As filed with the Securities and Exchange Commission on October 23, 2000
Registration Statement No. 333-43212
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Amendment No. 2 to
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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FRONTLINE CAPITAL GROUP
(Exact name of each registrant as specified in its charter)
Delaware 11-3383642
(State or other jurisdiction (I.R.S. employer identification number)
of incorporation or organization)
1350 Avenue of the Americas
New York, New York 10019
(212) 931-8000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive office)
Scott H. Rechler
President and Chief Executive Officer
FrontLine Capital Group
1350 Avenue of the Americas
New York, New York 10019
(212) 931-8000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Copy to:
Edward F. Petrosky, Esq.
J. Gerard Cummins, Esq.
Brown & Wood LLP
One World Trade Center, 58th Floor
New York, New York 10048
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Approximate date of commencement of proposed sale
to public: From time to time after this Registration
Statement becomes effective.
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If the only securities being registered on this form are being
offered pursuant to dividend or interest reinvestment plans, please check the
following box.|_|
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, as amended (the "Securities Act"), other than
securities offered only in connection with dividend or interest reinvestment
plans, please check the following box. |X|
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering.|_|
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. |_|
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<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
================================ =============== ============================ ============================ ======================
Title of Class of Securities Amount to Proposed Maximum Proposed Maximum Amount of
to be Registered be Registered Aggregate Price per Share(1) Aggregate Offering Price(1) Registration Fee(2)(3)
-------------------------------- --------------- ---------------------------- ---------------------------- ----------------------
<S> <C> <C> <C> <C>
Common Stock 670,000 shares $18.53125 $12,415,938 $3,402
================================ =============== ============================ ============================ ======================
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee.
(2) Pursuant to Rule 457(c) of the rules and regulations under the
Securities Act of 1933, as amended, the registration fee is calculated
based on the average of the high and low sale prices of the Company's
common stock on the Nasdaq National Market for August 4, 2000.
(3) Previously paid.
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The Registrant hereby amends this registration statement on the date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
registration statement shall thereafter become effective with Section 8(a) of
the Securities Act of 1933 or until this registration statement shall become
effective on the date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
<PAGE>
The information contained in this prospectus is not complete and may be
changed. We may not sell these securities until the registration statement
filed with the Securities and Exchange Commission is effective. This
prospectus is not an offer to sell these securities and it is not soliciting
an offer to buy these securities in any state where the offer or sale is not
permitted.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED OCTOBER 23, 2000
PROSPECTUS
----------
670,000 Shares
FrontLine Capital Group
Common Stock
This prospectus relates to the offer and sale from time to time by the
selling stockholders of 670,000 shares of common stock, $.01 par value per
share, of FrontLine Capital Group ("FrontLine" or the "Company"), which may be
offered in transactions on the Nasdaq National Market, in negotiated
transactions or otherwise, at fixed prices, at market prices prevailing at the
time of sale, at prices related to prevailing market prices, at negotiated
prices, without consideration, or by any other legally available means. The
registration of the offer and sale of the common stock does not necessarily
mean that any of the shares will be offered or sold by the selling
stockholders.
The selling stockholders will receive all of the net proceeds from the
sale of the common stock and will pay all underwriting discounts and selling
commissions, if any, applicable to any such sale. We will not receive any of
the proceeds from the sale of the shares by the selling stockholders. We are
paying the costs of preparing and filing the registration statement of which
this prospectus is a part.
On October 18, 2000, we announced a refinement of our business strategy
in order to highlight our holdings in HQ Global Holdings, Inc. and to maximize
the value of our other holdings. In order to achieve this, we are segmenting
our operations into two distinct operating units. One unit will represent our
interest in HQ and the other will represent all of the interests in our other
partner companies. We are also substantially reducing our staff and corporate
overhead and do not currently anticipate pursuing any new investment
opportunities.
Our common stock is listed on the Nasdaq National Market under the
trading symbol "FLCG." On October 20, 2000, the last reported sale price of
our common stock was $13.00 per share.
The common stock may be sold by the selling stockholders from time to
time directly to purchasers or through agents, underwriters and dealers. See
"Plan of Distribution." The selling stockholders and any dealers, agents or
underwriters that participate in the distribution of the common stock may be
deemed to be "underwriters" within the meaning of the Securities Act of 1933
and any commission received by them and any profit on the resale of the common
stock purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act. See "Plan of Distribution" for a
description of indemnification arrangements.
See "Risk Factors" beginning on page 3 of this prospectus for a
description of risks that should be considered by purchasers of the common
stock.
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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.
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The date of this prospectus is _________, 2000.
<PAGE>
AVAILABLE INFORMATION
We are subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith file reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). These reports, proxy
statements and other information may be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, as well as the regional offices of the
Commission at 7 World Trade Center (13th Floor), New York, New York 10048, and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Copies of such information can be obtained by mail from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates. Information on the operation of the Public
Reference Room can be obtained by calling the Commission at 1-800-SEC-0330.
The Commission maintains a Web site at http://www.sec.gov containing reports,
proxy and information statements and other information regarding registrants
that file electronically with the Commission.
We have filed with the Commission a Registration Statement on Form S-3
(herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), of which this prospectus constitutes a part. This
prospectus does not contain all of the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. For further information,
reference is made to the Registration Statement.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents that we previously filed with the Commission are
hereby incorporated by reference into this prospectus:
SEC Filings (File No. 0-30162) Period
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Annual Report on Form 10-K Year ended December 31, 1999
Quarterly Reports on Form 10-Q Quarterly periods ended March 31,
2000 and June 30, 2000
Current Reports on Form 8-K Filed January
25, 2000, February 15, 2000, March
2, 2000, March 2, 2000, March 28,
2000, May 12, 2000, June 16, 2000 and
August 15, 2000
Registration Statement on Form 8-A Filed June 1, 1998
We also incorporate by reference each of the following documents that are
filed with the Commission after the date of this prospectus until the
particular offering is completed or after the date of the initial registration
statement and prior to effectiveness of the registration statement:
o Reports filed under Section 13(a) and (c) of the Exchange Act;
o Definitive proxy or information statements filed under Section 14 of
the Exchange Act in connection with any subsequent stockholders'
meeting; and
o Any reports filed under Section 15(d) of the Exchange Act.
Any statement contained herein or in a document all or any portion of
which is incorporated or deemed to be incorporated by reference herein will be
deemed to be modified or superseded for purposes of this prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such earlier statement. Any statement so modified or
superseded will not be deemed, except as so modified or superseded, to
constitute a part of this prospectus.
We will provide a copy of any or all of these documents (exclusive of
exhibits unless the exhibits are specifically incorporated by reference
therein), without charge, to each person to whom this prospectus is delivered,
upon written or oral request to FrontLine Capital Group, 1350 Avenue of the
Americas, New York, New York 10019, Attn: James Burnham, Senior Vice
President, telephone number (212) 931-8000.
CAUTIONARY STATEMENTS CONCERNING
FORWARD-LOOKING INFORMATION
Certain information both included and incorporated by reference in this
prospectus may contain forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act, and as
such may involve known and unknown risks, uncertainties and other factors
which may cause the actual results, performance or achievements of our company
to be materially different from future results, performance or achievements
expressed or implied by such forward-looking statements. Forward-looking
statements, which are based on certain assumptions and describe our future
plans, strategies and expectations are generally identifiable by use of the
words "may," "will," "should," "expect," "anticipate," "estimate," "believe,"
"intend" or "project" or the negative thereof or other variations thereon or
comparable terminology. Factors which could have a material adverse effect on
our condition (financial and otherwise), operations and prospects are
described below under "Risk Factors." These risks and uncertainties should be
considered in evaluating any forward-looking statements contained or
incorporated by reference herein. Our actual results may differ significantly
from the results discussed in such forward-looking statements.
RISK FACTORS
An investment in our common stock involves various risks. Prospective
investors should carefully consider the following information in conjunction
with the other information included or incorporated by reference in this
prospectus before purchasing the securities offered hereby. This prospectus
contains forward-looking statements which involve risks and uncertainties.
Factors that might cause a difference include, but are not limited to, those
discussed below. You should refer to the explanation of the qualifications and
limitations of such forward-looking statements discussed above.
Our lack of operating history impairs our ability to predict future
earnings and we have sustained net losses since our inception
We were formed in July 1997 and have operated as a public company since
June 1998. We have sustained net losses since our inception and expect
to sustain net losses in the near future. The financial information
relating to us and our subsidiaries and their respective assets included or
incorporated by reference in this prospectus is not necessarily indicative of
our or our subsidiaries' future consolidated financial condition or results of
operations.
We cannot assure the success of our new business strategy
On October 18, 2000, we announced a refinement of our business strategy
in order to highlight our holdings in HQ Global Holdings, Inc. ("HQ Global")
and to maximize the value of our other holdings. In order to achieve this, we
are segmenting our operations into two distinct operating units. One unit will
represent our interest in HQ and the other will represent all of the interests
in our other partner companies. We are also substantially reducing our staff
and corporate overhead and do not currently anticipate pursuing any new
investment opportunities. We cannot assure the success of this refined
business strategy or its acceptance in the marketplace and as a result our
stock price could be adversely affected.
Certain members of our executive management lack experience in our investment
sectors
Certain members of our executive management, including our president and
chief executive officer, are executive officers of Reckson Associates Realty
Corp. ("Reckson Associates"), a New York Stock Exchange-listed real estate
investment trust ("REIT"), and have served as part of our executive management
since prior to the spin-off distribution of our shares from Reckson
Associates. Although subsequent to the spin-off we have retained members of
executive and senior management who have relevant experience , prior to our
spin-off from Reckson Associates the primary experience of these officers was
in the business of acquiring, developing, and re-developing suburban office
and industrial properties in the New York "Tri-State" area and not in pursuing
our investment objectives.
Our holdings in early-stage entities involve risks and may result in losses
Our holdings in start-up or early stage entities, particularly in the
Internet area, involve a high degree of business and financial risk that can
result in substantial losses. Among these are the risks associated with
investment in entities in an early stage of development or with little or no
operating history, entities operating at a loss or with substantial variations
in operating results from period to period, and entities with the need for
substantial additional capital to support expansion or to achieve or maintain
a competitive position. Such entities may face intense competition, including
competition from entities with greater financial resources, more extensive
development, manufacturing, marketing and service capabilities, and a larger
number of qualified managerial and technical personnel. Our holdings include
positions in entities in rapidly changing high-technology and Internet fields;
such entities may face special risks of product obsolescence and may encounter
intense competition from other entities financed by venture capitalists.
A substantial portion of our holdings consists of securities that are
subject to restrictions on sale because they were acquired from the issuer in
"private placement" transactions or because we might be deemed to be an
affiliate of the issuer. Generally, we would not be able to sell these
securities publicly without the expense and time required to register the
securities under the Securities Act or to sell the securities under Rule 144
or other rules under the Securities Act which permit only limited sales under
specified conditions. When restricted securities are sold to the public, we
could be deemed an "underwriter," or possibly a controlling person, with
respect thereto for the purpose of the Securities Act and be subject to
liability as such under that Act.
The market value of securities of many publicly-traded Internet related
companies have decreased significantly during 2000. This development has
resulted in a reduced number of initial public offerings of Internet related
companies, reduced access to capital and a more difficult business environment
for such companies. As a result of the foregoing, the business prospects and
value of our partner companies with Internet related business models may be
significantly reduced.
We may be limited in our ability to dispose of our holdings
We hold interests in start-up or early stage entities and it may take
several years from the date of our initial acquisition of any such interest,
if ever, for the start-up entity to reach such a state of maturity that
disposition could be considered. If a disposition were considered prior to such
maturity, it could reduce the amount of proceeds that we might otherwise
realize.
In addition, practical limitations may inhibit our ability to sell our
holdings because the issuers thereof are privately held, we own a relatively
large percentage of the issuer's outstanding securities, or the customers,
joint venture associates, other investors, financial institutions or
management are relying on our continued investment. Sales may also be limited
by securities market conditions, which may be unfavorable for sales of
securities of particular issuers or issuers in particular industries. The
above limitations on liquidity of our holdings could prevent any sale thereof,
result in delay of any sale or reduce the amount of proceeds that might
otherwise be realized.
Dependence on future market conditions
Our strategy involves creating value for our shareholders by helping our
partner companies develop and effectively execute their business plans.
Depending upon our partner companies' success in executing their business
plans and future market conditions, some partner companies may seek to
complete initial public offerings of their common stock. No assurance can be
given that such partner companies will be successful. If the public market in
general, or the market for Internet-related companies in particular, were to
weaken for a prolonged period of time, the ability of our partner companies to
complete public offerings would be materially adversely affected. In addition,
future weakness in the public markets, particularly the market for
Internet-related companies, may adversely affect the value of our common
stock, as well as the value of the stock of our partner companies.
We are highly dependent upon Reckson Operating Partnership for financing
We rely significantly on Reckson Operating Partnership, L.P. ("Reckson
Operating Partnership") for the financing of our operations. As a result, if
Reckson Operating Partnership is unable to access the financial markets, our
ability to finance operations may be severely restricted. In addition, if
Reckson Associates should fail to qualify as a REIT or have a decline in its
financial condition, results of operations, business or prospects, it may
substantially and adversely affect our ability to pursue business
opportunities and our financial condition and performance. Investors should
review the section captioned "-- We may have conflicts of interest with
Reckson Associates -- Conflicts in our loans with Reckson Operating
Partnership; limitation on our ability to pay dividends and incur additional
debt."
We rely heavily on key personnel
Our success and the success of our partner companies depends
significantly upon the contribution of our executive officers, senior
management, and other key personnel that we retain. None of our executive
officers has an employment agreement with the Company. The two managing
directors of Reckson Strategic Venture Partners (the "Reckson Strategic
Venture Partners Managing Directors") have entered into employment contracts
with RSVP Holdings, LLC, the managing member of Reckson Strategic Venture
Partners. Certain members of our executive management, including our president
and chief executive officer, have employment agreements with Reckson
Associates pursuant to which they have agreed to spend as much time as may be
necessary in carrying out their duties to Reckson Associates. These executive
officers do not have similar contracts with the Company. Furthermore, we
cannot assure that we or our partner companies will retain key managerial and
other personnel or attract suitable replacements or additional personnel if
required. We have not obtained key-man insurance for any of our executive
officers or other key personnel.
We may have conflicts of interest with Reckson Associates
Conflicts as a result of overlapping management. Certain members of our
executive management, including our president and chief executive officer,
serve in similar capacities for Reckson Associates. In addition, three members
of our Board of Directors (including our president and chief executive
officer) also serve as directors of Reckson Associates. Although each of the
individuals referred to above is committed to our success, they are also
committed to the success of Reckson Associates. As of September 30, 2000,
Reckson Associates' senior management and directors beneficially owned
approximately 12.2% of the outstanding common stock of Reckson Associates and
approximately 22.22% of our outstanding common stock. In calculating the
ownership of common stock of Reckson Associates, we have included Reckson
Associates' Class A common stock and its Class B exchangeable common stock;
and we have assumed the exchange of all limited partnership units in Reckson
Operating Partnership for shares of Class A common stock and the exercise of
all vested stock options. There is a risk that the common membership of
management, members of the Boards of Directors and ownership of common stock
will lead to conflicts of interest in the fiduciary duties owed to
stockholders by common directors and officers in connection with transactions
between the two companies, as well as a conflict in allocating management
time.
Conflicts under the Intercompany Agreement. In connection with the
spin-off distribution of our common stock, we entered into an intercompany
agreement with Reckson Operating Partnership to formalize our relationship at
the outset and to limit conflicts of interest. The intercompany agreement was
not negotiated at arms' length since 95% of our capital stock was owned by
Reckson Operating Partnership at the time it was executed. Under the
intercompany agreement, we granted Reckson Operating Partnership a right of
first opportunity to make any REIT-qualified investment that becomes available
to us. In addition, if a REIT-qualified investment opportunity becomes
available to an affiliate of ours, including Reckson Strategic Venture
Partners, 100% of the common equity ownership interest of which is indirectly
owned by us, the intercompany agreement requires our affiliate to allow
Reckson Operating Partnership to participate in the opportunity to the extent
of our interest in the affiliate. Our charter provides that one of our
corporate purposes is to perform our obligations under the intercompany
agreement. We are also required to assist Reckson Operating Partnership in
structuring and consummating any REIT-qualified investment which we present to
Reckson Operating Partnership and which it elects to pursue. As a result, our
and our affiliates' business and future opportunities are restricted.
Under the intercompany agreement, Reckson Operating Partnership granted
us a right of first opportunity to provide to Reckson Operating Partnership
and its tenants any type of non-customary commercial services for occupants of
office, industrial and other property types which Reckson Associates may not
be permitted to provide because they may generate REIT non-qualifying income
under Federal tax laws. We will provide services to Reckson Operating
Partnership at rates and on terms as attractive as either the best available
for comparable services in the market or those offered by us to third parties.
In addition, Reckson Operating Partnership will give us access to its tenants
with respect to commercial services that may be provided to tenants.
Under the intercompany agreement, subject to certain conditions, Reckson
Operating Partnership granted us a right of first refusal to become the lessee
of any real property acquired by Reckson Operating Partnership if it
determines that the operation of the property may involve the performance of
non-customary services that would jeopardize Reckson Associates' REIT status
and it is required to enter into a "master" lease arrangement. Pursuant to
this "master" lease arrangement, Reckson Operating Partnership would own the
property, but lease it entirely to a single lessee that would operate the
property.
With respect to services that we will provide to Reckson Operating
Partnership, management will have a conflict of interest relating to the
market rates being charged to Reckson Operating Partnership for these
services. In addition, management will have a conflict of interest in
determining whether we or Reckson Operating Partnership should pursue a
REIT-qualified investment opportunity outside of Reckson Associates' core
business strategy of investing in office and industrial properties in the New
York Tri-State area. Furthermore, we and Reckson Operating Partnership may
structure investments so that Reckson Operating Partnership - Reckson
Strategic Venture Partners joint ventures may pursue the portion of
investments generating REIT-qualified income and Reckson Strategic Venture
Partners will pursue directly the other portion of these investments.
Accordingly, Reckson Strategic Venture Partners and Reckson Operating
Partnership - Reckson Strategic Venture Partners joint ventures may have
conflicts of interest in the structuring, valuation, management and
disposition of these investments.
Conflicts in our loans with Reckson Operating Partnership; limitation on
our ability to pay dividends and incur additional debt. In June 1998, we
established a credit facility with Reckson Operating Partnership (the
"FrontLine Facility") in the amount of $100 million for our service sector
operations and other general corporate purposes. In addition, in June 1998,
Reckson Operating Partnership authorized the investment of $100 million with
respect to the funding of the investment of Reckson Strategic Venture Partners
(the "Reckson Strategic Venture Partners Commitment"). Amounts available under
the Reckson Strategic Venture Partners Commitment are funded through
investments by Reckson Operating Partnership into joint ventures with Reckson
Strategic Venture Partners or through loans directly to us under a credit
agreement with terms substantially identical to those under the FrontLine
Facility. Although the credit agreement provides for the borrowing of up to
$100 million from Reckson Operating Partnership, the amount available is
reduced by the amount of any joint venture investments between Reckson
Operating Partnership and Reckson Strategic Venture Partners. Loans under the
Reckson Strategic Venture Partners Commitment in excess of $25 million in any
single investment are subject to approval by the Board of Directors of Reckson
Associates, while advances under the FrontLine Facility in excess of $10
million in respect of any single investment are subject to approval by the
Board of Directors of Reckson Associates, or a committee thereof. The
FrontLine Facility has a term of five years and advances thereunder are
recourse obligations of the Company. Interest accrues on advances made under
the FrontLine Facility at a rate equal to the greater of (1) the prime rate
plus 2% and (2) 12% per annum, with the rate on amounts that are outstanding
for more than one year increasing annually at a rate of 4% of the prior year's
rate. Prior to maturity, interest is payable quarterly but only to the extent
of net cash flow and principal is prepayable without penalty only at our
option.
Subject to the amendments described below, as long as there are
outstanding advances under the FrontLine Facility or borrowings by us under
the credit agreement with respect to the Reckson Strategic Venture Partners
Commitment, we are prohibited from paying dividends on any shares of our
capital stock or incurring additional debt. The FrontLine Facility and the
credit agreement with respect to the Reckson Strategic Venture Partners
Commitment are subject to certain other covenants and prohibit advances
thereunder to the extent the advances could, in Reckson Associates'
determination, endanger the status of Reckson Associates as a REIT. The terms
of the FrontLine Facility and the credit agreement with respect to the Reckson
Strategic Venture Partners Commitment were not negotiated at arms' length and
thus may not reflect terms that could have been obtained from independent
third parties. Additional indebtedness may be incurred by our subsidiaries. As
of September 30, 2000, borrowings under the FrontLine Facility aggregated
approximately $92.5 million and pursuant to the Reckson Strategic Venture
Partners Commitment, Reckson Operating Partnership had made approximately
$31.9 million in joint venture investments with Reckson Strategic Venture
Partners and had loaned approximately $39.9 million under the credit
agreement.
In November 1999, the credit facilities were amended to allow us to incur
additional debt secured by our assets and to pay interest thereon and to allow
the payment of dividends on up to $200 million of preferred stock which may be
issued by us. As consideration for the amendments, which were approved by our
Board of Directors and that of Reckson Associates, we paid a fee to Reckson
Operating Partnership of approximately $3.6 million in the form of
approximately 176,000 shares of our common stock. In November and December
1999, we borrowed approximately $60 million on a secured basis in connection
with the increase in our holdings in the predecessor to HQ, which borrowing
was subsequently repaid in full. In addition, we obtained a $25 million line
of credit from a commercial lender in connection with certain obligations
relating to HQ. The line of credit is secured by shares that we hold in HQ
Global and was recently expanded to allow us to use proceeds for general
corporate purposes.
Policies with respect to conflicts of interest may not be successful. We
have adopted policies designed to eliminate or minimize conflicts of interest.
These policies include the approval of all transactions in which our directors
or officers have a conflicting interest by a majority of the directors who do
not have a conflict of interest in the transaction. These policies do not
prohibit sales of assets to or from affiliates, but would require the sales to
be approved by our independent directors. However, there is no assurance that
these policies will be successful and, if they are not successful, decisions
could be made that might fail to reflect fully the interests of all of our
stockholders.
We have no prior sponsorship of a venture capital vehicle
Reckson Strategic Venture Partners is a real estate venture capital
entity formed to acquire interests in real estate and real estate-related
operating entities. We have committed up to $100 million in Reckson Strategic
Venture Partners although such commitment is reduced by the amount of any
investments made by Reckson Operating Partnership into joint ventures with
Reckson Strategic Venture Partners. A subsidiary of ours serves as the
managing member of Reckson Strategic Venture Partners. Neither we nor Reckson
Associates have previously sponsored a real estate venture capital entity.
Reckson Strategic Venture Partners' holdings may include, among other things,
holdings in entities in an early stage of development that have historical
operating losses. In addition, decreases in values in the property markets,
volatility in the securities markets, interest rate increases and unfavorable
conditions in the economy generally, and in the real estate industry in
particular, may have a negative impact on the performance of Reckson Strategic
Venture Partners.
Reckson Strategic Venture Partners has obtained a $200 million preferred
equity facility from PaineWebber Real Estate Securities ("PWRES"), which is
partially funded by an investment fund that is jointly sponsored by financier
George Soros and PWRES. Under the terms of the PaineWebber equity facility,
Reckson Strategic Venture Partners is subject to various covenants and events
of default and related remedies. Such remedies include increased control
rights of PWRES over the operation of Reckson Strategic Venture Partners under
certain circumstances. In addition, PWRES and such investment fund, if
applicable, receive a priority or preferred distribution from the operations
of Reckson Strategic Venture Partners prior to the distribution of cash to our
subsidiary serving as the managing member of Reckson Strategic Venture
Partners. The Reckson Strategic Venture Partners Managing Directors are
entitled to a portion of the profits of the managing member of Reckson
Strategic Venture Partners after we obtain a return of our capital plus a
minimum return. As a result, we cannot assure that the Reckson Strategic
Venture Partners Managing Directors will not pursue investments involving
greater risk in seeking higher profits. Any investments identified by the
Reckson Strategic Venture Partners Managing Directors are subject to our
approval.
Ownership of assets through partner companies and joint ventures could limit
our control of those investments
We and Reckson Strategic Venture Partners hold a significant portion of
our assets through ownership of interests in joint ventures and partner
companies in which we own a significant interest and participate in management
. These investments involve risks not otherwise present for investments made
solely by us, including the possibility that our co-venturer or other owners
of partner companies might become bankrupt, that our co-venturer or other
owners of partner companies might at any time have different interests or
goals than we do, and that our co-venturer or other owners of partner
companies may take action contrary to our instructions, requests, policies or
objectives. Other risks of joint venture investments and holdings in partner
companies include impasse on decisions, such as a sale, because neither we nor
our partner or co-venturer would have full control over the joint venture or
partner company. There is no limitation under our organizational documents as
to the amount of funds that may be invested in joint ventures or partner
companies.
In addition, if we do not control sufficiently one or more of our partner
companies, our investment in those companies may be considered "investment
securities" under the Investment Company Act of 1940, as amended (the "1940
Act"). Generally, any company that owns investment securities with a value
exceeding 40% of its total assets (excluding cash items and government
securities) is an "investment company" subject to registration under, and
compliance with, the 1940 Act, unless a particular exemption or safe harbor
applies. Compliance with the 1940 Act might be very costly and difficult. In
addition, there could be negative consequences if we are found to be operating
as an unregistered investment company. At the same time, if we are required to
take actions, such as the acquisition or disposition of investments, to avoid
being considered an investment company it also may have negative consequences.
Accordingly, matters related to the 1940 Act may at any time harm our
business, financial condition and results of operations.
Our holdings in OnSite Access, Inc., a company with a limited operating
history, expose us to regulatory risks, the risk of technological obsolescence
and other risks
Our holdings include an interest in OnSite Access, Inc. ("OnSite"), a
privately-held company that provides advanced telecommunication systems and
services within commercial buildings. OnSite has been in existence since 1999,
has a relatively small capitalization and has historical operating losses. We
anticipate that OnSite will continue to grow rapidly, but we cannot assure
when, if ever, OnSite will become profitable. OnSite's success is contingent
upon its ability to continue to obtain contracts to wire buildings for the
delivery of Internet access, data and voice transport services. In addition,
certain executive officers at OnSite have only recently been hired and
OnSite's future success will be dependent, in part, on such executives'
ability to perform effectively.
Our holdings in OnSite are exposed to risks specific to the
telecommunications industry. The industry is regulated on both the federal and
state level and we cannot assure that governmental regulations that adversely
affect our investment will not be passed. Additionally, the industry is
constantly undergoing rapid change and technological innovation. OnSite is
therefore subject to the risk that its services could become obsolete.
On December 15, 1999, OnSite filed a registration statement on Form S-1
with the Commission covering the initial public offering of its common stock.
There can be no assurance that the OnSite initial public offering will be
consummated or, if consummated, the timing or terms of such offering.
Our holdings in HQ Global Workplaces, Inc. expose us to real estate,
operational and financial risks
Our largest holding is common stock of HQ Global , the parent company of
HQ Global Workplaces, Inc. ("HQ"). HQ is the largest provider of flexible
officing solutions in the world, with more than 2,500 employees, 65,000
clients and over 470 business centers in 17 countries. HQ is a newly-formed
company resulting from the merger of our partner company, VANTAS Incorporated
("VANTAS"), and HQ Global Workplaces, Inc. ("Old HQ"). HQ provides tenants
with furnished office suites and immediate support services, including but not
limited to, secretarial services, telecommunication services and conference
facilities. The executive office suites industry is subject to risks
comparable to those of the real estate industry. Supply and demand and the
location of office buildings are all factors that directly affect the office
suites industry. A significant downturn in the real estate market could
adversely affect our holdings in HQ.
Our holdings in HQ are also subject to the additional risks that the
combined company may not perform as we anticipate and VANTAS' and Old HQ's
operations may not be effectively integrated.
HQ Global has issued an aggregate of $220 million of convertible
preferred stock which it is required to redeem in November 2007. As of
September 30, 2000, HQ has borrowed approximately $216 million in senior debt
which has a final maturity date in November 2005. HQ also has $125 million of
mezzanine debt outstanding that is due in May 2007.
In addition, we obtained a $25 million line of credit from a commercial
lender in connection with certain obligations relating to HQ. The line of
credit is secured by shares that we hold in HQ Global and was recently
expanded to allow us to use proceeds for general corporate purposes.
We do not anticipate paying dividends in the foreseeable future
We intend to use our available funds for general corporate purposes.
Therefore, we do not anticipate the payment of any dividends on our common
stock in the foreseeable future. Furthermore, payment of dividends on our
common stock is prohibited under our credit facilities until all amounts
outstanding under the credit facilities are paid in full. In addition, the
payment of dividends on our common stock is prohibited unless full
distributions have been paid on our Series A convertible cumulative preferred
stock, liquidation preference $1,000 per share (the "Series A Preferred
Stock").
The payment of dividends will also be subject to any limitations imposed
by other credit facilities and debt securities that we may obtain or issue in
the future.
Real estate risks may affect our earnings
Our holdings include real estate and real estate-related assets,
particularly through our holdings in HQ and Reckson Strategic Venture
Partners. Investments in real estate are subject to the risks incident to the
ownership and operation of real estate. Our real estate holdings may be
adversely affected by a number of factors, including:
o real estate holdings are generally illiquid
o the national, state and local economic climate and real estate
conditions, such as oversupply of or reduced demand for space and
changes in market rental rates
o the need to periodically renovate, repair and relet our space
o increasing operating costs, including real estate taxes and
utilities, which may not be passed through to tenants
o defaults by our tenants or their failure to pay rent on a timely
basis
o uninsured losses
Through Reckson Strategic Venture Partners, we have real estate and real
estate-related holdings in the areas of student housing and government
occupied buildings. Development and construction activities in connection with
these types of investments include risks of cost overruns, completion and
lease-up delays, unavailability of financing and changes in market conditions.
Our development activities are also subject to risks relating to the
inability to obtain, or delays in obtaining, all necessary zoning, land-use,
building, occupancy and other required governmental permits and
authorizations. If any of the above events occur, the revenues received from
Reckson Strategic Venture Partners' real estate investments and the values of
these investments could be adversely affected. In addition, new development
activities, regardless of whether or not they are ultimately successful,
typically require a substantial portion of management's time and attention.
Environmental problems are possible and may be costly
Federal, state and local laws and regulations relating to the protection
of the environment may require a current or previous owner or operator of real
estate to investigate and clean up hazardous or toxic substances or petroleum
product releases at a property. An owner of real estate is liable for the
costs of removal or remediation of certain hazardous or toxic substances on or
in the property. These laws often impose such liability without regard to
whether the owner knew of, or caused, the presence of the contaminants.
Clean-up costs and the owner's liability generally are not limited under the
enactments and could exceed the value of the property and/or the aggregate
assets of the owner. The presence of or the failure to properly remediate the
substances may adversely affect the owner's ability to sell or rent the
property or to borrow using the property as collateral. Persons who arrange
for the disposal or treatment of hazardous or toxic substances may also be
liable for the clean-up costs of the substances at a disposal or treatment
facility, whether or not such facility is owned or operated by the person.
Even if more than one person was responsible for the contamination, each
person covered by the environmental laws may be held responsible for the
clean-up costs incurred. In addition, third parties may sue the owner or
operator of a site for damages and costs resulting from environmental
contamination emanating from that site.
Environmental laws also govern the presence, maintenance and removal of
asbestos-containing materials ("ACMs"). These laws impose liability for
release of ACMs into the air and third parties may seek recovery from owners
or operators of real properties for personal injury associated with ACMs. In
connection with the ownership (direct or indirect), operation, management and
development of real properties, we may be considered an owner or operator of
properties containing ACMs. We may be potentially liable for removal,
remediation and other costs, including governmental fines and injuries to
persons and property.
Certain antitakeover provisions may deter third party acquisition proposals
Our charter and bylaws and applicable sections of the Delaware General
Corporation Law may make the acquisition of control of our company more
difficult without the approval of our Board of Directors. Certain provisions
of our charter and bylaws, among other things:
o provide common stockholders with certain rights under a purchase
rights plan generally upon the acquisition by a person or group of
15% or more of our outstanding common stock;
o classify our Board of Directors into three classes, each of which
serves for staggered three-year terms;
o provide that any of our directors may be removed by the affirmative
vote of stockholders having at least 80% of the total voting power
only for cause;
o provide that only the Chairman of the Board, President or a majority
of our Board of Directors may call special meetings of the
stockholders;
o provide that the stockholders may take action only at a meeting of
our stockholders, not by written consent;
o provide that stockholders must comply with certain advance notice
procedures in order to nominate candidates for election to our Board
of Directors or to place stockholders' proposals on the agenda for
consideration at meetings of the stockholders;
o provide that, under certain circumstances, the affirmative vote of
the holders of two-thirds of our common stock is required to approve
any merger or similar business combination involving our company;
o provide that the holder of "control shares" of our company acquired
in a control share acquisition have no voting rights with respect to
such control shares except to the extent approved by the vote of the
holders of two-thirds of our common stock;
o subject to certain exceptions, limit the ownership by any person of
our common stock to 9.9% of the number of shares or value of our
common stock and limit the ownership by any person of our capital
stock to 9.9% of the aggregate value of all classes of our capital
stock; and
o provide that the stockholders may amend or repeal any of the
foregoing provisions of the charter or bylaws only by a vote of at
least 80% of the stock entitled to vote generally in the election of
directors.
With certain exceptions, Section 203 of the Delaware General Corporation
Law imposes certain restrictions on mergers and other business combinations
between the Company and any holder of 15% or more of our common stock. The
charter provides that the foregoing provisions and Section 203 do not apply to
Reckson Associates and its affiliates. Accordingly, Reckson Associates and its
affiliates are in a position to effect a business combination or other
transaction with us in situations where others are restricted from effecting a
similar transaction. Our charter authorizes the Board of Directors to issue up
to 25 million shares of preferred stock, par value $.01 per share, in series,
and to establish the rights and preferences (including the exchange of such
shares of preferred stock into shares of our common stock) of any series of
preferred stock so issued. As of October 23, 2000, there were 26,000 shares of
our Series A Preferred Stock outstanding. The issuance of certain types of
preferred stock could have the effect of delaying or preventing a change in
control of our company, even if such a change in control were in the best
interests of some, or a majority, of our stockholders.
THE COMPANY
We were formed in July 1997 as a subsidiary of Reckson Associates and our
shares of common stock were spun off to shareholders of Reckson Associates in
June 1998. In March 2000, we changed our name from Reckson Service Industries,
Inc. to FrontLine Capital Group. On October 18, 2000, we announced a
refinement of our business strategy in order to highlight our holdings in HQ
Global and to maximize the value of our other holdings. In order to achieve
this, we are segmenting our operations into two distinct operating units. One
unit will represent our interest in HQ and the other will represent all of the
interests in our other partner companies. We are also substantially reducing
our staff and corporate overhead and do not currently anticipate pursuing any
new investment opportunities.
We are a Delaware corporation. Our principal executive office is located
at 1350 Avenue of the Americas, New York, New York 10019, and our telephone
number is (212) 931-8000.
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of the shares of
common stock by the selling stockholders.
DESCRIPTION OF COMMON STOCK
General
Our charter (the "Charter") provides that we may issue up to 100 million
shares of common stock, $.01 par value per share. As of October 23, 2000,
there were 36,560,451 shares of common stock outstanding. In addition, the
Series A Preferred Stock is currently convertible into approximately 368,898
shares of common stock (subject to adjustment), and we have warrants
outstanding which are exercisable for 1,828,750 shares of common stock. Our
Series A Preferred Stock accumulates dividends at a rate of 8-7/8% per annum
payable in cash or in shares of our common stock.
All shares of common stock offered hereby have been duly authorized and
are, or will be upon issuance, fully paid and nonassessable. Subject to the
preferential rights of any other shares or series of stock, including the
Series A Preferred Stock, and to the provisions of the Charter regarding
Excess Stock (as defined under "Restrictions on Ownership of Capital Stock"),
holders of shares of common stock offered hereby will be entitled to receive
dividends on the stock if, as and when authorized and declared by our Board of
Directors out of assets legally available therefor and to share ratably in our
assets legally available for distribution to our common stockholders in the
event of the Company's liquidation, dissolution or winding up after payment of
or adequate provision for all of our known debts and liabilities. Under the
terms of our credit agreements, we are prohibited from paying any dividends on
shares of our common stock as long as there are amounts outstanding under such
agreements. In addition, we are prohibited from paying any dividends on shares
of our capital stock ranking on a parity or junior to our outstanding Series A
Preferred Stock unless full distributions have been paid thereon.
Subject to the provisions of the Charter regarding Excess Stock, each
outstanding share of common stock entitles the holder to one vote on all
matters submitted to a vote of stockholders, including the election of
directors, and, except as provided with respect to any other class or series
of stock, the holders of these shares will possess the exclusive voting power.
There is no cumulative voting in the election of directors, which means that
the holders of a majority of the outstanding shares of our existing common
stock may elect all of the directors then standing for election and the
holders of the remaining shares will not be able to elect any directors. In
addition, whenever distributions on any shares of our Series A Preferred Stock
are in arrears for more than two payments, holders of Series A Preferred
Stock, voting as a separate class, are entitled to vote for the election of
two additional directors.
Holders of shares of common stock have no preference, conversion,
exchange, sinking fund, redemption or appraisal rights and have no preemptive
rights to subscribe for any other securities. Subject to the provisions of the
Charter regarding Excess Stock, shares of common stock will have equal
dividend, liquidation and other rights.
Certain Provisions of the Charter
The Board of Directors is divided into three classes of directors, each
class constituting approximately one-third of the total number of directors,
with the classes serving staggered terms. At each annual meeting of
stockholders, the class of directors to be elected at the meeting will be
elected for a three-year term and the directors in the other two classes will
continue in office. We believe that classified directors help to assure the
continuity and stability of the Board of Directors and our business strategies
and policies as determined by the Board. The use of a staggered board may
delay or defer a change in control or removal of incumbent management.
Our Charter and bylaws contain additional provisions that may deter third
party acquisition proposals. Prospective investors should review the section
captioned "Risk Factors -- Certain anti-takeover provisions may deter third
party acquisition proposals."
Restrictions on Ownership
In order for Reckson Associates to qualify as a REIT under the Internal
Revenue Code (the "Code"), it must satisfy a variety of requirements,
including annual tests with respect to the nature of its gross income.
Substantially all of Reckson Associates' gross income meets these requirements
by qualifying as "rentals from real property" under Section 856(d) of the
Code. Under this provision, however, a REIT's real property rentals can be
disqualified if the rent is received by the REIT from a related party or if
noncustomary services are performed for the tenant other than by an
independent contractor. The characterization of a party as a related-party
tenant or as an independent contractor depends, in part, upon the percentage
of stock, assets or net profits of such party that may be owned by the REIT or
by stockholders of the REIT. Such ownership may be direct or may be indirect
under certain attribution rules prescribed by the Code. At the time that we
were spun off from Reckson Associates, there was a substantial identity of
ownership between stockholders of Reckson Associates and our stockholders. It
is not known to what degree such identity of ownership may still exist or may
continue. Therefore, in order to protect Reckson Associates from the risk that
rental income it earns from us or our affiliates, or from tenants that we or
our affiliates provide commercial services to, will not be disqualified as
rent from real property for REIT qualification purposes, subject to certain
exceptions, the ownership by any person or entity of our common stock is
limited to 9.9% of the aggregate number or value of shares of our common stock
outstanding and the ownership by any person of our capital stock is limited to
9.9% of the aggregate value of all classes of capital stock outstanding.
Restrictions on Ability to Pay Dividends
Subject to certain exceptions, as long as there are outstanding advances
under our credit agreements, we are prohibited from paying dividends on any
shares of our capital stock or incurring additional debt. In addition, we are
prohibited from paying any dividends on shares of our capital stock ranking on
a parity or junior to our Series A Preferred Stock unless full distributions
have been paid on such preferred stock. See the section captioned "Risk
Factors -- We may have conflicts of interest with Reckson Associates --
Conflicts in our loans with Reckson Operating Partnership; limitation on our
ability to pay dividends and incur additional debt" above.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is American Stock
Transfer & Trust Company.
SELLING STOCKHOLDERS
The selling stockholders (which term includes their pledgees, transferees
or other successors in interest) received or will receive the shares of common
stock offered hereby in offerings exempt from the registration requirements of
the Securities Act. The selling stockholders may from time to time offer and
sell any or all of the shares of common stock offered under this prospectus.
The following table sets forth certain information, as of October 23,
2000, with respect to shares of common stock covered by this prospectus and
other shares of common stock owned by the selling stockholders. Because the
selling stockholders may offer all, some or none of the shares of common stock
that are covered by this prospectus, no estimate can be made of the number of
shares of common stock that will be offered under this prospectus or the
number of shares of common stock that will be owned by the selling
stockholders upon completion of the offering to which this prospectus relates.
<TABLE>
<CAPTION>
Shares of Common Stock Shares of Common Stock Shares of Common Stock
Owned Before the Covered by this to be Owned After the
Name of Selling Stockholders Offering Prospectus Offering(2)
------------------------------------ ------------------------ ------------------------ ---------------------------
<S> <C> <C> <C>
UBS AG, London Branch(1) 38,172 631,828 38,172
Reckson Management 115,186 38,172 77,014
Group, Inc.
--------------
</TABLE>
(1) UBS AG, London Branch is the holder of 26,000 shares of our Series A
Preferred Stock and received or will receive the shares of common stock
offered hereby (i) as a distribution on the Series A Preferred Stock and
(ii) upon conversion of its shares of Series A Preferred Stock. The
Series A Preferred Stock is convertible at any time after February 28,
2001 at a conversion price of $70.48 per share into approximately 368,898
shares of common stock, subject to adjustment in certain cases.
(2) Assumes the sale of all shares of common stock registered hereunder,
although the selling stockholders are under no obligation known to the
Company to sell any shares of common stock registered hereunder.
Reckson Operating Partnership, which owns 97% of the capital stock of
Reckson Management Group, Inc., is the lender under our credit facilities and
has certain other relationships with us as described herein under the caption
"Risk Factors -- We may have conflicts of interest with Reckson Associates."
Affiliates of UBS AG, London Branch have (i) previously made loans to us and
HQ which have been paid in full and (ii) acted as underwriter for our December
1999 common stock offering.
PLAN OF DISTRIBUTION
The selling stockholders (a term that includes pledgees, transferees and
other successors in interest, as described above) may offer shares of common
stock from time to time depending on market conditions and other factors, in
one or more transactions on the Nasdaq National Market, or other national
securities exchanges or over-the-counter markets on which the shares are
traded, in negotiated transactions or otherwise, at fixed prices, at market
prices prevailing at the time of sale, at prices related to prevailing market
prices, at negotiated prices, without consideration, or by any other legally
available means.
Sales of shares of common stock by the selling stockholders may involve
(i) block transactions in which the broker or dealer so engaged will attempt
to sell the shares as agent but may position and resell a portion of the block
as principal to facilitate the transaction, (ii) purchases by a broker-dealer
as principal and resale by such broker-dealer for its own account pursuant to
this prospectus, (iii) ordinary brokerage transactions and transactions in
which a broker solicits purchasers and (iv) privately negotiated transactions.
To the extent required, this prospectus may be amended and supplemented from
time to time to describe a specific plan of distribution. In connection with
the distribution of the shares of common stock or otherwise, the selling
stockholders may enter into hedging transactions with broker-dealers. In
connection with such transactions, broker-dealers may engage in short sales of
the common stock in the course of hedging the position they assume with the
selling stockholders. The selling stockholders may also sell the common stock
short and redeliver the shares to close out such short positions.
The selling stockholders may also enter into option transactions
(including call or put option transactions) or other transactions with
broker-dealers which require delivery to such broker-dealer of shares offered
hereby, which shares such broker-dealer may resell pursuant to this prospectus
(as supplemented or amended to reflect such transaction, if necessary). The
selling stockholders may also pledge shares to a broker-dealer and, upon a
default, such broker-dealer may effect sales of the pledged shares pursuant to
this prospectus (as supplemented or amended to reflect such transaction, if
necessary). The selling stockholders may also sell the common stock through
one or more underwriters on a firm commitment or best-efforts basis (with a
supplement or amendment to this prospectus, if necessary). In addition, any
shares that qualify for sale pursuant to Rule 144 may be sold under Rule 144
rather than pursuant to this prospectus.
Brokers and dealers may receive compensation in the form of concessions
or commissions from the selling stockholders and/or purchasers of shares for
whom they may act as agent and/or to whom they may sell as principal (which
compensation may be in excess of customary commissions). The selling
stockholders and any broker or dealer that participates in the distribution of
shares may be deemed to be underwriters and any commissions received by them
and any profit on the resale of shares positioned by a broker or dealer may be
deemed to be underwriting discounts and commissions under the Securities Act.
We have agreed to indemnify certain of the selling stockholders and
underwriters who participate in an offering of the shares of common stock
against certain liabilities, including liabilities arising under the
Securities Act. The selling stockholders may agree to indemnify any agent or
broker-dealer that participates in transactions involving sales of the shares
of common stock against certain liabilities, including liabilities arising
under the Securities Act.
We have advised the selling stockholders that Regulation M under the
Exchange Act may apply to sales of shares and to the activities of the selling
stockholders or broker-dealers in connection therewith. Regulation M and other
rules and regulations under the Exchange Act, including anti-fraud provisions,
may limit when the selling stockholders or broker-dealers may sell or purchase
the common stock. We will bear all costs, expenses and fees in connection with
the registration of the shares of common stock covered by this prospectus. The
selling stockholders will bear any brokerage commissions and similar selling
expenses, if any, attributable to the sale of the shares.
RESTRICTIONS ON OWNERSHIP OF CAPITAL STOCK
Excess Stock
Our Charter provides that we may issue up to 25 million shares of excess
stock, par value $.01 per share ("Excess Stock"). For a description of Excess
Stock, see "--Restrictions on Ownership" below.
Restrictions on Ownership
As described above, in order to protect Reckson Associates against the
risk of failing to satisfy certain tax laws applicable to REITs, our Charter
provides that no stockholder may own, or be deemed to own by virtue of certain
attribution provisions of the Code, more than 9.9% of the aggregate number or
value of the Company's outstanding shares of common stock or more than 9.9% of
the aggregate value of the outstanding shares of all classes of the Company's
capital stock (the "Ownership Limit"), provided that in no event will a
stockholder be limited in the amount of the Company's common stock acquired in
connection with awards or exercises of employee stock options. In addition, in
the event we issue any additional series of preferred stock, we may, in the
designating amendment, set a limit on the ownership of such preferred stock.
Any direct or indirect ownership of shares of stock in excess of the Ownership
Limit or that would result in common ownership among 10% holders of the
Company's common stock and Reckson Associates' common stock, will be null and
void, and the intended transferee will acquire no rights to the shares of
capital stock. The foregoing restrictions on transferability and ownership
will not apply if Reckson Associates determines that it is no longer in its
best interests to attempt to qualify, or to continue to qualify, as a REIT.
Under the terms of the intercompany agreement, the Company's Board of
Directors will have the right to waive the Ownership Limit only if permission
to do so is granted by Reckson Associates, in Reckson Associates' sole
discretion, and the Company's Board of Directors otherwise decides that such
action is in the best interest of the Company.
Shares of capital stock owned, or deemed to be owned, or transferred to a
stockholder in excess of the Ownership Limit will automatically be converted
into shares of Excess Stock that will be transferred, by operation of law, to
the trustee of a trust for the exclusive benefit of one or more charitable
organizations described in Section 170(b)(1)(A) and 170(c) of the Code (the
"Charitable Beneficiary"). The trustee of the trust will be deemed to own the
Excess Stock for the benefit of the Charitable Beneficiary on the date of the
violative transfer to the original transferee-stockholder. Any dividend or
distribution paid to the original transferee-stockholder of Excess Stock prior
to the discovery by the Company that capital stock has been transferred in
violation of the provisions of the Company's Charter will be repaid to the
trustee upon demand. Any dividend or distribution authorized and declared but
unpaid shall be rescinded as void ab initio with respect to the original
transferee-stockholder and will instead be paid to the trustee of the trust
for the benefit of the Charitable Beneficiary. Any vote cast by an original
transferee-stockholder of shares of capital stock constituting Excess Stock
prior to the discovery by the Company that shares of capital stock have been
transferred in violation of the Company's Certificate of Incorporation shall
be rescinded as void ab initio. While the Excess Stock is held in trust, the
original transferee-stockholder will be deemed to have given an irrevocable
proxy to the trustee to vote the capital stock for the benefit of the
Charitable Beneficiary. The trustee of the trust may transfer the interest in
the trust representing the Excess Stock to any person whose ownership of the
shares of capital stock converted into such Excess Stock would be permitted
under the Ownership Limit. If such transfer is made, the interest of the
Charitable Beneficiary will terminate and the proceeds of the sale will be
payable to the original transferee-stockholder and to the Charitable
Beneficiary as described herein. The original transferee-stockholder will
receive the lesser of (i) the price paid by the original
transferee-stockholder for the shares of capital stock that were converted
into Excess Stock or, if the original transferee-stockholder did not give
value for such shares (e.g., the stock was received through a gift, devise or
other transaction), the average closing price for the class of shares from
which such shares of capital stock were converted for the ten trading days
immediately preceding such sale or gift, and (ii) the price received by the
trustee from the sale or other disposition of the Excess Stock held in trust.
The trustee may reduce the amount payable to the original
transferee-stockholder by the amount of dividends and distributions relating
to the shares of Excess Stock which have been paid to the original
transferee-stockholder and are owed by the original transferee-stockholder to
the trustee. Any proceeds in excess of the amount payable to the original
transferee-stockholder will be paid by the trustee to the Charitable
Beneficiary. Any liquidation distributions relating to Excess Stock will be
distributed in the same manner as proceeds of a sale of Excess Stock. If the
foregoing transfer restrictions are determined to be void or invalid by virtue
of any legal decision, statute, rule or regulations, then the original
transferee-stockholder of any shares of Excess Stock may be deemed, at the
option of the Company, to have acted as an agent on behalf of the Company in
acquiring the shares of Excess Stock and to hold the shares of Excess Stock on
behalf of the Company.
In addition, the Company will have the right, for a period of 90 days
during the time any shares of Excess Stock are held in trust, to purchase all
or any portion of the shares of Excess Stock at the lesser of (i) the price
initially paid for such shares by the original transferee-stockholder, or if
the original transferee-stockholder did not give value for such shares (e.g.,
the shares were received through a gift, devise or other transaction), the
average closing price for the class of stock from which such shares of Excess
Stock were converted for the ten trading days immediately preceding such sale
or gift, and (ii) the average closing price for the class of stock from which
such shares of Excess Stock were converted for the ten trading days
immediately preceding the date the Company elects to purchase such shares. The
Company may reduce the amount payable to the original transferee-stockholder
by the amount of dividends and distributions relating to the shares of Excess
Stock which have been paid to the original transferee-stockholder and are
owned by the original transferee-stockholder to the trustee. The Company may
pay the amount of such reductions to the trustee for the benefit of the
Charitable Beneficiary. The 90-day period begins on the later date of which
notice is received of the violative transfer if the original
transferee-stockholder gives notice to the Company of the transfer or, if no
such notice is given, the date the Company's Board of Directors determines
that a violative transfer has been made.
All certificates representing shares of capital stock will bear a legend
referring to the restrictions described above.
Each stockholder will be required, upon demand by the Company, to
disclose to the Company in writing any information with respect to the direct,
indirect and constructive ownership of capital stock of the Company as Reckson
Associates deems necessary for Reckson Associates to determine its compliance
with the provisions of the Code applicable to REITs.
The Company is required to maintain in its Charter the foregoing
Ownership Limit, Excess Stock and stock ownership disclosure requirements
under the terms of the intercompany agreement.
The Ownership Limit may have the effect of delaying, deferring or
preventing a change in control of the Company.
LEGAL MATTERS
The validity of the issuance of the common stock offered hereby will be
passed upon by Brown & Wood LLP, New York, New York.
EXPERTS
The consolidated financial statements of the Company and Subsidiaries
appearing in the Company's Annual Report (Form 10-K) for the year ended
December 31, 1999; and the consolidated financial statements of VANTAS
Incorporated and Subsidiaries for the year ended December 31, 1999 appearing
in the Company's Form 8-K, filed March 2, 2000; have in each case been audited
by Ernst & Young LLP, independent auditors, as set forth in their reports
thereon, included therein and incorporated herein by reference. Such
consolidated financial statements are incorporated herein by reference in
reliance upon such reports given on the authority of such firm as experts in
accounting and auditing.
The financial statements incorporated in this prospectus by reference to
the audited historical consolidated financial statements of VANTAS
Incorporated and Subsidiaries as of December 31, 1998 and for each of the two
years in the period ended June 30, 1998 and for the period July 1, 1998 to
December 31, 1998 included in our Form 8-K, filed March 2, 2000, have been so
incorporated in reliance on the reports of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
The financial statements incorporated herein by reference to the audited
historical consolidated financial statements of HQ Global Workplaces, Inc. and
Subsidiaries as of December 31, 1999 and 1998 and for the years ended December
31, 1999 and 1998 and for the period from August 25, 1997 (inception) to
December 31, 1997 and the audited historical consolidated financial statements
of OmniOffices (UK) Limited as of December 31, 1999 and 1998, and for the year
ended December 31, 1999 and the nine-month period ended December 31, 1998
appearing in our Form 8-K, filed March 2, 2000, have been so incorporated in
reliance on the reports of KPMG LLP, independent certified public accountants,
given on the authority of said firm as experts in accounting and auditing.
The financial statements incorporated in this prospectus by reference to
the audited historical consolidated financial statements of OmniOffices Group,
Inc. for the period from January 1, 1997 to August 25, 1997 appearing in our
Form 8-K, filed March 2, 2000, have been so incorporated in reliance on the
report of BDO Seidman, LLP, independent auditors, given on the authority of
said firm as experts in accounting and auditing.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The following sets forth the estimated expenses in connection with the
issuance and distribution of the Registrant's securities being registered
hereby, other than underwriting discounts and commissions, all of which will
be borne by the Company:
Securities and Exchange Commission registration fee..... $ 3,402.00
Printing and engraving expenses......................... 5,000.00
Legal fees and expenses................................. 25,000.00
Accounting fees and expenses............................ 12,000.00
Miscellaneous........................................... 5,000.00
-----------
Total................................................... $50,402.00
===========
Item 15. Indemnification of Directors and Officers.
The Delaware General Corporation Law (the "Delaware Law") provides that a
corporation may limit the liability of each director to the corporation or its
stockholders for monetary damages except for liability (i) for any breach of
the director's duty of loyalty to the corporation or its stockholders; (ii)
for acts or omissions not in good faith or that involve intentional misconduct
or a knowing violation of law; (iii) in respect of certain unlawful dividend
payments or stock redemptions or repurchases, and (iv) for any transaction
from which the director derives an improper personal benefit. The Registrant's
Certificate of Incorporation and Bylaws provide for the elimination and
limitation of the personal liability of directors of the Company for monetary
damages to the fullest extent permitted by the Delaware Law. In addition, the
Certificate of Incorporation and Bylaws provide that if the Delaware Law is
amended to authorize the further elimination or limitation of the liability of
a director, then the liability of the directors shall be eliminated or limited
to the fullest extent permitted by the Delaware Law, as so amended. The effect
of this provision is to eliminate the rights of the Company and its
stockholders (through stockholders' derivative suits on behalf of the Company)
to recover monetary damages against a director for breach of the fiduciary
duty of care as a director (including breaches resulting from negligent or
grossly negligent behavior) except in the situations described in clauses (i)
through (iv) above. The provision does not limit or eliminate the rights of
the Company or any stockholders to seek non-monetary relief such as an
injunction or rescission in the event of a breach of a director's duty of
care. In addition, the Bylaws provide that the Company shall, to the full
extent permitted by the Delaware Law, as amended from time to time, indemnify
and advance expenses to each of its currently acting and former directors,
officers, members of the management advisory committee, employees and agents.
Item 16. Exhibits.
4.1 -- First Amended and Restated Certificate of Incorporation.(1)
4.2 -- Amended and Restated By-laws.(2)
4.3 -- Form of Common Stock Certificate.(3)
5 -- Opinion of Brown & Wood LLP as to the legality of the common stock.
(4)
23.1 -- Consent of Brown & Wood LLP (included in Exhibit 5).(4)
23.2 -- Consent of Ernst & Young LLP.
23.3 -- Consent of PricewaterhouseCoopers LLP.
23.4 -- Consent of KPMG LLP.
23.5 -- Consent of KPMG LLP.
23.6 -- Consent of BDO Seidman, LLP.
24 -- Power of attorney (included on the signature page of this
Registration Statement).(4)
---------------
(1) Previously filed as an exhibit to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1998, filed March 31, 1999
and incorporated herein by reference.
(2) Previously filed as an exhibit to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1999, filed March 29, 2000,
and incorporated herein by reference.
(3) Previously filed as an exhibit to the Registrant's Registration Statement
on Form S-3 (File No. 333-34246) filed April 7, 2000, and incorporated
herein by reference.
(4) Previously filed as an exhibit to this Registration Statement on Form S-3
and incorporated herein by reference.
Item 17. Undertakings.
(a) The Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to the Registration Statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the Registration Statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement;
provided, however, that paragraphs (1)(i) and (1)(ii) do not apply
if the information required to be included in a post-effective amendment
by those paragraphs is contained in periodic reports filed by the
Registrant pursuant to Section 13 or 15(d) of the Exchange Act that are
incorporated by reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof; and
(3) (a) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) The Registrant hereby undertakes that, for purposes of determining
any liability under the Securities Act, each filing of the Registrant's annual
report pursuant to Section 13(a) or 15(d) of the Exchange Act (and, where
applicable, each filing of an employee benefit plan's annual report pursuant
to Section 15(d) of the Exchange Act) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers, partners and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a director,
officer, partner or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer, partner or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, FrontLine
Capital Group 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
October 23, 2000.
FRONTLINE CAPITAL GROUP
By: /s/ Scott H. Rechler
--------------------------------------
Scott H. Rechler
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Scott H. Rechler President, Chief Executive Officer and Director October 23, 2000
--------------------
Scott H. Rechler (Principal Executive Officer)
Michael Maturo* Executive Vice President, Treasurer and Chief
--------------- Financial Officer (Principal Financial Officer and
Michael Maturo Principal Accounting Officer)
Roger M. Rechler* Director
-----------------
Roger M. Rechler
----------------- Secretary and Director
Mitchell D. Rechler
Paul F. Amoruso* Director
----------------
Paul F. Amoruso
Ronald S. Cooper* Director
-----------------
Ronald S. Cooper
Director
Douglas A. Sgarro
Sidney Braginsky* Director
Sidney Braginsky
*By: /s/ Scott H. Rechler October 23, 2000
---------------========
Scott H. Rechler
Attorney-in-fact
</TABLE>
<PAGE>
Exhibit Index
Exhibits Description Page
-------- ----------- ----
23.2 -- Consent of Ernst & Young LLP.
23.3 -- Consent of PricewaterhouseCoopers LLP.
23.4 -- Consent of KPMG LLP.
23.5 -- Consent of KPMG LLP.
23.6 -- Consent of BDO Seidman, LLP.
