the applicable
Plan Agreement otherwise provides or the Committee otherwise determines, (i) if
a grantee's employment terminates for any reason (including death) before all of
his restricted stock awards have vested, such awards shall terminate and expire
upon such termination of employment, and (ii) in the event any condition to the
vesting of restricted stock awards is not satisfied within the period of time
permitted therefor, such unvested shares shall be returned to the Company.
(d) Issuance of Shares. The Committee may provide that one or more
certificates representing restricted stock awards shall be registered in the
grantee's name and bear an appropriate legend specifying that such shares are
not transferable and are subject to the terms and conditions of the Plan and the
applicable Plan Agreement, or that such certificate or certificates shall be
held in escrow by the Company on behalf of the grantee until such shares
8
vest or are forfeited, all on such terms and conditions as the Committee may
determine. Unless the applicable Plan Agreement otherwise provides, no share of
restricted stock may be assigned, transferred, otherwise encumbered or disposed
of by the grantee until such share has vested in accordance with the terms of
such award. Subject to the provisions of Section 4.2, as soon as practicable
after any restricted stock award shall vest, the Company shall issue or reissue
to the grantee (or to the grantee's designated beneficiary in the event of the
grantee's death) one or more certificates for the Common Stock represented by
such restricted stock award.
(e) Grantees' Rights Regarding Restricted Stock. Unless the applicable
Plan Agreement otherwise provides: (i) a grantee may vote and receive dividends
on restricted stock awarded under the Plan; and (ii) any stock received as a
distribution with respect to a restricted stock award shall be subject to the
same restrictions as such restricted stock.
3.2. Unrestricted Stock. The Committee may issue unrestricted stock
under the Plan, alone or in tandem with other awards, in such amounts and
subject to such terms and conditions as the Committee shall from time to time in
its sole discretion determine; provided, however, that the grant of any such
unrestricted stock awards may be made in lieu of, or in tandem with other, cash
compensation and bonuses. The Committee shall have the authority to make or
authorize loans to finance, or to otherwise accommodate the financing of, the
acquisition or exercise of an unrestricted stock award.
ARTICLE 4. MISCELLANEOUS
4.1. Amendment of the Plan; Modification of Awards.
(a) Plan Amendments. The Board may, without stockholder approval, at
any time and from time to time suspend, discontinue or amend the Plan in any
respect whatsoever, except that no such amendment shall impair any rights under
any award theretofore made under the Plan without the consent of the grantee of
such award. Furthermore, except as and to the extent otherwise permitted by
Section 4.5 or 4.11, no such amendment shall, without stockholder approval:
(i) materially increase the benefits accruing to grantees
under the Plan;
(ii) increase the maximum number of shares which may be made
subject to awards to an individual as options in any year;
(iii) materially increase, beyond the amounts set forth in
Section 1.5, the number of shares of Common Stock in respect
of which awards may be issued under the Plan;
(iv) materially modify the designation in Section 1.3 of the
class of persons eligible to receive awards under the Plan;
(v) provide for the grant of stock options having an option
exercise price per share of Common Stock less than 100% of the
fair market value of a share of Common Stock on the date of
grant; or
9
(vi) extend the term of the Plan beyond the period set forth
in Section 4.13.
(b) Award Modifications. Subject to the terms and conditions of the
Plan (including Section 4.1(a)), the Committee may amend outstanding Plan
Agreements with such grantee, including, without limitation, any amendment which
would (i) accelerate the time or times at which an award may vest or become
exercisable and/or (ii) extend the scheduled termination or expiration date of
the award, provided, however, that no modification having a material adverse
effect upon the interest of a grantee in an award shall be made without the
consent of such grantee.
4.2. Restrictions.
(a) Consent Requirements. If the Committee shall at any time determine
that any Consent (as hereinafter defined) is necessary or desirable as a
condition of, or in connection with, the granting of any award under the Plan,
the acquisition, issuance or purchase of shares or other rights hereunder or the
taking of any other action hereunder (each such action being hereinafter
referred to as a "Plan Action"), then such Plan Action shall not be taken, in
whole or in part, unless and until such Consent shall have been effected or
obtained to the full satisfaction of the Committee. Without limiting the
generality of the foregoing, the Committee shall be entitled to determine not to
make any payment whatsoever until Consent has been given if (i) the Committee
may make any payment under the Plan in cash, Common Stock or both, and (ii) the
Committee determines that Consent is necessary or desirable as a condition of,
or in connection with, payment in any one or more of such forms.
(b) Consent Defined. The term "Consent" as used herein with respect to
any Plan Action means (i) any and all listings, registrations or qualifications
in respect thereof upon any securities exchange or other self-regulatory
organization or under any federal, state or local law, rule or regulation, (ii)
the expiration, elimination or satisfaction of any prohibitions, restrictions or
limitations under any federal, state or local law, rule or regulation or the
rules of any securities exchange or other self-regulatory organization, (iii)
any and all written agreements and representations by the grantee with respect
to the disposition of shares, or with respect to any other matter, which the
Committee shall deem necessary or desirable to comply with the terms of any such
listing, registration or qualification or to obtain an exemption from the
requirement that any such listing, qualification or registration be made, and
(iv) any and all consents, clearances and approvals in respect of a Plan Action
by any governmental or other regulatory bodies or any parties to any loan
agreements or other contractual obligations of the Company or any Affiliate.
4.3. Nontransferability. No award granted to any grantee under the Plan
or under any Plan Agreement shall be assignable or transferable by the grantee
other than by will or by the laws of descent and distribution. During the
lifetime of the grantee, all rights with respect to any award granted to the
grantee under the Plan or under any Plan Agreement shall be exercisable only by
the grantee.
4.4. Withholding Taxes.
(a) Whenever under the Plan shares of Common Stock are to be delivered
pursuant to an award, the Committee may require as a condition of delivery that
the grantee remit an amount
10
sufficient to satisfy all federal, state and other governmental withholding tax
requirements related thereto. Whenever cash is to be paid under the Plan, the
Company may, as a condition of its payment, deduct therefrom, or from any salary
or other payments due to the grantee, an amount sufficient to satisfy all
federal, state and other governmental withholding tax requirements related
thereto or to the delivery of any shares of Common Stock under the Plan.
(b) Without limiting the generality of the foregoing, (i) a grantee may
elect to satisfy all or part of the foregoing withholding requirements by
delivery of unrestricted shares of Common Stock owned by the grantee for at
least six months (or such other period as the Committee may determine) having a
fair market value (determined as of the date of such delivery by the grantee)
equal to all or part of the amount to be so withheld, provided that the
Committee may require, as a condition of accepting any such delivery, the
grantee to furnish an opinion of counsel acceptable to the Committee to the
effect that such delivery would not result in the grantee incurring any
liability under Section 16(b) of the Act and (ii) the Committee may permit any
such delivery to be made by withholding shares of Common Stock from the shares
otherwise issuable pursuant to the award giving rise to the tax withholding
obligation (in which event the date of delivery shall be deemed the date such
award was exercised).
4.5. Adjustments Upon Changes in Capitalization. If and to the extent
specified by the Committee, the number of shares of Common Stock which may be
issued pursuant to awards under the Plan, the maximum number of options which
may be granted to any one person in any year, the number of shares of Common
Stock subject to awards, the option exercise price of options theretofore
granted under the Plan, and the amount payable by a grantee in respect of an
award, shall be appropriately adjusted (as the Committee may determine) for any
change in the number of issued shares of Common Stock resulting from the
subdivision or combination of shares of Common Stock or other capital
adjustments, or the payment of a stock dividend after the effective date of the
Plan, or other change in such shares of Common Stock effected without receipt of
consideration by the Company; provided that any awards covering fractional
shares of Common Stock resulting from any such adjustment shall be eliminated
and provided further, that each ISO granted under the Plan shall not be adjusted
in a manner that causes such option to fail to continue to qualify as an ISO
within the meaning of Code Section 422. Adjustments under this Section shall be
made by the Committee, whose determination as to what adjustments shall be made,
and the extent thereof, shall be final, binding and conclusive.
4.6. Right of Discharge Reserved. Nothing in the Plan or in any Plan
Agreement shall confer upon any person the right to continue in the employment
of the Company or an Affiliate or affect any right which the Company or an
Affiliate may have to terminate the employment of such person.
4.7. No Rights as a Stockholder. No grantee or other person shall have
any of the rights of a stockholder of the Company with respect to shares subject
to an award until the issuance of a stock certificate to him for such shares.
Except as otherwise provided in Section 4.5, no adjustment shall be made for
dividends, distributions or other rights (whether ordinary or extraordinary, and
whether in cash, securities or other property) for which the record date is
prior to the date such stock certificate is issued. In the case of a grantee of
an award which has not yet vested, the grantee shall have the rights of a
stockholder of the Company if and only to the extent provided in the applicable
Plan Agreement.
11
4.8. Nature of Payments.
(a) Any and all awards or payments hereunder shall be granted, issued,
delivered or paid, as the case may be, in consideration of services performed
for the Company or for its Affiliates by the grantee.
(b) No such awards and payments shall be considered special incentive
payments to the grantee or, unless otherwise determined by the Committee, be
taken into account in computing the grantee's salary or compensation for the
purposes of determining any benefits under (i) any pension, retirement, life
insurance or other benefit plan of the Company or any Affiliate or (ii) any
agreement between the Company or any Affiliate and the grantee.
(c) By accepting an award under the Plan, the grantee shall thereby
waive any claim to continued exercisability or vesting of an award or to damages
or severance entitlement related to non-continuation of the award beyond the
period provided herein or in the applicable Plan Agreement, notwithstanding any
contrary provision in any written employment contract with the grantee, whether
any such contract is executed before or after the grant date of the award.
4.9. Non-Uniform Determinations. The Committee's determinations under
the Plan need not be uniform and may be made by it selectively among persons who
receive, or are eligible to receive, awards under the Plan (whether or not such
persons are similarly situated). Without limiting the generality of the
foregoing, the Committee shall be entitled, among other things, to make
non-uniform and selective determinations, and to enter into non-uniform and
selective Plan Agreements, as to (a) the persons to receive awards under the
Plan, (b) the terms and provisions of awards under the Plan, and (c) the
treatment of leaves of absence pursuant to Section 2.7(c).
4.10. Other Payments or Awards. Nothing contained in the Plan shall be
deemed in any way to limit or restrict the Company, any Affiliate or the
Committee from making any award or payment to any person under any other plan,
arrangement or understanding, whether now existing or hereafter in effect.
4.11. Reorganization.
(a) In the event that the Company is merged or consolidated with
another corporation and, whether or not the Company shall be the surviving
corporation, there shall be any change in the shares of Common Stock by reason
of such merger or consolidation, or in the event that all or substantially all
of the assets of the Company are acquired by another person, or in the event of
a reorganization or liquidation of the Company (each such event being
hereinafter referred to as a "Reorganization Event") or in the event that the
Board shall propose that the Company enter into a Reorganization Event, then the
Committee may in its discretion, by written notice to a grantee, provide that
his options will be terminated unless exercised within 30 days (or such longer
period as the Committee shall determine in its sole discretion) after the date
of such notice; provided that if, and to the extent that, the Committee takes
such action with respect to the grantee's options not yet exercisable, the
Committee shall also accelerate the dates upon which such options shall be
exercisable. The Committee also may in its discretion by written notice to a
grantee provide that all or some of the restrictions on any of the grantee's
awards may lapse in
12
the event of a Reorganization Event upon such terms and conditions as the
Committee may determine.
(b) Whenever deemed appropriate by the Committee, the actions referred
to in Section 4.11(a) may be made conditional upon the consummation of the
applicable Reorganization Event.
4.12. Section Headings. The section headings contained herein are for
the purposes of convenience only and are not intended to define or limit the
contents of said sections.
4.13. Effective Date and Term of Plan.
(a) The Plan shall be deemed adopted and become effective upon the
approval thereof by the shareholders of the Company.
(b) The Plan shall terminate 10 years after the earlier of the date on
which it becomes effective or is approved by shareholders, and no awards shall
thereafter be made under the Plan. Notwithstanding the foregoing, all awards
made under the Plan prior to such termination date shall remain in effect until
such awards have been satisfied or terminated in accordance with the terms and
provisions of the Plan and the applicable Plan Agreement.
4.14. Governing Law. The Plan shall be governed by the laws of the
State of New York applicable to agreements made and to be performed entirely
within such state.
ARTICLE 5. RESTRICTED STOCK AWARDS GRANTED TO INDEPENDENT DIRECTORS
5.1. Automatic Grant of Restricted Stock. Each Independent Director
appointed or elected for the first time shall automatically be granted (under
this Plan or another Company stock option plan) 1,000 shares of restricted stock
on his date of appointment or election. Each Independent Director who is serving
as Director of the Company on the fifth business day after each annual meeting
of shareholders shall, on such day, automatically be granted (under this Plan or
another Company stock option plan) a number of shares of restricted stock having
a fair market value of $20,000 on the date of grant; provided, however, that an
Independent Director who is appointed or elected for the first time shall not be
eligible to receive restricted stock pursuant to this sentence for the year of
his initial appointment or election.
5.2. Vesting; Non-Transferability; Issuance of Shares
(a) All shares of restricted stock granted under this Article 5 shall
vest immediately.
(b) No shares of restricted stock granted under this Article 5 shall be
transferable by an Independent Director while such Independent Director remains
a Director of the Company. The shares of restricted stock granted under this
Article 5 shall be transferable, subject to any restrictions imposed by
applicable law, by an Independent Director immediately on the date upon which
such Independent Director ceases to be a Director of the Company.
13
(c) As soon as practicable after the date of grant, the Company shall
register, in the name of each Independent Director, one or more certificates
representing the number of shares of restricted stock granted to such Director
under this Article 5 and bearing the appropriate legend specifying that such
shares are not transferable and are subject to the terms and conditions of the
Plan.
5.3. Limited to Independent Directors. The provisions of this Article 5
shall apply only to restricted stock awards granted or to be granted to
Independent Directors, shall be interpreted as if this Article 5 constituted a
separate plan of the Company and shall not be deemed to modify, limit or
otherwise apply to any other provision of this Plan or to any restricted stock
award granted under this Plan to a participant who is not an Independent
Director of the Company. To the extent inconsistent with the provisions of any
other Section of this Plan, the provisions of this Article 5 shall govern the
rights and obligations of the Company and Independent Directors respecting
restricted stock awards granted or to be granted to Independent Directors. The
provisions of this Article 5 shall not be amended more than once every six
months other than to comport with changes in applicable law.
14
EXHIBIT 10.2
RECKSON ASSOCIATES REALTY CORP. AMENDED AND RESTATED
1997 STOCK OPTION PLAN
(AMENDED AS OF MAY 29, 2003)
ARTICLE 1. GENERAL
1.1. Purpose. The purpose of the Reckson Associates Realty Corp. 1997
Stock Option Plan (the "Plan") is to provide for certain officers, directors and
key employees, as defined in Section 1.3, of Reckson Associates Realty Corp.
(the "Company") and certain of its Affiliates (as defined below) an equity-based
incentive to maintain and enhance the performance and profitability of the
Company. It is the further purpose of this Plan to permit the granting of awards
that will constitute performance based compensation for certain executive
officers, as described in Section 162(m) of the Internal Revenue Code of 1986,
as amended (the "Code"), and regulations promulgated thereunder.
1.2. Administration.
(a) The Plan shall be administered by the Compensation Committee (the
"Committee") of the Board of Directors of the Company (the "Board"), which
Committee shall consist of two or more directors, or by the Board. It is
intended that the directors appointed to serve on the Committee shall be
"non-employee directors" (within the meaning of Rule 16b-3 promulgated under the
Securities Exchange Act of 1934 (the "Act")) and "outside directors" (within the
meaning of Code Section 162(m)); however, the mere fact that a Committee member
shall fail to qualify under either of these requirements shall not invalidate
any award made by the Committee which award is otherwise validly made under the
Plan. The members of the Committee shall be appointed by, and may be changed at
any time and from time to time in the discretion of, the Board.
(b) The Committee shall have the authority (i) to exercise all of the
powers granted to it under the Plan, (ii) to construe, interpret and implement
the Plan and any Plan Agreements (as defined below) executed pursuant to the
Plan, (iii) to prescribe, amend and rescind rules relating to the Plan, (iv) to
make any determination necessary or advisable in administering the Plan, (v) to
correct any defect, supply any omission and reconcile any inconsistency in the
Plan and (vi) to delegate to Donald J. Rechler and Scott H. Rechler (the "Proper
Officers") its authority to grant awards under the Plan to key employees,
excluding those employees who are executive officers ("Non-Executive Officers"),
provided that (a) the aggregate number of shares of Common Stock granted to any
Non-Executive Officer during any calendar year shall not exceed 100,000 shares
and (b) the Proper Officers shall report quarterly to the Committee regarding
the material terms of awards granted to any Non-Executive Officers. The
Committee shall have no authority to interpret or administer Article 5 of the
Plan or to take any action with respect to any awards thereunder.
(c) The determination of the Committee on all matters relating to the
Plan or any Plan Agreement shall be conclusive.
(d) No member of the Committee shall be liable for any action or
determination made in good faith with respect to the Plan or any award
hereunder.
(e) Notwithstanding anything to the contrary contained herein, the
Board may, in its sole discretion, at any time and from time to time, resolve to
administer the Plan, in which case, the term Committee as used herein shall be
deemed to mean the Board.
1.3. Persons Eligible for Awards. Awards under the Plan may be made to
such officers, directors and key employees ("key personnel") of the Company or
its Affiliates as the Committee shall from time to time in its sole discretion
select. No member of the Board who is not an officer or employee of the Company
or an Affiliate (an "Independent Director") shall be eligible to receive any
Awards under the Plan, except for restricted stock awards granted automatically
under the provisions of Article 5 of the Plan.
1.4. Types of Awards Under Plan.
(a) Awards may be made under the Plan in the form of (i) stock options
("options"), (ii) restricted stock awards and (iii) unrestricted stock awards,
in lieu of cash compensation, all as more fully set forth in Articles 2 and 3.
(b) Options granted under the Plan may be either (i) "nonqualified"
stock options ("NQSOs") or (ii) options intended to qualify for incentive stock
option treatment described in Code Section 422 ("ISOs"). Grants of options made
under the Plan may also be made in lieu of cash fees otherwise payable to
Directors of the Company or cash bonuses payable to employees of the Company or
any Affiliate.
(c) All options when granted are intended to be NQSOs, unless the
applicable Plan Agreement explicitly states that the option is intended to be an
ISO. If an option is intended to be an ISO, and if for any reason such option
(or any portion thereof) shall not qualify as an ISO, then, to the extent of
such nonqualification, such option (or portion) shall be regarded as a NQSO
appropriately granted under the Plan provided that such option (or portion)
otherwise meets the Plan's requirements relating to NQSOs.
1.5. Shares Available for Awards.
(a) Subject to Section 4.5 (relating to adjustments upon changes in
capitalization), as of any date the total number of shares of Common Stock with
respect to which awards may be granted under the Plan, shall equal the excess
(if any) of 3,000,000 shares of Common Stock, over (i) the number of shares of
Common Stock subject to outstanding awards, (ii) the number of shares in respect
of which options have been exercised, or grants of restricted or unrestricted
Common Stock have been made pursuant to the Plan, and (iii) the number of shares
issued subject to forfeiture restrictions which have lapsed.
In accordance with (and without limitation upon) the preceding
sentence, awards may be granted in respect of the following shares of Common
Stock: shares covered by previously-granted awards that have expired, terminated
or been cancelled for any reason whatsoever (other than by reason of exercise or
vesting).
2
(b) In any year, a person eligible for awards under the Plan may not be
granted options under the Plan covering a total of more than 150,000 shares of
Common Stock.
(c) Shares of Common Stock that shall be subject to issuance pursuant
to the Plan shall be authorized and unissued or treasury shares of Common Stock,
or shares of Common Stock purchased on the open market or from shareholders of
the Company for such purpose.
(d) Without limiting the generality of the foregoing, the Committee
may, with the grantee's consent, cancel any award under the Plan and issue a new
award in substitution therefor upon such terms as the Committee may in its sole
discretion determine, provided that the substituted award shall satisfy all
applicable Plan requirements as of the date such new award is made.
1.6. Definitions of Certain Terms.
(a) The term "Affiliate" as used herein means Reckson Operating
Partnership, L.P., Reckson FS Limited Partnership, RANY Management Group, Inc.,
Reckson Finance, Inc., Reckson Management Group, Inc., Reckson Construction
Group, Inc., and any person or entity as subsequently approved by the Board
which, at the time of reference, directly, or indirectly through one or more
intermediaries, controls, is controlled by, or is under common control with, the
Company.
(b) The term "Cause" shall mean a finding by the Committee that the
recipient of an award under the Plan has (i) acted with gross negligence or
willful misconduct in connection with the performance of his material duties to
the Company or its Affiliates; (ii) defaulted in the performance of his material
duties to the Company or its Affiliates and has not corrected such action within
15 days of receipt of written notice thereof; (iii) willfully acted against the
best interests of the Company or its Affiliates, which act has had a material
and adverse impact on the financial affairs of the Company or its Affiliates; or
(iv) been convicted of a felony or committed a material act of common law fraud
against the Company, its Affiliates or their employees and such act or
conviction has, or the Committee reasonably determines will have, a material
adverse effect on the interests of the Company or its Affiliates.
(c) The term "Common Stock" as used herein means the shares of Class A
common stock of the Company as constituted on the effective date of the Plan,
and any other shares into which such common stock shall thereafter be changed by
reason of a recapitalization, merger, consolidation, split-up, combination,
exchange of shares or the like.
(d) The "fair market value" (or "FMV") as of any date and in respect of
any share of Common Stock shall be:
(i) if the Common Stock is listed for trading on the New
York Stock Exchange, the closing price, regular way, of the
Common Stock as reported on the New York Stock Exchange
Composite Tape, or if no such reported sale of the Common
Stock shall have occurred on such date, on the next preceding
date on which there was such a reported sale; or
3
(ii) the Common Stock is not so listed but is listed on
another national securities exchange or authorized for
quotation on the National Association of Securities Dealers
Inc.'s NASDAQ National Market System ("NASDAQ/NMS"), the
closing price, regular way, of the Common Stock on such
exchange or NASDAQ/NMS, as the case may be, on which the
largest number of shares of Common Stock have been traded in
the aggregate on the preceding twenty trading days, or if no
such reported sale of the Stock shall have occurred on such
date on such exchange or NASDAQ/NMS, as the case may be, on
the preceding date on which there was such a reported sale on
such exchange or NASDAQ/NMS, as the case may be; or
(iii) if the Stock is not listed for trading on a national
securities exchange or authorized for quotation on NASDAQ/NMS,
the average of the closing bid and asked prices as reported by
the National Association of Securities Dealers Automated
Quotation System ("NASDAQ") or, if no such prices shall have
been so reported for such date, on the next preceding date for
which such prices were so reported.
1.7. Agreements Evidencing Awards.
(a) Options and restricted stock awards granted under the Plan shall be
evidenced by written agreements. Any such written agreements shall (i) contain
such provisions not inconsistent with the terms of the Plan as the Committee may
in its sole discretion deem necessary or desirable and (ii) be referred to
herein as "Plan Agreements."
(b) Each Plan Agreement shall set forth the number of shares of Common
Stock subject to the award granted thereby.
(c) Each Plan Agreement with respect to the granting of an option shall
set forth the amount (the "option exercise price") payable by the grantee to the
Company in connection with the exercise of the option evidenced thereby. The
option exercise price per share shall not be less than 100% of the fair market
value of a share of Common Stock on the date the option is granted.
ARTICLE 2. STOCK OPTIONS
2.1. Option Awards.
(a) Grant of Stock Options. The Committee may grant options to purchase
shares of Common Stock in such amounts and subject to such terms and conditions
as the Committee shall from time to time in its sole discretion determine,
subject to the terms of the Plan.
(b) Dividend Equivalent Rights. To the extent expressly provided by the
Committee at the time of the grant, each NQSO granted under this Section 2.1
shall also generate Dividend Equivalent Rights ("DERs"), which shall entitle the
grantee to receive an additional share of Common Stock for each DER received
upon the exercise of the NQSO, at no additional cost, based on the formula set
forth herein. As of the last business day of each calendar quarter, the amount
of dividends paid by the Company on each share of Common Stock with respect to
4
that quarter shall be divided by the FMV per share to determine the actual
number of DERs accruing on each share subject to the NQSO. Such amount of DERs
shall be multiplied by the number of shares covered by the NQSO to determine the
number of DERs which accrued during such quarter. The provisions of this Section
2.1(b) shall not be amended more than once every six months other than to
comport with changes in applicable law.
For example. Assume that a grantee holds a NQSO to purchase 600 shares
of Common Stock. Further assume that the dividend per share for the first
quarter was $0.10, and that the FMV per share on the last business day of the
quarter was $20. Therefore, .005 DER would accrue per share for that quarter and
such grantee would receive three DERs for that quarter (600 X .005). For
purposes of determining how many DERs would accrue during the second quarter,
the NQSO would be considered to be for 603 shares of Common Stock.
2.2. Exercisability of Options. Subject to the other provisions of the
Plan:
(a) Exercisability Determined by Plan Agreement. Each Plan Agreement
shall set forth the period during which and the conditions subject to which the
option shall be exercisable (including, but not limited to vesting of such
options), as determined by the Committee in its discretion.
(b) Partial Exercise Permitted. Unless the applicable Plan Agreement
otherwise provides, an option granted under the Plan may be exercised from time
to time as to all or part of the full number of shares for which such option is
then exercisable, in which event the DERs relating to the portion of the option
being exercised shall also be exercised.
(c) Notice of Exercise; Exercise Date.
(i) An option shall be exercisable by the filing of a written
notice of exercise with the Company, on such form and in such
manner as the Committee shall in its sole discretion
prescribe, and by payment in accordance with Section 2.4.
(ii) Unless the applicable Plan Agreement otherwise provides,
or the Committee in its sole discretion otherwise determines,
the date of exercise of an option shall be the date the
Company receives such written notice of exercise and payment.
2.3. Limitation on Exercise. Notwithstanding any other provision of the
Plan, no Plan Agreement shall permit an ISO to be exercisable more than 10 years
after the date of grant.
2.4. Payment of Option Price.
(a) Tender Due Upon Notice of Exercise. Unless the applicable Plan
Agreement otherwise provides or the Committee in its sole discretion otherwise
determines, any written notice of exercise of an option shall be accompanied by
payment of the full purchase price for the shares being purchased.
(b) Manner of Payment. Payment of the option exercise price shall be
made in any combination of the following:
5
(i) by certified or official bank check payable to the Company
(or the equivalent thereof acceptable to the Committee);
(ii) by personal check (subject to collection), which may in
the Committee's discretion be deemed conditional;
(iii) with the consent of the Committee in its sole
discretion, by delivery of previously acquired shares of
Common Stock owned by the grantee for at least six months
having a fair market value (determined as of the option
exercise date) equal to the portion of the option exercise
price being paid thereby, provided that the Committee may
require the grantee to furnish an opinion of counsel
acceptable to the Committee to the effect that such delivery
would not result in the grantee incurring any liability under
Section 16(b) of the Act and does not require any Consent (as
defined in Section 4.2); and
(iv) with the consent of the Committee in its sole discretion,
by the full recourse promissory note and agreement of the
grantee providing for payment with interest on the unpaid
balance accruing at a rate not less than that needed to avoid
the imputation of income under Code Section 7872 and upon such
terms and conditions (including the security, if any,
therefor) as the Committee may determine; and
(v) by withholding shares of Common Stock from the shares
otherwise issuable pursuant to the exercise.
(c) Cashless Exercise. Payment in accordance with Section 2.4(b) may be
deemed to be satisfied, if and to the extent provided in the applicable Plan
Agreement, by delivery to the Company of an assignment of a sufficient amount of
the proceeds from the sale of Common Stock acquired upon exercise to pay for all
of the Common Stock acquired upon exercise and an authorization to the broker or
selling agent to pay that amount to the Company, which sale shall be made at the
grantee's direction at the time of exercise, provided that the Committee may
require the grantee to furnish an opinion of counsel acceptable to the Committee
to the effect that such delivery would not result in the grantee incurring any
liability under Section 16 of the Act and does not require any Consent (as
defined in Section 4.2).
(d) Issuance of Shares. As soon as practicable after receipt of full
payment, the Company shall, subject to the provisions of Section 4.2, deliver to
the grantee one or more certificates for the shares of Common Stock so
purchased, which certificates may bear such legends as the Company may deem
appropriate concerning restrictions on the disposition of the shares in
accordance with applicable securities laws, rules and regulations or otherwise.
2.5. Default Rules Concerning Termination of Employment.
Subject to the other provisions of the Plan and unless the applicable
Plan Agreement otherwise provides:
6
(a) General Rule. All options granted to a grantee shall terminate upon
the grantee's termination of employment for any reason except to the extent
post-employment exercise of the option is permitted in accordance with this
Section 2.5.
(b) Termination for Cause. All unexercised or unvested options granted
to a grantee shall terminate and expire on the day a grantee's employment is
terminated for Cause.
(c) Regular Termination; Leave of Absence. If the grantee's employment
terminates for any reason other than as provided in subsection (b), (d) or (f)
of this Section 2.5, any awards granted to such grantee which were exercisable
immediately prior to such termination of employment may be exercised, and any
awards subject to vesting may continue to vest, until the earlier of either: (i)
90 days after the grantee's termination of employment and (ii) the date on which
such options terminate or expire in accordance with the provisions of the Plan
(other than this Section 2.5) and the Plan Agreement; provided that the
Committee may, in its sole discretion, determine such other period for exercise
in the case of a grantee whose employment terminates solely because the
grantee's employer ceases to be an Affiliate or the grantee transfers employment
with the Company's consent to a purchaser of a business disposed of by the
Company. The Committee may, in its sole discretion, determine (i) whether any
leave of absence (including short-term or long-term disability or medical leave)
shall constitute a termination of employment for purposes of the Plan and (ii)
the effect, if any, of any such leave on outstanding awards under the Plan.
(d) Retirement. If a grantee's employment terminates by reason of
retirement (i.e., the voluntary termination of employee by a grantee after
attaining the age of 55), the options exercisable by the grantee immediately
prior to the grantee's retirement shall be exercisable by the grantee until the
earlier of (i) 36 months after the grantee's retirement and (ii) the date on
which such options terminate or expire in accordance with the provisions of the
Plan (other than this Section 2.5) and the Plan Agreement.
(e) Death After Termination. If a grantee's employment terminates in
the manner described in subsections (c) or (d) of this Section 2.5 and the
grantee dies within the period for exercise provided for therein, the options
exercisable by the grantee immediately prior to the grantee's death shall be
exercisable by the personal representative of the grantee's estate or by the
person to whom such options pass under the grantee's will (or, if applicable,
pursuant to the laws of descent and distribution) until the earlier of (i) 12
months after the grantee's death and (ii) the date on which such options
terminate or expire in accordance with the provisions of subsections (c) or (d)
of this Section 2.5.
(f) Death Before Termination. If a grantee dies while employed by the
Company or any Affiliate, all options granted to the grantee but not exercised
before the death of the grantee, whether or not exercisable by the grantee
before the grantee's death, shall immediately become and be exercisable by the
personal representative of the grantee's estate or by the person to whom such
options pass under the grantee's will (or, if applicable, pursuant to the laws
of descent and distribution) until the earlier of (i) 12 months after the
grantee's death and (ii) the date on which such options terminate or expire in
accordance with the provisions of the Plan (other than this Section 2.5) and the
Plan Agreement.
7
2.6. Special ISO Requirements. In order for a grantee to receive
special tax treatment with respect to stock acquired under an option intended to
be an ISO, the grantee of such option must be, at all times during the period
beginning on the date of grant and ending on the day three months before the
date of exercise of such option, an employee of the Company or any of the
Company's parent or subsidiary corporations (within the meaning of Code Section
424), or of a corporation or a parent or subsidiary corporation of such
corporation issuing or assuming a stock option in a transaction to which Code
Section 424(a) applies. If an option granted under the Plan is intended to be an
ISO, and if the grantee, at the time of grant, owns stock possessing more than
10% of the total combined voting power of all classes of stock of the grantee's
employer corporation or of its parent or subsidiary corporation, then (i) the
option exercise price per share shall in no event be less than 110% of the fair
market value of the Common Stock on the date of such grant and (ii) such option
shall not be exercisable after the expiration of five years after the date such
option is granted.
ARTICLE 3. RESTRICTED STOCK AND UNRESTRICTED STOCK AWARDS
3.1. Restricted Stock Awards.
(a) Grant of Awards. The Committee may grant restricted stock awards,
alone or in tandem with other awards, under the Plan in such amounts and subject
to such terms and conditions as the Committee shall from time to time in its
sole discretion determine; provided, however, that the grant of any such
restricted stock awards may be made in lieu of, or in tandem with other, cash
compensation and bonuses. The vesting of a restricted stock award granted under
the Plan may be conditioned upon the completion of a specified period of
employment with the Company or any Affiliate, upon the attainment of specified
performance goals, and/or upon such other criteria as the Committee may
determine in its sole discretion.
(b) Payment. Each Plan Agreement with respect to a restricted stock
award shall set forth the amount (if any) to be paid by the grantee with respect
to such award. If a grantee makes any payment for a restricted stock award which
does not vest, appropriate payment may be made to the grantee following the
forfeiture of such award on such terms and conditions as the Committee may
determine. The Committee shall have the authority to make or authorize loans to
finance, or to otherwise accommodate the financing of, the acquisition or
exercise of a restricted stock award.
(c) Forfeiture upon Termination of Employment. Unless the applicable
Plan Agreement otherwise provides or the Committee otherwise determines, (i) if
a grantee's employment terminates for any reason (including death) before all of
his restricted stock awards have vested, such awards shall terminate and expire
upon such termination of employment, and (ii) in the event any condition to the
vesting of restricted stock awards is not satisfied within the period of time
permitted therefor, such unvested shares shall be returned to the Company.
(d) Issuance of Shares. The Committee may provide that one or more
certificates representing restricted stock awards shall be registered in the
grantee's name and bear an appropriate legend specifying that such shares are
not transferable and are subject to the terms and conditions of the Plan and the
applicable Plan Agreement, or that such certificate or certificates shall be
held in escrow by the Company on behalf of the grantee until such shares vest or
8
are forfeited, all on such terms and conditions as the Committee may determine.
Unless the applicable Plan Agreement otherwise provides, no share of restricted
stock may be assigned, transferred, otherwise encumbered or disposed of by the
grantee until such share has vested in accordance with the terms of such award.
Subject to the provisions of Section 4.2, as soon as practicable after any
restricted stock award shall vest, the Company shall issue or reissue to the
grantee (or to the grantee's designated beneficiary in the event of the
grantee's death) one or more certificates for the Common Stock represented by
such restricted stock award.
(e) Grantees' Rights Regarding Restricted Stock. Unless the applicable
Plan Agreement otherwise provides: (i) a grantee may vote and receive dividends
on restricted stock awarded under the Plan; and (ii) any stock received as a
distribution with respect to a restricted stock award shall be subject to the
same restrictions as such restricted stock.
3.2. Unrestricted Stock. The Committee may issue unrestricted stock
under the Plan, alone or in tandem with other awards, in such amounts and
subject to such terms and conditions as the Committee shall from time to time in
its sole discretion determine; provided, however, that the grant of any such
unrestricted stock awards may be made in lieu of, or in tandem with other, cash
compensation and bonuses. The Committee shall have the authority to make or
authorize loans to finance, or to otherwise accommodate the financing of, the
acquisition or exercise of an unrestricted stock award.
ARTICLE 4. MISCELLANEOUS
4.1. Amendment of the Plan; Modification of Awards.
(a) Plan Amendments. The Board may, without stockholder approval, at
any time and from time to time suspend, discontinue or amend the Plan in any
respect whatsoever, except that no such amendment shall impair any rights under
any award theretofore made under the Plan without the consent of the grantee of
such award. Furthermore, except as and to the extent otherwise permitted by
Section 4.5 or 4.11, no such amendment shall, without stockholder approval:
(i) materially increase the benefits accruing to grantees
under the Plan;
(ii) increase the maximum number of shares which may be made
subject to awards to an individual as options in any year;
(iii) materially increase, beyond the amounts set forth in
Section 1.5, the number of shares of Common Stock in respect
of which awards may be issued under the Plan;
(iv) materially modify the designation in Section 1.3 of the
class of persons eligible to receive awards under the Plan;
(v) provide for the grant of stock options having an option
exercise price per share of Common Stock less than 100% of the
fair market value of a share of Common Stock on the date of
grant; or
9
(vi) extend the term of the Plan beyond the period set forth
in Section 4.13.
(b) Award Modifications. Subject to the terms and conditions of the
Plan (including Section 4.1(a)), the Committee may amend outstanding Plan
Agreements with such grantee, including, without limitation, any amendment which
would (i) accelerate the time or times at which an award may vest or become
exercisable and/or (ii) extend the scheduled termination or expiration date of
the award, provided, however, that no modification having a material adverse
effect upon the interest of a grantee in an award shall be made without the
consent of such grantee.
4.2. Restrictions.
(a) Consent Requirements. If the Committee shall at any time determine
that any Consent (as hereinafter defined) is necessary or desirable as a
condition of, or in connection with, the granting of any award under the Plan,
the acquisition, issuance or purchase of shares or other rights hereunder or the
taking of any other action hereunder (each such action being hereinafter
referred to as a "Plan Action"), then such Plan Action shall not be taken, in
whole or in part, unless and until such Consent shall have been effected or
obtained to the full satisfaction of the Committee. Without limiting the
generality of the foregoing, the Committee shall be entitled to determine not to
make any payment whatsoever until Consent has been given if (i) the Committee
may make any payment under the Plan in cash, Common Stock or both, and (ii) the
Committee determines that Consent is necessary or desirable as a condition of,
or in connection with, payment in any one or more of such forms.
(b) Consent Defined. The term "Consent" as used herein with respect to
any Plan Action means (i) any and all listings, registrations or qualifications
in respect thereof upon any securities exchange or other self-regulatory
organization or under any federal, state or local law, rule or regulation, (ii)
the expiration, elimination or satisfaction of any prohibitions, restrictions or
limitations under any federal, state or local law, rule or regulation or the
rules of any securities exchange or other self-regulatory organization, (iii)
any and all written agreements and representations by the grantee with respect
to the disposition of shares, or with respect to any other matter, which the
Committee shall deem necessary or desirable to comply with the terms of any such
listing, registration or qualification or to obtain an exemption from the
requirement that any such listing, qualification or registration be made, and
(iv) any and all consents, clearances and approvals in respect of a Plan Action
by any governmental or other regulatory bodies or any parties to any loan
agreements or other contractual obligations of the Company or any Affiliate.
4.3. Nontransferability. No award granted to any grantee under the Plan
or under any Plan Agreement shall be assignable or transferable by the grantee
other than by will or by the laws of descent and distribution. During the
lifetime of the grantee, all rights with respect to any award granted to the
grantee under the Plan or under any Plan Agreement shall be exercisable only by
the grantee.
4.4. Withholding Taxes.
(a) Whenever under the Plan shares of Common Stock are to be delivered
pursuant to an award, the Committee may require as a condition of delivery that
the grantee remit an amount sufficient to satisfy all federal, state and other
10
governmental withholding tax requirements related thereto. Whenever cash is to
be paid under the Plan, the Company may, as a condition of its payment, deduct
therefrom, or from any salary or other payments due to the grantee, an amount
sufficient to satisfy all federal, state and other governmental withholding tax
requirements related thereto or to the delivery of any shares of Common Stock
under the Plan.
(b) Without limiting the generality of the foregoing, (i) a grantee may
elect to satisfy all or part of the foregoing withholding requirements by
delivery of unrestricted shares of Common Stock owned by the grantee for at
least six months (or such other period as the Committee may determine) having a
fair market value (determined as of the date of such delivery by the grantee)
equal to all or part of the amount to be so withheld, provided that the
Committee may require, as a condition of accepting any such delivery, the
grantee to furnish an opinion of counsel acceptable to the Committee to the
effect that such delivery would not result in the grantee incurring any
liability under Section 16(b) of the Act and (ii) the Committee may permit any
such delivery to be made by withholding shares of Common Stock from the shares
otherwise issuable pursuant to the award giving rise to the tax withholding
obligation (in which event the date of delivery shall be deemed the date such
award was exercised).
4.5. Adjustments Upon Changes in Capitalization. If and to the extent
specified by the Committee, the number of shares of Common Stock which may be
issued pursuant to awards under the Plan, the maximum number of options which
may be granted to any one person in any year, the number of shares of Common
Stock subject to awards, the option exercise price of options theretofore
granted under the Plan, and the amount payable by a grantee in respect of an
award, shall be appropriately adjusted (as the Committee may determine) for any
change in the number of issued shares of Common Stock resulting from the
subdivision or combination of shares of Common Stock or other capital
adjustments, or the payment of a stock dividend after the effective date of the
Plan, or other change in such shares of Common Stock effected without receipt of
consideration by the Company; provided that any awards covering fractional
shares of Common Stock resulting from any such adjustment shall be eliminated
and provided further, that each ISO granted under the Plan shall not be adjusted
in a manner that causes such option to fail to continue to qualify as an ISO
within the meaning of Code Section 422. Adjustments under this Section shall be
made by the Committee, whose determination as to what adjustments shall be made,
and the extent thereof, shall be final, binding and conclusive.
4.6. Right of Discharge Reserved. Nothing in the Plan or in any Plan
Agreement shall confer upon any person the right to continue in the employment
of the Company or an Affiliate or affect any right which the Company or an
Affiliate may have to terminate the employment of such person.
4.7. No Rights as a Stockholder. No grantee or other person shall have
any of the rights of a stockholder of the Company with respect to shares subject
to an award until the issuance of a stock certificate to him for such shares.
Except as otherwise provided in Section 4.5, no adjustment shall be made for
dividends, distributions or other rights (whether ordinary or extraordinary, and
whether in cash, securities or other property) for which the record date is
prior to the date such stock certificate is issued. In the case of a grantee of
an award which has not yet vested, the grantee shall have the rights of a
stockholder of the Company if and only to the extent provided in the applicable
Plan Agreement.
11
4.8. Nature of Payments.
(a) Any and all awards or payments hereunder shall be granted, issued,
delivered or paid, as the case may be, in consideration of services performed
for the Company or for its Affiliates by the grantee.
(b) No such awards and payments shall be considered special incentive
payments to the grantee or, unless otherwise determined by the Committee, be
taken into account in computing the grantee's salary or compensation for the
purposes of determining any benefits under (i) any pension, retirement, life
insurance or other benefit plan of the Company or any Affiliate or (ii) any
agreement between the Company or any Affiliate and the grantee.
(c) By accepting an award under the Plan, the grantee shall thereby
waive any claim to continued exercisability or vesting of an award or to damages
or severance entitlement related to non-continuation of the award beyond the
period provided herein or in the applicable Plan Agreement, notwithstanding any
contrary provision in any written employment contract with the grantee, whether
any such contract is executed before or after the grant date of the award.
4.9. Non-Uniform Determinations. The Committee's determinations under
the Plan need not be uniform and may be made by it selectively among persons who
receive, or are eligible to receive, awards under the Plan (whether or not such
persons are similarly situated). Without limiting the generality of the
foregoing, the Committee shall be entitled, among other things, to make
non-uniform and selective determinations, and to enter into non-uniform and
selective Plan Agreements, as to (a) the persons to receive awards under the
Plan, (b) the terms and provisions of awards under the Plan, and (c) the
treatment of leaves of absence pursuant to Section 2.7(c).
4.10. Other Payments or Awards. Nothing contained in the Plan shall be
deemed in any way to limit or restrict the Company, any Affiliate or the
Committee from making any award or payment to any person under any other plan,
arrangement or understanding, whether now existing or hereafter in effect.
4.11. Reorganization.
(a) In the event that the Company is merged or consolidated with
another corporation and, whether or not the Company shall be the surviving
corporation, there shall be any change in the shares of Common Stock by reason
of such merger or consolidation, or in the event that all or substantially all
of the assets of the Company are acquired by another person, or in the event of
a reorganization or liquidation of the Company (each such event being
hereinafter referred to as a "Reorganization Event") or in the event that the
Board shall propose that the Company enter into a Reorganization Event, then the
Committee may in its discretion, by written notice to a grantee, provide that
his options will be terminated unless exercised within 30 days (or such longer
period as the Committee shall determine in its sole discretion) after the date
of such notice; provided that if, and to the extent that, the Committee takes
such action with respect to the grantee's options not yet exercisable, the
Committee shall also accelerate the dates upon which such options shall be
exercisable. The Committee also may in its discretion by written notice to a
grantee provide that all or some of the restrictions on any of the grantee's
awards may lapse in the event of a Reorganization Event upon such terms and
conditions as the Committee may determine.
12
(b) Whenever deemed appropriate by the Committee, the actions referred
to in Section 4.11(a) may be made conditional upon the consummation of the
applicable Reorganization Event.
4.12. Section Headings. The section headings contained herein are for
the purposes of convenience only and are not intended to define or limit the
contents of said sections.
4.13. Effective Date and Term of Plan.
(a) The Plan shall be deemed adopted and become effective upon the
approval thereof by the shareholders of the Company.
(b) The Plan shall terminate 10 years after the earlier of the date on
which it becomes effective or is approved by shareholders, and no awards shall
thereafter be made under the Plan. Notwithstanding the foregoing, all awards
made under the Plan prior to such termination date shall remain in effect until
such awards have been satisfied or terminated in accordance with the terms and
provisions of the Plan and the applicable Plan Agreement.
4.14. Governing Law. The Plan shall be governed by the laws of the
State of New York applicable to agreements made and to be performed entirely
within such state.
ARTICLE 5. RESTRICTED STOCK AWARDS GRANTED TO INDEPENDENT DIRECTORS
5.1. Automatic Grant of Restricted Stock. Each Independent Director
appointed or elected for the first time shall automatically be granted (under
this Plan or another Company stock option plan) 1,000 shares of restricted stock
on his date of appointment or election. Each Independent Director who is serving
as Director of the Company on the fifth business day after each annual meeting
of shareholders shall, on such day, automatically be granted (under this Plan or
another Company stock option plan) a number of shares of restricted stock having
a fair market value of $20,000 on the date of grant; provided, however, that an
Independent Director who is appointed or elected for the first time shall not be
eligible to receive restricted stock pursuant to this sentence for the year of
his initial appointment or election.
5.2. Vesting; Non-Transferability; Issuance of Shares
(a) All shares of restricted stock granted under this Article 5 shall
vest immediately.
(b) No shares of restricted stock granted under this Article 5 shall be
transferable by an Independent Director while such Independent Director remains
a Director of the Company. The shares of restricted stock granted under this
Article 5 shall be transferable, subject to any restrictions imposed by
applicable law, by an Independent Director immediately on the date upon which
such Independent Director ceases to be a Director of the Company.
13
(c) As soon as practicable after the date of grant, the Company shall
register, in the name of each Independent Director, one or more certificates
representing the number of shares of restricted stock granted to such Director
under this Article 5 and bearing the appropriate legend specifying that such
shares are not transferable and are subject to the terms and conditions of the
Plan.
5.3. Limited to Independent Directors. The provisions of this Article 5
shall apply only to restricted stock awards granted or to be granted to
Independent Directors, shall be interpreted as if this Article 5 constituted a
separate plan of the Company and shall not be deemed to modify, limit or
otherwise apply to any other provision of this Plan or to any restricted stock
award granted under this Plan to a participant who is not an Independent
Director of the Company. To the extent inconsistent with the provisions of any
other Section of this Plan, the provisions of this Article 5 shall govern the
rights and obligations of the Company and Independent Directors respecting
restricted stock awards granted or to be granted to Independent Directors. The
provisions of this Article 5 shall not be amended more than once every six
months other than to comport with changes in applicable law.
14
EXHIBIT 10.3
RECKSON ASSOCIATES REALTY CORP.
AMENDED AND RESTATED 2002 STOCK OPTION PLAN
(AMENDED AS OF MAY 29, 2003)
ARTICLE 1. GENERAL
1.1. Purpose. The purpose of the Reckson Associates Realty Corp. 2002
Stock Option Plan (the "Plan") is to provide for certain officers, directors and
key employees, as defined in Section 1.3, of Reckson Associates Realty Corp.
(the "Company") and certain of its Affiliates (as defined below) an equity-based
incentive to maintain and enhance the performance and profitability of the
Company. It is the further purpose of this Plan to permit the granting of awards
that will constitute performance based compensation for certain executive
officers, as described in Section 162(m) of the Internal Revenue Code of 1986,
as amended (the "Code"), and regulations promulgated thereunder.
1.2. Administration.
(a) The Plan shall be administered by the Compensation Committee (the
"Committee") of the Board of Directors of the Company (the "Board"), which
Committee shall consist of two or more directors, or by the Board. It is
intended that the directors appointed to serve on the Committee shall be
"non-employee directors" (within the meaning of Rule 16b-3 promulgated under the
Securities Exchange Act of 1934 (the "Act")) and "outside directors" (within the
meaning of Code Section 162(m)); however, the mere fact that a Committee member
shall fail to qualify under either of these requirements shall not invalidate
any award made by the Committee which award is otherwise validly made under the
Plan. The members of the Committee shall be appointed by, and may be changed at
any time and from time to time in the discretion of, the Board.
(b) The Committee shall have the authority (i) to exercise all of the
powers granted to it under the Plan, (ii) to construe, interpret and implement
the Plan and any Plan Agreements (as defined below) executed pursuant to the
Plan, (iii) to prescribe, amend and rescind rules relating to the Plan, (iv) to
make any determination necessary or advisable in administering the Plan, (v) to
correct any defect, supply any omission and reconcile any inconsistency in the
Plan and (vi) to delegate to Donald J. Rechler and Scott H. Rechler (the "Proper
Officers") its authority to grant awards under the Plan to key employees,
excluding those employees who are executive officers ("Non-Executive Officers"),
provided that (a) the aggregate number of shares of Common Stock granted to any
Non-Executive Officer during any calendar year shall not exceed 100,000 shares
and (b) the Proper Officers shall report annually to the Committee regarding the
material terms of awards granted to any Non-Executive Officers. The Committee
shall have no authority to interpret or administer Article 5 of the Plan or to
take any action with respect to any awards thereunder.
(c) The determination of the Committee on all matters relating to the
Plan or any Plan Agreement shall be conclusive.
(d) No member of the Committee shall be liable for any action or
determination made in good faith with respect to the Plan or any award
hereunder.
(e) Notwithstanding anything to the contrary contained herein, the
Board may, in its sole discretion, at any time and from time to time, resolve to
administer the Plan, in which case, the term Committee as used herein shall be
deemed to mean the Board.
1.3. Persons Eligible for Awards. Awards under the Plan may be made to
such officers, directors and key employees ("key personnel") of the Company or
its Affiliates as the Committee shall from time to time in its sole discretion
select. No member of the Board who is not an officer or employee of the Company
or an Affiliate (an "Independent Director") shall be eligible to receive any
Awards under the Plan, except for restricted stock awards granted automatically
under the provisions of Article 5 of the Plan.
1.4. Types of Awards Under Plan.
(a) Awards may be made under the Plan in the form of (i) stock options
("options"), (ii) restricted stock awards and (iii) unrestricted stock awards,
in lieu of cash compensation, all as more fully set forth in Articles 2 and 3.
(b) Options granted under the Plan may be either (i) "nonqualified"
stock options ("NQSOs") or (ii) options intended to qualify for incentive stock
option treatment described in Code Section 422 ("ISOs"). Grants of options made
under the Plan may also be made in lieu of cash fees otherwise payable to
Directors of the Company or cash bonuses payable to employees of the Company or
any Affiliate.
(c) All options when granted are intended to be NQSOs, unless the
applicable Plan Agreement explicitly states that the option is intended to be an
ISO. If an option is intended to be an ISO, and if for any reason such option
(or any portion thereof) shall not qualify as an ISO, then, to the extent of
such nonqualification, such option (or portion) shall be regarded as a NQSO
appropriately granted under the Plan provided that such option (or portion)
otherwise meets the Plan's requirements relating to NQSOs.
1.5. Shares Available for Awards.
(a) Subject to Section 4.5 (relating to adjustments upon changes in
capitalization), as of any date the total number of shares of Common Stock with
respect to which awards may be granted under the Plan, shall equal the excess
(if any) of 1,500,000 shares of Common Stock, over (i) the number of shares of
Common Stock subject to outstanding awards, (ii) the number of shares in respect
of which options have been exercised, or grants of restricted or unrestricted
Common Stock have been made pursuant to the Plan, and (iii) the number of shares
issued subject to forfeiture restrictions which have lapsed. In any calendar
year, a person eligible for awards under the Plan may not be granted options
under the Plan covering a total of more than 150,000 shares of Common Stock.
In accordance with (and without limitation upon) the preceding
sentence, awards may be granted in respect of the following shares of Common
Stock: shares covered by previously-granted awards that have expired, terminated
or been cancelled for any reason whatsoever (other than by reason of exercise or
vesting).
2
(b) Shares of Common Stock that shall be subject to issuance pursuant
to the Plan shall be authorized and unissued or treasury shares of Common Stock,
or shares of Common Stock purchased on the open market or from shareholders of
the Company for such purpose.
1.6. Definitions of Certain Terms.
(a) The term "Affiliate" as used herein means Reckson Operating
Partnership, L.P., Reckson FS Limited Partnership, RANY Management Group, Inc.,
Reckson Finance, Inc., Reckson Management Group, Inc., Reckson Construction
Group, Inc., Metropolitan Partners LLC, any person or entity that directly, or
indirectly through one or more intermediaries, controls, is controlled by, or is
under common control with, the Company, or any other person or entity as
subsequently approved by the Board.
(b) The term "Cause" shall mean a finding by the Committee that the
recipient of an award under the Plan has (i) acted with gross negligence or
willful misconduct in connection with the performance of his material duties to
the Company or its Affiliates; (ii) defaulted in the performance of his material
duties to the Company or its Affiliates and has not corrected such action within
15 days of receipt of written notice thereof; (iii) willfully acted against the
best interests of the Company or its Affiliates, which act has had a material
and adverse impact on the financial affairs of the Company or its Affiliates; or
(iv) been convicted of a felony or committed a material act of common law fraud
against the Company, its Affiliates or their employees and such act or
conviction has, or the Committee reasonably determines will have, a material
adverse effect on the interests of the Company or its Affiliates.
(c) The term "Common Stock" as used herein means the shares of Class A
common stock of the Company as constituted on the effective date of the Plan,
and any other shares into which such common stock shall thereafter be changed by
reason of a recapitalization, merger, consolidation, split-up, combination,
exchange of shares or the like.
(d) The "fair market value" (or "FMV") as of any date and in respect of
any share of Common Stock shall be:
(i) if the Common Stock is listed for trading on the New York
Stock Exchange, the closing price, regular way, of the Common
Stock as reported on the New York Stock Exchange Composite
Tape, or if no such reported sale of the Common Stock shall
have occurred on such date, on the next preceding date on
which there was such a reported sale; or
(ii) the Common Stock is not so listed but is listed on
another national securities exchange or authorized for
quotation on the National Association of Securities Dealers
Inc.'s NASDAQ National Market System ("NASDAQ/NMS"), the
closing price, regular way, of the Common Stock on such
exchange or NASDAQ/NMS, as the case may be, on which the
largest number of shares of Common Stock have been traded in
the aggregate on the preceding twenty trading days, or if no
such reported sale of the Stock shall have occurred on such
date on such exchange or NASDAQ/NMS, as the case may be, on
the preceding date on
3
which there was such a reported sale on such exchange or
NASDAQ/NMS, as the case may be; or
(iii) if the Stock is not listed for trading on a national
securities exchange or authorized for quotation on NASDAQ/NMS,
the average of the closing bid and asked prices as reported by
the National Association of Securities Dealers Automated
Quotation System ("NASDAQ") or, if no such prices shall have
been so reported for such date, on the next preceding date for
which such prices were so reported.
1.7. Agreements Evidencing Awards.
(a) Options and restricted stock awards granted under the Plan shall be
evidenced by written agreements. Any such written agreements shall (i) contain
such provisions not inconsistent with the terms of the Plan as the Committee may
in its sole discretion deem necessary or desirable and (ii) be referred to
herein as "Plan Agreements."
(b) Each Plan Agreement shall set forth the number of shares of Common
Stock subject to the award granted thereby.
(c) Each Plan Agreement with respect to the granting of an option shall
set forth the amount (the "option exercise price") payable by the grantee to the
Company in connection with the exercise of the option evidenced thereby. The
option exercise price per share shall not be less than 100% of the fair market
value of a share of Common Stock on the date the option is granted.
ARTICLE 2. STOCK OPTIONS
2.1. Option Awards.
(a) Grant of Stock Options. The Committee may grant options to purchase
shares of Common Stock in such amounts and subject to such terms and conditions
as the Committee shall from time to time in its sole discretion determine,
subject to the terms of the Plan.
(b) Dividend Equivalent Rights. To the extent expressly provided by the
Committee at the time of the grant, each NQSO granted under this Section 2.1
shall also generate Dividend Equivalent Rights ("DERs"), which shall entitle the
grantee to receive an additional share of Common Stock for each DER received
upon the exercise of the NQSO, at no additional cost, based on the formula set
forth herein. As of the last business day of each calendar quarter, the amount
of dividends paid by the Company on each share of Common Stock with respect to
that quarter shall be divided by the FMV per share to determine the actual
number of DERs accruing on each share subject to the NQSO. Such amount of DERs
shall be multiplied by the number of shares covered by the NQSO to determine the
number of DERs which accrued during such quarter. The provisions of this Section
2.1(b) shall not be amended more than once every six months other than to
comport with changes in applicable law.
4
For example. Assume that a grantee holds a NQSO to purchase 600 shares
of Common Stock. Further assume that the dividend per share for the first
quarter was $0.10, and that the FMV per share on the last business day of the
quarter was $20. Therefore, .005 DER would accrue per share for that quarter and
such grantee would receive three DERs for that quarter (600 X .005). For
purposes of determining how many DERs would accrue during the second quarter,
the NQSO would be considered to be for 603 shares of Common Stock.
2.2. Exercisability of Options. Subject to the other provisions of the
Plan:
(a) Exercisability Determined by Plan Agreement. Each Plan Agreement
shall set forth the period during which and the conditions subject to which the
option shall be exercisable (including, but not limited to vesting of such
options), as determined by the Committee in its discretion.
(b) Partial Exercise Permitted. Unless the applicable Plan Agreement
otherwise provides, an option granted under the Plan may be exercised from time
to time as to all or part of the full number of shares for which such option is
then exercisable, in which event the DERs relating to the portion of the option
being exercised shall also be exercised.
(c) Notice of Exercise; Exercise Date.
(i) An option shall be exercisable by the filing of a written
notice of exercise with the Company, on such form and in such
manner as the Committee shall in its sole discretion
prescribe, and by payment in accordance with Section 2.4.
(ii) Unless the applicable Plan Agreement otherwise provides,
or the Committee in its sole discretion otherwise determines,
the date of exercise of an option shall be the date the
Company receives such written notice of exercise and payment.
2.3. Limitation on Exercise. Notwithstanding any other provision of the
Plan, no Plan Agreement shall permit an ISO to be exercisable more than 10 years
after the date of grant.
2.4. Payment of Option Price.
(a) Tender Due Upon Notice of Exercise. Unless the applicable Plan
Agreement otherwise provides or the Committee in its sole discretion otherwise
determines, any written notice of exercise of an option shall be accompanied by
payment of the full purchase price for the shares being purchased.
(b) Manner of Payment. Payment of the option exercise price shall be
made in any combination of the following:
(i) by certified or official bank check payable to the Company
(or the equivalent thereof acceptable to the Committee);
(ii) by personal check (subject to collection), which may in
the Committee's discretion be deemed conditional;
5
(iii) with the consent of the Committee in its sole
discretion, by delivery of previously acquired shares of
Common Stock owned by the grantee for at least six months
having a fair market value (determined as of the option
exercise date) equal to the portion of the option exercise
price being paid thereby, provided that the Committee may
require the grantee to furnish an opinion of counsel
acceptable to the Committee to the effect that such delivery
would not result in the grantee incurring any liability under
Section 16(b) of the Act and does not require any Consent (as
defined in Section 4.2); and
(iv) with the consent of the Committee in its sole discretion,
by the full recourse promissory note and agreement of the
grantee providing for payment with interest on the unpaid
balance accruing at a rate not less than that needed to avoid
the imputation of income under Code Section 7872 and upon such
terms and conditions (including the security, if any,
therefor) as the Committee may determine; and
(v) by withholding shares of Common Stock from the shares
otherwise issuable pursuant to the exercise.
(c) Cashless Exercise. Payment in accordance with Section 2.4(b) may be
deemed to be satisfied, if and to the extent provided in the applicable Plan
Agreement, by delivery to the Company of an assignment of a sufficient amount of
the proceeds from the sale of Common Stock acquired upon exercise to pay for all
of the Common Stock acquired upon exercise and an authorization to the broker or
selling agent to pay that amount to the Company, which sale shall be made at the
grantee's direction at the time of exercise, provided that the Committee may
require the grantee to furnish an opinion of counsel acceptable to the Committee
to the effect that such delivery would not result in the grantee incurring any
liability under Section 16 of the Act and does not require any Consent (as
defined in Section 4.2).
(d) Issuance of Shares. As soon as practicable after receipt of full
payment, the Company shall, subject to the provisions of Section 4.2, deliver to
the grantee one or more certificates for the shares of Common Stock so
purchased, which certificates may bear such legends as the Company may deem
appropriate concerning restrictions on the disposition of the shares in
accordance with applicable securities laws, rules and regulations or otherwise.
2.5. Default Rules Concerning Termination of Employment.
Subject to the other provisions of the Plan and unless the applicable
Plan Agreement otherwise provides:
(a) General Rule. All options granted to a grantee shall terminate upon
the grantee's termination of employment for any reason except to the extent
post-employment exercise of the option is permitted in accordance with this
Section 2.5.
(b) Termination for Cause. All unexercised or unvested options granted
to a grantee shall terminate and expire on the day a grantee's employment is
terminated for Cause.
6
(c) Regular Termination; Leave of Absence. If the grantee's employment
terminates for any reason other than as provided in subsection (b), (d) or (f)
of this Section 2.5, any awards granted to such grantee which were exercisable
immediately prior to such termination of employment may be exercised, and any
awards subject to vesting may continue to vest, until the earlier of either: (i)
90 days after the grantee's termination of employment and (ii) the date on which
such options terminate or expire in accordance with the provisions of the Plan
(other than this Section 2.5) and the Plan Agreement; provided that the
Committee may, in its sole discretion, determine such other period for exercise
in the case of a grantee whose employment terminates solely because the
grantee's employer ceases to be an Affiliate or the grantee transfers employment
with the Company's consent to a purchaser of a business disposed of by the
Company. The Committee may, in its sole discretion, determine (i) whether any
leave of absence (including short-term or long-term disability or medical leave)
shall constitute a termination of employment for purposes of the Plan and (ii)
the effect, if any, of any such leave on outstanding awards under the Plan.
(d) Retirement. If a grantee's employment terminates by reason of
retirement (i.e., the voluntary termination of employee by a grantee after
attaining the age of 55), the options exercisable by the grantee immediately
prior to the grantee's retirement shall be exercisable by the grantee until the
earlier of (i) 36 months after the grantee's retirement and (ii) the date on
which such options terminate or expire in accordance with the provisions of the
Plan (other than this Section 2.5) and the Plan Agreement.
(e) Death After Termination. If a grantee's employment terminates in
the manner described in subsections (c) or (d) of this Section 2.5 and the
grantee dies within the period for exercise provided for therein, the options
exercisable by the grantee immediately prior to the grantee's death shall be
exercisable by the personal representative of the grantee's estate or by the
person to whom such options pass under the grantee's will (or, if applicable,
pursuant to the laws of descent and distribution) until the earlier of (i) 12
months after the grantee's death and (ii) the date on which such options
terminate or expire in accordance with the provisions of subsections (c) or (d)
of this Section 2.5.
(f) Death Before Termination. If a grantee dies while employed by the
Company or any Affiliate, all options granted to the grantee but not exercised
before the death of the grantee, whether or not exercisable by the grantee
before the grantee's death, shall immediately become and be exercisable by the
personal representative of the grantee's estate or by the person to whom such
options pass under the grantee's will (or, if applicable, pursuant to the laws
of descent and distribution) until the earlier of (i) 12 months after the
grantee's death and (ii) the date on which such options terminate or expire in
accordance with the provisions of the Plan (other than this Section 2.5) and the
Plan Agreement.
2.6. Special ISO Requirements. In order for a grantee to receive
special tax treatment with respect to stock acquired under an option intended to
be an ISO, (i) the Plan must be approved by the Company's shareholders in
accordance with the requirements of Code Section 422(b) and (ii) the grantee of
such option must be, at all times during the period beginning on the date of
grant and ending on the day three months before the date of exercise of such
option, an employee of the Company or any of the Company's parent or subsidiary
corporations (within the meaning of Code Section 424), or of a corporation or a
parent or subsidiary corporation of such
7
corporation issuing or assuming a stock option in a transaction to which Code
Section 424(a) applies. If an option granted under the Plan is intended to be an
ISO, and if the grantee, at the time of grant, owns stock possessing more than
10% of the total combined voting power of all classes of stock of the grantee's
employer corporation or of its parent or subsidiary corporation, then (i) the
option exercise price per share shall in no event be less than 110% of the fair
market value of the Common Stock on the date of such grant and (ii) such option
shall not be exercisable after the expiration of five years after the date such
option is granted.
ARTICLE 3. RESTRICTED STOCK AND UNRESTRICTED STOCK AWARDS
3.1. Restricted Stock Awards.
(a) Grant of Awards. The Committee may grant restricted stock awards,
alone or in tandem with other awards, under the Plan in such amounts and subject
to such terms and conditions as the Committee shall from time to time in its
sole discretion determine; provided, however, that the grant of any such
restricted stock awards may be made in lieu of, or in tandem with other, cash
compensation and bonuses. The vesting of a restricted stock award granted under
the Plan may be conditioned upon the completion of a specified period of
employment with the Company or any Affiliate, upon the attainment of specified
performance goals, and/or upon such other criteria as the Committee may
determine in its sole discretion.
(b) Payment. Each Plan Agreement with respect to a restricted stock
award shall set forth the amount (if any) to be paid by the grantee with respect
to such award. If a grantee makes any payment for a restricted stock award which
does not vest, appropriate payment may be made to the grantee following the
forfeiture of such award on such terms and conditions as the Committee may
determine. The Committee shall have the authority to make or authorize loans to
finance, or to otherwise accommodate the financing of, the acquisition or
exercise of a restricted stock award.
(c) Forfeiture upon Termination of Employment. Unless the applicable
Plan Agreement otherwise provides or the Committee otherwise determines, (i) if
a grantee's employment terminates for any reason (including death) before all of
his restricted stock awards have vested, such awards shall terminate and expire
upon such termination of employment, and (ii) in the event any condition to the
vesting of restricted stock awards is not satisfied within the period of time
permitted therefor, such unvested shares shall be returned to the Company.
(d) Issuance of Shares. The Committee may provide that one or more
certificates representing restricted stock awards shall be registered in the
grantee's name and bear an appropriate legend specifying that such shares are
not transferable and are subject to the terms and conditions of the Plan and the
applicable Plan Agreement, or that such certificate or certificates shall be
held in escrow by the Company on behalf of the grantee until such shares vest or
are forfeited, all on such terms and conditions as the Committee may determine.
Unless the applicable Plan Agreement otherwise provides, no share of restricted
stock may be assigned, transferred, otherwise encumbered or disposed of by the
grantee until such share has vested in accordance with the terms of such award.
Subject to the provisions of Section 4.2, as soon as practicable after any
restricted stock award shall vest, the Company shall issue or reissue to the
8
grantee (or to the grantee's designated beneficiary in the event of the
grantee's death) one or more certificates for the Common Stock represented by
such restricted stock award.
(e) Grantees' Rights Regarding Restricted Stock. Unless the applicable
Plan Agreement otherwise provides: (i) a grantee may vote and receive dividends
on restricted stock awarded under the Plan; and (ii) any stock received as a
distribution with respect to a restricted stock award shall be subject to the
same restrictions as such restricted stock.
3.2. Unrestricted Stock. The Committee may issue unrestricted stock
under the Plan, alone or in tandem with other awards, in such amounts and
subject to such terms and conditions as the Committee shall from time to time in
its sole discretion determine; provided, however, that the grant of any such
unrestricted stock awards may be made in lieu of, or in tandem with other, cash
compensation and bonuses. The Committee shall have the authority to make or
authorize loans to finance, or to otherwise accommodate the financing of, the
acquisition or exercise of an unrestricted stock award.
ARTICLE 4. MISCELLANEOUS
4.1. Amendment of the Plan; Modification of Awards.
(a) Plan Amendments. The Board may, without stockholder approval, at
any time and from time to time suspend, discontinue or amend the Plan in any
respect whatsoever, except that (i) no such amendment shall impair any rights
under any award theretofore made under the Plan without the consent of the
grantee of such award and (ii) except as and to the extent otherwise permitted
by Section 4.5 or 4.11, no such amendment shall cause the Plan to fail to
satisfy any applicable requirement under Rule 16b-3 without stockholder
approval.
(b) Award Modifications. Subject to the terms and conditions of the
Plan (including Section 4.1(a)), the Committee may amend outstanding Plan
Agreements with such grantee, including, without limitation, any amendment which
would (i) accelerate the time or times at which an award may vest or become
exercisable and/or (ii) extend the scheduled termination or expiration date of
the award, provided, however, that no modification having a material adverse
effect upon the interest of a grantee in an award shall be made without the
consent of such grantee; and no amendment may be made to adjust the option
exercise price per share specified in a Plan Agreement evidencing a stock option
award, unless such adjustment occurs pursuant to Section 4.5, and no award may
be cancelled and re-granted to effect a re-pricing.
4.2. Restrictions.
(a) Consent Requirements. If the Committee shall at any time determine
that any Consent (as hereinafter defined) is necessary or desirable as a
condition of, or in connection with, the granting of any award under the Plan,
the acquisition, issuance or purchase of shares or other rights hereunder or the
taking of any other action hereunder (each such action being hereinafter
referred to as a "Plan Action"), then such Plan Action shall not be taken, in
whole or in part, unless and until such Consent shall have been effected or
obtained to the full satisfaction of the Committee. Without limiting the
generality of the foregoing, the Committee shall be entitled to determine not to
make any payment whatsoever until Consent has been given if (i) the Committee
may make any payment under the Plan in cash, Common Stock or both, and (ii) the
9
Committee determines that Consent is necessary or desirable as a condition of,
or in connection with, payment in any one or more of such forms.
(b) Consent Defined. The term "Consent" as used herein with respect to
any Plan Action means (i) any and all listings, registrations or qualifications
in respect thereof upon any securities exchange or other self-regulatory
organization or under any federal, state or local law, rule or regulation, (ii)
the expiration, elimination or satisfaction of any prohibitions, restrictions or
limitations under any federal, state or local law, rule or regulation or the
rules of any securities exchange or other self-regulatory organization, (iii)
any and all written agreements and representations by the grantee with respect
to the disposition of shares, or with respect to any other matter, which the
Committee shall deem necessary or desirable to comply with the terms of any such
listing, registration or qualification or to obtain an exemption from the
requirement that any such listing, qualification or registration be made, and
(iv) any and all consents, clearances and approvals in respect of a Plan Action
by any governmental or other regulatory bodies or any parties to any loan
agreements or other contractual obligations of the Company or any Affiliate.
4.3. Nontransferability. No award granted to any grantee under the Plan
or under any Plan Agreement shall be assignable or transferable by the grantee
other than by will or by the laws of descent and distribution. During the
lifetime of the grantee, all rights with respect to any award granted to the
grantee under the Plan or under any Plan Agreement shall be exercisable only by
the grantee.
4.4. Withholding Taxes.
(a) Whenever under the Plan shares of Common Stock are to be delivered
pursuant to an award, the Committee may require as a condition of delivery that
the grantee remit an amount sufficient to satisfy all federal, state and other
governmental withholding tax requirements related thereto. Whenever cash is to
be paid under the Plan, the Company may, as a condition of its payment, deduct
therefrom, or from any salary or other payments due to the grantee, an amount
sufficient to satisfy all federal, state and other governmental withholding tax
requirements related thereto or to the delivery of any shares of Common Stock
under the Plan.
(b) Without limiting the generality of the foregoing, (i) a grantee may
elect to satisfy all or part of the foregoing withholding requirements by
delivery of unrestricted shares of Common Stock owned by the grantee for at
least six months (or such other period as the Committee may determine) having a
fair market value (determined as of the date of such delivery by the grantee)
equal to all or part of the amount to be so withheld, provided that the
Committee may require, as a condition of accepting any such delivery, the
grantee to furnish an opinion of counsel acceptable to the Committee to the
effect that such delivery would not result in the grantee incurring any
liability under Section 16(b) of the Act and (ii) the Committee may permit any
such delivery to be made by withholding shares of Common Stock from the shares
otherwise issuable pursuant to the award giving rise to the tax withholding
obligation (in which event the date of delivery shall be deemed the date such
award was exercised).
4.5. Adjustments Upon Changes in Capitalization. If and to the extent
specified by the Committee, the number of shares of Common Stock which may be
issued pursuant to awards under the Plan, the maximum number of options which
may be granted to any one person in any
10
year, the number of shares of Common Stock subject to awards, the option
exercise price of options theretofore granted under the Plan, and the amount
payable by a grantee in respect of an award, shall be appropriately adjusted (as
the Committee may determine) for any change in the number of issued shares of
Common Stock resulting from the subdivision or combination of shares of Common
Stock or other capital adjustments, or the payment of a stock dividend after the
effective date of the Plan, or other change in such shares of Common Stock
effected without receipt of consideration by the Company; provided that any
awards covering fractional shares of Common Stock resulting from any such
adjustment shall be eliminated and provided further, that each ISO granted under
the Plan shall not be adjusted in a manner that causes such option to fail to
continue to qualify as an ISO within the meaning of Code Section 422.
Adjustments under this Section shall be made by the Committee, whose
determination as to what adjustments shall be made, and the extent thereof,
shall be final, binding and conclusive.
4.6. Right of Discharge Reserved. Nothing in the Plan or in any Plan
Agreement shall confer upon any person the right to continue in the employment
of the Company or an Affiliate or affect any right which the Company or an
Affiliate may have to terminate the employment of such person.
4.7. No Rights as a Stockholder. No grantee or other person shall have
any of the rights of a stockholder of the Company with respect to shares subject
to an award until the issuance of a stock certificate to him for such shares.
Except as otherwise provided in Section 4.5, no adjustment shall be made for
dividends, distributions or other rights (whether ordinary or extraordinary, and
whether in cash, securities or other property) for which the record date is
prior to the date such stock certificate is issued. In the case of a grantee of
an award which has not yet vested, the grantee shall have the rights of a
stockholder of the Company if and only to the extent provided in the applicable
Plan Agreement.
4.8. Nature of Payments.
(a) Any and all awards or payments hereunder shall be granted, issued,
delivered or paid, as the case may be, in consideration of services performed
for the Company or for its Affiliates by the grantee.
(b) No such awards and payments shall be considered special incentive
payments to the grantee or, unless otherwise determined by the Committee, be
taken into account in computing the grantee's salary or compensation for the
purposes of determining any benefits under (i) any pension, retirement, life
insurance or other benefit plan of the Company or any Affiliate or (ii) any
agreement between the Company or any Affiliate and the grantee.
(c) By accepting an award under the Plan, the grantee shall thereby
waive any claim to continued exercisability or vesting of an award or to damages
or severance entitlement related to non-continuation of the award beyond the
period provided herein or in the applicable Plan Agreement, notwithstanding any
contrary provision in any written employment contract with the grantee, whether
any such contract is executed before or after the grant date of the award.
4.9. Non-Uniform Determinations. The Committee's determinations under
the Plan need not be uniform and may be made by it selectively among persons who
receive, or are
11
eligible to receive, awards under the Plan (whether or not such persons are
similarly situated). Without limiting the generality of the foregoing, the
Committee shall be entitled, among other things, to make non-uniform and
selective determinations, and to enter into non-uniform and selective Plan
Agreements, as to (a) the persons to receive awards under the Plan, (b) the
terms and provisions of awards under the Plan, and (c) the treatment of leaves
of absence pursuant to Section 2.7(c).
4.10. Other Payments or Awards. Nothing contained in the Plan shall be
deemed in any way to limit or restrict the Company, any Affiliate or the
Committee from making any award or payment to any person under any other plan,
arrangement or understanding, whether now existing or hereafter in effect.
4.11. Reorganization.
(a) In the event that the Company is merged or consolidated with
another corporation and, whether or not the Company shall be the surviving
corporation, there shall be any change in the shares of Common Stock by reason
of such merger or consolidation, or in the event that all or substantially all
of the assets of the Company are acquired by another person, or in the event of
a reorganization or liquidation of the Company (each such event being
hereinafter referred to as a "Reorganization Event") or in the event that the
Board shall propose that the Company enter into a Reorganization Event, then the
Committee may in its discretion, by written notice to a grantee, provide that
his options will be terminated unless exercised within 30 days (or such longer
period as the Committee shall determine in its sole discretion) after the date
of such notice; provided that if, and to the extent that, the Committee takes
such action with respect to the grantee's options not yet exercisable, the
Committee shall also accelerate the dates upon which such options shall be
exercisable. The Committee also may in its discretion by written notice to a
grantee provide that all or some of the restrictions on any of the grantee's
awards may lapse in the event of a Reorganization Event upon such terms and
conditions as the Committee may determine.
(b) Whenever deemed appropriate by the Committee, the actions referred
to in Section 4.11(a) may be made conditional upon the consummation of the
applicable Reorganization Event.
4.12. Section Headings. The section headings contained herein are for
the purposes of convenience only and are not intended to define or limit the
contents of said sections.
4.13. Effective Date and Term of Plan.
(a) The Plan shall be deemed adopted and become effective upon the
approval thereof by the shareholders of the Company.
(b) The Plan shall terminate 10 years after the date on which it is
approved by shareholders, and no awards shall thereafter be made under the Plan.
Notwithstanding the foregoing, all awards made under the Plan prior to such
termination date shall remain in effect until such awards have been satisfied or
terminated in accordance with the terms and provisions of the Plan and the
applicable Plan Agreement.
12
4.14. Governing Law. The Plan shall be governed by the laws of the
State of New York applicable to agreements made and to be performed entirely
within such state.
ARTICLE 5. RESTRICTED STOCK AWARDS GRANTED TO INDEPENDENT DIRECTORS
5.1. Automatic Grant of Restricted Stock. Each Independent Director
appointed or elected for the first time shall automatically be granted (under
this Plan or another Company stock option plan) 1,000 shares of restricted stock
on his date of appointment or election. Each Independent Director who is serving
as Director of the Company on the fifth business day after each annual meeting
of shareholders shall, on such day, automatically be granted (under this Plan or
another Company stock option plan) a number of shares of restricted stock having
a fair market value of $20,000 on the date of grant; provided, however, that an
Independent Director who is appointed or elected for the first time shall not be
eligible to receive restricted stock pursuant to this sentence for the year of
his initial appointment or election.
5.2. Vesting; Non-Transferability; Issuance of Shares
(a) All shares of restricted stock granted under this Article 5 shall
vest immediately.
(b) No shares of restricted stock granted under this Article 5 shall be
transferable by an Independent Director while such Independent Director remains
a Director of the Company. The shares of restricted stock granted under this
Article 5 shall be transferable, subject to any restrictions imposed by
applicable law, by an Independent Director immediately on the date upon which
such Independent Director ceases to be a Director of the Company.
(c) As soon as practicable after the date of grant, the Company shall
register, in the name of each Independent Director, one or more certificates
representing the number of shares of restricted stock granted to such Director
under this Article 5 and bearing the appropriate legend specifying that such
shares are not transferable and are subject to the terms and conditions of the
Plan.
5.3. Limited to Independent Directors. The provisions of this Article 5
shall apply only to restricted stock awards granted or to be granted to
Independent Directors, shall be interpreted as if this Article 5 constituted a
separate plan of the Company and shall not be deemed to modify, limit or
otherwise apply to any other provision of this Plan or to any restricted stock
award granted under this Plan to a participant who is not an Independent
Director of the Company. To the extent inconsistent with the provisions of any
other Section of this Plan, the provisions of this Article 5 shall govern the
rights and obligations of the Company and Independent Directors respecting
restricted stock awards granted or to be granted to Independent Directors. The
provisions of this Article 5 shall not be amended more than once every six
months other than to comport with changes in applicable law.
13
RECKSON OPERATING PARTNERSHIP, L.P.
EXHIBIT 31.1
CERTIFICATION OF DONALD J. RECHLER, CO-CHIEF EXECUTIVE OFFICER OF RECKSON
ASSOCIATES REALTY CORP., THE SOLE GENERAL
PARTNER OF RECKSON OPERATING PARTNERSHIP, L.P.,
PURSUANT TO RULE 13a - 14(a)/15(d) - 14(a)
I, Donald J. Rechler, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Reckson Operating
Partnership, L.P.
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the Registrant as of, and for, the periods presented in this report;
4. The Registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Registrant and have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
Registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
b) evaluated the effectiveness of the Registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
c) disclosed in this report any change in the Registrant's internal
control over financial reporting that occurred during the Registrant's
most recent fiscal quarter (the Registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the Registrant's internal
control over financial reporting;
4. The Registrant's other certifying officers and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the Registrant's auditors and the audit committee of the Registrant's board
of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the Registrant's ability to
record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Registrant's internal
control over financial reporting.
Date: August 8, 2003
/s/ Donald J. Rechler
--------------------------------
Donald J. Rechler
Co-Chief Executive Officer,
Reckson Associates Realty Corp.,
the sole general partner of
the Registrant
RECKSON OPERATING PARTNERSHIP, L.P.
EXHIBIT 31.2
CERTIFICATION OF SCOTT H. RECHLER, CO-CHIEF EXECUTIVE OFFICER OF RECKSON
ASSOCIATES REALTY CORP., THE SOLE GENERAL
PARTNER OF RECKSON OPERATING PARTNERSHIP, L.P.,
PURSUANT TO RULE 13a - 14(a)/15(d) - 14(a)
I, Scott H. Rechler, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Reckson Operating
Partnership, L.P.
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the Registrant as of, and for, the periods presented in this report
4. The Registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Registrant and have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
Registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
b) evaluated the effectiveness of the Registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
c) disclosed in this report any change in the Registrant's internal
control over financial reporting that occurred during the Registrant's
most recent fiscal quarter (the Registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the Registrant's internal
control over financial reporting;
5. The Registrant's other certifying officers and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the Registrant's auditors and the audit committee of the Registrant's board
of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the Registrant's ability to
record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Registrant's internal
control over financial reporting.
Date: August 8, 2003
/s/ Scott H. Rechler
--------------------------------
Scott H. Rechler
Co-Chief Executive Officer,
Reckson Associates Realty Corp.,
the sole general partner of
the Registrant
RECKSON OPERATING PARTNERSHIP, L.P.
EXHIBIT 31.3
CERTIFICATION OF MICHAEL MATURO, EXECUTIVE VICE PRESIDENT, TREASURER AND CHIEF
FINANCIAL OFFICER OF RECKSON ASSOCIATES REALTY CORP.,
THE SOLE GENERAL PARTNER OF RECKSON OPERATING PARTNERSHIP, L.P.,
PURSUANT TO RULE 13a - 14(a)/15(d) - 14(a)
I, Michael Maturo, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Reckson Operating
Partnership, L.P.
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the Registrant as of, and for, the periods presented in this report;
4. The Registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Registrant and have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
Registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
b) evaluated the effectiveness of the Registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
c) disclosed in this report any change in the Registrant's internal
control over financial reporting that occurred during the Registrant's
most recent fiscal quarter (the Registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the Registrant's internal
control over financial reporting;
5. The Registrant's other certifying officers and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the Registrant's auditors and the audit committee of the Registrant's board
of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the Registrant's ability to
record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Registrant's internal
control over financial reporting.
Date: August 8, 2003
/s/ Michael Maturo
-----------------------------------
Michael Maturo
Executive Vice President, Treasurer
and Chief Financial Officer,
Reckson Associates Realty Corp.,
the sole general partner of
the Registrant
RECKSON OPERATING PARTNERSHIP, L.P.
EXHIBIT 32.1
CERTIFICATION OF DONALD RECHLER, CO-CEO OF RECKSON ASSOCIATES REALTY CORP.,
THE SOLE GENERAL PARTNER OF RECKSON OPERATING PARTNERSHIP, L.P.,
PURSUANT TO SECTION 1350 OF CHAPTER 63 OF TITLE 18 OF THE UNITED STATES CODE
I, Donald Rechler, CO-CEO of Reckson Associates Realty Corp. the sole general
partner of Reckson Operating Partnership, L.P. (the "Company"), certify pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:
1) The Quarterly Report on Form 10-Q of the Company for the quarterly
period ended June 30, 2003 (the "Report") fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange Act
of 1934 (15 U.S.C. 78m or 78o(d)); and
2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of
the Company.
Dated: August 8, 2003
RECKSON OPERATING PARTNERSHIP, L.P.
By: Reckson Associates Realty Corp., its sole general partner
By /s/ Donald Rechler
------------------------------------------
Donald Rechler, Co-Chief Executive Officer
A signed original of this written statement required by Section 906 has been
provided to Reckson Operating Partnership, L.P. and will be furnished to the
Securities and Exchange Commission or its staff upon request.
RECKSON OPERATING PARTNERSHIP, L.P.
EXHIBIT 32.2
CERTIFICATION OF SCOTT H. RECHLER, CO-CEO OF RECKSON ASSOCIATES REALTY CORP.,
THE SOLE GENERAL PARTNER OF RECKSON OPERATING PARTNERSHIP, L.P.,
PURSUANT TO SECTION 1350 OF CHAPTER 63 OF TITLE 18 OF THE UNITED STATES CODE
I, Scott H. Rechler, CO-CEO of Reckson Associates Realty Corp. the sole general
partner of Reckson Operating Partnership, L.P. (the "Company"), certify pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:
1) The Quarterly Report on Form 10-Q of the Company for the quarterly
period ended June 30, 2003 (the "Report") fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange Act
of 1934 (15 U.S.C. 78m or 78o(d)); and
2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of
the Company.
Dated: August 8, 2003
RECKSON OPERATING PARTNERSHIP, L.P.
By: Reckson Associates Realty Corp., its sole general partner
By /s/ Scott H. Rechler
--------------------------------------------
Scott H. Rechler, Co-Chief Executive Officer
A signed original of this written statement required by Section 906 has been
provided to Reckson Operating Partnership, L.P. and will be furnished to the
Securities and Exchange Commission or its staff upon request.
RECKSON OPERATING PARTNERSHIP, L.P.
EXHIBIT 32.3
CERTIFICATION OF MICHAEL MATURO, EXECUTIVE VICE PRESIDENT, TREASURER AND CFO OF
RECKSON ASSOCIATES REALTY CORP.,
THE SOLE GENERAL PARTNER OF RECKSON OPERATING PARTNERSHIP, L.P.,
PURSUANT TO SECTION 1350 OF CHAPTER 63 OF TITLE 18 OF THE UNITED STATES CODE
I, Michael Maturo, Executive Vice President, Treasurer and CFO of Reckson
Associates Realty Corp. the sole general partner of Reckson Operating
Partnership, L.P. (the "Company"), certify pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:
1) The Quarterly Report on Form 10-Q of the Company for the quarterly
period ended June 30, 2003 (the "Report") fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange Act
of 1934 (15 U.S.C. 78m or 78o(d)); and
2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of
the Company.
Dated: August 8, 2003
RECKSON OPERATING PARTNERSHIP, L.P.
By: Reckson Associates Realty Corp., its sole general partner
By /s/ Michael Maturo
-----------------------------------------
Michael Maturo, Executive Vice President,
Treasurer and Chief Financial Officer
A signed original of this written statement required by Section 906 has been
provided to Reckson Operating Partnership, L.P. and will be furnished to the
Securities and Exchange Commission or its staff upon request.