As filed with the Securities and Exchange Commission on August 6, 2004
Registration Statement No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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RECKSON ASSOCIATES REALTY CORP.
(Exact name of registrant as specified in its charter)
Maryland 11-3233650
(State or other jurisdiction of (I.R.S. employer identification number)
incorporation or organization)
225 Broadhollow Road
Melville, New York 11747
(631) 694-6900
(Address, including zip code, and telephone number, including area
code, of each registrant's principal executive office)
Scott H. Rechler
President and Chief Executive Officer
Reckson Associates Realty Corp.
225 Broadhollow Road
Melville, New York 11747
(631) 694-6900
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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Copy to:
Edward F. Petrosky, Esq.
J. Gerard Cummins, Esq.
Sidley Austin Brown & Wood LLP
787 Seventh Avenue
New York, N.Y. 10019
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Approximate Date of Commencement of Proposed Sale to Public: From time to time
after this Registration Statement becomes effective.
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If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. / /
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, as amended (the "Securities Act"), other than securities offered only
in connection with dividend or interest reinvestment plans, please check the
following box. / X /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. / /
CALCULATION OF REGISTRATION FEE
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Proposed Maximum
Title of Class of Amount to be Aggregate Price per Amount of
Securities to be Registered Registered(1) Share(2) Registration Fee
- --------------------------------------------------------------------------------------------------------------
Common Stock, $.01 par value per share....... 465,845 $27.97 $1,651.00
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(1) This Registration Statement registers shares of common stock, par value $0.01 per share, of Reckson Associates
Realty Corp. ("Reckson") issuable if Reckson elects to issue shares of common stock to the holders of up to 465,845
class C common units in Reckson Operating Partnership, L.P. (the "Operating Partnership") upon the tender of such
units for redemption. This Registration Statement also relates to the rights to purchase Series C junior participating
preferred stock of Reckson which are attached to all shares of common stock pursuant to the terms of Reckson's
Shareholder Rights Plan, dated as of October 13, 2000. Until the occurrence of certain prescribed events, the
rights are not exercisable, are evidenced by the certificates for the common stock and will be transferred with any
such stock. Because no separate consideration is paid for the rights, the registration fee therefor is included
in the fee for the common stock. This Registration Statement also relates to such additional shares of common
stock as may be issued as a result of certain adjustments including, without limitation, stock dividends and stock
splits.
(2) Estimated solely for purposes of calculating the registration fee in accordance with Rule 457(c) based on the
average of the high and low reported sales prices of Reckson's common stock on the New York Stock Exchange on
August 4, 2004.
The Registrant hereby amends this Registration Statement on the date or dates as may be necessary to delay its
effective date until the Registrant shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective with Section 8(a) of the Securities Act of 1933 or until this Registration
Statement shall become effective on the date as the Securities and Exchange Commission, acting pursuant to said Section
8(a), may determine.
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED AUGUST 6, 2004
PROSPECTUS
465,845 Shares
RECKSON ASSOCIATES REALTY CORP.
Common Stock
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This prospectus relates to 465,845 shares of common stock, $.01 par value
per share, of Reckson Associates Realty Corp. which may be issued to holders
of up to 465,845 class C common units of limited partnership interest (the
"Class C Units") in Reckson Operating Partnership, L.P. upon tender of those
units for redemption. Reckson Operating Partnership, L.P. is the operating
partnership through which we own our assets and conduct our business.
We are registering the issuance of the common stock as required under the
terms of a registration rights agreement entered into with 1055 Stamford
Associates Limited Partnership, the initial holder of the Class C Units. The
Class C Units were issued in connection with the contribution of property to
the Operating Partnership in August 2003.
The Class C Units are redeemable for cash or, at our election, shares of
common stock. The registration of the common stock does not necessarily mean
that any holders of Class C Units will elect to redeem their Class C Units, or
that we will elect to issue shares of common stock upon any such redemption.
We will acquire Class C Units from the redeeming unit holders in exchange for
any common stock that we issue.
Our common stock is listed on the New York Stock Exchange under the
symbol "RA." On August 5, 2004, the last reported sale price of our common
stock on the New York Stock Exchange was $27.60 per share. To assist us in
maintaining our qualification as a real estate investment trust, or REIT, for
federal income tax purposes, our charter imposes restrictions on the ownership
of our common stock.
See "Risk Factors" beginning on page 2 of this prospectus for a
description of risks that should be considered by purchasers of our common
stock.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
The date of this prospectus is _____________ ____, 2004.
You should rely only on the information contained or incorporated by
reference in this prospectus or any prospectus supplement. No dealer,
salesperson or other person is authorized to give any information or to
represent anything not contained or incorporated by reference in this
prospectus or any prospectus supplement. If anyone provides you with different
or additional information, you must not rely on it. This prospectus and any
accompanying prospectus supplement are an offer to sell only the securities
offered by these documents, but only under circumstances and in jurisdictions
where it is lawful to do so. You should assume that the information appearing
in this prospectus or any prospectus supplement is accurate as of their dates.
Our business, financial condition, results of operations and prospects may
have changed since then.
Unless the context otherwise requires, when we say "we," "our," "us,"
"the Company" or "Reckson," we mean Reckson Associates Realty Corp. and its
consolidated subsidiaries, including the Operating Partnership. When we say
the "Operating Partnership," we mean Reckson Operating Partnership, L.P. When
we say "you," without any further specification, we mean the holders of Class
C Units that were issued in connection with our acquisition on August 7, 2003
of the property located at 1055 Washington Boulevard, Stamford Connecticut.
RISK FACTORS
This prospectus contains forward-looking statements which involve risks
and uncertainties. Our actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause
a difference include, but are not limited to, those discussed below. An
investment in our common stock involves various risks.
o If you redeem your Class C Units, you may incur adverse tax consequences and
the nature of your investment will change.
You should carefully consider the tax consequences of redeeming your
Class C Units. The exercise of your right to require the redemption of your
Class C Units will be treated for tax purposes as a sale of your Class C
Units. This sale will be fully taxable to you, and you will be treated as
realizing for tax purposes an amount equal to the sum of the cash or the value
of the common stock received in the exchange plus the amount of the
liabilities of the Operating Partnership considered allocable to the redeemed
Class C Units at the time of the redemption, including the Operating
Partnership's share of the liabilities of certain entities in which the
Operating Partnership owns an interest. Depending upon your particular
circumstances, it is possible that the amount of gain recognized, or even the
tax liability resulting from that gain, could exceed the amount of cash and
the value of other property, e.g., the common stock, received upon the
disposition. See "Redemption of Class C Units--Tax Consequences of Redemption"
for more information on these tax consequences.
The nature of your investment will change upon a redemption of your Class
C Units. Unless we elect to assume and perform the Operating Partnership's
obligation with respect to redeeming your Class C Units, you will receive cash
on the specified redemption date from the Operating Partnership in an amount
equal to the market value of the Class C Units to be redeemed. The specified
redemption date is generally the tenth business day after we receive your
notice of redemption. In lieu of the Operating Partnership acquiring the Class
C Units for cash, we have the right to elect to acquire the Class C Units on
the specified redemption date directly from you, in exchange for either cash
or common stock, and upon acquiring the Class C Units, we will become the
owner of your Class C Units. See "Redemption of Class C Units" for more
information about our right to acquire your Class C Units for either cash or
common stock when you redeem them. If you receive cash, you will no longer
have any interest in the Operating Partnership or us, will not benefit from
any subsequent increases in the price of our common stock and will not receive
any future distributions from the Operating Partnership or us, unless you
currently own, or acquire in the future, additional common stock or units. If
you receive common stock, you will become a stockholder of the Company rather
than a holder of Class C Units in the Operating Partnership. Although an
investment in our common stock is substantially equivalent to an investment in
units in the Operating Partnership, there are some differences between
ownership of Class C Units and ownership of common stock. These differences,
some of which may be material to you, are discussed in "Comparison of
Ownership of Class C Units and Common Stock."
o We are dependent on the New York Tri-State area market due to limited
geographic diversification and our financial results may suffer as a result of
a decline in economic conditions in such area
A decline in the economic conditions in the New York tri-state area (the
"Tri-State Area") and for commercial real estate could adversely affect our
business, financial condition and results of operations. All of our
properties, except one office property located in Orlando, Florida, are
located in the Tri-State Area, although our organizational documents do not
restrict us from owning properties outside this area. Each of our five markets
is located in New York City and the suburbs of New York City and may be
similarly affected by economic changes in this area. A significant downturn in
the financial services industry and related industries would likely have a
negative effect on these markets and on the performance of our properties.
The risk of terrorist attacks, particularly in New York City, may
adversely affect the value of our New York City properties and our 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 our revenues from property rentals.
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o Debt servicing and refinancing, increases in interest rates and financial
and other covenants could adversely affect our economic performance
Dependence upon debt financing; risk of inability to service or refinance
debt. In order to qualify as a real estate investment trust, or REIT, for
federal income tax purposes, we are required to distribute at least 90% of our
taxable income. As a result, we are more reliant on debt or equity financings
than many other non-REIT companies that are able to retain more of their
income.
We are subject to the risks associated with debt financing. Our cash flow
could be insufficient to meet required payments of principal and interest. We
may not be able to refinance existing indebtedness, which in virtually all
cases requires substantial principal payments at maturity, or the terms of
such refinancing might not be as favorable as the terms of the existing
indebtedness. As of March 31, 2004, the weighted average maturity of our
existing indebtedness was approximately 5.3 years and our total existing
indebtedness was approximately $1.6 billion. We also may not be able to
refinance any indebtedness we incur in the future. Finally, we may not be able
to obtain funds by selling assets or raising equity to make required payments
on maturing indebtedness.
Rising interest rates could adversely affect cash flow. We conduct all of
our operations through, and serve as the sole general partner of the Operating
Partnership. Increases in interest rates could increase the Operating
Partnership's interest expense, which could adversely affect its ability to
service its indebtedness or to pay dividends to our stockholders. As of March
31, 2004, approximately 21% of our debt was variable rate debt and our total
debt was approximately $1.6 billion. Outstanding advances under the Operating
Partnership's credit facility bear interest at variable rates. In addition, we
may incur indebtedness in the future that also bears interest at a variable
rate.
Covenants in our debt agreements could adversely affect our financial
condition and our ability to make distributions. The Operating Partnership has
an unsecured credit facility from JPMorgan Chase Bank, as Administrative
Agent, which provides for a maximum borrowing amount of up to $500 million.
The credit facility matures in August 2007, 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. The ability of the Operating Partnership to borrow under the credit
facility is subject to certain covenants, including covenants relating to
limitations on unsecured and secured borrowings, minimum interest and fixed
charge coverage ratios, a minimum equity value and a maximum dividend payout
ratio. The credit facility also contains a financial covenant limiting the
amount of cash distributions that we may pay to holders of our common stock
during any fiscal quarter if they exceed, when added to all distributions paid
during the three immediately preceding quarters, the greater of:
o 90% of our funds from operations; and
o the amounts required in order for us to continue to qualify as a
REIT.
We rely on borrowings under the Operating Partnership's credit facility
to finance acquisition and development activities and for working capital
purposes. Although the Operating Partnership presently is in compliance with
the covenants under the credit facility, the Operating Partnership's ability
to borrow under such facility is subject to continued compliance with the
financial and other covenants contained therein. There is no assurance that
the Operating Partnership will continue to be in compliance. If the Operating
Partnership is unable to borrow under its credit facility, it could adversely
affect our financial condition, including our ability to service our
indebtedness or pay dividends to our stockholders.
In addition, the mortgage loans which are secured by certain of our
properties contain customary covenants, including covenants that require us to
maintain property insurance in an amount equal to the replacement cost of the
properties. In the event that we were unable to obtain such insurance, there
can be no assurance that the lenders under our mortgage loans would not take
the position that exclusions from our 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 our financial results and our ability to
finance and/or refinance our properties or to buy or sell properties. Our
current insurance coverage provides for full replacement cost of our
properties (other than our two largest properties),
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including for acts of terrorism up to $500 million on a per occurrence basis.
Our two largest properties are covered for up to $200 million on such policies
and are covered under separate policies, which include coverage for acts of
terrorism, up to the estimated replacement cost for those properties.
The facility fee and interest rate payable under the terms of our credit
facility is subject to change based upon changes in our credit ratings. Our
senior unsecured debt is currently rated "BBB-" by Fitch Ratings, "BBB-" by
Standard & Poor's and "Ba1" by Moody's Investors Service, Inc. As of March 31,
2004, based on a pricing grid of the Operating Partnership's unsecured debt
ratings, borrowings under our credit facility were priced off LIBOR plus 90
basis points and our credit facility carried a facility fee of 20 basis points
per annum. In the event of a change in the Operating Partnership's unsecured
credit ratings the interest rates and facility fee are subject to change. At
March 31, 2004, the outstanding borrowings under our credit facility
aggregated $90 million and carried a weighted average interest rate of 1.99%.
No limitation on debt. Currently, we have a policy of incurring debt only
if our Debt Ratio is 50% or less. As of March 31, 2004, our Debt Ratio was
40%. For these purposes, "Debt Ratio" is defined as the total debt of the
Operating Partnership as a percentage of the market value of outstanding
shares of common stock, including the conversion of outstanding partnership
units in the Operating Partnership, the liquidation preference of our
preferred stock and the liquidation preference of the preferred units of the
Operating Partnership, excluding all units of general partnership owned by us,
plus total debt (including our share of consolidated joint venture debt and
net of minority partners' share of consolidated joint venture debt). Under
this policy, we could incur additional debt if our stock price increases, even
if we may not have a corresponding increase in our ability to repay the debt.
In addition, as of March 31, 2004, our debt-to-equity ratio was 1:1.5x. We
calculated our debt-to-equity ratio by comparing the total debt of the
Operating Partnership to the value of our outstanding common stock and the
common units of limited partnership interest of the Operating Partnership
(including its share of consolidated joint venture debt and net of minority
partners' share of consolidated joint venture debt), each based upon the
market value of the common stock, and the liquidation preference of our
preferred stock and the preferred units of limited partnership interest in the
Operating Partnership, excluding all units of general partnership interest
owned by us.
As described above, our credit facility contains financial covenants
which limit the ability of the Operating Partnership to incur additional
indebtedness. However, our organizational documents do not contain any
limitation on the amount of indebtedness we may incur. Accordingly, our Board
of Directors could alter or eliminate this policy and would do so, for
example, if it were necessary in order for us to continue to qualify as a
REIT. If this policy were changed, we could become more highly leveraged,
resulting in higher interest payments that could adversely affect our ability
to pay dividends to our stockholders and could increase the risk of default on
the Operating Partnership's existing indebtedness.
o The value of our investments in loans to FrontLine Capital Group
("FrontLine") and in joint venture investments with Reckson Strategic Venture
Partners LLC ("RSVP") may be subject to further loss
In June 1998, 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. We have advanced approximately $93.4 million
under the FrontLine Facility. In addition, in June 1998, the Operating
Partnership 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 are
hereafter referred to as the "FrontLine Loans"). During March 2001, we
increased the RSVP Commitment to $110 million and as of March 31, 2004,
approximately $109.1 million had been funded through the RSVP Commitment, of
which $59.8 million represents investments in RSVP-controlled (REIT-qualified)
joint ventures and $49.3 million represents advances loaned to FrontLine. As
of March 31, 2004, interest accrued (net of reserves) under the FrontLine
Facility and RSVP Facility was approximately $19.6 million. We are the largest
creditor of FrontLine. Scott Rechler, who serves as our Chief Executive
Officer and President and as one of our directors, serves as the Chief
Executive Officer and sole board member of FrontLine. Scott Rechler also
serves as a member of the management committee of RSVP.
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A committee of our Board of Directors, comprised solely of independent
directors, considers any actions to be taken by us in connection with the
FrontLine Loans and its investments in joint ventures with RSVP. During the
third quarter of 2001, we noted a significant deterioration in FrontLine's
operations and financial condition and, based on our assessment of value and
recoverability and considering the findings and recommendations of the
committee and its financial advisor, we recorded a $163 million valuation
reserve charge, inclusive of anticipated costs, in our consolidated statements
of operations relating to our investments in the FrontLine Loans and joint
ventures with RSVP. We have discontinued the accrual of interest income with
respect to the FrontLine Loans. We have also reserved against our 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, pursuant to Section 166 of the Internal Revenue
Code of 1986, as amended (the "Code"), we charged off $70 million of the
aforementioned reserve directly related to the FrontLine Facility, including
accrued interest. On February 14, 2002, we charged off 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. The net carrying value of our
investments in the FrontLine Loans and joint venture investments with RSVP,
inclusive of our share of previously accrued GAAP equity in earnings on those
investments, was approximately $65 million as of March 31, 2004.
FrontLine is in default under the FrontLine Loans and on June 12, 2002
filed a voluntary petition for relief under Chapter 11 of the United States
Bankruptcy Code.
In September 2003, RSVP completed the restructuring of its capital
structure and management arrangements. In connection with the restructuring,
RSVP redeemed the interest of the preferred equity holders of RSVP for an
aggregate of approximately $137 million in cash and the transfer to the
preferred equity holders of the assets that comprised RSVP's parking
investment valued at approximately $28.5 million. RSVP also restructured its
management arrangements whereby a management company formed by its former
managing directors has been retained to manage RSVP pursuant to a management
agreement and the employment contracts of the managing directors with RSVP
have been terminated. The management agreement provides for an annual base
management fee and disposition fees equal to 2% of the net proceeds received
by RSVP on asset sales. (The base management fee and disposition fees are
subject to a maximum over the term of the agreement of $7.5 million.) In
addition, the managing directors retained a one-third residual interest in
RSVP's assets, which is subordinated to the distribution of an aggregate
amount of $75 million to RSVP and/or our company in respect of our joint
ventures with RSVP. The management agreement has a three-year term, subject to
early termination in the event of the disposition of all of the assets of
RSVP.
In connection with the restructuring, RSVP and certain of its affiliates
obtained a $60 million secured loan. In connection with this loan, the
Operating Partnership agreed to indemnify the lender in respect of any
environmental liabilities incurred with regard to RSVP's remaining assets in
which the Operating Partnership has a joint venture interest (primarily
certain student housing assets) and guaranteed the obligation of an affiliate
of RSVP to the lender in an amount up to $6 million plus collection costs for
any losses incurred by the lender as a result of certain acts of malfeasance
on the part of RSVP and/or its affiliates. The loan is scheduled to mature in
2006 and is expected to be repaid from proceeds of asset sales by RSVP.
o Our acquisition, development and construction activities could result in
losses
We intend to acquire existing office properties to the extent that
suitable acquisitions can be made on advantageous terms. Acquisitions of
commercial properties entail risks, such as the risks that we may not be in a
position or have the opportunity in the future to make suitable property
acquisitions on advantageous terms and that our investments will fail to
perform as expected. Some of the properties that we acquire may require
significant additional investment and upgrades and are subject to the risk
that estimates of the cost of improvements to bring such properties up to
standards established for the intended market position may prove inaccurate.
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We also intend to continue the selective development and construction of
office properties in accordance with our development and underwriting policies
as opportunities arise. Our development and construction activities include
the risks that:
o we may abandon development opportunities after expending resources
to pursue development;
o construction costs of a project may exceed our original estimates;
o occupancy rates and rents at a newly completed property may not be
sufficient to make the property profitable;
o financing may not be available to us on favorable terms for
development of a property; and
o we may not complete construction and lease-up on schedule, resulting
in increased carrying costs to complete construction, construction
costs and, in some instances, penalties owed to tenants with
executed leases.
Our development activities are also subject to risks relating to the
inability to obtain, or delays in obtaining, all necessary zoning, land-use,
building, occupancy and other required governmental permits and
authorizations. If any of the above events occur, our ability to pay dividends
to our stockholders and service the Operating Partnership's indebtedness could
be adversely affected. In addition, new development activities, regardless of
whether or not they are ultimately successful, typically require a substantial
portion of management's time and attention.
o Adverse real estate market conditions, increases in operating expenses or
capital expenditures, tenant defaults and uninsured losses could adversely
affect our financial results
Our properties' revenues and value may be adversely affected by a number
of factors, including:
o the national, state and local economic climate and real estate
conditions, such as oversupply of or reduced demand for space and
changes in market rental rates;
o the need to periodically renovate, repair and relet our space;
o increasing operating costs, including real estate taxes and
utilities, which may not be passed through to tenants;
o defaults by our tenants or their failure to pay rent on a timely
basis; and
o uninsured losses.
A significant portion of our real estate investment expenses, such as
mortgage payments, real estate taxes, insurance and maintenance costs, are
generally not reduced when circumstances cause a decrease in income from our
properties. In addition, our real estate values and income from properties are
also affected by our compliance with laws, including tax laws, interest rate
levels and the availability of financing.
We may suffer losses as a result of tenant bankruptcies. If any of our
tenants files for protection from creditors under federal bankruptcy laws,
such tenant generally has the right, subject to certain conditions, to reject
its leases with us. In the event this occurs, we may not be able to readily
lease the space or to lease it on equal or better terms.
Because real estate investments are illiquid, we may not be able to sell
properties when appropriate. Real estate investments generally cannot be sold
quickly. We may not be able to vary our portfolio promptly in response to
economic or other conditions. In addition, provisions of the Code limit a
REIT's ability to sell properties in some
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situations when it may be economically advantageous to do so, thereby
adversely affecting returns to our stockholders.
Competition in our markets is significant. The competition for tenants in
the office and industrial markets in the Tri-State Area is significant and
includes properties owned by other REITs, local privately-held companies,
institutional investors and other owners. There is also significant
competition for acquisitions in our markets from the same types of
competitors. In addition, many users of industrial space in our markets own
the buildings that they occupy.
Increasing operating costs could adversely affect cash flow. Our
properties are subject to operating risks common to commercial real estate,
any and all of which may adversely affect occupancy or rental rates. Our
properties are subject to increases in our operating expenses such as
cleaning, electricity, heating, ventilation and air conditioning; elevator
repair and maintenance; insurance and administrative costs; and other costs
associated with security, landscaping, repairs and maintenance of our
properties. As a result of the events of September 11, 2001, we are
experiencing higher operating expenses due to significantly increased
insurance costs and security measures. While our tenants generally are
currently obligated to pay a portion of these costs, there is no assurance
that tenants will agree to pay these costs upon renewal or that new tenants
will agree to pay these costs initially. If operating expenses increase, the
local rental market may limit the extent to which rents may be increased to
meet increased expenses without at the same time decreasing occupancy rates.
While we have cost saving measures at each of our properties, if any of the
above occurs, our ability to pay dividends to our stockholders and service our
indebtedness could be adversely affected.
Some potential losses are not covered by insurance; losses could result
from terrorist acts. We carry comprehensive liability, fire, extended coverage
and rental loss insurance on all of our properties. Six of our properties are
located in New York City. As a result of the events of September 11, 2001,
insurance companies were 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. Our current insurance coverage provides for full replacement cost of our
properties, including for acts of terrorism up to $500 million on a per
occurrence basis (except for one asset which is insured up to $393 million).
Furthermore, losses arising from acts of war or relating to pollution are
not generally insured because they are either uninsurable or not economically
insurable. If an uninsured loss or a loss in excess of insured limits should
occur, we could lose our capital invested in a property, as well as any future
revenue from the property. We would remain obligated on any mortgage
indebtedness or other obligations related to the property. Any such loss could
materially and adversely affect our business and financial condition and
results of operations.
Investments in mortgage debt could lead to losses. We may invest in
mortgages secured by office or industrial properties. We may acquire the
mortgaged properties through foreclosure proceedings or negotiated
settlements. In addition to the risks associated with investments in
commercial properties, investments in mortgage indebtedness present additional
risks, including the risk that the fee owners of such properties may not make
payments of interest on a current basis and we may not realize our anticipated
return or sustain losses relating to the investments. Although we currently
have no intention to originate mortgage loans as a significant part of our
business, we may make loans to a seller in connection with our purchase of
real estate. The underwriting criteria we would use for these loans would be
based upon the credit and value of the underlying real estate.
o Property ownership through partnerships and joint ventures creates
additional investment risks
Partnership or joint venture investments may involve risks not otherwise
present for investments made solely by us, including the possibility that our
partners or co-venturer might become bankrupt, that our partners or
co-venturer might at any time have different interests or goals than we do,
and that our partners or co-venturer may take action contrary to our
instructions, requests, policies or objectives, including our policy with
respect to maintaining our qualification as a REIT. Other risks of joint
venture investments include impasse on decisions, such as a sale, because
neither we nor our partner or co-venturer would have full control over the
partnership or joint
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venture. There is no limitation under our organizational documents as to the
amount of funds that may be invested in partnerships or joint ventures.
The following is a description of the significant joint ventures in which
we are involved:
Our joint venture in 919 Third Avenue, New York, New York, includes the
risks that we cannot enter into large leases or refinance or dispose of the
property in our discretion. On December 21, 2001, we formed a joint venture
(the "919JV") with the New York State Teachers' Retirement Systems ("NYSTRS")
whereby NYSTRS acquired a 49% indirect interest in the property located at 919
Third Avenue, New York, New York 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 us. We are responsible for
managing the day-to-day operations and business affairs of the 919JV and have
substantial rights in making decisions affecting the property such as
developing a budget, leasing and marketing. We must obtain the consent of
NYSTRS in order to make certain decisions, including a sale of the property,
purchasing any additional property or entering into significant leases. NYSTRS
has certain rights primarily intended to protect its investment. For purposes
of our financial statements we consolidate the 919JV.
Our joint venture in a portfolio of seven office properties includes the
risks that we cannot enter into large leases or refinance the properties in
our discretion. In September 2000, we 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 us. In August 2003, we acquired TIAA's 49%
interest in the property located at 275 Broadhollow Road, Melville, New York,
for approximately $12.4 million. In addition, the Tri-State JV sold a 175,000
square foot office building located on Long Island for approximately $30
million during April 2004. Net proceeds from this sale were distributed to the
members of the Tri-State JV. As a result of these transactions, the Tri-State
JV owns seven Class A suburban office properties aggregating approximately 1.2
million square feet. We are responsible for managing the day-to-day operations
and business affairs of the Tri-State JV and have substantial rights in making
decisions affecting the properties such as leasing, marketing and financing.
TIAA has certain rights primarily intended to protect its investment. For
purposes of our financial statements we consolidate the Tri-State JV.
Our investment in the Omni includes the risks that we cannot refinance or
dispose of the property in our sole discretion and we could have our general
partnership interest converted into a limited partnership interest. The
Operating Partnership owns a 60% general partner interest in Omni Partners,
L.P. (the "Omni Partnership"), the partnership that owns the Omni, a 579,000
square foot office building located in our Nassau West Corporate Center office
park. Odyssey Partners, L.P. ("Odyssey") and an affiliate of Odyssey own the
remaining 40% interest. Through our partnership interest, we act as managing
partner and have the sole authority to conduct the business and affairs of the
Omni Partnership subject to the limitations set forth in the amended and
restated agreement of limited partnership of the Omni Partnership (the "Omni
Partnership Agreement"). These limitations include Odyssey's right to
negotiate under certain circumstances a refinancing of the mortgage debt
encumbering the Omni and the right to approve any sale of the Omni made on or
before March 13, 2007 (the "Acquisition Date"). The Operating Partnership will
continue to act as the sole managing partner of the Omni Partnership unless
certain conditions specified in the Omni Partnership Agreement shall occur.
Upon the occurrence of any of these conditions, the Operating Partnership's
general partnership interest shall convert to a limited partnership interest
and an affiliate of Odyssey shall be the sole managing partner, or, at the
option of Odyssey, the Operating Partnership shall be a co-managing partner
with an affiliate of Odyssey. In addition, on the Acquisition Date, the
Operating Partnership will have the right to purchase Odyssey's interest in
the Omni Partnership at a price (the "Option Price") based on 90% of its fair
market value. If the Operating Partnership fails to exercise this option,
Odyssey has the right to require the Operating Partnership to purchase
Odyssey's interest in the Omni Partnership on the Acquisition Date at the
Option Price. The Operating Partnership has the right to extend the
Acquisition Date until March 13, 2012. The Option Price shall apply to the
payment of all sums due under a loan made by the Operating Partnership in
March 1997 to Odyssey in the amount of approximately $17 million. The Odyssey
loan matures on the Acquisition Date, subject to the Operating Partnership's
right to extend the Acquisition Date as set forth above, and is secured by a
pledge of Odyssey's interest in the Omni Partnership.
8
Our joint venture in an office building in Tarrytown, New York includes
the risks that we cannot enter into large leases or refinance or dispose of
the building in our discretion. We own 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 we manage. As of March 31, 2004, the
520JV had total assets of $20 million, a mortgage note payable of $11.8
million and other liabilities of $549,000. Our allocable share of the 520JV
mortgage note payable is approximately $7.8 million. This mortgage note
payable bears interest at 8.85% per annum and matures on September 1, 2005.
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, we
account for the 520JV under the equity method of accounting.
o Environmental problems are possible
Federal, state and local laws and regulations relating to the protection
of the environment may require a current or previous owner or operator of real
estate to investigate and clean up hazardous or toxic substances or petroleum
product releases at a property. An owner of real estate is liable for the
costs of removal or remediation of certain hazardous or toxic substances on or
in the property. These laws often impose such liability without regard to
whether the owner knew of, or caused, the presence of the contaminants.
Clean-up costs and the owner's liability generally are not limited under the
enactments and could exceed the value of the property and/or the aggregate
assets of the owner. The presence of, or the failure to properly remediate,
the substances may adversely affect the owner's ability to sell or rent the
property or to borrow using the property as collateral. Persons who arrange
for the disposal or treatment of hazardous or toxic substances may also be
liable for the clean-up costs of the substances at a disposal or treatment
facility, whether or not such facility is owned or operated by the person.
Even if more than one person was responsible for the contamination, each
person covered by the environmental laws may be held responsible for the
clean-up costs incurred. In addition, third parties may sue the owner or
operator of a site for damages and costs resulting from environmental
contamination emanating from that site.
Environmental laws also govern the presence, maintenance and removal of
asbestos-containing materials ("ACMs"). These 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, we may be considered an owner or operator of
properties containing ACMs. Having arranged for the disposal or treatment of
contaminants we may be potentially liable for removal, remediation and other
costs, including governmental fines and injuries to persons and property.
All of our office properties and all of our industrial properties have
been subjected to a Phase I or similar environmental site assessment after
April 1, 1994 that were completed by independent environmental consultant
companies, except for the property located at 35 Pinelawn Road which was
originally developed by us and subjected to a Phase I in April 1992. These
Phase I or similar environmental site assessments involved general inspections
without soil sampling, ground water analysis or radon testing and, for our
properties constructed in 1978 or earlier, survey inspections to ascertain the
existence of ACMs. These environmental site assessments have not revealed any
environmental liability that we believe would have a material adverse effect
on our business.
Soil, sediment and groundwater contamination, consisting of volatile
organic compounds and metals, has been identified at the property at 32
Windsor Place, Central Islip, New York. The contamination is associated with
industrial activities conducted by a tenant at the property over a number of
years. The contamination, which was identified through an environmental
investigation conducted on our behalf, has been reported to the New York State
Department of Environmental Conservation. We have notified the tenant of the
findings and have demanded that the tenant take appropriate actions to fully
investigate and remediate the contamination. Under applicable environmental
laws, both the tenant and ourselves are liable for the cost of investigation
and remediation. We do not believe that the cost of investigation and
remediation will be material and we have recourse against the tenant.
Management believes that the cost to address these environmental issues will
not have a material adverse effect on our business, although there can be no
assurance in this regard.
9
o Failure to qualify as a REIT would be costly
We have operated (and intend to operate) so as to qualify as a REIT under
the Code beginning with our taxable year ended December 31, 1995. Although our
management believes that we are organized and operated in a manner to so
qualify, no assurance can be given that we will qualify or remain qualified as
a REIT.
If we fail to qualify as a REIT in any taxable year, we will be subject
to federal income tax (including any applicable alternative minimum tax) on
our taxable income at regular corporate rates. Moreover, unless entitled to
relief under certain statutory provisions, we also will be disqualified from
treatment as a REIT for the four taxable years following the year during which
qualification was lost. This treatment would significantly reduce net earnings
available to service indebtedness, make investments or pay dividends to
stockholders because of the additional tax liability to us for the years
involved. Also, we would not then be required to pay dividends to our
stockholders.
o Tax consequences upon a sale or refinancing of properties may result in
conflicts of interest for our directors and officers
Holders of units of limited partnership interest of the Operating
Partnership or co-owners of properties not owned entirely by us may suffer
different and more adverse tax consequences than we will upon the sale or
refinancing of our properties. We may have different objectives from these
co-owners and holders of limited partnership units regarding the appropriate
pricing and timing of any sale or refinancing of these properties. While we,
as the sole general partner of the Operating Partnership, have the exclusive
authority over whether and on what terms to sell or refinance each property
owned solely by the Operating Partnership, our directors and officers who hold
limited partnership units may seek to influence us not to sell or refinance
the properties, even though such a sale might otherwise be financially
advantageous to us, or may seek to influence us to refinance a property with a
higher level of debt.
o New tax legislation reduces tax rates for dividends paid by non-REIT
corporations
Under legislation recently enacted, the maximum tax rate on dividends to
individuals has generally been reduced from 38.6% to 15% (from January 1, 2003
through December 31, 2008). The reduction in rates on dividends is generally
not applicable to dividends paid by a REIT except in limited circumstances.
Although this legislation will not adversely affect the taxation of REITs or
dividends paid by REITs, the favorable treatment of regular corporate
dividends could cause investors who are individuals to consider stock of
non-REIT corporations that pay dividends as relatively more attractive than
stocks of REITs. It is not possible to predict whether such a change in
perceived relative value will occur or what effect, if any, this legislation
will have on the market price of our stock.
o Limits on ownership and changes in control may deter changes in management
and third party acquisition proposals
Ownership limit. To maintain our qualification as a REIT, five or fewer
individuals (as defined in the Code, to include certain entities) may not own,
directly or indirectly, more than 50% in value of our outstanding capital
stock at any time during the last half of a taxable year (other than the first
year). In order to protect against the risk of losing REIT status, our charter
limits ownership of our issued and outstanding common stock by any single
stockholder to 9.0% of the lesser of the number or value of the outstanding
shares of common stock. It also limits ownership of our issued and outstanding
7?% Series A Convertible Cumulative Preferred Stock to 9.0% in value of the
outstanding shares of all of our capital stock. In addition, a stockholder may
not acquire shares of our Series A preferred stock that would result in the
stockholder's owning in excess of 20% of the lesser of the number or value of
outstanding shares of the Series A preferred stock. See "Restrictions on
Ownership of Capital Stock," "Description of Common Stock--Restrictions on
Ownership" and "Description of Preferred Stock--Restrictions on Ownership."
These provisions may delay, defer or prevent a change in control in our
company or other transaction by a third party without the consent of the Board
of Directors even if a change in control were in the best interests of our
stockholders.
10
Supermajority Vote for Removal of Directors. In our charter, we have
opted into a provision of the Maryland General Corporation Law (the "MGCL")
requiring a vote of two-thirds of the common stock to remove one or more
directors.
Majority of Votes Required to Call Special Meetings of Stockholders. Our
bylaws provide that a special meeting of stockholders need only be called if
requested by holders of the majority of votes eligible to be cast at such
meeting.
Future issuances of common stock. Our charter authorizes the Board of
Directors to issue additional shares of common stock without stockholder
approval. We also may issue shares of common stock in exchange for limited
partnership units pursuant to the Operating Partnership's partnership
agreement.
Our charter permits the issuance of preferred stock which could delay,
defer or prevent a change in control. Our charter authorizes the Board of
Directors to issue up to 25 million shares of preferred stock, of which
7,343,900 shares of Series A preferred stock are issued and outstanding, to
reclassify unissued shares of capital stock, and to establish the preferences,
conversion and other rights, voting powers, restrictions, limitations and
restrictions on ownership, limitations as to dividends or other distributions,
qualifications, and terms and conditions of redemption for each class or
series of any capital stock issued.
In October 2000, the Board of Directors adopted a Stockholder Rights Plan
(the "Rights Plan") designed to protect our stockholders from various abusive
takeover tactics, including attempts to acquire control at an inadequate
price, depriving stockholders of the full value of their investment. The
Rights Plan is designed to allow the Board of Directors to secure the best
available transaction for all of our stockholders. The Rights Plan was not
adopted in response to any known effort to acquire control of our company.
Under the Rights Plan, each of our stockholders received a dividend of
one Right for each share of our outstanding common stock owned. The Rights are
exercisable only if a person or group acquires, or announces their intent to
acquire, 15% or more of our common stock, or announces a tender offer the
consummation of which would result in beneficial ownership by a person or
group of 15% or more of the common stock. Each Right entitles the holder to
purchase one one-thousandth of a share of a new series of junior participating
preferred stock of our company at an initial exercise price of $84.44.
If any person acquires beneficial ownership of 15% or more of the
outstanding shares of our common stock, then all Rights holders except the
acquiring person are entitled to purchase our common stock at a price
discounted from the then market price. If we are acquired in a merger after
such an acquisition, all Rights holders except the acquiring person are also
entitled to purchase stock in the buyer at a discount in accordance with the
Rights Plan.
Limitations on acquisition of and changes in control pursuant to Maryland
law. The MGCL contains provisions, referred to as the "control share
acquisition statute," which eliminate the voting rights of shares acquired in
a Maryland corporation in quantities so as to constitute "control shares," as
defined under the MGCL. The MGCL also contains provisions, referred to as the
"business combination statute," which generally limit business combinations
between a Maryland corporation and any 10% owners of the corporation's stock
or any affiliate thereof. These provisions may have the effect of inhibiting a
third party from making an acquisition proposal for our company or of
delaying, deferring or preventing a change in control of our company under
circumstances that otherwise could provide the holders of shares of common
stock with the opportunity to realize a premium over the then-prevailing
market price. As permitted by the MGCL, our bylaws contain a provision
exempting any and all acquisitions by any person of shares of our capital
stock from the control share acquisition statute. In addition, the Board of
Directors has approved our opting out of the "business combination statute."
o The market value of securities could decrease in the event we do not
maintain our current dividend rate and also as a result of our performance and
market perception
Effect of earnings and cash dividends. The market value of the equity
securities of a REIT may be based primarily upon the market's perception of
the REIT's growth potential and its current and future cash dividends, and
11
may be secondarily based upon the real estate market value of the underlying
assets. During 2003, we operated our business within a weakened market for
office leasing resulting from the economic recession. We have experienced
weakened rental rates and higher vacancy rates for our properties, which has
resulted in lower operating income. In addition, during this period we have
incurred 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 or early terminations of leases. We have
recently experienced high tenanting costs including tenant improvement costs,
leasing commissions and free rent in all of our markets. For the quarter ended
March 31, 2004, we paid $10.1 million for tenanting costs including tenant
improvement costs and leasing commissions. For the year ended December 31,
2003, we paid $50.3 million for such tenanting costs. As a result of these and
the operating factors mentioned above, our cash flow from operating activities
has not been sufficient to cover 100% of the quarterly dividends payable on
our common stock. To meet the short-term funding requirements relating to
these shortfalls, we have used proceeds of property sales or borrowings under
our credit facility. Based on our anticipated leasing for 2004, we may incur
similar shortfalls. Our ability to increase operating cash flow and eliminate
these shortfalls is dependent upon improved market conditions, including
higher occupancy rates, increased rental rates and lower tenant costs. We
periodically review our dividend policy to determine the appropriateness of
our dividend rate relative to our expected cash flows. We adjust our dividend
rate based on forecasted increases and decreases in our cash flow as well as
required distributions of taxable income to maintain REIT status. There can be
no assurance that we will maintain the current quarterly distribution level on
our common stock or on the common units of limited partnership interest in the
Operating Partnership.
Adverse impact of rising interest rates. One factor which influences the
price of securities is the dividend or interest rate on the securities
relative to market interest rates. Rising interest rates may lead potential
buyers of our equity securities to expect a higher dividend rate, which would
adversely affect the market price of the securities. In addition, rising
interest rates would result in increased expense, thereby adversely affecting
cash flow and the ability of the Operating Partnership to service its
indebtedness.
o We may be adversely affected by litigation relating to the disposition of
our Long Island industrial building portfolio
In November 2003, we disposed of all but three of our 95 property, 5.9
million square foot, Long Island industrial building portfolio to members of
the Rechler family (the "Disposition") for approximately $315.5 million,
comprised of $225.1 million in cash and debt assumption and 3,932,111 Class A
common units of limited partnership interest of the Operating Partnership
valued at approximately $90.4 million. Approximately $204 million of cash
sales proceeds from the Disposition were used to repay borrowings under our
credit facility. In addition, in April 2004, we completed the sale of two of
the remaining three properties from the Disposition for approximately $5.8
million. Proceeds from the sale 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. There can be no assurances that we will meet the
requirements of Section 1031 by identifying and acquiring qualified
replacement properties in the required time frame, in which case we would
incur the tax liability of approximately $1.5 million on the capital gain
realized. The disposition of the other property, which is subject to certain
environmental issues (see "Risk Factors--Environmental problems are possible"
above), is conditioned upon the approval of the buyer's lender, which has not
been obtained. As a result, we may not dispose of this property as part of the
Disposition. We believe that if we were to continue to hold this property, the
cost to address the environmental issues would not have a material adverse
effect on us, but there can be no assurance in this regard. In addition, four
of the five remaining options granted to us at the time of our initial public
offering ("IPO") to purchase interests in properties owned by Rechler family
members (including three properties in which the Rechler family members hold
non-controlling interests and one industrial property) were terminated along
with our management contracts relating to three of such properties.
In connection with the closing, the employment of Donald Rechler, Roger
Rechler, Gregg Rechler and Mitchell Rechler as officers of the Company
terminated and Roger Rechler, Gregg Rechler and Mitchell Rechler resigned as
members of our Board of Directors. In connection with the Disposition and the
terminations of employment, we incurred the following restructuring charges:
(i) approximately $7.5 million related to outstanding stock loans under our
historical long term incentive program ("LTIP") were transferred to the entity
that acquired the Long Island industrial building portfolio and approximately
$642,000 of loans related to life insurance contracts were extinguished, (ii)
approximately $2.9 million was paid to the departing Rechler family members in
exchange
12
for 127,689 of rights to receive shares of common stock that were granted in
2002 and their rights that were granted in 2003 were forfeited in their
entirety and (iii) with respect to two of the departing Rechler family members
participating in our March 2003 LTIP, each received 8,681 shares of our common
stock related to the service component of their core award which was valued at
$293,000 in the aggregate. In addition, since we attained our annual
performance measure under the March 2003 LTIP in March 2004, these individuals
also each received 26,041 shares of common stock representing the balance of
the annual core award as if they had remained in continuous employment with
us. The remainder of their core awards was forfeited as was the entire amount
of the special outperformance component of the March 2003 LTIP. We also
incurred additional restructure charges of approximately $1.2 million related
primarily to the release and severance of approximately 25 employees. Total
restructure charges of approximately $12.5 million were mitigated by a
$972,000 fee from the departing Rechler family members, related to the
termination of our option to acquire certain properties which were either
owned by certain Rechler family members or in which the Rechler family members
owned a non-controlling minority interest.
A number of stockholder derivative actions have been commenced
purportedly on behalf of the Company against the Board of Directors relating
to the Disposition. The complaints allege, among other things, that the
process by which the directors agreed to the transaction was not sufficiently
independent of the Rechler family and did not involve a "market check" or
third-party auction process and, as a result, was not for adequate
consideration. The plaintiffs seek similar relief, including a declaration
that the directors violated their fiduciary duties and damages. Such actions
could lead to settlements, rescission of the transaction, civil damages or
other litigation costs that could adversely affect our business.
CAUTIONARY STATEMENTS CONCERNING
FORWARD-LOOKING INFORMATION
Certain information both included and incorporated by reference in this
prospectus may contain forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and as such may involve known
and unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of our company to be materially different
from future results, performance or achievements expressed or implied by such
forward-looking statements. Forward-looking statements, which are based on
certain assumptions and describe our future plans, strategies and expectations
are generally identifiable by use of the words "may," "will," "should,"
"expect," "anticipate," "estimate," "believe," "intend" or "project" or the
negative thereof or other variations thereon or comparable terminology.
Factors which could have a material adverse effect on the operations and
future prospects of our company are described above under "Risk Factors."
These risks and uncertainties should be considered in evaluating any
forward-looking statements contained or incorporated by reference herein. Our
actual results may differ significantly from the results discussed in the
forward-looking statements.
AVAILABLE INFORMATION
We are subject to the informational requirements of the Exchange Act, and
in accordance therewith file annual, quarterly and current reports and other
information with the Securities and Exchange Commission (the "Commission").
These reports and other information may be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549. The public may obtain information on the
operation of the Public Reference Room by calling the Commission at
1-800-SEC-0330. The Commission maintains a website that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the Commission. You may access the Commission's
website at http://www.sec.gov. These materials can also be inspected at the
office of the New York Stock Exchange, 20 Broad Street, New York, New York
10005, the exchange on which our common stock is listed.
We have filed with the Commission a registration statement on Form S-3
under the Securities Act, with respect to the common stock. This prospectus
does not contain all of the information set forth in the registration
statement, certain parts of which have been omitted in accordance with the
rules and regulations of the Commission. For further information regarding us
and the common stock, reference is made to the registration statement,
including the exhibits filed as a part thereof, and the documents incorporated
by reference in this prospectus.
13
Statements made in this prospectus as to the contents of any contract,
agreement or other document referred to are not necessarily complete; with
respect to each contract, agreement or other document filed as an exhibit to
the registration statement or to an Exchange Act report, reference is made to
the exhibit for a more complete description of the matter involved, and each
statement shall be deemed qualified in its entirety by reference thereto.
Copies of the registration statement and the exhibits may be inspected,
without charge, at the offices of the Commission, or obtained at prescribed
rates from the Public Reference Section of the Commission at the address set
forth above.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Commission allows us to "incorporate by reference" the information we
file with it, which means that we can disclose important information to you by
referring you to another document filed separately with the Commission. The
information incorporated by reference is considered to be part of this
prospectus, and information we file later with the Commission will
automatically update and supersede this information. We incorporate by
reference the documents listed below (other than information in such documents
that is deemed not to be filed), which we have previously filed with the
Commission and are considered a part of this prospectus, and any future
filings made with the Commission prior to the termination of this offering
under Section 13(a), 13(c), 14 or 15(d) of the Exchange Act. These filings
contain important information about us.
Commission Filings (File No. 1-13762) Period
- -------------------------------------------------- -------------------------------------------------------
Annual Report on Form 10-K Year ended December 31, 2003
Quarterly Report on Form 10-Q Quarter ended March 31, 2004
Current Reports on Form 8-K Filed January 16, 2004, January 21, 2004 and March 12,
2004
Registration Statement on Form 8-A Filed May 9, 1995 (as amended)
Registration Statement on Form 8-A Filed April 9, 1998
Definitive Proxy Statement on Schedule 14A Filed April 13, 2004
We will provide a copy of any or all of these documents (exclusive of
exhibits unless the exhibits are specifically incorporated by reference
therein), without charge, to each person to whom this prospectus is delivered,
upon written or oral request to Reckson Associates Realty Corp., 225
Broadhollow Road, Melville, New York 11747, Attn: Susan McGuire, Investor
Relations, telephone number (631) 694-6900. You may also obtain copies of
these documents, at no cost, by accessing our website at
http://www.reckson.com; however, the information on our website is not
considered part of this prospectus or any accompanying prospectus supplement.
RECKSON AND THE OPERATING PARTNERSHIP
We are a self-administered and self-managed real estate investment trust,
or REIT, organized under the laws of Maryland. We are engaged in the business
of owning, developing, re-positioning, acquiring, constructing, managing and
leasing primarily Class A office properties in the Tri-State Area. We own all
of our interests in our real properties, directly or indirectly, through the
Operating Partnership. We are the sole general partner of the Operating
Partnership and, as of March 31, 2004, owned approximately 94.6% of the
Operating Partnership's outstanding common units of limited partnership
interest.
Based on industry surveys, we believe that we are one of the largest
owners and managers of Class A office properties in the Tri-State Area. When
we refer to Class A office buildings in this prospectus, we mean well
maintained, high quality buildings that achieve rental rates that are at the
higher end of the range of rental rates for office properties in the
particular market.
As of March 31, 2004, we owned and controlled, directly or indirectly, 89
properties encompassing approximately 15.7 million rentable square feet, all
of which we manage. Our properties consist of 77 Class A office properties
encompassing approximately 14.6 million rentable square feet, 11
industrial/R&D properties encompassing approximately 1.1 million rentable
square feet and one retail property encompassing approximately
14
9,000 rentable square feet. We also own a 355,000 square foot office building
in Orlando, Florida. As of March 31, 2004, we also owned approximately 313
acres of land in 12 separate parcels on which we can develop approximately 3.0
million square feet of office space.
Our executive offices are located at 225 Broadhollow Road, Melville, New
York 11747 and our telephone number at that location is (631) 694-6900. At
March 31, 2004, we had approximately 275 employees.
USE OF PROCEEDS
We will not receive any cash proceeds from the issuance of the common
stock offered by this prospectus, but will acquire Class C Units in the
Operating Partnership in exchange for any shares of common stock that we may
issue to a unit holder upon tender of their Class C Units for redemption. Any
Class C Units acquired by us pursuant to a unit holder's redemption shall
automatically be converted into an equal number of common units of limited
partnership interest in the Operating Partnership.
REDEMPTION OF CLASS C UNITS
You have the right to have your Class C Units redeemed in whole or in
part by the Operating Partnership for cash equal to the fair market value, at
the time of redemption, of one share of common stock of Reckson for each unit
redeemed. We have the right to issue you one share of common stock for each
unit tendered instead of paying the cash redemption amount. You may tender
Class C Units for redemption only in compliance with the Amended and Restated
Agreement of Limited Partnership of the Operating Partnership, dated as of
June 2, 1995, as amended, and our charter on ownership of shares of our common
stock. We refer to the Amended and Restated Agreement of Limited Partnership
of the Operating Partnership, as amended, as the "Partnership Agreement."
You may exercise the right to redeem your Class C Units by providing a
notice of redemption, substantially in the form attached as an exhibit to the
Partnership Agreement, to the Operating Partnership, with a copy to us. Unless
we elect to purchase the Class C Units from a redeeming holder, as described
below, you will receive cash on the specified redemption date from the
Operating Partnership in an amount equal to the market value of the Class C
Units to be redeemed, as described above. The "specified redemption date" with
respect to your Class C Units will generally be the tenth business day after
we receive your notice of redemption.
When we say "business day," we mean a day that is not a Saturday, Sunday
or other day on which commercial banks in New York, New York are authorized or
required by law to close. The market value of a unit for the purpose of
redemption will be equal to the average of the closing trading prices of our
common stock on the New York Stock Exchange for the ten trading days before
the day on which we received the notice of redemption or, if that day is not a
business day, the first business day after that day.
Instead of the Operating Partnership acquiring the Class C Units for
cash, we have the right to acquire the Class C Units on the specified
redemption date directly from you, in exchange for either the market value of
the Class C Units in cash or for shares of common stock. If we acquire the
Class C Units, we will become their owner. In either case, acquisition of the
Class C Units by us will be treated as a sale of the Class C Units by you to
us for federal income tax purposes. See "--Tax Consequences of Redemption--Tax
Treatment of Redemption of Class C Units" for information about the tax
consequences to you of redeeming your Class C Units.
If we determine to acquire the Class C Units in exchange for shares of
common stock, the total number of shares of common stock to be paid to you
will be equal to the product of the number of Class C Units times the
conversion factor, which is 1.0 as of the date of this prospectus. The
conversion factor is subject to adjustment if we pay a dividend in shares of
common stock, subdivide or reclassify our outstanding shares of common stock
into a greater number of shares, or combine or reclassify our outstanding
shares of common stock into a smaller number of shares. We currently
anticipate that we generally will elect to acquire directly Class C Units
tendered for redemption and to issue shares of common stock in exchange for
the Class C Units rather than pay cash, but we will
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decide whether to pay cash or issue shares of common stock upon redemption of
Class C Units when Class C Units are tendered for redemption.
When you tender Class C Units for redemption, your right to receive
distributions on the Class C Units redeemed or exchanged will cease, unless
the record date for a distribution was a date before the specified redemption
date. You must tender for redemption at least 1,000 Class C Units at a time,
or all of your remaining Class C Units if you own less than 1,000 Class C
Units. No redemption or exchange can occur if delivery of shares of common
stock on the specified redemption date to the unit holder seeking redemption
would be prohibited under our charter.
Registration Rights
Under the registration rights agreement between us and the unit holders
named in the agreement, which has been filed as an exhibit to the registration
statement of which this prospectus forms a part, we are obligated to file a
registration statement registering the shares of common stock for which Class
C Units may be redeemed. The registration rights agreement provides that we
will pay all expenses of registering the shares. The agreement also provides
that the holders of the shares will pay any brokerage and underwriting
commissions, any taxes including, without limitation, transfer or stamp taxes,
relating to the sale or disposition of the shares by the holders, and any
legal, accounting and other expenses incurred by the holders.
Tax Consequences of Redemption
The following discussion summarizes the material federal income tax
considerations that may be relevant to a unit holder who tenders his or her
Class C Units for redemption. This discussion only applies to unit holders
that provide an affidavit to the Operating Partnership, at the time their
Class C Units are tendered, stating that the unit holder is not a foreign
person and stating the unit holder's taxpayer identification number.
You should consult your tax advisors regarding the tax consequences to
you of redeeming or exchanging your Class C Units, including the federal,
state, local and foreign tax consequences of redeeming or exchanging Class C
Units in your particular circumstances and potential changes in applicable
laws.
Tax Treatment of Redemption of Class C Units
If we assume and perform the redemption obligation, the Partnership
Agreement provides that the redemption will be treated by us, the Operating
Partnership and the redeeming unit holder as a sale of Class C Units by the
redeeming unit holder to us at the time the Class C Units are redeemed. This
sale will be fully taxable to the redeeming unit holder, and the redeeming
unit holder will recognize gain or loss based on the difference between the
amount realized by the unit holder and the unit holder's tax basis in the
Class C Unit sold. The determination of the amount of gain or loss is
discussed more fully under "--Tax Treatment of Disposition of Class C Units by
Unit Holders Generally" below. In determining gain or loss, the redeeming unit
holder will be treated as realizing for tax purposes an amount equal to the
sum of:
o the cash or the value of the common stock received in the
exchange; plus
o the reduction in the redeeming unit holder's share of Operating
Partnership liabilities resulting from the sale (generally the
amount of such liabilities allocable to the redeemed Class C
Units).
The amount of Operating Partnership liabilities considered in this
calculation will include, in addition to the Operating Partnership's direct
liabilities, the Operating Partnership's share of the liabilities of certain
entities in which the Operating Partnership owns an interest.
If we do not elect to assume the obligation to redeem a unit holder's
Class C Units, the Operating Partnership will redeem the Class C Units for
cash. If the Operating Partnership redeems Class C Units for cash that we
contribute to the Operating Partnership for that purpose, the redemption
likely would be treated for tax purposes as a sale of the Class C Units to us
in a fully taxable transaction, although this is not certain. If the
redemption is
16
treated that way for tax purposes, the redeeming unit holder would be treated
as realizing an amount equal to the sum of:
o the cash received in the exchange; plus
o the reduction in the unit holder's share of Operating
Partnership liabilities.
If, instead, the Operating Partnership chooses to redeem Class C Units
for cash that is not contributed by us for that purpose, the tax consequences
would be the same as described in the previous paragraph with the following
exceptions. If the Operating Partnership redeems less than all of the unit
holder's Class C Units, the unit holder would not be permitted to recognize
any loss occurring on the transaction and would recognize taxable gain only to
the extent that the amount he or she would be treated as receiving, as
described above, exceeded his or her adjusted basis in all of his or her Class
C Units (not just those Class C Units redeemed) immediately before the
redemption. In addition, to the extent that the redemption results in a
reduction of a unit holder's share of "unrealized receivables" of the
Operating Partnership, as defined in Section 751 of the Code, the unit holder
may recognize gain or loss pursuant to Section 751(b) of the Code based on the
difference between the value and tax basis of those unrealized receivables.
Potential Application of Disguised Sale Regulations to a Redemption
of Class C Units
A redemption of Class C Units may cause the original transfer of property
to the Operating Partnership in exchange for Class C Units to be treated as a
"disguised sale" of property. The Code and the Treasury regulations under the
Code generally provide that a partner's contribution of property to a
partnership and a simultaneous or subsequent transfer of money or other
consideration from the partnership to the partner, including the partnership's
assumption of a liability or taking the property subject to a liability, may
be treated as a sale, in whole or in part, of the property by the partner to
the partnership. Further, the Treasury regulations provide generally that, in
the absence of an applicable exception, if a partnership transfers money or
other consideration to a partner within two years after the partner
contributed property to the partnership, the transactions will be presumed to
be a sale of the contributed property unless the facts and circumstances
clearly establish that the transfers do not constitute a sale. The Treasury
regulations also provide that if two years have passed between the time when
the partner contributed property to the partnership and the time when the
partnership transferred money or other consideration to the partner, the
transactions will be presumed not to be a sale unless the facts and
circumstances clearly establish that the transfers constitute a sale.
Accordingly, if the Operating Partnership redeems Class C Units, the
Internal Revenue Service (the "IRS") could contend that the redemption should
be treated as a disguised sale because the redeeming unit holder will receive
cash or shares of common stock after having contributed property to the
Operating Partnership. If the IRS took that position successfully, the
issuance of the Class C Units in exchange for the contributed property could
be taxable as a disguised sale under the Treasury regulations.
Tax Treatment of Disposition of Class C Units by Unit Holders Generally
Where a unit holder redeems Class C Units in a manner that is treated as
a sale, the amount and character of the unit holder's gain or loss will depend
on whether any of the amount realized on the sale is attributable to the unit
holder's share of "unrealized receivables" of the Operating Partnership.
If none of the amount realized from a sale is attributable to the unit
holder's share of "unrealized receivables," then the unit holder will have
capital gain or loss from the sale based on the difference between:
o the amount realized for tax purposes; and
o the unit holder's tax basis in the Class C Units sold.
See "--Basis of Class C Units" below for information about the tax
basis of Class C Units.
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The "amount realized" for tax purposes will be the sum of:
o the cash and fair market value of other property received by
the unit holder, including any shares of common stock; plus
o the reduction in the unit holder's share of Operating
Partnership liabilities resulting from the sale (generally the
portion of the Operating Partnership's liabilities allocable to
the Class C Units sold).
The amount of Operating Partnership liabilities considered in this
calculation will include, in addition to the Operating Partnership's direct
liabilities, the Operating Partnership's share of the liabilities of certain
entities in which the Operating Partnership owns an interest.
A selling unit holder will recognize gain to the extent that the amount
he or she realizes in the sale exceeds his or her basis in the Class C Units
sold. It is possible that the amount of gain recognized or even the tax
liability resulting from the gain could exceed the amount of cash and the
value of any other property, including shares of common stock, received in
exchange for the Class C Units.
If part of the amount realized from the sale of Class C Units is
attributable to the unit holder's share of "unrealized receivables," then:
the unit holder will have ordinary income or loss from the sale based on the
difference between:
o the amount realized attributable to the unit holder's share of
unrealized receivables; and
o the amount of the unit holder's tax basis in the Class C Units
attributable to the unit holder's share of unrealized
receivables; and
the unit holder will have capital gain or loss from the sale based on the
difference between:
o the remaining amount realized from the Class C Units, and
o the remaining basis in the Class C Units sold.
Unrealized receivables include, to the extent not previously included in
Operating Partnership income, any rights to payment for services rendered or
to be rendered. Unrealized receivables also include amounts that would be
subject to recapture as ordinary income if the Operating Partnership had sold
its assets at their fair market value at the time of the transfer of a unit.
For non-corporate holders, the maximum rate of tax on the net capital
gain from the sale or exchange of a capital asset prior to January 1, 2009 is
generally 15% where the asset is held for more than one year. The maximum rate
for net capital gains attributable to the sale of depreciable real property
held for more than one year is 25% to the extent of the prior deductions for
depreciation that are not otherwise recaptured as ordinary income under the
existing depreciation recapture rules.
The IRS has the authority to issue regulations that apply the 15% and 25%
rates, in the case of a sale or exchange of an interest in a partnership (such
as the Operating Partnership), to any net gain resulting from the sale or
exchange based on the character of the partnership's underlying assets.
Regulations issued under this authority provide that the net gain from the
sale or exchange of a partnership interest is subject to the 25% rate to the
extent that such net gain is attributable to the partner's share of
unrecaptured depreciation. If the IRS does not issue additional regulations of
this type, then the rate of tax that would apply to any gain from the sale or
exchange of Class C Units held by a non-corporate holder (other than gain
subject to Section 751 of the Code or attributable to unrecaptured
depreciation) would qualify for the 15% rate provided the Class C Units were
held for more than one year. The IRS could, however, issue regulations under
which the rate of tax that applies to the gain from the sale or exchange of
Class C Units by a non-corporate holder would depend on how long the
partnership held its underlying assets. Moreover, if the IRS adopts
regulations of this kind, they might apply retroactively.
18
In the case of a cash redemption of Class C Units by the Operating
Partnership (as opposed to a sale or exchange of Class C Units) the net gain
(other than gain subject to Section 751 of the Code) would qualify for the 15%
rate provided the Class C Units were held for more than one year.
Basis of Class C Units
In general, a unit holder who received Class C Units in exchange for
contributing property to the partnership has an initial tax basis in the Class
C Units equal to his or her basis in the contributed property. A unit holder's
initial basis in his or her Class C Units generally is increased by:
o his or her share of the Operating Partnership's taxable and
tax-exempt income;
o increases in his or her share of the Operating Partnership's
liabilities, including the Operating Partnership's share of the
liabilities of certain entities in which the Operating
Partnership owns an interest;
o any gain recognized under Section 737 of the Code by the unit
holder due to the receipt of a distribution from the Operating
Partnership of property within seven years after the unit
holder contributed property to the Operating Partnership; and
o any gain recognized under Section 704(c)(1)(B) of the Code by
the unit holder due to the distribution by the Operating
Partnership of property contributed by the unit holder, within
seven years after the contribution, to another unit holder.
Generally, a unit holder's initial basis in his or her Class C Units is
decreased by:
o his or her share of distributions from the Operating
Partnership;
o decreases in his or her share of the Operating Partnership's
liabilities, including the Operating Partnership's share of the
liabilities of some entities in which the Operating Partnership
owns an interest;
o his or her share of the Operating Partnership's losses;
o any loss recognized under Section 704(c)(1)(B) of the Code by
the unit holder due to the distribution by the Operating
Partnership of property contributed by the unit holder, within
seven years after the contribution, to another unit holder; and
o his or her share of the Operating Partnership's nondeductible
expenditures that are not chargeable to capital.
However, a unit holder's tax basis will not decrease below zero.
DESCRIPTION OF COMMON STOCK
General
Our charter provides that we may issue up to 100 million shares of common
stock, $.01 par value per share. In addition, common units of limited
partnership interest in the Operating Partnership may be redeemed for cash or,
at our option, exchanged for our common stock on a one-for-one basis. As of
August 6, 2004 there were 69,941,988 shares of common stock and 3,550,553
common units of limited partnership interest (including 465,845 Class C Units
which are substantially identical to the common units except in respect of
distributions, but excluding common units owned by the Company) outstanding.
19
All shares of common stock offered hereby have been duly authorized and
will be fully paid and nonassessable. Subject to the preferential rights of
any other shares or series of stock and to the provisions of our charter
regarding Excess Stock (as defined under "Restrictions on Ownership of Capital
Stock"), holders of shares of common stock offered hereby will be entitled to
receive distributions on the stock if, as and when authorized and declared by
our Board of Directors out of assets legally available therefor and to share
ratably in the assets of the Company legally available for distribution to our
common stockholders in the event of liquidation, dissolution or winding up
after payment of or adequate provision for all known debts and liabilities of
the Company.
Subject to the provisions of our charter regarding Excess Stock, each
outstanding share of common stock entitles the holder to one vote on all
matters submitted to a vote of stockholders, including the election of
directors, and, except as provided with respect to any other class or series
of stock, the holders of these shares will possess the exclusive voting power.
There is no cumulative voting in the election of directors, which means that
the holders of a majority of the outstanding shares of common stock can elect
all of the directors then standing for election and the holders of the
remaining shares will not be able to elect any directors.
Holders of shares of common stock have no preference, conversion,
exchange, sinking fund, redemption or appraisal rights and have no preemptive
rights to subscribe for any other securities. Subject to the provisions of our
charter regarding Excess Stock, shares of common stock will have equal
dividend, liquidation and other rights.
Certain Provisions of our Charter
Under the MGCL, a Maryland corporation generally cannot dissolve, amend
its charter, merge, sell all or substantially all of its assets, engage in a
share exchange or engage in similar transactions outside the ordinary course
of business unless approved by the affirmative vote of stockholders holding at
least two-thirds of the shares entitled to vote on the matter unless a lesser
percentage (but not less than a majority of all of the votes entitled to be
cast on the matter) is set forth in the corporation's charter. Our charter
does not provide for a lesser percentage in these situations.
Our charter authorizes the Board of Directors to reclassify any unissued
shares of common stock into other classes or series of classes of capital
stock and to establish the number of shares in each class or series and to set
the preferences, conversion and other rights, voting powers, restrictions,
limitations and restrictions on ownership, limitations as to dividends or
other distributions, qualifications and terms or conditions of redemption for
each class or series.
Prospective investors should review the section captioned "Risk
Factors--Limits on ownership and changes in control may deter changes in
management and third party acquisition proposals."
Restrictions on Ownership
In order to qualify as a REIT under the Code, not more than 50% in value
of our outstanding capital stock may be owned, directly or indirectly, by five
or fewer individuals (as defined in the Code) at any time during the last half
of a taxable year and the stock must be beneficially owned by 100 or more
persons during at least 335 days of a taxable year of 12 months (or during a
proportionate part of a shorter taxable year). To satisfy the above ownership
requirements and certain other requirements for qualification as a REIT, the
Board of Directors has adopted, and the stockholders prior to the IPO
approved, a provision in our charter restricting the ownership or acquisition
of shares of our common stock and preferred stock. See "Restrictions on
Ownership of Capital Stock."
Transfer Agent and Registrar
The transfer agent and registrar for the common stock is American
Stock Transfer & Trust Company.
20
RESTRICTIONS ON OWNERSHIP OF CAPITAL STOCK
Excess Stock
Our charter provides that we may issue up to 75 million shares of excess
stock, par value $.01 per share ("Excess Stock"). For a description of Excess
Stock, see "--Restrictions on Ownership" below.
Restrictions on Ownership
In order for us to qualify as a REIT under the Code, among other things,
not more than 50% in value of our outstanding capital stock may be owned,
directly or indirectly, by five or fewer individuals (defined in the Code to
include certain entities) at any time during the last half of a taxable year
(other than the first year) (the "Five or Fewer Requirement"), and the shares
of capital stock must be beneficially owned by 100 or more persons during at
least 335 days of a taxable year of 12 months (other than the first year) or
during a proportionate part of a shorter taxable year. Pursuant to the Code,
stock held by certain types of entities, pension trusts qualifying under
Section 401(a) of the Code, United States investment companies registered
under the Investment Company Act of 1940, partnerships, trusts and
corporations, will be attributed to the beneficial owners of the entities for
purposes of the Five or Fewer Requirement (i.e., the beneficial owners of the
entities will be counted as stockholders of Reckson Associates).
In order to protect us against the risk of losing its status as a REIT
due to a concentration of ownership among stockholders, our charter, subject
to certain exceptions, provides that no stockholder may own, or be deemed to
own by virtue of the attribution provisions of the Code, more than 9.0% (the
"Ownership Limit") of the aggregate number or value of our outstanding shares
of common stock. We may also impose limitations on the ownership of preferred
stock. See "Description of Preferred Stock--Restrictions on Ownership." Any
transfer of shares of stock that would result in a violation of the Ownership
Limit or that would result in disqualification as a REIT, including any
transfer that results in shares of capital stock being owned by fewer than 100
persons or results in us being "closely held" within the meaning of Section
856(h) of the Code, shall be null and void, and the intended transferee will
acquire no rights to the shares of capital stock. The foregoing restrictions
on transferability and ownership will not apply if the Board of Directors
determines that it is no longer in our best interests to attempt to qualify,
or to continue to qualify, as a REIT. The Board of Directors may, in its sole
discretion, waive the Ownership Limit if evidence satisfactory to the Board of
Directors and tax counsel is presented that the changes in ownership will not
then or in the future jeopardize our REIT status and the Board of Directors
otherwise decides that waiving the Ownership Limit is in our best interests.
In addition, in the case of requests for waivers of the Ownership Limit by
Persons (as defined in our charter) that are not individuals or treated as
individuals under the Code, the Board of Directors is required to waive the
Ownership Limit if evidence satisfactory to the Board and its tax counsel is
presented that, as a result of the requested waiver, no individual through its
ownership interest in the Person will own in excess of the Ownership Limit.
Shares of capital stock owned, or deemed to be owned, or transferred to a
stockholder in excess of the Ownership Limit will automatically be converted
into shares of Excess Stock that will be transferred, by operation of law, to
the trustee of a trust for the exclusive benefit of one or more charitable
organizations described in Section 170(b)(1)(A) and 170(c) of the Code (the
"Charitable Beneficiary"). The trustee of the trust will be deemed to own the
Excess Stock for the benefit of the Charitable Beneficiary on the date of the
violative transfer to the original transferee-stockholder. Any dividend or
distribution paid to the original transferee-stockholder of Excess Stock prior
to our discovery that capital stock has been transferred in violation of the
provisions of our charter shall be repaid to the trustee upon demand. Any
dividend or distribution authorized and declared but unpaid shall be rescinded
as void ab initio with respect to the original transferee-stockholder and
shall instead be paid to the trustee of the trust for the benefit of the
Charitable Beneficiary. Any vote cast by an original transferee-stockholder of
shares of capital stock constituting Excess Stock prior to the discovery by us
that shares of capital stock have been transferred in violation of the
provisions of our charter shall be rescinded as void ab initio. While the
Excess Stock is held in trust, the original transferee-stockholder will be
deemed to have given an irrevocable proxy to the trustee to vote the capital
stock for the benefit of the Charitable Beneficiary. The trustee of the trust
may transfer the interest in the trust representing the Excess Stock to any
person whose ownership of the shares of capital stock converted into Excess
Stock would be permitted under the Ownership Limit. If the transfer is made,
the interest of the Charitable Beneficiary shall terminate and the proceeds of
the sale shall be payable to the original transferee-
21
stockholder and to the Charitable Beneficiary as described herein. The
original transferee-stockholder shall receive the lesser of (1) the price paid
by the original transferee-stockholder for the shares of capital stock that
were converted into Excess Stock or, if the original transferee-stockholder
did not give value for the shares (e.g., the stock was received through a
gift, devise or other transaction), the average closing price for the class of
shares from which the shares of capital stock were converted for the ten
trading days immediately preceding the sale or gift, and (2) the price
received by the trustee from the sale or other disposition of the Excess Stock
held in trust. The trustee may reduce the amount payable to the original
transferee-stockholder by the amount of dividends and distributions relating
to the shares of Excess Stock which have been paid to the original
transferee-stockholder and are owed by the original transferee-stockholder to
the trustee. Any proceeds in excess of the amount payable to the original
transferee-stockholder shall be paid by the trustee to the Charitable
Beneficiary. Any liquidation distributions relating to Excess Stock shall be
distributed in the same manner as proceeds of a sale of Excess Stock. If the
foregoing transfer restrictions are determined to be void or invalid by virtue
of any legal decision, statute, rule or regulations, then the original
transferee-stockholder of any shares of Excess Stock may be deemed, at our
option, to have acted as an agent for the Company in acquiring the shares of
Excess Stock and to hold the shares of Excess Stock for us.
In addition, Reckson Associates will have the right, for a period of 90
days during the time any shares of Excess Stock are held in trust, to purchase
all or any portion of the shares of Excess Stock at the lesser of (i) the
price initially paid for the shares by the original transferee-stockholder, or
if the original transferee-stockholder did not give value for the shares
(e.g., the shares were received through a gift, devise or other transaction),
the average closing price for the class of stock from which the shares of
Excess Stock were converted for the ten trading days immediately preceding the
sale or gift, and (ii) the average closing price for the class of stock from
which the shares of Excess Stock were converted for the ten trading days
immediately preceding the date we elect to purchase the shares. We may reduce
the amount payable to the original transferee-stockholder by the amount of
dividends and distributions relating to the shares of Excess Stock which have
been paid to the original transferee-stockholder and are owed by the original
transferee-stockholder to the trustee. We may pay the amount of the reductions
to the trustee for the benefit of the Charitable Beneficiary. The 90-day
period begins on the later date of which notice is received of the violative
transfer if the original transferee-stockholder gives notice to us of the
transfer or, if no notice is given, the date the Board of Directors determines
that a violative transfer has been made.
These restrictions will not preclude settlement of transactions through
the New York Stock Exchange.
All certificates representing shares of stock will bear a legend
referring to the restrictions described above.
Each stockholder shall upon demand be required to disclose to us in
writing any information with respect to the direct, indirect and constructive
ownership of our capital stock as the Board of Directors deems necessary to
comply with the provisions of the Code applicable to REITs, to comply with the
requirements of any taxing authority or governmental agency or to determine
any compliance.
The Ownership Limit may have the effect of delaying, deferring or
preventing a change in control of the Company unless the Board of Directors
determines that maintenance of REIT status is no longer in our best interests.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material federal income tax
consequences that are generally applicable to prospective holders of our
common stock. The specific tax consequences of owning our common stock will
vary depending on the circumstances of a particular stockholder. The
discussion contained herein does not address all aspects of federal income
taxation that may be relevant to particular holders. Therefore, we strongly
recommend that stockholders review the following discussion and then consult
with a tax advisor to determine the anticipated tax consequences of owning our
common stock.
The information in this section and the opinions of Solomon and Weinberg
LLP are based on the Code, current and proposed Treasury regulations
thereunder, current administrative interpretations and court decisions. We
22
cannot assume that future legislation, Treasury regulations, administrative
interpretations and court decisions will not significantly change current law
or affect existing interpretations of current law in a manner which is adverse
to stockholders. Any such change could apply retroactively to transactions
preceding the date of change. We cannot assume that the opinions and
statements set forth herein, which do not bind the IRS or the courts, will not
be challenged by the IRS or will be sustained by a court if so challenged.
This summary does not discuss state, local or foreign tax considerations.
Except where indicated, the discussion below describes general federal income
tax considerations applicable to individuals who are U.S. persons for federal
income tax purposes (as described below) and who hold our common stock as
"capital assets" within the meaning of Section 1221 of the Code. Accordingly,
the following discussion has limited application to domestic corporations and
persons subject to specialized federal income tax treatment, such as foreign
persons, trusts, estates, tax-exempt entities, regulated investment companies
and insurance companies.
Under applicable Treasury regulations a provider of advice on specific
issues of law is not considered an income tax return preparer unless the
advice is (i) given with respect to events that have occurred at the time the
advice is rendered and is not given with respect to the consequences of
contemplated actions, and (ii) is directly relevant to the determination of an
entry on a tax return. Accordingly, prospective stockholders should consult
their respective tax advisors and tax return preparers regarding the
preparation of any item on a tax return, even where the anticipated tax
treatment has been discussed herein. In addition, prospective stockholders are
urged to consult with their tax advisors with regard to the application of the
federal income tax laws to such stockholders' respective personal tax
situations, as well as any tax consequences arising under the laws of any
state, local or foreign taxing jurisdiction.
Taxation of the Company
We elected to be taxed as a REIT under Sections 856 through 860 of the
Code effective for our taxable year ended December 31, 1995. We believe that
we have been organized and have operated, and we intend to continue to
operate, in a manner to qualify as a REIT. In the opinion of Solomon and
Weinberg LLP, commencing with our taxable year ended December 31, 2000, we
have been organized and operated in conformity with the requirements for
qualification and taxation as a REIT under the Code and our proposed method of
operation will enable us to continue to meet the requirements for
qualification and taxation as a REIT. This opinion is based on factual
representations relating to the organization and operation of the Company, the
Operating Partnership, their respective subsidiaries, and factual
representations relating to our continued efforts to comply with the various
REIT tests. Qualification and taxation as a REIT depends upon our ability to
meet on a continuing basis, through actual annual operating results, the
various qualification tests imposed under the Code. Solomon and Weinberg LLP
will not review compliance with these tests on a continuing basis. See
"--Failure to Qualify" below.
The following is a general summary of the material Code provisions that
govern the federal income tax treatment of a REIT and its stockholders. These
provisions of the Code are highly technical and complex.
If we qualify for taxation as a REIT, we generally will not be subject to
federal corporate income taxes on net income that we distribute currently to
stockholders. This treatment substantially eliminates the double taxation
(taxation at both the corporate and stockholder levels) that generally results
from investment in a corporation. However, we will be subject to federal
income and excise tax in specific circumstances, including the following:
o we will be taxed at regular corporate rates on any undistributed
REIT taxable income, including undistributed net capital gains,
other than retained capital gains as discussed below.
o we may be subject to the alternative minimum tax on our items of tax
preference.
o if we have (a) net income from the sale or other disposition of
foreclosure property (which is, in general, property acquired by
foreclosure or otherwise on default of a loan secured by the
property) held primarily for sale to customers in the ordinary
course of business or (b) other nonqualifying income from
foreclosure property, we will be subject to tax at the highest
corporate rate on such income.
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o if we have net income from prohibited transactions, which are, in
general, sales or other dispositions of property held primarily for
sale to customers in the ordinary course of business, such income
will be subject to a 100% tax.
o if we fail to satisfy either the 75% gross income test or the 95%
gross income test, but nonetheless maintain our qualification as a
REIT because other requirements have been met, we will be subject to
a 100% tax on (i) the greater of (a) the amount by which we fail the
75% test and (b) the amount by which 90% of our gross income (other
than income from prohibited transactions) exceeds our gross income
qualifying under the 95% test, multiplied by (ii) a fraction
intended to reflect our profitability.
o if we fail to distribute during each calendar year at least the sum
of (a) 85% of our REIT ordinary income for such year, (b) 95% of our
REIT capital gain net income for such year and (c) any undistributed
taxable income from prior years, we will be subject to a 4% excise
tax on the excess of such required distribution over the amounts
actually distributed.
o if we acquire any asset from a corporation generally subject to full
corporate level tax in a transaction in which the basis of the asset
in our hands is determined by reference to the basis of the asset in
the hands of the corporation and we recognize gain on the
disposition of such asset during the ten-year period beginning on
the date on which such asset was acquired by us, then we will be
subject to the built-in gain rule. Built-in gain is the excess of
the fair market value of such property at the time of acquisition by
us over the adjusted basis in such property at such time. Under the
built-in gain rule, such gain will be subject to tax at the highest
regular corporate rate applicable.
o if it is determined that amounts of certain income and expense were
not allocated between us and a taxable REIT subsidiary (as defined
herein) on the basis of arm's-length dealing, or to the extent we
charge a taxable REIT subsidiary interest in excess of a
commercially reasonable rate, we will be subject to a tax equal to
100% of those amounts.
Requirements for Qualification
The Code defines a REIT as a corporation, trust, or association:
(a) that is managed by one or more trustees or directors;
(b) the beneficial ownership of which is evidenced by transferable shares
or by transferable certificates of beneficial interest;
(c) that would be taxable as a domestic corporation, but for Sections 856
through 859 of the Code;
(d) that is neither a financial institution nor an insurance company
subject to specific provisions of the Code;
(e) the beneficial ownership of which is held by 100 or more persons;
(f) during the last half of each taxable year not more than 50% in value
of the outstanding stock of which is owned, directly or indirectly, by five or
fewer individuals; and
(g) that meets other tests, described below, regarding the nature of its
income and assets.
The Code provides that conditions (a) through (d), inclusive, must be met
during the entire taxable year and that condition (e) must be met during at
least 335 days of a taxable year of 12 months, or during a proportionate part
of a taxable year of less than 12 months. Conditions (e) and (f), however,
will not apply until after the first taxable year for which an election is
made to be taxed as a REIT. We believe we have issued and have outstanding
sufficient shares of stock with sufficient diversity of ownership to allow us
to satisfy conditions (e) and (f). In addition, we intend to comply with
Treasury regulations requiring us to ascertain the actual ownership of our
outstanding shares.
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Our charter includes restrictions regarding the transfer of shares of capital
stock that are intended to assist us in continuing to satisfy the share
ownership requirements described in (e) and (f) above. See "Restrictions on
Ownership of Capital Stock" above.
Finally, a corporation may not elect to become a REIT unless its taxable
year is the calendar year. Our taxable year is the calendar year.
Effect of Subsidiary Entities
Partnership Interests. In the case of a REIT that is a partner in a
partnership, Treasury regulations provide that the REIT is deemed to own its
proportionate share of the partnership's assets, and to earn its proportionate
share of the partnership's income, for purposes of the asset and gross income
tests applicable to REITs as described below. In addition, the assets and
gross income of the partnership are deemed to retain the same character in the
hands of the REIT. Thus, our proportionate share, based upon our percentage
capital interest, of the assets and items of income of partnerships in which
we own an equity interest (including the Operating Partnership) are treated as
our assets and items of income for purposes of applying the REIT requirements
described below. Consequently, to the extent that we directly or indirectly
hold an interest in a partnership, the partnership's assets and operations may
affect our ability to qualify as a REIT, even though we may have no control,
or only limited influence, over the partnership. A summary of certain rules
governing the federal income taxation of partnerships and their partners is
provided below in "-- Tax Aspects of Investments in Partnerships." The
Partnership Agreement of the Operating Partnership requires that the Operating
Partnership be operated in a manner that will enable us to satisfy the
requirements for classification as a REIT. In this regard, we control the
operation of the Operating Partnership through our rights as its sole general
partner.
Disregarded Subsidiaries. If a REIT owns a corporate subsidiary that is a
"qualified REIT subsidiary," that subsidiary is disregarded for federal income
tax purposes and all assets, liabilities and items of income, deduction and
credit of the subsidiary are treated as assets, liabilities and items of
income, deduction and credit of the REIT itself, including for purposes of the
gross income and asset tests applicable to REITs as summarized below. A
qualified REIT subsidiary is any corporation, other than a "taxable REIT
subsidiary" as described below, that is wholly owned by a REIT, or by other
disregarded subsidiaries, or by a combination of the two. Other entities that
are wholly owned by a REIT, including single member limited liability
companies, are also generally disregarded as separate entities for federal
income tax purposes, including for purposes of the REIT income and asset
tests.
Taxable Subsidiaries. A REIT, in general, may jointly elect with a
subsidiary corporation, whether or not wholly owned, to treat the subsidiary
corporation as a taxable REIT subsidiary (a "TRS"). The separate existence of
a TRS or other taxable corporation, unlike a disregarded subsidiary as
discussed above, is not ignored for federal income tax purposes. Accordingly,
such an entity would generally be subject to corporate income tax on its
taxable income. A REIT is not treated as holding the assets of a TRS or as
receiving any income that the TRS earns. Rather, the stock issued by the TRS
is an asset in the hands of the REIT, and the REIT recognizes as income the
dividends, if any, that it receives from the TRS. This treatment can affect
the income and asset test calculations that apply to the REIT, as described
below. Because a REIT does not include the assets and income of its TRSs in
determining compliance with the REIT requirements, such entities may be used
by a REIT to undertake indirectly activities that the REIT rules might
otherwise preclude it from doing directly or through disregarded subsidiaries
or partnerships. To the extent that we utilize TRSs, the corporate income tax
incurred by the TRSs may reduce the cash flow generated by us and our
subsidiaries in the aggregate and, therefore, our ability to make
distributions to our stockholders.
Certain restrictions are imposed on TRSs to ensure that such entities
will be subject to appropriate levels of federal income taxation. First, a TRS
may not deduct net interest payments made in any year to an affiliated REIT to
the extent that such payments exceed, generally, 50% of the TRS's adjusted
taxable income for that year (although the TRS may carry forward to, and
deduct in, a succeeding year the disallowed interest amount if the 50% test is
satisfied in that year). Additionally, if a TRS pays rent or certain other
amounts to an affiliated REIT that exceeds the amount that would be paid to an
unrelated party in an arm's-length transaction, an excise tax equal to 100% of
such excess will be imposed. The 100% tax is also imposed to the extent that a
REIT charges its TRS interest in excess of a commercially reasonable rate.
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Income Tests. In order to maintain qualification as a REIT, we must
annually satisfy two gross income tests. First, at least 75% of our gross
income, excluding gross income from prohibited transactions, for each taxable
year must be derived directly or indirectly from investments relating to real
property or mortgages on real property, including rents from real property
and, in specific circumstances, from certain types of temporary investments.
Second, at least 95% of our gross income, excluding gross income from
prohibited transactions, for each taxable year must be derived from such real
property investments described above and from dividends, interest and gain
from the sale or disposition of stock or securities, or from any combination
of the foregoing. If we fail to satisfy one or both of the 75% or the 95%
gross income tests for any taxable year, we nevertheless may qualify as a REIT
for such year if we are entitled to relief under specific provisions of the
Code. These relief provisions generally are available if our failure to meet
any such tests was due to reasonable cause and not due to willful neglect, we
attach a schedule of the sources of our income to our federal corporate income
tax return and any incorrect information on the schedule was not due to fraud
with intent to evade tax. It is not possible, however, to state whether in all
circumstances we would be entitled to the benefit of these relief provisions.
As discussed above, even if these relief provisions were to apply, a tax would
be imposed with respect to the non-qualifying net income.
For purposes of the income tests, rents received by a REIT will qualify
as rents from real property only if the following conditions are met:
o the amount of rent must not be based in whole or in part on the
income or profits of any person. However, an amount received or
accrued generally will not be excluded from rents from real property
solely by reason of being based on a fixed percentage or percentages
of receipts or sales.
o rents received from a tenant generally will not qualify as rents
from real property in satisfying the gross income tests if the REIT,
or a direct or indirect owner of 10% or more of the REIT, directly
or constructively, owns 10% or more of such tenant.
o if rent attributable to personal property, leased in connection with
a lease of real property, is greater than 15% of the total rent
received under the lease, then the portion of rent attributable to
such personal property will not qualify as rents from real property.
o the REIT generally must not operate or manage the property or
furnish or render services to tenants, except through a TRS (as
defined herein) or through an independent contractor who is
adequately compensated and from whom the REIT derives no income.
The independent contractor requirement, however, does not apply to the
extent the services provided by the REIT are usually or customarily rendered
in connection with the rental of space for occupancy only and are not
otherwise considered rendered to the occupant. Additionally, under the de
minimis rule for noncustomary services, if the value of the noncustomary
service income with respect to a property, valued at no less than 150% of the
REIT's direct costs of performing such services, is 1% or less of the total
income derived from the property, then the noncustomary service income will
not cause other income from the property to fail to qualify as rents from real
property (but the noncustomary service income itself will not qualify as rents
from real property).
Asset Tests. In order to maintain qualification as a REIT, we must also
satisfy, at the close of each quarter of our taxable year, the following tests
relating to the nature of our assets:
o at least 75% of the value of our total assets must be represented by
real estate assets, including (a) our allocable share of real estate
assets held by the Operating Partnership or any partnerships in
which the Operating Partnership owns an interest and (b) stock or
debt instruments held for not more than one year purchased with the
proceeds of a stock offering or long-term (i.e., at least five-year)
or public debt offering, cash, cash items and government securities;
o no more than 20% of the value of our total assets may be securities
of one or more TRSs; and
o except for securities in the 75% asset class and securities of a TRS
or a qualified REIT subsidiary: (a) the value of any one issuer's
securities owned by us may not exceed 5% of the value of our total
assets; (b) we
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may not own more than 10% of the total voting power of any one
issuer's outstanding securities; and (c) we may not own more than
10% of the total value of any one issuer's outstanding securities
(other than certain "straight debt" securities).
After initially meeting an asset test at the close of any quarter, we
will not lose our status as a REIT for failure to satisfy that asset test at
the end of a later quarter solely by reason of changes in asset values. If the
failure to satisfy the asset test results from an acquisition of securities or
other property during a quarter, the failure can be cured by disposition of
sufficient nonqualifying assets within 30 days after the close of that
quarter.
Annual Distribution Requirements. In order to qualify as a REIT, we are
required to distribute dividends, other than capital gain dividends, to our
stockholders in an amount at least equal to (a) the sum of (A) 90% of our REIT
taxable income (computed without regard to the dividends paid deduction and
our net capital gain) and (B) 90% of the net income, after tax, if any, from
foreclosure property, minus (b) the sum of specific items of non-cash income.
We must pay the distribution during the taxable year to which the
distributions relate, or during the following taxable year, if declared before
we timely file our tax return for the preceding year and paid on or before the
first regular dividend payment after the declaration. In addition, a dividend
declared and payable to a stockholder of record in October, November or
December of any year may be treated as paid and received on December 31 of
such year even if paid in January of the following year. To the extent that we
do not distribute all of our net capital gain or distribute at least 90%, but
less than 100%, of our REIT ordinary taxable income, we will be subject to tax
on the undistributed amount at regular corporate capital gain and ordinary
income rates, respectively. Furthermore, if we fail to distribute during each
calendar year at least the sum of (a) 85% of our REIT ordinary income for such
year, (b) 95% of our REIT capital gain income for such year and (c) any
undistributed taxable income from prior periods, we will be subject to a 4%
excise tax on the excess of such amounts over the amounts actually
distributed.
We intend to make timely distributions sufficient to satisfy the annual
distribution requirements. In this regard, it is expected that our REIT
taxable income will be less than our cash flow due to the allowance of
depreciation and other non-cash charges in computing REIT taxable income.
Moreover, the Partnership Agreement of the Operating Partnership authorizes
us, as general partner, to take such steps as may be necessary to cause the
Operating Partnership to make distributions to its partners in amounts
sufficient to permit us to meet these distribution requirements. It is
possible, however, that we may not have sufficient cash or other liquid assets
to meet the 90% distribution requirement. In the event that such circumstances
do occur, then in order to meet the 90% distribution requirement, we may cause
the Operating Partnership to arrange for short-term, or possibly long-term,
borrowings to permit the payment of required distributions.
Under specific circumstances, we may rectify a failure to meet the
distribution requirement for a year by paying deficiency dividends to
stockholders in a later year that may be included in our deduction for
dividends paid for the earlier year. Thus, we may be able to avoid being taxed
on amounts distributed as deficiency dividends. However, we would be required
to pay to the IRS interest based upon the amount of any deduction taken for
deficiency dividends.
Tax Aspects of Investments in Partnerships
General. We may hold investments through entities that are classified as
partnerships for federal income tax purposes. In general, partnerships are
"pass-through" entities that are not subject to federal income tax. Rather,
partners are allocated their proportionate shares of the items of income,
gain, loss, deduction and credit of a partnership based on the Partnership
Agreement and are subject to tax on these items without regard to whether the
partners receive a distribution from the partnership. We will include in
income our proportionate share of these partnership items for purposes of the
various REIT income tests and in the computation of REIT taxable income.
Consequently, to the extent that we hold an interest in a partnership, the
partnership's assets and operations may affect our ability to qualify as a
REIT even though we may have no control, or only limited influence, over the
partnership.
Entity Classification. Our investment in partnerships (including the
Operating Partnership) involves special tax considerations, including the
possibility of a challenge by the IRS of the status of any of any subsidiary
partnership as a partnership, as opposed to a business entity taxable as a
corporation, for federal income tax purposes. If any of these entities were
treated as a corporation for federal income tax purposes, it could be subject
to
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an entity-level tax on its income. In such a situation, the character of our
assets and gross income would change and could preclude us from satisfying the
REIT asset tests (particularly the tests generally preventing a REIT from
owning more than 10% of the voting securities, or more than 10% of the
securities by value, of a corporation) or the gross income tests and in turn
could prevent us from qualifying as a REIT. See "-- Failure to Qualify" below,
for a discussion of the effect of our failure to meet these tests for a
taxable year. In addition, any change in the status of any of our subsidiary
partnerships for tax purposes might be treated as a taxable event, in which
case we could have taxable income that is subject to the REIT distribution
requirements without receiving any cash.
Tax Allocations with Respect to Partnership Properties. Under the Code
and the Treasury regulations, income, gain, loss and deduction attributable to
appreciated or depreciated property that is contributed to a partnership in
exchange for an interest in the partnership must be allocated for tax purposes
in a manner such that the contributing partner is charged with, or benefits
from, the unrealized gain or unrealized loss associated with the property at
the time of the contribution. The amount of the unrealized gain or unrealized
loss is generally equal to the difference between the fair market value of the
contributed property at the time of contribution, and the adjusted tax basis
of such property at the time of contribution (a "book-tax difference"). Such
allocations are solely for federal income tax purposes and do not affect the
book capital accounts or other economic or legal arrangements among the
partners.
To the extent that any subsidiary partnership acquires appreciated (or
depreciated) properties by way of capital contributions from its partners,
allocations would need to be made in a manner consistent with these
requirements. Where a partner contributes cash to a partnership at a time that
the partnership holds appreciated (or depreciated) property, the Treasury
regulations provide for a similar allocation of these items to the other
(i.e., noncontributing) partners. These rules may apply to our contribution to
any subsidiary partnerships of the cash proceeds received in offerings of its
stock. As a result, we could be allocated greater or lesser amounts of
depreciation and taxable income in respect of a partnership's properties than
would be the case if all of the partnership's assets (including any
contributed assets) had a tax basis equal to their fair market values at the
time of any contributions to that partnership. This could cause us to
recognize, over a period of time, taxable income in excess of cash flow from
the partnership, which might adversely affect our ability to comply with the
REIT distribution requirements discussed above.
Failure to Qualify
If we fail to qualify for taxation as a REIT in any taxable year and
certain relief provisions do not apply, we will be subject to tax, including
any applicable alternative minimum tax, on our taxable income at regular
corporate rates. Distributions to stockholders in any year in which we fail to
qualify as a REIT will not be deductible by us, nor will we be required to
make distributions. Unless entitled to relief under specific statutory
provisions, we also will be disqualified from taxation as a REIT for the four
taxable years following the year during which qualification was lost. It is
not possible to state whether in all circumstances we would be entitled to
such statutory relief.
Taxation of Stockholders
This discussion does not address all of the tax consequences that may be
relevant to particular stockholders in light of their particular
circumstances. Stockholders should consult their tax advisors for a complete
description of the tax consequences of investing in the offered stock.
U.S. Stockholders
As used herein, the term U.S. Stockholder means a stockholder who is a
U.S. Person. A U.S. Person is defined as a citizen or resident of the United
States, a corporation or partnership (including an entity treated as a
corporation or partnership for U.S. federal income tax purposes) created or
organized in or under the laws of the United States, any State of the United
States or the District of Columbia (other than a partnership that is not
treated as a U.S. Person under any applicable Treasury regulations), an estate
whose income is subject to U.S. federal income tax regardless of its source,
or a trust if a court within the United States is able to exercise primary
supervision over the administration of the trust and one or more U.S. Persons
have the authority to control all substantial decisions of the trust.
Notwithstanding the preceding sentence, to the extent provided in Treasury
28
regulations, specific trusts in existence on August 20, 1996, and treated as
U.S. Persons prior to such date, that elect to continue to be treated as U.S.
Persons, also will be U.S. Persons.
Distributions. As long as we qualify as a REIT, distributions made to our
taxable U.S. Stockholders out of current or accumulated earnings and profits
and not designated as capital gain dividends will be taken into account by
them as ordinary income. Corporate stockholders will not be eligible for the
dividends received deduction as to such amounts. Earnings and profits are
allocated to distributions with respect to preferred stock before they are
allocated to distributions with respect to common stock. Distributions that
are designated as capital gain dividends will be taxed as capital gains to the
extent they do not exceed our actual net capital gain for the taxable year
without regard to the period for which the stockholder has held our stock.
U.S. Stockholders that are corporations, however, may be required to treat up
to 20% of certain capital gain dividends as ordinary income. If we elect to
retain and pay income tax on any net capital gain, U.S. Stockholders would
include in their income as capital gain their proportionate share of such net
capital gain. A U.S. Stockholder would also receive the right to claim a
refundable tax credit for such stockholder's proportionate share of the tax
paid by us on such retained capital gains and an increase in its basis in our
stock. This increase in basis will be in an amount equal to the excess of the
undistributed capital gains over the amount of tax paid thereon by us.
Distributions in excess of current and accumulated earnings and profits will
not be taxable to a U.S. Stockholder to the extent that they do not exceed the
adjusted basis of the stock, but rather will reduce the adjusted basis of the
stock. To the extent that such distributions exceed a U.S. Stockholder's
adjusted basis in the stock, such distribution will be included in income as
capital gain, assuming the stock is a capital asset in the hands of the
stockholder.
Any dividend declared by us in October, November or December of any year
payable to a stockholder of record on a specific date in any such month shall
be treated as both paid by us and received by the stockholder on December 31
of such year, provided the dividend is actually paid by us during January of
the following calendar year.
Sale or Exchange. In general, a U.S. Stockholder realizes capital gain or
loss on the sale or exchange of the stock equal to the difference between (a)
the amount of cash and the fair market value of any property received on such
disposition, and (b) the stockholder's adjusted basis in the stock. To the
extent a U.S. Stockholder who is an individual, a trust or an estate holds the
stock for more than one year, any gain realized would be subject to tax rates
applicable to long-term capital gains. However, any loss recognized by a U.S.
Stockholder from selling or otherwise disposing of stock held for six months
or less (after applying certain holding period rules) will be treated as
long-term capital loss to the extent of dividends received by the stockholder
that were required to be treated as long-term capital gains.
Recent Tax Legislation. Under legislation recently enacted, the maximum
tax rate on long-term capital gains to individuals has generally been reduced
from 20% to 15% (from May 6, 2003 through December 31, 2008) and the maximum
tax rate on dividends to individuals has generally been reduced from 38.6% to
15% (from January 1, 2003 through December 31, 2008). The reduction in
long-term capital gain rates will generally be applicable to sales of stock of
a REIT and capital gain dividends received from a REIT (except to the extent
representing real estate depreciation recapture, which continues to be taxed
at a 25% rate). The reduction in rates on dividends is generally not
applicable to dividends paid by a REIT except in limited circumstances that we
do not contemplate.
Backup Withholding. We will report to our U.S. Stockholders and the IRS
the amount of dividends paid during each calendar year and the amount of tax
withheld, if any, with respect thereto. Under the backup withholding rules, a
stockholder may be subject to backup withholding at a rate of 28% with respect
to dividends paid unless the holder (a) is a corporation or comes within other
exempt categories and, when required, demonstrates this fact, or (b) provides
a taxpayer identification number and certifies as to no loss of exemption, and
otherwise complies with the applicable requirements of the backup withholding
rules. In addition, we may be required to withhold a portion of capital gain
distributions made to any stockholders who fail to certify their non-foreign
status to us.
An individual who is a U.S. Stockholder may satisfy the requirements for
avoiding backup withholding by providing us with an appropriately prepared IRS
Form W-9. If a U.S. Stockholder does not provide us with its correct taxpayer
identification number, then the U.S. Stockholder may also be subject to
penalties imposed by the IRS. Backup withholding tax is not an additional tax.
Any amounts withheld under the backup withholding tax rules
29
will be refunded or credited against the U.S. Stockholder's federal income tax
liability, provided the U.S. Stockholder furnishes the required information to
the IRS.
Taxation of Tax-Exempt Stockholders
The IRS has ruled that amounts distributed as dividends by a qualified
REIT generally do not constitute unrelated business taxable income ("UBTI")
when received by a tax-exempt entity. Based on that ruling, the dividend
income from our stock will not be UBTI to a tax-exempt stockholder, provided
that the tax-exempt stockholder has not held stock as debt-financed property
within the meaning of the Code and such stock is not otherwise used in a trade
or business unrelated to the tax-exempt stockholder's exempt purpose.
Similarly, income from the sale of the stock will not constitute UBTI unless
such tax-exempt stockholder has held such stock as debt-financed property
within the meaning of the Code or has used the shares in a trade or business.
Notwithstanding the above paragraph, if we are a pension-held REIT, then
any qualified pension trust that holds more than 10% of our stock will have to
treat dividends as UBTI in the same proportion that our gross income would be
UBTI. A qualified pension trust is any trust described in Section 401(a) of
the Code that is exempt from tax under Section 501(a). In general, we will be
treated as a pension-held REIT if both (a) we are predominantly owned by
qualified pension trusts (i.e., if one such trust holds more than 25% of the
value of our stock or one or more such trusts, each holding more than 10% of
the value of our stock, collectively hold more than 50% of the value of our
stock) and (b) we would not be a REIT if we had to treat our stock held by a
qualified pension trust as owned by the qualified pension trust (instead of
treating such stock as owned by the qualified pension trust's multiple
beneficiaries). Although we do not anticipate being classified as a
pension-held REIT, we cannot assume that this will always be the case.
In addition, if you are a tax-exempt stockholder described in Section
512(a)(3) of the Code, then distributions received from us may also constitute
UBTI. You are described in Section 512(a)(3) if you qualify for exemption
under Sections 501(c)(7), (9), (17), or (20).
Taxation of Non-U.S. Stockholders
The rules governing U.S. federal income taxation of nonresident alien
individuals, foreign corporations, foreign partnerships and other foreign
stockholders, which are referred to collectively as Non-U.S. Stockholders are
complex and no attempt will be made herein to provide more than a limited
summary of such rules. Non-U.S. Stockholders should consult with their tax
advisors to determine the impact of U.S. federal, state and local income tax
laws with regard to an investment in the stock, including any reporting
requirements.
Ordinary Dividends. Distributions, other than distributions that are
treated as attributable to gain from sales or exchanges by us of U.S. real
property interests and other than distributions designated by us as capital
gain dividends, will be treated as ordinary income to the extent that they are
made out of our current or accumulated earnings and profits. Such
distributions to Non-U.S. Stockholders will ordinarily be subject to a
withholding tax equal to 30% of the gross amount of the distribution, unless
an applicable income tax treaty reduces that tax rate. However, if income from
the investment in the shares of the stock is treated as effectively connected
with the Non-U.S. Stockholder's conduct of a U.S. trade or business, the
Non-U.S. Stockholder generally will be subject to a tax at graduated rates in
the same manner as U.S. Stockholders are taxed with respect to such dividends
and may also be subject to the 30% branch profits tax if the stockholder is a
foreign corporation.
Dividends paid to an address in a country outside the United States are
not presumed to be paid to a resident of such country for purposes of
determining the applicability of withholding discussed above and the
applicability of a tax treaty rate. A Non-U.S. Stockholder who wishes to claim
the benefit of an applicable treaty rate may need to satisfy certification and
other requirements, such as providing an IRS Form W-8BEN. A Non-U.S.
Stockholder who wishes to claim that distributions are effectively connected
with a United States trade or business may need to satisfy certification and
other requirements in order to avoid withholding, such as providing IRS Form
W-8ECI. Other requirements may apply to Non-U.S. Stockholders that hold their
shares through a financial intermediary or foreign partnership.
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Return of Capital. Distributions in excess of our current and accumulated
earnings and profits, which are not treated as attributable to the gain from
the disposition by us of a U.S. real property interest, will not be taxable to
a Non-U.S. Stockholder to the extent that they do not exceed the adjusted
basis of the stock, but rather will reduce the adjusted basis of such stock.
To the extent that such distributions exceed the adjusted basis of the stock,
they will give rise to tax liability if the Non-U.S. Stockholder otherwise
would be subject to tax on any gain from the sale or disposition of its stock,
as described below. If it cannot be determined at the time a distribution is
made whether such distribution will be in excess of current and accumulated
earnings and profits, the distribution will be subject to withholding at the
rate applicable to dividends. However, the Non-U.S. Stockholder may seek a
refund of such amounts from the IRS to the extent it is subsequently
determined that such distribution was, in fact, in excess of our current and
accumulated earnings and profits.
Capital Gain Dividends. For any year in which we qualify as a REIT,
distributions that are attributable to gain from sales or exchanges by us of
U.S. real property interests will be taxed to a Non-U.S. Stockholder under the
provisions of the Foreign Investment in Real Property Tax Act of 1980, as
amended ("FIRPTA"). Under FIRPTA, these distributions are taxed to a Non-U.S.
Stockholder as if such gain were effectively connected with a U.S. business.
Thus, Non-U.S. Stockholders will be taxed on such distributions at the same
capital gain rates applicable to U.S. Stockholders, subject to any applicable
alternative minimum tax and special alternative minimum tax (in the case of
nonresident alien individuals), without regard to whether such distributions
are designated by us as capital gain dividends. Also, distributions subject to
FIRPTA may be subject to a 30% branch profits tax in the hands of a corporate
Non-U.S. Stockholder not entitled to treaty relief or exemption. We are
required by applicable Treasury regulations under FIRPTA to withhold 35% of
any distribution that could be designated by us as a capital gain dividend.
Sale or Exchange of Stock. Gain recognized by a Non-U.S. Stockholder upon
a sale or exchange of stock, including a redemption that is treated as a sale,
generally will not be taxed under FIRPTA if we are a domestically controlled
REIT. A REIT is a "domestically controlled REIT" if at all times during a
specified testing period less than 50% in value of its stock is held directly
or indirectly by non-U.S. persons. However, gain not subject to FIRPTA will be
taxable to a Non-U.S. Stockholder if (a) investment in the stock is treated as
effectively connected with the Non-U.S. Stockholder's U.S. trade or business,
in which case the Non-U.S. Stockholder will be subject to the same treatment
as U.S. Stockholders with respect to such gain, or (b) the Non-U.S.
Stockholder is a nonresident alien individual who was present in the United
States for 183 days or more during the taxable year, in which case the
nonresident alien individual will be subject to a 30% tax on the individual's
capital gains. A similar rule will apply to capital gain dividends not subject
to FIRPTA.
Although we anticipate that we will qualify as a domestically controlled
REIT, we cannot assume that we will continue to so qualify. If we were not a
domestically controlled REIT, whether or not a Non-U.S. Stockholder's sale of
stock would be subject to tax under FIRPTA would depend on whether or not the
stock was regularly traded on an established securities market and on the size
of the selling Non-U.S. Stockholder's interest in us. If the gain on the sale
of the stock were to be subject to tax under FIRPTA, the Non-U.S. Stockholder
would be subject to the same treatment as U.S. Stockholders with respect to
such gain, subject to any applicable alternative minimum tax and a special
alternative minimum tax (in the case of nonresident alien individuals) and the
purchaser of such stock may be required to withhold 10% of the gross purchase
price.
Other Tax Considerations
Sunset of Reduced Tax Rate Provisions. Several of the tax considerations
described herein are subject to a sunset provision. The sunset provisions
generally provide that for taxable years beginning after December 31, 2008,
certain provisions that are currently in the Code will revert back to a prior
version of those provisions. These include provisions related to the reduced
maximum income tax rate for capital gains of 15% (rather than 20%) for
taxpayers taxed at individual rates, the application of the 15% capital gains
rate to qualified dividend income, and certain other tax rate provisions
described herein. The impact of this reversion is not discussed herein.
Consequently, prospective stockholders should consult their own tax advisors
regarding the effect of sunset provisions on an investment in our stock.
Tax Shelter Reporting. Under recently promulgated Treasury regulations,
if a stockholder recognizes a loss with respect to the shares in a single
taxable year of $2 million or more for an individual stockholder or $10
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million or more for a corporate stockholder, the stockholder may be required
to file a disclosure statement with the IRS on Form 8886. Direct stockholders
of portfolio securities are in many cases exempt from this reporting
requirement, but stockholders of a REIT currently are not excepted. The fact
that a loss is reportable under these regulations does not affect the legal
determination of whether the taxpayer's treatment of the loss is proper.
Stockholders should consult their tax advisors to determine the applicability
of these regulations in light of their individual circumstances.
Federal Estate Taxes. In general, if an individual who is not a citizen
or resident (as defined in the Code) of the United States owns (or is treated
as owning) our stock at the date of death, such stock will be included in the
individual's estate for U.S. federal estate tax purposes, unless an applicable
estate tax treaty provides otherwise.
State and Local Tax. We and our stockholders may be subject to state and
local tax in states and localities in which it does business or owns property.
Our tax treatment and the tax treatment of the stockholders in such
jurisdictions may differ from the federal income tax treatment described
above.
DESCRIPTION OF THE CLASS C UNITS AND THE OPERATING PARTNERSHIP
The following description of the material terms of the Class C Units and
some material provisions of the Partnership Agreement does not describe every
aspect of the Class C Units or the Partnership Agreement and is only a summary
of, and qualified in its entirety by reference to, applicable provisions of
Delaware law and the Partnership Agreement. The Class C Units are
substantially identical to the common units of limited partnership interest in
the Operating Partnership, except with respect to distributions. A copy of the
Partnership Agreement is filed as an exhibit to the registration statement of
which this prospectus is a part. See "Available Information" for information
about how to obtain a copy of the Partnership Agreement. For a comparison of
the voting rights and some other rights of Class C Unit holders in the
Operating Partnership and our stockholders, see "Comparison of Ownership of
Class C Units and Common Stock."
General
Holders of units, other than us in our capacity as general partner, hold
a limited partnership interest in the Operating Partnership. All holders of
units, including us in our capacity as general partner, are entitled to share
in cash distributions from, and in the profits and losses of, the Operating
Partnership.
Holders of units have the rights to which limited partners are entitled
under the Partnership Agreement and the Delaware Revised Uniform Limited
Partnership Act. The units are not registered under any federal or state
securities laws, and they are not listed on any exchange or quoted on any
national market system. The Partnership Agreement imposes restrictions on the
transfer of units. See "--Restrictions on Transfers of Units by Limited
Partners" below for further information about these restrictions.
As of August 6, 2004, there were outstanding: 3,550,553 common units of
limited partnership interest (including 465,845 Class C Units, but excluding
common units owned by the Company), 7,343,900 Series A preferred units and
1,200 Series D preferred units.
Distributions with Respect to Units
The Partnership Agreement provides for distributions, as determined in
the manner provided in the Partnership Agreement, to us and the limited
partners in proportion to their percentage interests in the Operating
Partnership, subject to the distribution preferences of the preferred units
and the Class C Units. As general partner of the Operating Partnership, we
have the exclusive right to declare and cause the Operating Partnership to
make distributions as and when we deem appropriate or desirable in our sole
discretion. For so long as we elect to qualify as a REIT, we will make
reasonable efforts, as determined by us in our sole discretion, to make
distributions to partners in amounts such that we will be able to pay
stockholder dividends that will satisfy the requirements for qualification as
a REIT and avoid any federal income or excise tax liability for us.
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Distributions vary among the holders of different classes of units. The
Class C Units entitle holders to a cash distribution for any quarterly period
equal to the product of the distribution payable on the Operating
Partnership's common units for the corresponding quarterly period times
1.0984.
The value of each common unit, regardless of its class, equates to one of
our shares of common stock. Preferred units do not have a value equating to
one common share, but have the liquidation preferences, conversion and
exchange prices for conversion into common units or exchange into preferred
stock of the Company, or other units or terms for redemption for cash that are
established in the Partnership Agreement.
Ranking of Units
The Class C Units rank on a parity with the common units in all respects
(including amounts upon liquidation, dissolution or winding up of the
Operating Partnership), except with respect to the amount (but not the
priority) of distributions which are payable on the Class C Units. The Series
A preferred units, Series B preferred units, Series C preferred units, Series
D preferred units, and Series E preferred units and any other units designated
as "parity units" all rank on a parity with each other, in each case with
respect to the payment of distributions and amounts upon liquidation,
dissolution or winding up of the Operating Partnership, without preference or
priority of one over the other. The Series F junior participating preferred
units rank junior to all other classes or series of preferred units as to the
payment of distributions and the distribution of assets.
From time to time as determined by us, in our discretion, the Operating
Partnership may create additional series of preference units or classes of
other units senior to or on parity with common units with respect to the
payment of distributions and amounts upon liquidation, dissolution or winding
up of the Operating Partnership.
Redemption or Conversion of Units
The holders of common units, other than us, have the right to redeem
their units for cash or, at our option, shares of common stock. See
"Redemption of Class C Units" above for further information about this right
with respect to the Class C Units.
The holders of preferred units have the conversion, exchange and
redemption rights set forth in the Partnership Agreement.
Formation of the Operating Partnership
The Operating Partnership was formed as a limited partnership under the
Delaware Revised Uniform Limited Partnership Act on September 28, 1994. We are
the sole general partner of, and owned approximately 94.6% of the common
limited partnership interest in, the Operating Partnership at March 31, 2004.
Purposes, Business and Management of the Operating Partnership
The purpose of the Operating Partnership includes the conduct of any
business that may be lawfully conducted by a limited partnership formed under
the Delaware Revised Uniform Limited Partnership Act, except that the
Partnership Agreement requires the business of the Operating Partnership to be
limited to and conducted in a manner that will permit us to be classified as a
REIT under Section 856 of the Code, unless we cease to qualify as a REIT for
any reason, other than the conduct of the Operating Partnership. In
furtherance of its business, the Operating Partnership may enter into
partnerships, joint ventures, limited liability companies or similar
arrangements and may own interests in any other entity engaged, directly or
indirectly, in any of the foregoing.
As the general partner of the Operating Partnership, we have the
exclusive power and authority to conduct the business of the Operating
Partnership, except that the consent of the limited partners is required in
some limited circumstances discussed under "--Meetings and Voting" below. No
limited partner may take part in the operation, management or control of the
business of the Operating Partnership by virtue of being a holder of units.
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In particular, the limited partners expressly acknowledge in the
Partnership Agreement that the general partner is acting on behalf of the
Operating Partnership and our stockholders collectively, and is under no
obligation to consider the separate interests of limited partners when making
decisions on behalf of the Operating Partnership. We and our directors and
officers will have no liability to the Operating Partnership or to any partner
or assignee for any losses sustained, liabilities incurred or benefits not
derived in connection with any such decisions, provided we acted in good
faith.
Our Ability to Engage in Other Businesses; Conflicts of Interest
We are not permitted to directly or indirectly conduct any business other
than in connection with the management of the business of the Operating
Partnership and the ownership, acquisition and disposition of interests in the
Operating Partnership without the consent of the holders of a majority of the
limited partnership interests (including the limited partnership interests
held by us). Other persons including our officers, directors, employees,
agents and our other affiliates are not prohibited under the Partnership
Agreement from engaging in other business activities and are not required to
present any business opportunities to the Operating Partnership. In addition,
the Partnership Agreement does not prevent another person or entity that
acquires control of us in the future from conducting other businesses or
owning other assets, even though those businesses or assets may be ones that
it would be in the best interests of the limited partners of the Operating
Partnership to own.
Borrowing by the Operating Partnership
We are authorized to cause the Operating Partnership to borrow money and
to issue and guarantee debt as it deems necessary for the conduct of the
activities of the Operating Partnership. The Operating Partnership's debt may
be secured by mortgages, deeds of trust, liens or encumbrances on the
Operating Partnership's properties. We also may cause the Operating
Partnership to borrow money to enable the Operating Partnership to make
distributions, including distributions in an amount sufficient to permit us to
avoid the payment of any federal income tax.
From time to time in connection with acquisitions of properties or other
assets in exchange for limited partner interests in the Operating Partnership,
we and the Operating Partnership have entered into contractual arrangements
that impose restrictions on the Operating Partnership's ability to sell,
finance, refinance and, in some instances, pay down existing financing on
certain of the Operating Partnership's properties or other assets. These
arrangements are sometimes referred to as "lockup agreements" and include, for
example, arrangements in which the Operating Partnership agrees that it will
not sell the property or other assets in question for a period of years unless
the Operating Partnership also pays the contributing partner a portion of the
federal income tax liability that will accrue to that partner as a result of
the sale. Arrangements of this kind may significantly reduce the Operating
Partnership's ability to sell, finance or repay indebtedness secured by the
subject properties or assets. We expect to cause the Operating Partnership to
continue entering into transactions of this type in the future and may do so
without obtaining the consent of any partners in the Operating Partnership.
Reimbursement; Transactions with Us and Our Affiliates
We do not receive any compensation for our services as general partner of
the Operating Partnership. However, as a partner in the Operating Partnership,
we have the same right to allocations and distributions with respect to the
units we hold as other partners in the Operating Partnership holding the same
classes of units. In addition, the Operating Partnership reimburses us for all
expenses we incur relating to the ownership and operation of, or for the
benefit of, the Operating Partnership, other than any directors fees, income
tax liabilities or filing and similar fees in connection with maintaining our
corporate existence.
The Operating Partnership may lend and contribute money or other assets
to its subsidiaries or other entities in which it has an equity investment and
such subsidiaries and other entities may borrow funds from the Operating
Partnership. Except as expressly permitted by the Partnership Agreement,
neither we, nor any of our affiliates, will, sell, transfer or convey any
property to, or purchase any property from, directly or indirectly, the
Operating Partnership, except in a transaction that has been determined by us
in good faith to be fair and reasonable.
34
Our Liability and Limited Partners
We, as general partner of the Operating Partnership, are liable for all
general recourse obligations of the Operating Partnership to the extent not
paid by the Operating Partnership. We are not liable for the nonrecourse
obligations of the Operating Partnership.
The limited partners in the Operating Partnership are not required to
make additional contributions to the Operating Partnership. Assuming that a
limited partner does not take part in the control of the business of the
Operating Partnership and otherwise complies with the provisions of the
Partnership Agreement, the liability of a limited partner for obligations of
the Operating Partnership under the Partnership Agreement and the Delaware
Revised Uniform Limited Partnership Act will be limited, with some exceptions,
generally to the loss of the limited partner's investment in the Operating
Partnership represented by his or her units. Under the Delaware Revised
Uniform Limited Partnership Act, a limited partner may not receive a
distribution from the Operating Partnership if, at the time of the
distribution and after giving effect to the distribution, the liabilities of
the Operating Partnership, other than liabilities to parties on account of
their interests in the Operating Partnership and liabilities for which
recourse is limited to specified property of the Operating Partnership, exceed
the fair value of the Operating Partnership's assets, other than the fair
value of any property subject to nonrecourse liabilities of the Operating
Partnership, but only to the extent of such liabilities. The Delaware Revised
Uniform Limited Partnership Act provides that a limited partner who receives a
distribution knowing at the time that it violates the foregoing prohibition is
liable to the Operating Partnership for the amount of the distribution. Unless
otherwise agreed, a limited partner in the circumstances described in the
preceding sentence will not be liable for the return of the distribution after
the expiration of three years from the date of the distribution.
The Operating Partnership has qualified to conduct business in the State
of New York and New Jersey and may qualify in certain other jurisdictions.
Maintenance of limited liability status may require compliance with legal
requirements of those jurisdictions and some other jurisdictions. Limitations
on the liability of a limited partner for the obligations of a limited
partnership have not been clearly established in many jurisdictions.
Accordingly, if it were determined that the right, or exercise of the right by
the limited partners, to make some amendments to the Partnership Agreement or
to take other action under the Partnership Agreement constituted "control" of
the Operating Partnership's business for the purposes of the statutes of any
relevant jurisdiction, the limited partners might be held personally liable
for the Operating Partnership's obligations.
Exculpation and Indemnification of Us
The Partnership Agreement generally provides that we, as general partner
of the Operating Partnership, and our affiliates, and any of our and our
affiliates' respective officers, directors, stockholders, partners, members,
employees, representatives or agents, or any officer, employee, representative
or agent of the Operating Partnership and its affiliates, will not be liable
for monetary damages to the Operating Partnership or any partner of the
Operating Partnership for losses sustained or liabilities incurred as a result
of errors in judgment or of any act or omission if the conduct did not
constitute bad faith, gross negligence or willful misconduct.
We may consult with legal counsel, accountants, appraisers, management
consultants, investment bankers and other consultants and advisors, and any
action we take or omit to take in reliance upon the opinion of those persons,
as to matters that we reasonably believe to be within their professional or
expert competence, will be conclusively presumed to have been done or omitted
in good faith and in accordance with the opinion of those persons.
The Partnership Agreement also provides for our indemnification and the
indemnification of (i) our directors, officers, stockholders, employees and
agents, (ii) officers, employees, representatives and agents of the Operating
Partnership, (iii) any person made a party to a proceeding by reason of its
liabilities for indebtedness of the Operating Partnership or any of its
subsidiaries, and (iv) any other persons that we may from time to time
designate against any and all losses, claims, damages, liabilities, expenses,
judgments, fines, settlements and other amounts incurred by an indemnified
person in connection with any claims, demands, actions or proceedings and
related to the operations of the Operating Partnership or us, except to the
extent such indemnitee acted in bad faith, or with gross negligence or willful
misconduct.
35
Sales of Assets
Under the Partnership Agreement, we generally have the exclusive
authority to determine whether, when and on what terms assets of the Operating
Partnership will be sold, as long as any sale of a property covered by a
lockup agreement complies with such agreement. The Partnership Agreement
prohibits us from engaging in any sale or other disposition (including by way
of merger, consolidation or other combination) of all or substantially all of
the assets of the Operating Partnership or a related series of transactions
that, taken together, result in the sale or other disposition of all or
substantially all of the assets of the Operating Partnership without the
consent of holders of 50% of the limited partnership interests, including
limited partnership interests held by us. See "--Borrowing by the Operating
Partnership" above for information about lockup agreements which limit our
ability to sell some of our properties.
Removal of the General Partner; Transfer of Our Interests
The Partnership Agreement provides that the limited partners may not
remove us as general partner of the operating partnership with or without
cause. The Partnership Agreement prohibits us from withdrawing as general
partner of the Operating Partnership or transferring any of our interests in
the Operating Partnership to any other person, in each case without the
consent of limited partners holding a majority of the limited partnership
interests, excluding limited partnership interests held by us.
The Partnership Agreement does not prevent a transaction in which another
entity acquires control of all of our shares nor does it prevent any holder of
interests in Reckson from owning assets or conducting businesses outside of
the Operating Partnership.
Restrictions on Transfers of Units by Limited Partners
Generally, a limited partner, other than us, is permitted to transfer all
or any portion of his or her units, or any of such limited partner's economic
rights as a limited partner, with or without our consent. However, we may
prohibit any such transfer if, in the opinion counsel, such transfer would
require filing of a registration statement under the Securities Act or would
otherwise violate federal or state securities laws or regulations.
No transfer by a limited partner may be made to any individual or entity
if (i) in the opinion of counsel to the Operating Partnership, such transfer
would result in the Operating Partnership being treated as an association
taxable as a corporation, (ii) such transfer is effectuated through an
"established securities market" or a "secondary market" within the meaning of
Section 7704 of the Code, (iii) such transfer would cause the Operating
Partnership to become a "party-in-interest" or a "disqualified person" with
respect to any employee benefit plan subject to ERISA, (iv) such transfer
would, in the opinion of counsel to the Operating Partnership, cause any
portion of the assets of the Operating Partnership to constitute assets of any
employee benefit plan pursuant to Department of Labor Regulations Section
2510.2-101; (v) such transfer would subject the Operating Partnership to be
regulated under the Investment Company Act of 1940, the Investment Advisers
Act of 1940 or ERISA, or (vi) such individual or entity is a member of Reckson
Executive Centers, L.L.C. In addition, no partner of the Operating Partnership
may pledge or transfer any of its units to a lender to the Operating
Partnership or any person who is related (within the meaning of Section
1.752-4(b) of the Treasury regulations) to any lender to the Operating
Partnership whose loan constitutes a nonrecourse liability without our
consent, in our sole and absolute discretion, and without entering into an
agreement with us as described in the Partnership Agreement.
Any permitted transferee of units may become a substituted limited
partner only with our consent, and we may withhold our consent in our sole and
absolute discretion. If we do not consent to the admission of a transferee of
units as a substituted limited partner, then the transferee will be considered
an "assignee" and will succeed to the economic rights and benefits
attributable to the units, but will not become a limited partner or possess
any other rights of limited partners, including the right to vote.
36
No Withdrawal by Limited Partners
No limited partner has the right to withdraw from or reduce his or her
capital contribution to the Operating Partnership, except as a result of the
redemption, conversion, exchange or transfer of units under the terms of the
Partnership Agreement.
Issuance of Limited Partnership Interests
We are authorized, without the consent of the limited partners, to cause
the Operating Partnership to issue limited partnership interests to us, to the
limited partners and to other persons for the consideration and upon the terms
and conditions that we deem appropriate. The Operating Partnership also may
issue partnership interests in different series or classes. Units may be
issued to us only (i) if we issue shares of common stock and contribute to the
Operating Partnership the proceeds received by us from the issuance of the
shares, or (ii) the additional units are issued to all partners in proportion
to their respective percentage interests. Consideration for partnership
interests may be cash or any property or other assets permitted by the
Delaware Revised Uniform Limited Partnership Act. Except to the extent
expressly granted by us on behalf of the Operating Partnership pursuant to
another agreement, no limited partner has preemptive, preferential or similar
rights with respect to capital contributions to the Operating Partnership or
the issuance or sale of any partnership interests.
Meetings and Voting
Meetings of the limited partners may be proposed and called by us or upon
receipt by us of a written request by limited partners (other than us) holding
20% or more of the partnership interests. Limited partners may vote either in
person or by proxy at meetings. Any action that is required or permitted to be
taken by the limited partners may be taken either at a meeting of the limited
partners or without a meeting if consents in writing stating the action so
taken are signed by limited partners owning not less than the minimum number
of units that would be necessary to authorize or take the action at a meeting
of the limited partners. On matters in which limited partners are entitled to
vote, each limited partner, including us to the extent we hold units, will
have a vote equal to the number of common units he or she holds. At this time,
there is no voting preference among the classes of common units. The preferred
units have no voting rights, except as required by law or the terms of a
particular series of preferred units. The Series B, Series C and Series D
preferred units by their terms have voting rights on all matters required or
permitted to be submitted to common unit holders for their approval and the
holders of Series B, Series C and Series D preferred units and holders of
common units vote together as a single class. The Series B, Series C and
Series D preferred units have a number of votes equal to the number of Series
B, Series C or Series D preferred units then outstanding multiplied by the
applicable preferred conversion ratio.
A transferee of units who has not been admitted as a substituted limited
partner with respect to his or her transferred units will have no voting
rights with respect to those units, even if the transferee holds other units
as to which he or she has been admitted as a limited partner, and units owned
by the transferee will be deemed to be voted on any matter in the same
proportion as all other interests held by limited partners are voted. The
Partnership Agreement does not provide for annual meetings of the limited
partners, and we do not anticipate calling such meetings.
Amendment of the Partnership Agreement
Amendments to the Partnership Agreement may be proposed by us or by any
limited partners (other than us) holding 20% or more of the partnership
interests. We generally have the power, without the consent of any limited
partners, to amend the Partnership Agreement as may be required to facilitate
or implement any of the following purposes:
o to add to the obligations of the general partner or surrender any
right or power granted to the general partner or any affiliate for
the benefit of limited partners;
o to reflect the admission, substitution, termination, or withdrawal
or partners in accordance with the Partnership Agreement;
37
o to set forth the designations, rights, powers, duties and
preferences of partnership units or other partnership interests;
o to reflect a change that is of a nonconsequential nature and does
not adversely affect limited partners in any material respect, or to
cure any ambiguity, correct or supplement any provision in the
Partnership Agreement not inconsistent with law or with other
provisions, or make other changes with respect to matters arising
under the Partnership Agreement that will not be inconsistent with
law or with the provisions of the Partnership Agreement; and
o to satisfy any requirements, conditions, or guidelines contained in
any order, directive, opinion, ruling or regulation of a federal or
state agency or contained in federal or state law.
The Partnership Agreement provides that it generally may not be amended
with respect to any partner adversely affected by the amendment without the
consent of that partner if the amendment would:
o convert a limited partner's interest into a general partner's
interest;
o modify the limited liability of a limited partner in a manner
adverse to such limited partner;
o alter rights of the partner to receive distributions pursuant to
Article 5 or Article 13, or the allocations specified in Article 6
of the Partnership Agreement (except as otherwise permitted in the
Partnership Agreement);
o alter or modify the redemption right as set forth in Section 8.6 of
the Partnership Agreement in a manner adverse to such partner;
o cause the termination of the Operating Partnership prior to the time
set forth in Section 2.5 or 13.1 of the Partnership Agreement; or
o amend the provision being described in this paragraph.
In addition, except with the consent of a majority of the common limited
partners, excluding us, we may not amend:
o Section 4.2.A of the Partnership Agreement, which authorizes
issuance of additional limited partnership interests;
o Section 7.5 of the Partnership Agreement, which prohibits us from
conducting any business other than in connection with the ownership
of interests in the Operating Partnership;
o Section 7.6 of the Partnership Agreement, which limits the Operating
Partnership's ability to enter into transactions with affiliates;
o Section 11.2 of the Partnership Agreement, which limits our ability
to transfer our interests in the Operating Partnership; and
o Section 14.2 of the Partnership Agreement, which establishes the
rules governing meetings of partners.
Books and Reports
We are required to keep the Operating Partnership's books and records at
the principal office of the Operating Partnership. The books of the Operating
Partnership are required to be maintained for financial and tax reporting
purposes on an accrual basis in accordance with generally accepted accounting
principles, which we refer to as "GAAP," or such other basis as we determine
to be necessary or appropriate. The limited partners have the
38
right, with some limitations, to receive copies of the most recent annual and
quarterly reports filed with the Commission by us, the Operating Partnership's
federal, state and local income tax returns, a list of limited partners, the
Partnership Agreement and the certificate of limited partnership and all
amendments thereto, and information regarding the amount of cash and a
description of other property or services contributed by each partner. We may
keep confidential from the limited partners any information that we believe to
be in the nature of trade secrets or other information whose disclosure we in
good faith believe is not in the best interests of the Operating Partnership
or which the Operating Partnership is required by law or by agreements with
unaffiliated third parties to keep confidential.
We will furnish to each limited partner, no later than 105 days after the
close of each partnership year, an annual report containing financial
statements of the Operating Partnership, or of us, if we prepare consolidated
financial statements including the Operating Partnership, for each fiscal
year, presented in accordance with GAAP. The financial statements will be
audited by a nationally recognized firm of independent public accountants
selected by us. In addition, we will furnish to each limited partner, no later
105 days after each calendar quarter (other than the last calendar quarter), a
report containing unaudited financial statements of the Operating Partnership,
or of us, if the reports are prepared on a consolidated basis, as of the last
day of the quarter and any other information that may be required by
applicable law or regulation or that we deem appropriate.
The Operating Partnership is presently subject to the informational
requirements of the Exchange Act, and in accordance therewith, files reports
and other information with the Commission. Such reports and other information
are also available from the Public Reference Rooms of the Commission at
prescribed rates and from the Commission's Internet site (http://www.sec.gov).
We will use reasonable efforts to furnish to each limited partner, within
90 days after the close of each taxable year, the tax information reasonably
required by the limited partners for Federal and state income tax reporting
purposes.
Power of Attorney
Under the terms of the Partnership Agreement, each limited partner and
each assignee appoints us, any liquidator, and the authorized officers and
attorneys-in-fact of each, as the limited partner's or assignee's
attorney-in-fact to do the following:
o to execute, swear to, acknowledge, deliver, file and record in the
appropriate public offices (a) all certificates, documents and other
instruments including, among other things, the Partnership Agreement
and the certificate of limited partnership and all amendments or
restatements of the certificate of limited partnership, that we or
any liquidator deems appropriate or necessary to form, qualify or
maintain the existence of the Operating Partnership as a limited
partnership in the State of Delaware and in all other jurisdictions
in which the Operating Partnership may conduct business or own
property, (b) all instruments that we or the liquidator deems
appropriate or necessary to reflect any amendment or restatement of
the Partnership Agreement in accordance with its terms, (c) all
conveyances and other instruments or documents that we or the
liquidator deems appropriate or necessary to reflect the dissolution
and liquidation of the Operating Partnership under the terms of the
Partnership Agreement, (d) all instruments relating to the
admission, withdrawal, removal or substitution of any partner, any
transfer of units, the dissolution, liquidation or termination of
the Operating Partnership or the capital contribution of any partner
and (e) all certificates, documents and other instruments relating
to the determination of the rights, preferences and privileges of
partnership interests; and
o to execute, swear to, acknowledge and file all ballots, consents,
approvals, waivers, certificates and other instruments appropriate
or necessary, in the sole and absolute discretion of us or any
liquidator, to make, evidence, give, confirm or ratify any vote,
consent, approval, agreement or other action which is made or given
by the partners under the Partnership Agreement or is consistent
with the terms of the Partnership Agreement or appropriate or
necessary, in the sole discretion of us or any liquidator, to
effectuate the terms or intent of the Partnership Agreement.
39
The Partnership Agreement provides that this power of attorney is
irrevocable, will survive the subsequent incapacity of any limited partner and
the transfer of all or any portion of the limited partner's or assignee's
units and will extend to the limited partner's or assignee's heirs,
successors, assigns and personal representatives.
Dissolution, Winding Up and Termination
The Operating Partnership will continue until December 31, 2095, unless
sooner dissolved and terminated. The Operating Partnership will be dissolved
before the expiration of its term, and its affairs wound up upon the
occurrence of the earliest of:
o our withdrawal as general partner without the permitted transfer of
our interest to a successor general partner, except in some limited
circumstances;
o through December 31, 2055, an election by us to dissolve consented
to by partners holding 50% of the percentage interests of the
limited partners (including interests held by us);
o on or after January 1, 2056, on election by us, in our sole and
absolute discretion;
o the entry of a decree of judicial dissolution of the Operating
Partnership under the provisions of the Delaware Revised Uniform
Limited Partnership Act;
o the sale of all or substantially all of the Operating Partnership's
assets and properties; or
o the entry of a final non-appealable judgment by a court of competent
jurisdiction that the general partner is bankrupt or insolvent, or a
final and non-appealable order for relief is entered by a court with
appropriate jurisdiction against the general partner, in each case
under federal or state bankruptcy or insolvency laws, except that,
in either of these cases, the remaining limited partners vote to
continue the Operating Partnership and substitute a new general
partner.
Upon dissolution, we, as general partner, or any liquidator will proceed
to liquidate the assets of the Operating Partnership and apply the proceeds
from the liquidation in the order of priority provided in the Partnership
Agreement.
COMPARISON OF OWNERSHIP OF CLASS C UNITS AND COMMON STOCK
The information below highlights a number of the significant differences
and similarities between the Operating Partnership and us relating to, among
other things, form of organization, investment objectives, policies and
restrictions, asset diversification, capitalization, management structure,
duties, liability, exculpation and indemnification of the general partner and
the directors and investor voting and other rights. These comparisons are
intended to assist you in understanding how your investment will be changed if
you redeem your Class C Units and we exercise our right to assume the
Operating Partnership's obligation with respect to the redemption and to
acquire the Class C Units in exchange for shares of common stock. See
"Redemption of Class C Units" for a description of your right to have your
Class C Units redeemed and our right to redeem the Class C Units for shares of
common stock instead of cash. The discussion below is only a summary of these
matters, and you should carefully review the balance of this prospectus for
additional important information.
Form of Organization and Purposes
The Operating Partnership
The Operating Partnership is a limited partnership organized under
the laws of the State of Delaware. The Operating Partnership owns interests
primarily in Class A office properties in the Tri-State Area. See "Reckson and
the Operating Partnership" for further information about the Operating
Partnership's assets. The Operating
40
Partnership may also invest in other types of real estate and in any
geographic areas that we deem appropriate. We conduct the business of the
Operating Partnership in a manner intended to permit us to be classified as a
REIT under the Code.
Reckson
We are a Maryland corporation. Although we currently intend to continue
to qualify as a REIT under the Code and to operate as a self-administered and
self-managed REIT, we are not under any contractual obligation to continue to
qualify as a REIT and we may discontinue this qualification or mode of
operation in the future. Although we have no intention of ceasing to qualify
as a REIT, some other real estate companies that previously operated as REITs
have chosen to cease to qualify as REITs. Except as otherwise permitted in the
Partnership Agreement, we are obligated to conduct our activities through the
Operating Partnership. We are the sole general partner of the Operating
Partnership.
Nature of Investment
The Operating Partnership
The units constitute equity interests entitling each limited partner in
the Operating Partnership to his or her proportionate share of cash
distributions made to the limited partners in the Operating Partnership,
consistent with the class preferences provided for in the Partnership
Agreement. The Class C Units entitle holders to a cash distribution for any
quarterly period equal to the product of the distribution payable on the
Operating Partnership's common units for the corresponding quarterly period
times 1.0984. See "Description of the Class C Units and the Operating
Partnership--Distributions with Respect to Units" for further information
about distributions with respect to the Class C Units.
The units entitle their holders to participate in the growth and income
of the Operating Partnership. The Partnership Agreement grants us discretion
to determine the frequency and amount of distributions by the Operating
Partnership. The Operating Partnership and therefore we generally expect to
retain and reinvest proceeds of any sale of property and refinancings, except
in some limited circumstances. Thus, limited partners in the Operating
Partnership will not be able to realize upon their investments through
distributions of sale and refinancing proceeds. Instead, limited partners will
be able to realize upon their investments primarily by redeeming units and, if
we issue shares of common stock in exchange for redeemed units, by
subsequently selling our common stock.
Reckson
The shares of common stock constitute equity interests in Reckson. We are
entitled to receive our proportionate share of distributions made by the
Operating Partnership with respect to common units owned by us. Each holder of
our shares of common stock is entitled to his or her proportionate share of
any dividends or distributions paid with respect to those shares of common
stock, and these distributions will generally match distributions made in
respect of common units. The dividends payable to holders of shares of common
stock are not fixed in amount and are only paid if, when and as authorized by
our Board of Directors and declared by us out of assets legally available to
pay dividends. If any preferred stock is at the time outstanding, dividends on
the shares of common stock and other distributions, including purchases by us
of shares of common stock, may be made only if full cumulative dividends have
been declared and paid on the outstanding preferred stock or set aside for
payment and there are no arrearages in any mandatory sinking fund on
outstanding preferred stock. To qualify as a REIT, we must distribute to our
stockholders at least 90% of our taxable income excluding capital gains, and
corporate income tax will apply to any taxable income including capital gains
not distributed.
Length of Investment
The Operating Partnership
The Operating Partnership has a stated term expiring on December 31,
2095, unless dissolved sooner pursuant to the terms of the Partnership
Agreement. The Operating Partnership has no specific plans for disposition of
its assets. To the extent that the Operating Partnership sells or refinances
its assets, the net proceeds from the sale
41
or refinancing generally will be retained by the Operating Partnership for
working capital and new investments rather than being distributed to its
partners. The Operating Partnership constitutes a vehicle for taking advantage
of future investment opportunities that may be available in the real estate
market.
Holders of Class C Units in the Operating Partnership are entitled to
exercise the right to have their units redeemed either for shares of common
stock or for cash, at our option.
Reckson
We have a perpetual term and intend to continue our operations for an
indefinite time period. Under the MGCL, our dissolution must be approved at
any meeting of stockholders called for that purpose by the affirmative vote of
the holders of not less than two-thirds of all the votes entitled to be cast
on the matter. We have an indirect interest in the properties and related
service businesses owned by the Operating Partnership. Our stockholders are
expected to realize liquidity of their investments by the trading of our
common stock on the New York Stock Exchange.
Liquidity
The Operating Partnership
The units are not registered under the Securities Act or any state
securities laws and therefore may not be sold, pledged, hypothecated or
otherwise transferred unless first registered under the Securities Act and any
applicable state securities laws, or unless an exemption from registration is
available. Units also may not be sold or otherwise transferred unless the
other transfer restrictions discussed below have been satisfied. We and the
Operating Partnership do not intend to register the units under the Securities
Act or any state securities laws.
Limited partners in the Operating Partnership may generally transfer any
of their rights as limited partners without our consent. However, we may
prohibit any transfer if such transfer would violate any federal or state
securities laws. A transferee of units has no right to become a substituted
limited partner without our consent, which we may withhold in our sole and
absolute discretion.
Holders of Class C Units have the right to elect to have their units
redeemed by the Operating Partnership. Upon redemption of Class C Units, a
holder will receive cash or, at our election, shares of common stock in
exchange for the redeemed units.
Reckson
Any common stock issued in exchange for redeemed units will be registered
under the Securities Act and be freely transferable, as long as the
stockholder complies with the ownership limits in our charter and is not an
affiliate of ours. Our common stock is currently listed on the New York Stock
Exchange under the ticker symbol "RA" and has been so listed by us since our
IPO in 1995. The future breadth and strength of this secondary market will
depend, among other things, upon the number of shares of common stock
outstanding, our financial results and prospects, the general interest in us
and other's real estate investments, and our dividend yield compared to that
of other debt and equity securities.
Potential Dilution of Rights
The Operating Partnership
We, as general partner of the Operating Partnership, are authorized, in
our sole discretion and without limited partner approval, to cause the
Operating Partnership to issue additional limited partnership interests and
other equity securities for any partnership purpose at any time to us, the
limited partners or other persons on terms established by us.
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The interests with respect to cash available for distribution of the
limited partners in the Operating Partnership may be diluted if we, in our
sole discretion, cause the Operating Partnership to issue additional units or
other equity securities.
Reckson
Our Board of Directors may, in its discretion, authorize the issuance of
additional shares of common stock and other equity securities of Reckson,
including one or more classes or series of common or preferred stock, with the
voting rights, dividend rates, preferences, subordinations, conversion or
redemption prices or rights, maturity dates, distribution, exchange or
liquidation rights or other rights that the Board of Directors may specify at
the time. The issuance of additional shares of common stock or other similar
equity securities may result in the dilution of the interests of the
stockholders. Under our charter, holders of shares of common stock do not have
any preemptive rights to subscribe to any of our securities.
Management Control
The Operating Partnership
All management powers over the business and affairs of the Operating
Partnership are vested in us as the general partner of the Operating
Partnership, and no limited partner of the Operating Partnership has any right
to participate in or exercise control or management power over the business
and affairs of the Operating Partnership, except as described under
"Description of the Units and the Operating Partnership--Borrowing by the
Operating Partnership" and "--Sales of Assets." We may not be removed as
general partner by the limited partners with or without cause.
Reckson
Our Board of Directors has exclusive control over the management of our
business and affairs, limited only by express restrictions on the Board's
control in our charter and bylaws, the Partnership Agreement and applicable
law. At each annual meeting of our stockholders, all directors are elected.
The policies adopted by the Board of Directors may be altered or eliminated
without a vote of the stockholders. Accordingly, except for their vote in the
elections of directors, stockholders have no control over our ordinary
business policies.
Because our Board of Directors is elected each year by our stockholders
at our annual meeting, the stockholders have greater control over our
management than the limited partners have over the Operating Partnership.
Duties of General Partner and Directors
The Operating Partnership
Under Delaware law, we, as the general partner of the Operating
Partnership, are accountable to the Operating Partnership as a fiduciary and,
consequently, are required to exercise good faith and integrity in all of our
dealings with respect to partnership affairs. However, under the Partnership
Agreement, we are expressly under no obligation to consider the separate
interests of the limited partners in deciding whether to cause the Operating
Partnership to take or decline to take any actions, and we are not liable for
monetary damages for losses sustained, liabilities incurred or benefits not
derived by limited partners as a result of our decisions, provided that we
have acted in good faith.
Reckson
Under the MGCL, directors of a Maryland corporation are required to
perform their duties in good faith, in a manner that they reasonably believe
to be in the best interests of the corporation and with the care of an
ordinarily prudent person in a like position under similar circumstances. The
MGCL presumes that a director's standard of care has been satisfied.
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Management Liability and Indemnification
The Operating Partnership
As a matter of Delaware law, the general partner has liability for the
payment of the obligations and debts of the Operating Partnership unless
limitations upon this liability are stated in the document or instrument
evidencing the obligation. Under the Partnership Agreement, the Operating
Partnership has agreed to indemnify us and (i) our directors, officers,
stockholders, employees and agents, (ii) officers, employees, representatives
and agents of the Operating Partnership, (iii) any person made a party to a
proceeding by reason of its liabilities for indebtedness of the Operating
Partnership or any of its subsidiaries, and (iv) any other persons that we may
from time to time designate against any and all losses, claims, damages,
liabilities, expenses, judgments, fines, settlements and other amounts
incurred by an indemnified person in connection with any claims, demands,
actions or proceedings and related to the operations of the Operating
Partnership or us, except to the extent such indemnitee acted in bad faith, or
with gross negligence or willful misconduct.
The reasonable expenses incurred by an indemnified party may be advanced
by the Operating Partnership before the final disposition of the proceeding
upon receipt by the Operating Partnership of an undertaking by the indemnified
person to repay the amount if it is determined that this standard was not met.
Reckson
The MGCL permits a Maryland corporation to include in its charter a
provision limiting the liability of its directors and officers to the
corporation and its stockholders for money damages except for liability
resulting from (a) actual receipt of an improper benefit or profit in money,
property or services or (b) active and deliberate dishonesty established by a
final judgment as being material to the cause of action. Our charter contains
such a provision which eliminates such liability to the maximum extent
permitted by Maryland law.
Our charter authorizes us, to the maximum extent permitted by Maryland
law, to obligate ourselves to indemnify and to pay or reimburse reasonable
expenses in advance of final disposition of a proceeding to (a) any present or
former director or officer or (b) any individual who, while a director of the
Company and at the request of the Company, serves or has served another
corporation, real estate investment trust, partnership, joint venture, trust,
employee benefit plan or any other enterprise as a director, officer, partner
or trustee of such corporation, real estate investment trust, partnership,
joint venture, trust, employee benefit plan or other enterprise and who is
made a party to the proceeding by reason of his or her service in that
capacity.
Our bylaws obligate us, to the maximum extent permitted by Maryland law,
to indemnify and to pay or reimburse reasonable expenses in advance of final
disposition of a proceeding to (a) any present or former director or officer
who is made a party to the proceeding by reason of his service in that
capacity or (b) any individual who, while a director of the Company and at the
request of the Company, serves or has served another corporation, real estate
investment trust, partnership, joint venture, trust, employee benefit plan or
any other enterprise as a director, officer, partner or trustee of such
corporation, real estate investment trust, partnership, joint venture, trust,
employee benefit plan or other enterprise and who is made a party to the
proceeding by reason of his service in that capacity. Our charter and bylaws
also permit us to indemnify and advance expenses to any person who served a
predecessor of the Company in any of the capacities described above and to any
employee or agent of the Company or a predecessor of the Company.
The MGCL requires a corporation (unless its charter provides otherwise,
which our charter does not) to indemnify a director or officer who has been
successful, on the merits or otherwise, in the defense of any proceeding to
which he is made a party by reason of his service in that capacity. The MGCL
permits a corporation to indemnify its present and former directors and
officers, among others, against judgments, penalties, fines, settlements and
reasonable expenses actually incurred by them in connection with any
proceeding to which they may be made a party by reason of their service in
those or other capacities unless it is established that (a) the act or
omission of the director or officer was material to the matter giving rise to
the proceeding and (i) was committed in bad faith or (ii) was the result of
active and deliberate dishonesty, (b) the director or officer actually
received an improper personal benefit in money, property or services or (c) in
the case of any criminal proceeding, the director or officer had reasonable
cause to believe that the act or omission was unlawful. However, under the
MGCL, a Maryland
44
corporation may not indemnify for an adverse judgment in a suit by or in
the right of the corporation or for a judgment of liability on the basis that
personal benefit was improperly received, unless in either case a court orders
indemnification and then only for expenses. In addition, the MGCL permits a
corporation to advance reasonable expenses, upon the corporation's receipt of
(a) a written affirmation by the director or officer of his good faith belief
that he has met the standard of conduct necessary for indemnification by the
Company and (b) a written statement by or on his behalf to repay the amount
paid or reimbursed by the Company if it shall ultimately be determined that
the standard of conduct was not met.
We have entered into indemnification agreements with each of our
executive officers and directors. The indemnification agreements require,
among other matters, that we indemnify our executive officers and directors to
the fullest extent permitted by law and advance to the executive officers and
directors all related expenses, subject to reimbursement if it is subsequently
determined that indemnification is not permitted. Under these agreements, we
must also indemnify and advance all expenses incurred by executive officers
and directors seeking to enforce their rights under the indemnification
agreements and may cover executive officers and directors under the Company's
directors' and officers' liability insurance. Although indemnification
agreements offer substantially the same scope of coverage afforded the bylaws,
they provide greater assurance to directors and executive officers that
indemnification will be available, because, as contracts, they cannot be
modified unilaterally in the future by the Board of Directors or the
stockholders to eliminate the rights they provide.
Liability of Investors
The Operating Partnership
Under the Partnership Agreement and applicable state law, the liability
of the limited partners for the Operating Partnership's debts and obligations
generally is limited to the amount of their investments in the Operating
Partnership, together with their interest in the Operating Partnership's
undistributed income, if any.
Reckson
Under the MGCL, stockholders are not personally liable for our
obligations. The shares of common stock, upon issuance, will be fully paid and
nonassessable.
Thus, the limited partners in the Operating Partnership and our
stockholders have substantially the same limited personal liability.
Voting Rights
The Operating Partnership
Under the Partnership Agreement, limited partners have the right to vote
on any proposed action of the general partner that would contravene any
express prohibition or limitation in the Partnership Agreement, and any action
of this kind requires the consent of holders of a majority of the percentage
interests held by limited partners (including interests held by us) or such
other percentage as specifically set forth in the Partnership Agreement. The
limited partners have the right to vote on any proposed sale, exchange,
transfer or disposal of all or substantially all of the assets of the
Operating Partnership. In addition, the limited partners have the right to
propose amendments to the Partnership Agreement.
Any amendment that requires the approval of the limited partners may be
approved by a majority of the limited partners, except that any amendment that
would convert a limited partner's interest in the Operating Partnership into a
general partnership interest, modify the limited liability of a limited
partner in a manner adverse to such limited partner, alter or modify the
redemption right in a manner adverse to a limited partner, change specified
provisions in the Partnership Agreement with respect to distributions and
allocations, cause the termination of the Operating Partnership prior to the
time set forth in the Partnership Agreement, or amend the section giving
limited partners these rights, must be approved by each limited partner
adversely affected by the amendment.
45
In addition, except with the consent of a majority of the limited
partners, excluding us, we may not amend Section 4.2.A, which authorizes
issuance of additional limited partnership interests; Section 7.5, which
prohibits us from conducting any business other than in connection with the
ownership of interests in the Operating Partnership; Section 7.6, which limits
the Operating Partnership's ability to enter into transactions with
affiliates; Section 11.2, which limits our ability to transfer our interests
in the Operating Partnership; and Section 14.2, which establishes the rules
governing meetings of partners.
In addition, some series of preferred units have special voting rights
that require their consent for actions that would adversely affect their
preferences.
Reckson
Our business and affairs are managed under the direction of the Board of
Directors, which currently consists of nine members. We had 69,941,988 shares
of common stock and 7,343,900 shares of Series A preferred stock issued and
outstanding as of August 6, 2004. The holders of preferred stock generally
have no right to vote, except that if and whenever six quarterly dividends,
whether or not consecutive, payable on any series of preferred stock are in
arrears, which, with respect to any quarterly dividend, means that the
dividend has not been paid in full, whether or not the dividend was earned or
declared, the holders of that series will have the right, voting as a class,
to elect two additional directors; and so long as any preferred stock is
outstanding, the affirmative vote of at least two-thirds of the outstanding
shares of preferred stock and all other series of voting preferred stock,
voting as a single class regardless of series, will be necessary to (a) amend,
alter or repeal the charter so as to materially and adversely affect the
voting powers, rights or preferences of the holders of the preferred stock or
(b) authorize, create or increase the authorized amount of any shares ranking
prior to the preferred stock in the distribution of assets or any liquidation
or in the payment of dividends. Each share of common stock has one vote.
Our Board of Directors has the power, however, to create additional
classes of shares of parity and junior stock, increase the authorized number
of shares of parity and junior stock, and issue additional series of shares of
parity and junior stock without the consent of any holder of preferred stock.
Amendment of the Partnership Agreement or the Charter
The Operating Partnership
We generally have the power, without the consent of any limited partners,
to amend the Partnership Agreement as may be required to reflect any changes
that we deem necessary or appropriate in our sole discretion, provided that
the amendment does not adversely affect or eliminate any right granted to a
limited partner that is protected by specified special voting provisions. See
"Description of the Units and the Operating Partnership--Amendment of the
Partnership Agreement" for further information about our power to amend the
Partnership Agreement and the limits on that power.
Reckson
Amendments to our charter require the vote of holders of two-thirds of
all votes entitled to be cast on the matter (assuming a quorum is present).
Review of Investor Lists
The Operating Partnership
Under the Partnership Agreement, a limited partner in the Operating
Partnership, upon written demand with a statement of the purpose of the demand
and at the limited partner's expense, is entitled to obtain a current list of
the name and last known business, residence or mailing address of each limited
partner of the Operating Partnership.
46
Reckson
Under the MGCL, one or more stockholders holding of record for at least
six months at least 5% of the outstanding stock of any class may, upon written
request, inspect and copy during usual business hours the stock ledger of the
company or, if the company does not maintain an original or duplicate stock
ledger at its principal office, obtain a verified list of stockholders,
stating their names and addresses and the number of shares of each class held
by each stockholder.
Thus, the limited partners in the Operating Partnership and our
stockholders have similar rights to inspect and, at their own expense, make
copies of investor lists, with some limitations.
Review of Books and Records
The Operating Partnership
Under the Partnership Agreement, a limited partner in the Operating
Partnership, upon written demand with a statement of the purpose of the demand
and at the limited partner's expense, is entitled to obtain a copy of the
Operating Partnership's federal, state and local income tax returns, to obtain
a copy of the most recent annual and quarterly reports filed by us with the
Commission and to obtain some other records and information as provided in the
Partnership Agreement. Limited partners in the Operating Partnership do not
have any right to inspect the books of the Operating Partnership.
Reckson
Under the MGCL, any stockholder or his agent may inspect and copy during
normal business hours the following documents: bylaws; minutes of the
proceedings of stockholders; annual statements of affairs; and voting trust
agreements on file at the corporation's principal office and, upon written
request, is entitled to a statement showing all stock and securities issued by
the corporation during a specified period of not more than 12 months before
the date of the request.
In addition, one or more stockholders holding of record at least 5% of
the outstanding shares of any class of a corporation may, upon written
request, inspect and copy during usual business hours the books of account of
the corporation and a verified statement, in reasonable detail, of its assets
and liabilities as of a reasonably current date.
Issuance of Additional Equity
The Operating Partnership
The Operating Partnership is generally authorized to issue units and
other partnership interests, including partnership interests of different
series or classes, as determined by us as the general partner in our sole
discretion. The Operating Partnership may issue units and other partnership
interests to us, as long as these interests are issued in connection with a
comparable issuance of our securities and proceeds raised in connection with
the issuance of our securities are contributed to the Operating Partnership or
the additional units are issued to all partners in proportion to their
respective percentage interests. The terms of some series of preferred units
limit our ability to issue other series of units ranking prior to them.
Reckson
Our Board of Directors may authorize the issuance, in its discretion, of
additional shares of common stock and other equity securities of Reckson,
including one or more classes of common or preferred stock, with the
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications and terms and conditions of
redemption that the Board of Directors may establish.
We and the Operating Partnership both have substantial flexibility to
raise equity through the sale of additional units, shares of common or
preferred stock or other securities to finance the business and affairs of the
Operating Partnership.
47
Permitted Investments
The Operating Partnership
The Operating Partnership's purpose is to conduct any business that may
be lawfully conducted by a Delaware limited partnership, provided that this
business is to be conducted in a manner that permits us to be qualified as a
REIT unless we cease to qualify as a REIT for any reason.
The Operating Partnership is authorized to perform any and all acts for
the furtherance of the purposes and business of the Operating Partnership,
including making investments, provided that the Operating Partnership may not
take, or refrain from taking, any action which, in our judgment as general
partner: could adversely affect the ability of the general partner to continue
to qualify as a REIT; could subject the general partner to any additional
taxes under Section 857 or Section 4981 of the Code; or could violate any law
or regulation of any governmental body.
Reckson
Under our charter, we may engage in any lawful activity permitted by the
MGCL. Under the Partnership Agreement, we, as general partner, agree that we
will not, directly or indirectly, enter into or conduct any business other
than in connection with the ownership, acquisition and disposition of
partnership interests in the Operating Partnership and the management of the
business of the Operating Partnership, and such activities that are incidental
thereto, except with the consent of a majority of the limited partnership
interests, including limited partnership interests held by us.
We and the Operating Partnership may invest in any types of real estate
and geographic areas that we deem appropriate. Subject to certain
restrictions, the Operating Partnership may perform all acts necessary for the
furtherance of the Operating Partnership's business, including diversifying
its portfolio to protect the value of its assets or as a prudent hedge against
the risk of having too many of its investments limited to a single asset group
or in a particular region of the country. We, as general partner of the
Operating Partnership, generally may not conduct any business other than the
management of the business of the Operating Partnership without the consent of
a majority of the limited partnership interests.
Other Investment Restrictions
The Operating Partnership
Other than restrictions precluding investments by the Operating
Partnership that would adversely affect our qualification as a REIT and
restrictions on transactions with affiliates, the Partnership Agreement does
not generally restrict the Operating Partnership's authority to make
investments, lend Operating Partnership funds or reinvest the Operating
Partnership's cash flow and net sale or refinancing proceeds.
Reckson
Our charter does not restrict our ability to enter into any contract or
transaction of any kind, including the purchase or sale of property, with any
person, including any of our directors, officers, employees or agents, whether
or not any of them has a financial interest in the transaction.
PLAN OF DISTRIBUTION
This prospectus relates to the possible issuance by us of up to 465,845
shares of common stock, if, and to the extent that, we elect to issue shares
of common stock to holders of up to 465,845 Class C Units, upon the tender of
the Class C Units for redemption.
48
We will not receive any cash proceeds from the issuance of the common
stock to holders of Class C Units upon receiving a notice of redemption. We
will acquire one unit from a redeeming partner, in exchange for each share of
common stock that we issue. Consequently, with each redemption, our interest
in the Operating Partnership will increase. Application will be made to list
the shares of common stock on the New York Stock Exchange.
All costs, expenses and fees in connection with the registration of the
shares of common stock will be borne by us.
LEGAL MATTERS
The validity of the issuance of the common stock offered hereby will be
passed upon by Sidley Austin Brown & Wood LLP, New York, New York. Certain
legal matters described under "Material Federal Income Tax Consequences" will
be passed upon by Solomon and Weinberg LLP.
EXPERTS
Ernst & Young LLP, independent registered public accounting firm, have
audited the consolidated financial statements and schedule of the Company
included in the Company's Annual Report on Form 10-K for the year ended
December 31, 2003, as set forth in their report, which is incorporated by
reference in this prospectus and elsewhere in the registration statement.
These financial statements and schedule are incorporated by reference in
reliance on Ernst & Young LLP's report, given on their authority as experts in
accounting and auditing.
49
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The following sets forth the estimated expenses payable by the Registrant
in connection with the issuance and distribution of the Registrant's
securities being registered hereby:
Securities and Exchange Commission registration fee............. $1,651
Printing and engraving expenses................................. 5,000
Legal fees and expenses......................................... 25,000
Accounting fees and expenses.................................... 12,000
Miscellaneous................................................... 5,000
Total $48,651
Item 15. Indemnification of Directors and Officers.
The Maryland General Corporation Law, as amended from time to time (the
"MGCL"), permits a Maryland corporation to include in its charter a provision
limiting the liability of its directors and officers to the corporation and
its stockholders for money damages except for liability resulting from (a)
actual receipt of an improper benefit or profit in money, property or services
or (b) active and deliberate dishonesty established by a final judgment as
being material to the cause of action. The charter of Reckson Associates
contains such a provision which eliminates such liability to the maximum
extent permitted by Maryland law.
Our charter authorizes us, to the maximum extent permitted by Maryland
law, to obligate ourselves to indemnify and to pay or reimburse reasonable
expenses in advance of final disposition of a proceeding to (a) any present or
former director or officer or (b) any individual who, while a director of the
Company and at the request of the Company, serves or has served another
corporation, real estate investment trust, partnership, joint venture, trust,
employee benefit plan or any other enterprise as a director, officer, partner
or trustee of such corporation, real estate investment trust, partnership,
joint venture, trust, employee benefit plan or other enterprise and who is
made a party to the proceeding by reason of his or her service in that
capacity. Our bylaws obligate us, to the maximum extent permitted by Maryland
law, to indemnify and to pay or reimburse reasonable expenses in advance of
final disposition of a proceeding to (a) any present or former director or
officer who is made a party to the proceeding by reason of his service in that
capacity or (b) any individual who, while a director of the Company and at the
request of the Company, serves or has served another corporation, real estate
investment trust, partnership, joint venture, trust, employee benefit plan or
any other enterprise as a director, officer, partner or trustee of such
corporation, real estate investment trust, partnership, joint venture, trust,
employee benefit plan or other enterprise and who is made a party to the
proceeding by reason of his service in that capacity. Our charter and bylaws
also permit us to indemnify and advance expenses to any person who served a
predecessor of the Company in any of the capacities described above and to any
employee or agent of the Company or a predecessor of the Company.
The MGCL requires a corporation (unless its charter provides otherwise,
which our charter does not) to indemnify a director or officer who has been
successful, on the merits or otherwise, in the defense of any proceeding to
which he is made a party by reason of his service in that capacity. The MGCL
permits a corporation to indemnify its present and former directors and
officers, among others, against judgments, penalties, fines, settlements and
reasonable expenses actually incurred by them in connection with any
proceeding to which they may be made a party by reason of their service in
those or other capacities unless it is established that (a) the act or
omission of the director or officer was material to the matter giving rise to
the proceeding and (i) was committed in bad faith or (ii) was the result of
active and deliberate dishonesty, (b) the director or officer actually
received an improper personal benefit in money, property or services or (c) in
the case of any criminal proceeding, the director or officer had reasonable
cause to believe that the act or omission was unlawful. However, under the
MGCL, a Maryland
corporation may not indemnify for an adverse judgment in a suit by or in the
right of the corporation or for a judgment of liability on the basis that
personal benefit was improperly received, unless in either case a court orders
indemnification and then only for expenses. In addition, the MGCL permits a
corporation to advance reasonable expenses, upon the corporation's receipt of
(a) a written affirmation by the director or officer of his good faith belief
that he has met the standard of conduct necessary for indemnification by the
Company and (b) a written statement by or on his behalf to repay the amount
paid or reimbursed by the Company if it shall ultimately be determined that
the standard of conduct was not met.
We have entered into indemnification agreements with each of our
executive officers and directors. The indemnification agreements require,
among other matters, that we indemnify our executive officers and directors to
the fullest extent permitted by law and advance to the executive officers and
directors all related expenses, subject to reimbursement if it is subsequently
determined that indemnification is not permitted. Under these agreements, we
must also indemnify and advance all expenses incurred by executive officers
and directors seeking to enforce their rights under the indemnification
agreements and may cover executive officers and directors under the Company's
directors' and officers' liability insurance. Although indemnification
agreements offer substantially the same scope of coverage afforded the bylaws,
they provide greater assurance to directors and executive officers that
indemnification will be available, because, as contracts, they cannot be
modified unilaterally in the future by the Board of Directors or the
stockholders to eliminate the rights they provide.
Item 16. Exhibits.
4.1 -- Form of common stock certificate.(1)
5 -- Opinion of Sidley Austin Brown & Wood LLP as to the legality of
the common stock.(2)
8 -- Opinion of Solomon and Weinberg LLP as to tax matters.
10.1 -- Registration Rights Agreement, dated as of August 7, 2003,
between the Company and 1055 Stamford Associates Limited
Partnership.
23.1 -- Consent of Sidley Austin Brown & Wood LLP (included in Exhibit
5).
23.2 -- Consent of Solomon and Weinberg LLP (included in Exhibit 8).
23.3 -- Consent of Ernst & Young LLP.
24 -- Power of attorney (included on the signature pages of this
Registration Statement).
- --------------
(1) Previously filed as an exhibit to Amendment No. 4 to Registration
Statement on Form S-3 (333-67129) and incorporated herein by reference.
(2) To be filed by amendment.
Item 17. Undertakings.
(a) The Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to the Registration Statement;
(i) To include any prospectus required by Section 10(a)(3)
of the Securities Act;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the Registration Statement (or
the most recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement. Notwithstanding
the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or
2
high end of the estimated maximum offering range may be reflected in
the form of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price
represent no more than a 20% change in the maximum offering price set
forth in the "Calculation of Registration Fee" table in the effective
Registration Statement;
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement.
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not
apply if the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports filed
with or furnished to the Commission by the Registrant pursuant to
Section 13 or 15(d) of the Exchange Act that are incorporated by
reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof; and
(3) (a) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) Each Registrant hereby undertakes that, for purposes of determining
any liability under the Securities Act, each filing of such Registrant's
annual report pursuant to Section 13(a) or 15(d) of the Exchange Act (and,
where applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Exchange Act) that is incorporated by
reference in the Registration Statement shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers, partners and
controlling persons of a Registrant pursuant to the foregoing provisions, or
otherwise, the Registrants have been advised that in the opinion of the
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by a
Registrant of expenses incurred or paid by a director, officer, partner or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer, partner or
controlling person in connection with the securities being registered, the
applicable Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the Township of Huntington, State of New York,
on August 6, 2004.
RECKSON ASSOCIATES REALTY CORP.
By: /s/ Scott H. Rechler
------------------------------------------
Scott H. Rechler
Chief Executive Officer, President and Director
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned officers and
directors of Reckson Associates Realty Corp., whose signature appears below
hereby constitutes and appoints Scott H. Rechler and Michael Maturo or any one
of them, his or her attorneys-in-fact and agents, each with full power of
substitution and resubstitution for him or her in any and all capacities, to
sign any or all amendments or post-effective amendments to this registration
statement or a registration statement prepared in accordance with Rule 462 of
the Securities Act of 1933, as amended, and to file the same, with exhibits
thereto and other documents in connection herewith or in connection with the
registration of the offered securities under the Securities Exchange Act of
1934, as amended, with the Securities and Exchange Commission, granting unto
each of such attorneys-in-fact and agents full power to do and perform each
and every act and thing requisite and necessary in connection with such
matters and hereby ratifying and confirming all that each of such
attorneys-in-fact and agents or his or her substitutes may do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Donald J. Rechler Chairman of the Board August 6, 2004
---------------------
Donald J. Rechler
/s/ Scott H. Rechler Chief Executive Officer, President and August 6, 2004
-------------------- Director
Scott H. Rechler
Executive Vice President, Treasurer and
/s/ Michael Maturo Chief Financial Officer (Principal August 6, 2004
------------------ Financial Officer and Principal
Michael Maturo Accounting Officer)
/s/ Ronald Menaker Director August 6, 2004
------------------
Ronald Menaker
______________________________ Director
Peter Quick
/s/ Lewis S. Ranieri Director August 6, 2004
-------------------------------
Lewis S. Ranieri
______________________________ Director
Douglas Crocker III
Signature Title Date
--------- ----- ----
/s/ Stanley Steinberg Director August 6, 2004
---------------------------
Stanley Steinberg
/s/ Elizabeth McCaul Director August 6, 2004
--------------------
Elizabeth McCaul
/s/ John Ruffle Director August 6, 2004
---------------
John Ruffle
Exhibit Index
-------------
Exhibits Description
-------- -----------
5 -- Opinion of Sidley Austin Brown & Wood LLP as to the
legality of the securities.(1)
8 -- Opinion of Solomon and Weinberg LLP as to tax matters.
10.1 -- Registration Rights Agreement, dated as of August 7, 2003,
between the Company and 1055 Stamford Associates Limited
Partnership.
23.1 -- Consent of Sidley Austin Brown & Wood LLP (included in
Exhibit 5).
23.2 -- Consent of Solomon and Weinberg LLP (included in Exhibit 8).
23.3 -- Consent of Ernst & Young LLP.
24 -- Power of attorney (included on the signature pages of this
Registration Statement).
- -------------------
(1) To be filed by amendment.
Exhibit 8
SOLOMON AND WEINBERG LLP
ATTORNEYS AT LAW
685 THIRD AVENUE
NEW YORK, NEW YORK 10017
--------
212.605.1000
FACSIMILE 212.605.0999
SOLOMON AND WEINBERG
TWO UNIVERSITY PLAZA
HACKENSACK, NEW JERSEY 07601
201.487.6800
FACSIMILE 201.487.6633
WRITER'S DIRECT DIAL NUMBER:
August 6, 2004
Reckson Associates Realty Corp.
225 Broadhollow Road
Melville, New York 11747
Ladies and Gentlemen:
You have requested our opinion concerning certain federal income tax
matters with respect to Reckson Associates Realty Corp. (the "Company") in
connection with the Form S-3 registration statement of the Company to be filed
by the Company with the Securities and Exchange Commission (the "SEC") on or
about August 6, 2004 (the "Registration Statement").
The opinions expressed below are based, in part, upon various
assumptions and factual representations set forth in the Registration
Statement (including the prospectus relating thereto), in registration
statements on Forms S-11 and S-3 previously filed by the Company with the SEC
and in a letter delivered to us by the Company today (the "Representation
Letter"), and upon our review of such other documents as we have considered
necessary or appropriate as a basis for rendering this opinion. We have not
made any independent investigation of the facts set forth in any of these
documents. We are not, however, aware of any material facts or circumstances
contrary to or inconsistent with the representations we have relied upon as
described herein or other assumptions set forth herein. We have assumed that
all representations made in the Representation Letter to the best of the
knowledge of any person are true, correct and complete as if made without such
qualification. This opinion is also based upon the Internal Revenue Code of
1986, as amended (the "Code"), the Treasury Regulations promulgated thereunder
(including temporary and proposed regulations) and existing administrative and
judicial interpretations thereof (including private letter rulings issued by
the Internal Revenue Service (the "IRS"), which are not binding on the IRS
except with respect to a taxpayer receiving such a ruling), all as they exist
at the date of this letter. All of the foregoing statutes, regulations and
interpretations are subject to change, in some circumstances with retroactive
effect. Any changes to the foregoing authorities might result in modifications
of our opinions contained herein.
Based on the foregoing, we are of the opinion that, commencing with
the Company's taxable year ended December 31, 2000, the Company has been
organized and operated in
conformity with the requirements for qualification and taxation as a real
estate investment trust (a "REIT") under the Code and the proposed method of
operation of the Company will enable the Company to continue to meet the
requirements for qualification and taxation as a REIT under the Code.
We express no opinion with respect to the transactions described
herein or in the Registration Statement other than those opinions expressly
set forth herein. Furthermore, the Company's qualification as a REIT will
depend upon the Company's meeting, in its actual operations, the applicable
asset composition, source of income, shareholder diversification, distribution
and other requirements of the Code and Treasury Regulations necessary for a
corporation to qualify as a REIT. We will not review these operations and no
assurance can be given that the actual operations of the Company and its
affiliates will meet these requirements or the representations made to us with
respect thereto for any taxable year.
This opinion letter is furnished to you for your use in connection
with the Registration Statement. We hereby consent to the filing of this
opinion as Exhibit 8.1 to the Registration Statement and to the use of our
name in connection with the material discussed therein under the caption
"Material Federal Income Tax Consequences," including its use under the
caption "Legal Matters" with respect to such material.
Very truly yours,
/s/ Solomon & Weinberg LLP
2
Exhibit 10.1
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is entered into
as of August 7, 2003 by and between Reckson Associates Realty Corp., a
Maryland corporation (the "Company") and 1055 Stamford Associates Limited
Partnership, a Massachusetts limited partnership (the "Initial Holder").
WHEREAS, the Initial Holder is to receive Class C common units of
limited partnership interest ("Units") in Reckson Operating Partnership, L.P.,
a Delaware limited partnership (the "Operating Partnership"), which may be
redeemed for cash, or at the option of the Company, common stock, par value
$.01 per share, of the Company ("Common Stock") pursuant to the Contribution
and Conveyance Agreement, dated as of August 7, 2003 (the "Contribution
Agreement") between the Operating Partnership and the Initial Holder, relating
to the acquisition by the Operating Partnership of certain real property owned
by the Initial Holder; and
WHEREAS, it is a condition precedent to the obligations of the
Initial Holder under the Contribution Agreement to consummate the transactions
pursuant to which the Initial Holder will receive Units that the Company enter
into this Agreement with the Initial Holder;
NOW, THEREFORE, in consideration of the mutual promises and
agreements set forth herein, and other valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree
as follows:
1. Certain Definitions.
As used in this Agreement, in addition to the other terms defined
herein, the following capitalized defined terms shall have the following
meanings:
"Holder" shall mean the Initial Holder, for so long as it owns any
Registrable Securities, and each of its respective successors, assigns and
direct and indirect transferees who become holders of Registrable Securities.
"Lock-up Period" shall mean one year from the date of original
issuance of the Units to the Holder.
"Registrable Shares" shall mean shares of Common Stock issued or to
be issued to a Holder upon redemption or in exchange for its Units, excluding
Shares (i) which are not Restricted Securities, as such term is defined in
Rule 144 under the Securities Act of 1933, as amended (the "Securities Act"),
(ii) which have been issued pursuant to an effective Registration Statement
under the Securities Act or (iii) Shares eligible for sale pursuant to Rule
144 (k) (or any successor provision) under the Securities Act.
"Registration Statement" shall mean any registration statement of the
Company which covers the issuance or resale of any of the Registrable Shares
under the Securities Act on an appropriate form, and all amendments and
supplements to such registration statement, including post-effective
amendments, in each case including the prospectus contained therein, all
exhibits thereto and all materials incorporated by reference therein.
"Shares" shall mean all Common Stock issued or issuable to the Holder
upon redemption or in exchange for Units held by the Holder and any other
Common Stock issued as a dividend with respect to, or in exchange for or in
replacement of such Common Stock.
2. Registration.
(a) Subject to the conditions set forth in this Agreement, the
Company will file with the Securities and Exchange Commission (the "SEC") a
registration statement on Form S-3 (the "Issuance Registration Statement")
under Rule 415 of the Securities Act relating to the issuance to the Holders
of the Shares in exchange for Units acquired pursuant to the Contribution
Agreement, such filing to be made on a date (the "Filing Date") which is no
earlier than two weeks before the expiration of the Lock-Up Period and no
later than the date of the expiration of the Lock-Up Period; provided, however
that notwithstanding the foregoing, the Filing Date may be such other date as
may be required under applicable provisions of the Securities Act or as
required by the SEC pursuant to its interpretation of applicable federal
securities laws and the rules and regulations promulgated thereunder. The
Company shall use its best efforts to cause the Issuance Registration
Statement to be declared effective by the SEC for all of the Registrable
Shares covered thereby as soon as practicable thereafter. The Company agrees
to use its best efforts to keep the Issuance Registration Statement
continuously effective until the date on which each Holder has tendered its
Units for redemption and the redemption price therefor (whether paid in cash
or in Common Stock) has been delivered to each Holder (the "Issuance
Registration Expiration Date").
(b) In the event that, for any reason, the Company determines that it
is unable to cause an Issuance Registration Statement to be declared effective
by the SEC within ninety (90) days following the Filing Date or (except as
otherwise permitted by Sections 8 and 9) is unable or it is impracticable to
keep such Issuance Registration Statement continuously effective until the
Issuance Registration Expiration Date, the Company shall promptly file with
the SEC a Registration Statement on Form S-3 (a "Resale Shelf Registration
Statement") under Rule 415 under the Securities Act relating to the resale by
the Holders of their Registrable Shares. The Company shall use its best
efforts to cause such Resale Shelf Registration Statement to be declared
effective by the SEC as soon as practicable thereafter. The Company agrees to
use its best efforts to keep the Resale Shelf Registration Statement, after
its date of effectiveness, continuously effective until the date (the "Resale
Shelf Registration Expiration Date") on which all Registrable Shares have been
disposed of by the Holders. After the Company has filed the Resale Shelf
Registration Statement, any obligation of the Company to file an Issuance
Registration Statement pursuant to Section 2(a) above with respect to the
Registrable Shares registered by the Resale Shelf Registration Statement shall
be suspended for as long as the Resale Shelf Registration Statement remains
effective.
(c) The Company shall promptly notify each Holder of the
effectiveness of a Registration Statement and shall furnish to each Holder
such number of copies of a Registration Statement as each Holder may
reasonably request (including any amendments, supplements and exhibits), the
prospectus contained therein (including each preliminary prospectus), any
documents incorporated by reference in a Registration Statement and such other
documents as each Holder may reasonably request in order to facilitate its
sale of the Registrable Shares in the manner described in the Resale
Registration Statement.
2
(d) The Company shall promptly prepare and file with the SEC from
time to time such amendments and supplements to a Registration Statement and
prospectus used in connection therewith as may be necessary to keep such
Registration Statement effective and to comply with the provisions of the
Securities Act with respect to the issuance or disposition of all of the
Registrable Shares until the earlier of (a) such time as all of the Common
Stock to be issued upon redemption or exchange for Units have been issued
pursuant to the Issuance Registration Statement or, in the event a Resale
Registration Statement has been filed in accordance with Section 2(b) hereof,
all of the Registrable Shares have been disposed of in accordance with the
intended methods of disposition by the Holders as set forth in the Resale
Registration Statement or (b) the date on which the Registration Statement
ceases to be effective in accordance with the terms of this Section 2. Upon
five (5) business days' notice, the Company shall file any supplement or
post-effective amendment to the Resale Registration Statement with respect to
such Holder's interests in or plan of distribution of Registrable Shares that
is reasonably necessary to permit the sale of the Holder's Registrable Shares
pursuant to the Resale Registration Statement. The Company shall file any
necessary listing applications or amendments to the existing applications to
cause the Shares to be listed or quoted on the primary exchange or quotation
system on which the Common Stock is then listed or quoted.
(e) The Company shall promptly notify each Holder of, and confirm in
writing, any request by the SEC for amendments or supplements to a
Registration Statement or the prospectus related thereto or for additional
information. In addition, the Company shall promptly notify each Holder of,
and confirm in writing, the filing of a Registration Statement, any prospectus
supplement related thereto or any post-effective amendment to such
Registration Statement and the effectiveness of any post-effective amendment.
(f) The Company shall immediately notify each Holder at any time when
a prospectus relating to the Resale Registration Statement is required to be
delivered under the Securities Act, of the happening of any event as a result
of which the prospectus included in a Registration Statement, as then in
effect, includes an untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. In such event, the Company shall promptly prepare and
furnish to each Holder a reasonable number of copies of a supplement to or an
amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of Registrable Shares, such prospectus shall not
include an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they are made, not
misleading.
(g) If requested by a Holder, the Company shall within a reasonable
time before filing a Resale Registration Statement or prospectus or amendments
or supplements thereto with the SEC furnish to counsel selected by the Holder
copies of such documents proposed to be filed.
(h) The Company shall during the period when the prospectus is
required to be delivered under the Securities Act timely file all documents
required to be filed with the SEC pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Securities Exchange Act of 1934, as amended.
3
3. State Securities Laws. Subject to the conditions set forth in this
Agreement, the Company shall, promptly upon the filing of a Registration
Statement including Registrable Shares, file such documents as may be
necessary to register or qualify the Registrable Shares under the securities
or "Blue Sky" laws of such states as each Holder may reasonably request, and
the Company shall use its best efforts to cause such filings to become
effective; provided, however, that the Company shall not be obligated to
qualify as a foreign corporation to do business under the laws of any such
state in which it is not then qualified or to file any general consent to
service of process in any such state. Once effective, the Company shall use
its best efforts to keep such filings effective until the earlier of (a) in
the case of an Issuance Registration Statement, such time as all of the Common
Stock to be issued upon redemption or exchange for Units has been issued
pursuant to the Issuance Registration Statement, (b) in the case of a Resale
Registration Statement, such time as all of the Registrable Shares have been
disposed of in accordance with the intended methods of disposition by the
Holders as set forth in the Resale Registration Statement, (c) in the case of
a particular state, such Holder has notified the Company that it no longer
requires an effective filing in such state in accordance with its request for
filing or (d) the date on which a Registration Statement ceases to be
effective in accordance with the terms of Section 2 hereof. The Company shall
promptly notify each Holder of, and confirm in writing, the receipt by the
Company of any notification with respect to the suspension of the
qualification of the Registrable Shares for sale under the securities or "Blue
Sky" laws of any jurisdiction or the initiation or threat of any proceeding
for such purpose.
4. Expenses. Except as otherwise set forth in this Section 4, the
Company shall bear all expenses incurred in connection with the registration
of the Registrable Shares pursuant to Section 2 and 3 of this Agreement. Such
expenses shall include, without limitation, all printing, legal and accounting
expenses incurred by the Company and all registration and filing fees imposed
by the SEC, any state securities commission or the New York Stock Exchange or,
if the Common Stock is not then listed on the New York Stock Exchange, the
principal national securities exchange or national market system on which the
Common Stock is then traded or quoted. The Holders shall be responsible for
any brokerage or underwriting commissions and taxes of any kind (including,
without limitation, transfer or stamp taxes) with respect to any disposition,
sale or transfer of Registrable Shares and for any legal, accounting and other
expenses incurred by the Holder.
5. Indemnification by the Company. The Company agrees to indemnify
each Holder and its officers, partners, employees, agents, representatives and
affiliates, and each person or entity, if any, that controls such Holder
within the meaning of the Securities Act, and each other person or entity, if
any, subject to liability because of his, her or its connection with such
Holder (an "Indemnitee"), against any and all losses, claims, damages,
actions, liabilities, costs and expenses (including without limitation
reasonable attorneys' fees, expenses and disbursements documented in writing),
joint or several, arising out of or based upon (i) any untrue or alleged
untrue statement of material fact contained in the Resale Registration
Statement or any prospectus contained therein, (ii) any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, except insofar as and to the
extent that such statement or omission arose out of or was based upon
information regarding the Indemnitee or its plan of distribution which was
furnished to the Company by the Indemnitee expressly for use therein or (iii)
any violation by the Company of the Securities Act, any state
4
securities act or "Blue Sky" laws or any sale or regulation thereunder in
connection with such registration, provided, however, that the Company shall
not be liable to any person in any such case to the extent that any such loss,
claim, damage, liability (or action or proceeding in respect thereof) or
expense arises out of or is based upon (i) an untrue statement or alleged
untrue statement or omission or alleged omission made in such registration
statement, any such preliminary prospectus, final prospectus, summary
prospectus, amendment or supplement in reliance upon and in conformity with
information furnished to the Company by the Indemnitee expressly for use in
connection with the Resale Registration Statement or the prospectus contained
therein or (ii) such Indemnitee's failure to send or give a copy of the final
prospectus furnished to it by the Company at or prior to the time such action
is required by the Securities Act to the selling broker (if applicable) for
delivery to the person claiming an untrue statement or alleged untrue
statement or omission or alleged omission if such statement or omission was
corrected in such final prospectus. The provisions of this Section 6 shall
survive the expiration or prior termination of this Agreement.
6. Covenants of Holder. Each Holder hereby agrees (a) to cooperate
with the Company and to furnish to the Company, in a timely manner, all such
information in connection with the preparation of the Resale Registration
Statement with respect to such Holder's Registrable Shares and any filings
with any state securities commissions as the Company may reasonably request,
(b) to deliver to the selling broker (if applicable) or to otherwise cause
delivery of the prospectus contained in the Resale Registration Statement to
any purchaser of the Shares covered by the Resale Registration Statement from
such Holder and (c) the Initial Holder and each Holder, severally and not
jointly, agree to indemnify the Company, its officers, directors, employees,
agents, representatives and affiliates, and each person, if any, who controls
the Company within the meaning of the Securities Act, and each other person,
if any, subject to liability because of his connection with the Company,
against any and all losses, claims, damages, actions, liabilities, costs and
expenses arising out of or based upon (i) any untrue statement or alleged
untrue statement of material fact contained in either the Resale Registration
Statement or the prospectus contained therein, (ii) any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, if and to the extent that such
statement or omission arose out of or was based upon information regarding
such Holder or its plan of distribution which was furnished to the Company by
such Holder expressly for use therein, (iii) any violation by a Holder of the
Securities Act, any state securities act or "Blue Sky" laws or any sale or
regulation thereunder in connection with such registration or (iv) the failure
by such Holder to deliver to the selling broker (if applicable) or to
otherwise cause to be delivered the prospectus contained in the Resale
Registration Statement (as amended or supplemented, if applicable) furnished
by the Company to such Holder to any purchaser of the Shares covered by the
Resale Registration Statement from such Holder. Notwithstanding the foregoing,
in no event will a Holder have any obligation under this Section 6 for amounts
the Company pays in settlement of any such loss, claim, damage, liability or
action if such settlement is effected without the consent of such Holder
(which consent shall not be unreasonably withheld) and in no event shall the
liability of any Holder for indemnification under this Section 6 in its
capacity as a seller of Registrable Securities exceed the amount equal to the
proceeds to such Holder from the sale of securities by such Holder which gave
rise to the incurrence of such indemnification.
5
7. Suspension of Registration Requirement.
(a) The Company shall promptly notify each Holder of, and confirm in
writing, the issuance by the SEC of any stop order suspending the
effectiveness of a Registration Statement or the initiation of any proceedings
for that purpose. The Company shall use its best efforts to prevent the
issuance of any stop order suspending the effectiveness of a Registration
Statement and if one is issued use its best efforts to obtain the withdrawal
of any order suspending the effectiveness of a Registration Statement at the
earliest possible moment.
(b) Notwithstanding anything to the contrary set forth in this
Agreement, the Company's obligation under this Agreement to use its best
efforts to cause a Registration Statement and any filings with any state
securities commission to become effective or to amend or supplement a
Registration Statement shall be suspended, for one or more periods not to
exceed the period described in Section 9 below, in the event and during such
period as unforeseen circumstances exist (including, without limitation, (i)
an underwritten primary offering by the Company if the Company is advised by
the underwriters that the sale of shares under the Registration Statement
would have a material adverse effect on the primary offering or (ii) the
Company has been advised by legal counsel that pending negotiations relating
to, or consummation of, a transaction or the occurrence of an event that would
require additional disclosure of material information by the Company in a
Registration Statement or such filing, as to which the Company has a bona fide
business purpose for preserving confidentiality or which renders the Company
unable to comply with SEC requirements) (such unforeseen circumstances being
hereinafter referred to as a "Suspension Event") that would make it
impractical or inadvisable to cause a Registration Statement or such filings
to become effective or to amend or supplement a Registration Statement, but
such suspension shall continue only for so long as such event or its effect is
continuing and in no event will that suspension exceed 60 days. The Company
shall notify each Holder of the existence and, in the case of circumstances
referred to in clause (i) of this Section 7(b), of the nature of any
Suspension Event.
(c) Subject to the terms of Section 9 below, each Holder agrees, if
requested by the Company in a non-underwritten offering or requested by the
managing underwriter or underwriters in an underwritten offering (each, a
"Company Offering"), not to effect any public sale or distribution of any of
the securities of the Company of any class included in a Registration
Statement filed pursuant to Section 2 hereof during the 15-day period prior
to, and during the 90-day period following the date of effectiveness of the
relevant registration statement in connection with a Company Offering, to the
extent timely notified in writing by the Company or the managing underwriters
(an "Offering Blackout Period"); provided, however, that all directors and
officers of the Company and all 1% or greater stockholders of the Company
enter into contractual lock-up or similar agreements restricting the sale of
Common Stock owned by them for the same period. Such 90-day period shall be
extended by the number of days from and including the date of the giving of
any notice pursuant to Section 2(e) or (f) hereof to and including the date
when a Holder of Registrable Shares covered by such Registration Statement
shall have received the copies of the supplemented or amended prospectus
contemplated by Section 2(f) hereof. Notwithstanding the foregoing, this
Subsection 7(c) shall not prohibit sales of Shares by a Holder or in a private
resale not pursuant to a Resale Registration Statement or through a securities
exchange or market maker; provided, that the purchaser in any such private
6
resale shall agree in writing to be subject to such restrictions for the
remaining portion of such period that would otherwise apply to the Holder.
8. Limitations on Suspension / Blackout Period. Notwithstanding
anything herein to the contrary, the Company covenants and agrees that (a) the
Company's rights to suspend its obligation under this Agreement to file, amend
or supplement a Registration Statement and maintain the effectiveness of any
Registration Statement during the pendency of any Suspension Event, (b) the
Holders' obligation to suspend public sales of Shares during one or more
Offering Blackout Periods and (c) the Holders' obligations to suspend sales of
Shares pursuant to a Registration Statement during the pendency of any
Suspension Event, shall not, in the aggregate, cause the Holders to be
required to suspend sales of Shares or relieve the Company of its obligation
to file, amend or supplement and maintain the effectiveness of a Registration
Statement for (i) longer than ninety (90) days during any twelve (12) month
period or (ii) in the event that directors, officers and 1% stockholders and
other persons with registration rights or other similar rights are not subject
to such Suspension Event or Blackout Period.
9. Additional Shares. The Company, at its option, may register, under
any registration statement and any filings with any state securities
commissions filed pursuant to this Agreement, any number of unissued shares of
Common Stock or any shares of Common Stock owned by any other shareholder or
shareholders of the Company; provided that in no event shall the inclusion of
such shares on a Registration Statement reduce the amount offered for the
account of the Holders on such Registration Statement.
10. Contribution. If the indemnification provided for in Sections 5
and 6 is unavailable to an indemnified party with respect to any losses,
claims, damages, actions, liabilities, costs or expenses referred to therein
or is insufficient to hold the indemnified party harmless as contemplated
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified
party as a result of such losses, claims, damages, actions, liabilities, costs
or expenses in such proportion as is appropriate to reflect the relative fault
of the Company, on the one hand, and the Holder, on the other hand, in
connection with the statements or omissions which resulted in such losses,
claims, damages, actions, liabilities, costs or expenses as well as any other
relevant equitable considerations. The relative fault of the Company, on the
one hand, and of the Holder, on the other hand, shall be determined by
reference to, among other factors, whether the untrue or alleged untrue
statement of a material fact or omission to state a material fact relates to
information supplied by the Company or by the Holder and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission; provided, however, that in no event shall the
obligation of any indemnifying party to contribute under this Section 10
exceed the amount that such indemnifying party would have been obligated to
pay by way of indemnification if the indemnification provided for under
Section 5 or 6 hereof, as applicable, had been available under the
circumstances.
The Company and each Holder agree that it would not be just and
equitable if contribution pursuant to this Section 10 were determined by pro
rata allocation or by any other method of allocation that does not take
account of the equitable considerations referred to in the immediately
preceding paragraph.
7
No indemnified party guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any indemnifying party who was not guilty of such fraudulent
misrepresentation.
In the event that the Company or a Holder receives a complaint, claim
or other notice of any liability or action giving rise to a claim for
indemnification under Section 5 or Section 6, as applicable, the person
claiming indemnification under such applicable section shall promptly notify
the person against whom such indemnification is sought of such complaint,
notice, claim action, and such indemnifying person shall have the right to
investigate and defend any such loss, claim, damage, liability or action;
provided however that failure of any party to deliver prompt notice shall not
preclude such party's right to indemnification or contribution under this
Agreement.
11. Compliance with Rule 144. The Company will use its best efforts
to file with the SEC such information as is required under the Exchange Act
for so long as there is a Holder of Registrable Shares; and in such event the
Company shall use its best efforts to take all action that is required as a
condition to the availability of Rule 144 under the Securities Act (or any
other comparable successor rules). The Company shall use its best efforts to
facilitate and expedite transfer of Registrable Shares pursuant to Rule 144
under the Securities Act, which efforts shall include timely notice to the
transfer agent to expedite such transfers of Registrable Shares.
12. Damages. The Company recognizes and agrees that each Holder of
Registrable Securities will not have an adequate remedy if the Company fails
to comply with the terms and provisions of this Agreement and that damages
will not be readily ascertainable, and the Company expressly agrees that, in
the event of such failure, it shall not oppose an application by any holder of
Registrable Securities or any other Person entitled to the benefits of this
Agreement requiring specific performance of any and all provisions hereof or
enjoining the Company from continuing to commit any such breach of this
Agreement.
13. No Inconsistent Agreements. The Company has not entered into, and
will not enter into, any agreement which is inconsistent with the rights
granted to the Holders of Registrable Securities in the Agreement or otherwise
conflicts with the provisions hereof. The rights granted to the Holders
hereunder do not in any way conflict with and are not inconsistent with the
rights granted to the holders of the Company's other issued and outstanding
securities under any such agreements.
14. No Other Obligation to Register. Except as otherwise expressly
provided in this Agreement, the Company shall have no obligation to the Holder
to register the Registrable Shares under the Securities Act.
15. Amendments and Waivers. The provisions of this Agreement may not
be amended, modified or supplemented without the prior written consent of the
Company and the Holder.
16. Notices. Except as set forth below, all notices and other
communications provided for or permitted hereunder shall be in writing and
shall be deemed to have been duly given if delivered personally or sent by
telex or telecopier, registered or certified mail (return receipt requested),
postage prepaid or courier or overnight delivery service to the Company and to
the
8
Holder at the respective addresses set forth below (or at such other
address for any party as shall be specified by like notice, provided that
notices of a change of address shall be effective only upon receipt thereof),
and further provided, that in case of directions to amend a Registration
Statement pursuant to Section 2(d) or Section 7(a), a Holder must confirm such
notice in writing by overnight express delivery with confirmation of receipt::
If to the Company: Reckson Associates Realty Corp.
225 Broadhollow Road
Melville, New York 11747
Attn: Scott H. Rechler, Co-Chief
Executive Officer and
Jason M. Barnett, General Counsel
With a copy to: Sidley Austin Brown & Wood LLP
787 Seventh Avenue
New York, New York 10019
Attn: J. Gerard Cummins, Esq.
If to the Initial
Holder: 1055 Stamford Associates Limited
Partnership
c/o Elder Associates
27 Congress Street
Salem, Massachusetts 01970
Attn: Raymond Miller and Robert C. Elder
With a copy to: Goodwin Procter LLP
599 Lexington Avenue
New York, New York 10022
Attn: Ross D. Gillman, Esq.
In addition to the manner of notice permitted above, notices given
pursuant to Sections 2, 7 and 8 hereof may be effected telephonically and
confirmed in writing thereafter in the manner described above.
17. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the successors and assigns of the Company. This
Agreement shall inure to the benefit of and be binding upon the successors,
assigns and transferees of the Initial Holder, including, without limitation
and without the need for an express assignment, subsequent Holders; provided,
however, that nothing herein shall be deemed to permit any assignment,
transfer or other disposition of Registrable Securities in violation of the
terms of the Contribution Agreement or charter of the Company. If any
transferee of any Holder shall acquire Registrable Securities, in any manner,
whether by operation of law or otherwise, such Registrable Securities shall be
held subject to all of the terms of this Agreement, and by taking and holding
such Registrable Securities, such Person shall be conclusively deemed to have
agreed to be bound by and to perform all of the terms and provisions of this
Agreement and such Person shall be entitled to receive the benefits hereof.
9
18. Counterparts. This Agreement may be executed in one or more
counterparts each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same agreement.
19. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York applicable to contracts
made and to be performed wholly within said State, without giving effect to
the conflict of law provisions thereof.
20. Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and
of the remaining provisions contained herein shall not be in any way impaired
thereby, it being intended that all of the rights and privileges of the
parties hereto shall be enforceable to the fullest extent permitted by law.
21. Entire Agreement. This Agreement is intended by the parties as a
final expression of their agreement and intended to be the complete and
exclusive statement of the agreement and understanding of the parties hereto
in respect of the subject matter contained herein. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred
to herein, with respect to such subject matter. This Agreement supersedes all
prior agreements and understandings between the parties with respect to such
subject matter.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
10
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first written above.
RECKSON ASSOCIATES REALTY CORP.
By: /s/ Scott H. Rechler
--------------------------------------------
Name: Scott H. Rechler
Title: Co-Chief Executive Officer
INITIAL 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
Exhibit 23.3
Consent of Independent Registered Public Accounting Firm
We consent to the reference to our firm under the caption "Experts"
in the Registration Statement (Form S-3) and related Prospectus of Reckson
Associates Realty Corp. (the "Company") for the registration of 465,845 shares
of its common stock and to the incorporation by reference therein of our
report dated February 17, 2004, with respect to the consolidated financial
statements and schedule of the Company included in its Annual Report (Form
10-K) for the year ended December 31, 2003, filed with the Securities and
Exchange Commission.
/s/ Ernst & Young LLP
New York, New York
August 5, 2004
SIDLEY AUSTIN BROWN & WOOD LLP
BEIJING 787 SEVENTH AVENUE LOS ANGELES
---- NEW YORK, NEW YORK 10019 ----
BRUSSELS TELEPHONE 212 839 5300 NEW YORK
---- FACSIMILE 212 839 5599 ----
CHICAGO www.sidley.com SAN FRANCISCO
---- ----
DALLAS FOUNDED 1866 SHANGHAI
---- ----
GENEVA SINGAPORE
---- ----
HONG KONG TOKYO
---- ----
LONDON WASHINGTON, D.C.
VIA ELECTRONIC FILING
- ---------------------
August 6, 2004
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Reckson Associates Realty Corp.
Registration Statement on Form S-3
----------------------------------
Dear Sirs and Mesdames:
On behalf of Reckson Associates Realty Corp. (the "Company"),
transmitted herewith pursuant to the Securities Act of 1933, as amended (the
"Securities Act"), and Rule 402 thereunder, is the Company's Registration
Statement, including exhibits, on Form S-3 with respect to the registration of
465,845 shares of common stock, par value $.01 per share, with a proposed
maximum aggregate price per share of $27.97.
Pursuant to Rule 461(a) of the Securities Act, the Company intends to
request acceleration of the effective date of the Registration Statement
orally.
The filing fee of $1,651.00 calculated pursuant to Rule 457(c) of the
Securities Act, was previously transmitted on behalf of the Company by wire
transfer to the Securities and Exchange Commission's designated lockbox in
Pittsburgh, Pennsylvania.
If you have any questions, please call the undersigned at (212)
839-8517 or J. Gerard Cummins of this firm at (212) 839-5374. Thank you for
your consideration in this matter.
Very truly yours,
/s/ Jennifer Sheehy
