As filed with the Securities and Exchange Commission on August 16, 2000
Registration Statement No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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FRONTLINE CAPITAL GROUP
(Exact name of each registrant as specified in its charter)
Delaware
(State or other jurisdiction 11-3383642
of incorporation or organization) (I.R.S. employer identification number)
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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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=========================================== ====================== ================== ==================== ===================
Proposed
Maximum Proposed Maximum Amount of
Title of Class of Securities to be Amount to Aggregate Price Aggregate Offering Registration
Registered be Registered per Share (1) Price(1) Fee(2)
---------------------------------- -------------------- --------------- ------------------- -------------
<S> <C> <C> <C> <C>
Common Stock, par value $.01 per share 1,075,000 shares(3) $16.32 $17,544,000 $4,807.00
Warrants to purchase Common Stock 1,500,000 warrants $47.25 $70,875,000 $19,420.00
=========================================== ====================== ================== ==================== ===================
</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 11, 2000.
(3) There is also being registered hereunder an additional
indeterminate number of shares of common stock issuable upon exercise of
the warrants by reason of adjustments to the number of shares purchasable
upon exercise of the warrants. Pursuant to Rule 457(g), no separate
registration fee is being paid to register these securities.
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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.
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 AUGUST 16, 2000
PROSPECTUS
----------
FrontLine Capital Group
1,075,000 Shares of Common Stock
Warrants to Purchase 1,500,000 Shares of Common Stock
This prospectus relates to the offer and sale from time to time by
the selling security holders referred to in this prospectus of up to 1,075,000
shares of our common stock, warrants to purchase up to 1,500,000 shares of our
common stock at an exercise price of $47.25 per share (subject to adjustment
under certain circumstances), and such indeterminate number of shares of our
common stock issuable upon exercise of the warrants. In this prospectus, we
refer to the warrants and common stock, including the common stock issuable
upon exercise of the warrants, as the Offered Securities. We are registering
the Offered Securities as required under the terms of a registration rights
agreement entered into with the selling security holders. The registration of
the offer and sale of the Offered Securities does not necessarily mean that
any of the securities will be offered or sold by the selling security holders.
The selling security holders will receive all of the net proceeds
from the sale of the Offered Securities 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 Offered Securities
by the selling security holders. However, we will receive proceeds from the
exercise of the warrants. We are paying the costs of preparing and filing the
registration statement of which this prospectus is a part.
Our common stock is listed on the Nasdaq National Market under the
trading symbol "FLCG." On August 14, 2000 the last reported sale price of our
common stock was $15 3/4 per share. The warrants are not listed on any
national securities exchange or quoted on any automated quotation system.
The Offered Securities may be sold by selling security holders from
time to time directly to purchasers or through agents, underwriters and
dealers. See "Plan of Distribution" and "Selling Security Holders." The
selling security holders and any dealers, agents or underwriters that
participate in the distribution of the Offered Securities 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 Offered
Securities 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
securities.
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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. 1-14183) 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, 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 securities 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 operating losses since our inception
We were formed in July 1997 and have operated as a public company
since June 1998. We have sustained operating losses since our inception and
expect to sustain operating 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.
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 and we may retain
the management of businesses that we acquire, 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.
We cannot assure our ability to manage growth
We intend to expand our operations through the acquisition of, or
investment in, business to business ("B2B") e-commerce and e-services entities
(each, a "partner company"). In addition, Reckson Strategic Venture Partners,
LLC, our subsidiary ("Reckson Strategic Venture Partners"), may also expand
through the acquisition of real estate and real estate operating companies.
The success of our growth strategies will depend on our ability to identify
and acquire attractive business opportunities on favorable terms and
effectively operate and integrate any newly acquired businesses. Our growth
plans will require the participation of, and place demands upon, our
management and operating personnel. Our ability to manage future growth
effectively also requires the development of operational, financial and
management information systems. We cannot assure that we will effectively
manage our growth. If we are unable to manage our growth effectively, it may
adversely affect our business, results of operations and financial condition.
An active trading market may not develop for the warrants
There is no established trading market for the warrants, and it is
likely that no market for the warrants will develop in the future. If such a
market were to develop, the warrants could trade at prices that are higher or
lower than the offering price depending on many factors, including the number
of holders of the warrants, the overall market for similar securities, our
financial performance and prospects, and prospects for companies in our
industry generally. In addition, we do not intend to apply (and are not
obligated to apply) for listing of the warrants on any securities exchange or
any automated quotation system.
Our stock price may not exceed the exercise price of the warrants
The warrants have an exercise price of $47.25 per share, subject to
adjustment. As of August 14, 2000, the closing price of our common stock on
the Nasdaq National Market was $15 3/4 per share. Thus, our common stock is
trading at a substantial discount to the exercise price of the warrants.
Our strategy of growth through acquisitions involves risks and may result in
losses
Acquisitions are a significant source of our growth. We cannot assure
that suitable acquisition opportunities will be available to us or our
affiliates. We also cannot assure that we or our affiliates will not overpay
for acquisitions or that acquisitions will be efficiently and adequately
integrated. Significant competition may exist for targeted acquisitions. Some
of the entities in which we acquire an interest may have (i) little or no
operating histories, (ii) historical operating losses, and (iii) competitors
that are larger and better capitalized and have greater access to capital.
Some of our or our affiliates' acquisitions may be involved in sectors that
are subject to increasing competition. As a result, the costs incurred to
acquire or reposition entities may be significant and non-recoverable.
Furthermore, we cannot assure that acquisitions will not result in additional
losses.
The acquisition of interests in start-up or early stage entities,
particularly in the Internet area, involves 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. We may take significant 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. In addition, start-up entities may
require significant additional capital contributions from us.
We may hold our interests in start-up or early stage entities for an
indefinite period of time; 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.
It is anticipated that a substantial portion of our holdings may
consist 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.
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 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 June 30, 2000, Reckson
Associates' senior management and directors beneficially owned approximately
12.25% of the outstanding common stock of Reckson Associates and approximately
18.28% 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 and Class B 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 June 30, 2000, borrowings under the FrontLine Facility aggregated
approximately $92.7 million and pursuant to the Reckson Strategic Venture
Partners Commitment, Reckson Operating Partnership had made approximately
$29.4 million in joint venture investments with Reckson Strategic Venture
Partners and had loaned approximately $38.5 million under the credit
agreement.
In November 1999, the credit facilities were amended to allow us to
incur up to $135 million in 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
connection with the HQ merger, we obtained a $25 million line of credit from a
commercial lender that relates to letters of credit obtained from such
commercial lender for the benefit of HQ. The line of credit is secured by
shares that we hold in HQ Global.
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 are not our affiliates. 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 and may invest in
entities in an early stage of development or with historical operating losses
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 anticipate holding 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 and other parties also own an interest. These
investments may 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 Holdings, Inc. ("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 June
30, 2000, HQ has borrowed $240 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, in connection with the merger, we obtained $25 million
in lines of credit from a bank which will be drawn upon in the event any
letter of credit issued by such bank for the benefit of HQ landlords is drawn
upon. The letters of credit and lines of credit are secured by some of the
common stock that we own in HQ Global.
We do not anticipate paying dividends in the foreseeable future
We intend to use our available funds to pursue investment and
business opportunities. 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 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. Reckson Strategic Ventures Partners is likely to make
additional acquisitions in commercial real estate, and may, particularly
through joint ventures, be involved in the development of real estate.
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 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 June 30, 2000,
there were 26,000 shares of our Series A convertible cumulative preferred
stock, liquidation preference $1,000 per share, 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.
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 Offered
Securities by the selling security holders. However, if and when all or a
portion of the warrants covered by this prospectus are exercised, we will
receive the proceeds from the issuance of common stock to the warrant holders.
If all the warrants are exercised in full at their current exercise price for
cash consideration, when we issue the 1,500,000 shares of our common stock
issuable pursuant to the warrants, we will receive an aggregate of
approximately $70,875,000. We intend to use any proceeds from the exercise of
the warrants for working capital and other general corporate purposes.
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 August 8,
2000, there were 36,084,524 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 (including the warrants to which this prospectus relates) 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. The warrants are exercisable for shares of our
common stock at exercise prices ranging from $15.00 to $47.25.
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.
DESCRIPTION OF WARRANTS
General
The warrants are exercisable at any time between March 7, 2001 and
March 7, 2005 at an exercise price of $47.25 per share. The warrant holders
must pay the exercise price in cash or other same-day funds to the Company.
The warrant holder must also surrender the certificate representing the
warrant being exercised and deliver a properly completed form of election to
exercise such warrant. After the expiration date, warrant holders have no
further rights.
Upon exercise of a warrant, in lieu of delivering shares of common
stock, we may, at our election, deliver cash in an amount equal to the fair
market value of such shares.
The warrant certificates are and will be numbered and registered in a
warrant register maintained by the warrant agent. The registered holders of
warrants will be treated as the owner thereof for all purposes. The warrants
are transferable in denominations of 50,000 warrants at the offices of the
warrant agent, without charge. Upon any registration of transfer, the warrant
agent shall countersign and deliver a new warrant certificate to the person
entitled thereto. Warrant certificates may be exchanged for another
certificate or certificates upon written request to the warrant agent.
No fractional shares of our common stock will be issued upon exercise
of a warrant. At the time of exercise of a warrant, we will pay the warrant
holder an amount in cash equal to the then current market price of any such
fractional share of our common stock.
We have reserved, and will keep reserved out of our authorized common
stock, a number of shares of common stock sufficient to provide for the
exercise of all of the outstanding warrants. The warrants are governed by, and
construed in accordance with, the laws of the State of New York.
The issuance of certificates for shares of common stock upon the
exercise of any portion of the warrant shall be made without charge to the
holder of the warrant for any issue tax (other than any applicable income
taxes) or other expenses in respect thereof; provided, however, that the
Company shall not be required to pay any tax or other expenses which may be
payable in respect of any transfer involved in the issuance and delivery of
any certificate in a name other than that of the holder of the warrant
exercised.
In the event a bankruptcy or reorganization is commenced by or
against us, a bankruptcy court may decide that unexercised warrants are
executory contracts that may be subject to our rejection with approval of the
bankruptcy court. As a result, the warrant holder may not, even if sufficient
funds are available, be entitled to receive any consideration or may receive
an amount less than such holder would be entitled to receive if such warrant
holder had exercised its warrants before the commencement of any such
bankruptcy or reorganization.
Adjustments
The number of shares of our common stock issuable upon exercise of a
warrant and the exercise price will be subject to adjustment upon certain
events, including the following:
o the payment of common stock or cash dividends on our common stock;
o the issuance of shares of our common stock (or securities
convertible or exchangeable for shares of common stock) at a price
per share less than the current exercise price of the warrants,
subject to certain exceptions;
o subdivisions, combinations or reclassifications of our common stock;
o a consolidation, merger or sale of the Company;
o the completion of a tender offer for its shares made by the Company;
and
o distributions to all holders of our common stock of any security,
property or contractual right.
If certain of these events occur, the number of warrant shares
purchasable upon exercise of each warrant will be adjusted so that the holder
of each warrant will be entitled to receive upon exercise of the warrant the
kind and number of our shares that he, she or it would have owned or been
entitled to receive after the happening of any of the events described above
had the warrant been exercised immediately prior to the happening of that
event.
In the case of certain reclassifications, consolidations, mergers,
sales or transfers of assets or other transactions pursuant to which our
common stock is converted into the right to receive other securities, cash or
property, then each warrant will be exercisable for the right to receive the
kind and amount of securities, cash and other property receivable upon
consummation of the particular transaction by a holder of the number of shares
of our common stock which would have been received by the holder of such
warrant immediately prior to the date of consummation of such transaction if
such warrant had been exercised immediately prior thereto.
No Rights as Stockholders
Holders of the warrants are not entitled to receive dividends or
other distributions, to vote, to consent, to receive notice as stockholders
with respect to any meeting of stockholders, or to exercise any other rights
whatsoever as one of our stockholders.
Warrant Agent
The Company performs the obligations of warrant agent. Holders of a
majority of the shares of common stock issuable upon exercise of the warrants
may request appointment of an independent warrant agency.
SELLING SECURITY HOLDERS
The Offered Securities were originally issued by us in an offering
exempt from the registration requirements of the Securities Act. The
purchasers in that offering or their pledgees, transferees or other successors
in interest (including, but not limited to, partners in a partnership
receiving a distribution of the Offered Securities), who we collectively refer
to in this prospectus as selling security holders, may from time to time offer
and sell pursuant to this prospectus any and all of the warrants and shares of
common stock, including the common stock issuable upon exercise of the
warrants. In this prospectus, we refer to the common stock, warrants and
common stock issuable upon exercise of the warrants as Offered Securities.
Although none of the selling security holders has advised us that it currently
intends to sell all or any of the Offered Securities under this prospectus,
the selling security holders may choose to sell Offered Securities from time
to time. "See Plan of Distribution."
Except as otherwise indicated, the table below sets forth certain
information with respect to the common stock and warrants as of August 7,
2000. Because the selling security holders may offer all, some or none of the
Offered Securities that are covered by this prospectus, no estimate can be
made of the number of Offered Securities that will be offered under this
prospectus or the number of Offered Securities that will be owned by any of
the selling security holders upon completion of the offering to which this
prospectus relates.
<TABLE>
<CAPTION>
Shares of Common Stock Shares of Common Stock Shares of Common Stock
Name of Selling owned covered by to be Owned after the
Security Holder prior to offering(1) this prospectus offering(2)
------------------------------------- ----------------------- ---------------------- -----------------------
<S> <C> <C> <C>
Gotham Partners, L.P................. 1,438,875 773,023 665,852
Gotham Partners III, L.P............. 32,304 19,545 12,759
Gotham Partners International, Ltd... 445,493 282,432 163,061
Total................................ 1,916,672 1,075,000 841,672
Name of Selling Warrants owned prior to Warrants covered by Warrants to be owned
Security Holder offering this prospectus after the offering(2)
------------------------------------- ----------------------- ---------------------- -----------------------
Gotham Partners, L.P................. 1,000,000 1,000,000 0
Gotham Partners III, L.P............. 50,000 50,000 0
Gotham Partners International, Ltd... 450,000 450,000 0
Total................................ 1,500,000 1,500,000 0
</TABLE>
(1) In addition, Gotham Holdings I, L.L.C. and Gotham Holdings II,
L.L.C., affiliates of the selling security holders, beneficially own
296,291 and 68,568 shares of common stock of the Company,
respectively.
(2) Assumes the sale of all of the securities registered hereunder,
although the selling security holders are under no obligation known
to the Company to sell any of the securities registered hereunder.
The preceding table has been prepared based on information furnished
to us by or on behalf of the selling security holders. Information concerning
the selling security holders may change from time to time and any such changed
information that we become aware of that is material will be set forth in
supplements to this prospectus if and when necessary. Accordingly, the number
of Offered Securities offered hereby may increase or decrease.
The selling shareholder and its officers and directors have not held
any positions or office or had any other material relationship with the
Company or any of its affiliates within the past three years.
PLAN OF DISTRIBUTION
The selling security holders (a term that includes pledgees,
transferees and other successors in interest, as described above) may offer
the Offered Securities 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, or in negotiated transactions, at market prices prevailing
at the time of sale, at prices related to those market prices, at negotiated
prices or at fixed prices.
Sales of Offered Securities by the selling security holders may
involve (i) block transactions in which the broker or dealer so engaged will
attempt to sell the securities 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 Offered Securities or
otherwise, the selling security holders may enter into hedging transactions
with broker-dealers. In connection with such transactions, broker-dealers may
engage in short sales of the Offered Securities in the course of hedging the
position they assume with the selling security holders. The selling security
holders may also sell the Offered Securities short and redeliver the
securities to close out such short positions.
The selling security holders 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 securities
offered hereby, which securities such broker-dealer may resell pursuant to
this prospectus (as supplemented or amended to reflect such transaction, if
necessary). The selling security holders may also pledge securities to a
broker-dealer and, upon a default, such broker-dealer may effect sales of the
pledged securities pursuant to this prospectus (as supplemented or amended to
reflect such transaction, if necessary). The selling security holders may also
sell the Offered Securities 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, the selling security holders may sell
Offered Securities in transactions that are exempt from the registration
requirements of the Securities Act, and any Offered Securities that qualify
for sale pursuant to Rule 144 may be sold under Rule 144 rather than pursuant
to this prospectus. Certain of the selling security holders may also
distribute the Offered Securities covered by this prospectus to their partners
or members. Such partners or members may sell the Offered Securities received
upon such distribution pursuant to this prospectus (as supplemented or amended
to reflect such transaction, if necessary).
Brokers and dealers may receive compensation in the form of
concessions or commissions from the selling security holders and/or purchasers
of securities 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 security holders and any broker or dealer that participates in the
distribution of securities may be deemed to be underwriters and any
commissions received by them and any profit on the resale of securities
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 security holders, certain underwriters who participate in an
offering of the Offered Securities, and each person, if any, who controls any
of such parties within the meaning of the Securities Act and the Exchange Act,
against certain liabilities, including liabilities arising under the
Securities Act. The selling security holders may agree to indemnify any agent
or broker-dealer that participates in transactions involving sales of the
Offered Securities against certain liabilities, including liabilities arising
under the Securities Act.
We have advised the selling security holders that Regulation M under
the Exchange Act may apply to sales of the Offered Securities and to the
activities of the selling security holders or broker-dealers in connection
therewith. We will bear all costs, expenses and fees in connection with the
registration of the Offered Securities covered by this prospectus. The selling
security holders will bear any brokerage commissions and similar selling
expenses, if any, attributable to the sale of the Offered Securities.
RESTRICTIONS ON OWNERSHIP OF CAPITAL STOCK
Excess Stock
The 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 Offered Securities offered hereby
and certain legal matters will be passed upon by Brown & Wood LLP, New York,
New York.
EXPERTS
The consolidated financial statements of the Company 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 in this prospectus 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.
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....... $24,227.00
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..................................................... $71,227.00
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
of 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 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 stockholder 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)
4.4 Form of Warrant.
5 -- Opinion of Brown & Wood LLP as to the legality of the
common stock.
23.1 -- Consent of Brown & Wood LLP (included in Exhibit 5).
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).
---------------
(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 (333-34246), filed April 7, 2000, 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) 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.
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
August 16, 2000.
FRONTLINE CAPITAL GROUP
By: /s/ Scott H. Rechler
-------------------------------------
Scott H. Rechler
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Scott H. Rechler and Michael Maturo,
and each of them, his true and lawful attorney-in-fact and agent, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capabilities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement, and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their or his substitute or substitutes, 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 and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Scott H. Rechler President, Chief Executive Officer and Director August 16, 2000
--------------------- (Principal Executive Officer)
Scott H. Rechler
Executive Vice President, Treasurer and Chief
/s/ Michael Maturo Financial Officer (Principal Financial Officer and August 16, 2000
------------------- Principal Accounting Officer)
Michael Maturo
/s/ Roger M. Rechler Director August 16, 2000
---------------------
Roger M. Rechler
/s/ Mitchell D. Rechler Secretary and Director August 16, 2000
------------------------
Mitchell D. Rechler
/s/ Paul F. Amoruso Director August 16, 2000
--------------------
Paul F. Amoruso
/s/ Ronald S. Cooper Director August 16, 2000
---------------------
Ronald S. Cooper
/s/ Douglas A. Sgarro Director August 16, 2000
----------------------
Douglas A. Sgarro
/s/ Sidney Braginsky Director August 16, 2000
---------------------
Sidney Braginsky
</TABLE>
<TABLE>
<CAPTION>
Exhibit Index
Exhibits Description Page
-------- ----------- ----
<S> <C> <C>
4.4 -- Form of Warrant.
5 -- Opinion of Brown & Wood LLP as to the legality of the Offered Securities.
23.1 -- Consent of Brown & Wood LLP (included in Exhibit 5).
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).
</TABLE>
