As filed with the Securities and Exchange Commission on April 21, 1999
Registration Statement No. 333-________
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SECURITIES AND EXCHANGE COMMISSION
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
TOWER REALTY TRUST, INC.
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(Exact name of registrant as specified in its charter)
Maryland
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(State or other jurisdiction of incorporation or organization)
13-3938558
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(I.R.S. Employer Identification No.)
292 Madison Avenue, 3rd Floor
New York, New York 10017
(212) 448-1864
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(Address, including zip code and telephone number, including area code, of
registrant's principal executive offices)
Lester S. Garfinkel
Executive Vice President--Finance and Administration and Chief Financial Officer
292 Madison Avenue, 3rd Floor
New York, New York 10017
(212) 448-1864
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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copy to:
Steven L. Lichtenfeld, Esq.
Battle Fowler LLP
75 East 55th Street
New York, New York 10022
(212) 856-7000
Approximate date of commencement of proposed sale to public: From time
to time or at one time after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. [ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<TABLE>
<CAPTION>
Calculation of Registration Fee
Proposed
Title of each class Proposed maximum
of securities to be Amount maximum offering aggregate offering Amount of
registered to be registered price per unit (2) price registration fee
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<S> <C> <C> <C> <C>
Common Stock, $0.01 par
value per share 4,787,975(1) $19.875 $95,161,003 $26,454.76
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</TABLE>
(1) Includes 1,684,770 shares potentially issuable in exchange for a like
number of units of limited partnership interest in Tower Realty
Operating Partnership, L.P.
(2) Estimated solely for the purpose of determining the Registration Fee in
accordance with Rule 457(c) of the rules and regulations under the
Securities Act of 1933, as amended. Pursuant to Rule 457, the proposed
maximum offering price per share of Common Stock of the Registrant is
based upon the average of the high and low reported sales prices of the
Common Stock on the New York Stock Exchange Composite Transaction Tape
on April 16, 1999.
The registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
The information in this Prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This Prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
<TABLE>
<CAPTION>
Subject to Completion Dated April 21, 1999
Prospectus
TOWER REALTY TRUST, INC.
4,787,975 Shares of Common Stock
----------------------
<S> <C>
This Prospectus relates to the offer and sale from Common Stock may place or at other prices to which
time to time by the persons listed under the "Selling they agree.
Stockholders" section of this Prospectus of up to
4,787,975 shares of our Common Stock. We have issued The Selling Stockholders will pay any brokerage
3,103,205 shares of restricted Common Stock to certain fees or commissions relating to the sales by them.
Selling Stockholders and may issue further shares of See "Plan of Distribution." The registration of the
our Common Stock to the extent certain other Selling Selling Stockholders' shares does not necessarily
Stockholders exchange their 1,684,770 units of mean that any of them will sell their shares. Certain
beneficial interest held by them in our subsidiary, of the Selling Stockholders are obligated by contract
Tower Realty Operating Partnership, L.P., for an equal not to sell their Common Stock until October 9, 1999,
number of shares of Common Stock. We are filing the unless such obligation is waived by the appropriate
registration statement of which this Prospectus is a parties.
part to fulfill our contractual obligations to the
holders of securities discussed above and to provide We will not receive any proceeds from the sale of
them with freely tradable securities. shares of Common Stock by the Selling Stockholders.
We have agreed to bear certain expenses of
Our Common Stock trades on the New York Stock registering the Common Stock covered by this
Exchange under the symbol "TOW." The shares being Prospectus under Federal and state securities laws.
registered pursuant to the registration statement of
which this Prospectus is a part are subject to certain The Selling Stockholders and any agents or
restrictions on ownership and transfer designed to broker-dealers that participate with them in the
assist us in maintaining our status a real estate distribution of Common Stock covered by this
investment trust for federal income tax purposes. See Prospectus may be deemed "underwriters" within the
"Restrictions on Transfers." meaning of the Securities Act of 1933, as amended,
and any commissions received by them on the resale of
The Selling Stockholders, from time to time, may Common Stock may be deemed to be underwriting
offer the shares of Common Stock covered by this commissions or discounts under the Securities Act.
Prospectus on the New York Stock Exchange or in other See "Plan of Distribution." See "Description of Our
markets where our Stock-Registration Rights" for indemnification
arrangements between the Company and the Selling
Stockholders.
----------------------
Investing in shares of our Common Stock involves various risks. In
considering whether to purchase shares of our Common Stock, you should carefully
consider the matters discussed under "Risk Factors" beginning on page 7 of this
Prospectus.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
Prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
----------------------
</TABLE>
The date of this Prospectus is , 1999
<PAGE>
TABLE OF CONTENTS
Page
Available Information..........................................................3
Incorporation of Certain Documents by Reference................................3
Forward-looking Information....................................................4
Prospectus Summary.............................................................5
Risk Factors...................................................................7
Our Company...................................................................15
What Stockholders Will Receive in the Merger If It Occurs.....................15
Use of Proceeds...............................................................18
Description of Our Stock......................................................19
Federal Income Tax Considerations.............................................29
Selling Stockholders..........................................................40
Plan of Distribution..........................................................42
Experts.......................................................................43
Legal Matters.................................................................44
2
<PAGE>
AVAILABLE INFORMATION
We have filed with the SEC a Registration Statement on Form S-3 under
the Securities Act to register the Common Stock offered in this Prospectus. This
Prospectus is part of the Registration Statement. This Prospectus does not
contain all the information contained in the Registration Statement because we
have omitted certain parts of the Registration Statement in accordance with the
rules and regulations of the SEC. For further information, we refer you to the
Registration Statement, which you may read and copy at the public reference
facilities maintained by the SEC at Judiciary Plaza, 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549 and at the SEC's Regional Offices at 7 World
Trade Center, 13th Floor, New York, New York 10048 and Citicorp Center, 500 W.
Madison Street, Suite 1400, Chicago, Illinois 60661-2511. You may obtain copies
at the prescribed rates from the Public Reference Section of the SEC at its
principal office in Washington, D.C. You may call the SEC at 1-800-SEC-0330 for
further information about the public reference rooms. The SEC maintains a web
site that contains reports, proxy and information statements and other
information regarding our Company. You may access the SEC's web site at
"http://www.sec.gov."
We are subject to the informational requirements of the Securities
Exchange Act of 1934, as amended. As a result, we are required to file reports,
proxy statements and other information with the SEC. These materials can be
copies and inspected at the locations described above. Copies of these materials
can be obtained from the Public Reference Section of the SEC at 450 Judiciary
Plaza, N.W., Room 1024, Washington, D.C. 20549, at prescribed rates. Our Common
Stock is listed on the New York Stock Exchange under the symbol "TOW." You may
read our reports, proxy and other information statements which we file at the
offices of the NYSE at 20 Broad Street, New York, New York 10005.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" the information we
file with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this Prospectus, and information that we file later
with the SEC will automatically update and supersede this information. We
incorporate by reference the documents listed below and any future filings we
will make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934:
o Our Annual Report on Form 10-K for the fiscal year ended
December 31, 1998;
o Our proxy statement, dated April 14, 1999, with respect to the
special meeting of stockholders to be held on May 14, 1999.
o Our Current Reports on Form 8-K (i) dated December 7, 1998 and
filed December 18, 1998 (relating to the execution of a merger
agreement with Metropolitan Partners LLC and the purchase by
Metropolitan Partners LLC of 2,169,197 shares of our preferred
stock) and (ii) dated December 31, 1997 and filed January 14,
1998, as amended on March 2, 1998 (relating to a property
acquisition by the Company).
o The description of our Common Stock contained in our
Registration Statement on Form 8-A, dated September 16, 1997.
You may request a copy of these filings, at no cost, by writing or
telephoning us at the following address: Tower Realty Trust, Inc., 292 Madison
Avenue, 3rd Floor, New York, New York, 10017. Telephone requests may be directed
to (212) 448-1864.
This Prospectus is part of a registration statement we filed with the
SEC. You should rely only on the information or representations provided in this
Prospectus. We have authorized no one to provide you with different information.
We are not making an offer of these securities in any state where the offer is
not permitted. You should not assume that the information in this Prospectus is
accurate as of any date other than the date on the front of the document.
Statements contained in this Prospectus as to the contents of any
contract or document are not necessarily complete and in each instance reference
is made to the copy of that contract or document filed as an exhibit to the
Registration Statement or as an exhibit to another filing, each such statement
being qualified in all respects by such reference and the exhibits and schedules
thereto.
3
<PAGE>
FORWARD-LOOKING INFORMATION
Certain information both included and incorporated by reference in
this Prospectus may contain forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Securities and Exchange
Act of 1934 and as such may involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performance or achievements of
our Company to be materially different from future results, performance or
achievements expressed or implied by such forward-looking statements.
Forward-looking statements, which are based on certain assumptions and describe
our future plans, strategies and expectations are generally identifiable by use
of the words "may," "will," "should," "expect," "anticipate," "estimate,"
"believe," "intend" or "project" or the negative thereof or other variations
thereon or comparable terminology. Factors which could have a material adverse
effect on the operations and future prospects of our Company include, but are
not limited to, changes in: economic conditions generally and the real estate
market specifically, legislative/regulatory changes (including changes to laws
governing the taxation of real estate investment trusts), availability of
capital, interest rates, competition, supply and demand for office space in our
current and proposed market areas and general accounting principles, policies
and guidelines applicable to real estate investment trusts. These risks and
uncertainties should be considered in evaluating any forward-looking statements
contained or incorporated by reference herein.
4
<PAGE>
PROSPECTUS SUMMARY
This Summary only highlights the more detailed information appearing
elsewhere in this Prospectus or incorporated herein by reference. As this is a
summary, it may not contain all information that is important to you. You should
read this entire Prospectus carefully before deciding whether to purchase shares
of our Common Stock.
Some Important Terms
Although Tower Realty Trust, Inc. and Tower Realty Operating
Partnership, L.P. and their subsidiaries and affiliates are separate legal
entities, for ease of reference, the terms "we," "us" and "our" used in this
Prospectus refer to the business and properties of all of these entities, unless
the context indicates otherwise. For ease of reference and clarity, in this
Prospectus we sometimes refer to Tower Realty Trust, Inc. and its predecessors,
subsidiaries and affiliates as the "Company" and Tower Realty Operating
Partnership, L.P. and its subsidiaries and affiliates as the "Operating
Partnership." In addition, in this Prospectus we refer to our common stock, par
value $0.01 per share, as the "Common Stock" and the units of limited
partnership interest in the Operating Partnership as the "OP Units."
________________
The Company
We are an independent, comprehensive real estate company that manages
all aspects of its operations internally. Through our controlling interest in
the Operating Partnership we are engaged in developing, acquiring, owning,
renovating, managing and leasing office properties primarily in the Manhattan,
Phoenix/Tucson and Orlando markets. We were organized in March 1997 for the
purpose of continuing and expanding the commercial real estate business of our
predecessor, Tower Equities & Realty Corp. Our Common Stock trades on the New
York Stock Exchange under the symbol "TOW."
We are incorporated under the laws of the State of Maryland. Our
principal executive offices are located at 292 Madison Avenue, 3rd Floor, New
York, New York 10017. Our phone number is (212) 448-1864.
The Merger
We have agreed to merge with and into Metropolitan Partners LLC, or
Metropolitan, a subsidiary of Reckson Associates Realty Corp., or Reckson. If
the merger occurs our separate existence will cease. In the merger, our
stockholders and holders of OP Units will receive, for each share and unit, cash
and Reckson class B exchangeable common stock and, if Reckson stockholders do
not approve the share issuance proposal, 7% senior unsecured notes due 2009
issued by Reckson Operating Partnership, L.P., or Reckson OP, and guaranteed by
Reckson. If Reckson stockholders approve the share issuance proposal, which
provides for the issuance of only shares of Reckson class B common stock as the
non-cash portion of the merger consideration, then for each share of Common
Stock and OP Unit, holders will receive, at their election and subject to
proration if the cash election is oversubscribed or undersubscribed, either:
o $23.00 in cash or
o .8364 of a share of Reckson class B common stock.
If Reckson stockholders do not approve the share issuance proposal,
Reckson will be obligated to complete the merger, subject to the conditions of
the merger agreement. In this case, however, holders will receive for each share
of Common Stock and OP Unit, at their election and subject to proration if the
cash election is oversubscribed or undersubscribed, either:
o $23.00 in cash or
o .5725 of a share of Reckson class B common stock and $7.2565
principal amount of Reckson OP 7% notes.
5
<PAGE>
We do not currently know whether Reckson OP 7% notes will be issued
in the merger because the Reckson special meeting relating to the merger has not
yet taken place.
Securities That May Be Offered
This Prospectus relates to the offer and sale from time to time by
the persons listed under the "Selling Stockholders" section of this Prospectus
of (i) up to 3,103,205 shares of our Common Stock and (ii) up to 1,684,770
shares of Common Stock which may be issued upon the exchange of OP Units held by
certain of the Selling Stockholders. We are registering the Common Stock covered
by this Prospectus to satisfy our obligations under registration rights
agreements with the Selling Stockholders.
We will not receive any cash proceeds from the sale of the shares of
Common Stock by the Selling Stockholders.
Risk Factors
Investing in shares of our Common Stock involves various risks. In
considering whether to purchase shares of our Common Stock, you should carefully
consider the matters discussed under "Risk Factors" beginning on page 7 of this
Prospectus.
Tax Status of the Company
The Company has elected to qualify as a real estate investment trust,
commonly referred to as a "REIT," under Sections 856 through 860 of the Internal
Revenue Code of 1986 in each year since 1997. As long as we qualify for taxation
as a real estate investment trust, we generally will not be subject to federal
income tax on that portion of our ordinary income and capital gains that is
distributed to our stockholders. Even if we qualify for taxation as a real
estate investment trust, we may be subject to certain state and local taxes on
our income and property and to federal income and excise taxes on our
undistributed income. See "Risk Factors -- We Have Risks Relating to Being a
Real Estate Investment Trust" and "Federal Income Tax Considerations" for a more
detailed explanation.
6
<PAGE>
RISK FACTORS
You should consider carefully the following risk factors together
with all of the other information included or incorporated by reference in this
Prospectus before you decide to purchase shares of our Common Stock. This
section includes or refers to certain forward-looking statements. You should
refer to the explanation of the qualifications and limitations on such
forward-looking statements discussed on page 4 of this Prospectus.
We could encounter problems as a result of our use of debt
We borrow money to pay for the acquisition, development and operation
of properties and for other general corporate purposes. By borrowing money, we
expose ourselves to several problems, including the following:
o inability to meet existing obligations;
o reduced access to additional debt; and
o loss of our property as a result of any default on existing debt.
We currently have a line of credit facility that has both secured and
unsecured portions. We may borrow up to $165 million under our credit facility,
of which $60 million is secured by our 810 7th Avenue property and $105 million
of which is unsecured. As of March 31, 1999, approximately $138.4 million was
outstanding under our line of credit and approximately $132.0 million of secured
debt encumbered certain of our other properties (excluding 810 7th Avenue, which
is considered an unencumbered asset). At March 31, 1999, approximately 50% of
our total outstanding debt was variable rate debt and most of it reprices on a
monthly basis. Although provisions in the credit facilities limit the amount of
additional indebtedness we may incur, we may incur indebtedness well beyond our
current level. Our Amended and Restated Articles of Incorporation, or Charter,
and our Bylaws do not limit the amount of indebtedness that we may incur.
Our credit facilities require that we comply with covenants relating
to our financial condition. In addition, we have pledged some of our properties
as collateral to secure loans. We may not be able to meet our debt service
obligations, including as a result of higher interest rates effecting our
variable rate debt, or to comply with the terms of our debt instruments. As a
result, our lenders may be entitled to demand immediate repayment of the related
indebtedness and to commence foreclosure proceedings against the property
securing the indebtedness.
Some of our debt is cross collateralized and cross defaulted. If we
default on a cross collateralized loan, the lender of the debt may be able to
foreclose not only on the properties which secure that loan but on other
properties as well. A default by us on a cross defaulted loan will be
automatically deemed a default under other loans. Defaults on cross
collateralized and cross defaulted loans could cause us to lose some or all of
our assets and limit our ability to generate revenues and pay distributions to
our stockholders. Cross collateralization and cross default provisions create
the possibility that our inability to make payments on one loan may effect other
loans, including loans for which we are meeting our payment obligation.
Furthermore, a downturn in the economy could make it difficult for us
to borrow money on favorable terms. If we are unable to borrow, we might need to
sell some of our assets at unfavorable prices in order to pay our loans. We
could encounter several problems, including:
o insufficient cash flow necessary to meet required payments of
principal and interest;
o an increase on variable interest rates on indebtedness; and
o the inability to refinance existing indebtedness on favorable
terms or at all.
Other than indebtedness under our credit facilities, our mortgage indebtedness
is generally nonrecourse to us. However, even with respect to nonrecourse
mortgage indebtedness, we could be obligated to pay our lenders deficiencies
resulting from, among other things, fraud, misapplication of funds and
environmental liabilities.
7
<PAGE>
Our credit facility is scheduled to mature in October 2000. We may be
unable to repay our debt under the credit facility or refinance it on favorable
terms. If we are unable to repay our debt, we may need to liquidate one or more
investments in properties at terms which may not permit us to realize the
maximum return on our investment.
We invest in a single industry
Our current strategy is to acquire interests only in office
properties. As a result, we are subject to the risks inherent in investing in a
single industry. The effects on cash available for distribution to our
stockholders resulting from a downturn in the office property market may be more
pronounced than if we had diversified our investments.
Risk factors relating to our business as a real estate investment trust
As a real estate company, our ability to generate revenues and pay distributions
to our stockholders is affected by the risks inherent in owning real property
investments.
We derive most of our revenue from investments in real property. Real
property investments are subject to different types and degrees of risk that may
reduce the value of our assets and our ability to generate revenues. The factors
that may reduce our revenues, net income and cash available for distributions to
stockholders include the following:
o local conditions, such as an oversupply of space or a reduction
in demand for real estate in an area;
o competition from other available space;
o the ability of the owner to provide adequate maintenance;
o insurance and variable operating costs;
o government regulations;
o changes in interest rate levels;
o the availability of financing;
o potential liability due to changes in environmental and other
laws; and
o changes in the general economic climate.
We may not be able to sell our assets if we need to do so.
Real estate investments are relatively illiquid, and therefore we may
not be able to sell one or more of our properties in order to respond promptly
to changes in economic or other conditions. In addition, the Internal Revenue
Code limits a REIT's ability to sell properties held for fewer than four years.
Our inability to sell one or more of our properties could harm our performance
and ultimately our ability to make distributions to our stockholders.
We could have financial difficulties as a result of market factors.
Substantially all of our properties are located in the Manhattan,
Phoenix and Orlando office markets. Economic problems in these specific areas
would harm us more than if our properties were in diverse locations. The
performance of the economy in each locality affects occupancy, market rental
rates and expenses and could lower our revenues and the underlying values of our
properties. Moreover, the financial conditions of major local employers may have
an impact on our revenues and the value of some of our properties. If there is a
downturn in the economy of any of these local economies, our results of
operations could suffer and we could be unable to make distributions to our
stockholders. In that regard, we have properties in areas that have been in the
past and could be in the future harmed by the following:
8
<PAGE>
o the financial services industry in Manhattan;
o the tourism industry in Orlando; and
o the high-tech manufacturing and tourism industries in Phoenix.
We could have financial difficulties as a result of a downturn in the office
segment of the real estate industry.
Our current strategy is to acquire interests only in office
properties. If there is a downturn in the demand for space at office properties,
we will be in a worse position to make distributions to our stockholders than if
we diversified our portfolio by investing in other types of properties.
We could lose tenants or investment opportunities to our competitors.
Many office properties compete with our properties in attracting
tenants to lease space. Some of these properties are newer and better located or
designed and may offer lower expenses or be better capitalized than our
properties. We may find it difficult to lease space at our properties or at
newly developed or acquired properties and at rents currently charged as a
result of competitive commercial properties in a particular area. Additionally,
we compete for investment opportunities with entities that have greater
financial resources than ours. These entities may be able to accept more risk
than we can prudently manage. Competition may generally reduce the number of
suitable investment opportunities offered to us and increase the bargaining
power of property owners seeking to sell.
We could have financial problems as a result of our tenants' financial
difficulty.
At any time, any of our tenants may seek the protection of the
bankruptcy laws. Under the bankruptcy laws, a tenant's lease could be rejected
and terminated, which would cause us to lose rental income. In addition, a
tenant from time to time may experience a downturn in its business which may
weaken its financial condition and result in its failure to make rental payments
when due. A tenant's failure to affirm its lease following bankruptcy or a
weakening of its financial condition could impair our results of operations and
ability to make distributions to our stockholders.
Our acquisition and development of real estate could cost more than we
anticipate.
We may acquire existing office properties to the extent we can
acquire these properties on acceptable terms. We could incur higher than
anticipated costs for improvements to these properties to conform them to
standards established for the intended market position. Once improved, the
properties may not perform as expected.
We also intend to pursue office property development projects.
Developing properties generally carries more risk than acquiring existing
properties. For example, development projects usually require governmental and
other approvals, which we may not be able to obtain. Furthermore, approvals
frequently require the improvement of public infrastructure or other activities
to mitigate the effects of the proposed development, which may cost more than we
anticipate. Our development activities will also entail other risks, including:
o that we will devote financial and management resources to
projects which may not come to fruition;
o that we will not complete a development project as scheduled;
o that we will incur higher construction costs than anticipated;
o that occupancy rates and rents at a completed project will be
less than anticipated; and
o that expenses at a completed development will be higher than
anticipated.
These risks may harm our results of operations and impair our ability to make
distributions to our stockholders.
9
<PAGE>
Integrating the aforementioned acquisition and development properties
into our current systems and procedures presents a challenge to our management.
Failure to do so could cause us financial harm and impair our ability to make
distributions to our stockholders.
We could incur unanticipated expenses if we fail to qualify as a REIT.
The Company has elected to qualify as a real estate investment trust
under the Internal Revenue Code. We believe that since 1997 we have satisfied
the REIT qualification requirements. However, the IRS could challenge our REIT
qualification for taxable years still subject to audit. Moreover, we may fail to
qualify as a REIT in future years. Qualification as a REIT involves the
application of highly technical and complex Internal Revenue Code provisions for
which there are only limited judicial or administrative interpretations. For
example, in order to qualify as a REIT, we must derive at least 95% of our gross
income in any year from qualifying sources, and we must distribute annually to
stockholders 95% of our REIT taxable income, excluding net capital gains. In
addition, REIT qualification involves the determination of factual matters and
circumstances not entirely within our control.
If we were to operate in a manner that prevented the Company from
qualifying as a REIT, or if the Company were to fail to qualify for any reason,
a number of adverse consequences would result. If in any taxable year we fail to
qualify as a REIT, we would not be allowed to deduct distributions to
stockholders in computing our taxable income. Furthermore, we would be subject
to federal income tax on our taxable income at regular corporate rates. Unless
entitled to statutory relief, we would also be disqualified from treatment as a
REIT for the four taxable years following the year during which qualification
was lost. As a result, the funds available for distribution to our stockholders
would be reduced for each of the years involved. Although we currently intend to
operate as a qualified REIT, future economic, market, legal, tax or other
considerations may impair our REIT qualification or may cause our board of
directors to revoke the REIT election. See "Federal Income Tax Considerations."
We could incur costs from environmental problems even though we did not cause,
contribute to or know about them.
Because we own, operate, manage and develop real estate, for
liability purposes we may be considered under the law to be an owner or operator
of those properties or as having arranged for the disposal or treatment of
hazardous or toxic substances. As a result, we could have to pay removal or
remediation costs. Federal, state and local laws often impose liability
regardless of whether the owner or operator knew of, or was responsible for, the
presence of the hazardous or toxic substances. The presence of those substances,
or the failure to properly remediate them, may impair the owner's or operator's
ability to sell or rent the property or to borrow using the property as
collateral. A person who arranges for the disposal or treatment of hazardous or
toxic substances may also be liable for the costs of removing or remediating the
substances at a disposal or treatment facility, whether or not that person owns
or operates the facility. Furthermore, environmental laws impose liability for
release of asbestos-containing materials into the air. If we were ever held
responsible for releasing asbestos-containing materials, third parties could
seek recovery from us for personal injuries. Thus, we might have to pay other
costs, including governmental fines and costs related to personal injuries and
property damage, resulting from the environmental condition of our properties,
regardless of whether we actually had knowledge of or contributed to those
conditions.
Our operations would be affected if we lost key personnel
We depend on the efforts of our executive officers, including Robert
Cox, our Acting President and Chief Executive Officer, and Lester Garfinkel, our
Executive Vice President - Finance and Administrator and Chief Financial
Officer. Loss of their services could harm our operations. Mr. Cox was promoted
to Acting Chief Executive Officer and President following the resignation of our
former Chief Executive Officer and pending the completion of the merger. As
such, if the merger does not occur, we may need to find an additional qualified
person to serve as chief executive officer of the Company. If the merger does
not occur, failure to retain a qualified permanent chief executive officer could
harm our operations.
10
<PAGE>
Increase in market interest rates could have an adverse effect on the price of
our Common Stock
One of the factors that may influence the prices for the Common Stock
in public trading markets will be the annual yield from our distributions on the
Common Stock as compared to yields on certain financial instruments. An increase
in market interest rates will result in higher yields on certain financial
instruments, which could adversely affect the market prices for our Common
Stock.
Year 2000 issues may result in a disruption of our operations and the ability of
our tenants to meet their obligations
We have conducted a comprehensive review of our computer systems to
identify the systems that could be affected by the Year 2000 issue. The Year
2000 issue is the result of computer programs being written using two digits
rather than four to define the applicable year. Any programs that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. We believe that the cost of remediation associated with its
computer systems will be minimal.
Our Year 2000 compliance program focuses on addressing Year 2000
readiness in the following areas:
i. our information technology and software;
ii. other material technology systems; and
iii. Year 2000 compliance of third parties with which
we have a material relationship.
We have completed an initial assessment and remediation of our key
information technology systems including our operating systems and critical
financial and nonfinancial applications. Remediation efforts as of the date
hereof include addressing critical financial applications. Based on this initial
assessment and remediation efforts, we believe that these key information
technology systems are generally "Year 2000 compliant." However, there can be no
assurance that coding errors or other defects will not be discovered in the
future. We are currently evaluating the remaining non-critical information
technology systems for Year 2000 compliance.
We currently own and operate a portfolio of 25 office properties. We
are continually evaluating whether the material noninformation technology
systems such as security control equipment, fire suppression equipment and other
physical plant and equipment at such properties are Year 2000 compliant, and
have been advised by most of our vendors that such systems and equipment are or
will be compliant. All of our properties, as a part of general operating policy,
are developing contingency plans that will be deployed in the event key
operational systems, such as security control equipment, fail (e.g. when a power
failure occurs).
We depend upon the proper functioning of third-party computer and
noninformation technology systems. These third parties include tenants,
commercial banks and other lenders, construction contractors, and vendors. We
have initiated communications with third parties with whom it has important
financial or operational relationships to determine the extent to which they are
vulnerable to the Year 2000 issue. We have not yet received sufficient
information from all parties about their remediation plans to predict the
outcome of their efforts.
If third parties with whom we interact have Year 2000 problems that
are not remedied, the following problems could result:
a. In the case of construction contractors and other
vendors, the delayed construction or
redevelopment of properties;
b. In the case of vendors, disruption of important
services upon which we depend, such as
professional services, including accounting and
legal services, telecommunications and electrical
power; and
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<PAGE>
c. In the case of banks and other lenders, the
disruption of capital flows potentially resulting
in liquidity stress.
Due to the nature of our tenants' businesses, we do not believe the
Year 2000 issue will materially impact the tenants' ability to pay rent.
However, financial difficulties of significant tenants as a result of the Year
2000 issues could have a material adverse effect on our results of operations or
financial position. Though we do not expect the Year 2000 issue to have a
material adverse effect on our result of operations or financial position there
can be no assurances of that position.
Limits on ownership and changes in control may deter changes in management and
third party acquisition proposals
If our proposed merger does not occur, there are certain provisions
of Maryland law and of our Charter and our Bylaws that may have the effect of
discouraging a third party from making an acquisition proposal for us and could
delay, defer or prevent a change in control or other transaction under
circumstances that could give the holders of Common Stock the opportunity to
realize a premium over the then-prevailing market prices of the Common Stock.
Such provisions include the following:
Our stock ownership limits may deter a change in control. In order
for us to maintain our qualification as a REIT not more than 50% in value of our
outstanding shares of stock may be owned, directly or indirectly, by five or
fewer individuals (as defined in the Internal Revenue Code of 1986 to include
certain entities) at any time during the last half of our taxable year. Our
Charter prohibits direct or indirect ownership (taking into account applicable
ownership provisions of the Internal Revenue Code of 1986) of more than 9.8% of
any class of our outstanding common or preferred stock by any person, subject to
an exception that permits mutual funds and certain other entities to own as much
as 15% of any class of our stock in appropriate circumstances. In addition, our
Charter prohibits any of our stockholders from owning common or preferred stock
if such ownership would cause us to own, actually or constructively, 9.9% or
more of the ownership interests in a tenant of our real property or in a tenant
of the Operating Partnership's or a subsidiary partnership's real property. The
ownership limitations could have the effect of delaying, deferring or preventing
a change in control or other transaction in which holders of some or a majority
of the Common Stock might receive a premium for their Common Stock over the
then-prevailing market price or which such holders might believe to be otherwise
in their best interests.
Our staggered board may deter a change in control. Our board of
directors is divided into three classes of directors. The term of the first
class expired and the directors in that class were elected or reelected, as
applicable, for three years in 1998, and the terms of the second and third
classes expire in 1999 and 2000, respectively. Directors of each class are
elected for three-year terms. Subject to the rights of holders of one or more
classes or series of preferred stock to elect directors, a director may be
removed, but only for cause and only by the affirmative vote of at least a
majority of the votes entitled to be cast for the election of directors. The
staggered terms of directors combined with the cause requirement may have the
effect of delaying, deferring or because of the increased period necessary for a
third party to acquire control of management through positions on our board of
directors.
Limitations on acquisition and changes of control pursuant to
Maryland law. Under the Maryland General Corporation Law, certain "business
combinations" (including certain issuances of equity securities) between a
Maryland corporation such as us and an "interested stockholder" who beneficially
owns 10% or more of the voting power of the corporation's shares or an affiliate
thereof are prohibited for five years after the most recent date on which such
interested stockholder became an interested stockholder. Thereafter, any such
business combination must be approved by two super-majority votes unless, among
other conditions, the Company's common stockholders receive a minimum price (as
defined in the Maryland General Corporation Law) for their stock and the
consideration is received in cash or in the same form as previously paid by
the interested stockholder for its shares. Our Bylaws contain a provision
exempting from the business combination statute any and all acquisitions by any
owner of shares of our Company's stock. In addition, the Maryland General
Corporation Law provides that "control shares" of a Maryland corporation
acquired in a "control share acquisition" have no voting rights except to the
extent approved by a vote of two-thirds of the votes eligible under the statute
to be cast on the matter, excluding shares of stock owned by the acquirer, by
officers or by directors who are employees of the corporation. "Control shares"
are voting shares of stock, which, if aggregated with all other such shares of
stock previously acquired by the acquirer or in respect of which the acquirer is
able to exercise or direct the exercise of voting power (except solely by virtue
of a revocable proxy), would entitle the acquirer to exercise voting power in
electing directors within one
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of the following ranges of voting power: (i) one-fifth or more but less than
one-third; (ii) one-third or more but less than a majority; or (iii) a majority
or more of all voting power. Control shares do not include shares that the
acquiring person is then entitled to vote as a result of having previously
obtained stockholder approval. A "control share acquisition" means the
acquisition of control shares, subject to certain exceptions. Our Bylaws contain
a provision exempting from the control share acquisition statute any and all
acquisitions by any persons of our shares of stock. However, our board of
directors may amend or eliminate these provisions at any time.
Our Charter permits the issuance of preferred stock which could delay,
deter or prevent a change of control. Our board of directors is authorized to
provide for the issuance of 50,000,000 preferred shares in one or more series,
to establish the number of shares in each series and to fix the designation,
powers, preferences, and rights of each such series and the qualifications,
limitations or restrictions thereof. Although we do not intend to do so, we
could establish a series of preferred stock that, depending on the terms of the
series, could delay, deter or prevent a transaction or change of control that
might involve a premium price for our Common Stock or otherwise be in the best
interests of our stockholders.
Risk factors relating to completion of the merger
Lack of public market for Reckson class B common stock and Reckson OP 7% notes
and potential volatility of market may reduce liquidity and adversely affect
trading price of securities.
There has not been a public market for either the Reckson class B
common stock or the Reckson OP 7% notes. Although Reckson has agreed to list the
class B common stock and the Reckson OP 7% notes on the New York Stock Exchange,
neither Reckson nor the Company can assure that an active trading market will
develop or, if one does develop, that it will be maintained. Moreover,
particularly if the Reckson OP 7% notes are issued in the merger, the aggregate
size of the potential markets for the Reckson class B common stock and the
Reckson OP 7% notes will be relatively small when compared to other publicly
traded securities. Small size can have an adverse effect on whether trading
markets will develop as well as on the liquidity of trading markets.
In addition, in recent years, the stock and debt markets have
experienced extreme price fluctuations, sometimes without regard to the
performance of particular companies. Broad market and industry fluctuations may
adversely affect the trading price of the Reckson class B common stock and, if
issued, the Reckson OP 7% notes, regardless of the actual operating performance
of Reckson.
Non-cash portion of merger consideration may not have an actual value of $23.00
per share of Common Stock.
The value and trading price of the Reckson class B common stock may be
greater or less than or the same as the trading price of the Reckson common
stock into which it may be exchanged. Although the trading price of Reckson
common stock is not necessarily indicative of the future trading price of
Reckson class B common stock, on April 13, 1999, the trading price of Reckson
common stock was $21.00 per share. If Reckson stockholders approve the share
issuance proposal, then each share of our Common Stock and each OP Unit which is
converted solely to Reckson securities and not cash will be converted into .8364
of a share of Reckson class B common stock, which, based on the $21.00 trading
price of Reckson common stock, a one-for-one exchange ratio and the highest end
of our financial advisor's range of valuations for the Reckson class B common
stock dividend stream, would be worth $20.37. If Reckson stockholders do not
approve the share issuance proposal, then each share of our Common Stock which
is converted solely to Reckson securities and not cash will be converted into
.5725 of a share of Reckson class B common stock and $7.2565 principal amount of
Reckson OP 7% notes. Based on all of these assumptions and the assumption by our
board of directors that the Reckson OP 7% notes will be worth 89.4% of their
principal amount, on April 13, 1999 the Reckson class B common stock would have
been worth $13.94 and the Reckson OP 7% notes would have been worth $6.49, for a
total of $20.43. There can be no assurance that the non-cash portion of the
merger consideration will have an actual value, or trade at prices, equal to the
foregoing or an amount equal to $23.00, the cash price, on a per share
equivalent basis.
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<PAGE>
Fixed merger consideration despite potential changes in stock prices may result
in a decreased value for our stockholders.
The market price of the Reckson class B common stock and the Reckson
OP 7% notes at the time of the merger may vary significantly from the expected
prices on the date we signed our merger agreement, the date we mailed our proxy
statement relating to the merger to our stockholders and the date our
stockholders and Reckson's stockholders vote on the merger. These variances may
arise due to changes in the business, operations and prospects of Reckson,
market assessments of the likelihood that the merger will be completed, and
interest rates, general market and economic conditions and other factors.
Although the variation in the trading price of Reckson common stock is not
necessarily indicative of that which would occur in the trading price of Reckson
class B common stock, it should be noted that during the 12-month period ending
on April 13, 1999, the closing per share price of Reckson common stock varied
from a low of $19.00 to a high of $26.313 and ended that period at $21.00.
Historical trading markets are not necessarily indicative of future performance.
The exchange ratios for shares of our Common Stock converted into
Reckson securities were fixed at the time of the signing of the merger agreement
and are not subject to adjustment based on changes in the trading price of
Reckson common stock and/or our Common Stock prior to the closing of the merger
or on the actual prices of Reckson class B common stock or Reckson OP 7% notes
at the time of their issuance or of any other securities. Because the Reckson
securities will be new securities, issued in the merger for the first time, we
will not know the market price of these securities at the time our stockholders
and Reckson's stockholders vote on the merger.
Additionally, because the special meetings are scheduled for the same
day, our stockholders will not know at the time of the special meeting whether
Reckson OP 7% notes will be issued in the merger.
Failure to approve the merger may require, under limited circumstances, the
payment of termination fees and may result in a decrease in our Common Stock's
market price.
If the holders of a majority of our outstanding shares of Common Stock
fail to approve the merger or if it is not completed for any reason, we may be
subject to a number of material risks, including the requirement that, under
limited circumstances, we pay up to $16.75 million in termination fees and
expenses to Reckson and a possible decline in the market price of our Common
Stock to the extent current market prices reflect a market assumption that the
merger will be completed. In the event that, following termination of the
merger, our board of directors determines to seek another merger or business
combination, there can be no assurance that it will be able to find a partner
willing to pay an equivalent or more attractive price than would be provided by
the merger. Under the terms of the merger agreement, prior to the termination of
the merger, we are not permitted directly or indirectly to (a) solicit, initiate
or encourage any alternative acquisition proposal or (b) engage in discussions
or negotiations with, or disclose any non-public information relating to, us or
afford access to our properties, books or records to, any person that has made,
or indicated interest in making, an alternative acquisition proposal.
Nevertheless, we may furnish information, participate in negotiations and
discussions and enter into agreements regarding an alternative acquisition
proposal with a third party if our board of directors determines in good faith,
after consultation with outside legal counsel, that the failure to take such
action would present a reasonable risk of a breach of the duties of our board of
directors under applicable law.
We may be required to pay a substantial penalty to Reckson if we are obligated
to complete the merger but fail to do so.
In the event that a court issues a final non-appealable judgment that
we are obligated to complete the merger but has breached our covenant to do so,
or that we have failed to use our reasonable best efforts to take all actions
necessary to obtain approval of the merger agreement by our stockholders or
assist in registering the offering of the Reckson class B common stock and the
Reckson OP 7% notes, we are required to pay Metropolitan, in addition to any
termination fees payable under the merger agreement, a fee of $30 million in
cash.
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OUR COMPANY
We were organized in March 1997 for the purpose of continuing and
expanding the commercial real estate business of Tower Equities & Realty Corp.
We operate as a fully integrated, self-administered, and self-managed real
estate company and in a manner with the expectation of qualifying as a REIT for
federal income tax purposes.
Through our controlling interest in the Operating Partnership, we are
engaged in developing, acquiring, owning, renovating, managing and leasing
office properties primarily in the Manhattan, Phoenix/Tucson and Orlando
markets. As of December 31, 1998, our portfolio of properties included 25 office
buildings encompassing approximately 4.6 million rentable square feet. We also
own or have an option to acquire four parcels of land adjacent to four of our
properties which can support 2.2 million rentable square feet of development.
Our business focuses on acquiring office properties at a significant
discount to replacement cost that are attractively priced due to physical,
leasing and/or operational deficiencies. Accordingly, we seek to acquire office
properties that present an attractive opportunity to create value and enhance
cash flow through our hands-on approach to property repositioning, including the
implementation of property specific renovation programs for underperforming
assets. We believe that the significant expertise of our management in property
development, redevelopment, construction, management and leasing provide us with
the expertise necessary to identify, acquire, upgrade, renovate and reposition
underperforming office properties.
We have entered into an agreement to merge with and into
Metropolitan, a subsidiary of Reckson. If the merger occurs our separate
existence will cease. Our proposed merger with Reckson is subject to the
satisfaction of certain customary conditions, including approval by a majority
of our stockholders.
Our executive offices are located at 292 Madison Avenue, 3rd Floor,
New York, New York 10017 and our telephone number is (212) 448-1864.
WHAT OUR STOCKHOLDERS WILL RECEIVE IN THE MERGER IF IT OCCURS
If our proposed merger occurs, holders of our Common Stock will
receive a combination of cash, Reckson class B common stock and, if Reckson
stockholders do not approve the share issuance proposal, Reckson OP 7% notes.
The following describes what holders of our Common Stock could expect to receive
in the merger in the event it occurs. Because the merger is subject to the
satisfaction of certain conditions, there can be no assurance that it will
occur.
Excluding Reckson Class B Common Stock Dividend Provisions
The first table below illustrates, based on the indicated Reckson
common stock prices, the value of the cash, Reckson class B common stock and
Reckson OP 7% notes that our stockholders will receive in the merger for each
common share, assuming 100% of the holders of Common Stock and OP Units elect to
receive cash in the merger. This value has been calculated by (a) valuing each
share of Reckson class B common stock at an amount equal to the indicated
trading price of one share of Reckson common stock for which it will be
initially exchangeable and (b) valuing the Reckson OP 7% notes issuable in the
merger if Reckson stockholders do not approve the share issuance proposal at
89.4% of the principal amount thereof, which is what our board of directors
valued them at when approving the merger. If Reckson stockholders approve the
share issuance proposal, and assuming 100% cash elections as described above,
each share of Common Stock will be converted into, on average, 25% of $23.00 in
cash and 75% of .8364 of a share of Reckson class B common stock, or $5.75 in
cash and .6273 of a share of Reckson class B common stock. Similarly, on the
basis of the same 100% election assumption, if Reckson stockholders do not
approve the share issuance proposal, each share of Common Stock will, on
average, be converted into $5.75 in cash, 75% of $7.2565 (or $5.4424) principal
amount of Reckson OP 7% notes and 75% of .5725 (or .4294) of a share of Reckson
class B common stock.
Including Reckson Class B Common Stock Dividend Provisions
The assumption of valuing Reckson class B common stock as equal to
the value of the underlying Reckson common stock has the effect of ignoring the
dividend provisions of the Reckson class B common stock which our board of
directors
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and the Reckson board of directors believe represents incremental value. Merrill
Lynch, our financial advisor in connection with the merger, derived a present
value of $3.35 for the excess of the expected dividends payable on a share of
Reckson class B common stock for the 4.5 years after the merger over the
expected dividends payable on a share of Reckson common stock for the same
4.5-year period. Based on the assumption that a holder of our Common Stock or OP
Units will receive 75% of .8364 of a share of Reckson class B common stock for
each share or unit, our stockholders and unitholders would receive, in addition
to the right to Reckson class B common stock for each share or unit held, a
stream of dividend payments valued at $2.10, or the product of $3.35 x 75% x
.8364, if Reckson stockholders approve the share issuance proposal, or at $1.44,
or the product of $3.35 x 75% x .5725, if Reckson stockholders do not approve
the share issuance proposal. The methodologies and assumptions that were used by
Merrill Lynch related, among other things, to discount rates, projected funds
from operations and capitalization rates determined as of December 2, 1998, the
date Merrill Lynch conducted the analysis for purposes of its opinion and
presentation to our board of directors. The $3.35 amount, from which the $2.10
and $1.44 were derived, represents the highest end of Merrill Lynch's range of
valuations for the dividend stream. For illustrative purposes, the second table
below indicates the value of the merger consideration, columns C and E in the
first table, at four different Reckson common stock prices, after adding the
incremental value, i.e., $2.10 or $1.44, as applicable, attributable to the
Reckson class B common stock dividend provisions.
Additional Considerations
It should be noted that both the value and the trading price of the
Reckson class B common stock may be greater, less than or the same as the
trading price of the Reckson common stock into which it may be exchanged.
Moreover, the exchange rate of one-for-one applicable to the exchange of Reckson
class B common stock into Reckson common stock is subject to increase if
dividends on Reckson class B common stock fall below levels specified in the
articles supplementary that govern the terms of the Reckson class B common stock
and at the time of exchange the Reckson common stock issuable upon exchange of a
share of Reckson class B common stock is trading at less than $27.50.
Furthermore, valuing the Reckson OP 7% notes at 89.4% of their
principal amount, which is what our board of directors valued them at when
approving the merger, may have the effect of overvaluing or undervaluing the
Reckson OP 7% notes. Thus, the amounts set forth in the tables below should not
be viewed as indicative of the actual trading prices or values of the
considerations to be received in the merger, either on an absolute basis, or, in
the case of columns (C) and (E), relative to each other.
Additionally, the following tables do not reflect any interests that
our stockholders and unitholders may receive if Crescent Real Estate Equities
Limited Partnership, or Crescent LP, fails to fully fund a $75 million capital
contribution to Metropolitan required to be paid by it in connection with the
settlement of a litigation brought by us in November 1998. This litigation arose
from the alleged breach by Reckson, Metropolitan and Crescent Real Estate
Equities Corp., or Crescent, of a merger agreement entered into on July 9, 1998
between us and these entities. If such an event occurs, our board of directors
may establish a litigation trust for the purpose of pursuing litigation against
Crescent and all of our rights with respect to such litigation will be assigned
to the litigation trust. Each of our stockholders and unitholders will receive
one contingent payment right for each of his or her shares of Common Stock and
OP Units. These contingent payment rights will entitle each holder to his or her
pro rata portion of any amounts received by the trust as a result of litigation
or otherwise in the litigation trust, net of expenses.
Finally, each of our stockholders and unitholders will receive an
additional $0.8046 principal amount of Reckson OP 7% notes in respect of each
share of Common Stock and OP Unit held if the Reckson board of directors
withdraws or amends or modifies in any material respect, or publicly announces
an intention to withdraw or amend or modify in any material respect, its
approval or recommendation that Reckson stockholders approve the share issuance
proposal and the share issuance proposal is not approved by Reckson
stockholders.
The closing price of Reckson common stock on April 13, 1999 is
highlighted in both tables.
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<TABLE>
<CAPTION>
What Our Stockholders Will Receive in the Merger for Each Share of Common Stock
Without Taking into Account the Dividend Provisions of Reckson Class B Common Stock
Assuming Reckson's Stockholders Assuming Reckson's Stockholders
Approve the Share Issuance Proposal Do Not Approve the Share Issuance Proposal
(Reckson Class B Common Stock, Cash and Reckson OP 7%
(Reckson Class B Common Stock and Cash) Notes)
---------------------------------------------------------------------------------------------------------------------
Total Per Share Merger
Value of Reckson class Total Per Share Merger Value of Reckson class Consideration:
B common stock Consideration: B common stock -----------------------
constituting the stock ---------------------- constituting the stock Value of Reckson class B common
portion of the per Value of Reckson class B portion of the per stock (.4294 of a share) plus value
share merger common stock (.6273 of a share merger of notes (89.4% of $5.4424 principal
Price of consideration (equal to share) and cash ($5.75) consideration (equal to amount) plus amount of cash ($5.75)
Reckson 75% x .8364 (or .6273) received (equal to amount 75% of .5725 (or .4294) received (equal to amount in column
common x amount in column in column (B) x amount in column (D) + $4.87 (or 89.4% of $5.4424) +
stock (A)) plus $5.75) (A)) $5.75)
(A) (B) (C) (D) (E)
- ------------- ------------------------- --------------------------- --------------------------- ------------------------------------
<S> <C> <C> <C> <C> <C>
$25.00 $15.68 $21.43 $10.73 $21.36
24.50 15.37 21.12 10.52 21.14
24.00 15.06 20.81 10.31 20.93
23.50 14.74 20.49 10.09 20.71
23.00 14.43 20.18 9.88 20.50
22.50 14.11 19.86 9.66 20.28
22.00 13.80 19.55 9.45 20.07
21.50 13.49 19.24 9.23 19.85
- ------------------------------------------------------------------------------------------------------------------------------------
21.00 13.17 18.92 9.02 19.64
- ------------------------------------------------------------------------------------------------------------------------------------
20.50 12.86 18.61 8.80 19.42
20.00 12.55 18.30 8.59 19.21
19.50 12.23 17.98 8.37 18.99
19.00 11.92 17.67 8.16 18.78
18.50 11.61 17.36 7.94 18.56
18.00 11.29 17.04 7.73 18.35
</TABLE>
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<TABLE>
<CAPTION>
Value of Merger Consideration for Each Share of Our Common Stock Taking into Account the
Dividend Provisions of Reckson Class B Common Stock
Merger Consideration if Reckson Merger Consideration if Reckson
Stockholders Approve the Stockholders do not Approve the Share
Price of Reckson Share Issuance Proposal Issuance Proposal
Common Stock (C) (E)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$25.00 $23.53 $22.80
$21.50 $21.34 $21.29
- ---------------------------------------------------------------------------------------------------------------------------------
$21.00 $21.02 $21.08
- ---------------------------------------------------------------------------------------------------------------------------------
$18.00 $19.14 $19.79
</TABLE>
USE OF PROCEEDS
We will not receive any proceeds from the sale of shares of Common Stock
by the Selling Stockholders.
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DESCRIPTION OF OUR STOCK
The description of our stock set forth below does not purport to be
complete and is qualified in its entirety by reference to our Charter and
Bylaws, each as amended and restated, copies of which are exhibits to the
registration statement of which this Prospectus is a part. See "Available
Information."
General
Under our Charter, we have the authority to issue 150,000,000 shares
of common stock, $0.01 par value per share. We also have the authority to issue
50,000,000 shares of preferred stock, $0.01 par value per share. Under Maryland
law, stockholders generally are not liable for a corporation's debts or
obligations. As of March 31, 1999, we had 16,958,255 shares of common stock and
2,169,197 shares of series A convertible preferred stock issued and outstanding.
In addition, as of March 31, 1999, the operating partnership had 1,684,770 OP
Units outstanding not including those held by the Company. If presented to the
Operating Partnership for exchange, the OP Units held by persons other than the
Company may be exchanged for shares of Common Stock, on a one-for-one basis at
the option of the Company. This exchange is subject to the expiration of
"lock-out" periods specified in agreements relating to the issuance of those OP
Units and subject to compliance with applicable securities laws and limitations
imposed to protect our status as a REIT.
Common Stock
Subject to the provisions of our Charter regarding the restrictions
on transfer of stock, each outstanding share of Common Stock entitles the holder
to one vote on all matters submitted to a vote of stockholders, including the
election of directors. There is no cumulative voting in the election of
directors, which means that the holders of a majority of the outstanding shares
of Common Stock can elect all of the directors then standing for election and
the holders of the remaining shares will not be able to elect any directors.
Holders of shares of our Common Stock have no preference,
conversion, exchange, sinking fund redemption or appraisal rights and have no
preemptive rights to subscribe for any our securities. Shares of Common Stock
have equal dividend, liquidation and other rights.
Under the Maryland General Corporation Law, a Maryland corporation
generally cannot dissolve, amend its charter, merge, sell all or substantially
all of its assets, engage in a share exchange or engage in similar transactions
outside the ordinary course of business unless approved by the affirmative vote
of stockholders holding at least two-thirds of the shares entitled to vote on
the matter unless a lesser percentage (but not less than a majority of all of
the votes entitled to be cast on the matter) is set forth in the corporation's
charter. Our Charter provides that, with the exception of certain amendments to
the Charter, the affirmative vote of holders of shares entitled to cast a
majority of all votes entitled to be cast on such matters will be sufficient to
approve these transactions.
Preferred Stock
Our board of directors is authorized to provide for the issuance of
50,000,000 preferred shares in one or more series, to establish the number of
shares in each series and to fix the designation, powers, preferences, and
rights of each such series and the qualifications, limitations or restrictions
thereof. Concurrently with the execution of our merger agreement, we sold
2,169,197 shares of series A convertible preferred stock in a negotiated private
sale. The preferred stock is the only series of preferred stock that is
outstanding as of the date of this Prospectus. The preferred stock is senior to
the Common Stock with respect to dividend rights and distribution upon
liquidation, dissolution and winding up of the Company. The principal terms of
the preferred stock are summarized below. This summary is not complete and is
qualified in its entirety by the complete text of the Articles Supplementary to
the Company's Charter filed as an exhibit to the Company's Current Report on
Form 8-K, dated December 7, 1998 and filed with the SEC on December 18, 1998,
which is incorporated by reference herein.
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Dividends
If authorized and declared by our board of directors, the holders of
our series A preferred stock will be entitled to receive, out of assets legally
available for that purpose, annual dividends payable in cash in the following
manner:
(1) Prior to the date of the termination of our merger
agreement, or trigger date, in a per share amount equal to
the annual per share amount of dividends payable in respect
of the number of shares of Common Stock into which such
holders' shares of series A preferred stock would then be
convertible had the trigger date occurred.
(2) After the trigger date, at a rate equal to ten percent of
the liquidation preference per share of series A preferred
stock held.
Dividends on the series A preferred stock are cumulative only after the
trigger date, whether or not there are assets of the Company legally available
for payment of such dividends, and will be payable quarterly, if authorized and
declared by our board of directors, in arrears on the first business day of
January, April, July and October.
Liquidation
Upon any voluntary or involuntary liquidation, dissolution or
winding up of the affairs of the Company and before any payments or distribution
of the assets of the Company shall be made or set apart for the holders of
shares of Common Stock, the holders of series A preferred stock shall only be
entitled to receive:
(1) $18.44 per share of series A preferred stock;
(2) plus an amount equal to all dividends, whether or not earned
or declared, accrued and unpaid on the series A preferred
stock commencing on the trigger date to the date of final
distribution to the holders of series A preferred stock.
Redemption at the Company's Option
We may redeem the series A preferred stock, in whole or in part at
any time, or from time to time, within 120 days after the trigger date or at any
time after December 9, 2002 at a redemption price equal to the aggregate
liquidation preference for all such shares being redeemed, plus accrued and
unpaid dividends.
Conversion at the Holder's Option
After the trigger date and subject to the provisions of our articles
supplementary, holders of shares of series A preferred stock may convert all or
a portion of their shares into fully paid and non-assessable shares of Common
Stock. Each share of series A preferred stock will be convertible into a number
of shares of Common Stock equal to $18.44 divided by the preferred stock
conversion price in effect at the time the shares are surrendered for exchange.
Initially, the conversion price is equal to $18.44 or, effectively, one share of
Common Stock for each share of series A preferred stock.
No fractional shares or scrip representing fractions of shares of
Common Stock will be issued upon conversion of the series A preferred stock.
Instead of any fractional interest, we will pay to the holder an amount in cash
based upon the current market price of shares of Common Stock on the trading day
immediately preceding the day of conversion.
Preferred Stock Conversion Price Adjustments
The preferred stock conversion price will be adjusted in the
following circumstances:
o payments or distributions to holders of Common Stock payable
in Common Stock and subdivisions, combinations and
reclassifications of Common Stock;
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o the issuance to all holders of Common Stock of rights,
options or warrants that entitle the holders to subscribe
for or purchase Common Stock at a price per share less than
the fair market value per share of Common Stock; and
o distributions to all holders of Common Stock of equity
securities of the Company or evidences of indebtedness of
the Company or its assets, excluding cash distributions.
We shall be entitled to make reductions to the preferred stock
conversion price, in addition to those required as described in this paragraph,
as it shall determine to be advisable in order that any stock dividends,
subdivision, reclassification or combination of shares, distribution of rights,
options or warrants to purchase stock or securities, or a distribution of other
assets other than cash dividends made by the Company to its stockholders shall
not be taxable.
No adjustment of the preferred stock conversion price is required to
be made until cumulative adjustments amount to one percent or more of the
preferred stock conversion price. Any adjustments not required to be made will
be carried forward and taken into account in subsequent adjustments.
Except as otherwise provided for subdivisions, combinations and
reclassifications of Common Stock and distributions to holders of Common Stock
in Common Stock, if we shall be a party to any transaction including a merger,
consolidation, statutory share exchange, self tender offer for substantially all
of the Common Stock, sale of substantially all of our assets or recapitalization
of our Common Stock, in each case as a result of which our Common Stock shall be
converted into the right to receive shares, stock, securities or other property,
including cash or any combination of shares, stock, securities or other
property, we or our successor in such transaction shall make appropriate
provision so that each share of series A preferred stock, if not converted into
the right to receive shares, stock, securities or other property in the
transaction shall thereafter be convertible into the kind and amount of shares,
stock, securities and other property, including cash or any combination of
shares, stock, securities or other property, receivable upon the completion of
the transaction by a holder of that number of shares of Common Stock into which
one share of series A preferred stock was convertible immediately prior to
completion of the transaction, assuming such holder of Common Stock failed to
exercise any rights of election. If the kind and amount of shares, stock,
securities and other property receivable in the transaction is not the same for
each non-electing share, the kind and amount of property receivable by the
holder of series A preferred stock to be converted shall be deemed to be the
kind and amount receivable per share by a plurality of the non-electing shares.
Priority
As to the payment of dividends or as to the distribution of assets
upon liquidation, dissolution or winding up, no class or series of our stock
shall rank prior to the series A preferred stock. Any class or series of our
shares shall be deemed to rank:
(1) On parity with the series A preferred stock if the holders
of the class of stock or series and the series A preferred
stock are entitled to the receipt of dividends and of
amounts distributable upon liquidation, dissolution or
winding up in proportion to their respective amounts of
accrued and unpaid dividends per share or liquidation
preferences, without preference or priority one over the
other; and
(2) Junior to the series A preferred stock, if the stock or
series is Common Stock or if the holders of series A
preferred stock are entitled to receipt of dividends or of
amounts distributable upon liquidation, dissolution or
winding up, prior to the holders of the stock or series, and
the stock or series does not in either case rank prior to
the series A preferred stock.
Voting
To the extent that our Charter may provide under Maryland law, the
series A preferred stock does not currently have any voting rights or powers,
and the consent of the holders is not required for the taking, of any corporate
action. However, after the trigger date, whenever dividends payable on the
series A preferred stock are cumulatively in arrears for six consecutive
preferred stock dividend periods, the holders of all series A preferred stock
and any class or series of
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shares on par with the series A preferred stock upon which like voting rights
have been conferred shall be entitled to elect two directors to our board of
directors as described in the articles supplementary.
Power to Issue Additional Shares of Common Stock and Preferred Stock
Our board of directors has the power to issue additional authorized
but unissued shares of common or preferred stock and to classify ore reclassify
unissued shares of common or preferred stock and thereafter to cause the Company
to issue such classified or reclassified shares of stock provides us with
increased flexibility in structuring possible future financings and acquisitions
and in meeting other needs which may arise. The additional classes or series, as
well as the Common Stock, are available for issuance without further action of
our stockholders, unless such action is required by applicable law or the rules
of any stock exchange or automated quotation system on which our securities may
by listed or traded. Although our board of directors has no intention to do so,
it could establish a class or series of stock that could, depending on the terms
of the class or series, delay, deter or prevent a transaction or change of
control that might involve a premium price for our Common Stock or otherwise be
in the best interests of our stockholders.
Restrictions on Transfer
To qualify as a REIT under the Internal Revenue Code of 1986, we
must meet certain requirements concerning the ownership of outstanding shares of
stock. Specifically, not more than 50% in value of our outstanding shares of
stock may be owned, directly or indirectly, by five or fewer individuals (as
defined in the Internal Revenue Code of 1986 to include certain entities) during
the last half of a taxable year, and the shares of our stock must be
beneficially owned by 100 or more persons during at least 335 days of a taxable
year of twelve months or during a proportionate part of a shorter taxable year.
In addition, we must meet certain requirements regarding the nature of our gross
income in order to qualify as a REIT. One such requirement is that at least 75%
of our Company's gross income for each calendar year must consist of rents from
real property and income from certain other real property investments. The rents
received by the Operating Partnership and its subsidiary partnerships and
limited liability companies from our office lessees will not qualify as rents
from real property, which could result in our loss of REIT status, if we own
actually or constructively, 10% or more of the ownership interests in our office
lessees, within the meaning of section 856(d)(2)(B) of the Internal Revenue Code
of 1986, as amended. See "Federal Income Tax Considerations--Requirements for
Qualification--Income Tests."
Because our board of directors believes it is essential for us to
continue to qualify as a REIT, our Charter, subject to certain exceptions
described below, provides that no person may own, or be deemed to own by virtue
of the attribution provisions of the Internal Revenue Code of 1986, more than
9.8% of the number directly or indirectly (in number or value, whichever is more
restrictive) of outstanding shares of any class or series of Common Stock or
preferred stock (subject to exceptions applicable to certain stockholders).
Certain types of entities, such as certain pension trusts, mutual funds and
corporations, will be looked through for purposes of the "closely held" test in
section 856(h) of the Internal Revenue Code of 1986. Subject to certain limited
exceptions, the Charter will allow such an entity under a look-through ownership
limitation to own up to 15% of the shares of any class or series of our stock,
provided that such ownership does not cause any beneficial owner of such entity
to exceed the ownership limitation or otherwise result in a violation of the
tests described in clauses (ii), (iii) and (iv) of the succeeding paragraph.
Any transfer of Common Stock or preferred stock that would (i)
result in any person owning, directly or indirectly, Common Stock or preferred
stock in excess of the ownership limitation (or the look-through ownership
limitation, if applicable), (ii) result in Common Stock or preferred stock being
owned by fewer than 100 persons (determined without reference to any rules of
attribution), (iii) result in our Company being "closely held" within the
meaning of Section 856(h) of the Internal Revenue Code of 1986 or (iv) cause the
Company to own, actually or constructively, 9.9% or more of the ownership
interests in a tenant of the Company's, the Operating Partnership's or a
Subsidiary Partnership's real property, within the meaning of Section
856(d)(2)(B) of the Internal Revenue Code of 1986 will be void ab initio, and
the intended transferee will acquire no rights in such shares of Common Stock or
preferred stock.
In such event the transferred shares will be designated as
"Shares-in-Trust" and will be transferred automatically to a trust, effective on
the day before the purported transfer of such shares of Common Stock or
preferred stock. The record holder of the shares of Common Stock or preferred
stock that are designated as Shares-in-Trust will be required to submit such
number of shares of Common Stock or preferred stock to us for registration in
the name of the trustee of such
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trust. Such trustee will be designated by us but will not be affiliated with us.
The trust beneficiary of the Trust will be one or more charitable organizations
named by us.
Shares-in-Trust will remain issued and outstanding shares of Common
Stock or preferred stock and will be entitled to the same rights and privileges
as all other shares of the same class or series. The trust will receive all
dividends and distributions on the Shares-in-Trust and will hold such dividends
or distributions in trust for the benefit of the named beneficiary. The trustee
shall be entitled to vote all Shares-in-Trust and shall have the right to
designate a permitted transferee of the Shares-in-Trust, provided that the
permitted transferee (i) purchases such Shares-in-Trust for valuable
consideration and (ii) acquires such Shares-in-Trust without such acquisition
resulting in another transfer to another Trust.
The record holder with respect to Shares-in-Trust will be required
to repay to the trust the amount of any dividends or distributions received by
the record owner of the Shares-in-Trust (i) that are attributable to any
Shares-in-Trust and (ii) the record date of which was on or after the date that
such shares become Shares-in-Trust. Any vote taken by the record owner with
respect to the Share-in-Trust prior to our discovery that the Shares-in-Trust
were held in trust will be rescinded as void ab initio and recast by the
trustee, in its sole and absolute discretion; provided, however, that if we have
already taken irreversible corporate action based on such vote, then the trustee
shall not have the authority to rescind and recast such vote. The record owner
generally will receive from the trustee the lesser of (i) the price per share
such record owner paid for the shares of Common Stock or preferred stock that
were designated as Shares-in-Trust (or, in the case of a gift or devise, the
market price per share on the date of such transfer) or (ii) the price per share
received by the trustee from the sale or other disposition of such
Shares-in-Trust. Any amounts received by the trustee in excess of the amounts to
be paid to the record owner will be distributed to the beneficiary.
The Shares-in-Trust will be deemed to have been offered for sale to
our Company, or its designee, at a price per share equal to the lesser of (i)
the price per share in the transaction that created such Shares-in-Trust (or, in
the case of a gift or devise or non-transfer resulting in a breach of the
ownership limitation, the market price per share on the date of such transfer)
and (ii) the market price per share on the date that we, or our designee,
accepts such offer. Subject to the provisions of the Charter governing
compensation to a record owner of Shares-in-Trust, we will have the right to
accept such offer for a period of 90 days after the later of (i) the date of the
purported transfer or non-transfer event which resulted in the creation of such
Shares-in-Trust and (ii) the date we determine in good faith that a transfer
resulting in such Shares-in-Trust occurred.
All persons who own, directly or indirectly, more than 5% (or such
lower percentages as required pursuant to regulations under the Internal Revenue
Code of 1986) of the outstanding shares of Common Stock or preferred stock must,
within 30 days after January 1 of each year, provide to our Company a written
statement or affidavit stating (i) the name and address of such direct or
indirect owner, (ii) the number of shares of Common Stock or preferred stock
owned directly or indirectly, and (iii) a description of how such shares are
held. In addition, each direct or indirect stockholder shall provide to our
Company such additional information as the Company may request in order to
determine the effect, if any, of such ownership on our Company's status as a
REIT and to ensure compliance with the applicable ownership limitations.
The ownership limitation or the look-through ownership limitation,
as applicable, generally will not apply to the acquisition of shares of Common
Stock or preferred stock by an underwriter that participates in a public
offering of such shares. In addition, our board of directors, upon such
conditions as it may direct, may exempt a person from the ownership limitation
or the look-through ownership limitation, as applicable, under certain
circumstances.
All certificates representing shares of Common Stock or preferred
stock bear a legend referring to the restrictions described above.
The ownership limitation could have the effect of delaying,
deferring or preventing a takeover or other transaction in which holders of
some, or a majority, of shares of Common Stock or preferred stock might receive
a premium from their shares of Common Stock or preferred stock over the then
prevailing market price or which such holders might believe to be otherwise in
their best interest.
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Registration Rights
The Selling Stockholders and certain other holders of OP Units have
entered into registration rights agreements with the Company which include
"demand" and "piggyback" registration rights. We are filing the registration
statement of which this Prospectus is a part to fulfill our contractual
obligations to the Selling Stockholders under these registration rights
agreements and to provide them with freely tradable securities.
The registration rights agreements provide that we will indemnify
and hold harmless certain of the Selling Stockholders (and the officers,
directors or controlling persons of those Selling Stockholders) against losses,
liabilities, claims damages and expenses arising out of (i) any untrue statement
or alleged untrue statement of a material fact contained in a registration
statement (or any amendment thereto) pursuant to which their Common Stock is
registered under the Securities Act, including all documents incorporated
therein by reference) (ii) the omission or alleged omission from a registration
statement of a material fact required to be stated therein or necessary to make
the statements therein not misleading (iii) any untrue statement or alleged
untrue statement of a material fact contained in any prospectus (or any
amendment or supplement thereto), including all documents incorporated therein
by reference or (iv) the omission or alleged omission from a registration
statement of a material fact necessary in order to make the statements therein,
in the light of the circumstances under which they were made, not misleading.
The registration rights agreements also provide that we will
indemnify and hold harmless certain of the Selling Stockholders (and the
officers, directors or controlling persons of those Selling Stockholders)
against (i) any and all loss, liability, claim, damage and expense whatsoever,
as incurred, to the extent of the aggregate amount paid in settlement of any
litigation, or investigation or proceeding by any governmental agency or body,
commenced or threatened, or of any claim whatsoever based upon an untrue
statement or omission, or any alleged untrue statement or omission, if such
settlement is effected with the written consent of the Company, which consent
shall not be unreasonably withheld or delayed and (ii) any and all expense
whatsoever, as incurred (including reasonable fees and disbursements of
counsel), reasonably incurred in investigating, preparing or defending against
any litigation, or investigation or proceeding by any governmental agency or
body, commenced or threatened, in each case whether or not a party, or any claim
whatsoever based upon any such untrue statement or omission, or any such alleged
untrue statement or omission, to the extent that any such expense is not paid as
discussed above.
However, the indemnity provided under the registration rights
agreements does not apply to any applicable Selling Stockholder with respect to
any loss, liability, claim, damage or expense to the extent arising out of(i)
any untrue statement or omission or alleged untrue statement or omission made by
the Company in reliance upon and in conformity with written information
furnished to the Company by a Selling Stockholder expressly for use in a
registration statement (or any amendment thereto) or any prospectus (or any
amendment or supplement thereto) or (ii) such Selling Stockholder's failure to
deliver an amended or supplemental prospectus, after having been provided copies
of any such amended or supplemental prospectus by the Company, if such loss,
liability, claim, damage or expense would not have arisen had such delivery
occurred.
Transfer Agent and Registrar
The transfer agent and registrar for our Common Stock is American
Stock Transfer & Trust Company, 40 Wall Street, New York, New York 10005.
Charter and Bylaw Provisions and Certain Provisions of Maryland Law
Number of Directors; Classification of the Board of Directors. Our
Charter and Bylaws provide that the number of directors will consist of not less
than three nor more than fifteen persons, as determined by the affirmative vote
of a majority of the members of the entire board of directors. At all times, a
majority of the directors shall be independent directors, except that upon the
death, removal, incapacity or resignation of an independent director, such
requirement shall not be applicable for 60 days. There are nine directors, six
of whom are independent directors. The holders of Common Stock are entitled to
vote on the election or removal of directors, with each share entitled to one
vote. Under our Bylaws, a vacancy shall be filled by a majority vote of the
remaining directors, except that a vacancy resulting from an increase in the
number of directors must be filled by a majority vote of the entire board of
directors.
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Pursuant to the Charter, our board of directors is divided into
three classes of directors. The term of the Class I directors class expired in
1998, and all three directors in such class were reelected to serve until 2001
at the 1998 Annual Meeting of Stockholders. The term of the Class II directors
expires in 1999 and the term of the Class III directors expires in 2000. As the
term of each class expires, directors in that class will be elected by the
stockholders of the Company for a term of three years and until their successors
are duly elected and qualified. Classification of the board of directors is
intended to assure the continuity and stability of the Company's business
strategies and policies as determined by the board of directors. Because holders
of Common Stock will have no right to cumulative voting in the election of
directors, at each annual meeting of stockholders, the holders of a majority of
the shares of Common Stock will be able to elect all of the successors of the
class of directors whose terms expire at that meeting.
The classified board provision could have the effect of making the
replacement of incumbent directors more time consuming and difficult, which
could delay, defer, discourage or prevent an attempt by a third party to obtain
control of the Company or other transaction, even though such an attempt or
other transaction might be beneficial to the Company and its stockholders. At
least two annual meetings of stockholders, instead of one, will generally be
required to effect a change in a majority of the board of directors. Thus, the
classified board provision could increase the likelihood that incumbent
directors will retain their positions. See "Risk Factors--Limits on ownership
and changes in control may deter changes in management and third party
acquisition proposals."
Removal; Filling Vacancies. The Bylaws provide that, unless the
board of directors otherwise determines, any vacancies (except vacancies
resulting from an increase in the number of directors) will be filled by the
affirmative vote of a majority of the remaining directors, though less than a
quorum. Any directors so elected shall hold office until the next annual meeting
of stockholders. Our Charter provides that directors may be removed, but only
for cause and only by the affirmative vote of the holders of at least a majority
of votes entitled to be cast in the election of the directors. This provision,
when coupled with the provision of the Bylaws authorizing the board of directors
to fill vacant directorships precludes stockholders from removing incumbent
directors, except for cause and filling the vacancies created by such removal
with their own nominees.
Limitation of Liability and Indemnification. The Maryland General
Corporation Law permits a Maryland corporation to include in its charter a
provision limiting the liability of its directors and officers to the
corporation and its stockholders for money damages except for liability
resulting from (a) actual receipt of an improper benefit or profit in money,
property or services or (b) active and deliberate dishonesty established by a
final judgment as being material to the cause of action. Our Charter contains
such a provision which limits such liability to the maximum extent permitted by
Maryland law.
Our Charter authorizes us, to the maximum extent permitted by
Maryland law, to obligate the Company to indemnify and to pay or reimburse
reasonable expenses in advance of final disposition of a proceeding to (a) any
present or former director or officer or (b) any individual who, while a
director of the Company and at the request of the Company, serves or has served
another corporation, REIT, partnership, limited liability company, association,
joint venture, trust, employee benefit plan or any other enterprise as a
director, officer, partner or trustee of such corporation, REIT, partnership,
limited liability company, association, joint venture, trust, employee benefit
plan or other enterprise from and against any claim or liability to which such
person may become subject or which such person may incur by reason of his or her
status as a former director or officer of the Company. Our Bylaws obligate us,
to the extent permitted by Maryland law, to indemnify and to pay or reimburse
reasonable expenses in advance of final disposition of a proceeding to (a) any
present or former director or officer who is made a party to the proceeding by
reason of his or her service in that capacity or (b) any individual who, while a
director of the Company and at the request of the Company, serves or has served
another corporation, REIT, partnership, joint venture, trust, employee benefit
plan or any other enterprise and who is made a party to the proceeding by reason
of his or her service in that capacity. Our Charter and Bylaws also permit us,
with the approval of our board of directors, to indemnify and advance expenses
to any person who served as a predecessor of the Company in any of the
capacities described above and to any employee or agent of the Company or a
predecessor of the Company.
The Maryland General Corporation Law requires a Maryland corporation
(unless its charter provides otherwise, which our Charter does not) to indemnify
a director or officer who has been successful, on the merits or otherwise, in
the defense of any proceeding to which he is made a party by reason of his
service in that capacity. The Maryland General Corporation Law permits a
Maryland corporation to indemnify its present and former directors and officers,
among others,
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against judgments, penalties, fines, settlements and reasonable expenses
actually incurred by them in connection with any proceeding to which they may be
made a party by reason of their service in those or other capacities unless it
is established that (a) the act or omission of the director or officer was
material to the matter giving rise to the proceeding and (i) was committed in
bad faith or (ii) was the result of active and deliberate dishonesty, (b) the
director or officer actually received an improper personal benefit in money,
property or services or (c) in the case of any criminal proceeding, the director
or officer had reasonable cause to believe that the act or omission was
unlawful. However, a Maryland corporation may not indemnify for an adverse
judgment in a suit by or in the right of the corporation or for a judgment of
liability on the basis that a personal benefit was improperly received, unless
in either case a court orders indemnification and then only for expenses. In
addition, the Maryland General Corporation Law permits a corporation to advance
reasonable expenses to a director or officer upon the corporation's receipt of a
written affirmation by the director or officer of his or her good faith belief
that he or she has met the standard of conduct necessary for indemnification by
the corporation and a written undertaking by such director or officer on his or
her behalf to repay the amount paid or reimbursed by the corporation if it shall
ultimately be determined that the standard of conduct was not met.
Our Company also has purchased and maintains insurance on behalf of
all of its directors and executive officers against liability asserted against
or incurred by them in their official capacities with the Company, whether or
not the Company is required or has the power to indemnify them against the same
liability.
Business Combinations. Under the Maryland General Corporation Law,
certain "business combinations" (including a merger, consolidation, share
exchange or, in certain circumstances, an asset transfer or issuance or
reclassification of equity securities) between a Maryland corporation and any
person who beneficially owns 10% or more of the voting power of such
corporation's shares, or an affiliate of such corporation who, at any time
within the two-year period prior to the date in question, was the beneficial
owner of 10% or more of the voting power of the then-outstanding voting shares
of such corporation (an "Interested Stockholder") or an affiliate thereof, are
prohibited for five years after the most recent date on which the Interested
Stockholder becomes an Interested Stockholder. Thereafter, any such business
combination must be recommended by the board of directors of such corporation
and approved by the affirmative vote of at least (a) 80% of the votes entitled
to be cast by holders of outstanding shares of voting stock of such corporation
and (b) two-thirds of the votes entitled to be cast by holders of shares of
voting stock of such corporation other than the shares held by the Interested
Stockholder with whom (or with whose affiliate) the business combination is to
be affected, unless, among other conditions, the corporation's common
stockholders receive a minimum price (as defined in the Maryland General
Corporation Law) for their shares and the consideration is received in cash or
in the same form as previously paid by the Interested Stockholder for its
shares. These provisions of the Maryland General Corporation Law do not apply,
however, to business combination that are approved or exempted by the board of
directors of the corporation prior to the time that the Interested Stockholder
becomes an Interested Stockholder. Our Bylaws contain a provision exempting from
the business combination statute any and all acquisitions by any owner of the
shares of our stock. By its own terms, this Bylaw provision may be repealed in
whole or in part at any time.
Control Share Acquisition Statute. The Maryland General Corporation
Law provides that "control shares" of a Maryland corporation acquired in a
"control share acquisition" have no voting rights except to the extent approved
by a vote of two-thirds of the votes entitled to be cast on the matter,
excluding shares owned by the acquirer, by officers or by directors who are
employees of the corporation. "Control Shares" are voting shares of stock which,
if aggregated with all other such shares of stock previously acquired by the
acquirer, or in respect of which the acquirer is able to exercise or direct the
exercise of voting power (except solely by virtue of a revocable proxy), would
entitle the acquirer to exercise voting power in electing directors within one
of the following ranges of voting power: (i) one-fifth or more but less than
one-third, (ii) one-third or more but less than a majority, or (iii) a majority
or more of all voting power. Control Shares do not include shares which the
acquiring person is then entitled to vote as a result of having previously
obtained stockholder approval. A "control share acquisition" means the
acquisition of control shares, subject to certain exceptions.
A person who has made or proposes to make a control share
acquisition, upon satisfaction of certain conditions (including an undertaking
to pay expenses), may compel the board of directors of the corporation to call a
special meeting of stockholders to be held within 50 days of demand to consider
the voting rights of the shares. If no request for a meeting is made, the
corporation may itself present the question at any stockholders meeting.
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If voting rights are not approved at the meeting or if the acquiring
person does not deliver an acquiring person statement as required by the
statute, then, subject to certain conditions and limitations, the corporation
may redeem any or all of the control shares (except those for which voting
rights have previously been approved) for fair value determined, without regard
to the absence of voting rights for the control shares, as of the date of the
last control share acquisition by the acquirer or of any meeting of stockholders
at which the voting rights of such shares are considered and not approved. If
voting rights for control shares are approved at a stockholders meeting and the
acquirer becomes entitled to vote a majority of the shares entitled to vote, all
other stockholders may exercise appraisal rights. The fair value of the shares
as determined for purposes of such appraisal rights may not be less than the
highest price per share paid by the acquirer in the control share acquisition,
and certain limitations and restrictions otherwise applicable to the exercise of
dissenters' rights do not apply in the context of a control share acquisition.
The control share acquisition statute does not apply to shares
acquired in a merger, consolidation or share exchange, if the corporation is a
party to the transaction, or to acquisitions approved or exempted by the charter
or bylaws of the corporation.
Our Bylaws contain a provision exempting from the control share
acquisition statute any and all acquisitions by any person of our stock. There
can be no assurance that such provision will not be amended or eliminated at any
time in the future.
Amendment to Our Charter. Our Charter may be amended only upon the
recommendation of our board of directors in accordance with applicable law and
the approval of the stockholders. In addition to any other vote of the
stockholders that is required under applicable law, the affirmative vote of
two-thirds of the outstanding shares of our stock entitled to vote on the
amendment, voting together as a single class, and the affirmative vote of
two-thirds of the outstanding shares of each class entitled to vote thereon as a
class, is required to amend any provision of our Charter (expect, to amend any
provision of our Charter relating to our authority to issue shares of stock only
a majority rather than two-thirds is required).
Dissolution of the Company. The voluntary dissolution of our Company
must be approved by the affirmative vote of the holders of not less than a
majority of all of the votes entitled to be cast on the matter.
Advance Notice of Director Nominations and New Business. Our Bylaws
provide that (a) with respect to an annual meeting of stockholders, nominations
of persons for election of the board of directors and the proposal of business
to be considered by stockholders may be made only (i) pursuant to our notice of
the meeting, (ii) by or at the direction of our board of directors or (iii) by a
stockholder who is entitled to vote at the meeting and has complied with the
advance notice procedures set forth in the Bylaws, and (b) with respect to
special meetings of stockholders, only the business specified in the Company's
notice of meeting may be brought before the meeting of stockholders and
nominations of persons for election to the board of directors may be made only
(i) pursuant to the Company's notice of meeting, (ii) by our board of directors
or (iii) provided that our board of directors has determined that directors
shall be elected at such meeting, by a stockholder who is entitled to vote at
the meeting and has complied with the advance notice provisions set forth in the
Bylaws.
Meetings of Stockholders. Our Bylaws provide that annual meetings of
stockholders shall be held on a date and at the time set by our board of
directors during the month of May each year (commencing in May 1998). Special
meetings of the stockholders may be called by (i) the President of the Company,
(ii) the Chief Executive Officer or (iii) the board of directors. Additionally,
our Bylaws provide that special meetings must be called by the Secretary of the
Company upon the written request of the holders of shares entitled to cast not
less than 25% of all votes entitled to be cast at the meeting.
Operations. Our Charter requires our board of directors generally to
use commercially reasonable efforts to cause the Company to qualify as a REIT.
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Anti-Takeover Effect of Certain Provisions of Maryland Law and of
the Charter and Bylaws. The business combination provisions and, if the
applicable provision in the Bylaws is amended or rescinded, the control share
acquisition provisions of the Maryland General Corporation Law, the provisions
of the Charter on classification of the board of directors and removal of
directors, and the advance notice provisions of the Bylaws, could delay, defer
or prevent a transaction or a change in control of the Company that might
involve a premium price for holders of Common Stock or otherwise be in their
best interest.
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FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of material federal income tax matters
relating to the operations of our Company and Reckson that may be relevant to
prospective stockholders of the Company. It is based upon current law and is not
tax advice. This discussion does not address all aspects of taxation that may be
relevant to particular stockholders in light of their personal investment or tax
circumstances, or to certain types of stockholders (including, without
limitation, insurance companies, tax-exempt organizations, financial
institutions, broker-dealers, foreign corporations and persons who are not
citizens or residents of the United States) subject to special treatment under
the federal income tax laws, nor does it give a detailed discussion of any
state, local or foreign tax considerations. In the opinion of our tax counsel,
the following discussion accurately reflects the federal income tax
considerations relating to the operations of the Company that are likely to be
material to a stockholder of the Company.
EACH PROSPECTIVE STOCKHOLDER OF THE COMPANY IS ENCOURAGED TO CONSULT
ITS OWN TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO IT OF THE
PURCHASE, OWNERSHIP AND SALE OF SHARES OF COMMON STOCK OF THE COMPANY AND OF THE
COMPANY'S ELECTION TO BE TAXED AS A REIT, INCLUDING THE FEDERAL, STATE, LOCAL,
FOREIGN AND OTHER TAX CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP, SALE AND
ELECTION AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
General. We made an election to be taxed as a REIT for federal
income tax purposes commencing with our taxable year ended December 31, 1997. We
believe the Company is organized and operates in such a manner as to qualify for
taxation as a REIT under the Internal Revenue Code of 1986. We intend to
continue to operate in such a manner. However, no assurance can be given that we
will operate in a manner so as to qualify or remain qualified.
The requirements relating to the federal income tax treatment of
REITs and their stockholders are highly technical and complex. The following
discussion sets forth only the material aspects of those requirements. This
summary is qualified in its entirety by the applicable Code provisions, rules
and Treasury Regulations promulgated thereunder, and administrative and judicial
interpretations thereof.
Opinion of Our Tax Counsel. In the opinion of our tax counsel,
commencing with the taxable year ended December 31, 1997, we have been organized
and have operated in conformity with the requirements for qualification as a
REIT within the meaning of the Internal Revenue Code of 1986 and our proposed
method of operation of the Company will enable the Company to continue to meet
the requirements for qualification and taxation as a REIT under the Internal
Revenue Code of 1986. It must be emphasized that the opinion of our tax counsel
is based on various assumptions and is conditioned upon certain representations
made by the Company and others as to factual matters. Moreover, such
qualification and taxation as a REIT depends upon our ability to meet, through
actual annual operating results, the distribution levels, diversity of stock
ownership and the various other qualification tests imposed under the Internal
Revenue Code of 1986 that are discussed below, the results of which have not
been and will not be reviewed by our tax counsel. Accordingly, no assurance can
be given that the actual results of the Company's operations for any one taxable
year will satisfy such requirements.
Taxation of Our Company. As long as we qualify to be taxed as a
REIT, we generally will not be subject to federal corporate income taxes on that
portion of its ordinary income or capital gain that is distributed currently to
stockholders. This is because the REIT provisions of the Internal Revenue Code
of 1986 generally allow a REIT to deduct dividends paid to its stockholders.
This deduction for dividends paid to stockholders substantially eliminates the
federal "double taxation" on earnings (once at the corporate level and once
again at the stockholder level) that generally results from investment in a
corporation.
Even if we qualify to be taxed as a REIT, we may be subject to
federal income tax in the following circumstances. First, a REIT will be taxed
at regular corporate rates on any undistributed REIT taxable income and
undistributed net capital gains. Second, under certain circumstances, a REIT may
be subject to the "alternative minimum tax" on its items of tax preference, if
any. Third, if a REIT has (i) net income from the sale or other disposition of
"foreclosure property" (generally, property acquired by reason of a default on a
lease or an indebtedness held by a REIT) that is held primarily for sale to
customers in the ordinary course of business or (ii) other non-qualifying net
income from foreclosure property,
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it will be subject to tax at the highest corporate rate on such income. Fourth,
if a REIT has net income from a "prohibited transaction" (generally, a sale or
other disposition of property held primarily for sale to customers in the
ordinary course of business, other than foreclosure property), such income will
be subject to a 100% tax. Fifth, if a REIT should fail to satisfy the 75% gross
income test or the 95% gross income test (as discussed below), and has
nonetheless maintained its qualification as a REIT because certain other
requirements have been met, it will be subject to a 100% tax on the net income
attributable to the greater of the amount by which the REIT fails the 75% or 95%
test, multiplied by a fraction intended to reflect the REIT's profitability.
Sixth, if a REIT should fail to distribute with respect to each calendar year at
least the sum of (i) 85% of its REIT ordinary income for such year, (ii) 95% of
its REIT capital gain net income for such year, and (iii) any undistributed
taxable income from prior periods, the REIT will be subject to a 4% excise tax
on the excess of such required distribution over the amounts actually
distributed. Seventh, if a REIT acquires any asset from a C corporation (i.e., a
corporation generally subject to a full corporate-level tax) in a transaction in
which the basis of the asset in the REIT's hands is determined by reference to
the basis of the asset (or any other property) in the hands of the C corporation
and the REIT recognizes gain on the disposition of such asset during the
ten-year period beginning on the date on which such asset was acquired by the
REIT, then pursuant to guidelines issued by the Internal Revenue Service in
Internal Revenue Service Notice 88-19, the excess of the fair market value of
such property at the beginning of the applicable ten-year period over the REIT's
adjusted basis in such asset as of the beginning of such ten-year period, or
built-in gain, will be subject to a tax at the highest regular corporate rate.
The results described above with respect to the recognition of built-in gain
assume that we will make elections pursuant to the guidelines issued by the
Internal Revenue Service in Internal Revenue Service Notice 88-19 or applicable
future administrative rules or Treasury Regulations. Certain prior legislative
proposals, if enacted in the form previously proposed, might change the
guidelines issued by the Internal Revenue Service in Internal Revenue Service
Notice 88-19. See "--Possible Federal Tax Developments."
Requirements for Qualification. To qualify as a REIT, a corporation
must elect to be so treated and must meet the requirements, discussed below,
relating to its organization, sources of income, nature of assets, and
distributions of income to stockholders.
Organizational Requirements. The Internal Revenue Code of 1986
defines a REIT as a corporation, trust or association: (i) that is managed by
one or more trustees or directors; (ii) the beneficial ownership of which is
evidenced by transferable shares or by transferable certificates of beneficial
interest; (iii) that would be taxable as a domestic corporation but for the REIT
provisions of the Internal Revenue Code of 1986; (iv) that is neither a
financial institution nor an insurance company subject to certain provisions of
the Internal Revenue Code of 1986; (v) the beneficial ownership of which is held
by 100 or more persons; and (vi) during the last half of each taxable year not
more than 50% in value of the outstanding capital stock of which is owned,
directly or indirectly through the application of certain attribution rules, by
five or fewer individuals (as defined in the Internal Revenue Code of 1986 to
include certain entities). In addition, certain other tests, described below,
regarding the nature of a REIT's income and assets, also must be satisfied. The
Code provides that conditions (i) through (iv), inclusive, must be met during
the entire taxable year and that condition (v) must be met during at least 335
days of a taxable year of 12 months, or during a proportionate part of a taxable
year of less than 12 months. Conditions (v) and (vi) will not apply until after
the first taxable year for which an election is made to be taxed as a REIT.
For taxable years beginning after 1997, if a REIT complies with
Treasury Regulations that provide procedures for ascertaining the actual
ownership of shares of its stock for such taxable year and the REIT did not know
(and with the exercise of reasonable diligence could not have known) that it
failed to meet the requirement of condition (vi) above for such taxable year,
the REIT will be treated as having met the requirement of condition (vi) for
such year.
We have satisfied the requirements set forth in (i) through (iv)
above and believe that we have sufficient diversity of share ownership to allow
it to satisfy conditions (v) and (vi) above. Our Charter includes certain
restrictions regarding transfers of shares of Common Stock that are intended to
assist the Company in satisfying the share ownership requirements described in
(v) and (vi) above. See "Description of Capital Stock--Restrictions on
Transfer."
In addition, a corporation may not elect to become a REIT unless its
taxable year is the calendar year. The Company's taxable year is the calendar
year.
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We have a number of "qualified REIT subsidiaries." A qualified REIT
subsidiary is a corporation that is wholly owned by the REIT. Section 856(i) of
the Internal Revenue Code of 1986 provides that a corporation that is a
"qualified REIT subsidiary" will not be treated as a separate corporation, and
all assets, liabilities and items of income, deduction, and credit of a
"qualified REIT subsidiary" will be treated as assets, liabilities, and such
items (as the case may be) of the REIT. Consequently, our "qualified REIT
subsidiaries" will be ignored, and all assets and liabilities, and items of
income, deduction, and credit of such subsidiaries will be treated as assets,
liabilities and items of the Company.
In the case of a REIT that is a partner in a partnership, such REIT
will be deemed to own its proportionate share of the assets of the partnership
and will be deemed to be entitled to the income of the partnership attributable
to such share. In addition, the character of the assets and gross income of the
partnership will retain the same character in the hands of the REIT for purposes
of the REIT requirements, including satisfying the income and asset tests
described herein. Thus, the Company's proportionate share of the assets,
liabilities and items of income of the Operating Partnership, and of our
subsidiary partnerships, limited liability companies, joint ventures and
business trusts in which the Company or the Operating Partnership have and will
have an interest are and will be treated as assets, liabilities and items of
income of the Company for purposes of applying the requirements described
herein, provided that the Operating Partnership and our subsidiary partnerships
are treated as partnerships for federal income tax purposes. See "--Income
Taxation of the Operating Partnership, the Subsidiary Partnerships and Their
Partners."
Income Tests. In order for us to maintain qualification as a REIT,
we must satisfy two gross income tests annually. First, at least 75% of its
gross income (excluding gross income from prohibited transactions) for each
taxable year must be derived directly or indirectly from investments relating to
real property or mortgages on real property (including "rents from real
property," dividends from qualified REITs and, in certain circumstances,
interest) or from "qualified temporary investment income" (generally, income
attributable to the temporary investment of new capital received by the REIT).
Second, at least 95% of its gross income (excluding gross income from prohibited
transactions) for each taxable year must be derived from such real property
investments and from dividends, interest, and gain from the sale or disposition
of stock or securities or from any combination of the foregoing. In addition,
for taxable years prior to 1998, short-term gain from the sale or other
disposition of stock or securities, gain from prohibited transactions and gain
on the sale or other disposition of real property held for less than four years
(apart from involuntary conversions and sales of foreclosure property) must have
represented less than 30% of the gross income of the Company's predecessor
(including gross income from prohibited transactions) for each taxable year.
Substantially all of our income is expected to be rental income from
rents. In order for such income to qualify as "rents from real property" for
purposes of satisfying the 75% and 95% gross income tests, we must satisfy
several conditions. First, the amount of rent must not be based in whole or in
part on the income or profits of any person, although rents generally will
qualify as rents from real property if they are based on a fixed percentage of
receipts or sales. Second, rents received from a tenant will not qualify as
"rents from real property" if the Company, or an owner of 10% or more of the
Company, directly or constructively, owns 10% or more of such tenant (a "Related
Party Tenant"). Third, if rent attributable to personal property leased in
connection with a lease of real property is greater than 15% of the total rent
received under the lease, the portion of rent attributable to such personal
property will not qualify as "rents from real property." Finally we generally
must not operate or manage the property or furnish or render services to the
tenants of such property, other than through an "independent contractor" from
whom we derive no income. However, the "independent contractor" requirement does
not apply to the extent the services rendered by us are customarily furnished or
rendered in connection with the rental of the real property in the geographic
area in which the property is located. Based on our experience we believe that
all services provided to tenants by us will be considered "usually or
customarily rendered" in connection with the rental of office space for
occupancy, although there can be no assurance that the IRS will not contend
otherwise.
We believe that our real estate investments, which include an
allocable share of income from the Operating Partnership, will give rise to
income, substantially all of which will qualify as "rents from real property"
for purposes of the 75% and 95% gross income tests. We will not (i) charge rent
for any property that is based in whole or in part on the income or profits of
any person (other than being based on a percentage of receipts of sales); (ii)
receive rents in excess of a de minimis amount from Related Party Tenants; (iii)
derive more than a de minimus amount of rents attributable to personal property
which constitute greater than 15% of the total rents received under the lease;
or (iv) perform services
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considered to be rendered to the occupant of property, other than through an
independent contractor from whom we derive no income.
The Operating Partnership owns 5% of the voting common stock, and
all of the non-voting stock, of Tower Equities Management, Inc., or Tower
Management, a corporation that is taxable as a regular corporation and through
which we conduct our real estate management, leasing and tenant/landlord
representation businesses. Tower Management will perform management, development
and leasing services for the Operating Partnership and other real properties
owned in whole or in part by third parties. The income earned by and taxed to
Tower Management would be nonqualifying income if earned directly by us. As a
result of the ownership structure described above, the income will be earned by
and taxed to Tower Management. Dividends paid by Tower Management to us are
qualifying income for purposes of the 95% gross income test. See "Possible
Federal Tax Developments" for a discussion of a proposal which would cause us to
modify this structure.
We may receive fees in exchange for the performance of certain
management activities for third parties with respect to properties in which we
do not own an interest. Such fees will result in nonqualifying income under the
95% and 75% gross income tests. If the sum of the income realized by us (whether
directly or through its interest in the Operating Partnership or our subsidiary
partnerships) which does not satisfy the requirements of the 95% gross income
test (collectively, "Non-Qualifying Income") exceeds 5% of our gross income for
any taxable year, our status as a REIT would be jeopardized. We have represented
that the amount of Non-Qualifying Income in any taxable year, including such
fees, will not exceed 5% of our annual gross income for any taxable year.
If we fail to satisfy one or both of the 75% or 95% gross income
tests for any taxable year, we may nevertheless qualify as a REIT for such year
if we are entitled to relief under certain provisions of the Internal Revenue
Code of 1986. These relief provisions generally will be available if (i) the
failure to meet such tests was due to reasonable cause and not due to willful
neglect, (ii) a schedule of the sources of qualifying income is attached to the
federal income tax return of the Company for such taxable year, and (iii) any
incorrect information on the schedule was not due to fraud with intent to evade
tax. It is not possible, however, to state whether in all circumstances we would
be entitled to the benefit of these relief provisions. As discussed above in
"--Taxation of the Company," even if these relief provisions apply, a tax would
be imposed with respect to the excess net income. No similar relief provision
would apply if the 30% income test had been failed for a taxable year prior to
1998 and, in such case, the Company would cease to qualify as a REIT.
See--"Failure to Qualify."
Asset Tests. In order for us to qualify as a REIT, at the close of
each quarter of its taxable year we must also satisfy three tests relating to
the nature of the our assets. First, at least 75% of the value of its total
assets must be represented by real estate assets (which for this purpose include
(i) our allocable share of real estate assets held by partnerships in which the
Company or a "qualified REIT subsidiary" owns an interest, (ii) stock or debt
instruments purchased with the proceeds of a stock offering or a long-term (at
least five years) debt offering and held for not more than one year from the
date the Company receives such proceeds, and (iii) shares in qualified REITs and
cash, cash items and government securities. Second, not more than 25% of our
total assets may be represented by securities other than those in the 75% asset
class. Third, of the investments included in the 25% asset class, the value of
any one issuer's securities may not exceed 5% of the value of our total assets,
and the Company may not own more than 10% of any one issuer's outstanding voting
securities (excluding securities of a qualified REIT subsidiary or another
REIT).
We anticipate that we will be able to comply with these asset tests.
The Company is currently deemed to, and will continue to be deemed to, hold
directly its proportionate share of all real estate and other assets of the
Operating Partnership and our subsidiary partnerships, and it should be
considered to hold its proportionate share of all assets deemed owned by those
partnerships through the partnerships' ownership of partnership interests in
other partnerships. As a result, the Company intends to hold more than 75% of
its assets as real estate assets. In addition, we do not plan to hold any
securities representing more than 10% of any one issuer's voting securities,
other than any qualified REIT subsidiary, nor securities of any one issuer
exceeding 5% of the value of our gross assets (determined in accordance with
generally accepted accounting principles).
After initially meeting the asset tests at the close of any quarter,
we will not lose our REIT status for failing to satisfy the asset tests at the
end of a later quarter solely by reason of changes in asset values. If the
failure to satisfy the
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asset tests results from an acquisition of securities or other property during a
quarter, the failure can be cured by disposition of sufficient nonqualifying
assets within 30 days after the close of that quarter. We intend to maintain
adequate records of the value of its assets to ensure compliance with the asset
tests and will take such other action within 30 days after the close of any
quarter as may be required to cure any noncompliance. However, there can be no
assurance that such other action always will be successful.
Annual Distribution Requirements. In order to be taxed as a REIT, we
will be required to meet certain annual distribution requirements. We will have
to distribute dividends (other than capital gain dividends) to our stockholders
in an amount at least equal to (1) the sum of (a) 95% of its "REIT taxable
income" (computed without regard to the dividends paid deduction and the
Company's net capital gain) and (b) 95% of the net income, if any, from
foreclosure property in excess of the special tax on income from foreclosure
property, minus (2) the sum of certain items of noncash income. Such
distributions must be paid in the taxable year to which they relate, or in the
following taxable year if declared before the Company timely files its tax
return for such year and if paid on or before the first regular dividend payment
after such declaration.
To the extent that we do not distribute all of our net capital gain
or distribute at least 95% (but less than 100%) of our REIT taxable income, as
adjusted, we will be subject to tax on the undistributed portion, at regular
ordinary and capital gains corporate tax rates. Furthermore, if we fail to
distribute for each calendar year at least the sum of (a) 85% of its REIT
ordinary income for such year, (b) 95% of its REIT capital gain net income for
such year, and (c) any undistributed ordinary income and capital gain net income
from prior periods, we will be subject to a 4% excise tax on the excess of such
required distribution over the amounts actually distributed. We intend to make
timely distributions sufficient to satisfy this annual distribution requirement.
We expect that our taxable income ordinarily will be less than its
cash flow, due to the allowance of depreciation and other noncash charges in
computing its taxable income. Accordingly, we anticipate that we generally will
have sufficient cash or liquid assets to enable it to satisfy the 95%
distribution requirement.
It is possible that from time to time we may not have sufficient
cash or other liquid assets to meet the 95% distribution requirement due to
timing differences between the actual receipt of income and actual payment of
deductible expenses and the inclusion of such income and deduction of such
expenses in arriving at our taxable income if the amount of nondeductible
expenses such as principal amortization or capital expenditures exceeds the
amount of noncash deductions. In the event that such situation occurs, in order
to meet the 95% distribution requirement, we may find it necessary to arrange
for short-term, or possibly long-term, borrowings or to pay dividends in the
form of consent dividends. If the amount of nondeductible expenses exceeds
noncash deductions, we may refinance our indebtedness to reduce principal
payments and borrow funds for capital expenditures.
Under certain circumstances in which an adjustment is made that
affects the amount that should have been distributed for a prior taxable year,
we may be able to rectify the failure to meet such distribution requirement by
paying "deficiency dividends" to stockholders in the later year, which may be
included in our deduction for dividends paid for the earlier year. Thus, we may
be able to avoid being taxed on amounts distributed as deficiency dividends;
however, it will be required to pay interest based upon the amount of any
deduction taken for deficiency dividends.
Failure to Qualify. If our Company fails to qualify for taxation as a
REIT in any taxable year, and the relief provisions do not apply, our Company
would be subject to tax (including any applicable alternative minimum tax) on
its taxable income at regular corporate rates. Distributions to stockholders in
any year in which we fail to qualify will not be deductible by us nor will they
be required to be made. In such event, to the extent of current or accumulated
earnings and profits, all distributions to stockholders will be taxable as
ordinary income, and subject to certain limitations of the Internal Revenue Code
of 1986, corporate distributees may be eligible for the dividends-received
deduction. Unless entitled to relief under specific statutory provisions, we
also will be disqualified from taxation as a REIT for the four taxable years
following the year during which qualification was lost. It is not possible to
state whether in all circumstances we would be entitled to such statutory
relief.
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Taxation of U.S. Stockholders of the Company. As used in this
Prospectus, the term "U.S. Stockholder" means a holder of common or preferred
shares of stock of the Company that (for United States federal income tax
purposes) (i) is a citizen or resident of the United States, (ii) is a
corporation, partnership, or other entity created or organized in or under the
laws of the United States or of any political subdivision thereof, (iii) is an
estate the income of which is subject to United States federal income taxation
regardless of its source or (iv) is a trust if a United States court is able to
exercise primary supervision over the administration of the trust and one or
more United States persons have the authority to control all substantial
decisions of the trust. For any taxable year for which the Company qualifies for
taxation as a REIT, amounts distributed to taxable U.S. Stockholders will be
taxed as follows:
Distributions Generally. Distributions to U.S. Stockholders, other
than capital gain dividends discussed below, will be taxable as ordinary income
to such holders up to the amount of the Company's current or accumulated
earnings and profits. Such distributions are not eligible for the
dividends-received deduction for corporations. To the extent that the Company
makes distributions in excess of its current or accumulated earnings and
profits, such distributions will first be treated as a tax-free return of
capital, reducing the tax basis in the U.S. Stockholders' shares of stock, and
distributions in excess of the U.S. Stockholders' tax basis in their respective
shares of stock will be taxable as an amount realized from the sale of such
shares. Dividends declared by the Company in October, November, or December of
any year payable to a stockholder of record on a specified date in any such
month will be treated as both paid by the Company and received by the
stockholder on December 31 of such year, provided that the dividend is actually
paid by the Company during January of the following calendar year. Stockholders
may not include on their own income tax returns any tax losses of the Company.
We will be treated as having sufficient earnings and profits to
treat as a dividend any distribution by the Company up to the greater of its
current or accumulated earnings and profits. As a result, stockholders may be
required to treat certain distributions that would otherwise result in a
tax-free return of capital as taxable dividends. Moreover, any "deficiency
dividend" will be treated as a "dividend" (an ordinary dividend or a capital
gain dividend, as the case may be), regardless of the Company's earnings and
profits.
Capital Gain Dividends. Dividends to U.S. Stockholders that are
properly designated by us as capital gain dividends will be treated as long-term
capital gain (to the extent they do not exceed the Company's actual net capital
gain) for the taxable year without regard to the period for which the
stockholder has held his stock. Corporate stockholders, however, may be required
to treat up to 20% of certain capital gain dividends as ordinary income. Capital
gain dividends are not eligible for the dividends-received deduction for
corporations.
Individual U.S. Stockholders and U.S. Stockholders that are estates
and trusts currently are subject to federal income tax on net capital gains at
different tax rates depending upon the nature of the gain and the holding period
of the asset disposed of. Current guidance applicable until the issuance of
Treasury Regulations provides, subject to certain limitations, that a REIT may
designate in which tax rate group a capital gain dividend belongs. In the
absence of a designation, such dividend presumably will be treated as belonging
in the 25%-rate group.
Although a REIT is taxed on its undistributed net capital gains, for
taxable years beginning after 1997, a REIT may elect to include all or a portion
of such undistributed net capital gains in the income of its stockholders. In
such event, the stockholder will receive a credit or refund for the amount of
tax paid by the REIT on such undistributed net capital gains.
Passive Activity and Loss; Investment Interest Limitations.
Distributions by us and gain from the disposition of shares of Common Stock
ordinarily will not be treated as passive activity income, and therefore, U.S.
Stockholders generally will not be able to apply any "passive losses" against
such income. Dividends from the Company (to the extent they do not constitute a
return of capital) generally will be treated as investment income for purposes
of the investment interest limitation. Net capital gain from the disposition of
shares of Common Stock and capital gain dividends generally will be excluded
from investment income unless the taxpayer elects to have the gain taxed at
ordinary rates.
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Dispositions of Shares of Common Stock. A U.S. Stockholder will
recognize gain or loss on the sale or exchange of shares of Common Stock to the
extent of the difference between the amount realized on such sale or exchange
and the holder's tax basis in such shares. Such gain or loss generally will
constitute long-term capital gain or loss if the holder has held such shares for
more than one year and, in the case of an individual, will be taxed at a lower
rate. Losses incurred on the sale or exchange of shares of Common Stock held for
six months or less (after applying certain holding period rules), however,
generally will be deemed long-term capital loss to the extent of any long-term
capital gain dividends received by the U.S. Stockholder with respect to such
shares.
Treatment of Tax-Exempt U.S. Stockholders. The Internal Revenue
Service has ruled that amounts distributed by a REIT out of its earnings and
profits to a tax-exempt pension trust did not constitute unrelated business
taxable income. Although rulings are merely interpretations of law by the
Internal Revenue Service and may be revoked or modified, based on this analysis,
indebtedness incurred by us in connection with the acquisition of an investment
should not cause any income derived from the investment to be treated as
unrelated business taxable income upon the distribution of such income as
dividends to a tax-exempt entity. A tax-exempt entity that incurs indebtedness
to finance its purchase of shares, however, will be subject to unrelated
business taxable income by virtue of the debt-financed income rules.
In addition, tax-exempt pension and certain other tax-exempt trusts
that hold more than 10% (by value) of the interests in a REIT may be required to
treat a percentage of REIT dividends as unrelated business taxable income. The
requirement applies only if (i) the qualification of the REIT depends upon the
application of a "look-through" exception to the restriction on REIT
stockholdings by five or fewer individuals, including such trusts and (ii) the
REIT is "predominantly held" by such trusts. i.e., either (A) at least one such
trust holds more than 25% (by value) of the interests in the REIT or (B) one or
more such trusts (each of whom own more than 10% by value of the interests in
the REIT) hold in the aggregate more than 50% (by value) of the interests in the
REIT. It is not anticipated that our REIT qualification will depend upon
application of the "look-through" exception or that we will be "predominantly
held" by such trusts.
Special Tax Considerations for Foreign Stockholders. The rules
governing United States federal income taxation of non-resident alien
individuals, foreign corporations, foreign partnerships, and foreign trusts and
estates (collectively, "Non-U.S. Stockholders") are complex, and the following
discussion is intended only as a summary of such rules. Prospective Non-U.S.
Stockholders should consult with their own tax advisors to determine the impact
of federal, state, and local income tax laws on an investment in the Company,
including any reporting requirements, as well as the tax treatment of such an
investment under their home country laws.
In general, Non-U.S. Stockholders will be subject to United States
federal income tax with respect to their investment in the Company if such
investment is "effectively connected" with the Non-U.S. Stockholder's conduct of
a trade or business in the United States. A corporate Non-U.S. Stockholder who
receives income that is (or is treated as) effectively connected with a United
States trade or business also may be subject to the branch profits tax under
section 884 of the Internal Revenue Code of 1986 which is payable in addition to
United States corporate income tax. The following discussion applies to Non-U.S.
Stockholders whose investment in the Company is not so effectively connected. We
expect to withhold United States income tax, as described below, on the gross
amount of any distributions paid to a Non-U.S. Stockholder unless (i) a lower
treaty rate applies and the required form evidencing eligibility for that
reduced rate is filed with the Company, or (ii) the Non-U.S. Stockholder files
an Internal Revenue Service Form 4224 or applicable successor form with the
Company, claiming that the distribution is "effectively connected" income.
A distribution by us that is not attributable to gain from the sale
or exchange by us of a United States real property interest and that is not
designated by us as a capital gain dividend will be treated as an ordinary
income dividend to the extent made out of current or accumulated earnings and
profits. Generally, an ordinary income dividend will be subject to a United
States withholding tax equal to 30% of the gross amount of the distribution
unless such tax is reduced or eliminated by an applicable tax treaty. A
distribution of cash in excess of our earnings and profits will be treated first
as a return of capital that will reduce a Non-U.S. Stockholder's basis in its
shares of the our Common Stock (but not below zero) and then as gain from the
disposition of such shares, the tax treatment of which is described under the
rules discussed below with respect to dispositions of shares.
Distributions by us that are attributable to gain from the sale or
exchange of a United States real property interest will be taxed to a Non-U.S.
Stockholder under the Foreign Investment in Real Property Tax Act of 1980. Under
the
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Foreign Investment in Real Property Tax Act, such distributions are taxed to a
Non-U.S. Stockholder as if such distributions were gains "effectively connected"
with a United States trade or business. Accordingly, a Non-U.S. Stockholder will
be taxed at the normal capital gain rates applicable to a U.S. Stockholder
(subject to any applicable alternative minimum tax and a special alternative
minimum tax in the case of non-resident alien individuals). Distributions
subject to the Foreign Investment in Real Property Tax Act also may be subject
to a 30% branch profits tax in the hands of a foreign corporate stockholder that
is not entitled to treaty exemption.
We are required to withhold from distributions to Non-U.S.
Stockholders, and remit to the Internal Revenue Service, (i) 35% of designated
capital gain dividends (or, if greater, 35% of the amount of any distributions
that could be designated as capital gain dividends) and (ii) 30% of ordinary
dividends paid out of earnings and profits. In addition, if we designate prior
distributions as capital gain dividends, subsequent distributions, up to the
amount of such prior distributions not withheld against, will be treated as
capital gain dividends for purposes of withholding. A distribution in excess of
the Company's earnings and profits may be subject to 30% dividend withholding if
at the time of the distribution it cannot be determined whether the distribution
will be in an amount in excess of our current or accumulated earnings and
profits. Tax treaties may reduce our withholding obligations. If the amount
withheld by us with respect to a distribution to a Non-U.S. Stockholder exceeds
the stockholder's United States tax liability with respect to such distribution
(as determined under the rules described in the two preceding paragraphs), the
Non-U.S. Stockholder may file for a refund of such excess from the Internal
Revenue Service. It should be noted that the 35% withholding tax rate on capital
gain dividends currently corresponds to the maximum income tax rate applicable
to corporations, but is higher than the 20% maximum rate on capital gains of
individuals.
Unless the shares of our Common Stock constitute a "United States real
property interest" within the meaning of the Foreign Investment in Real Property
Tax Act or are effectively connected with a U.S. trade or business, a sale of
such shares by a Non-U.S. Stockholder generally will not be subject to United
States taxation. The shares of our Common Stock will not constitute a United
States real property interest if the Company is a "domestically-controlled
REIT." A domestically-controlled REIT is a REIT in which at all times during a
specified testing period less than 50% in value of its shares is held directly
or indirectly by Non-U.S. Stockholders. It is currently believed that we are a
domestically-controlled REIT, and therefore that the sale of shares in our
Company will not be subject to taxation under the Foreign Investment in Real
Property Tax Act. However, because the shares of Common Stock are publicly
traded, no assurance can be given that the Company will continue to be a
domestically-controlled REIT. Notwithstanding the foregoing, capital gain not
subject to the Foreign Investment in Real Property Tax Act will be taxable to a
Non-U.S. Stockholder if the Non- U.S. Stockholder is a nonresident alien
individual who is present in the United States for 183 days or more during the
taxable year and certain other conditions apply, in which case the nonresident
alien individual will be subject to a 30% tax on such individual's capital
gains. If our Company did not constitute a domestically-controlled REIT, whether
a Non-U.S. Stockholder's, sale of shares of our Common Stock would be subject to
tax under the Foreign Investment in Real Property Tax Act as a sale of a United
States real property interest would depend on whether the shares were "regularly
traded" (as defined by applicable Treasury Regulations) on an established
securities market (e.g., the NYSE) and on the size of the selling stockholder's
interest in the Company. If the gain on the sale of the Company's shares were
subject to taxation under the Foreign Investment in Real Property Tax Act, the
Non-U.S. Stockholder would be subject to the same treatment as a U.S.
Stockholder with respect to such gain (subject to applicable alternative minimum
tax and a special alternative minimum tax in the case of nonresident alien
individuals). In any event, a purchaser of shares of Common Stock from a
Non-U.S. Stockholder will not be required under the Foreign Investment in Real
Property Tax Act to withhold on the purchase price if the purchased shares of
Common Stock are "regularly traded" on an established securities market or if
our Company is a domestically-controlled REIT. Otherwise, under the Foreign
Investment in Real Property Tax Act the purchaser of shares of our Common Stock
may be required to withhold 10% of the purchase price and remit such amount to
the Internal Revenue Service.
Income Taxation of the Operating Partnership, our Subsidiary
Partnerships and Their Partners. The following discussion summarizes certain
federal income tax considerations applicable to our investment in the Operating
Partnership and the indirect interest of our Company in our subsidiary
partnerships.
Classification of the Operating Partnership and Our Subsidiary
Partnerships. We will be entitled to include in our income our distributive
share of the income and to deduct our distributive share of the losses of the
Operating Partnership (including the Operating Partnership's share of the income
or losses of our subsidiary partnerships) only if the
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Operating Partnership (or our subsidiary partnerships) is classified for federal
income tax purposes as partnerships or, in the case of certain of our subsidiary
partnerships that are single-member limited liability companies, are disregarded
as an entity separate from such member, rather than as associations taxable as
corporations. With certain exceptions, an unincorporated domestic organization
formed on or after January 1, 1997 that has two or more members will be treated
as a partnership for federal income tax purposes absent an election by such
organization to be treated as an association taxable as a corporation. Such an
organization formed prior to January 1, 1997 was treated as a partnership for
federal income tax purposes rather than as a corporation for periods prior to
January 1, 1997 only if it had no more than two of the four corporate
characteristics that the Treasury Regulations applicable to such organizations
used to distinguish a partnership from a corporation for tax purposes. These
four characteristics were continuity of life, centralization of management,
limited liability, and free transferability of interests. Unless such
organization elects otherwise, the classification claimed by the organization
prior to January 1, 1997 will continue for periods on or after January 1, 1997,
and such classification will be respected for all prior periods if the
organization had a reasonable basis for such classification, the organization
and all members of the organization recognized the federal tax consequences of
any change in the organization's classification within the 60 months prior to
January 1, 1997, and neither the organization nor any member was notified in
writing on or before May 8, 1996 that the classification of the organization was
under examination.
We expect that the Operating Partnership and all of our subsidiary
partnerships formed on and after January 1, 1997 either will have two or more
members at all times or, in the case of certain of our subsidiary partnerships,
will have a single member, and that none of those organizations will elect to be
treated as an association for federal income tax purposes. In addition, our
subsidiary partnerships in existence prior to January 1, 1997 and owned,
directly or indirectly, by the Company and its predecessor claimed to be
partnerships for all periods prior to January 1, 1997 and were not notified in
writing on or before May 8, 1996 that such classification was under examination.
In the opinion of our tax counsel, which is based on the provisions of the
partnership agreement of the Operating Partnership and on certain factual
assumptions and representations, the Operating Partnership and our subsidiary
partnerships have been, continue to be and will be, treated as partnerships for
federal income tax purposes or, in the case of those subsidiary partnerships
that are single-member limited liability companies, will be disregarded as an
entity separate from such member. However, neither the Operating Partnership nor
any of our subsidiary partnerships have requested, nor do they intend to
request, a ruling from the Internal Revenue Service that they will be treated as
partnerships or disregarded, as applicable, for federal income tax purposes. Our
tax counsel's opinion is not binding on the Internal Revenue Service or the
courts.
A publicly-traded partnership is a partnership whose interests are
traded on an established securities market or are readily tradeable on a
secondary market (or the substantial equivalent thereof). A publicly traded
partnership will be treated as a corporation for federal income tax purposes
unless at least 90% of such partnership's gross income for each taxable year
consists of "qualifying income," which generally includes any income that is
qualifying income for purposes of the 95% gross income test applicable to REITs.
See "--Requirements for Qualification--Income Tests." For this purpose, the
Related Party Tenant test is applied by treating the partnership as owning an
interest in any corporation that is owned directly or indirectly by any 5%
partner. The partnership agreement of the Operating Partnership contains
restrictions regarding transfers of units in the Operating Partnership that are
intended to assist the Operating Partnership in satisfying the Related Party
Tenant test applicable for purposes of the qualifying income exception. If the
Operating Partnership would be classified as a publicly traded partnership but
for the qualifying income exception, the income recognized by a partner would no
longer be characterized as passive income (which can be used to offset a
partner's passive losses); rather, it would be characterized as portfolio income
(which can not be used to offset passive losses).
It is unclear whether the right of unit holders in the Operating
Partnership to exchange their units for shares of the Company would be treated
as the "substantial equivalent" of the units being readily tradeable. However,
because it is anticipated that the Operating Partnership will meet the
Qualifying Income Exception, it should not be treated as a corporation under the
publicly-traded partnership rules. In addition, Treasury Regulations provide
certain safe harbors that, if applicable, will cause partnership interests to be
treated as interests that are not readily tradeable on a secondary market or the
substantial equivalent thereof. One such safe harbor requires that (i) all
interests in the partnership were issued in transactions that were not required
to be registered under the Securities Act and (ii) the partnership does not have
more than 100 partners at any time during the partnership's taxable year.
Because interests in the Operating Partnership and its predecessors were issued
in transactions that were not required to be registered under the Securities Act
and the Operating Partnership has not had and does not currently have more than
100 partners, the safe harbor should apply to the Operating
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Partnership for prior taxable years and for any taxable year during which the
Operating Partnership does not have more than 100 partners.
If for any reason the Operating Partnership or one of our subsidiary
partnerships were taxable as a corporation for federal income tax purposes, our
Company would not be able to satisfy the requirements for REIT status. See
"--Requirements for Qualification--Income Tests" and "--Requirements for
Qualification--Asset Tests." In addition, any change in any such organization's
status for tax purposes might be treated as a taxable event, in which case the
Company might incur a tax liability without any related cash distribution. See
"--Requirements for Qualification--Annual Distribution Requirements." Further,
items of income and deduction of any such organization would not pass through to
its partners or members, and its partners or members would be treated as
stockholders for tax purposes. Any such organization would be required to pay
income tax at corporate tax rates on its net income, and distributions to its
partners or members would constitute dividends that would not be deductible in
computing such organization's taxable income.
Partners, Not Partnerships, Subject to Tax. A partnership is not a
taxable entity for federal income tax purposes. Rather, a partner is required to
take into account its allocable share of a partnership's income, gains, losses,
deductions, and credits for any taxable year of the partnership ending within or
with the taxable year of the partner, without regard to whether the partner has
received or will receive any distributions from the partnership.
Partnership Allocations. Although a partnership agreement will
generally determine the allocation of income and losses among partners, such
allocations will be disregarded for tax purposes under section 704(b) of the
Internal Revenue Code of 1986 if they do not comply with the provisions of
section 704(b) of the Internal Revenue Code of 1986 and the Treasury Regulations
promulgated thereunder as to substantial economic effect.
If an allocation is not recognized for federal income tax purposes,
the item subject to the allocation will be reallocated in accordance with the
partners' interests in the partnership, which will be determined by taking into
account all of the facts and circumstances relating to the economic arrangement
of the partners with respect to such item. The allocations of taxable income and
loss of the Operating Partnership and our subsidiary partnerships are intended
to comply with the requirements of section 704(b) of the Internal Revenue Code
of 1986 and the Treasury Regulations promulgated thereunder.
Sale of Partnership Property. Generally, any gain realized by a
partnership on the sale of property held by the partnership for more than one
year and allocated to a corporate partner will be long-term capital gain, except
for any portion of such gain that is treated as depreciation or cost recovery
recapture. However, under the REIT requirements imposed by the Internal Revenue
Code of 1986, our share, as a partner, of any gain realized by the Operating
Partnership or our subsidiary partnerships on the sale of any property held as
inventory or other property held primarily for sale to customers in the ordinary
course of a trade or business will be treated as income from a prohibited
transaction that is subject to a 100% penalty tax. See "--Taxation of the
Company."
Information Reporting Requirements and Backup Withholding Tax. We
will report to our U.S. Stockholders and the Internal Revenue Service the amount
of distributions paid during each calendar year and the amount of tax withheld,
if any. Under certain circumstances, U.S. Stockholders may be subject to backup
withholding at a rate of 31% with respect to distributions paid. Backup
withholding will apply only if the stockholder (i) fails to furnish its taxpayer
identification number (which, for an individual, would be such individual's
Social Security number), (ii) furnishes an incorrect taxpayer identification
number, (iii) is notified by the Internal Revenue Service that it has failed
properly to report payments of interest and dividends, or (iv) under certain
circumstances, fails to certify, under penalty of perjury, that it has furnished
a correct taxpayer identification number and has not been notified by the
Internal Revenue Service that it is subject to backup withholding for failure to
report interest and dividend payments. Backup withholding will not apply with
respect to payments made to certain exempt recipients, such as corporations and
tax-exempt organizations. U.S. Stockholders should consult their own tax
advisors regarding their qualification for exemption from backup withholding and
the procedure for obtaining such an exemption. Backup withholding is not an
additional tax. Rather, the amount of any backup withholding with respect to a
payment to a U.S. Stockholder will be allowed as a credit against such U.S.
Stockholder's United States federal income tax liability and may entitle such
U.S. Stockholder to a refund, provided that the required information is
furnished to the Internal Revenue Service.
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Additional issues may arise pertaining to information reporting and
backup withholding with respect to Non-U.S. Stockholders. Non-U.S. Stockholders
should consult their tax advisors with respect to any such information reporting
and backup withholding requirements.
State and Local Tax Considerations. We are, and our stockholders may
be, subject to state or local taxation in various state or local jurisdictions,
including those in which the Company, its stockholders, the Operating
Partnership or our subsidiary partnerships transact business or reside. The
state and local tax treatment of the Company, the Operating Partnership, our
subsidiary partnerships and our stockholders may not conform to the federal
income tax consequences discussed above. Consequently, prospective stockholders
should consult their own tax advisors regarding the effect of state and local
tax laws on their investment in the Company.
Possible Federal Tax Developments. The rules dealing with federal
income taxation are constantly under review by the Internal Revenue Service, the
Treasury Department, Congress and the courts. New federal tax legislation or
other provisions may be enacted into law or new interpretations, rulings or
Treasury Regulations could be adopted or judicial decisions rendered, all of
which could affect the taxation of the Company, its stockholders, or Reckson and
its stockholders. No prediction can be made as to the likelihood of passage of
any new tax legislation or other provisions either directly or indirectly
affecting the Company, its stockholders, Reckson or its stockholders.
Consequently, the tax treatment described herein may be modified prospectively
or retroactively by such legislative, judicial or administrative action. In this
regard, two provisions in President Clinton's budget proposal for fiscal year
2000 could affect us if enacted in final form: First, the proposal would
prohibit a REIT from owning, directly or indirectly, more than 10% percent of
the voting power or value of all classes of a C corporation's stock (other than
the stock of a qualified REIT subsidiary). As noted above, at present a REIT may
own no more than 10% of the voting stock of a C corporation, but its ownership
of the nonvoting stock of a C corporation is not limited (other than by the rule
that the value of a REIT's combined equity and debt interest in a C corporation
may not exceed 5% of the value of a REIT's total assets). However, the proposal
provides an exception to the 5% and 10% asset test in that REITs would be
permitted to have "taxable REIT subsidiaries." One type of taxable REIT
subsidiary, a "qualified business subsidiary," would be allowed to undertake
non-tenant related activities that currently generate non-qualifying income for
a REIT, such as third-party management and development. Another type of taxable
REIT subsidiary, a "qualified independent contractor subsidiary," would be
allowed to perform non-customary and other currently prohibited services with
respect to REIT tenants, as well as activities that can be performed by a
qualified business subsidiary. The value of all taxable REIT subsidiaries owned
by a REIT could not represent more than 15% of the value of the REIT's total
assets, and within this 15% limitation, no more than 5% of the total value of
the REIT's assets could consist of qualified independent contractor
subsidiaries. Also, a taxable REIT subsidiary would not be entitled to deduct
any interest incurred on debt funded directly or indirectly by the REIT.
Moreover, a 100% excise tax would be imposed on excess payments to ensure
arms-length pricing for both services provided to REIT tenants and allocation of
shared expenses between the REIT and the taxable REIT subsidiary. Finally, there
would be significant limits placed upon intercompany rentals between the REIT
and the taxable REIT subsidiary. This proposal would be effective after the date
of enactment. REITs would be allowed to combine and convert preferred stock
subsidiaries into taxable REIT subsidiaries tax free prior to a certain date,
and there would be a transition period to allow for conversion of preferred
stock subsidiaries before the 10% vote or value test would become effective.
This provision, if enacted as presently written, would permit our use of taxable
subsidiaries to conduct businesses generating income that would be
non-qualifying income if received by us, with the restrictions noted above.
Second, the proposal would require recognition of any built-in gain associated
with the assets of a "large" C corporation (i.e., a C corporation whose stock
has a fair market value of more than $5 million) upon its conversion to REIT
status or merger into a REIT. That provision is proposed to be effective for
conversions to REIT status effective for taxable years beginning after January
1, 2000 and mergers of C corporations into REITs that occur after December 31,
1999. This provision was proposed in connection with Congress' consideration of
the 1999 budget, but it was not enacted. However, future changes to tax laws and
regulations with respect to REITs as a result of the proposal generally cannot
be predicted and could have an unfavorable impact on our operations.
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SELLING STOCKHOLDERS
As described elsewhere in this Prospectus, the Selling Stockholders
are persons who either have received restricted shares of our Common Stock or
may receive shares of our Common Stock in exchange for their OP Units. The
following table sets forth, as of April 15, 1999, the name of each Selling
Stockholder, the number of shares of our Common Stock beneficially owned by each
Stockholder, the number of shares of our Common Stock owned by each Selling
Stockholder to which this Prospectus relates and the number and percentage of
shares of our Common Stock beneficially owned by each Selling Stockholder
following the Offering to which this Prospectus relates. Since Selling
Stockholders may sell all, some or none of their shares of Common Stock that are
to be offered by this Prospectus, no estimate can be made of the aggregate
number of shares of Common Stock offered by this Prospectus, or the aggregate
number of shares of Common Stock that will be owned by each Selling Stockholder
upon completion of the Offering to which this Prospectus relates. Except as
otherwise noted below, none of the Selling Stockholders has, within the past
three years, had any position, office or other material relationship with the
Company.
The shares of Common Stock offered by this Prospectus may be offered
from time to time directly by the Selling Stockholders named below or by
pledgees, donees, transferees or other successors in interest thereto:
<TABLE>
<CAPTION>
Number of
Shares Maximum Shares to Be
Beneficially Number of Beneficially Percentage to
Owned Prior to Shares Which Owned After Be Beneficially
this Offering May Be Sold this Owned After
Name (1)(2) Hereunder Offering(2) the Offering(2)
- --------------------------------------------------- --------------------- -------------------- ------------------ -----------------
<S> <C> <C> <C> <C>
Morgan Stanley Dean Witter Investment
Management Inc.(3) 1,780,630 1,655,430 125,200 *
Lawrence H. Feldman (4) 904,254 887,946+ 0 *
Jeffrey Feldman (5) 616 616+ 0 *
Robert L. Cox (6) 173,723 106,723+ 67,000 *
Joseph D. Kasman (7) 109,421 109,421+ 0 *
Reuben Friedberg (8) 40,452 30,119+ 10,333 *
Reid Berman 68,102 68,102+ 0 *
Lawrence H. Stein (9) 63,385 12,754+ 50,631 *
Eric S. Reimer (10) 101,389 78,722+ 22,667 *
Richard M. Wisely (11) 58,000 38,000+ 20,000 *
Robert M. Adams (12) 73,993 53,993+ 20,000 *
Clifford L. Stein (13) 80,000 80,000+ 0 *
The Milton Stein Family Trust (14) 50,631 50,631+ 0 *
Carlyle Industries, Inc. 4,440 4,440+ 0 *
Richard Cook 2,500 2,500+ 0 *
Brian Cook 1,250 1,250+ 0 *
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Craig Cook 1,250 1,250+ 0 *
Leo Berger 6,000 6,000+ 0 *
Shoen U.S.A. Inc. 2,963 2,963+ 0 *
Maurice Deane 4,000 4,000+ 0 *
General Electric Real Estate Equities, Inc. 138,360 138,360 0 *
Office Invest Sub LLC (15) 459,400 459,400 0 *
DRA Opportunity Fund (16) 465,400 465,400 0 *
Carlyle Realty Partners, L.P. (17) 123,150 123,150 0 *
Carlyle Realty Qualified Partners, L.P.(18) 130,506 130,506 0 *
Carlyle Realty Partners Sunrise, L.P. (19) 79,489 79,489 0 *
Carlyle Realty Coinvestment, L.P. (20) 51,470 51,470 0 *
Maitland Property Investors, Ltd. (21) 16,308 16,308+ 0 *
Max Tower 810, LLC 129,032 129,032 0 *
</TABLE>
- --------------------
(*) Less than 1%
(+) Shares of Common Stock are subject to a lock-up agreement that, subject
to certain limited exceptions, would prohibit the sale or other
disposition of such shares of Common Stock pursuant to this Prospectus or
otherwise until October 9, 1999.
(1) Beneficial ownership based upon information provided by the
respective Selling Stockholders. Unless otherwise noted in the
following footnotes, the shares of Common Stock set forth in this
column with respect to a particular Selling Stockholder have not
also been attributed to the shareholders, limited partners or
general partners of such Selling Stockholders.
(2) Assumes sale of all shares of Common Stock registered hereunder,
even though Selling Stockholders are under no obligation known to
the Company to sell any shares of Common Stock at this time.
Assumes that all OP Units held by or attributable to the person
are exchanged for shares of Common Stock. The total number of
shares of Common Stock outstanding used in calculating this
percentage assumes that none of the OP Units held by other
persons are exchanged for shares of Common Stock.
(3) John Timothy Morris, a director of our Company, is a Managing
Director of Morgan Stanley & Co. and Morgan Stanley Dean Witter
Investment Management Inc. Certain of the 1,655,430 shares of
Common Stock registered hereunder in the name of Morgan Stanley
Dean Witter Investment Management Inc. are owned by the following
affiliates of Morgan Stanley Dean Witter Investment Management
Inc. and Mr. Morris: MS Real Estate Special Situations, Inc.,
Morgan Stanley Real Estate Special Situations Fund I, L.P.,
Morgan Stanley Real Estate Special Situations Fund II, L.P. and
Morgan Stanley Real Estate Special Situations Investors, L.P.
(4) Lawrence H. Feldman is a former Chairman of the Board, Chief
Executive Officer and President of our Company. Mr. Feldman
resigned his positions on August 3, 1998. Mr. Feldman is the
President and a shareholder of Lake Success Realty Investors,
Inc., the general partner of Maitland Property Investors, Ltd.
The number of shares to be beneficially owned by Mr. Feldman
after the offering covered by this Prospectus assumes that
Maitland Property Investors, Ltd. has also disposed of all shares
of Common Stock owned by it pursuant to this Prospectus. See
Footnote (21)
(5) Jeffrey Feldman is the brother of Lawrence H. Feldman. See
Footnote (4).
(6) Robert L. Cox is the Acting Chief Executive Officer and President
and a director of our Company. The 173,723 shares of Common Stock
beneficially owned by Mr. Cox includes 67,000 exercisable options
to purchase Common Stock.
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(7) Joseph D. Kasman is a former Senior Vice President and Chief
Financial Officer of our Company. Mr. Kasman resigned his
positions as of April 18, 1998.
(8) Reuben Friedberg is the Vice President--Finance of our Company.
The 40,452 shares of Common Stock beneficially owned by Mr.
Friedberg includes 10,333 exercisable options to purchase Common
Stock.
(9) Lawrence Stein is the brother of Clifford L. Stein, Managing
Director--Southeast Region of our Company and is the trustee of
The Milton Stein Family Trust. Mr. Stein has voting and
dispositive powers over the OP Units owned by The Milton Stein
Family Trust. See Footnotes (13) and (14).
(10) Eric S. Reimer is the Vice President--Leasing of our Company. The
101,389 shares of Common Stock beneficially owned by Mr. Reimer
includes 22,667 exercisable options to purchase Common Stock.
(11) Richard M. Wisely is a director of our Company. The 58,000 shares
of Common Stock beneficially owned by Mr. Wisely includes 20,000
options to purchase Common Stock.
(12) Robert M. Adams is a director of our Company. The 73,993 shares
of Common Stock beneficially owned by Mr. Adams includes 20,000
options to purchase Common Stock.
(13) Clifford L. Stein is the Managing Director--Southeast Region of
our Company, the brother of Lawrence Stein and an indirect
beneficiary of The Milton Stein Family Trust. Mr. Stein disclaims
beneficial interest in the OP Units held by The Milton Stein
Family Trust. See Footnotes (9) and (14).
(14) The Milton Stein Family Trust is an irrevocable trust. See
Footnotes (9) and (13).
(15) Office Invest Sub LLC is an affiliate of DRA Advisors Inc. of
which Francis X. Tansey, the Chairman of the Board of our
Company, serves as President.
(16) DRA Opportunity Fund is an affiliate of DRA Advisors Inc. of
which Francis X. Tansey, the Chairman of the Board of our
Company, serves as President.
(17) Carlyle Realty Partners, L.P. is an affiliate of The Carlyle
Group, of which Esko I. Korhonen, a director of our Company, was
a principal until December 1998.
(18) Carlyle Realty Qualified Partners, L.P. is an affiliate of The
Carlyle Group, of which Esko I. Korhonen, a director of our
Company, was a principal until December 1998.
(19) Carlyle Realty Partners Sunrise, L.P. is an affiliate of The
Carlyle Group, of which Esko I. Korhonen, a director of our
Company, was a principal until December 1998.
(20) Carlyle Realty Coinvestment, L.P. is an affiliate of The Carlyle
Group, of which Esko I. Korhonen, a director of our Company, was
a principal until December 1998.
(21) Maitland Property Investors, Ltd. is an affiliate of a
predecessor of our Company and Lawrence H. Feldman is the
President and a shareholder of Lake Success Realty Investors,
Inc., the general partner of Maitland Property Investors, Ltd.
See Footnote (4).
PLAN OF DISTRIBUTION
This Prospectus relates to the offer and sale from time to time by
the persons listed under the Selling Stockholders section of this Prospectus of
up to 4,787,975 shares of our Common Stock. We have issued 3,103,205 shares of
restricted Common Stock to certain Selling Stockholders and may issue further
shares of our Common Stock to the extent certain other Selling Stockholders
exchange their 1,684,770 OP Units held by them in our subsidiary, the Operating
Partnership, for an equal number of shares of Common Stock. We have registered
the Selling Stockholders' shares of Common Stock for resale to provide them with
freely tradeable securities. However, registration of their shares does not
necessarily mean that they will offer or sell any of their shares. We will not
receive any proceeds from the offering or sale of their shares.
Selling Stockholders (or pledgees, donees, transferees or other
successors in interest) may sell the shares of Common Stock to which this
Prospectus relates from time to time on the New York Stock Exchange, where our
Common Stock is listed for trading, in other markets where our Common Stock is
traded, in negotiated transactions, through underwriters or dealers, directly to
one or more purchasers, through agents or in a combination of such methods of
sale. They will sell the Common Stock at prices which are current when the sales
take place or at other prices to which they agree. All costs, expenses and fees
in connection with the registration of the shares of Common Stock offered hereby
will be borne by us. Brokerage commissions and similar selling expenses, if any,
attributable to the sale of shares of Common Stock offered hereby will be borne
by the Selling Stockholders.
42
<PAGE>
The Selling Stockholders may effect such transactions by selling
shares of Common Stock offered hereby directly to purchasers or through
broker-dealers, which may act as agents or principals. Such broker-dealers may
receive compensation in the form of discounts, concessions, or commissions from
the Selling Stockholders and/or the purchasers of shares of Common Stock offered
hereby for whom such broker-dealers may act as agents or to whom they sell as
principal, or both (which compensation as to a particular broker-dealer might be
in excess of customary commissions).
In connection with an underwritten offering, underwriters or agents
may receive compensation in the form of discounts, concessions or commissions
from a Selling Stockholder or from purchasers of the shares which are the
subject of this Prospectus for whom they may act as agents, and underwriters may
sell the shares which are the subject of this Prospectus to or through dealers,
and such dealers may receive compensation in the form of discounts, concessions
or commissions from the underwriters and/or commissions from the purchasers for
whom they may act as agents. We have agreed to indemnify each Selling
Stockholder against certain liabilities, including liabilities arising under the
Securities Act. The Selling Stockholders may agree to indemnify any agent,
dealer or broker-dealer that participates in transactions involving sales of the
shares of Common Stock offered hereby against certain liabilities, including
liabilities arising under the Securities Act.
The shares which are the subject of this Prospectus may be sold
directly or through broker-dealers acting as principal or agent, or pursuant to
a distribution by one or more underwriters on a firm commitment or best-efforts
basis. The methods by which the shares which are the subject of this Prospectus
may be sold include: (a) a block trade in which the broker-dealer so engaged
will attempt to sell such shares as agent but may position and resell a portion
of the block as principal to facilitate the transaction; (b) purchases by a
broker-dealer as principal and resale by such broker-dealer for its account
pursuant to this Prospectus; (c) ordinary brokerage transactions and
transactions in which the broker solicits purchasers; (d) an exchange
distribution in accordance with the rules of the New York Stock Exchange; (e)
privately negotiated transactions; and (f) underwritten transactions. The
Selling Stockholders and any underwriters, dealers or agents participating in
the distribution of the shares which are the subject of this Prospectus may be
deemed to be "underwriters" within the meaning of the Securities Act, and any
profit on the sale of such shares by the Selling Stockholders and any
commissions received by any such broker-dealers may be deemed to be underwriting
commissions under the Securities Act. There is no present plan of distribution.
When a Selling Stockholder elects to make a particular offer of the
shares which are the subject of this Prospectus, a prospectus supplement, if
required, will be distributed which will identify any underwriters, dealers or
agents and any discounts, commissions and other terms constituting compensation
from such Selling Stockholder and any other required information.
EXPERTS
The consolidated balance sheets of the Company as of December 31, 1998
and 1997 and consolidated statements of income, retained earnings and cash flows
of the Company for the year ended December 31, 1998 and for the period from
March 27, 1997 through December 31, 1997 and the combined statements of income,
retained earnings and cash flows of the Tower Predecessor for the period from
January 1, 1997 to October 15, 1997 and the year ended December 31, 1996,
incorporated by reference in the Registration Statement of which this Prospectus
forms a part, have been included herein in reliance on the report of
PricewaterhouseCoopers LLP, independent auditors, given on authority of that
firm as experts in accounting and auditing.
The financial statements with respect to 810 Seventh Avenue,
incorporated by reference in the Registration Statement of which this Prospectus
forms a part, to the Current Report on Form 8-K/A of the Company, dated March 2,
1998, have been audited by Frank J. Stella, Jr., CPA, independent accountant, as
indicated in his report and are included herein upon the authority of said
independent accountant as an expert in giving such report.
43
<PAGE>
LEGAL MATTERS
Certain legal matters will be passed upon for us by Battle Fowler
LLP, New York, New York. The validity of the shares of Common Stock offered
hereby will be passed upon for us by Ballard Spahr Andrews & Ingersoll, LLP,
Baltimore, Maryland. In addition, the description of federal income tax matters
contained in the section of this Prospectus entitled "Federal Income Tax
Considerations" is based on the opinion of Battle Fowler LLP.
44
<PAGE>
<TABLE>
- -------------------------------------------------------------------------------- ---------------------------------------------------
<S> <C>
No dealer, salesperson or other individual has been authorized to give any
information or make any representations not contained in this Prospectus in
connection with the offering covered by this Prospectus. If given or made, such
information or representation must not be relied upon as having been authorized
by the Company or the Selling Stockholders. This Prospectus does not constitute
an offer to sell, or a solicitation of an offer to buy, the Common Stock in any 4,787,975 Shares
jurisdiction where, or to any person to whom, it is unlawful to make such offer
or solicitation. Neither the delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, create an implication that there has TOWER REALTY
not been any change in the facts set forth in this Prospectus or in the affairs TRUST, INC.
of the Company since the date hereof.
------------------ Common Stock
TABLE OF CONTENTS
------------------ --------------
PROSPECTUS
Prospectus
--------------
Page
Available Information................................................3
Incorporation of Certain Documents By Reference..................... 3
Forward-Looking Information..........................................4
Prospectus Summary...................................................5
Risk Factors.........................................................7
Our Company.........................................................15
What Stockholders Will Receive in the Merger
If It Occurs........................................................15 , 1999
Use of Proceeds.....................................................18
Description of Our Capital Stock....................................19
Federal Income Tax Considerations...................................29
Selling Stockholders................................................40
Plan of Distribution................................................42
Experts.............................................................43
Legal Matters.......................................................44
- -------------------------------------------------------------------------------- ---------------------------------------------------
</TABLE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
Set forth below is an estimate of the approximate amount of the fees
and expenses (other than underwriting commissions and discounts) payable by the
Registrant in connection with the issuance and distribution of the shares of
Common Stock.
SEC, registration fee.......................................... $26,454.76
Accounting fees and expenses................................... 6,000.00
Legal fees and expenses........................................ 75,000.00
Miscellaneous expenses......................................... 25,000.00
-----------
Total............................................ $132,454.76
===========
Item 15. Indemnification of Directors and Officers.
The Maryland General Corporation Law permits a Maryland
corporation to include in its charter a provision limiting the liability of its
directors and officers to the corporation and its stockholders for money damages
except for liability resulting from (a) actual receipt of an improper benefit or
profit in money, property or services or (b) active and deliberate dishonesty
established by a final judgment as being material to the cause of action. Our
Charter contains such a provision which limits such liability to the maximum
extent permitted by Maryland law.
Our Charter authorizes us, to the maximum extent permitted by
Maryland law, to obligate the Company to indemnify and to pay or reimburse
reasonable expenses in advance of final disposition of a proceeding to (a) any
present or former director or officer or (b) any individual who, while a
director of the Company and at the request of the Company, serves or has served
another corporation, REIT, partnership, limited liability company, association,
joint venture, trust, employee benefit plan or any other enterprise as a
director, officer, partner or trustee of such corporation, REIT, partnership,
limited liability company, association, joint venture, trust, employee benefit
plan or other enterprise from and against any claim or liability to which such
person may become subject or which such person may incur by reason of his or her
status as a former director or officer of the Company. Our Bylaws obligate us,
to the extent permitted by Maryland law, to indemnify and to pay or reimburse
reasonable expenses in advance of final disposition of a proceeding to (a) any
present or former director or officer who is made a party to the proceeding by
reason of his or her service in that capacity or (b) any individual who, while a
director of the Company and at the request of the Company, serves or has served
another corporation, REIT, partnership, joint venture, trust, employee benefit
plan or any other enterprise and who is made a party to the proceeding by reason
of his or her service in that capacity. Our Charter and Bylaws also permit us,
with the approval of our board of directors, to indemnify and advance expenses
to any person who served as a predecessor of the Company in any of the
capacities described above and to any employee or agent of the Company or a
predecessor of the Company.
The Maryland General Corporation Law requires a Maryland
corporation (unless its charter provides otherwise, which our Charter does not)
to indemnify a director or officer who has been successful, on the merits or
otherwise, in the defense of any Maryland proceeding to which he is made a party
by reason of his service in that capacity. The Maryland General Corporation Law
permits a corporation to indemnify its present and former directors and
officers, among others, against judgments, penalties, fines, settlements and
reasonable expenses actually incurred by them in connection with any proceeding
to which they may be made a party by reason of their service in those or other
capacities unless it is established that (a) the act or omission of the director
or officer was material to the matter giving rise to the proceeding and (i) was
committed in bad faith or (ii) was the result of active and deliberate
dishonesty, (b) the director or officer actually received an improper personal
benefit in money, property or services or (c) in the case of any criminal
proceeding, the director or officer had reasonable cause to believe that the act
or omission was unlawful. However, a Maryland corporation may not indemnify for
an adverse judgment in a suit by or in the right of the corporation or for a
judgement of liability on the basis that personal benefit was improperly
received, unless in either case a court orders indemnification and then only for
expenses. In addition, the Maryland
II-1
<PAGE>
General Corporation Law requires us, as a condition to advancing expenses, to
obtain (a) a written affirmation by the director or officer of his good faith
belief that he has met the standard of conduct necessary for indemnification by
us and (b) a written statement by or on his behalf to repay the amount paid or
reimbursed by us if it shall ultimately be determined that the standard of
conduct was not met.
We have purchased director and officer liability insurance for
the purpose of providing a source of funds to pay any indemnification described
above.
Item 16. Exhibits.
3.1 -- Amended and Restated Articles of Incorporation of the Registrant
(filed as Exhibit 3.1 to our Registration Statement on Form
S-11, as amended (File No. 333-33011) and incorporated herein by
reference).
3.2 -- Articles Supplementary of the Registrant, dated as of December
8, 1998 (filed as Exhibit 10.9 to our Current Report on Form
8-K, dated December 7, 1998 and filed December 18, 1998 and
incorporated herein by reference).
3.3 -- Amended and Restated By-laws of the Registrant (filed as Exhibit
3.2 to our Registration Statement on Form S-11, as amended (File
No. 333-33011) and incorporated herein by reference).
4.1 -- Form of Share Certificate (filed as Exhibit 4.1 to our
Registration Statement on Form S-11, as amended (File No.
333-33011) and incorporated herein by reference).
5.1 -- Opinion of Ballard Spahr Andrews & Ingersoll, LLP.
*8.1 -- Opinion of Battle Fowler LLP as to certain tax matters.
23.1 -- Consent of Ballard Spahr Andrews & Ingersoll, LLP (included in
Exhibit 5.1).
*23.2 -- Consent of Battle Fowler LLP (included in Exhibit 8.1).
23.3 -- Consent of PricewaterhouseCoopers LLP (New York, New York).
23.4 -- Consent of Frank J. Stella, Jr., CPA (Great Neck, New York).
24.1 -- Power of Attorney (included on signature page hereto).
- --------------------
* To be filed by amendment.
Item 17. Undertakings.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or
sales are being made, a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or decrease
in volume of securities offered (if the total dollar value of securities offered
would not exceed that which was registered) and any deviation from the low or
high and of the estimated maximum offering range may be reflected in the form of
a prospectus pursuant to Rule 424(b) if, in the aggregate, the changes in volume
and price represent no more than a 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in the
effective registration statement; and
II-2
<PAGE>
(iii) To include any material information with respect
to the plan of distribution not previously disclosed in the registration
statement or any material change to such information in the registration
statement;
provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the
registration statement is on Form S-3, Form S-8 or Form F-3, and the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed with or furnished to the Commission by the
registrant pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 that are incorporated by reference in the registration statement.
(2) That, for the purpose of determining any
liability under the Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating to the securities
offering therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a
post-effective amendment any of the securities being registered which remain
unsold at the termination of the offering.
The undersigned Registrant hereby undertakes that, for
purposes of determining any liability under the Securities Act of 1933, each
filing of the registrant's annual report pursuant to Section 13(a) or 15(d) of
the Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under
the Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the provisions referred to in
Item 15 of this Registration Statement, or otherwise, the Registrant has been
advised that in the opinion of the SEC such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer,
or controlling person of the Registrant in the successful defense of any action,
suit, or proceeding) is asserted by such director, officer, or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question as to
whether such indemnification by it is against public policy as expressed in the
act, and will be governed by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of New York, State of New York, on April 21, 1999.
TOWER REALTY TRUST, INC.,
a Maryland corporation (Registrant)
By: /s/ Lester S. Garfinkel
------------------------------------------------------
Name: Lester S. Garfinkel
Title: Executive Vice President--Finance and
Administration and Chief Financial Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and
appoints Robert L. Cox and Lester S. Garfinkel and each or either of them, his
true and lawful attorney-in-fact with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement (or any registration statement for the same
offering that is to be effective upon filing pursuant to Rule 462(b) under the
Securities Act of 1933) and to cause the same to be filed, with all exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, hereby granting to said attorneys-in-fact and agents, and
each of them, full power and authority to do and perform each and every act and
thing whatsoever requisite or desirable to be done in and about the premises, as
fully to all intents and purposes as the undersigned might or could do in
person, hereby ratifying and confirming all acts and things that said
attorneys-in-fact and agents, or either of them, or their substitutes or
substitute, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ Robert L. Cox Acting Chief Executive Officer and President April 21, 1999
- ----------------------------------------- and Director
Robert L. Cox (Principal Executive Officer)
/s/ Lester S. Garfinkel Executive Vice President--Administration and April 21, 1999
- ----------------------------------------- Finance and Chief Financial Officer and
Lester S. Garfinkel Director
(Principal Financial and Accounting Officer)
/s/ Francis X. Tansey Chairman of the Board April 21, 1999
- -----------------------------------------
Francis X. Tansey
/s/ Robert M. Adams April 21, 1999
- ----------------------------------------- Director
Robert M. Adams
<PAGE>
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ Esko I. Korhonen Director April 21, 1999
- -----------------------------------------
Esko I. Korhonen
/s/ Stephen B. Siegel Director April 21, 1999
- -----------------------------------------
Stephen B. Siegel
/s/ Richard M. Wisely Director April 21, 1999
- -----------------------------------------
Richard M. Wisely
/s/ John Timothy Morris Director April 21, 1999
- ------------------------------------------
John Timothy Morris
</TABLE>
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
3.1 -- Amended and Restated Articles of Incorporation of the Registrant
(filed as Exhibit 3.1 to our Registration Statement on Form
S-11, as amended (File No. 333-33011) and incorporated herein by
reference).
3.2 -- Articles Supplementary of the Registrant, dated as of December
8, 1998 (filed as Exhibit 10.9 to our Current Report on Form
8-K, dated December 7, 1998 and filed December 18, 1998 and
incorporated herein by reference).
3.3 -- Amended and Restated By-laws of the Registrant (filed as Exhibit
3.2 to our Registration Statement on Form S-11, as amended (File
No. 333-33011) and incorporated herein by reference).
4.1 -- Form of Share Certificate (filed as Exhibit 4.1 to our
Registration Statement on Form S-11, as amended (File No.
333-33011) and incorporated herein by reference).
5.1 -- Opinion of Ballard Spahr Andrews & Ingersoll, LLP.
*8.1 -- Opinion of Battle Fowler LLP as to certain tax matters.
23.1 -- Consent of Ballard Spahr Andrews & Ingersoll, LLP (included in
Exhibit 5.1).
*23.2 -- Consent of Battle Fowler LLP (included in Exhibit 8.1).
23.3 -- Consent of PricewaterhouseCoopers LLP (New York, New York).
23.4 -- Consent of Frank J. Stella, Jr., CPA (Great Neck, New York).
24.1 -- Power of Attorney (included on signature page hereto).
- ----------------------
* To be filed by amendment.
Exhibit 5.1
April 21, 1999
Tower Realty Trust, Inc.
299 Madison Avenue
New York, NY 10017
Re: Tower Realty Trust, Inc.:
Registration Statement on Form S-3
Shares of Common Stock
-----------------------------------
Ladies and Gentlemen:
We have served as Maryland counsel to Tower Realty Trust, Inc., a
Maryland corporation (the "Company"), in connection with certain matters of
Maryland law arising out of the registration by the Company on behalf of the
Selling Stockholders of up to (i) 3,103,205 shares of its Common Stock, $.01 par
value per share (the "Common Stock"), which have been previously issued by the
Company (the "Outstanding Shares") and (ii) 1,684,770 shares of the Common Stock
(the "OP Exchange Shares," together with the Outstanding Shares, the "Shares")
which may be issued by the Company to holders of units of limited partnership
interest ("OP Units") in Tower Realty Operating Partnership, L.P., a Delaware
limited partnership (the "Operating Partnership"), in exchange for OP Units, all
covered by the above-referenced Registration Statement and all amendments
thereto (the "Registration Statement"), under the Securities Act of 1933, as
amended (the "1933 Act"). Capitalized terms used but not defined herein shall
have the meanings given to them in the Registration Statement.
In connection with our representation of the Company, and as a basis
for the opinion hereinafter set forth, we have examined originals, or copies
certified or otherwise identified to our satisfaction, of the following
documents (hereinafter collectively referred to as the "Documents"):
1. The charter of the Company (the "Charter"), certified as of a recent
date by the State Department of Assessments and Taxation of Maryland (the
"SDAT");
2. The Bylaws of the Company, certified as of a recent date by the
Executive Vice President -- Finance and Administration and Chief Financial
Officer of the Company;
<PAGE>
Tower Realty Trust, Inc.
April 21, 1999
Page 2
3. Resolutions adopted by the Board of Directors of the Company
relating to the registration, sale and issuance of the Outstanding Shares (the
"Outstanding Shares Resolutions"), certified as of a recent date by the
Executive Vice President -- Finance and Administration and Chief Financial
Officer of the Company;
4. Resolutions adopted by the Board of Directors of the Company
relating to the registration, sale and issuance of the OP Exchange Shares (the
"OP Exchange Shares Resolutions"), certified as of a recent date by the
Executive Vice President -- Finance and Administration and Chief Financial
Officer of the Company;
5. The form of prospectus which is part of the Registration Statement,
in the form to be filed with the Securities and Exchange Commission (the
"Commission") pursuant to the 1933 Act;
6. A certificate, as of a recent date, of the SDAT as to the good
standing of the Company;
7. The form of certificate representing a share of the Common Stock,
certified as of a recent date by the Executive Vice President -- Finance and
Administration and Chief Financial Officer of the Company;
8. A certificate executed by Lester S. Garfinkel, Executive Vice
President -- Finance and Administration and Chief Financial Officer of the
Company, dated as of the date hereof; and
9. Such other documents and matters as we have deemed necessary or
appropriate to express the opinion set forth herein, subject to the assumptions,
limitations and qualifications stated herein.
In expressing the opinion set forth below, we have assumed, and so far
as is known to us there are no facts inconsistent with, the following:
1. Each individual executing any of the Documents, whether on behalf of
such individual or another person, is legally competent to do so;
2. Each individual executing any of the Documents on behalf of a party
(other than the Company) is duly authorized to do so;
3. Each of the parties (other than the Company) executing any of the
Documents has duly and validly executed and delivered each of the Documents to
which such party is a signatory, and such party's obligations set forth therein
are legal, valid and binding and are enforceable in accordance with all stated
terms; and
<PAGE>
Tower Realty Trust, Inc.
April 21, 1999
Page 3
4. All Documents submitted to us as originals are authentic. All
Documents submitted to us as certified or photostatic copies conform to the
original documents. All signatures on all Documents are genuine. All public
records reviewed or relied upon by us or on our behalf are true and complete.
All statements and information contained in the Documents are true and complete.
There are no modifications of or amendments to the Documents, and there has been
no waiver of any of the provisions of the Documents, by action or omission of
the parties or otherwise.
5. The Outstanding Shares have not been transferred in violation of any
restriction or limitation contained in the Charter. The OP Exchange Shares will
not be transferred in violation of any limitation or restriction contained in
the Charter.
6. At the time of the issuance of any of the Outstanding Shares, and
immediately thereafter, the total number of shares of Common Stock issued and
outstanding did not exceed the total number of shares of Common Stock that the
Company was then authorized to issue under the Charter. The Outstanding Shares
were paid for and issued in accordance with the Outstanding Shares Resolutions.
7. Upon the issuance of the OP Exchange Shares in accordance with the
Charter, the Resolutions and the Registration Statement, the total number of
shares of Common Stock issued and outstanding or reserved for issuance will not
exceed the total number of shares of Common Stock that the Company is then
authorized to issue under the Charter.
The phrase "known to us" is limited to the actual knowledge, without
independent inquiry, of the lawyers at our firm who have performed legal
services in connection with the issuance of this opinion.
Based upon the foregoing, and subject to the assumptions, limitations
and qualifications stated herein, it is our opinion that:
1. The Company is a corporation duly incorporated and existing under
and by virtue of the laws of the State of Maryland and is in good standing with
the SDAT.
2. The Outstanding Shares have been duly authorized and are validly
issued, fully paid and non-assessable.
3. The OP Exchange Shares have been duly authorized and, upon issuance
in accordance with the terms of the Charter, Resolutions and Registration
Statement, such shares will be validly issued, fully paid and non-assessable.
<PAGE>
Tower Realty Trust, Inc.
April 21, 1999
Page 4
The foregoing opinion is limited to the substantive laws of the State
of Maryland and we do not express any opinion herein concerning any other law.
We express no opinion as to the applicability or effect of or compliance with
any federal or state securities laws, including the securities laws of the State
of Maryland, or as to federal or state laws regarding fraudulent transfers or
real estate syndication. To the extent that any matter as to which our opinion
is expressed herein would be governed by any jurisdiction other than the State
of Maryland, we do not express any opinion on such matter.
We assume no obligation to supplement this opinion if any applicable
law changes after the date hereof or if we become aware of any fact that might
change the opinion expressed herein after the date hereof.
This opinion is being furnished to you for submission to the Commission
as an exhibit to the Registration Statement and, except as provided above, it
may not be relied upon by, quoted in any manner to, or delivered to any other
person or entity without, in each instance, our prior written consent.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of the name of our firm therein. In giving
this consent, we do not admit that we are within the category of persons whose
consent is required by Section 7 of the 1933 Act.
Very truly yours,
/s/Ballard Spahr Andrews & Ingersoll, LLP
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Registration
Statement of Tower Realty Trust, Inc. (the "Company") on Form S-3 being filed
under Securities Act of 1933 of our report, dated March 17, 1999, on our audits
of the consolidated financial statements and financial statement schedules of
the Company as of December 31, 1998 and 1997 and for the year ended December 31,
1998 and the period from March 27, 1997 (inception of operations) through
December 31, 1997 and Tower Predecessor for the period from January 1, 1997
through October 15, 1997 and as of the year ended December 31, 1996, which
reports are included in the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1998. We also consent to the references to our firm
under the caption "Experts."
/s/ PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
New York, New York
April 21, 1999
Exhibit 23.4
CONSENT OF INDEPENDENT ACCOUNTANT
I consent to the inclusion in this Registration Statement of Tower
Realty Trust, Inc. (the "Company") on Form S-3 being filed under Securities Act
of 1933 of my report, dated February 4, 1998, on my audit of the financial
statements of the property located at 810 Seventh Avenue, New York, New York
(the "Property") for the year ended December 31, 1996, and my report on the
unaudited interim financial statements of the Property for the period January 1,
1997 to October 22, 1997, which reports are included in the Company's Current
Report on Form 8-K/A, dated March 2, 1998. I also consent to the reference to
myself under the caption "Experts."
/s/ Frank J. Stella, Jr.
FRANK J. STELLA, JR., CPA
Great Neck, New York
April 21, 1999
