PROSPECTUS SUPPLEMENT
(To Prospectus Dated September 29, 1997)
791,152 Shares
RECKSON ASSOCIATES REALTY CORP.
Common Stock
All of the shares of common stock, par value $0.01 per share (the
"Common Stock") offered hereby are being sold by Reckson Associates Realty
Corp. (the "Company"). The Common Stock is listed on the New York Stock
Exchange (the "NYSE") under the symbol "RA". On February 12, 1998, the last
reported sale price of the Common Stock on the NYSE was $25.4375 per share.
The Underwriter has agreed to purchase the shares of Common Stock from
the Company at a price of $24.17 per share, resulting in aggregate proceeds
to the Company of $19,072,143.84 after deducting payment of expenses by the
Company estimated to be $50,000, subject to the terms and conditions set
forth in the Underwriting Agreement (as defined herein). The Underwriter
intends to deposit the shares of Common Stock with the trustee of National
Equity Trust Equity Portfolio Series 2 (REIT Portfolio) (the "Trust") in
exchange for units in the Trust. The Company has agreed to indemnify the
Underwriter against certain liabilities, including liabilities under the
Securities Act of 1933, as amended.
________________________________
See "Risk Factors" on pages 4 to 12 in the accompanying Prospectus for a
discussion of certain factors that should be considered in connection with an
investment in the Common Stock.
________________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
________________________________
The shares of Common Stock are offered by the Underwriter subject to
prior sale, when, as and if accepted by the Underwriter and subject to
certain conditions. It is expected that delivery of the shares of Common
Stock will be made on or about February 18, 1998 through the facilities of
the Depository Trust Company, New York, New York.
________________________________
Prudential Securities Incorporated
February 12, 1998
FORWARD-LOOKING INFORMATION
This Prospectus Supplement and the accompanying Prospectus, including
documents incorporated by reference herein and therein, contain certain
forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended (the "Securities Act"), and Section 21B of
the Securities Exchange Act of 1934, as amended. The Company intends such
forward-looking statements to be covered by the safe harbor provisions for
forward-looking statements contained in the Private Securities Litigation
Reform Act of 1995, and is included in this statement for purposes of
complying with these safe harbor provisions. Forward-looking statements are
generally identifiable by use of the words "believe," "expect," "intend,"
"anticipate," "estimate," "project" or similar expressions. The Company's
ability to predict results or the actual effect of future plans or strategies
is inherently uncertain. Factors that could cause actual results to differ
materially from those in forward-looking statements include, but are not
limited to, those stated under the caption "Risk Factors" set forth in the
accompanying Prospectus, which should be considered in evaluating
forward-looking statements. Undue reliance should not be placed on such
statements.
THE COMPANY
Reckson Associates Realty Corp. is a self-administered and self-managed
real estate investment trust ("REIT") specializing in the acquisition,
leasing, financing, management and development of office and industrial
properties. The Company is one of the largest publicly-traded owners and
managers of Class A suburban office and industrial properties in the New York
"Tri-State" area, with 192 properties comprised of approximately 20.2 million
square feet either owned and controlled, directly or indirectly, or under
contract. The Company's core growth strategy is focused on the suburban
markets within the 50-mile radius surrounding New York City. The Company's
executive offices are located at 225 Broadhollow Road, Melville, NY 11747.
RECENT DEVELOPMENTS
On February 2, 1998, the Clinton Administration released a summary of
its proposed budget plan which contained several proposals affecting REITs.
One such proposal, if enacted in its present form, would prohibit a REIT from
holding securities representing more than 10% of the value of all classes of
stock of a corporation, other than a qualified REIT subsidiary or another
REIT. Although current stock interests in existing subsidiaries, such as
Reckson Management Group, Inc. and Reckson Construction Group, Inc.
(together, the "Subsidiary Corporations"), would be grandfathered under such
proposal, the Subsidiary Corporations would be prohibited from acquiring
substantial new assets or engaging in a new trade or business. If enacted in
its present form, the proposal may limit the future activities and growth of
the Subsidiary Corporations. No prediction can be made as to whether such
proposal or any other proposal affecting REITs will be enacted into
legislation and the impact of any such legislation on the Company.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common
Stock offered hereby, after deducting estimated expenses related to this
offering, are approximately $19,072,143.84. The Company will use the net
proceeds of this offering to finance pending acquisitions and/or to repay
indebtedness under its unsecured revolving credit facility (the "Credit
Facility").
As of February 12, 1998, the borrowings under the Credit Facility
aggregated approximately $332.3 million, had a weighted average interest rate
of 6.819% and were scheduled to finally mature on April 30, 2000.
UNDERWRITING
Under the terms and subject to the conditions set forth in the Terms
Agreement dated the date hereof and the Underwriting Agreement incorporated
by reference therein (together, the "Underwriting Agreement"), between
Prudential Securities Incorporated (the "Underwriter") and the Company, the
Underwriter has agreed to purchase and the Company has agreed to sell to the
Underwriter 791,152 shares of Common Stock (the "Shares") at the price set
forth on the cover page of this Prospectus Supplement.
The Underwriting Agreement provides that the obligation of the
Underwriter to pay for and accept delivery of the Shares offered hereby is
subject to the approval of certain legal matters by counsel for the
Underwriter and to certain other conditions. The Underwriter is obligated to
take and pay for all of the Shares offered hereby if any such shares are
taken.
The Underwriter intends to deposit the Shares offered hereby with the
Trustee of National Equity Trust Equity Portfolio Series 2 (REIT Portfolio)
(the "Trust"), a registered unit investment trust under the Investment
Company Act of 1940, as amended, to which the Underwriter acts as sponsor and
depositor, in exchange for units in the Trust. The Underwriter is an
affiliate of the Trust.
The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act.
In the ordinary course of business, the Underwriter may from time to
time provide investment banking, financial advisory and commercial banking
services to the Company and its affiliates for which customary compensation
will be received.
LEGAL MATTERS
The legality of the Shares offered hereby and certain legal matters
described under "Federal Income Tax Considerations" in the accompanying
Prospectus will be passed upon for the Company by Brown & Wood LLP, New York,
New York. In addition, certain legal matters will be passed upon for the
Underwriter by Rogers & Wells LLP, New York, New York. Brown & Wood LLP and
Rogers & Wells LLP will rely on Ballard Spahr Andrews & Ingersoll, Baltimore,
Maryland, as to certain matters of Maryland law.
<TABLE>
<CAPTION>
___________________________________________________________ _____________________________________________________________
<S> <C>
No dealer, salesman or other person has been
authorized to give any information or to make any
representation not contained or incorporated by 791,152 Shares
reference in this Prospectus Supplement and Prospectus.
If given or made, such information or representation
must not be relied upon as having been authorized by
the Company or the Underwriter. This Prospectus
Supplement and the Prospectus do not constitute an Reckson
offer to sell, or a solicitation of an offer to buy, Associates
Common Stock in any jurisdiction to any person to whom Realty Corp.
it is unlawful to make such offer or solicitation in
such jurisdiction. Neither the delivery of this
Prospectus Supplement or the Prospectus nor any sale
made hereunder shall, under any circumstances, create
any implication that there has been no change in the Common Stock
affairs of the Company since the date hereof.
_______________
_____________________
PROSPECTUS SUPPLEMENT
TABLE OF CONTENTS _______________
Prospectus Supplement
Page
----
Forward-Looking Information . . . . . . . . . . . S-2
The Company . . . . . . . . . . . . . . . . . . . S-2
Recent Developments . . . . . . . . . . . . . . . S-2
Use of Proceeds . . . . . . . . . . . . . . . . . S-2
Underwriting . . . . . . . . . . . . . . . . . . S-3
Legal Matters . . . . . . . . . . . . . . . . . . S-3
Prospectus
Available Information . . . . . . . . . . . . . . 2
Incorporation of Certain Documents by
Reference . . . . . . . . . . . . . . . . . . . 2
The Company . . . . . . . . . . . . . . . . . . . 4 Prudential Securities Incorporated
Risk Factors . . . . . . . . . . . . . . . . . . 4
Use of Proceeds . . . . . . . . . . . . . . . . . 12
Description of Common Stock . . . . . . . . . . . 13
Description of Warrants . . . . . . . . . . . . . 14
Restrictions on Ownership of Capital Stock. . . . 15
Federal Income Tax Considerations . . . . . . . . 17
Plan of Distribution . . . . . . . . . . . . . . 18
Legal Matters . . . . . . . . . . . . . . . . . . 19 February 12, 1998
Experts . . . . . . . . . . . . . . . . . . . . . 19
___________________________________________________________ _____________________________________________________________
</TABLE>
PROSPECTUS
- ----------
$500,000,000
RECKSON ASSOCIATES REALTY CORP.
COMMON STOCK AND WARRANTS
_________________
Reckson Associates Realty Corp. (the "Company") may offer and issue from
time to time (i) shares of its common stock, $.01 par value per share (the
"Common Stock") and (ii) warrants to purchase Common Stock (the "Warrants"),
with an aggregate initial public offering price of up to $500,000,000 on
terms to be determined at the time of offering. The Common Stock and
Warrants (collectively, the "Securities") may be offered at prices and on
terms to be set forth in one or more supplements to this Prospectus (each a
"Prospectus Supplement").
The specific terms of the Securities in respect of which this Prospectus
is being delivered will be set forth in the applicable Prospectus Supplement
and will include, where applicable: (i) in the case of Common Stock, any
initial public offering price and (ii) in the case of Warrants, the
Securities as to which such Warrants may be exercised, the duration, offering
price, exercise price and detachability features. In addition, such specific
terms may include limitations on direct or beneficial ownership and
restrictions on transfer of the Securities, in each case as may be
appropriate to preserve the status of the Company as a real estate investment
trust ("REIT") for United States federal income tax purposes.
See "Restrictions on Ownership of Capital Stock."
The applicable Prospectus Supplement will also contain information,
where applicable, about certain United States federal income tax
considerations relating to, and any listing on a securities exchange of, the
Securities covered by such Prospectus Supplement.
SEE "RISK FACTORS" BEGINNING ON PAGE 4 OF THIS PROSPECTUS FOR A DESCRIPTION
OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PURCHASERS OF THE SECURITIES.
The Securities may be offered directly or through agents designated from
time to time by the Company or to or through underwriters or dealers. If any
agents or underwriters are involved in the sale of any of the Securities,
their names, and any applicable purchase price, fee, commission or discount
arrangement between or among them, will be set forth, or will be calculable
from the information set forth, in an accompanying Prospectus Supplement. No
Securities may be sold by the Company through agents, underwriters or dealers
without delivery of a Prospectus Supplement describing the method and terms
of the offering of such Securities. See "Plan of Distribution."
_________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
_________________________
_________________________
THE DATE OF THIS PROSPECTUS IS SEPTEMBER 29, 1997.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the Exchange Act"), and in
accordance therewith files reports, proxy statements and other information
with the Securities and Exchange Commission (the "Commission"). Reports,
proxy statements and other information filed by the Company 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. Such
materials can also be inspected at the office of the New York Stock Exchange,
Inc. ("NYSE"), 20 Broad Street, New York, New York 10005. The Commission
maintains a Web site at http://www.sec.gov containing reports, proxy and
information statements and other information regarding registrants, including
the Company, that file electronically with the Commission.
The Company has filed with the Commission a Registration Statement on
Form S-3 under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the Securities. This Prospectus does not contain all of the
information set forth in the Registration Statement, certain parts of which
have been omitted in accordance with the rules and regulations of the
Commission. For further information with respect to the Company and the
Securities, reference is made to the Registration Statement, including the
exhibits filed as a part thereof and otherwise incorporated therein.
Statements made in this Prospectus as to the contents of any contract,
agreement or other document referred to are not necessarily complete; with
respect to each such contract, agreement or other document filed as an
exhibit to the Registration Statement, reference is made to such exhibit for
a more complete description of the matter involved, and each such statement
shall be deemed qualified in its entirety by such reference. Copies of the
Registration Statement and the exhibits may be inspected, without charge, at
the offices of the Commission, or obtained at prescribed rates from the
Public Reference Section of the Commission at the address set forth above.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents heretofore filed by the Company with the
Commission pursuant to the Exchange Act are incorporated by reference in this
Prospectus:
1. Annual Report on Form 10-K for the year ended December
31, 1996.
2. Quarterly Reports on Form 10-Q for the quarters
ended March 31, 1997 and June 30, 1997.
3. Current Reports on Form 8-K (including Form 8-K/A) and
dated March 8, 1996, October 1, 1996, October 22, 1996,
November 25, 1996, February 18, 1997, May 15, 1997, June 12,
1997, August 7, 1997 and September 9, 1997, respectively.
4. The description of the Company's Common Stock which is
contained in Item 1 of the Company's registration statement
on Form 8-A, as amended, filed May 9, 1995 pursuant to Section
12 of the Exchange Act.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14
or 15(d) of the Exchange Act subsequent to the date of this Prospectus and
prior to the termination of the offering of the Securities hereunder shall be
deemed to be incorporated by reference herein and to be a part hereof from
the date of the filing of such reports and documents. Any statement
contained in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for the
purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is incorporated or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
The Company will provide a copy of any or all of such specifically
incorporated by reference therein), without charge, to each person to whom
this Prospectus is delivered, upon written or oral request to Reckson
Associates Realty Corp., 225 Broadhollow Road, Melville, New York 11747,
Attn: Jason M. Barnett, Senior Vice President and General Counsel (516)
694-6900.
THE COMPANY
Reckson Associates Realty Corp. (including, as the context requires, its
subsidiaries, the "Company") was incorporated in September 1994 and commenced
operations effective with the completion of its initial public offering (the
"IPO") on June 2, 1995. The Company, together with Reckson Operating
Partnership, L.P. (the "Operating Partnership"), was formed for the purpose
of continuing the commercial real estate business of Reckson Associates, its
affiliated partnerships and other entities ("Reckson"). For more than 35
years, Reckson has been engaged in the business of owning, developing,
acquiring, constructing, managing and leasing suburban office and industrial
properties in the New York metropolitan area. Based on industry surveys,
management believes that the Company is one of the largest owners and
managers of Class A suburban office and industrial properties in the New York
City metropolitan Tri-State area of New York, New Jersey and Connecticut (the
"Tri-State area"). The Company's growth strategy is currently focused on
suburban markets within a 50 mile radius surrounding New York City. The
Company operates as a fully-integrated, self administered and self-managed
REIT. As of September 29, 1997, the Company owned 136 properties (including
three joint ventures) (the "Properties") encompassing approximately 11.6
million rentable square feet, all of which are managed by the Company. The
Properties consist of 44 Class A suburban office properties (the "Office
Properties") encompassing approximately 6.1 million rentable square feet, 90
industrial properties (the "Industrial Properties") encompassing
approximately 5.5 million rentable square foot retail properties. In
addition, as of September 29, 1997, the Company owned or had contracted to
acquire approximately 698 acres of land (including 400 acres under option)
that may present future development opportunities and had invested
approximately $52.6 million in certain mortgage indebtedness encumbering
five Class A office properties on Long Island encompassing an aggregate of
approximately 928,000 square feet and a 400-acre parcel of land.
In addition, the Company has invested $17 million in a note receivable
secured by the interest of Odyssey Partners, L.P. in Omni Partners, L.P.
The Office Properties are Class A suburban office buildings and are
well-located, well-maintained and professionally managed. In addition, these
properties are modern with high finishes or have been modernized to
successfully compete with newer buildings and achieve among the highest rent,
occupancy and tenant retention rates within their markets. The majority of
the Office Properties are located in six planned office parks and are
tenanted primarily by national service firms such as "big six" accounting
firms, securities brokerage houses, insurance companies and health care
providers. The Industrial Properties are utilized for distribution,
warehousing, research and development and light manufacturing/assembly
activities and are located primarily in three planned industrial parks.
The Company's executive offices are located at 225 Broadhollow Road,
Melville, New York 11747 and its telephone number at that location is (516)
694-6900. At September 29, 1997, the Company had approximately 200
employees.
RISK FACTORS
This Prospectus contains forward-looking statements which involve risks
and uncertainties. The Company's actual results may differ significantly
from the results discussed in the forward-looking statements. Factors that
might cause such a difference include, but are not limited to, those
discussed below. An investment in the Securities involves various risks.
Prospective investors should carefully consider the following information in
conjunction with the other information contained in this Prospectus before
purchasing the Securities offered hereby (the "Offering").
DEPENDENCE ON TRI-STATE AREA MARKET CONDITIONS DUE TO LIMITED GEOGRAPHIC
DIVERSIFICATION
Currently, all of the Properties are located in the Tri-State area.
Consequently, the Company is dependent upon the continued demand for office,
industrial and other commercial space in the Tri-State area. Like other real
estate markets, the commercial real estate markets have experienced periodic
economic fluctuations and a future decline in the Tri-State area economy or
in the market for commercial real estate could affect the Company's cash
available for distribution and its ability to make distributions to
shareholders.
CONFLICTS OF INTEREST IN THE BUSINESS OF THE COMPANY
Tax Consequences Upon Sale or Refinancing. Holders of units of limited
partnership of the Operating Partnership ("Units") or co-owners of properties
not owned entirely by the Company may suffer different and more adverse tax
consequences than the Company upon the sale or refinancing of the Properties
owned by the Operating Partnership and therefore such holders or co-owners
and the Company may have different objectives regarding the appropriate
pricing and timing of any sale or refinancing of such Properties. While the
Company, as the sole general partner of the Operating Partnership, has the
exclusive authority as to whether and on what terms to sell or refinance each
Property owned solely by the Operating Partnership, those Directors and
officers of the Company who hold Units may seek to influence the Company not
to sell or refinance the Properties, even though such a sale might otherwise
be financially advantageous to the Company, or may seek to influence the
Company to refinance a Property with a higher level of debt.
Policies With Respect to Conflicts of Interest. The Company has adopted
certain policies designed to eliminate or minimize conflicts of interest.
These policies include a requirement that all transactions in which officers
or Directors have a conflicting interest must be approved by a majority of
the Directors of the Company who are neither officers of the Company nor
affiliated with Reckson (the "Independent Directors"). However, there can be
no assurance that these policies will be successful in minimizing or
eliminating such conflicts and, if they are not successful, decisions could
be made that might fail to reflect fully the interests of all stockholders.
RISKS OF ADVERSE EFFECT ON COMPANY FROM DEBT SERVICING AND REFINANCING,
INCREASES IN INTEREST RATES, FINANCIAL COVENANTS AND ABSENCE OF LIMITATION OF
DEBT
Debt Financing. The Company is subject to the risks normally associated
with debt financing, including the risk that the Company's cash flow will be
insufficient to meet required payments of principal and interest, the risk
that existing indebtedness on the Properties (which in most cases will not
have been fully amortized at maturity) will not be able to be refinanced or
that the terms of such refinancing will not be as favorable as the terms of
the existing indebtedness. There can be no assurance that the Company will
be able to refinance any indebtedness the Company may incur or to otherwise
obtain funds by selling assets or raising equity to make required payments on
maturing indebtedness.
Existing Debt Maturities; Foreclosures. The Company anticipates that
only a portion of the principal of the Company's mortgage indebtedness
currently outstanding will be repaid prior to maturity. However, the Company
may not have on hand funds sufficient to repay such indebtedness at maturity;
it may therefore be necessary for the company to refinance debt through
additional debt financing or equity offerings. If the Company is unable
to refinance this indebtedness on
acceptable terms, the Company may be forced to dispose of properties upon
disadvantageous terms, which could result in losses to the Company and
adversely affect the amount of cash available for distribution to
stockholders. Further, if a property or properties are mortgaged to secure
payment of indebtedness and the Company is unable to meet mortgage payments,
the property or properties could be foreclosed upon by or otherwise
transferred to the mortgagee with a consequent loss of income and asset value
to the Company. In addition, even with respect to non-recourse indebtedness,
the lender may have the rights to recover deficiencies from the Company in
certain circumstances, including fraud and environmental liabilities.
Risk of Rising Interest Rates. Outstanding advances under the Credit
Facility (defined below) and the Credit Facility (defined below) bear
interest at a variable rate. In addition, the Company may incur indebtedness
in the future that also bears interest at a variable rate or may be required
to refinance its debt at higher rates. Accordingly, increases in interest
rates could increase the Company's interest expense, which could adversely
affect the Company's ability to pay expected distributions to stockholders.
Credit Facility Requirements. The Company has obtained a three-year
unsecured credit facility from The Chase Manhattan Bank and Union Bank of
Switzerland, as co-arrangers. The Credit Facility provides for a maximum
borrowing amount of up to $250 million. The Company's ability to borrow
under the Credit Facility is subject to the satisfaction of certain financial
covenants, including covenants relating to limitations on unsecured and
secured borrowings, minimum interest and fixed charge coverage ratios, a
minimum equity value and a maximum dividend payout ratio. In addition,
borrowings under the Credit Facility bear interest at a floating rate equal
to one, two, three or six month LIBOR (at the Company's election) plus a
spread ranging from 1.125% to 1.5%, based on the Company's leverage ratio.
No Limitation on Debt. The Company currently has a policy of incurring
debt only if upon such incurrence the Company's Debt Ratio would be 50% or
less. For these purposes, Debt Ratio is defined as the total debt of the
Company as a percentage of the market value of outstanding shares of Common
Stock on a fully diluted basis plus total debt. Certain of the Company's
indebtedness contains limitations on the ability of the Operating Partnership
to incur additional indebtedness. However, the organizational documents of
the Company do not contain any limitation on the amount of indebtedness the
Company may incur. Accordingly, the Board of Directors could alter or
eliminate this policy and would do so, for example, if it were necessary in
order for the Company to continue to qualify as a REIT. If this policy were
changed, the Company could become more highly leveraged, resulting in an
increase in debt service that could adversely affect the Company's cash
available for distribution to stockholders and could increase the risk of
default on the Company's indebtedness.
LIMITS ON OWNERSHIP AND CHANGES IN CONTROL MAY DETER CHANGES IN MANAGEMENT
AND THIRD PARTY ACQUISITION PROPOSALS
Ownership Limit. In order to maintain its qualification as a REIT, not
more than 50% in value of the outstanding capital stock of the Company may be
owned, directly or indirectly, by five or fewer individuals (as defined in
the Internal Revenue Code of 1986, as amended (the "Code"), to include
certain entities) during the last half of a taxable year (other than the
first year). In order to protect the Company against the risk of losing REIT
status due to a concentration of ownership among its stockholders, the
Charter of the Company limits ownership of the issued and outstanding Common
Stock by any single stockholder to 9.0% of the lesser of the number or value
of the outstanding shares of Common Stock from time to time. See
"Restrictions on Ownership of Capital Stock." Such provision may have the
effect of delaying, deferring or preventing a change of control of the
Company or other transaction by a third party without the consent of the
Board of Directors even if a change of control were in the best interests of
stockholders.
Staggered Board. The Board of Directors of the Company is divided into
three classes of directors. The terms of the Class I, Class II and Class III
directors will expire in 1999, 2000 and 1998, respectively. Directors for
each class are chosen for a three-year term upon the expiration of the
applicable prior term.
Required Consent of Holders of Units for Certain Transactions. For the
five-year period following completion of the IPO (i.e. through June 2, 2000),
the Operating Partnership may not sell, transfer or otherwise dispose of all
or substantially all of its assets or engage in any other similar transaction
(regardless of the form of such transaction) without the consent of the
holders of 85% of all outstanding Units. This voting requirement could
delay, defer or prevent a change in control of the Company.
Future Issuances of Common Stock. The Charter authorizes the Board of
Directors to issue additional shares of Common Stock without shareholder
approval. The Company may issue shares of common stock from time to time in
exchange for limited partnership units pursuant to the Operating Partnership
agreement. Any such issuance could have the effect of diluting existing
shareholders' interests in the Company.
Preferred Stock. The Charter authorizes the Board of Directors to issue
up to 25 million shares of preferred stock, $.01 par value per share (the
"Preferred Stock" and, together with the Common Stock, the "Stock"), to
reclassify unissued shares of Stock, and to establish the preferences,
conversion and other rights, voting powers, restrictions, limitations and
restrictions on ownership, limitations as to dividends or other
distributions, qualifications, and terms and conditions of redemption for
each such class or series of any Preferred Stock issued. Although the Board
of Directors has no such intention at the present time, it could establish a
series of Preferred Stock that could, depending on the terms of such series,
delay, defer or prevent a transaction or a change in control of the Company
that might involve a premium price for the Common Stock or otherwise be in
the best interest of the stockholders.
Limitations on Acquisition of and Changes in Control Pursuant to
Maryland Law. Certain provisions of the Maryland General Corporation Law
(the "MGCL") may have the effect of inhibiting a third party from making an
acquisition proposal for the Company or of delaying, deferring or preventing
a change in control of the Company under circumstances that otherwise could
provide the holders of shares of Common Stock with the opportunity to realize
a premium over the then-prevailing market price of such shares. However, as
permitted by the MGCL, the Bylaws of the Company contain a provision
exempting from the control share acquisition statute any and all acquisitions
by any person of the Company's shares of stock. In addition, the board of
directors has adopted a resolution exempting the Company from the provisions
of the business combination statute. There can be no assurance that such
provisions will not be amended or eliminated at any time in the future.
RISKS OF ACQUISITION, DEVELOPMENT AND CONSTRUCTION ACTIVITIES
The Company intends to acquire existing office and industrial properties
to the extent that they can be acquired on advantageous terms and meet the
Company's investment criteria. Acquisitions of commercial properties entail
general investment risks associated with any real estate investment,
including the risk that investments will fail to perform as expected or that
estimates of the cost of improvements to bring an acquired property up to
standards established for the intended market position may prove inaccurate.
The Company also intends to continue the selective development and
construction of office and industrial properties in accordance with the
Company's development and underwriting policies as opportunities arise in the
future. Risks associated with the Company's development and construction
activities include the risks that: the Company may abandon development
opportunities after expending resources to determine feasibility;
construction costs of a project may exceed original estimates; occupancy
rates and rents at a newly completed property may not be sufficient to make
the property profitable; financing may not be available on favorable terms
for development of a property; and construction and lease-up may not be
completed on schedule, resulting in increased debt service expense and
construction costs. 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 occur, the Company's ability
to make expected distributions to stockholders 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.
REAL ESTATE INVESTMENT RISKS
General Risks. Investments of the Company are subject to the risks
incident to the ownership and operation of commercial real estate generally.
The yields available from equity investments in real estate depend on the
amount of income generated and expenses incurred. If the Company's
properties do not generate revenues sufficient to meet operating expenses,
including debt service and capital expenditures, the Company's cash available
for distributions and ability to make distributions to its stockholders will
be adversely affected.
A commercial property's revenues and value may be adversely affected by
a number of factors, including 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); the perceptions of prospective tenants
of the safety, convenience and attractiveness of the properties; the ability
of the owner to provide adequate management, maintenance and insurance; the
ability to collect on a timely basis all rent from tenants; the expense of
periodically renovating, repairing and reletting spaces; and increasing
operating costs (including real estate taxes and utilities) which may not be
passed through to tenants. Certain significant expenditures associated with
investments in real estate (such as mortgage payments, real estate taxes,
insurance and maintenance costs) are generally not reduced when circumstances
cause a reduction in rental revenues from the property. If a property is
mortgaged to secure the payment of indebtedness and if the Company is unable
to meet its mortgage payments, a loss could be sustained as a result of
foreclosure on the property or the exercise of other remedies by the
mortgagee. In addition, real estate values and income from properties are
also affected by such factors as compliance with laws, including tax laws,
interest rate levels and the availability of financing. Also, the
rentable square feet of commercial property is often
affected by market conditions and may therefore fluctuate over time.
Tenant Defaults. Substantially all of the Company's income is derived
from rental income from real property and, consequently, the Company's
distributable cash flow and ability to make expected distributions to
stockholders would be adversely affected if a significant number of tenants
of its properties failed to meet their lease obligations. In the event of a
default by a lessee, the Company may experience delays in enforcing its
rights as lessor and may incur substantial costs in protecting its
investment.
Market Illiquidity. Equity real estate investments are relatively
illiquid. Such illiquidity will tend to limit the ability of the Company to
vary its portfolio promptly in response to changes in economic or other
conditions. In addition, provisions of the Code limit a REIT's ability to
sell properties held for fewer than four years, which may affect the
Company's ability to sell properties at a time when it is otherwise
economically advantageous to do so, thereby adversely affecting returns to
stockholders.
Operating Risks. The Properties are subject to operating risks common
to commercial real estate in general, any and all of which may adversely
affect occupancy or rental rates. The Properties are subject to increases in
operating expenses such as cleaning; electricity; heating, ventilation and
air conditioning ("HVAC"); elevator repair and maintenance; insurance and
administrative costs; and other general costs associated with security,
landscaping, repairs and maintenance. While the Company's tenants generally
are currently obligated to pay a portion of these escalating costs, there can
be no assurance that tenants will agree to pay such costs upon renewal or
that new tenants will agree to pay such costs. If operating expenses
increase, the local rental market may limit the extent to which rents may be
increased to meet increased expenses without decreasing occupancy rates.
While the Company implements costs saving incentive measures at each of its
Properties, if any of the above occurs, the Company's ability to make
distributions to stockholders could be adversely affected.
Competition. There are numerous commercial properties that compete with
the Company in attracting tenants and numerous companies that compete in
selecting land for development and properties for acquisition.
Third-Party Property Management and Construction. The Company pursues
actively (through its affiliated management company) the management of
properties which are owned by third parties. Risks associated with the
management of properties owned by third parties include the risk that
management contracts (which are typically cancelable without notice)
will be terminated by the entity controlling the property or in connection
with the sale of such property, that contracts may not be renewed upon
expiration or may not be renewed on terms consistent with current terms
and that the rental revenues upon which management fees are
based will decline as a result of general real estate market conditions
or specific market factors affecting properties managed by the
Company, resulting in decreased management fee income. The Company's
third-party interior construction business (which is conducted
through its affiliated construction company) is subject to similar risks.
Uninsured Loss. The Company carries comprehensive liability, fire,
extended coverage and rental loss insurance with respect to all of the
Properties, with policy specifications, insured limits and deductibles
customarily carried for similar properties. There are, however, certain
types of losses (such as losses arising from acts of war or relating
to pollution) that are not generally insured because they are either
uninsurable or not economically insurable. Should an uninsured loss or a
loss in excess of insured limits occur, the Company could lose its capital
invested in a property, as well as the anticipated future revenue from
such property and would continue to be obligated on any mortgage indebtedness
or other obligations related to the property. Any such loss would adversely
affect the business of the Company and its financial condition and results of
operations.
Investments in Mortgage Debt. From time to time, the Company may invest
in mortgages which are secured by office or industrial properties and, in
certain circumstances, may result in the acquisition of the related
properties through foreclosure proceedings or negotiated settlements. In
addition to the risks associated with investments in commercial properties,
investments in mortgage indebtedness present additional risks, including the
risk that the fee owners of such properties may default in payments of
interest on a current basis and that the Company may not realize its
anticipated return or sustain losses relating to such investments. In that
regard, as of June 30, 1997, the Company had invested approximately $52.1
million in mortgage indebtedness encumbering five Class A office properties
on Long Island.
RISKS INVOLVED IN PROPERTY OWNERSHIP THROUGH PARTNERSHIPS AND JOINT VENTURES
The Company owns through the Operating Partnership a 60% general partner
interest in Omni Partners, L.P. (the "Omni Partnership"), the partnership
that owns the Omni, a 575,000 square foot office building located in the
Company's Nassau West Corporate Center office park. Odyssey Partners, L.P.
and an affiliate of Odyssey (collectively, "Odyssey") own the remaining
40% interest. Through its partnership interest, the Company acts as managing
partner and has the sole authority to conduct the business and affairs of
the Omni Partnership subject to the limitations set forth in the amended
and restated agreement of limited partnership of Omni Partners, L.P.
(the "Omni Partnership Agreement"). These limitations include Odyssey's
right to negotiate under certain circumstances a refinancing of the
mortgage debt encumbering the Omni and the right to approve any sale of
the Omni made on or before March 13, 2007 (the "Acquisition Date").
The Operating Partnership will continue to act as the sole managing
partner of the Omni Partnership unless certain conditions specified in
the Omni Partnership Agreement shall occur. Upon the occurrence of any of
such conditions the Operating Partnership's general partnership interest
shall be converted to a limited partnership interest (in which case an
affiliate of Odyssey shall be the sole managing partner), or at the
option of Odyssey, the Operating Partnership shall be a co-managing
partner with an Odyssey affiliate of Odyssey. In addition, on the
Acquisition Date, the Operating Partnership will have the right to
purchase Odyssey's interest in the Omni Partnership at a price
(the "Option Price") based on 90% of its fair market value. If the
Operating Partnership fails to exercise such option, Odyssey
has the right to require the Operating Partnership to purchase
Odyssey's interest in the Omni Partnership on the Acquisition Date
at the Option Price. The Operating Partnership has the right to
extend the Acquisition Date until March 13, 2012. The Option Price
shall be applied to the payment of all sums due under a loan
(the "Odyssey Loan") made by the Operating Partnership in March
1997 to Odyssey in the amount of approximately $17 million.
The Odyssey Loan matures on the Acquisition Date (subject to
the Operating Partnership's right to extend the Acquisition Date
as set forth above) and is secured by a pledge of all of
Odyssey's right, title and interest in the Omni Partnership.
All distributions of net cash flow which Odyssey would otherwise be
entitled to shall be applied to all interest which is due under the
Odyssey Loan. All distributions from a sale or refinancing of the
Omni which Odyssey would otherwise be entitled to shall be applied
to the interest and principal outstanding under the Odyssey Loan.
In addition, the Company may in the future acquire either a
limited partnership interest in a property partnership without
partnership management responsibility or a co-venturer interest or co-general
partnership interest in a property partnership with shared responsibility
for managing the affairs of a property partnership or joint venture and,
therefore, will not be in a position to exercise sole decision-making
authority regarding the property partnership or joint venture. In that
regard, the Company (through the Operating Partnership) owns a 60%
managing member interest in a limited liability company that owns 520
White Plains Road, a 171,761 square foot office building located in
Tarrytown, New York. The remaining 40% member interest is held by Tarrytown
Corporate Center III, L.P., a partnership affiliated with the Halpern
organization ("TCC"). Pursuant to the member agreement governing the joint
venture arrangement, the Company will be required to obtain the consent of
TCC prior to engaging in certain activities, including entering into or
modifying a major lease (i.e., a lease for more than 25,000 rentable square
feet), financing or refinancing indebtedness encumbering the property and
selling or otherwise transferring the property. The Company also owns
(through the Operating Partnership) a 50% co-managing member interest in a
limited liability company that owns 360 Hamilton Avenue, a 365,000 square
foot office building located in White Plains, New York. The remaining 50%
co-managing member interest is held by an unaffiliated corporation. Pursuant
to the member agreement governing this joint venture, decisions that affect
the business and affairs of the joint venture generally require the approval
of both co-managing members and such members are jointly responsible for the
day-to-day operation of the property.
Partnership or joint venture investments may, under certain
circumstances, involve risks not otherwise present, including the possibility
that the Company's partners or co-venturer might become bankrupt, that such
partners or co-venturer might at any time have economic or other business
interests or goals which are inconsistent with the business interests or
goals of the Company, and that such partners or co-venturer may be in a
position to take action contrary to the instructions or the requests of the
Company and contrary to the Company's policies or objectives, including the
Company's policy with respect to maintaining its qualification as a REIT.
Such investments may also have the potential risk of impasse on decisions,
such as a sale, because neither the Company nor the partner or co-venturer
would have full control over the partnership or joint venture. Consequently,
actions by such partner or co-venturer might result in subjecting properties
owned by the partnership or joint venture to additional risk. The Company
will, however, seek to maintain sufficient control of such partnerships or
joint ventures to permit the Company's business objectives to be achieved.
There is no limitation under the Company's organizational documents as to the
amount of available funds that may be invested in partnerships or joint
ventures.
POTENTIAL ENVIRONMENTAL LIABILITY RELATED TO THE PROPERTIES
Under various Federal, state and local laws, ordinances and regulations,
an owner of real estate is liable for the costs of removal or remediation of
certain hazardous or toxic substances on or in such property. These laws
often impose such liability without regard to whether the owner knew of, or
was responsible for, the presence of such hazardous or toxic substances. The
cost of any required remediation and the owner's liability therefore as to
any property is generally not limited under such enactments and could exceed
the value of the property and/or the aggregate assets of the owner. The
presence of such substances, or the failure to properly remediate such
substances, may adversely affect the owner's ability to sell or rent such
property or to borrow using such property as collateral. Persons who arrange
for the disposal or treatment of hazardous or toxic substances may also be
liable for the costs of removal or remediation of such substances at a
disposal or treatment facility, whether or not such facility is owned or
operated by such person. Certain environmental laws govern the
removal, encapsulation or disturbance of asbestos-containing materials
("ACMs") when such materials are in poor condition, or in the event of
renovation or demolition. Such 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, the Company may be considered
an owner or operator of such properties or as having arranged for
the disposal or treatment of hazardous or toxic substances and,
therefore, potentially liable for removal or remediation costs, as
well as certain other related costs, including governmental fines and
injuries to persons and property.
All of the Office Properties and all of the Industrial Properties have
been subjected to a Phase I or similar environmental site assessment after
April 1, 1994 (which involved general inspections without soil sampling,
ground water analysis or radon testing and, for the Properties constructed in
1978 or earlier, survey inspections to ascertain the existence of ACMs were
conducted) completed by independent environmental consultant companies
(except for 35 Pinelawn Road which was originally developed by Reckson and
subjected to a Phase I in April 1992). These environmental site assessments
have not revealed any environmental liability that would have a material
adverse effect on the Company's business.
RISKS OF FAILURE TO QUALIFY AS A REIT
The Company has operated (and intends to operate) so as to qualify as a
REIT under the Code commencing with its taxable year ended December 31, 1995.
Although management of the Company believes that the Company has been
organized and operates in such a manner, no assurance can be given that the
Company will qualify or remain qualified as a REIT. See "Federal Income Tax
Considerations."
EFFECT OF MARKET INTEREST RATES ON PRICE OF COMMON STOCK
One of the factors that influences the market price of the shares of
Common Stock in public markets is the annual yield on the price paid for
shares of Common Stock from distributions by the Company. An increase in
market interest rates may lead prospective purchasers of the Common Stock to
demand a higher annual yield from future distributions. Such an increase in
the required distribution yield may adversely affect the market price of the
Common Stock.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Securities offered
hereby will be used for general corporate purposes, which may include the
repayment of existing indebtedness, the development or acquisition of
additional properties as suitable opportunities arise and the renovation,
expansion and improvement of the Company's existing properties. Further
details relating to the use of the net proceeds will be set forth in the
applicable Prospectus Supplement.
DESCRIPTION OF COMMON STOCK
GENERAL
The Company's Charter (the "Charter") provides that the Company may
issue up to 100 million shares of Common Stock, $.01 par value per share.
Each outstanding share of Common Stock will entitle the holder to one vote on
all matters presented to stockholders for a vote and cumulative voting is not
permitted. Holders of the Common Stock do not have preemptive rights.
On September 15, 1997, there were 34,489,380 shares of Common Stock outstanding.
All shares of Common Stock offered hereby have been duly authorized, and
will be fully paid and nonassessable. Subject to the preferential rights of
any other shares or series of stock and to the provisions of the Charter
regarding Excess Stock (as defined under "Restrictions on Ownership of
Capital Stock"), holders of shares of Common Stock are entitled to receive
dividends on such stock if, as and when authorized and declared by the Board
of Directors of the Company out of assets legally available therefor and to
share ratably in the assets of the Company legally available for distribution
to its stockholders in the event of its liquidation, dissolution or winding
up after payment of or adequate provision for all known debts and liabilities
of the Company.
Subject to the provisions of 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 such shares will possess the exclusive voting power.
There is no cumulative voting in the election of directors, which means that
the holders of a majority of the outstanding shares of Common Stock can elect
all of the directors then standing for election and the holders of the
remaining shares will not be able to elect any directors.
Holders of shares of Common Stock have no preference, conversion,
exchange, sinking fund, redemption or appraisal rights and have no preemptive
rights to subscribe for any securities of the Company. 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 COMPANY'S CHARTER
Under the Maryland General Corporation Law, as amended (the "MGCL"), a
Maryland corporation generally cannot dissolve, amend its charter, merge,
sell all or substantially all of its assets, engage in a share exchange or
engage in similar transactions outside the ordinary course of business unless
approved by the affirmative vote of stockholders holding at least
two-thirds of the shares entitled to vote on the matter unless a lesser
percentage (but not less than a majority of all of the votes entitled to be
cast on the matter) is set forth in the corporation's charter. The Company's
Charter does not provide for a lesser percentage in such situations.
In addition, the Operating Partnership Agreement provides that for the
five-year period following the completion of the IPO (i.e. through June 2,
2000), the Operating Partnership may not sell, transfer or otherwise
dispose of all or substantially all of its assets or engage in any other
similar transaction (regardless of the form of such transaction) without
the consent of the holders of 85% of all outstanding Units.
The Company's Charter authorizes the Board of Directors to reclassify
any unissued shares of Common Stock into other classes or series of classes
of stock and to establish the number of shares in each class or series and to
set the preferences, conversion and other rights, voting powers,
restrictions, limitations and restrictions on ownership, limitations as to
dividends or other distributions, qualifications and terms or conditions of
redemption for each such class or series.
The Company's 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 such
meeting will be elected for a three-year term and the directors in the other
two classes will continue in office. The Company believes that classified
directors will help to assure the continuity and stability of the Board of
Directors and the Company's business strategies and policies as determined
by the Board. The use of a staggered board may delay or defer a change
in control of the Company or removal of incumbent management.
RESTRICTIONS ON OWNERSHIP
For the Company to qualify as a REIT under the Code, not more than 50%
in value of its outstanding Common Stock may be owned, directly or
indirectly, by five or fewer individuals (as defined in the Code) during the
last half of a taxable year and the Common Stock must be beneficially owned
by 100 or more persons during at least 335 days of a taxable year of 12
months (or during a proportionate part of a shorter taxable year). To
satisfy the above ownership requirements and certain other requirements for
qualification as a REIT, the Board of Directors has adopted, and the
stockholders prior to the IPO approved, a provision in the Charter
restricting the ownership or acquisition of shares of Common Stock. See
"Restrictions on Ownership of Capital Stock."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company.
DESCRIPTION OF WARRANTS
The Company may issue Warrants for the purchase of Common Stock.
Warrants may be issued independently or together with any Securities and may
be attached to or separate from such Securities. Each series of Warrants
will be issued under a separate warrant agreement (each, a "Warrant
Agreement") to be entered into between the Company and a warrant agent
specified therein ("Warrant Agent"). The Warrant Agent will act solely as an
agent of the Company in connection with the Warrants of such series and will
not assume any obligation or relationship of agency or trust for or with any
holders or beneficial owners of Warrants.
The applicable Prospectus Supplement will describe the following terms,
where applicable, of the Warrants in respect of which this Prospectus is
being delivered: (1) the title of such Warrants; (2) the aggregate number of
such Warrants; (3) the price or prices at which such Warrants will be issued;
(4) the currencies in which the price or prices of such Warrants may be
payable; (5) the designation, amount and terms of the Securities purchasable
upon exercise of such Warrants; (6) the designation and terms of the other
Securities, if any, with which such Warrants are issued and the number of
such Warrants issued with each such security; (7) if applicable, the date on
and after which such Warrants and the Securities purchasable upon exercise of
such Warrants will be separately transferable; (8) the price or prices at
which and currency or currencies in which the Securities purchasable upon
exercise of such Warrants may be purchased; (9) the date on which the right
to exercise such Warrants shall commence and the date on which such right
shall expire; (10) the minimum or maximum amount of such Warrants which may
be exercised at any one time; (11) information with respect to book-entry
procedures, if any; (12) a discussion of certain federal income tax
considerations; and (13) any other material terms of such Warrants, including
terms, procedures and limitations relating to the exchange and exercise of
such Warrants.
RESTRICTIONS ON OWNERSHIP OF CAPITAL STOCK
EXCESS STOCK
The Charter provides that the Company may issue up to 75 million shares
of excess stock, par value $.01 per share ("Excess Stock"). For a
description of Excess Stock, see "--Restrictions on Ownership" below.
RESTRICTIONS ON OWNERSHIP
For the Company to qualify as a REIT under the Code, among other things,
not more than 50% in value of its outstanding capital stock may be owned,
directly or indirectly, by five or fewer individuals (defined in the Code to
include certain entities) during the last half of a taxable year (other than
the first year) (the "Five or Fewer Requirement"), and such shares of capital
stock must be beneficially owned by 100 or more persons during at least 335
days of a taxable year of 12 months (other than the first year) or during a
proportionate part of a shorter taxable year. Pursuant to the Code, Common
Stock held by certain types of entities, such as pension trusts qualifying
under Section 401(a) of the Code, United States investment companies
registered under the Investment Company Act of 1940, partnerships, trusts and
corporations, will be attributed to the beneficial owners of such entities
for purposes of the Five or Fewer Requirement (i.e., the beneficial owners of
such entities will be counted as shareholders of the Company).
In order to protect the Company against the risk of losing its status as
a REIT due to a concentration of ownership among its stockholders, the
Charter, subject to certain exceptions, provides that no stockholder may own,
or be deemed to own by virtue of the attribution provisions of the Code, more
than 9.0% (the "Ownership Limit") of the aggregate number or value of the
Company's outstanding shares of Common Stock. Any direct or indirect
ownership of shares of stock in excess of the Ownership Limit or that would
result in the disqualification of the Company as a REIT, including any
transfer that results in shares of capital stock being owned by fewer than
100 persons or results in the Company being "closely held" within the meaning
of Section 856(h) of the Code, shall be null and void, and the intended
transferee will acquire no rights to the shares of capital stock. The
foregoing restrictions on transferability and ownership will not apply if the
Board of Directors determines that it is no longer in the best interests of
the Company to attempt to qualify, or to continue to qualify, as a REIT. The
Board of Directors may, in its sole discretion, waive the Ownership Limit if
evidence satisfactory to the Board of Directors and the Company's tax counsel
is presented that the changes in ownership will not then or in the future
jeopardize the Company's REIT status and the 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
shall be repaid to the trustee upon demand. Any dividend or distribution
authorized and declared but unpaid shall be rescinded as void ab initio with
respect to the original transferee-stockholder and shall instead be paid to
the trustee of the trust for the benefit of the Charitable Beneficiary. Any
vote cast by an original transferee-stockholder of shares of capital stock
constituting Excess Stock prior to the discovery by the Company that shares
of capital stock have been transferred in violation of the provisions of the
Company's Charter shall be rescinded as void ab initio. While the Excess
Stock is held in trust, the original transferee-stockholder will be deemed to
have given an irrevocable proxy to the trustee to vote the capital stock
for the benefit of the Charitable Beneficiary. The trustee of the
trust may transfer the interest in the trust representing the Excess
Stock to any person whose ownership of the shares of capital stock
converted into such Excess Stock would be permitted under the Ownership Limit.
If such transfer is made, the interest of the Charitable Beneficiary shall
terminate and the proceeds of the sale shall be payable to the original
transferee-stockholder and to the Charitable Beneficiary as
described herein. The original transferee-stockholder shall 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 shall be paid by the trustee to the Charitable
Beneficiary. Any liquidation distributions relating to Excess Stock shall be
distributed in the same manner as proceeds of a sale of Excess Stock.
If the foregoing transfer restrictions are determined to be void or
invalid by virtue of any legal decision, statute, rule or regulations,
then the original transferee-stockholder of any shares of Excess Stock may
be deemed, at 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 owed 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 Board of Directors determines
that a violative transfer has been made.
These restrictions will not preclude settlement of transactions through
the New York Stock Exchange.
All certificates representing shares of stock will bear a legend
referring to the restrictions described above.
Each stockholder shall upon demand be required to disclose to the
Company in writing any information with respect to the direct, indirect and
constructive ownership of capital stock of the Company as the Board of
Directors deems necessary to comply with the provisions of the Code
applicable to REITs, to comply with the requirements of any taxing authority
or governmental agency or to determine any such compliance.
The Ownership Limit may have the effect of delaying, deferring
or preventing a change in control of the Company unless the Board of
Directors determines that maintenance of REIT status is no longer in the
best interest of the Company.
FEDERAL INCOME TAX CONSIDERATIONS
The Company believes it has operated, and the Company intends to
continue to operate, in such a manner as to qualify as a REIT under the Code,
but no assurance can be given that it will at all times so qualify.
The provisions of the Code pertaining to REITs are highly technical and
complex. The following is a brief and general summary of certain provisions
that currently govern the federal income tax treatment of the Company and its
stockholders. For the particular provisions that govern the federal income
tax treatment of the Company and its stockholders, reference is made to
Sections 856 through 860 of the Code and the regulations thereunder. The
following summary is qualified in its entirety by such reference.
Under the Code, if certain requirements are met in a taxable year, a
REIT generally will not be subject to federal income tax with respect to
income that it distributes to its stockholders. If the Company fails to
qualify during any taxable year as a REIT, unless certain relief provisions
are available, it will be subject to tax (including any applicable
alternative minimum tax) on its taxable income at regular corporate rates,
which could have a material adverse effect upon its stockholders.
In any year in which the Company qualifies to be taxed as a REIT,
distributions made to its stockholders out of current or accumulated earnings
and profits will be taxed to stockholders as ordinary income except that
distributions of net capital gains designated by the Company as capital gain
dividends will be taxed as long-term capital gain income to the stockholders.
To the extent that distributions exceed current or accumulated earnings and
profits, they will constitute a return of capital, rather than dividend or
capital gain income, and will reduce the basis for the stockholder's Common
Stock, with respect to which the distribution is paid or, to the extent that
they exceed such basis, will be taxed in the same manner as gain from the
sale of that Common Stock. Beginning in 1998, the Company may elect to
retain long-term capital gains and pay corporate-level income tax on them and
treat the retained gains as if they had been distributed to stockholders. In
such case, each stockholder would include in income, as long-term capital
gain, its proportionate share of the undistributed gains and would be deemed
to have paid its proportionate share of the tax paid by the Company with
respect thereto. In addition, the basis for a stockholder's Common Stock
would be increased by the amount of the undistributed long-term capital gain
included in its income, less the amount of the tax it is deemed to have paid
with respect thereto.
Investors are urged to consult their own tax advisors with respect to
the appropriateness of an investment in the Securities offered hereby and
with respect to the tax consequences arising under federal law and the laws
of any state, municipality or other taxing jurisdiction, including tax
consequences resulting from such investor's own tax characteristics. In
particular, foreign investors should consult their own tax advisors
concerning the tax consequences of an investment in the Company, including
the possibility of United States income tax withholding on Company
distributions.
PLAN OF DISTRIBUTION
The Company may sell the Securities to one or more underwriters
for public offering and sale by them or may sell the Securities to
investors directly or through agents. Any such underwriter or agent
involved in the offer and sale of the Securities will be named in the
applicable Prospectus Supplement.
Underwriters may offer and sell the Securities at a fixed price or
prices, which may be changed, at prices related to the prevailing market
prices at the time of sale or at negotiated prices. The Company also may,
from time to time, authorize underwriters acting as the Company's agents to
offer and sell the Securities upon the terms and conditions as are set forth
in the applicable Prospectus Supplement. In connection with the sale of
Securities, underwriters may be deemed to have received compensation from the
Company in the form of underwriting discounts or commissions and may also
receive commissions from purchasers of Securities for whom they may act as
agent. Underwriters may sell Securities to or through dealers, and such
dealers may receive compensation in the form of discounts, concessions or
commissions from the underwriters and/or commissions from the purchasers for
whom they may act as agent.
Any underwriting compensation paid by the Company to underwriters or
agents in connection with the offering of Securities, and any discounts,
concessions for commissions allowed by underwriters to participating dealers,
are set forth in the applicable Prospectus Supplement. Underwriters, dealers
and agents participating in the distribution of the Securities may be deemed
to be underwriters, and any discounts and commissions received by them and
any profit realized by them on resale of the Securities may be deemed to be
underwriting discounts and commissions, under the Securities Act of 1933
(the "Securities Act"). Underwriters, dealers and agents may be entitled,
under agreements entered into with the Company, to indemnification against
and contribution toward certain civil liabilities, including liabilities
under the Securities Act.
If so indicated in the applicable Prospectus Supplement, the Company
will authorize dealers acting as the Company's agents to solicit offers by
certain institutions to purchase Securities from the Company at the public
offering price set forth in such Prospectus Supplement pursuant to Delayed
Delivery Contracts ("Contracts") providing for payment and delivery on the
date or dates stated in such Prospectus supplement. Institutions with whom
Contracts, when authorized, may be made include commercial and savings banks,
insurance companies, pension funds, investment companies, educational and
charitable institutions, and other institutions but will in all cases be
subject to the approval of the Company. Contracts will not be subject to any
conditions except that the purchase by an institution of the Securities
covered by its Contracts shall not at the time of delivery be prohibited
under the laws of any jurisdiction in the United States to which such
institution is subject.
Certain of the underwriters and their affiliates may be customers of,
engage in transactions with and perform services for the Company and its
subsidiaries in the ordinary course of business.
LEGAL MATTERS
The legality of the Common Stock offered hereby and certain legal
matters described under "Federal Income Tax Considerations" will be passed
upon for the Company by Brown & Wood LLP, New York, New York. Brown & Wood
LLP may rely on Ballard Spahr Andrews & Ingersoll, Baltimore, Maryland, as to
certain matters of Maryland law.
EXPERTS
The consolidated balance sheet of Reckson Associates Realty Corp. as of
December 31, 1996 and December 31, 1995, and the related consolidated
statements of operations, stockholders' equity and cash flows for the year
ended December 31, 1996 and the period from June 3, 1995 to December 31, 1995
and the related combined statements of operations, owners' deficit and cash
flows of the Reckson Group for the period from January 1, 1995 to June 2,
1995 and for the year ended December 31, 1994 appearing in the Company's
Annual Report on Form 10-K for the year ended December 31, 1996; the combined
statement of revenues and certain expenses of the Westchester Properties (as
defined therein) for the year ended December 31, 1995, appearing in the
Company's Form 8-K/A, dated March 27, 1996; the combined statement of
revenues and certain expenses of Landmark Square Properties (as defined
therein) for the year ended December 31, 1995 and combined statements of
revenues and certain expenses of Certain Option Properties (as defined
therein) for the years ended December 31, 1995, 1994 and 1993 appearing
in the Company's Form 8-K, dated October 1, 1996; and the combined
statement of revenues and certain expenses of the New Jersey Portfolio
(as defined therein) for the year ended December 31, 1996,
the combined statement of revenues and certain expenses for the Hauppauge
Portfolio (as defined therein) for the year ended December 31, 1996 and the
statement of revenues and certain expenses of the Uniondale Office Property
(as defined therein), for the year ended December 31, 1996, appearing in the
Company's Form 8-K, dated February 18, 1997; and the statement of revenues
and certain expenses of 710 Bridgeport Avenue (as defined therein), for the
year ended December 31, 1996 and the statement of revenues and certain
expenses of the Shorthills Office Center (as defined therein), for the year
ended December 31, 1996 appearing in the Company's Form 8-K dated June 12,
1997; and the statement of revenues and certain expenses of Garden City Plaza
for the year ended December 31, 1996, appearing in the Company's Form 8-K
dated September 9, 1997, 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 and combined
financial statements are incorporated herein by reference in reliance upon
such reports given upon the authority of such firm as experts in accounting
and auditing.
