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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2001
COMMISSION FILE NUMBER: 1-13762
RECKSON OPERATING PARTNERSHIP, L. P.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 11-3233647
- -------- ----------
(STATE OTHER JURISDICTION OF INCORPORATION OF ORGANIZATION) (IRS. EMPLOYER IDENTIFICATION NUMBER)
225 BROADHOLLOW ROAD, MELVILLE, NY 11747
- ---------------------------------- -----
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)
(631) 694-6900
(REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE)
---------------------------------------------
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS) YES X NO__, AND (2) HAS BEEN
SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO__.
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RECKSON OPERATING PARTNERSHIP, L.P.
QUARTERLY REPORT
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2001
TABLE OF CONTENTS
INDEX PAGE
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PART I. FINANCIAL INFORMATION
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Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 2001 (unaudited) and
December 31, 2000..............................................................................2
Consolidated Statements of Operations for the three and nine months ended
September 30, 2001 and 2000 (unaudited)........................................................3
Consolidated Statements of Cash Flows for the nine months ended
September 30, 2001 and 2000 (unaudited)........................................................4
Notes to the Consolidated Financial Statements (unaudited).....................................5
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.........12
Item 3. Quantitative and Qualitative Disclosures about Market Risk....................................20
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PART II. OTHER INFORMATION
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Item 1. Legal Proceeding...............................................................................27
Item 2. Changes in Securities and Use of Proceeds......................................................27
Item 3. Defaults Upon Senior Securities................................................................27
Item 4. Submission of Matters to a Vote of Securities Holders..........................................27
Item 5. Other Information..............................................................................27
Item 6. Exhibits and Reports on Form 8-K...............................................................27
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SIGNATURES....................................................................................................27
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1
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
RECKSON OPERATING PARTNERSHIP, L. P.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS EXCEPT UNIT AMOUNTS)
September 30, 2001
ASSETS (unaudited) December 31, 2000
----------------------- ----------------------
Commercial real estate properties, at cost
Land.................................................................. $ 389,186 $ 396,482
Buildings and improvements............................................ 2,281,906 2,219,448
Developments in progress:
Land.................................................................. 68,734 60,918
Development costs..................................................... 74,198 93,759
Furniture, fixtures and equipment.......................................... 7,418 7,138
----------------------- ----------------------
2,821,442 2,777,745
Less accumulated depreciation......................................... (346,315) (288,479)
----------------------- ----------------------
2,475,127 2,489,266
Investments in real estate joint ventures.................................. 5,663 5,348
Investment in mortgage notes and notes receivable.......................... 55,721 58,220
Cash and cash equivalents.................................................. 37,675 16,624
Tenant receivables......................................................... 10,065 11,511
Investments in service companies and affiliate loans and joint ventures.... 85,184 218,779
Deferred rents receivable.................................................. 96,773 67,930
Prepaid expenses and other assets.......................................... 31,890 68,759
Contract and land deposits and pre-acquisition costs....................... 3,481 1,676
Deferred lease and loan costs ............................................. 63,622 61,681
----------------------- ----------------------
TOTAL ASSETS.......................................................... $ 2,865,201 $ 2,999,794
======================= ======================
LIABILITIES
Mortgage notes payable..................................................... $ 762,526 $ 728,971
Unsecured credit facility.................................................. 246,600 216,600
Senior unsecured notes..................................................... 449,443 449,385
Accrued expenses and other liabilities..................................... 71,353 93,520
Distributions payable...................................................... 32,952 28,801
----------------------- ----------------------
Total Liabilities..................................................... 1,562,874 1,517,277
----------------------- ----------------------
Commitments and other comments............................................. -- --
Minority interests' in consolidated partnerships........................... 140,845 226,350
----------------------- ----------------------
PARTNERS' CAPITAL
Preferred Capital, 11,222,965 and 11,234,518 units outstanding,
respectively............................................................... 301,573 313,126
General Partners' Capital:
Class A common units, 49,806,885 and 45,352,286 units outstanding,
respectively............................................................ 546,206 575,570
Class B common units, 10,283,513 units outstanding....................... 230,563 270,118
Limited Partners' Capital:
Class A common units, 7,638,043 and 7,694,642
units outstanding, respectively...................................... 83,140 97,353
----------------------- ----------------------
Total Partners' Capital................................................. 1,161,482 1,256,167
----------------------- ----------------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL............................... $ 2,865,201 $ 2,999,794
======================= ======================
(see accompanying notes to financial statements)
2
RECKSON OPERATING PARTNERSHIP, L. P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED AND IN THOUSANDS, EXCEPT UNIT DATA)
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------- ----------------------------
2001 2000 2001 2000
--------------- ------------- -------------- -------------
REVENUES:
Base rents................................................... $ 111,394 $ 100,854 $ 330,072 $ 291,353
Tenant escalations and reimbursements........................ 15,328 14,900 45,438 40,730
Equity in earnings of real estate joint ventures and
service companies............................................ 505 706 1,704 3,893
Interest income on mortgage notes and notes receivable....... 1,584 1,901 4,651 6,377
Gain on sales of real estate................................. 972 15,206 972 21,868
Investment and other income.................................. 3,244 6,727 13,448 19,178
--------------- ------------- -------------- -------------
Total Revenues.......................................... 133,027 140,294 396,285 383,399
--------------- ------------- -------------- -------------
EXPENSES:
Property operating expenses.................................. 44,231 41,255 126,099 115,778
Marketing, general and administrative........................ 6,703 6,097 20,540 18,746
Interest..................................................... 23,505 24,651 70,693 72,667
Depreciation and amortization................................ 26,528 24,083 77,221 67,520
--------------- ------------- -------------- -------------
Total Expenses.......................................... 100,967 96,086 294,553 274,711
--------------- ------------- -------------- -------------
Income before distributions to preferred unit holders,
minority interests, valuation reserves on investments in
affiliate loans and joint ventures and extraordinary loss.. 32,060 44,208 101,732 108,688
Minority partners' interests in consolidated partnerships.... (3,065) (1,874) (12,885) (5,773)
Valuation reserves on investments in affiliate loans and
joint ventures............................................. (163,000) -- (163,000) --
--------------- ------------- -------------- -------------
Income (loss) before extraordinary loss and distributions to
preferred unitholders.................................. (134,005) 42,334 (74,153) 102,915
Extraordinary loss on extinguishment of debts................ (2,898) (1,571) (2,898) (1,571)
--------------- ------------- -------------- -------------
Net income (loss)............................................ (136,903) 40,763 (77,051) 101,344
Preferred unit distributions................................. (5,996) (6,085) (18,009) (21,927)
--------------- ------------- -------------- -------------
Net income (loss) available to common unit holders.......... $ (142,899) $ 34,678 $ (95,060) $ 79,417
=============== ============= ============== =============
Net Income (loss) available to:
Class A common units.................................... $ (112,159) $ 26,628 $ (74,859) $ 60,497
Class B common units.................................... (30,740) 8,050 (20,201) 18,920
--------------- ------------- -------------- -------------
Total........................................................ $ (142,899) $ 34,678 $ (95,060) $ 79,417
=============== ============= ============== =============
Net income (loss) per weighted average common units:
Class A common unit before extraordinary loss............. $ (1.92) $ .52 $ (1.32) $ 1.23
Extraordinary loss per Class A common unit................ (.04) (.02) (.04) (.02)
--------------- ------------- -------------- -------------
Net income (loss) per weighted average Class A common
unit.................................................... $ (1.96) $ .50 $ (1.36) $ 1.21
=============== ============= ============== =============
Class B common unit before extraordinary loss............. $ (2.93) $ .82 $ (1.90) $ 1.88
Extraordinary loss per Class B common unit................ (.06) (.04) (.06) (.04)
--------------- ------------- -------------- -------------
Net income (loss) per weighted average Class B common
unit.................................................... $ (2.99) $ .78 $ (1.96) $ 1.84
=============== ============= ============== =============
Weighted average common units outstanding:
Class A common units.................................... 57,368,000 52,874,000 55,192,000 50,008,000
Class B common units.................................... 10,284,000 10,284,000 10,284,000 10,284,000
(see accompanying notes to financial statements)
3
RECKSON OPERATING PARTNERSHIP, L. P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED AND IN THOUSANDS)
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------------------------
2001 2000
------------------- --------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................................................ $ (77,051) $ 101,344
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization.............................................. 77,221 67,520
Extraordinary loss on extinguishment of debts.............................. 2,898 1,571
Valuation reserves on investments in affiliate loans and joint ventures.... 163,000 --
Gain on sales of real estate............................................... (972) (21,868)
Minority partners' interests in consolidated partnerships.................. 12,885 5,773
Equity in earnings of real estate joint ventures and service companies..... (1,704) (3,893)
Changes in operating assets and liabilities:
Prepaid expenses and other assets.......................................... 13,166 (7,455)
Tenant receivables......................................................... 1,446 438
Deferred rents receivable.................................................. (28,843) (21,778)
Real estate tax escrows.................................................... (2,037) 2,112
Accrued expenses and other liabilities..................................... (20,895) (2,350)
------------------- --------------------
Net cash provided by operating activities.................................. 139,114 121,414
------------------- --------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of commercial real estate properties............................. -- (184,613)
Increase in contract deposits and pre-acquisition costs.................... (2,897) (11,893)
Proceeds from mortgage note receivable repayments.......................... 2,949 5,213
Proceeds from sales of real estate and mortgage redemption................. 73,550 42,594
Additions to commercial real estate properties............................. (121,703) (32,772)
Additions to developments in progress...................................... (3,606) (11,668)
Payment of leasing costs................................................... (6,264) (15,465)
Additions to furniture, fixtures and equipment............................. (324) (707)
Distribution from a real estate joint venture.............................. -- 312
Investments in affiliate joint ventures.................................... (25,056) (7,450)
------------------- --------------------
Net cash used in investing activities..................................... (83,351) (216,449)
------------------- --------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on secured borrowings................................... (291,445) (25,518)
Proceeds from redemption of KTR preferred securities....................... 35,700 19,903
Payment of loan costs...................................................... (5,944) (7,643)
Increase in investments in affiliate loans and service companies........... (13,878) (6,729)
Proceeds from secured borrowings........................................... 325,000 97,163
Proceeds from of unsecured credit facility................................. 128,000 659,600
Repayment of unsecured credit facility and term loan....................... (98,000) (669,600)
Contributions by minority partners in consolidated partnerships............ -- 135,975
Contributions.............................................................. 1,790 3,999
Distributions ............................................................. (102,545) (95,662)
Distributions to minority partners in consolidated partnerships............ (13,390) (6,893)
------------------- --------------------
Net cash provided by (used in) financing activities........................... (34,712) 104,595
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Net increase in cash and cash equivalents..................................... 21,051 9,560
Cash and cash equivalents at beginning of period.............................. 16,624 21,122
------------------- --------------------
Cash and cash equivalents at end of period.................................... $ 37,675 $ 30,682
=================== ====================
(see accompanying notes to financial statements)
4
RECKSON OPERATING PARTNERSHIP, L. P.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
(UNAUDITED)
1. ORGANIZATION AND FORMATION OF THE OPERATING PARTNERSHIP
Reckson Operating Partnership, L. P. (the "Operating Partnership")
commenced operations on June 2, 1995. The sole general partner in the
Operating Partnership, Reckson Associates Realty Corp. (the "Company") is a
self-administered and self-managed Real Estate Investment Trust ("REIT").
During June 1995, the Company contributed approximately $162 million
in cash to the Operating Partnership in exchange for an approximate 73% general
partnership interest. The Operating Partnership executed various option and
purchase agreements whereby it issued common units of limited partnership
interest in the Operating Partnership ("Units") to the continuing investors and
assumed certain indebtedness in exchange for interests in certain property
partnerships, fee simple and leasehold interests in properties and development
land, certain other business assets and 100% of the non-voting preferred stock
of the management and construction companies.
During July 1998, the Company formed Metropolitan Partners, LLC
("Metropolitan") for the purpose of acquiring Tower Realty Trust, Inc.
("Tower"). On May 24, 1999 the Company completed the merger with Tower and
acquired three Class A office properties located in New York City totaling
approximately 1.6 million square feet and one Class A office property located on
Long Island totaling approximately 101,000 square feet. In addition, pursuant to
the merger, the Company also acquired certain office properties, a property
under development and land located outside the Tri-State Area. All of the assets
acquired in the merger located outside the Tri-State Area, other than a 357,000
square foot office property located in Orlando, Florida, have been sold.
2. BASIS OF PRESENTATION
The accompanying consolidated financial statements include the consolidated
financial position of the Operating Partnership and its subsidiaries at
September 30, 2001 and December 31, 2000 and the results of their operations for
the three and nine months ended September 30, 2001 and 2000, respectively and,
their cash flows for the nine months ended September 30, 2001 and 2000,
respectively. The Operating Partnership's investments in Omni Partners, L. P.
("Omni"), the Tri-State JV and certain joint venture properties are reflected in
the accompanying financial statements on a consolidated basis with a reduction
for the minority partners' interest. The operating results of the service
companies currently conducted by Reckson Management Group, Inc., RANY Management
Group, Inc., and Reckson Construction Group, Inc., are reflected in the
accompanying financial statements on the equity method of accounting. The
Operating Partnership also invests in real estate joint ventures where it may
own less than a controlling interest, such investments are also reflected in the
accompanying financial statements on the equity method of accounting. All
significant intercompany balances and transactions have been eliminated in the
consolidated financial statements.
The minority interests at September 30, 2001 represent a 49% interest in
the Tri-State JV and a 40% interest in Omni.
5
The accompanying interim unaudited financial statements have been prepared
by the Operating Partnership's management pursuant to the rules and regulations
of the Securities and Exchange Commission ("SEC"). Certain information and
footnote disclosure normally included in the financial statements prepared in
accordance with accounting principles generally accepted in the United States
("GAAP") may have been condensed or omitted pursuant to such rules and
regulations, although management believes that the disclosures are adequate to
make the information presented not misleading. The unaudited financial
statements as of September 30, 2001 and for the three and nine month periods
ended September 30, 2001 and 2000 include, in the opinion of management, all
adjustments, consisting of normal recurring adjustments, necessary to present
fairly the financial information set forth herein. The results of operations for
the interim periods are not necessarily indicative of the results that may be
expected for the year ending December 31, 2001. These financial statements
should be read in conjunction with the Operating Partnership's audited financial
statements and notes thereto included in the Operating Partnership's Form 10-K
for the year ended December 31, 2000.
Financial Accounting Standards Board's ("FASB") Statement No. 133, "Accounting
for Derivative Instruments and Hedging Activities," ("SFAS 133") which became
effective January 1, 2001 requires the Operating Partnership to recognize all
derivatives on the balance sheet at fair value. Derivatives that are not hedges
must be adjusted to fair value through income. If a derivative is a hedge,
depending on the nature of the hedge, changes in the fair value of the
derivative will either be offset against the change in fair value of the hedged
asset, liability, or firm commitment through earnings, or recognized in
accumulated other comprehensive income ("OCI") until the hedged item is
recognized in earnings. The ineffective portion of a derivative's change in fair
value will be immediately recognized in earnings. As of January 1, 2001, the
fair value of the Operating Partnership's derivatives equaled their fair value
and as a result no cumulative effect changes were recorded. Additionally, as of
June 30, 2001, the fair value of the Operating Partnership's derivatives equaled
approximately $3.7 million and was reflected in other assets and OCI on the
Operating Partnership's balance sheet. On July 18, 2001, the mortgage note
payable which these derivatives relate to was funded (see Note 3) and their fair
value at that time was approximately $676,000 less than their carrying value.
This amount is being amortized to interest expense over the term of the mortgage
note to which it relates.
Certain prior year amounts have been reclassified to conform to the current
year presentation.
3. MORTGAGE NOTES PAYABLE
As of September 30, 2001, the Operating Partnership had approximately $762.5
million of fixed rate mortgage notes which mature at various times between 2002
and 2027. The notes are secured by 23 properties and have a weighted average
interest rate of approximately 7.3%.
On June 1, 2001, the Operating Partnership refinanced a $70 million variable
rate mortgage note, which secured the property located at 1350 Avenue of the
Americas, with a five year, $75 million fixed rate mortgage note which bears
interest at 6.52% per annum. Net proceeds of approximately $3.4 million were
used for working capital purposes.
On July 18, 2001, the Operating Partnership refinanced a $200 million variable
rate mortgage note, which secured the property located at 919 Third Avenue, with
a ten year, $250 million fixed rate mortgage note which bears interest at 6.867%
per annum. As a result, certain deferred loan costs incurred in connection with
the existing mortgage note were written off. Such amount is reflected as an
extraordinary loss in the accompanying consolidated statements of operations.
Net proceeds of approximately $47 million were used primarily to repay maturing
fixed rate debt and the Operating Partnership's unsecured credit facility.
On July 24, 2001, the Operating Partnership repaid a mortgage note in the amount
of approximately $15.5 million, which was secured by the property located at 50
Charles Lindbergh Blvd., Mitchel Field, NY.
On October 30, 2001, the Operating Partnership repaid a mortgage note in the
amount of approximately $6.4 million, which was secured by the property located
at 200 Broadhollow Road, Melville, NY.
6
4. SENIOR UNSECURED NOTES
As of September 30, 2001, the Operating Partnership had outstanding
approximately $449.4 million (net of issuance discounts) of senior unsecured
notes (the "Senior Unsecured Notes"). The following table sets forth the
Operating Partnership's Senior Unsecured Notes and other related disclosures
(dollars in thousands):
FACE
ISSUANCE AMOUNT COUPON RATE TERM MATURITY
--------------------- -------------------- ------------------ ----------------- -------------------
August 27, 1997 $ 150,000 7.20% 10 years August 28, 2007
March 26, 1999 $ 100,000 7.40% 5 years March 15, 2004
March 26, 1999 $ 200,000 7.75% 10 years March 15, 2009
Interest on the Senior Unsecured Notes is payable semiannually with
principal and unpaid interest due on the scheduled maturity dates. In addition,
the Senior Unsecured Notes issued on March 26, 1999 were issued at an aggregate
discount of $738,000. Such discount is being amortized over the term of the
Senior Unsecured Notes to which they relate.
5. UNSECURED CREDIT FACILITY
As of September 30, 2001, the Operating Partnership had a three year $575
million unsecured revolving credit facility (the "Credit Facility") from The
Chase Manhattan Bank, as administrative agent, UBS Warburg LLC as syndication
agent and Deutsche Bank as documentation agent. The Credit Facility matures in
September 2003 and borrowings under the Credit Facility are currently priced off
LIBOR plus 105 basis points.
The Operating Partnership utilizes the Credit Facility primarily to finance
real estate investments, fund its real estate development activities and for
working capital purposes. At September 30, 2001, the Operating Partnership had
availability under the Credit Facility to borrow an additional $328.4 million
(of which, approximately $38.8 million has been allocated for outstanding
undrawn letters of credit).
6. COMMERCIAL REAL ESTATE INVESTMENTS
As of September 30, 2001, the Operating Partnership owned and operated 78
office properties (inclusive of ten office properties owned through joint
ventures) comprising approximately 13.9 million square feet, 103 industrial
properties comprising approximately 6.8 million square feet and two retail
properties comprising approximately 20,000 square feet located in the Tri-State
Area. The Operating Partnership also owns a 357,000 square foot office building
located in Orlando, Florida and approximately 271 acres of land in 12 separate
parcels of which the Operating Partnership can develop approximately 2.4 million
square feet of office space and approximately 224,000 square feet of industrial
space. The Operating Partnership also has invested approximately $17.0 million
in a note receivable secured by a partnership interest in Omni Partners, L.P.,
owner of the Omni, a 575,000 square foot Class A office property located in
Uniondale, New York and $36.5 million under three notes which are secured by a
minority partners' preferred interest in the Operating Partnership.
On September 28, 2000, the Operating Partnership formed the Tri-State JV
with Teachers Insurance and Annuity Association and contributed eight Class A
suburban office properties aggregating approximately 1.5 million square feet to
the Tri-State JV in exchange for approximately $136 million and a 51% majority
ownership interest in the Tri-State JV.
During the three months ended September 30, 2001, the Operating Partnership
sold four office properties aggregating approximately 580,000 square feet and
one 26,000 square foot industrial property for approximately $73.6 million. In
addition, the Operating Partnership sold its preferred interest in Keystone
Property Trust for $35.7 million. As a result of these sales, the Operating
Partnership realized a net gain of approximately $972,000. Net proceeds from the
sales were used primarily to repay borrowings under the Credit Facility.
7
7. PARTNERS' CAPITAL
During the nine months ended September 30, 2001, approximately 11,553
preferred units of the limited partnership interest, with a liquidation
preference value of approximately $11.6 million, were exchanged for 456,351
Units at an average price of $25.32 per Unit. In addition, the Company increased
its general partner interest in the Operating Partnership by acquiring 509,545
outstanding Units from certain limited partners in exchange for an equal number
of shares of its Class A common stock.
The Operating Partnership currently has issued and outstanding 10,283,513
Class B common units, all of which are held by the Company. The Class B
common units currently receive an annual distribution of $2.5968 per unit, which
is subject to adjustment annually.
The Class B common units are exchangeable at any time, at the option of the
holder, into an equal number of Class A common units subject to customary
antidilution adjustments. The Operating Partnership, at its option, may redeem
any or all of the Class B common units in exchange for an equal number of Class
A common units at any time following November 23, 2003.
Metropolitan is 100% owned by the Company; a minority partner owned an $85
million preferred equity investment in Metropolitan which accrued distributions
at a rate of 7.5% per annum for a two-year period (May 30, 1999 through May 30,
2001). On May 31, 2001, the minority partner, at its election, converted its
preferred equity investment into 3,453,881 shares of the Company's Class A
common stock based on a conversion price of $24.61 per share. As a result, the
Operating Partnership issued 3,453,881 Class A common units to the Company.
During September 2001, the Operating Partnership declared the following
distributions:
RECORD PAYMENT THREE MONTHS ANNUALIZED
SECURITY DISTRIBUTION DATE DATE ENDED DISTRIBUTION
-------- ------------ ------ ------- ------------ ------------
Class A common unit $.4246 October 5, 2001 October 17, 2001 September 30, 2001 $1.6984
Class B common unit $.6492 October 12, 2001 October 31, 2001 October 31, 2001 $2.5968
Series A preferred unit $.4766 October 12, 2001 October 31, 2001 October 31, 2001 $1.9063
Series E preferred unit $.553125 October 12, 2001 October 31, 2001 October 31, 2001 $2.2125
As of September 30, 2001 in conjunction with the Company's common stock buy
back program, the Operating Partnership had purchased and retired 1,410,804
Class B common units at an average price of $21.48 per Class B common unit and
16,704 Class A common units at an average price of $22.01 per Class A common
unit for an aggregate purchase price of approximately $30.7 million.
Net income (loss) per common partnership unit is determined by allocating
net income (loss) after preferred distributions and minority partners' interest
in consolidated partnerships income to the general and limited partners' based
on their weighted average distribution per common partnership units outstanding
during the respective periods presented.
Holders of preferred units of limited and general partnership interest are
entitled to distributions based on the stated rates of return (subject to
adjustment) for those units.
8
8. SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION (in thousands)
Nine Months Ended
September 30,
-----------------------------
2001 2000
------------ ------------
Cash paid during the period for interest.......................................... $ 87,932 $ 88,290
========== ===========
Interest capitalized during the period ........................................... $ 7,764 $ 8,447
========== ===========
9. SEGMENT DISCLOSURE
The Operating Partnership's portfolio consists of Class A office properties
located within the New York City metropolitan area and Class A suburban office
and industrial properties located and operated within the Tri-State Area (the
"Core Portfolio"). In addition the Operating Partnership's portfolio also
includes one office property located in Orlando, Florida. The Operating
Partnership has managing directors who report directly to the Co-Presidents and
Chief Financial Officer of the Company who have been identified as the Chief
Operating Decision Makers because of their final authority over resource
allocation decisions and performance assessment.
In addition, the Operating Partnership does not consider (i) interest incurred
on its Credit Facility, term loan and Senior Unsecured Notes and (ii) the
operating performance of the office property located in Orlando, Florida as
part of its Core Portfolio's property operating performance.
The following table sets forth the components of the Operating
Partnership's revenues and expenses and other related disclosures for the three
months ended September 30, 2001 and 2000 (in thousands):
THREE MONTHS ENDED
--------------------------------------------------------------------------------------------------------
SEPTEMBER 30, 2001 SEPTEMBER 30, 2000
--------------------------------------------------------------------------------------------------------
CONSOLIDATED CONSOLIDATED
CORE PORTFOLIO OTHER TOTALS CORE PORTFOLIO OTHER TOTALS
----------------- ---------------- ----------------- ---------------- ----------------------------------
REVENUES:
Base rents, tenant
escalations and
reimbursements ....... $ 124,544 $ 2,178 $ 126,722 $ 113,546 $ 2,208 $ 115,754
Equity in earnings of
real estate joint
ventures and service
companies ............ -- 505 505 -- 706 706
Other income (loss) .... 6,714 (914) 5,800 191 23,643 23,834
---------- ---------- ---------- ---------- ---------- ----------
Total Revenues ....... 131,258 1,769 133,027 113,737 26,557 140,294
---------- ---------- ---------- ---------- ---------- ----------
EXPENSES:
Property operating
expenses ............. 43,320 911 44,231 40,799 589 41,388
Marketing, general
and administrative ... 5,583 1,120 6,703 5,272 692 5,964
Interest ............... 13,033 10,472 23,505 9,623 15,028 24,651
Depreciation and
amortization ......... 24,393 2,135 26,528 21,282 2,801 24,083
---------- ---------- ---------- ---------- ---------- ----------
Total Expenses ..... 86,329 14,638 100,967 76,976 19,110 96,086
---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before
distributions to
preferred unitholders,
minority interests,
valuation reserves
and extraordinary
loss ................. $ 44,929 $ (12,869) $ 32,060 $ 36,761 $ 7,447 $ 44,208
========== ========== ========== ========== ========== ==========
Total Assets ........... $2,631,077 $ 234,124 $2,865,201 $2,547,701 $ 397,523 $2,945,224
========== ========== ========== ========== ========== ==========
9
The following table sets forth the components of the Operating
Partnership's revenues and expenses and other related disclosures for the nine
months ended September 30, 2001 and 2000 (in thousands):
NINE MONTHS ENDED
--------------------------------------------------------------------------------------------------------
SEPTEMBER 30, 2001 SEPTEMBER 30, 2000
--------------------------------------------------------------------------------------------------------
CONSOLIDATED CONSOLIDATED
CORE PORTFOLIO OTHER TOTALS CORE PORTFOLIO OTHER TOTALS
---------------- -------------- ------------------- ----------------- ------------------ ---------------
REVENUES:
Base rents, tenant
escalations and
reimbursements.......... $ 368,296 $ 7,214 $ 375,510 $ 325,218 $ 6,865 $ 332,083
Equity in earnings of
real estate joint
ventures and service
companies............... -- 1,704 1,704 -- 3,893 3,893
Other income.............. 9,192 9,879 19,071 855 46,568 47,423
---------- ---------- ----------- ----------- --------- ---------
Total Revenues.......... 377,488 18,797 396,285 326,073 57,326 383,399
---------- ---------- ----------- ----------- --------- ---------
EXPENSES:
Property operating
expenses................. 123,754 2,345 126,099 114,368 1,815 116,183
Marketing, general
and administrative....... 15,653 4,887 20,540 15,029 3,312 18,341
Interest................... 38,088 32,605 70,693 28,218 44,449 72,667
Depreciation and
amortization............. 71,024 6,197 77,221 60,670 6,850 67,520
---------- ---------- ----------- ----------- --------- ---------
Total Expenses......... 248,519 46,034 294,553 218,285 56,426 274,711
---------- ---------- ----------- ----------- --------- ---------
Income (loss) before
distributions to
preferred unitholders,
minority interests,
valuation reserves
and extraordinary loss... $ 128,969 $ (27,237) $ 101,732 $ 107,788 $ 900 $ 108,688
========== ========== =========== =========== ========= =========
10
10. INVESTMENTS IN AFFILIATE LOANS AND JOINT VENTURES
During 1997, the Company formed FrontLine Capital Group, formerly Reckson
Service Industries, Inc., ("FrontLine") and Reckson Strategic Venture Partners,
LLC ("RSVP"). RSVP is a real estate venture capital fund which invests primarily
in real estate and real estate operating companies generally outside of the
Company's core office and industrial focus and whose common equity is held
indirectly by FrontLine. In connection with the formation and spin-off of
FrontLine, the Operating Partnership established an unsecured credit facility
with FrontLine (the "FrontLine Facility") in the amount of $100 million for
FrontLine to use in its investment activities, operations and other general
corporate purposes. As of September 30, 2001, the Company had advanced
approximately $93.4 million under the FrontLine Facility. The Operating
Partnership also approved the funding of investments of up to $100 million
relating to RSVP (the "RSVP Commitment"), through RSVP-controlled joint ventures
(for REIT-qualified investments) or advances made to FrontLine under an
unsecured loan facility (the "RSVP Facility") having terms similar to the
FrontLine Facility (advances made under the RSVP Facility and the FrontLine
Facility hereafter, the "FrontLine Loans"). During March 2001, the Company
increased the RSVP Commitment to $110 million and as of September 30, 2001,
approximately $109.1 million had been funded through the RSVP Commitment, of
which $59.8 million represents investments by the Company in RSVP-controlled
(REIT-qualified) joint ventures and $49.3 million represents loans made to
FrontLine under the RSVP Facility. As of September 30, 2001, interest accrued
(net of reserves) under the FrontLine Facility and RSVP Facility was
approximately $ 19.6 million.
At June 30, 2001, the Company assessed the recoverability of the FrontLine Loans
and reserved approximately $3.5 million of the interest accrued during the three
month period then ended. In addition, the Company formed a committee of its
Board of Directors, comprised solely of independent directors, to consider any
actions to be taken by the Company in connection with the FrontLine Loans and
its investments in joint ventures with RSVP. At September 30, 2001, the Company
noted a significant deterioration in FrontLine's operations and financial
condition. Based on the Company's assessment of value and recoverability and
considering the findings and recommendations of the committee and its financial
advisor, the Company has included in its consolidated statements of operations
for the three and nine months ended September 30, 2001, a $163 million valuation
reserve charge, inclusive of costs, relating to its investments in the FrontLine
Loans and joint ventures with RSVP. The Company has also discontinued the
accrual of interest income with respect to the FrontLine Loans.
As a result of the foregoing, the net carrying value of the Company's
investments in the FrontLine Loans and joint venture investments with RSVP,
inclusive of the Company's share of GAAP equity in earnings on those
investments, is approximately $65.0 million. Such amount has been reflected in
investments in service companies and affiliate loans and joint ventures on the
accompanying balance sheet.
Both the FrontLine Facility and the RSVP Facility have a term of five years, are
unsecured and advances under each are recourse obligations of FrontLine.
Notwithstanding the valuation reserve, under the terms of the credit facilities,
interest accrues on the FrontLine Loans at a rate equal to the greater of (a)
the prime rate plus two percent and (b) 12% per annum, with the rate on amounts
that are outstanding for more than one year increasing annually at a rate of
four percent of the prior year's rate. In March 2001, the credit facilities were
amended to provide that (i) interest is payable only at maturity and (ii) the
Company may transfer all or any portion of its rights or obligations under the
credit facilities to its affiliates. The Company requested these changes as a
result of changes in REIT tax laws.
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the historical
financial statements of Reckson Operating Partnership, L. P. (the "Operating
Partnership") and related notes.
The Operating Partnership considers certain statements set forth herein to
be forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended, with respect to the Operating Partnership's
expectations for future periods. Certain forward-looking statements, including,
without limitation, statements relating to the timing and success of
acquisitions and the completion of development or redevelopment of properties,
the financing of the Operating Partnership's operations, the ability to lease
vacant space and the ability to renew or relet space under expiring leases,
involve risks and uncertainties. Although the Operating Partnership believes
that the expectations reflected in such forward-looking statements are based on
reasonable assumptions, the actual results may differ materially from those set
forth in the forward-looking statements and the Operating Partnership can give
no assurance that its expectation will be achieved. Among those risks, trends
and uncertainties are: the general economic climate, including the conditions
affecting industries in which our principal tenants compete; changes in the
supply of and demand for office and industrial properties in the New York
Tri-State area; changes in interest rate levels; downturns in rental rate levels
in our markets and our ability to lease or release space in a timely manner at
current or anticipated rental rate levels; the availability of financing to us
or our tenants; changes in operating costs, including utility costs; repayment
of debt owed to the Operating Partnership by third parties (including FrontLine
Capital Group); risks associated with joint ventures; and other risks associated
with the development and acquisition of properties, including risks that
development may not be completed on schedule, that the tenants will not take
occupancy or pay rent, or that development or operating costs may be greater
than anticipated. Consequently, such forward-looking statements should be
regarded solely as reflections of the Operating Partnership's current operating
and development plans and estimates. These plans and estimates are subject to
revisions from time to time as additional information becomes available, and
actual results may differ from those indicated in the referenced statements.
OVERVIEW AND BACKGROUND
The Operating Partnership, which commenced operations on June 2, 1995,
is engaged in the ownership, management, operation, leasing and development of
commercial real estate properties, principally office and industrial buildings,
and also owns certain undeveloped land located in the New York tri-state area
(the "Tri-State Area"). Reckson Associates Realty Corp. (the "Company"), is a
self-administered and self-managed Real Estate Investment Trust ("REIT"), and
serves as the sole general partner in the Operating Partnership.
As of September 30, 2001, the Operating Partnership owned and operated 78
office properties (inclusive of ten office properties which are owned through
joint ventures) comprising approximately 13.9 million square feet, 103
industrial properties comprising approximately 6.8 million square feet and two
retail properties comprising approximately 20,000 square feet located in the
Tri-State Area. The Operating Partnership also owns a 357,000 square foot office
building located in Orlando, Florida and approximately 271 acres of land in 12
separate parcels of which the Operating Partnership can develop approximately
2.4 million square feet of office space and approximately 224,000 square feet of
industrial space. The Operating Partnership also has invested approximately
$17.0 million in a note receivable secured by a partnership interest in Omni
Partners, L.P., owner of the Omni, a 575,000 square foot Class A office property
located in Uniondale, New York and $36.5 million under three notes which are
secured by a minority partners' preferred interest in the Operating Partnership.
12
During 1997, the Company formed FrontLine Capital Group, formerly Reckson
Service Industries, Inc., ("FrontLine") and Reckson Strategic Venture Partners,
LLC ("RSVP"). RSVP is a real estate venture capital fund which invests primarily
in real estate and real estate operating companies generally outside of the
Company's core office and industrial focus and whose common equity is held
indirectly by FrontLine. In connection with the formation and spin-off of
FrontLine, the Operating Partnership established an unsecured credit facility
with FrontLine (the "FrontLine Facility") in the amount of $100 million for
FrontLine to use in its investment activities, operations and other general
corporate purposes. As of September 30, 2001, the Company had advanced
approximately $93.4 million under the FrontLine Facility. The Operating
Partnership also approved the funding of investments of up to $100 million
relating to RSVP (the "RSVP Commitment"), through RSVP-controlled joint ventures
(for REIT-qualified investments) or advances made to FrontLine under an
unsecured loan facility (the "RSVP Facility") having terms similar to the
FrontLine Facility (advances made under the RSVP Facility and the FrontLine
Facility hereafter, the "FrontLine Loans"). During March 2001, the Company
increased the RSVP Commitment to $110 million and as of September 30, 2001,
approximately $109.1 million had been funded through the RSVP Commitment, of
which $59.8 million represents investments by the Company in RSVP-controlled
(REIT-qualified) joint ventures and $49.3 million represents loans made to
FrontLine under the RSVP Facility. As of September 30, 2001, interest accrued
(net of reserves) under the FrontLine Facility and RSVP Facility was
approximately $ 19.6 million.
At June 30, 2001, the Company assessed the recoverability of the FrontLine Loans
and reserved approximately $3.5 million of the interest accrued during the three
month period then ended. In addition, the Company formed a committee of its
Board of Directors, comprised solely of independent directors, to consider any
actions to be taken by the Company in connection with the FrontLine Loans and
its investments in joint ventures with RSVP. At September 30, 2001, the Company
noted a significant deterioration in FrontLine's operations and financial
condition. Based on the Company's assessment of value and recoverability and
considering the findings and recommendations of the committee and its financial
advisor, the Company has included in its consolidated statements of operations
for the three and nine months ended September 30, 2001, a $163 million valuation
reserve charge, inclusive of costs, relating to its investments in the FrontLine
Loans and joint ventures with RSVP. The Company has also discontinued the
accrual of interest income with respect to the FrontLine Loans.
As a result of the foregoing, the net carrying value of the Company's
investments in the FrontLine Loans and joint venture investments with RSVP,
inclusive of the Company's share of GAAP equity in earnings on those
investments, is approximately $65.0 million. Such amount has been reflected in
investments in service companies and affiliate loans and joint ventures on the
accompanying balance sheet.
Both the FrontLine Facility and the RSVP Facility have a term of five years, are
unsecured and advances under each are recourse obligations of FrontLine.
Notwithstanding the valuation reserve, under the terms of the credit facilities,
interest accrues on the FrontLine Loans at a rate equal to the greater of (a)
the prime rate plus two percent and (b) 12% per annum, with the rate on amounts
that are outstanding for more than one year increasing annually at a rate of
four percent of the prior year's rate. In March 2001, the credit facilities were
amended to provide that (i) interest is payable only at maturity and (ii) the
Company may transfer all or any portion of its rights or obligations under the
credit facilities to its affiliates. The Company requested these changes as a
result of changes in REIT tax laws.
13
During July 1998, the Company formed Metropolitan Partners, LLC
("Metropolitan") for the purpose of acquiring Tower Realty Trust, Inc.
("Tower"). On May 24, 1999 the Company completed the merger with Tower and
acquired three Class A office properties located in New York City totaling
approximately 1.6 million square feet and one Class A office property located on
Long Island totaling approximately 101,000 square feet. In addition, pursuant to
the merger, the Company also acquired certain office properties, a property
under development and land located outside the Tri-State Area. All of the assets
acquired in the merger located outside the Tri-State Area, other than a 357,000
square foot office property located in Orlando, Florida, have been sold.
On September 28, 2000, the Operating Partnership formed a joint venture
(the "Tri-State JV") with Teachers Insurance and Annuity Association and
contributed eight Class A suburban office properties aggregating approximately
1.5 million square feet to the Tri-State JV in exchange for approximately $136
million and a 51% majority ownership interest in the Tri-State JV.
The market capitalization of the Operating Partnership at September 30, 2001
was approximately $3.4 billion. The Operating Partnership's market
capitalization is calculated based on the sum of (i) the value of the Operating
Partnership's Class A common units and Class B common units (which, for this
purpose, is assumed to be the same per unit as the market value of a share of
the Company's Class A common stock and Class B common stock), (ii) the
liquidation preference values of the Operating Partnership's preferred units,
and (iii) the approximately $1.4 billion (including its share of joint venture
debt and net of minority partners' interests share of joint venture debt) of
debt outstanding at September 30, 2001. As a result, the Operating Partnership's
total debt to total market capitalization ratio at September 30, 2001 equaled
approximately 42.4%.
RESULTS OF OPERATIONS
Three months ended September 30, 2001 as compared to the three months ended
September 30, 2000.
The Operating Partnership's total revenues decreased by $7.3 million or 5.2% for
the three months ended September 30, 2001 as compared to the 2000 period.
Property operating revenues, which include base rents and tenant escalations and
reimbursements ("Property Operating Revenues") increased by $11.0 million or
9.5% for the three months ended September 30, 2001 as compared to the 2000
period. The increase in Property Operating Revenues is primarily attributable to
increases in rental rates in our "same store" properties amounting to $7.9
million. In addition, $3.9 million of the increase was generated by lease up of
newly developed and redeveloped properties. These increases in Property
Operating Revenues was offset by $1.9 million of revenues from properties that
were sold during the three months ended September 30, 2001. The Operating
Partnership's base rent reflects the positive impact of the straight-line rent
adjustment of $9.7 million for the three months ended September 30, 2001 as
compared to $12.2 million for the 2000 period. Included in the $9.7 million
straight-line rent adjustment is $5.9 million attributable to 919 Third Avenue
as compared to $8.2 million for the 2000 period. This amount is primarily
attributable to the free rent period, which is effective through February 28,
2002, contained in the lease of the largest tenant in the building. Other
revenues (excluding Property Operating Revenues) decreased by $18.2 million or
74.3% for the three months ended September 30, 2001 as compared to the 2000
period. This decrease is primarily attributable to $15.2 million in gain on
sales of real estate recognized in the 2000 period as compared to $972,000
recognized in the 2001 period. In addition, this decrease includes $4.5 million
of interest income accrued during the 2000 period relating to the FrontLine
Loans with no such comparable accrual for the 2001 period.
Property operating expenses, real estate taxes and ground rents ("Property
Expenses") increased by $3.0 million or 7.2% for the three months ended
September 30, 2001 as compared to the 2000 period. This increase is primarily
due to an increase of $1.8 million in our "same-store" properties of which $1.2
million is attributable to an increase in real estate taxes. Additionally, there
were increased expenses of $950,000 due to higher occupancy levels at our
developed and redeveloped properties.
14
Gross Operating Margins (defined as Property Operating Revenues less Property
Expenses, taken as a percentage of Property Operating Revenues) for the three
months ended September 30, 2001 and 2000 were 65.1% and 64.4%, respectively. The
increase in Gross Operating Margins is primarily attributable to an increase in
rental rates.
Marketing, general and administrative expenses increased by approximately
$606,000 for the three months ended September 30, 2001 as compared to the 2000
period. The increase was primarily attributable to increased costs related to
marketing the Operating Partnership in its Tri-State Area markets and
amortization of deferred compensation costs. Marketing, general and
administrative expenses, as a percentage of total revenues, excluding gain on
sales of real estate, were 5.1% for the three months ended September 30, 2001 as
compared to 4.9% for the 2000 period.
Interest expense decreased by approximately $1.1 million for the three months
ended September 30, 2001 as compared to the 2000 period. The decrease was
primarily attributable to a decrease in interest expense on the Operating
Partnership's variable rate debt due to lower interest rates.
Income (loss) before extraordinary loss and distributions to preferred
unitholders decreased by approximately $176.3 million for the three months
ended September 30, 2001 as compared to the 2000 period. The decrease is
primarily attributable to the $163 million valuation reserve on investment in
affiliate loans and joint ventures as further described in Overview and
Background.
15
Nine months ended September 30, 2001 as compared to the nine months ended
September 30, 2000.
The Operating Partnership's total revenues increased by $12.9 million or 3.4%
for the nine months ended September 30, 2001 as compared to the 2000 period.
Property Operating Revenues increased by $43.4 million or 13.1% for the nine
months ended September 30, 2001 as compared to the 2000 period. The increase in
Property Operating Revenues is primarily attributable to increases in rental
rates in our "same store" properties amounting to $20.1 million. In addition,
$10.1 million of the increase was generated by lease up of newly developed and
redeveloped properties. The Operating Partnership's base rent reflects the
positive impact of the straight-line rent adjustment of $31.7 million for the
nine months ended September 30, 2001 as compared to $25.0 million for the 2000
period. Included in the $31.7 million straight-line rent adjustment is $20.3
million attributable to 919 Third Avenue, as compared to $13.6 million for the
2000 period. This amount is primarily attributable to the free rent period,
which is effective through February 28, 2002 contained in the lease of the
largest tenant in the building. Other revenues (excluding Property Operating
Revenues) decreased by $30.5 million or 59.5% for the nine months ended
September 30, 2001 as compared to the 2000 period. This decrease is primarily
attributable to $21.9 million in gain on sales of real estate recognized in the
2000 period as compared to $972,000 recognized in the 2001 period. In addition,
this decrease includes $13.0 million of interest income accrued during the 2000
period relating to the FrontLine Loans as compared to $6.1 million for the 2001
period.
Property Expenses increased by $10.3 million or 8.9% for the nine months ended
September 30, 2001 as compared to the 2000 period. This increase is primarily
due to an increase of $6.0 million in our "same store" properties which consists
of a $3.2 million increase in property operating expenses and a $2.8 million
increase in real estate taxes. Additionally, there were increased expenses of
$2.4 million due to higher occupancy levels at our developed and redeveloped
properties.
Gross Operating Margins for the nine months ended September 30, 2001 and 2000
were 66.4% and 65.1%, respectively. The increase in Gross Operating Margins is
primarily attributable to an increase in rental rates.
Marketing general and administrative expenses increased by $1.8 million for the
nine months ended September 30, 2001 as compared to the 2000 period. The
increase was primarily attributable to legal and professional fees incurred in
connection with certain cancelled acquisition transactions, increases in certain
tenant and community relation costs and amortization of deferred compensation
costs. Marketing general and administrative expenses, as a percentage of total
revenues, excluding gain on sales of real estate, were 5.2% for the nine months
ended September 30, 2001 as compared to 5.2% for the 2000 period.
Interest expense decreased by approximately $2.0 million for the nine months
ended September 30, 2001 as compared to the 2000 period. The decrease was
primarily attributable to a decrease in interest expense on the Company's
variable rate debt due to lower interest rates.
Income (loss) before extraordinary loss and distributions to preferred
unitholders decreased by approximately $177.1 million for the nine months ended
September 30, 2001 as compared to the 2000 period. The decrease is primarily
attributable to the $163 million valuation reserve on investment in affiliate
loans and joint ventures as further described in Overview and Background.
16
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2001, the Operating Partnership had a three year $575
million unsecured revolving credit facility (the "Credit Facility") from The
Chase Manhattan Bank, as administrative agent, UBS Warburg LLC as syndication
agent and Deutsche Bank as documentation agent. The Credit Facility matures in
September 2003 and borrowings under the Credit Facility are currently priced off
LIBOR plus 105 basis points.
The Operating Partnership utilizes the Credit Facility primarily to finance
real estate investments, fund its real estate development activities and for
working capital purposes. At September 30, 2001, the Operating Partnership had
availability under the Credit Facility to borrow an additional $328.4 million
(of which, approximately $38.8 million has been allocated for outstanding
undrawn letters of credit).
On June 1, 2001, the Operating Partnership refinanced a $70 million short
term variable rate mortgage note with a five year $75 million fixed rate
mortgage note, which bears interest at 6.52% per annum. In addition, on July 18,
2001, the Operating Partnership refinanced a $200 million short term variable
rate mortgage note with a ten year $250 million fixed rate mortgage note, which
bears interest at 6.867% per annum. The net proceeds of approximately $50.4
million received by the Operating Partnership as a result of these refinancings
was used to repay maturing fixed rate debt, the Credit Facility and for working
capital purposes.
On July 24, 2001, the Operating Partnership repaid a mortgage note in the
amount of approximately $15.5 million from a portion of the proceeds received
from the secured debt financing of 919 Third Avenue. In addition, on October 30,
2001, the Operating Partnership repaid a mortgage note in the amount of
approximately $6.4 million through a draw under the Operating Partnership's
Credit Facility.
During the nine months ended September 30, 2001, approximately 11,553
preferred units of limited partnership interest, with a liquidation preference
value of approximately $11.6 million, were exchanged for 456,351 common units of
limited partnership interest ("Units") at an average price of $25.32 per Unit.
In addition, the Company increased its general parnter interest in the Operating
Partnership by acquiring 509,545 outstanding Units from certain limited partners
in exchange for an equal number of shares of its Class A common stock.
During the three months ended September 30, 2001, the Operating Partnership
sold four office properties aggregating approximately 580,000 square feet and
one 26,000 square foot industrial property for approximately $73.6 million. In
addition, the Operating Partnership sold its preferred interest in Keystone
Property Trust for $35.7 million. As a result of these sales, the Operating
Partnership realized a net gain of approximately $972,000. Net proceeds from the
sales were used primarily to repay borrowings under the Credit Facility.
On May 31, 2001, a minority partner converted its $85 million preferred
equity investment in Metropolitan into 3,453,881 shares of the Company's Class A
common stock. As a result, the Operating Partnership issued 3,453,881 Class A
common units to the Company.
The Operating Partnership currently has issued and outstanding 10,283,513
Class B common units, all of which are held by the Company. The Class B
common units currently receive an annual distribution of $2.5968 per unit, which
is subject to adjustment annually.
The Class B common units are exchangeable at any time, at the option of the
holder, into an equal number of Class A common units subject to customary
antidilution adjustments. The Operating Partnership, at its option, may redeem
any or all of the Class B common units in exchange for an equal number of Class
A common units at any time following November 23, 2003.
As of September 30, 2001, in conjunction with the Company's common stock
buy back program, the Operating Partnership had purchased and retired 1,410,804
Class B common units at an average price of $21.48 per Class B common unit and
16,704 Class A common units at an average purchase price of $22.01 per Class A
common unit for an aggregate purchase price of approximately $30.7 million.
17
The Operating Partnership's indebtedness at September 30, 2001 totaled
approximately 1.4 billion (including its share of joint venture debt and net of
the minority partners' interests share of joint venture debt) and was comprised
of $246.6 million outstanding under the Credit Facility, approximately $449.4
million of senior unsecured notes and approximately $748.4 million of mortgage
indebtedness. Based on the Operating Partnership's total market capitalization
of approximately $3.4 billion at September 30, 2001 (calculated based on the sum
of (i) the value of the Operating Partnership's Class A common units and Class B
common units (which, for this purpose, is assumed to be the same per unit as the
market value of a share of the Company's Class A common stock and Class B common
stock), (ii) the liquidation preference value of the Operating Partnership's
preferred units and (iii) the $1.4 billion of debt), the Operating
Partnership's debt represented approximately 42.4% of its total market
capitalization.
Historically, rental revenue has been the principal source of funds to pay
operating expenses, debt service and capital expenditures, excluding
non-recurring capital expenditures of the Operating Partnership. The Operating
Partnership expects to meet its short-term liquidity requirements generally
through its net cash provided by operating activities along with the Credit
Facility previously discussed. The Operating Partnership expects to meet certain
of its financing requirements through long-term secured and unsecured borrowings
and the issuance of debt and equity securities of the Operating Partnership. In
addition, the Operating Partnership also believes that it will, from time to
time, generate funds from the sale of certain of its real estate properties or
interests therein. The Operating Partnership will refinance existing mortgage
indebtedness or indebtedness under the Credit Facility at maturity or retire
such debt through the issuance of additional debt securities or additional
equity securities. The Operating Partnership anticipates that the current
balance of cash and cash equivalents and cash flows from operating activities,
together with cash available from borrowings and debt and equity offerings, will
be adequate to meet the capital and liquidity requirements of the Operating
Partnership in both the short and long-term.
INFLATION
The office leases generally provide for fixed base rent increases or
indexed escalations. In addition, the office leases provide for separate
escalations of real estate taxes, operating expenses and electric costs over a
base amount. The industrial leases also generally provide for fixed base rent
increases, direct pass through of certain operating expenses and separate real
estate tax escalations over a base amount. The Operating Partnership believes
that inflationary increases in expenses will generally be offset by contractual
rent increases and expense escalations described above.
The Credit Facility bears interest at a variable rate, which will be
influenced by changes in short-term interest rates, and is sensitive to
inflation.
18
FUNDS FROM OPERATIONS
Management believes that funds from operations ("FFO") is an appropriate
measure of performance of an operating partnership whose general partner is an
equity REIT. FFO is defined by the National Association of Real Estate
Investment Trusts ("NAREIT") as net income or loss, excluding gains or losses
from debt restructurings and sales of properties, plus depreciation and
amortization, and after adjustments for unconsolidated partnerships and joint
ventures. FFO does not represent cash generated from operating activities in
accordance with accounting principles generally accepted in the United States
("GAAP") and is not indicative of cash available to fund cash needs. FFO should
not be considered as an alternative to net income as an indicator of the
Operating Partnership's operating performance or as an alternative to cash flow
as a measure of liquidity. FFO for the three and nine months ended September 30,
2001 excludes $163 million of valuation reserves on investments in affiliate
loans and joint ventures.
Since all companies and analysts do not calculate FFO in a similar fashion,
the Operating Partnership's calculation of FFO presented herein may not be
comparable to similarly titled measures as reported by other companies.
The following table presents the Operating Partnership's FFO calculation
(in thousands):
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- -----------------------
2001 2000 2001 2000
---------- ---------- ---------- ----------
Income (loss) before extradordinary loss.............................. $ (140,001) $ 36,249 $ (92,162) $ 80,988
Less:
Extraordinary loss.................................................. 2,898 1,571 2,898 1,571
---------- ---------- ---------- ----------
Net income (loss) available to common unit holders.................... (142,899) 34,678 (95,060) 79,417
Adjustment for Funds From Operations:
Add
Real estate depreciation and amortization........................... 26,340 23,632 76,055 66,184
Minority partners' interests in consolidated partnerships........... 3,065 1,874 12,885 5,773
Valuation reserves on investments in affiliate loans and joint
ventures........................................................... 163,000 -- 163,000 --
Extraordinary loss.................................................. 2,898 1,571 2,898 1,571
Less:
Gain on sales of real estate........................................ 972 15,206 972 21,868
Amounts distributable to minority partners in consolidated
partnerships....................................................... 4,206 2,247 15,010 6,764
---------- ---------- ---------- ----------
Funds From Operations................................................. $ 47,226 $ 44,302 $ 143,796 $ 124,313
========== ========== ========== ==========
Weighted average units outstanding.................................... 67,651 63,157 65,476 60,293
========== ========== ========== ==========
19
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The primary market risk facing the Operating Partnership is interest rate
risk on its long-term debt, mortgage notes and notes receivable. The Operating
Partnership will, when advantageous, hedge its interest rate risk using
financial instruments. The Operating Partnership is not subject to foreign
currency risk.
The Operating Partnership manages its exposure to interest rate risk on its
variable rate indebtedness by borrowing on a short-term basis under its Credit
Facility until such time as it is able to retire the short-term variable rate
debt with either a long-term fixed rate debt offering, long term mortgage debt,
general partner contributions or through sales or partial sales of assets.
The Operating Partnership will recognize all derivatives on the balance
sheet at fair value. Derivatives that are not hedges will be adjusted to fair
value through income. If a derivative is a hedge, depending on the nature of the
hedge, changes in the fair value of the derivative will either be offset against
the change in fair value of the hedged asset, liability, or firm commitment
through earnings, or recognized in other comprehensive income until the hedged
item is recognized in earnings. The ineffective portion of a derivative's change
in fair value will be immediately recognized in earnings.
The fair market value ("FMV") of the Operating Partnership's long term
debt, mortgage notes and notes receivable is estimated based on discounting
future cash flows at interest rates that management believes reflects the risks
associated with long term debt, mortgage notes and notes receivable of similar
risk and duration.
The following table sets forth the Operating Partnership's long term debt
obligations by scheduled principal cash flow payments and maturity date,
weighted average interest rates and estimated FMV at September 30, 2001 (dollars
in thousands):
For The Year Ended December 31,
-------------------------------------------------------------
2001 2002 2003 2004 2005 Thereafter Total(1) FMV
----------------------------------------------------------------------------------------------------------
Long term debt:
Fixed rate........... $ 2,629 $ 20,047 $ 12,550 $ 116,099 $ 33,004 $ 1,028,197 $1,212,526 $1,231,866
Weighted average
Interest rate..... 7.55% 7.65% 7.50% 7.47% 6.92% 7.35% 7.35%
Variable rate........ $ -- $ -- $246,600 $ -- $ -- $ -- $ 246,600 $ 246,600
Weighted average
interest rate..... -- -- 4.56% -- -- -- 4.56%
(1) Includes unamortized issuance discounts of $557,000 on the 5 and 10-year
senior unsecured notes issued on March 26, 1999, which are due at maturity.
In addition, the Operating Partnership has assessed the market risk for its
variable rate debt, which is based upon LIBOR, and believes that a one percent
increase in the LIBOR rate would have an approximate $2.5 million annual
increase in interest expense based on approximately $246.6 million of variable
rate debt outstanding at September 30, 2001.
20
The following table sets forth the Operating Partnership's mortgage notes
and note receivables by scheduled maturity date, weighted average interest rates
and estimated FMV at September 30, 2001 (dollars in thousands):
For the Year Ended December 31,
----------------------------------------------------------------
2001 2002 2003 2004 2005 Thereafter Total (2) FMV
-----------------------------------------------------------------------------------------------------------
Mortgage notes and
notes receivable:
Fixed rate........... $ 4 $ 1,165 $ -- $ 36,500 $ -- $ 16,990 $ 54,659 $ 55,974
Weighted average
interest rate...... 9.00% 9.00% -- 10.23% -- 11.87% 10.71%
(2) Excludes interest receivables aggregating approximately $1,062,000.
21
- -------------------------------------------------------------------------------
NON-INCREMENTAL REVENUE GENERATING CAPITAL EXPENDITURES, TENANT IMPROVEMENT
COSTS AND LEASING COMMISSIONS
The following table summarizes the expenditures incurred for capital
expenditures for the entire portfolio and tenant improvements and leasing
commissions for space leased at the Operating Partnerships' office and
industrial properties for the nine month period ended September 30, 2001 and the
historical average of such capital expenditures, tenant improvements and leasing
commissions for the years 1997 through 2000.
- ------------------------------------------------------------------------------------------------------------------------------------
NON-INCREMENTAL REVENUE GENERATING CAPITAL EXPENDITURES
- ------------------------------------------------------------------------------------------------------------------------------------
Nine Months
1997-2000 Ended
1997 1998 1999 2000 average September 30, 2001
------------- ------------- ----------- ----------- --------------- ---------------
Suburban Office Properties
Total $1,108,675 $2,004,976 $2,298,899 $3,289,116 $2,175,417 $2,623,584
Per Square Foot 0.22 0.23 0.23 0.33 0.25 0.26
CBD Office Properties
Total N/A N/A N/A $946,718 $946,718 $1,209,481
Per Square Foot N/A N/A N/A 0.38 0.38 0.34
Industrial Properties
Total $733,233 $1,205,266 $1,048,688 $813,431 $950,155 $500,698
Per Square Foot 0.15 0.12 0.11 0.11 0.12 0.08
- ------------------------------------------------------------------------------------------------------------------------------------
NON-INCREMENTAL REVENUE GENERATING TENANT IMPROVEMENTS AND LEASING COMMISSIONS
- ------------------------------------------------------------------------------------------------------------------------------------
1997-2000
1997 1998 1999 2000 average
--------------- -------------------- ---------------- ----------------- -----------------------
Long Island Office Properties
Tenant Improvements $ 784,044 $1,140,251 $1,009,357 $2,853,706 $1,466,840
Per Square Foot Improved 7.00 3.98 4.73 6.99 5.68
Leasing Commissions $ 415,822 $ 418,191 $ 551,762 $2,208,604 $ 898,595
Per Square Foot Leased 4.83 1.46 2.59 4.96 3.46
--------------- -------------------- ---------------- ----------------- ------------------------
Total Per Square Foot $ 11.83 $ 5.44 $ 7.32 $ 11.95 $ 9.14
=============== ==================== ================ ================= ========================
Westchester Office Properties
Tenant Improvements $1,211,665 $ 711,160 $1,316,611 $1,860,027 $1,274,866
Per Square Foot Improved 8.90 4.45 5.62 5.72 6.17
Leasing Commissions $ 366,257 $ 286,150 $ 457,730 $ 412,226 $ 380,591
Per Square Foot Leased 2.69 1.79 1.96 3.00 2.36
--------------- -------------------- ---------------- ----------------- ------------------------
Total Per Square Foot $ 11.59 $ 6.24 $ 7.58 $ 8.72 $ 8.53
=============== ==================== ================ ================= ========================
Connecticut Office Properties
Tenant Improvements $1,022,421 $ 202,880 $ 179,043 $ 385,531 $ 447,469
Per Square Foot Improved 13.39 5.92 4.88 4.19 7.10
Leasing Commissions $ 256,615 $ 151,063 $ 110,252 $ 453,435 $ 242,841
Per Square Foot Leased 3.36 4.41 3.00 4.92 3.92
--------------- -------------------- ---------------- ----------------- ------------------------
Total Per Square Foot $ 16.75 $ 10.33 $ 7.88 $ 9.11 $ 11.02
=============== ==================== ================ ================= ========================
New Jersey Office Properties
Tenant Improvements N/A $ 654,877 $ 454,054 $1,580,323 $ 896,418
Per Square Foot Improved N/A 3.78 2.29 6.71 4.26
Leasing Commissions N/A $ 396,127 $ 787,065 $1,031,950 $ 738,381
Per Square Foot Leased N/A 2.08 3.96 4.44 3.49
--------------- -------------------- ---------------- ----------------- ------------------------
Total Per Square Foot N/A $ 5.86 $ 6.25 $ 11.15 $ 7.75
=============== ==================== ================ ================= ========================
New York City Office Properties
Tenant Improvements N/A N/A N/A $ 65,267 $ 65,267
Per Square Foot Improved N/A N/A N/A 1.79 1.79
Leasing Commissions N/A N/A N/A $ 418,185 $ 418,185
Per Square Foot Leased N/A N/A N/A 11.50 11.50
--------------- -------------------- ---------------- ----------------- ------------------------
Total Per Square Foot N/A N/A N/A $ 13.29 $ 13.29
=============== ==================== ================ ================= ========================
Industrial Properties
Tenant Improvements $ 230,466 $ 283,842 $ 375,646 $ 650,216 $ 385,043
Per Square Foot Improved 0.55 0.76 0.25 0.95 0.63
Leasing Commissions $ 81,013 $ 200,154 $ 835,108 $ 436,506 $ 388,195
Per Square Foot Leased 0.19 0.44 0.56 0.64 0.46
--------------- -------------------- ---------------- ----------------- ------------------------
Total Per Square Foot $ 0.75 $ 1.20 $ 0.81 $ 1.59 $ 1.09
=============== ==================== ================ ================= ========================
22
Nine Months
Ended
September 30, 2001
------------------
Long Island Office Properties
Tenant Improvements $ 702,596
Per Square Foot Improved 3.87
Leasing Commissions $ 699,507
Per Square Foot Leased 3.86
------------------
Total Per Square Foot $ 7.73
==================
Westchester Office Properties
Tenant Improvements $1,683,578
Per Square Foot Improved 7.50
Leasing Commissions $ 39,295
Per Square Foot Leased 0.14
------------------
Total Per Square Foot $ 7.64
==================
Connecticut Office Properties
Tenant Improvements $ 213,909
Per Square Foot Improved 2.38
Leasing Commissions $ 182,516
Per Square Foot Leased 2.03
------------------
Total Per Square Foot $ 4.41
==================
New Jersey Office Properties
Tenant Improvements $1,140,108
Per Square Foot Improved 2.93
Leasing Commissions $1,591,484
Per Square Foot Leased 4.09
------------------
Total Per Square Foot $ 7.02
==================
New York City Office Properties
Tenant Improvements $ 738,800
Per Square Foot Improved 16.87
Leasing Commissions $1,026,398
Per Square Foot Leased 23.44
------------------
Total Per Square Foot $ 40.31
==================
Industrial Properties
Tenant Improvements $ 34,650
Per Square Foot Improved 0.08
Leasing Commissions $ 50,055
Per Square Foot Leased 0.11
------------------
Total Per Square Foot $ 0.19
==================
23
LEASE EXPIRATIONS
The following table sets forth scheduled lease expirations for executed leases
as of September 30, 2001:
LONG ISLAND OFFICE PROPERTIES (EXCLUDING OMNI):
Year of Total Rentable % of Total Per Per
Lease Number Square Feet Rentable Square Square Foot Square Foot
Expiration of Leases Expiring Feet Expiring S/L Rent (1) Rent (2)
---------- --------- -------- ------------- ------------ --------
2001 10 58,954 1.9% $ 22.39 $ 23.58
2002 30 137,384 4.5% $ 22.63 $ 25.13
2003 48 324,908 10.7% $ 23.69 $ 26.03
2004 40 249,801 8.2% $ 23.47 $ 25.29
2005 48 411,949 13.5% $ 24.07 $ 26.35
2006 31 142,090 4.7% $ 26.29 $ 29.72
2007 and thereafter 83 1,723,657 56.5% -- --
--- --------- -----
Total 290 3,048,743 100.0%
=== ========= =====
OMNI:
Year of Total Rentable % of Total Per Per
Lease Number Square Feet Rentable Square Square Foot Square Foot
Expiration of Leases Expiring Feet Expiring S/L Rent (1) Rent (2)
---------- --------- -------- ------------- ------------ --------
2001 1 5,290 0.9% $ 30.83 $ 34.82
2002 4 53,127 9.3% $ 34.55 $ 37.91
2003 4 58,018 10.1% $ 30.22 $ 34.97
2004 4 112,414 19.6% $ 26.14 $ 34.15
2005 6 59,115 10.3% $ 27.91 $ 35.18
2006 1 9,749 1.7% $ 35.21 $ 38.02
2007 and thereafter 10 276,259 48.1% -- --
--- --------- -----
Total 30 573,972 100.0%
=== ========= =====
INDUSTRIAL PROPERTIES:
Year of Total Rentable % of Total Per Per
Lease Number Square Feet Rentable Square Square Foot Square Foot
Expiration of Leases Expiring Feet Expiring S/L Rent (1) Rent (2)
---------- --------- -------- ------------- ------------ --------
2001 7 74,427 1.5% $ 5.75 $ 6.17
2002 26 252,635 4.9% $ 6.49 $ 7.30
2003 28 733,434 14.4% $ 5.35 $ 6.26
2004 32 620,553 12.2% $ 6.24 $ 7.31
2005 22 427,994 8.4% $ 5.93 $ 7.97
2006 37 933,793 18.3% $ 6.42 $ 7.91
2007 and thereafter 44 2,056,442 40.3% -- --
--- --------- -----
Total 196 5,099,278 100.0%
=== ========= =====
24
LEASE EXPIRATIONS
RESEARCH AND DEVELOPMENT PROPERTIES:
Year of Total Rentable % of Total Per Per
Lease Number Square Feet Rentable Square Square Foot Square Foot
Expiration of Leases Expiring Feet Expiring S/L Rent (1) Rent (2)
---------- --------- -------- ------------- ------------ --------
2001 5 262,946 21.1% $ 5.59 $ 6.78
2002 3 118,620 9.5% $ 10.19 $ 11.82
2003 4 37,938 3.0% $ 9.20 $ 10.15
2004 9 99,218 8.0% $ 13.86 $ 15.01
2005 4 357,440 28.7% $ 8.70 $ 10.78
2006 5 80,261 6.5% $ 18.06 $ 20.83
2007 and thereafter 13 288,400 23.2% -- --
--- --------- -----
Total 43 1,244,823 100.0%
=== ========= =====
WESTCHESTER OFFICE PROPERTIES:
Year of Total Rentable % of Total Per Per
Lease Number Square Feet Rentable Square Square Foot Square Foot
Expiration of Leases Expiring Feet Expiring S/L Rent (1) Rent (2)
---------- --------- -------- ------------- ------------ --------
2001 4 14,463 0.4% $ 22.07 $ 22.37
2002 48 430,153 14.3% $ 21.34 $ 21.92
2003 49 240,857 8.0% $ 22.68 $ 23.81
2004 32 169,158 5.6% $ 21.37 $ 22.40
2005 45 387,247 12.9% $ 25.00 $ 25.40
2006 36 719,583 23.9% $ 22.79 $ 24.60
2007 and thereafter 44 1,049,933 34.9% -- --
--- --------- -----
Total 258 3,011,394 100.0%
=== ========= =====
STAMFORD OFFICE PROPERTIES:
Year of Total Rentable % of Total Per Per
Lease Number Square Feet Rentable Square Square Foot Square Foot
Expiration of Leases Expiring Feet Expiring S/L Rent (1) Rent (2)
---------- --------- -------- ------------- ------------ --------
2001 9 18,656 1.8% $ 27.67 $ 21.62
2002 18 88,704 8.5% $ 27.44 $ 28.72
2003 17 120,969 11.6% $ 31.00 $ 31.64
2004 21 228,220 21.9% $ 21.81 $ 22.67
2005 19 121,885 11.7% $ 26.66 $ 28.47
2006 21 281,437 26.9% $ 25.65 $ 25.31
2007 and thereafter 16 183,932 17.6% -- --
--- --------- -----
Total 121 1,043,803 100.0%
=== ========= =====
25
LEASE EXPIRATIONS
NEW JERSEY OFFICE PROPERTIES:
Year of Total Rentable % of Total Per Per
Lease Number Square Feet Rentable Square Square Foot Square Foot
Expiration of Leases Expiring Feet Expiring S/L Rent (1) Rent (2)
---------- --------- -------- ------------- ------------ --------
2001 7 38,621 2.1% $ 16.76 $ 17.14
2002 20 160,092 8.8% $ 20.02 $ 20.93
2003 17 317,607 17.6% $ 28.05 $ 27.56
2004 28 200,726 11.1% $ 22.96 $ 23.78
2005 24 272,316 15.1% $ 23.66 $ 23.63
2006 16 194,327 10.7% $ 24.23 $ 25.54
2007 and thereafter 17 625,055 34.6% -- --
--- --------- -----
Total 129 1,808,744 100.0%
=== ========= =====
NEW YORK CITY OFFICE
Year of Total Rentable % of Total Per Per
Lease Number Square Feet Rentable Square Square Foot Square Foot
Expiration of Leases Expiring Feet Expiring S/L Rent (1) Rent (2)
---------- --------- -------- ------------- ------------ --------
2001 5 17,703 0.5% $ 28.48 $ 28.64
2002 22 193,034 5.7% $ 32.47 $ 33.40
2003 7 114,987 3.4% $ 32.10 $ 32.89
2004 19 218,239 6.5% $ 36.46 $ 39.35
2005 34 446,606 13.3% $ 36.05 $ 37.53
2006 49 343,986 10.2% $ 29.92 $ 30.69
2007 and thereafter 77 2,034,112 60.4% -- --
--- --------- -----
Total 213 3,368,667 100.0%
=== ========= =====
(1) Per square foot rental rate represents annualized straight line rent as of
the lease expiration date.
(2) Per square foot rental rate represents annualized base rent as of the lease
expiration date plus non-recoverable operating expense pass-throughs.
26
PART II - OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Changes in Securities and use of proceeds
On August 8, 2001, the Registrant issued 150,645 common units of
limited partnership interest to a limited partner in exchange for
approximately 3,768 preferred units of limited partnership interest,
with a liquidation preference value of approximately $3.8 million. This
transaction was exempt from registration pursuant to Section 4(2) of
the Securities Act of 1933.
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Securities Holders - None
Item 5. Other information - None
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits:
10.1 Amended and Restated 1995 Stock Option Plan of Reckson
Associates Realty Corp.
10.2 Amended and Restated 1997 Stock Option Plan of Reckson
Associates Realty Corp.
b) During the three months ended September 30, 2001 the Registrant
filed the following reports on Form 8K:
On August 8, 2001, the Registrant submitted a report on Form 8-K
under Item 9 thereof in order to submit its second quarter
presentation in satisfaction of the requirements of Regulation FD.
On August 9, 2001, the Registrant submitted a report on Form 8-K
under Item 9 thereof in order to submit supplemental operating and
financial data for the quarter ended June 30, 2001 in satisfaction
of the requirements of Regulation FD.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
RECKSON OPERATING PARTNERSHIP, L. P.
BY: RECKSON ASSOCIATES REALTY CORP., its general partner
By: /s/ Scott H. Rechler By: /s/ Michael Maturo
------------------------------------------------ ---------------------------------------------------
Scott H. Rechler, Co-Chief Executive Officer Michael Maturo, Executive Vice President, Treasurer
and Chief Financial Officer
Date: November 14, 2001
27
EXHIBIT 10.1
RECKSON ASSOCIATES REALTY CORP. AMENDED AND RESTATED
1995 STOCK OPTION PLAN
AS AMENDED THROUGH MARCH 5, 2001
ARTICLE 1. GENERAL
1.1. Purpose. The purpose of the Reckson Associates Realty Corp. 1995
Stock Option Plan (the "Plan") is to provide for certain officers, directors and
key employees, as defined in Section 1.3, of Reckson Associates Realty Corp.
(the "Company") and certain of its Affiliates (as defined below) an equity-based
incentive to maintain and enhance the performance and profitability of the
Company. It is the further purpose of this Plan to permit the granting of awards
that will constitute performance based compensation for certain executive
officers, as described in Section 162(m) of the Internal Revenue Code of 1986,
as amended (the "Code"), and regulations promulgated thereunder.
1.2. Administration.
(a) The Plan shall be administered by the Compensation Committee (the
"Committee") of the Board of Directors of the Company (the "Board"), which
Committee shall consist of two or more directors, or by the Board. It is
intended that the directors appointed to serve on the Committee shall be
"non-employee directors" (within the meaning of Rule 16b-3 promulgated under the
Securities Exchange Act of 1934 (the "Act")) and "outside directors" (within the
meaning of Code Section 162(m)); however, the mere fact that a Committee member
shall fail to qualify under either of these requirements shall not invalidate
any award made by the Committee which award is otherwise validly made under the
Plan. The members of the Committee shall be appointed by, and may be changed at
any time and from time to time in the discretion of, the Board.
(b) The Committee shall have the authority (i) to exercise all of the
powers granted to it under the Plan, (ii) to construe, interpret and implement
the Plan and any Plan Agreements (as defined below) executed pursuant to the
Plan, (iii) to prescribe, amend and rescind rules relating to the Plan, (iv) to
make any determination necessary or advisable in administering the Plan, (v) to
correct any defect, supply any omission and reconcile any inconsistency in the
Plan and (vi) to delegate to Donald J. Rechler and Scott H. Rechler (the "Proper
Officers") its authority to grant awards under the Plan to key employees,
excluding those employees who are executive officers ("Non-Executive Officers"),
provided that (a) the aggregate number of shares of Common Stock granted to any
Non-Executive Officer during any calendar year shall not exceed 100,000 shares
and (b) the Proper Officers shall report quarterly to the Committee regarding
the material terms of awards granted to any Non-Executive Officers. The
Committee shall have no authority to interpret or administer Article 5 of the
Plan or to take any action with respect to any awards thereunder.
(c) The determination of the Committee on all matters relating to the
Plan or any Plan Agreement shall be conclusive.
(d) No member of the Committee shall be liable for any action or
determination made in good faith with respect to the Plan or any award
hereunder.
(e) Notwithstanding anything to the contrary contained herein, the
Board may, in its sole discretion, at any time and from time to time, resolve to
administer the Plan, in which case, the term Committee as used herein shall be
deemed to mean the Board.
1.3. Persons Eligible for Awards. Awards under the Plan may be made to
such officers, directors and key employees ("key personnel") of the Company or
its Affiliates as the Committee shall from time to time in its sole discretion
select. No member of the Board who is not an officer or employee of the Company
or an Affiliate (an "Independent Director") shall be eligible to receive any
Awards under the Plan, except for non-qualified stock options granted
automatically under the provisions of Article 5 of the Plan.
1.4. Types of Awards Under Plan.
(a) Awards may be made under the Plan in the form of (i) stock options
("options"), (ii) restricted stock awards and (iii) unrestricted stock awards,
in lieu of cash compensation, all as more fully set forth in Articles 2 and 3.
(b) Options granted under the Plan may be either (i) "nonqualified"
stock options ("NQSOs") or (ii) options intended to qualify for incentive stock
option treatment described in Code Section 422 ("ISOs"). Grants of options made
under the Plan may also be made in lieu of cash fees otherwise payable to
Directors of the Company or cash bonuses payable to employees of the Company or
any Affiliate.
(c) All options when granted are intended to be NQSOs, unless the
applicable Plan Agreement explicitly states that the option is intended to be an
ISO. If an option is intended to be an ISO, and if for any reason such option
(or any portion thereof) shall not qualify as an ISO, then, to the extent of
such nonqualification, such option (or portion) shall be regarded as a NQSO
appropriately granted under the Plan provided that such option (or portion)
otherwise meets the Plan's requirements relating to NQSOs.
1.5. Shares Available for Awards.
(a) Subject to Section 4.5 (relating to adjustments upon changes in
capitalization), as of any date the total number of shares of Common Stock with
respect to which awards may be granted under the Plan, shall equal the excess
(if any) of 750,000 shares of Common Stock, over (i) the number of shares of
Common Stock subject to outstanding awards, (ii) the number of shares in respect
of which options have been exercised, or grants of restricted or unrestricted
Common Stock have been made pursuant to the Plan, and (iii) the number of shares
issued subject to forfeiture restrictions which have lapsed.
In accordance with (and without limitation upon) the preceding
sentence, awards may be granted in respect of the following shares of Common
Stock: shares covered by previously-granted awards that have expired, terminated
or been cancelled for any reason whatsoever (other than by reason of exercise or
vesting).
2
(b) In any year, a person eligible for awards under the Plan may not be
granted options under the Plan covering a total of more than 75,000 shares of
Common Stock.
(c) Shares of Common Stock that shall be subject to issuance pursuant
to the Plan shall be authorized and unissued or treasury shares of Common Stock,
or shares of Common Stock purchased on the open market or from shareholders of
the Company for such purpose.
(d) Without limiting the generality of the foregoing, the Committee
may, with the grantee's consent, cancel any award under the Plan and issue a new
award in substitution therefor upon such terms as the Committee may in its sole
discretion determine, provided that the substituted award shall satisfy all
applicable Plan requirements as of the date such new award is made.
1.6. Definitions of Certain Terms.
(a) The term "Affiliate" as used herein means Reckson Operating
Partnership, L.P., Reckson FS Limited Partnership, RANY Management Group, Inc.,
Reckson Finance, Inc., Reckson Management Group, Inc. and Reckson Construction
Group, Inc., and any person or entity as subsequently approved by the Board
which, at the time of reference, directly, or indirectly through one or more
intermediaries, controls, is controlled by, or is under common control with, the
Company.
(b) The term "Cause" shall mean a finding by the Committee that the
recipient of an award under the Plan has (i) acted with gross negligence or
willful misconduct in connection with the performance of his material duties to
the Company or its Affiliates; (ii) defaulted in the performance of his material
duties to the Company or its Affiliates and has not corrected such action within
15 days of receipt of written notice thereof; (iii) willfully acted against the
best interests of the Company or its Affiliates, which act has had a material
and adverse impact on the financial affairs of the Company or its Affiliates; or
(iv) been convicted of a felony or committed a material act of common law fraud
against the Company, its Affiliates or their employees and such act or
conviction has, or the Committee reasonably determines will have, a material
adverse effect on the interests of the Company or its Affiliates.
(c) The term "Common Stock" as used herein means the shares of Class A
common stock of the Company as constituted on the effective date of the Plan,
and any other shares into which such common stock shall thereafter be changed by
reason of a recapitalization, merger, consolidation, split-up, combination,
exchange of shares or the like.
(d) The "fair market value" (or "FMV") as of any date and in respect of
any share of Common Stock shall be:
(i) if the Common Stock is listed for trading on the New
York Stock Exchange, the closing price, regular way, of the
Common Stock as reported on the New York Stock Exchange
Composite Tape, or if no such reported sale of the Common
Stock shall have occurred on such date, on the next preceding
date on which there was such a reported sale; or
3
(ii) the Common Stock is not so listed but is listed on
another national securities exchange or authorized for
quotation on the National Association of Securities Dealers
Inc.'s NASDAQ National Market System ("NASDAQ/NMS"), the
closing price, regular way, of the Common Stock on such
exchange or NASDAQ/NMS, as the case may be, on which the
largest number of shares of Common Stock have been traded in
the aggregate on the preceding twenty trading days, or if no
such reported sale of the Stock shall have occurred on such
date on such exchange or NASDAQ/NMS, as the case may be, on
the preceding date on which there was such a reported sale on
such exchange or NASDAQ/NMS, as the case may be; or
(iii) if the Stock is not listed for trading on a national
securities exchange or authorized for quotation on NASDAQ/NMS,
the average of the closing bid and asked prices as reported by
the National Association of Securities Dealers Automated
Quotation System ("NASDAQ") or, if no such prices shall have
been so reported for such date, on the next preceding date for
which such prices were so reported.
1.7. Agreements Evidencing Awards.
(a) Options and restricted stock awards granted under the Plan shall be
evidenced by written agreements. Any such written agreements shall (i) contain
such provisions not inconsistent with the terms of the Plan as the Committee may
in its sole discretion deem necessary or desirable and (ii) be referred to
herein as "Plan Agreements."
(b) Each Plan Agreement shall set forth the number of shares of Common
Stock subject to the award granted thereby.
(c) Each Plan Agreement with respect to the granting of an option shall
set forth the amount (the "option exercise price") payable by the grantee to the
Company in connection with the exercise of the option evidenced thereby. The
option exercise price per share shall not be less than 100% of the fair market
value of a share of Common Stock on the date the option is granted.
ARTICLE 2. STOCK OPTIONS
2.1. Option Awards.
(a) Grant of Stock Options. The Committee may grant options to purchase
shares of Common Stock in such amounts and subject to such terms and conditions
as the Committee shall from time to time in its sole discretion determine,
subject to the terms of the Plan.
(b) Dividend Equivalent Rights. To the extent expressly provided by the
Committee at the time of the grant, each NQSO granted under this Section 2.1
shall also generate Dividend Equivalent Rights ("DERs"), which shall entitle the
grantee to receive an additional share of Common Stock for each DER received
upon the exercise of the NQSO, at no additional cost, based on the formula set
forth herein. As of the last business day of each calendar quarter, the amount
of dividends paid by the Company on each share of Common Stock with respect to
4
that quarter shall be divided by the FMV per share to determine the actual
number of DERs accruing on each share subject to the NQSO. Such amount of DERs
shall be multiplied by the number of shares covered by the NQSO to determine the
number of DERs which accrued during such quarter. The provisions of this Section
2.1(b) shall not be amended more than once every six months other than to
comport with changes in applicable law.
For example. Assume that a grantee holds a NQSO to purchase 600 shares
of Common Stock. Further assume that the dividend per share for the first
quarter was $0.10, and that the FMV per share on the last business day of the
quarter was $20. Therefore, .005 DER would accrue per share for that quarter and
such grantee would receive three DERs for that quarter (600 X .005). For
purposes of determining how many DERs would accrue during the second quarter,
the NQSO would be considered to be for 603 shares of Common Stock.
2.2. Exercisability of Options. Subject to the other provisions of the
Plan:
(a) Exercisability Determined by Plan Agreement. Each Plan Agreement
shall set forth the period during which and the conditions subject to which the
option shall be exercisable (including, but not limited to vesting of such
options), as determined by the Committee in its discretion.
(b) Partial Exercise Permitted. Unless the applicable Plan Agreement
otherwise provides, an option granted under the Plan may be exercised from time
to time as to all or part of the full number of shares for which such option is
then exercisable, in which event the DERs relating to the portion of the option
being exercised shall also be exercised.
(c) Notice of Exercise; Exercise Date.
(i) An option shall be exercisable by the filing of a written
notice of exercise with the Company, on such form and in such
manner as the Committee shall in its sole discretion
prescribe, and by payment in accordance with Section 2.4.
(ii) Unless the applicable Plan Agreement otherwise provides,
or the Committee in its sole discretion otherwise determines,
the date of exercise of an option shall be the date the
Company receives such written notice of exercise and payment.
2.3. Limitation on Exercise. Notwithstanding any other provision of the
Plan, no Plan Agreement shall permit an ISO to be exercisable more than 10 years
after the date of grant.
2.4. Payment of Option Price.
(a) Tender Due Upon Notice of Exercise. Unless the applicable Plan
Agreement otherwise provides or the Committee in its sole discretion otherwise
determines, any written notice of exercise of an option shall be accompanied by
payment of the full purchase price for the shares being purchased.
(b) Manner of Payment. Payment of the option exercise price shall be
made in any combination of the following:
5
(i) by certified or official bank check payable to the Company
(or the equivalent thereof acceptable to the Committee);
(ii) by personal check (subject to collection), which may in
the Committee's discretion be deemed conditional;
(iii) with the consent of the Committee in its sole
discretion, by delivery of previously acquired shares of
Common Stock owned by the grantee for at least six months
having a fair market value (determined as of the option
exercise date) equal to the portion of the option exercise
price being paid thereby, provided that the Committee may
require the grantee to furnish an opinion of counsel
acceptable to the Committee to the effect that such delivery
would not result in the grantee incurring any liability under
Section 16(b) of the Act and does not require any Consent (as
defined in Section 4.2); and
(iv) with the consent of the Committee in its sole
discretion, by the full recourse promissory note and agreement
of the grantee providing for payment with interest on the
unpaid balance accruing at a rate not less than that needed to
avoid the imputation of income under Code Section 7872 and
upon such terms and conditions (including the security, if
any, therefor) as the Committee may determine; and
(v) by withholding shares of Common Stock from the shares
otherwise issuable pursuant to the exercise.
(c) Cashless Exercise. Payment in accordance with Section 2.4(b) may be
deemed to be satisfied, if and to the extent provided in the applicable Plan
Agreement, by delivery to the Company of an assignment of a sufficient amount of
the proceeds from the sale of Common Stock acquired upon exercise to pay for all
of the Common Stock acquired upon exercise and an authorization to the broker or
selling agent to pay that amount to the Company, which sale shall be made at the
grantee's direction at the time of exercise, provided that the Committee may
require the grantee to furnish an opinion of counsel acceptable to the Committee
to the effect that such delivery would not result in the grantee incurring any
liability under Section 16 of the Act and does not require any Consent (as
defined in Section 4.2).
(d) Issuance of Shares. As soon as practicable after receipt of full
payment, the Company shall, subject to the provisions of Section 4.2, deliver to
the grantee one or more certificates for the shares of Common Stock so
purchased, which certificates may bear such legends as the Company may deem
appropriate concerning restrictions on the disposition of the shares in
accordance with applicable securities laws, rules and regulations or otherwise.
2.5. Default Rules Concerning Termination of Employment.
Subject to the other provisions of the Plan and unless the applicable
Plan Agreement otherwise provides:
6
(a) General Rule. All options granted to a grantee shall terminate upon
the grantee's termination of employment for any reason except to the extent
post-employment exercise of the option is permitted in accordance with this
Section 2.5.
(b) Termination for Cause. All unexercised or unvested options granted
to a grantee shall terminate and expire on the day a grantee's employment is
terminated for Cause.
(c) Regular Termination; Leave of Absence. If the grantee's employment
terminates for any reason other than as provided in subsection (b), (d) or (f)
of this Section 2.5, any awards granted to such grantee which were exercisable
immediately prior to such termination of employment may be exercised, and any
awards subject to vesting may continue to vest, until the earlier of either: (i)
90 days after the grantee's termination of employment and (ii) the date on which
such options terminate or expire in accordance with the provisions of the Plan
(other than this Section 2.5) and the Plan Agreement; provided that the
Committee may, in its sole discretion, determine such other period for exercise
in the case of a grantee whose employment terminates solely because the
grantee's employer ceases to be an Affiliate or the grantee transfers employment
with the Company's consent to a purchaser of a business disposed of by the
Company. The Committee may, in its sole discretion, determine (i) whether any
leave of absence (including short-term or long-term disability or medical leave)
shall constitute a termination of employment for purposes of the Plan and (ii)
the effect, if any, of any such leave on outstanding awards under the Plan.
(d) Retirement. If a grantee's employment terminates by reason of
retirement (i.e., the voluntary termination of employee by a grantee after
attaining the age of 55), the options exercisable by the grantee immediately
prior to the grantee's retirement shall be exercisable by the grantee until the
earlier of (i) 36 months after the grantee's retirement and (ii) the date on
which such options terminate or expire in accordance with the provisions of the
Plan (other than this Section 2.5) and the Plan Agreement.
(e) Death After Termination. If a grantee's employment terminates in
the manner described in subsections (c) or (d) of this Section 2.5 and the
grantee dies within the period for exercise provided for therein, the options
exercisable by the grantee immediately prior to the grantee's death shall be
exercisable by the personal representative of the grantee's estate or by the
person to whom such options pass under the grantee's will (or, if applicable,
pursuant to the laws of descent and distribution) until the earlier of (i) 12
months after the grantee's death and (ii) the date on which such options
terminate or expire in accordance with the provisions of subsections (c) or (d)
of this Section 2.5.
(f) Death Before Termination. If a grantee dies while employed by the
Company or any Affiliate, all options granted to the grantee but not exercised
before the death of the grantee, whether or not exercisable by the grantee
before the grantee's death, shall immediately become and be exercisable by the
personal representative of the grantee's estate or by the person to whom such
options pass under the grantee's will (or, if applicable, pursuant to the laws
of descent and distribution) until the earlier of (i) 12 months after the
grantee's death and (ii) the date on which such options terminate or expire in
accordance with the provisions of the Plan (other than this Section 2.5) and the
Plan Agreement.
7
2.6. Special ISO Requirements. In order for a grantee to receive
special tax treatment with respect to stock acquired under an option intended to
be an ISO, the grantee of such option must be, at all times during the period
beginning on the date of grant and ending on the day three months before the
date of exercise of such option, an employee of the Company or any of the
Company's parent or subsidiary corporations (within the meaning of Code Section
424), or of a corporation or a parent or subsidiary corporation of such
corporation issuing or assuming a stock option in a transaction to which Code
Section 424(a) applies. If an option granted under the Plan is intended to be an
ISO, and if the grantee, at the time of grant, owns stock possessing more than
10% of the total combined voting power of all classes of stock of the grantee's
employer corporation or of its parent or subsidiary corporation, then (i) the
option exercise price per share shall in no event be less than 110% of the fair
market value of the Common Stock on the date of such grant and (ii) such option
shall not be exercisable after the expiration of five years after the date such
option is granted.
ARTICLE 3. RESTRICTED STOCK AND UNRESTRICTED STOCK AWARDS
3.1. Restricted Stock Awards.
(a) Grant of Awards. The Committee may grant restricted stock awards,
alone or in tandem with other awards, under the Plan in such amounts and subject
to such terms and conditions as the Committee shall from time to time in its
sole discretion determine; provided, however, that the grant of any such
restricted stock awards may be made in lieu of, or in tandem with other, cash
compensation and bonuses. The vesting of a restricted stock award granted under
the Plan may be conditioned upon the completion of a specified period of
employment with the Company or any Affiliate, upon the attainment of specified
performance goals, and/or upon such other criteria as the Committee may
determine in its sole discretion.
(b) Payment. Each Plan Agreement with respect to a restricted stock
award shall set forth the amount (if any) to be paid by the grantee with respect
to such award. If a grantee makes any payment for a restricted stock award which
does not vest, appropriate payment may be made to the grantee following the
forfeiture of such award on such terms and conditions as the Committee may
determine. The Committee shall have the authority to make or authorize loans to
finance, or to otherwise accommodate the financing of, the acquisition or
exercise of a restricted stock award.
(c) Forfeiture upon Termination of Employment. Unless the applicable
Plan Agreement otherwise provides or the Committee otherwise determines, (i) if
a grantee's employment terminates for any reason (including death) before all of
his restricted stock awards have vested, such awards shall terminate and expire
upon such termination of employment, and (ii) in the event any condition to the
vesting of restricted stock awards is not satisfied within the period of time
permitted therefor, such unvested shares shall be returned to the Company.
(d) Issuance of Shares. The Committee may provide that one or more
certificates representing restricted stock awards shall be registered in the
grantee's name and bear an appropriate legend specifying that such shares are
not transferable and are subject to the terms and conditions of the Plan and the
applicable Plan Agreement, or that such certificate or certificates shall be
held in escrow by the Company on behalf of the grantee until such shares
8
vest or are forfeited, all on such terms and conditions as the Committee may
determine. Unless the applicable Plan Agreement otherwise provides, no share of
restricted stock may be assigned, transferred, otherwise encumbered or disposed
of by the grantee until such share has vested in accordance with the terms of
such award. Subject to the provisions of Section 4.2, as soon as practicable
after any restricted stock award shall vest, the Company shall issue or reissue
to the grantee (or to the grantee's designated beneficiary in the event of the
grantee's death) one or more certificates for the Common Stock represented by
such restricted stock award.
(e) Grantees' Rights Regarding Restricted Stock. Unless the applicable
Plan Agreement otherwise provides: (i) a grantee may vote and receive dividends
on restricted stock awarded under the Plan; and (ii) any stock received as a
distribution with respect to a restricted stock award shall be subject to the
same restrictions as such restricted stock.
3.2. Unrestricted Stock. The Committee may issue unrestricted stock
under the Plan, alone or in tandem with other awards, in such amounts and
subject to such terms and conditions as the Committee shall from time to time in
its sole discretion determine; provided, however, that the grant of any such
unrestricted stock awards may be made in lieu of, or in tandem with other, cash
compensation and bonuses. The Committee shall have the authority to make or
authorize loans to finance, or to otherwise accommodate the financing of, the
acquisition or exercise of an unrestricted stock award.
ARTICLE 4. MISCELLANEOUS
4.1. Amendment of the Plan; Modification of Awards.
(a) Plan Amendments. The Board may, without stockholder approval, at
any time and from time to time suspend, discontinue or amend the Plan in any
respect whatsoever, except that no such amendment shall impair any rights under
any award theretofore made under the Plan without the consent of the grantee of
such award. Furthermore, except as and to the extent otherwise permitted by
Section 4.5 or 4.11, no such amendment shall, without stockholder approval:
(i) materially increase the benefits accruing to grantees
under the Plan;
(ii) increase the maximum number of shares which may be made
subject to awards to an individual as options in any year;
(iii) materially increase, beyond the amounts set forth in
Section 1.5, the number of shares of Common Stock in respect
of which awards may be issued under the Plan;
(iv) materially modify the designation in Section 1.3 of the
class of persons eligible to receive awards under the Plan;
(v) provide for the grant of stock options having an option
exercise price per share of Common Stock less than 100% of the
fair market value of a share of Common Stock on the date of
grant; or
9
(vi) extend the term of the Plan beyond the period set forth
in Section 4.13.
(b) Award Modifications. Subject to the terms and conditions of the
Plan (including Section 4.1(a)), the Committee may amend outstanding Plan
Agreements with such grantee, including, without limitation, any amendment which
would (i) accelerate the time or times at which an award may vest or become
exercisable and/or (ii) extend the scheduled termination or expiration date of
the award, provided, however, that no modification having a material adverse
effect upon the interest of a grantee in an award shall be made without the
consent of such grantee.
4.2. Restrictions.
(a) Consent Requirements. If the Committee shall at any time determine
that any Consent (as hereinafter defined) is necessary or desirable as a
condition of, or in connection with, the granting of any award under the Plan,
the acquisition, issuance or purchase of shares or other rights hereunder or the
taking of any other action hereunder (each such action being hereinafter
referred to as a "Plan Action"), then such Plan Action shall not be taken, in
whole or in part, unless and until such Consent shall have been effected or
obtained to the full satisfaction of the Committee. Without limiting the
generality of the foregoing, the Committee shall be entitled to determine not to
make any payment whatsoever until Consent has been given if (i) the Committee
may make any payment under the Plan in cash, Common Stock or both, and (ii) the
Committee determines that Consent is necessary or desirable as a condition of,
or in connection with, payment in any one or more of such forms.
(b) Consent Defined. The term "Consent" as used herein with respect to
any Plan Action means (i) any and all listings, registrations or qualifications
in respect thereof upon any securities exchange or other self-regulatory
organization or under any federal, state or local law, rule or regulation, (ii)
the expiration, elimination or satisfaction of any prohibitions, restrictions or
limitations under any federal, state or local law, rule or regulation or the
rules of any securities exchange or other self-regulatory organization, (iii)
any and all written agreements and representations by the grantee with respect
to the disposition of shares, or with respect to any other matter, which the
Committee shall deem necessary or desirable to comply with the terms of any such
listing, registration or qualification or to obtain an exemption from the
requirement that any such listing, qualification or registration be made, and
(iv) any and all consents, clearances and approvals in respect of a Plan Action
by any governmental or other regulatory bodies or any parties to any loan
agreements or other contractual obligations of the Company or any Affiliate.
4.3. Nontransferability. No award granted to any grantee under the Plan
or under any Plan Agreement shall be assignable or transferable by the grantee
other than by will or by the laws of descent and distribution. During the
lifetime of the grantee, all rights with respect to any award granted to the
grantee under the Plan or under any Plan Agreement shall be exercisable only by
the grantee.
4.4. Withholding Taxes.
(a) Whenever under the Plan shares of Common Stock are to be delivered
pursuant to an award, the Committee may require as a condition of delivery that
the grantee remit an amount
10
sufficient to satisfy all federal, state and other governmental withholding tax
requirements related thereto. Whenever cash is to be paid under the Plan, the
Company may, as a condition of its payment, deduct therefrom, or from any salary
or other payments due to the grantee, an amount sufficient to satisfy all
federal, state and other governmental withholding tax requirements related
thereto or to the delivery of any shares of Common Stock under the Plan.
(b) Without limiting the generality of the foregoing, (i) a grantee may
elect to satisfy all or part of the foregoing withholding requirements by
delivery of unrestricted shares of Common Stock owned by the grantee for at
least six months (or such other period as the Committee may determine) having a
fair market value (determined as of the date of such delivery by the grantee)
equal to all or part of the amount to be so withheld, provided that the
Committee may require, as a condition of accepting any such delivery, the
grantee to furnish an opinion of counsel acceptable to the Committee to the
effect that such delivery would not result in the grantee incurring any
liability under Section 16(b) of the Act and (ii) the Committee may permit any
such delivery to be made by withholding shares of Common Stock from the shares
otherwise issuable pursuant to the award giving rise to the tax withholding
obligation (in which event the date of delivery shall be deemed the date such
award was exercised).
4.5. Adjustments Upon Changes in Capitalization. If and to the extent
specified by the Committee, the number of shares of Common Stock which may be
issued pursuant to awards under the Plan, the maximum number of options which
may be granted to any one person in any year, the number of shares of Common
Stock subject to awards, the option exercise price of options theretofore
granted under the Plan, and the amount payable by a grantee in respect of an
award, shall be appropriately adjusted (as the Committee may determine) for any
change in the number of issued shares of Common Stock resulting from the
subdivision or combination of shares of Common Stock or other capital
adjustments, or the payment of a stock dividend after the effective date of the
Plan, or other change in such shares of Common Stock effected without receipt of
consideration by the Company; provided that any awards covering fractional
shares of Common Stock resulting from any such adjustment shall be eliminated
and provided further, that each ISO granted under the Plan shall not be adjusted
in a manner that causes such option to fail to continue to qualify as an ISO
within the meaning of Code Section 422. Adjustments under this Section shall be
made by the Committee, whose determination as to what adjustments shall be made,
and the extent thereof, shall be final, binding and conclusive.
4.6. Right of Discharge Reserved. Nothing in the Plan or in any Plan
Agreement shall confer upon any person the right to continue in the employment
of the Company or an Affiliate or affect any right which the Company or an
Affiliate may have to terminate the employment of such person.
4.7. No Rights as a Stockholder. No grantee or other person shall have
any of the rights of a stockholder of the Company with respect to shares subject
to an award until the issuance of a stock certificate to him for such shares.
Except as otherwise provided in Section 4.5, no adjustment shall be made for
dividends, distributions or other rights (whether ordinary or extraordinary, and
whether in cash, securities or other property) for which the record date is
prior to the date such stock certificate is issued. In the case of a grantee of
an award which has not yet vested, the grantee shall have the rights of a
stockholder of the Company if and only to the extent provided in the applicable
Plan Agreement.
11
4.8. Nature of Payments.
(a) Any and all awards or payments hereunder shall be granted, issued,
delivered or paid, as the case may be, in consideration of services performed
for the Company or for its Affiliates by the grantee.
(b) No such awards and payments shall be considered special incentive
payments to the grantee or, unless otherwise determined by the Committee, be
taken into account in computing the grantee's salary or compensation for the
purposes of determining any benefits under (i) any pension, retirement, life
insurance or other benefit plan of the Company or any Affiliate or (ii) any
agreement between the Company or any Affiliate and the grantee.
(c) By accepting an award under the Plan, the grantee shall thereby
waive any claim to continued exercisability or vesting of an award or to damages
or severance entitlement related to non-continuation of the award beyond the
period provided herein or in the applicable Plan Agreement, notwithstanding any
contrary provision in any written employment contract with the grantee, whether
any such contract is executed before or after the grant date of the award.
4.9. Non-Uniform Determinations. The Committee's determinations under
the Plan need not be uniform and may be made by it selectively among persons who
receive, or are eligible to receive, awards under the Plan (whether or not such
persons are similarly situated). Without limiting the generality of the
foregoing, the Committee shall be entitled, among other things, to make
non-uniform and selective determinations, and to enter into non-uniform and
selective Plan Agreements, as to (a) the persons to receive awards under the
Plan, (b) the terms and provisions of awards under the Plan, and (c) the
treatment of leaves of absence pursuant to Section 2.7(c).
4.10. Other Payments or Awards. Nothing contained in the Plan shall be
deemed in any way to limit or restrict the Company, any Affiliate or the
Committee from making any award or payment to any person under any other plan,
arrangement or understanding, whether now existing or hereafter in effect.
4.11. Reorganization.
(a) In the event that the Company is merged or consolidated with
another corporation and, whether or not the Company shall be the surviving
corporation, there shall be any change in the shares of Common Stock by reason
of such merger or consolidation, or in the event that all or substantially all
of the assets of the Company are acquired by another person, or in the event of
a reorganization or liquidation of the Company (each such event being
hereinafter referred to as a "Reorganization Event") or in the event that the
Board shall propose that the Company enter into a Reorganization Event, then the
Committee may in its discretion, by written notice to a grantee, provide that
his options will be terminated unless exercised within 30 days (or such longer
period as the Committee shall determine in its sole discretion) after the date
of such notice; provided that if, and to the extent that, the Committee takes
such action with respect to the grantee's options not yet exercisable, the
Committee shall also accelerate the dates upon which such options shall be
exercisable. The Committee also may in its discretion by written notice to a
grantee provide that all or some of the restrictions on any of the grantee's
awards may lapse in
12
the event of a Reorganization Event upon such terms and conditions as the
Committee may determine.
(b) Whenever deemed appropriate by the Committee, the actions referred
to in Section 4.11(a) may be made conditional upon the consummation of the
applicable Reorganization Event.
4.12. Section Headings. The section headings contained herein are for
the purposes of convenience only and
are not intended to define or limit the contents of said sections.
4.13. Effective Date and Term of Plan.
(a) The Plan shall be deemed adopted and become effective upon the
approval thereof by the shareholders of the Company.
(b) The Plan shall terminate 10 years after the earlier of the date on
which it becomes effective or is approved by shareholders, and no awards shall
thereafter be made under the Plan. Notwithstanding the foregoing, all awards
made under the Plan prior to such termination date shall remain in effect until
such awards have been satisfied or terminated in accordance with the terms and
provisions of the Plan and the applicable Plan Agreement.
4.14. Governing Law. The Plan shall be governed by the laws of the
State of New York applicable to agreements made and to be performed entirely
within such state.
ARTICLE 5. STOCK OPTIONS GRANTED TO INDEPENDENT DIRECTORS
5.1. Automatic Grant of Options. Each Independent Director appointed or
elected for the first time shall automatically be granted (under this Plan or
another Company stock option plan) a NQSO to purchase 7,500 shares of Common
Stock on his date of appointment or election. Each Independent Director who is
serving as Director of the Company on the fifth business day after each annual
meeting of shareholders shall, on such day, automatically be granted (under this
Plan or another Company stock option plan) NQSOs to acquire 6,250 shares of
Common Stock; provided, however, that an Independent Director who is appointed
or elected for the first time shall not be eligible to receive NQSOs pursuant to
this sentence for the year of his initial appointment or election. The exercise
price per share for the Common Stock covered by a NQSO granted pursuant to this
Section 5.1 shall be equal to the FMV of the Common Stock on the date the NQSO
is granted.
5.2. Exercise; Termination; Non-Transferability
(a) All NQSOs granted under this Article 5 shall be immediately
exercisable. No NQSO issued under this Article 5 shall be exercisable after the
expiration of ten years from the date upon which such NQSO is granted.
(b) The rights of an Independent Director in a NQSO granted under this
Article 5 shall terminate twelve months after such Director ceases to be a
Director of the Company or the specified expiration date, if earlier; provided,
however, that such rights shall terminate immediately on the date on which an
Independent Director ceases to be a Director by reason of
13
termination of his directorship on account of any act of (i) fraud or
intentional misrepresentation or (ii) embezzlement, misappropriation or
conversion of assets or opportunities of the Company or any Affiliate.
(c) No NQSO granted under this Article 5 shall be transferable by the
grantee otherwise than by will or by the laws of descent and distribution, and
such grantee shall be exercisable during the grantee's lifetime only by the
grantee. Any NQSO granted to an Independent Director and outstanding on the date
of his death may be exercised by the legal representative or legatee of the
grantee for the period of twelve months from the date of death or until the
expiration of the stated term of the option, if earlier.
(d) NQSOs granted under this Article 5 may be exercised only by written
notice to the Company specifying the number of shares to be purchased. Payment
of the full purchase price of the shares to be purchased may be made by
certified or official bank check payable to the Company. A grantee shall have
the rights of a stockholder only as to shares acquired upon the exercise of a
NQSO and not as to unexercised NQSOs.
5.3. Adjustments Upon Changes in Capitalization. The number of shares
of Common Stock subject to awards and the option exercise price of NQSOs
theretofore granted under this Article 5, and the amount payable by a grantee in
respect of an award, shall be appropriately adjusted for any change in the
number of issued shares of Common Stock resulting from the subdivision or
combination of shares of Common Stock or other capital adjustments, or the
payment of a stock dividend after the effective date of the Plan, or other
change in such shares of Common Stock effected without receipt of consideration
by the Company; provided that any awards covering fractional shares of Common
Stock resulting from any such adjustment shall be eliminated.
5.4 Limited to Independent Directors. The provisions of this Article 5
shall apply only to NQSOs granted or to be granted to Independent Directors,
shall be interpreted as if this Article 5 constituted a separate plan of the
Company and shall not be deemed to modify, limit or otherwise apply to any other
provision of this Plan or to any NQSO issued under this Plan to a participant
who is not an Independent Director of the Company. To the extent inconsistent
with the provisions of any other Section of this Plan, the provisions of this
Article 5 shall govern the rights and obligations of the Company and Independent
Directors respecting NQSOs granted or to be granted to Independent Directors.
The provisions of this Article 5 shall not be amended more than once every six
months other than to comport with changes in applicable law.
14
EXHIBIT 10.2
RECKSON ASSOCIATES REALTY CORP. AMENDED AND RESTATED
1997 STOCK OPTION PLAN
As Amended Through March 5, 2001
ARTICLE 1. GENERAL
1.1. Purpose. The purpose of the Reckson Associates Realty Corp. 1997
Stock Option Plan (the "Plan") is to provide for certain officers, directors and
key employees, as defined in Section 1.3, of Reckson Associates Realty Corp.
(the "Company") and certain of its Affiliates (as defined below) an equity-based
incentive to maintain and enhance the performance and profitability of the
Company. It is the further purpose of this Plan to permit the granting of awards
that will constitute performance based compensation for certain executive
officers, as described in Section 162(m) of the Internal Revenue Code of 1986,
as amended (the "Code"), and regulations promulgated thereunder.
1.2. Administration.
(a) The Plan shall be administered by the Compensation Committee (the
"Committee") of the Board of Directors of the Company (the "Board"), which
Committee shall consist of two or more directors, or by the Board. It is
intended that the directors appointed to serve on the Committee shall be
"non-employee directors" (within the meaning of Rule 16b-3 promulgated under the
Securities Exchange Act of 1934 (the "Act")) and "outside directors" (within the
meaning of Code Section 162(m)); however, the mere fact that a Committee member
shall fail to qualify under either of these requirements shall not invalidate
any award made by the Committee which award is otherwise validly made under the
Plan. The members of the Committee shall be appointed by, and may be changed at
any time and from time to time in the discretion of, the Board.
(b) The Committee shall have the authority (i) to exercise all of the
powers granted to it under the Plan, (ii) to construe, interpret and implement
the Plan and any Plan Agreements (as defined below) executed pursuant to the
Plan, (iii) to prescribe, amend and rescind rules relating to the Plan, (iv) to
make any determination necessary or advisable in administering the Plan, (v) to
correct any defect, supply any omission and reconcile any inconsistency in the
Plan and (vi) to delegate to Donald J. Rechler and Scott H. Rechler (the "Proper
Officers") its authority to grant awards under the Plan to key employees,
excluding those employees who are executive officers ("Non-Executive Officers"),
provided that (a) the aggregate number of shares of Common Stock granted to any
Non-Executive Officer during any calendar year shall not exceed 100,000 shares
and (b) the Proper Officers shall report quarterly to the Committee regarding
the material terms of awards granted to any Non-Executive Officers. The
Committee shall have no authority to interpret or administer Article 5 of the
Plan or to take any action with respect to any awards thereunder.
(c) The determination of the Committee on all matters relating to the
Plan or any Plan Agreement shall be conclusive.
(d) No member of the Committee shall be liable for any action or
determination made in good faith with respect to the Plan or any award
hereunder.
(e) Notwithstanding anything to the contrary contained herein, the
Board may, in its sole discretion, at any time and from time to time, resolve to
administer the Plan, in which case, the term Committee as used herein shall be
deemed to mean the Board.
1.3. Persons Eligible for Awards. Awards under the Plan may be made to
such officers, directors and key employees ("key personnel") of the Company or
its Affiliates as the Committee shall from time to time in its sole discretion
select. No member of the Board who is not an officer or employee of the Company
or an Affiliate (an "Independent Director") shall be eligible to receive any
Awards under the Plan, except for non-qualified stock options granted
automatically under the provisions of Article 5 of the Plan.
1.4. Types of Awards Under Plan.
(a) Awards may be made under the Plan in the form of (i) stock options
("options"), (ii) restricted stock awards and (iii) unrestricted stock awards,
in lieu of cash compensation, all as more fully set forth in Articles 2 and 3.
(b) Options granted under the Plan may be either (i) "nonqualified"
stock options ("NQSOs") or (ii) options intended to qualify for incentive stock
option treatment described in Code Section 422 ("ISOs"). Grants of options made
under the Plan may also be made in lieu of cash fees otherwise payable to
Directors of the Company or cash bonuses payable to employees of the Company or
any Affiliate.
(c) All options when granted are intended to be NQSOs, unless the
applicable Plan Agreement explicitly states that the option is intended to be an
ISO. If an option is intended to be an ISO, and if for any reason such option
(or any portion thereof) shall not qualify as an ISO, then, to the extent of
such nonqualification, such option (or portion) shall be regarded as a NQSO
appropriately granted under the Plan provided that such option (or portion)
otherwise meets the Plan's requirements relating to NQSOs.
1.5. Shares Available for Awards.
(a) Subject to Section 4.5 (relating to adjustments upon changes in
capitalization), as of any date the total number of shares of Common Stock with
respect to which awards may be granted under the Plan, shall equal the excess
(if any) of 3,000,000 shares of Common Stock, over (i) the number of shares of
Common Stock subject to outstanding awards, (ii) the number of shares in respect
of which options have been exercised, or grants of restricted or unrestricted
Common Stock have been made pursuant to the Plan, and (iii) the number of shares
issued subject to forfeiture restrictions which have lapsed.
In accordance with (and without limitation upon) the preceding
sentence, awards may be granted in respect of the following shares of Common
Stock: shares covered by previously-granted awards that have expired, terminated
or been cancelled for any reason whatsoever (other than by reason of exercise or
vesting).
2
(b) In any year, a person eligible for awards under the Plan may not be
granted options under the Plan covering a total of more than 150,000 shares of
Common Stock.
(c) Shares of Common Stock that shall be subject to issuance pursuant
to the Plan shall be authorized and unissued or treasury shares of Common Stock,
or shares of Common Stock purchased on the open market or from shareholders of
the Company for such purpose.
(d) Without limiting the generality of the foregoing, the Committee
may, with the grantee's consent, cancel any award under the Plan and issue a new
award in substitution therefor upon such terms as the Committee may in its sole
discretion determine, provided that the substituted award shall satisfy all
applicable Plan requirements as of the date such new award is made.
1.6. Definitions of Certain Terms.
(a) The term "Affiliate" as used herein means Reckson Operating
Partnership, L.P., Reckson FS Limited Partnership, RANY Management Group, Inc.,
Reckson Finance, Inc., Reckson Management Group, Inc., Reckson Construction
Group, Inc., and any person or entity as subsequently approved by the Board
which, at the time of reference, directly, or indirectly through one or more
intermediaries, controls, is controlled by, or is under common control with, the
Company.
(b) The term "Cause" shall mean a finding by the Committee that the
recipient of an award under the Plan has (i) acted with gross negligence or
willful misconduct in connection with the performance of his material duties to
the Company or its Affiliates; (ii) defaulted in the performance of his material
duties to the Company or its Affiliates and has not corrected such action within
15 days of receipt of written notice thereof; (iii) willfully acted against the
best interests of the Company or its Affiliates, which act has had a material
and adverse impact on the financial affairs of the Company or its Affiliates; or
(iv) been convicted of a felony or committed a material act of common law fraud
against the Company, its Affiliates or their employees and such act or
conviction has, or the Committee reasonably determines will have, a material
adverse effect on the interests of the Company or its Affiliates.
(c) The term "Common Stock" as used herein means the shares of Class A
common stock of the Company as constituted on the effective date of the Plan,
and any other shares into which such common stock shall thereafter be changed by
reason of a recapitalization, merger, consolidation, split-up, combination,
exchange of shares or the like.
(d) The "fair market value" (or "FMV") as of any date and in respect of
any share of Common Stock shall be:
(i) if the Common Stock is listed for trading on the New York
Stock Exchange, the closing price, regular way, of the Common
Stock as reported on the New York Stock Exchange Composite
Tape, or if no such reported sale of the Common Stock shall
have occurred on such date, on the next preceding date on
which there was such a reported sale; or
3
(ii) the Common Stock is not so listed but is listed on
another national securities exchange or authorized for
quotation on the National Association of Securities Dealers
Inc.'s NASDAQ National Market System ("NASDAQ/NMS"), the
closing price, regular way, of the Common Stock on such
exchange or NASDAQ/NMS, as the case may be, on which the
largest number of shares of Common Stock have been traded in
the aggregate on the preceding twenty trading days, or if no
such reported sale of the Stock shall have occurred on such
date on such exchange or NASDAQ/NMS, as the case may be, on
the preceding date on which there was such a reported sale on
such exchange or NASDAQ/NMS, as the case may be; or
(iii) if the Stock is not listed for trading on a national
securities exchange or authorized for quotation on NASDAQ/NMS,
the average of the closing bid and asked prices as reported by
the National Association of Securities Dealers Automated
Quotation System ("NASDAQ") or, if no such prices shall have
been so reported for such date, on the next preceding date for
which such prices were so reported.
1.7. Agreements Evidencing Awards.
(a) Options and restricted stock awards granted under the Plan shall be
evidenced by written agreements. Any such written agreements shall (i) contain
such provisions not inconsistent with the terms of the Plan as the Committee may
in its sole discretion deem necessary or desirable and (ii) be referred to
herein as "Plan Agreements."
(b) Each Plan Agreement shall set forth the number of shares of Common
Stock subject to the award granted thereby.
(c) Each Plan Agreement with respect to the granting of an option shall
set forth the amount (the "option exercise price") payable by the grantee to the
Company in connection with the exercise of the option evidenced thereby. The
option exercise price per share shall not be less than 100% of the fair market
value of a share of Common Stock on the date the option is granted.
ARTICLE 2. STOCK OPTIONS
2.1. Option Awards.
(a) Grant of Stock Options. The Committee may grant options to purchase
shares of Common Stock in such amounts and subject to such terms and conditions
as the Committee shall from time to time in its sole discretion determine,
subject to the terms of the Plan.
(b) Dividend Equivalent Rights. To the extent expressly provided by the
Committee at the time of the grant, each NQSO granted under this Section 2.1
shall also generate Dividend Equivalent Rights ("DERs"), which shall entitle the
grantee to receive an additional share of Common Stock for each DER received
upon the exercise of the NQSO, at no additional cost, based on the formula set
forth herein. As of the last business day of each calendar quarter, the amount
of dividends paid by the Company on each share of Common Stock with respect to
that
4
quarter shall be divided by the FMV per share to determine the actual number of
DERs accruing on each share subject to the NQSO. Such amount of DERs shall be
multiplied by the number of shares covered by the NQSO to determine the number
of DERs which accrued during such quarter. The provisions of this Section 2.1(b)
shall not be amended more than once every six months other than to comport with
changes in applicable law.
For example. Assume that a grantee holds a NQSO to purchase 600 shares
of Common Stock. Further assume that the dividend per share for the first
quarter was $0.10, and that the FMV per share on the last business day of the
quarter was $20. Therefore, .005 DER would accrue per share for that quarter and
such grantee would receive three DERs for that quarter (600 X .005). For
purposes of determining how many DERs would accrue during the second quarter,
the NQSO would be considered to be for 603 shares of Common Stock.
2.2. Exercisability of Options. Subject to the other provisions of the
Plan:
(a) Exercisability Determined by Plan Agreement. Each Plan Agreement
shall set forth the period during which and the conditions subject to which the
option shall be exercisable (including, but not limited to vesting of such
options), as determined by the Committee in its discretion.
(b) Partial Exercise Permitted. Unless the applicable Plan Agreement
otherwise provides, an option granted under the Plan may be exercised from time
to time as to all or part of the full number of shares for which such option is
then exercisable, in which event the DERs relating to the portion of the option
being exercised shall also be exercised.
(c) Notice of Exercise; Exercise Date.
(i) An option shall be exercisable by the filing of a written
notice of exercise with the Company, on such form and in such
manner as the Committee shall in its sole discretion
prescribe, and by payment in accordance with Section 2.4.
(ii) Unless the applicable Plan Agreement otherwise provides,
or the Committee in its sole discretion otherwise determines,
the date of exercise of an option shall be the date the
Company receives such written notice of exercise and payment.
2.3. Limitation on Exercise. Notwithstanding any other provision of the
Plan, no Plan Agreement shall permit an ISO to be exercisable more than 10 years
after the date of grant.
2.4. Payment of Option Price.
(a) Tender Due Upon Notice of Exercise. Unless the applicable Plan
Agreement otherwise provides or the Committee in its sole discretion otherwise
determines, any written notice of exercise of an option shall be accompanied by
payment of the full purchase price for the shares being purchased.
(b) Manner of Payment. Payment of the option exercise price shall be
made in any combination of the following:
5
(i) by certified or official bank check payable to the Company
(or the equivalent thereof acceptable to the Committee);
(ii) by personal check (subject to collection), which may in
the Committee's discretion be deemed conditional;
(iii) with the consent of the Committee in its sole
discretion, by delivery of previously acquired shares of
Common Stock owned by the grantee for at least six months
having a fair market value (determined as of the option
exercise date) equal to the portion of the option exercise
price being paid thereby, provided that the Committee may
require the grantee to furnish an opinion of counsel
acceptable to the Committee to the effect that such delivery
would not result in the grantee incurring any liability under
Section 16(b) of the Act and does not require any Consent (as
defined in Section 4.2); and
(iv) with the consent of the Committee in its sole
discretion, by the full recourse promissory note and agreement
of the grantee providing for payment with interest on the
unpaid balance accruing at a rate not less than that needed to
avoid the imputation of income under Code Section 7872 and
upon such terms and conditions (including the security, if
any, therefor) as the Committee may determine; and
(v) by withholding shares of Common Stock from the shares
otherwise issuable pursuant to the exercise.
(c) Cashless Exercise. Payment in accordance with Section 2.4(b) may be
deemed to be satisfied, if and to the extent provided in the applicable Plan
Agreement, by delivery to the Company of an assignment of a sufficient amount of
the proceeds from the sale of Common Stock acquired upon exercise to pay for all
of the Common Stock acquired upon exercise and an authorization to the broker or
selling agent to pay that amount to the Company, which sale shall be made at the
grantee's direction at the time of exercise, provided that the Committee may
require the grantee to furnish an opinion of counsel acceptable to the Committee
to the effect that such delivery would not result in the grantee incurring any
liability under Section 16 of the Act and does not require any Consent (as
defined in Section 4.2).
(d) Issuance of Shares. As soon as practicable after receipt of full
payment, the Company shall, subject to the provisions of Section 4.2, deliver to
the grantee one or more certificates for the shares of Common Stock so
purchased, which certificates may bear such legends as the Company may deem
appropriate concerning restrictions on the disposition of the shares in
accordance with applicable securities laws, rules and regulations or otherwise.
2.5. Default Rules Concerning Termination of Employment.
Subject to the other provisions of the Plan and unless the applicable
Plan Agreement otherwise provides:
6
(a) General Rule. All options granted to a grantee shall terminate upon
the grantee's termination of employment for any reason except to the extent
post-employment exercise of the option is permitted in accordance with this
Section 2.5.
(b) Termination for Cause. All unexercised or unvested options granted
to a grantee shall terminate and expire on the day a grantee's employment is
terminated for Cause.
(c) Regular Termination; Leave of Absence. If the grantee's employment
terminates for any reason other than as provided in subsection (b), (d) or (f)
of this Section 2.5, any awards granted to such grantee which were exercisable
immediately prior to such termination of employment may be exercised, and any
awards subject to vesting may continue to vest, until the earlier of either: (i)
90 days after the grantee's termination of employment and (ii) the date on which
such options terminate or expire in accordance with the provisions of the Plan
(other than this Section 2.5) and the Plan Agreement; provided that the
Committee may, in its sole discretion, determine such other period for exercise
in the case of a grantee whose employment terminates solely because the
grantee's employer ceases to be an Affiliate or the grantee transfers employment
with the Company's consent to a purchaser of a business disposed of by the
Company. The Committee may, in its sole discretion, determine (i) whether any
leave of absence (including short-term or long-term disability or medical leave)
shall constitute a termination of employment for purposes of the Plan and (ii)
the effect, if any, of any such leave on outstanding awards under the Plan.
(d) Retirement. If a grantee's employment terminates by reason of
retirement (i.e., the voluntary termination of employee by a grantee after
attaining the age of 55), the options exercisable by the grantee immediately
prior to the grantee's retirement shall be exercisable by the grantee until the
earlier of (i) 36 months after the grantee's retirement and (ii) the date on
which such options terminate or expire in accordance with the provisions of the
Plan (other than this Section 2.5) and the Plan Agreement.
(e) Death After Termination. If a grantee's employment terminates in
the manner described in subsections (c) or (d) of this Section 2.5 and the
grantee dies within the period for exercise provided for therein, the options
exercisable by the grantee immediately prior to the grantee's death shall be
exercisable by the personal representative of the grantee's estate or by the
person to whom such options pass under the grantee's will (or, if applicable,
pursuant to the laws of descent and distribution) until the earlier of (i) 12
months after the grantee's death and (ii) the date on which such options
terminate or expire in accordance with the provisions of subsections (c) or (d)
of this Section 2.5.
(f) Death Before Termination. If a grantee dies while employed by the
Company or any Affiliate, all options granted to the grantee but not exercised
before the death of the grantee, whether or not exercisable by the grantee
before the grantee's death, shall immediately become and be exercisable by the
personal representative of the grantee's estate or by the person to whom such
options pass under the grantee's will (or, if applicable, pursuant to the laws
of descent and distribution) until the earlier of (i) 12 months after the
grantee's death and (ii) the date on which such options terminate or expire in
accordance with the provisions of the Plan (other than this Section 2.5) and the
Plan Agreement.
7
2.6. Special ISO Requirements. In order for a grantee to receive
special tax treatment with respect to stock acquired under an option intended to
be an ISO, the grantee of such option must be, at all times during the period
beginning on the date of grant and ending on the day three months before the
date of exercise of such option, an employee of the Company or any of the
Company's parent or subsidiary corporations (within the meaning of Code Section
424), or of a corporation or a parent or subsidiary corporation of such
corporation issuing or assuming a stock option in a transaction to which Code
Section 424(a) applies. If an option granted under the Plan is intended to be an
ISO, and if the grantee, at the time of grant, owns stock possessing more than
10% of the total combined voting power of all classes of stock of the grantee's
employer corporation or of its parent or subsidiary corporation, then (i) the
option exercise price per share shall in no event be less than 110% of the fair
market value of the Common Stock on the date of such grant and (ii) such option
shall not be exercisable after the expiration of five years after the date such
option is granted.
ARTICLE 3. RESTRICTED STOCK AND UNRESTRICTED STOCK AWARDS
3.1. Restricted Stock Awards.
(a) Grant of Awards. The Committee may grant restricted stock awards,
alone or in tandem with other awards, under the Plan in such amounts and subject
to such terms and conditions as the Committee shall from time to time in its
sole discretion determine; provided, however, that the grant of any such
restricted stock awards may be made in lieu of, or in tandem with other, cash
compensation and bonuses. The vesting of a restricted stock award granted under
the Plan may be conditioned upon the completion of a specified period of
employment with the Company or any Affiliate, upon the attainment of specified
performance goals, and/or upon such other criteria as the Committee may
determine in its sole discretion.
(b) Payment. Each Plan Agreement with respect to a restricted stock
award shall set forth the amount (if any) to be paid by the grantee with respect
to such award. If a grantee makes any payment for a restricted stock award which
does not vest, appropriate payment may be made to the grantee following the
forfeiture of such award on such terms and conditions as the Committee may
determine. The Committee shall have the authority to make or authorize loans to
finance, or to otherwise accommodate the financing of, the acquisition or
exercise of a restricted stock award.
(c) Forfeiture upon Termination of Employment. Unless the applicable
Plan Agreement otherwise provides or the Committee otherwise determines, (i) if
a grantee's employment terminates for any reason (including death) before all of
his restricted stock awards have vested, such awards shall terminate and expire
upon such termination of employment, and (ii) in the event any condition to the
vesting of restricted stock awards is not satisfied within the period of time
permitted therefor, such unvested shares shall be returned to the Company.
(d) Issuance of Shares. The Committee may provide that one or more
certificates representing restricted stock awards shall be registered in the
grantee's name and bear an appropriate legend specifying that such shares are
not transferable and are subject to the terms and conditions of the Plan and the
applicable Plan Agreement, or that such certificate or certificates shall be
held in escrow by the Company on behalf of the grantee until such shares
8
vest or are forfeited, all on such terms and conditions as the Committee may
determine. Unless the applicable Plan Agreement otherwise provides, no share of
restricted stock may be assigned, transferred, otherwise encumbered or disposed
of by the grantee until such share has vested in accordance with the terms of
such award. Subject to the provisions of Section 4.2, as soon as practicable
after any restricted stock award shall vest, the Company shall issue or reissue
to the grantee (or to the grantee's designated beneficiary in the event of the
grantee's death) one or more certificates for the Common Stock represented by
such restricted stock award.
(e) Grantees' Rights Regarding Restricted Stock. Unless the applicable
Plan Agreement otherwise provides: (i) a grantee may vote and receive dividends
on restricted stock awarded under the Plan; and (ii) any stock received as a
distribution with respect to a restricted stock award shall be subject to the
same restrictions as such restricted stock.
3.2. Unrestricted Stock. The Committee may issue unrestricted stock
under the Plan, alone or in tandem with other awards, in such amounts and
subject to such terms and conditions as the Committee shall from time to time in
its sole discretion determine; provided, however, that the grant of any such
unrestricted stock awards may be made in lieu of, or in tandem with other, cash
compensation and bonuses. The Committee shall have the authority to make or
authorize loans to finance, or to otherwise accommodate the financing of, the
acquisition or exercise of an unrestricted stock award.
ARTICLE 4. MISCELLANEOUS
4.1. Amendment of the Plan; Modification of Awards.
(a) Plan Amendments. The Board may, without stockholder approval, at
any time and from time to time suspend, discontinue or amend the Plan in any
respect whatsoever, except that no such amendment shall impair any rights under
any award theretofore made under the Plan without the consent of the grantee of
such award. Furthermore, except as and to the extent otherwise permitted by
Section 4.5 or 4.11, no such amendment shall, without stockholder approval:
(i) materially increase the benefits accruing to grantees
under the Plan;
(ii) increase the maximum number of shares which may be made
subject to awards to an individual as options in any year;
(iii) materially increase, beyond the amounts set forth in
Section 1.5, the number of shares of Common Stock in respect
of which awards may be issued under the Plan;
(iv) materially modify the designation in Section 1.3 of the
class of persons eligible to receive awards under the Plan;
(v) provide for the grant of stock options having an option
exercise price per share of Common Stock less than 100% of the
fair market value of a share of Common Stock on the date of
grant; or
9
(vi) extend the term of the Plan beyond the period set forth
in Section 4.13.
(b) Award Modifications. Subject to the terms and conditions of the
Plan (including Section 4.1(a)), the Committee may amend outstanding Plan
Agreements with such grantee, including, without limitation, any amendment which
would (i) accelerate the time or times at which an award may vest or become
exercisable and/or (ii) extend the scheduled termination or expiration date of
the award, provided, however, that no modification having a material adverse
effect upon the interest of a grantee in an award shall be made without the
consent of such grantee.
4.2. Restrictions.
(a) Consent Requirements. If the Committee shall at any time determine
that any Consent (as hereinafter defined) is necessary or desirable as a
condition of, or in connection with, the granting of any award under the Plan,
the acquisition, issuance or purchase of shares or other rights hereunder or the
taking of any other action hereunder (each such action being hereinafter
referred to as a "Plan Action"), then such Plan Action shall not be taken, in
whole or in part, unless and until such Consent shall have been effected or
obtained to the full satisfaction of the Committee. Without limiting the
generality of the foregoing, the Committee shall be entitled to determine not to
make any payment whatsoever until Consent has been given if (i) the Committee
may make any payment under the Plan in cash, Common Stock or both, and (ii) the
Committee determines that Consent is necessary or desirable as a condition of,
or in connection with, payment in any one or more of such forms.
(b) Consent Defined. The term "Consent" as used herein with respect to
any Plan Action means (i) any and all listings, registrations or qualifications
in respect thereof upon any securities exchange or other self-regulatory
organization or under any federal, state or local law, rule or regulation, (ii)
the expiration, elimination or satisfaction of any prohibitions, restrictions or
limitations under any federal, state or local law, rule or regulation or the
rules of any securities exchange or other self-regulatory organization, (iii)
any and all written agreements and representations by the grantee with respect
to the disposition of shares, or with respect to any other matter, which the
Committee shall deem necessary or desirable to comply with the terms of any such
listing, registration or qualification or to obtain an exemption from the
requirement that any such listing, qualification or registration be made, and
(iv) any and all consents, clearances and approvals in respect of a Plan Action
by any governmental or other regulatory bodies or any parties to any loan
agreements or other contractual obligations of the Company or any Affiliate.
4.3. Nontransferability. No award granted to any grantee under the Plan
or under any Plan Agreement shall be assignable or transferable by the grantee
other than by will or by the laws of descent and distribution. During the
lifetime of the grantee, all rights with respect to any award granted to the
grantee under the Plan or under any Plan Agreement shall be exercisable only by
the grantee.
4.4. Withholding Taxes.
(a) Whenever under the Plan shares of Common Stock are to be delivered
pursuant to an award, the Committee may require as a condition of delivery that
the grantee remit an amount
10
sufficient to satisfy all federal, state and other governmental withholding tax
requirements related thereto. Whenever cash is to be paid under the Plan, the
Company may, as a condition of its payment, deduct therefrom, or from any salary
or other payments due to the grantee, an amount sufficient to satisfy all
federal, state and other governmental withholding tax requirements related
thereto or to the delivery of any shares of Common Stock under the Plan.
(b) Without limiting the generality of the foregoing, (i) a grantee may
elect to satisfy all or part of the foregoing withholding requirements by
delivery of unrestricted shares of Common Stock owned by the grantee for at
least six months (or such other period as the Committee may determine) having a
fair market value (determined as of the date of such delivery by the grantee)
equal to all or part of the amount to be so withheld, provided that the
Committee may require, as a condition of accepting any such delivery, the
grantee to furnish an opinion of counsel acceptable to the Committee to the
effect that such delivery would not result in the grantee incurring any
liability under Section 16(b) of the Act and (ii) the Committee may permit any
such delivery to be made by withholding shares of Common Stock from the shares
otherwise issuable pursuant to the award giving rise to the tax withholding
obligation (in which event the date of delivery shall be deemed the date such
award was exercised).
4.5. Adjustments Upon Changes in Capitalization. If and to the extent
specified by the Committee, the number of shares of Common Stock which may be
issued pursuant to awards under the Plan, the maximum number of options which
may be granted to any one person in any year, the number of shares of Common
Stock subject to awards, the option exercise price of options theretofore
granted under the Plan, and the amount payable by a grantee in respect of an
award, shall be appropriately adjusted (as the Committee may determine) for any
change in the number of issued shares of Common Stock resulting from the
subdivision or combination of shares of Common Stock or other capital
adjustments, or the payment of a stock dividend after the effective date of the
Plan, or other change in such shares of Common Stock effected without receipt of
consideration by the Company; provided that any awards covering fractional
shares of Common Stock resulting from any such adjustment shall be eliminated
and provided further, that each ISO granted under the Plan shall not be adjusted
in a manner that causes such option to fail to continue to qualify as an ISO
within the meaning of Code Section 422. Adjustments under this Section shall be
made by the Committee, whose determination as to what adjustments shall be made,
and the extent thereof, shall be final, binding and conclusive.
4.6. Right of Discharge Reserved. Nothing in the Plan or in any Plan
Agreement shall confer upon any person the right to continue in the employment
of the Company or an Affiliate or affect any right which the Company or an
Affiliate may have to terminate the employment of such person.
4.7. No Rights as a Stockholder. No grantee or other person shall have
any of the rights of a stockholder of the Company with respect to shares subject
to an award until the issuance of a stock certificate to him for such shares.
Except as otherwise provided in Section 4.5, no adjustment shall be made for
dividends, distributions or other rights (whether ordinary or extraordinary, and
whether in cash, securities or other property) for which the record date is
prior to the date such stock certificate is issued. In the case of a grantee of
an award which has not yet vested, the grantee shall have the rights of a
stockholder of the Company if and only to the extent provided in the applicable
Plan Agreement.
11
4.8. Nature of Payments.
(a) Any and all awards or payments hereunder shall be granted, issued,
delivered or paid, as the case may be, in consideration of services performed
for the Company or for its Affiliates by the grantee.
(b) No such awards and payments shall be considered special incentive
payments to the grantee or, unless otherwise determined by the Committee, be
taken into account in computing the grantee's salary or compensation for the
purposes of determining any benefits under (i) any pension, retirement, life
insurance or other benefit plan of the Company or any Affiliate or (ii) any
agreement between the Company or any Affiliate and the grantee.
(c) By accepting an award under the Plan, the grantee shall thereby
waive any claim to continued exercisability or vesting of an award or to damages
or severance entitlement related to non-continuation of the award beyond the
period provided herein or in the applicable Plan Agreement, notwithstanding any
contrary provision in any written employment contract with the grantee, whether
any such contract is executed before or after the grant date of the award.
4.9. Non-Uniform Determinations. The Committee's determinations under
the Plan need not be uniform and may be made by it selectively among persons who
receive, or are eligible to receive, awards under the Plan (whether or not such
persons are similarly situated). Without limiting the generality of the
foregoing, the Committee shall be entitled, among other things, to make
non-uniform and selective determinations, and to enter into non-uniform and
selective Plan Agreements, as to (a) the persons to receive awards under the
Plan, (b) the terms and provisions of awards under the Plan, and (c) the
treatment of leaves of absence pursuant to Section 2.7(c).
4.10. Other Payments or Awards. Nothing contained in the Plan shall be
deemed in any way to limit or restrict the Company, any Affiliate or the
Committee from making any award or payment to any person under any other plan,
arrangement or understanding, whether now existing or hereafter in effect.
4.11. Reorganization.
(a) In the event that the Company is merged or consolidated with
another corporation and, whether or not the Company shall be the surviving
corporation, there shall be any change in the shares of Common Stock by reason
of such merger or consolidation, or in the event that all or substantially all
of the assets of the Company are acquired by another person, or in the event of
a reorganization or liquidation of the Company (each such event being
hereinafter referred to as a "Reorganization Event") or in the event that the
Board shall propose that the Company enter into a Reorganization Event, then the
Committee may in its discretion, by written notice to a grantee, provide that
his options will be terminated unless exercised within 30 days (or such longer
period as the Committee shall determine in its sole discretion) after the date
of such notice; provided that if, and to the extent that, the Committee takes
such action with respect to the grantee's options not yet exercisable, the
Committee shall also accelerate the dates upon which such options shall be
exercisable. The Committee also may in its discretion by written notice to a
grantee provide that all or some of the restrictions on any of the grantee's
awards may lapse in
12
the event of a Reorganization Event upon such terms and conditions as the
Committee may determine.
(b) Whenever deemed appropriate by the Committee, the actions referred
to in Section 4.11(a) may be made conditional upon the consummation of the
applicable Reorganization Event.
4.12. Section Headings. The section headings contained herein are for
the purposes of convenience only and are not intended to define or limit the
contents of said sections.
4.13. Effective Date and Term of Plan.
(a) The Plan shall be deemed adopted and become effective upon the
approval thereof by the shareholders of the Company.
(b) The Plan shall terminate 10 years after the earlier of the date on
which it becomes effective or is approved by shareholders, and no awards shall
thereafter be made under the Plan. Notwithstanding the foregoing, all awards
made under the Plan prior to such termination date shall remain in effect until
such awards have been satisfied or terminated in accordance with the terms and
provisions of the Plan and the applicable Plan Agreement.
4.14. Governing Law. The Plan shall be governed by the laws of the
State of New York applicable to agreements made and to be performed entirely
within such state.
ARTICLE 5. STOCK OPTIONS GRANTED TO INDEPENDENT DIRECTORS
5.1. Automatic Grant of Options. Each Independent Director appointed or
elected for the first time shall automatically be granted (under this Plan or
another Company stock option plan) a NQSO to purchase 7,500 shares of Common
Stock on his date of appointment or election. Each Independent Director who is
serving as Director of the Company on the fifth business day after each annual
meeting of shareholders shall, on such day, automatically be granted (under this
Plan or another Company stock option plan) NQSOs to acquire 6,250 shares of
Common Stock; provided, however, that an Independent Director who is appointed
or elected for the first time shall not be eligible to receive NQSOs pursuant to
this sentence for the year of his initial appointment or election. The exercise
price per share for the Common Stock covered by a NQSO granted pursuant to this
Section 5.1 shall be equal to the FMV of the Common Stock on the date the NQSO
is granted.
5.2. Exercise; Termination; Non-Transferability
(a) All NQSOs granted under this Article 5 shall be immediately
exercisable. No NQSO issued under this Article 5 shall be exercisable after the
expiration of ten years from the date upon which such NQSO is granted.
(b) The rights of an Independent Director in a NQSO granted under this
Article 5 shall terminate twelve months after such Director ceases to be a
Director of the Company or the specified expiration date, if earlier; provided,
however, that such rights shall terminate immediately on the date on which an
Independent Director ceases to be a Director by reason of
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termination of his directorship on account of any act of (i) fraud or
intentional misrepresentation or (ii) embezzlement, misappropriation or
conversion of assets or opportunities of the Company or any Affiliate.
(c) No NQSO granted under this Article 5 shall be transferable by the
grantee otherwise than by will or by the laws of descent and distribution, and
such grantee shall be exercisable during the grantee's lifetime only by the
grantee. Any NQSO granted to an Independent Director and outstanding on the date
of his death may be exercised by the legal representative or legatee of the
grantee for the period of twelve months from the date of death or until the
expiration of the stated term of the option, if earlier.
(d) NQSOs granted under this Article 5 may be exercised only by written
notice to the Company specifying the number of shares to be purchased. Payment
of the full purchase price of the shares to be purchased may be made by
certified or official bank check payable to the Company. A grantee shall have
the rights of a stockholder only as to shares acquired upon the exercise of a
NQSO and not as to unexercised NQSOs.
5.3. Adjustments Upon Changes in Capitalization. The number of shares
of Common Stock subject to awards and the option exercise price of NQSOs
theretofore granted under this Article 5, and the amount payable by a grantee in
respect of an award, shall be appropriately adjusted for any change in the
number of issued shares of Common Stock resulting from the subdivision or
combination of shares of Common Stock or other capital adjustments, or the
payment of a stock dividend after the effective date of the Plan, or other
change in such shares of Common Stock effected without receipt of consideration
by the Company; provided that any awards covering fractional shares of Common
Stock resulting from any such adjustment shall be eliminated.
5.4 Limited to Independent Directors. The provisions of this Article 5
shall apply only to NQSOs granted or to be granted to Independent Directors,
shall be interpreted as if this Article 5 constituted a separate plan of the
Company and shall not be deemed to modify, limit or otherwise apply to any other
provision of this Plan or to any NQSO issued under this Plan to a participant
who is not an Independent Director of the Company. To the extent inconsistent
with the provisions of any other Section of this Plan, the provisions of this
Article 5 shall govern the rights and obligations of the Company and Independent
Directors respecting NQSOs granted or to be granted to Independent Directors.
The provisions of this Article 5 shall not be amended more than once every six
months other than to comport with changes in applicable law.
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