PROSPECTUS SUPPLEMENT
(To Prospectus Dated March 26, 1997)
1,093,744 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 April 23, 1998, the last reported sale price
of the Common Stock on the NYSE was $24.375 per share.
The Underwriter has agreed to purchase the shares of Common Stock from
the Company at a price of $23.0953 per share, resulting in aggregate proceeds to
the Company of $25,260,346 before 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 the Equity Investor Fund Cohen & Steers Realty
Majors Portfolio SM (A Unit Investment Trust) (the "Trust") in exchange for
units in the Trust. The units of the Trust will be sold to investors at a price
based upon the net asset value of the securities in the Trust. For purposes of
this calculation, the value of the shares of Common Stock as of the evaluation
time for units of the Trust on April 23, 1998 was $24.375 per share. The Company
has agreed to indemnify the Underwriter against certain liabilities, including
liabilities under the Securities Act of 1933, as amended.
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SEE "RISK FACTORS" COMMENCING ON PAGE 3 IN THE ACCOMPANYING PROSPECTUS
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH
AN INVESTMENT IN THE COMMON STOCK.
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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 April 29, 1998 in New York, New York.
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MERRILL LYNCH & CO.
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The date of this Prospectus Supplement is April 23, 1998
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN
TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT
THE PRICE OF THE COMMON STOCK. SUCH TRANSACTIONS MAY INCLUDE
THE PURCHASE OF THE COMMON STOCK TO STABILIZE ITS MARKET
PRICE. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
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. (the "Company") is engaged in the
business of owning, developing, re-positioning, acquiring, constructing,
managing and leasing suburban office and industrial properties in the New York
City Tri-State area of Long Island, Westchester, Northern New Jersey and
Southern Connecticut (the "Tri-State Area"). Based on industry surveys,
management believes that the Company is one of the largest publicly-traded
owners and managers of Class A suburban office and industrial properties in the
New York City Tri-State area. As of April 23, 1998, the Company owned 188
properties (including three joint venture properties) encompassing approximately
19 million rentable square feet. In addition, the Company has entered into
contracts to acquire three additional properties, encompassing approximately
402,000 square feet, for an aggregate purchase price of $65 million. The Company
operates as a self-administered and self-managed real estate investment trust (a
"REIT").
LEGISLATIVE 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, will be approximately $25,210,346. The Company will use the net
proceeds of this offering to repay indebtedness under its unsecured revolving
credit facility (the "Credit Facility"). As of April 23, 1998, borrowings under
the Credit Facility aggregated approximately $334.8 million, had a weighted
average interest rate of approximately 6.86% per annum and a weighted average
maturity of approximately one year.
UNDERWRITING
Subject to the terms and conditions contained in the terms agreement
and the related underwriting agreement (collectively, the "Underwriting
Agreement"), the Company has agreed to sell to Merrill Lynch, Pierce, Fenner &
Smith Incorporated (the "Underwriter"), and the Underwriter has agreed to
purchase from the Company, all of the shares of Common Stock offered hereby at
the price indicated on the cover of this Prospectus Supplement. In the
Underwriting Agreement, the Underwriter has agreed, subject to the terms and
conditions set forth therein to purchase all of the shares if any of such shares
are purchased.
The Underwriter intends to deposit the shares of Common Stock offered
hereby with the Trust, a registered unit investment trust under the Investment
Company Act of 1940, as amended, for which the Underwriter acts as sponsor and
depositor, in exchange for units of the Trust. The Underwriter is an affiliate
of the Trust.
In the Underwriting Agreement, the Company has agreed to indemnify the
Underwriter against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments the Underwriter may be required to
make in respect thereof.
In connection with this offering, the rules of the Securities and
Exchange Commission permit the Underwriter to engage in certain transactions
that stabilize the price of the Commons Stock. Such transactions may consist of
bids or purchases for the purpose of pegging, fixing or maintaining the price of
the Common Stock. If the Underwriter creates a short position in the Common
Stock in connection with this offering (i.e., if it sells more shares of Common
Stock than are set forth on the cover page of this Prospectus Supplement), the
Underwriter may reduce that short position by purchasing Common Stock in the
open market.
In general, purchases of a security for the purpose of stabilization
or to reduce a short position could cause the price of the security to be higher
than it might otherwise be in the absence of such purchases.
Neither the Company nor the Underwriter makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Common Stock. In addition, neither
the Company nor the Underwriter makes any representation that the Underwriter
will engage in such transactions or that such transactions, once commenced, will
not be discontinued without notice.
In the ordinary course of its business, the Underwriter provides
investment banking, advisory and other financial services to the Company and its
affiliates for which it receives customary fees.
The Common Stock is listed on the NYSE under the symbol "RA." The
Company has applied for listing of the shares of Common Stock offered hereby on
the NYSE.
LEGAL MATTERS
The legality of the shares of Common Stock 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.
PROSPECTUS
$1,000,000,000
RECKSON ASSOCIATES REALTY CORP.
Common Stock, Common Stock Warrants,
Preferred Stock, Depositary Shares and Preferred Stock 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"), (ii) shares of its preferred stock, $.01 par value, per
share (the "Preferred Stock"), (iii) Depositary Shares representing interests
in Preferred Stock, and (iv) warrants to purchase Common Stock or Preferred
Stock with an aggregate initial public offering price of up to $1,000,000,000
on terms to be determined at the time of offering. The Common Stock,
Warrants, Preferred Stock and Depositary Shares (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, (ii) in the case of Preferred Stock, the
specific title and stated value, any dividend, liquidation, redemption,
conversion, voting and other rights, and any initial public offering price,
(iii) in the case of Warrants, the Securities as to which such Warrants may
be exercised, the duration, offering price, exercise price and detachability
features and (iv) in the case of Depositary Shares, the interests in
Preferred Stock represented by each such Depositary Share. 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 3 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 March 26, 1998.
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,
1997.
2. Current Reports on Form 8-K (including Form 8-K/A) dated
February 18, 1997, June 12, 1997, September 9, 1997, January 6, 1998,
January 26, 1998, February 10, 1998, February 12, 1998 and March 24,
1998, respectively.
3. 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 applicable Securities 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 documents
(exclusive of exhibits unless such exhibits are 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. and its subsidiaries and affiliated
entities (collectively, 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 40 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 Tri-State area of Long Island,
Westchester, Northern New Jersey and Southern Connecticut (the "Tri-State
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 Tri-State area. The Company's growth
strategy is currently focused on suburban markets surrounding New York City.
The Company operates as a fully-integrated, self administered and
self-managed REIT.
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 eight 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 February 23, 1998, the Company had approximately 210 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
Securities offered pursuant to the applicable Prospectus Supplement and this
Prospectus (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) 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 ("Chase") and Union
Bank of Switzerland ("UBS"), as co-arrangers. Such Credit Facility provides
for a maximum borrowing amount of up to $250 million. The Company has
obtained an additional facility providing for a maximum borrowing amount of
up to $200 million from Chase and UBS (together, the "Facilities"). The
Company's ability to borrow under the Facilities 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 Facilities 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. Limitations on
the ownership of issued and outstanding Preferred Stock may also be imposed
by the Company. See "Restrictions on Ownership of Capital Stock" and
"Description of Preferred Stock-Restrictions on Ownership." Such provisions
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.
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 for investments made
solely by the Company, 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.
If the Company were to fail to qualify as a REIT in any taxable year,
the Company would be subject to federal income tax (including any applicable
alternative minimum tax) on its taxable income at regular corporate rates.
Moreover, unless entitled to relief under certain statutory provisions, the
Company also would be disqualified from treatment as a REIT for the four
taxable years following the year during which qualification was lost. This
treatment would significantly reduce the net earnings of the Company
available for investment or distribution to shareholders because of the
additional tax liability to the Company for the years involved. In addition,
distributions to shareholders would no longer be required to be made.
Factors Affecting Market Value of Common Stock and Preferred Stock
Effect of Market Conditions. As with other publicly traded equity
securities, the value of the Common Stock depends, and, in the event that a
trading market for the Preferred Stock develops, the value of the Preferred
Stock will depend, upon various market conditions, which may change from time
to time. Among the market conditions that may affect the value of the Common
Stock and the Preferred Stock are the following: the extent of institutional
investor interest in the Company; the reputation of REITs and office and
industrial REITs generally and the attractiveness of their equity securities
in comparison to other equity securities (including securities issued by
other real estate-based companies); the Company's financial condition and
results of operations; and general financial market conditions.
Effect of Earnings and Cash Distributions. It is generally believed that
the market value of the equity securities of a REIT is based primarily upon
the market's perception of the REIT's growth potential and its current and
potential future cash distributions, whether from operations, sales or
refinancings, and is secondarily based upon the real estate market value of
the underlying assets. For that reason, the Common Stock may trade at prices
that are higher or lower than the net asset value per share of Common Stock.
To the extent the Company retains operating cash flow for investment
purposes, working capital reserves or other purposes, these retained funds,
while increasing the value of the Company's underlying assets, may not
correspondingly increase the market price of the Common Stock. The failure of
the company to meet the market's expectation with regard to future earnings
and cash distributions likely would adversely affect the market price of the
Common Stock and, if a market develops for the Preferred Stock, may adversely
affect the market price of the Preferred Stock.
Effect of Market Interest Rates. One of the factors that influences the
price of the Common Stock and the value of the Preferred Stock is the
distribution rate on such shares (as a percentage of the price of such
shares) relative to market interest rates. Thus, an increase in market
interest rates may lead prospective purchasers of shares to expect a higher
distribution rate, which would adversely affect the market price of the
Common Stock and, if a market develops for the Preferred Stock, may adversely
affect the market price of the Preferred Stock.
USE OF PROCEEDS
Unless otherwise specified in the applicable Prospectus Supplement, the
net proceeds to the Company from the sale of the Securities 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.
RATIOS OF EARNINGS TO COMBINED FIXED CHARGES
The following table sets forth the Company's consolidated ratios of
earnings to fixed charges for the periods shown:
<TABLE>
<CAPTION>
Year Ended
June 3, 1995 January 1, 1995 December 31,
Year Ended Year Ended to to --------------
December 31, 1997 December 31, 1996 December 31, 1995 June 2, 1995 1994 1993
----------------- ----------------- ----------------- ----------------- ---- ----
<C> <C> <C> <C> <C> <C>
2.77x 2.72x 2.71x 0.96x(1) 0.97x(1) 0.65x(1)
</TABLE>
___________
(1) Prior to completion of the IPO on June 2, 1995, the Company's
predecessors operated in a manner as to minimize net taxable income to
the owners. The IPO and the related formation transactions permitted the
Company to deleverage its properties significantly, resulting in a
significantly improved ratio of earnings to fixed charges.
The ratios of earnings to combined fixed charges were computed by
dividing earnings by fixed charges. For this purpose, earnings consist of
income from continuing operations before minority interest and fixed charges.
Fixed charges consist of interest expense (including interest costs
capitalized) and the amortization of debt issuance costs. To date, the
Company has not issued any preferred stock; therefore, the ratios of earnings
to combined fixed charges and preferred stock dividends are unchanged from
the ratios specified above.
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
March 20, 1998, there were 38,632,335 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 or
Preferred 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.
DESCRIPTION OF PREFERRED STOCK
General
The Charter of the Company provides that the Company may issue up to 25
million shares of preferred stock, $.01 par value per share, of which no
preferred stock was outstanding at the date hereof.
The following description of the Preferred Stock sets forth certain
general terms and provisions of the Preferred Stock to which any Prospectus
Supplement may relate. The statements below describing the Preferred Stock
are in all respects subject to and qualified in their entirety by reference
to the applicable provisions of the Charter and Bylaws of the Company and any
applicable articles supplementary to the Charter designating terms of a
series of Preferred Stock (a "Designating Amendment").
The issuance of Preferred Stock could adversely affect the voting power,
dividend rights and other rights of holders of Common Stock. 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 holders thereof. Management believes
that the availability of Preferred Stock will provide the Company with
increased flexibility in structuring possible future financing and
acquisitions and in meeting other needs that might arise.
Terms
Subject to the limitations prescribed by the Charter, the Board of
Directors is authorized to fix the number of shares constituting each series
of Preferred Stock and the designations and powers, preferences and relative,
participating, optional or other special rights and qualifications,
limitations or restrictions thereof, including such provisions as may be
desired concerning voting, redemption, dividends, dissolution or the
distribution of assets, conversion or exchange, and such other subjects or
matters as may be fixed by resolution of the Board of Directors. The
Preferred Stock will, when issued, be fully paid and nonassessable by the
Company and will have no preemptive rights.
Reference is made to the Prospectus Supplement relating to the series of
Preferred Stock offered thereby for the specific terms thereof, including:
(1) The title of such Preferred Stock;
(2) The number of shares of such Preferred Stock, the liquidation
preference per share of such Preferred Stock and the offering price of
such Preferred Stock;
(3) The dividend rate(s), period(s) and/or payment date(s) or
method(s) of calculation thereof applicable to such Preferred Stock;
(4) The date from which dividends on such Preferred Stock shall
accumulate, if applicable;
(5) The procedures for any auction and remarketing, if any, for
such Preferred Stock;
(6) The provision for a sinking fund, if any, for such Preferred
Stock;
(7) The provision for redemption, if applicable, of such Preferred
Stock;
(8) Any listing of such Preferred Stock on any securities
exchange;
(9) The terms and conditions, if applicable, upon which such
Preferred Stock may or will be convertible into Common Stock of the
Company, including the conversion price (or manner of calculation
thereof);
(10) The relative ranking and preferences of such Preferred Stock
as to dividend rights and rights upon liquidation, dissolution or
winding up of the affairs of the Company;
(11) Any limitations on direct or beneficial ownership and
restrictions on transfer, in each case as may be appropriate to preserve
the status of the Company as a REIT;
(12) A discussion of federal income tax considerations applicable
to such Preferred Stock; and
(13) Any other specific terms, preferences, rights, limitations or
restrictions of such Preferred Stock.
Rank
Unless otherwise specified in the applicable Prospectus Supplement, the
Preferred Stock will, with respect to dividend rights and rights upon
liquidation, dissolution or winding up of the Company, rank: (i) senior to
all classes or series of Common Stock of the Company and to all equity
securities issued by the Company the terms of which provide that such equity
securities shall rank junior to such Preferred Stock; (ii) on a parity with
all equity securities issued by the Company other than those referred to in
clauses (i) and (iii); and (iii) junior to all equity securities issued by
the Company which the terms of such Preferred Stock provide will rank senior
to it. The term "equity securities" does not include convertible debt
securities.
Dividends
Unless otherwise specified in the applicable Prospectus Supplement, the
Preferred Stock will have the rights with respect to payment of dividends set
forth below.
Holders of the Preferred Stock of each series will be entitled to
receive, when, as and if declared by the Board of Directors of the Company,
out of assets of the Company legally available for payment, cash dividends in
such amounts and on such dates as will be set forth in, or pursuant to, the
applicable Prospectus Supplement. Each such dividend shall be payable to
holders of record as they appear on the share transfer books of the Company
on such record dates as shall be fixed by the Board of Directors of the
Company.
Dividends on any series of Preferred Stock may be cumulative or
non-cumulative, as provided in the applicable Prospectus Supplement.
Dividends, if cumulative, will be cumulative from and after the date set
forth in the applicable Prospectus Supplement. If the Board of Directors of
the Company fails to declare a dividend payable on a dividend payment date on
any series of Preferred Stock for which dividends are non-cumulative, then
the holders of such series of Preferred Stock will have no right to receive
a dividend in respect of the related dividend period and the Company will
have no obligation to pay the dividend accrued for such period, whether or
not dividends on such series of Preferred Stock are declared payable on any
future dividend payment date.
If Preferred Stock of any series is outstanding, no full dividends will
be declared or paid or set apart for payment on any capital stock of the
Company of any other series ranking, as to dividends, on a parity with or
junior to the Preferred Stock of such series for any period unless (i) if
such series of Preferred Stock has a cumulative dividend, full cumulative
dividends have been or contemporaneously are declared and paid or declared
and a sum sufficient for the payment thereof set apart for such payment for
all past dividend periods and the then current dividend period or (ii) if
such series of Preferred Stock does not have a cumulative dividend, full
dividends for the then current dividend period have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment
thereof set apart for such payment on the Preferred Stock of such series.
When dividends are not paid in full (or a sum sufficient for such full
payment is not so set apart) upon Preferred Stock of any series and the
shares of any other series of Preferred Stock ranking on a parity as to
dividends with the Preferred Stock of such series, all dividends declared
upon Preferred Stock of such series and any other series of Preferred Stock
ranking on a parity as to dividends with such Preferred Stock shall be
declared pro rata so that the amount of dividends declared per share of
Preferred Stock of such series and such other series of Preferred Stock shall
in all cases bear to each other the same ratio that accumulated dividends per
share on the Preferred Stock of such series and such other series of
Preferred Stock (which shall not include any accumulation in respect of
unpaid dividends for prior dividend periods if such Preferred Stock does not
have a cumulative dividend) bear to each other. No interest, or sum of money
in lieu of interest, shall be payable in respect of any dividend payment or
payments on Preferred Stock of such series which may be in arrears.
Except as provided in the immediately preceding paragraph, unless (i) if
such series of Preferred Stock has a cumulative dividend, full cumulative
dividends on the Preferred Stock of such series have been or
contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof set apart for payment for all past dividend periods and
the then current dividend period, and (ii) if such series of Preferred Stock
does not have a cumulative dividend, full dividends on the Preferred Stock of
such series have been or contemporaneously are declared and paid or declared
and a sum sufficient for the payment thereof set apart for payment for the
then current dividend period, no dividends (other than in shares of Common
Stock or other capital stock ranking junior to the Preferred Stock of such
series as to dividends and upon liquidation) shall be declared or paid or set
aside for payment or other distribution shall be declared or made upon the
Common Stock, or any other capital stock of the Company ranking junior to or
on a parity with the Preferred Stock of such series as to dividends or upon
liquidation, nor shall any shares of Common Stock, or any other capital stock
of the Company ranking junior to or on a parity with the Preferred Stock of
such series as to dividends or upon liquidation, be redeemed, purchased or
otherwise acquired for any consideration (or any moneys be paid to or made
available for a sinking fund for the redemption of any such shares) by the
Company (except (1) by conversion into or exchange for other capital stock of
the Company ranking junior to the Preferred Stock of such series as to
dividends and upon liquidation or (2) redemptions for the purpose of
preserving the Company's status as a REIT).
Redemption
If so provided in the applicable Prospectus Supplement, the Preferred
Stock will be subject to mandatory redemption or redemption at the option of
the Company, as a whole or in part, in each case upon the terms, at the times
and at the redemption prices set forth in such Prospectus Supplement.
The Prospectus Supplement relating to a series of Preferred Stock that
is subject to mandatory redemption will specify the number of shares of such
Preferred Stock that shall be redeemed by the Company in each year commencing
after a date to be specified, at a redemption price per share to be
specified, together with an amount equal to all accumulated and unpaid
dividends thereon (which shall not, if such Preferred Stock does not have a
cumulative dividend, include any accumulation in respect of unpaid dividends
for prior dividend periods) to the date of redemption. The redemption price
may be payable in cash or other property, as specified in the applicable
Prospectus Supplement. If the redemption price for Preferred Stock of any
series is payable only from the net proceeds of the issuance of capital stock
of the Company, the terms of such Preferred Stock may provide that, if no
such capital stock shall have been issued or to the extent the net proceeds
from any issuance are insufficient to pay in full the aggregate redemption
price then due, such Preferred Stock shall automatically and mandatorily be
converted into the applicable capital stock of the Company pursuant to
conversion provisions specified in the applicable Prospectus Supplement.
Notwithstanding the foregoing, unless (i) if such series of Preferred
Stock has a cumulative dividend, full cumulative dividends on all shares of
any series of Preferred Stock shall have been or contemporaneously are
declared and paid or declared and a sum sufficient for the payment thereof
set apart for payment for all past dividend periods and the then current
dividend period, and (ii) if such series of Preferred Stock does not have a
cumulative dividend, full dividends on the Preferred Stock of any series have
been or contemporaneously are declared and paid or declared and a sum
sufficient for the payment thereof set apart for payment for the then current
dividend period, no shares of any series of Preferred Stock shall be redeemed
unless all outstanding Preferred Stock of such series is simultaneously
redeemed; provided, however, that the foregoing shall not prevent the
purchase or acquisition of Preferred Stock of such series to preserve the
REIT status of the Company or pursuant to a purchase or exchange offer made
on the same terms to holders of all outstanding Preferred Stock of such
series. In addition, unless (i) if such series of Preferred Stock has a
cumulative dividend, full cumulative dividends on all outstanding shares of
any series of Preferred Stock have been or contemporaneously are declared and
paid or declared and a sum sufficient for the payment thereof set apart for
payment for all past dividend periods and the then current dividend period,
and (ii) if such series of Preferred Stock does not have a cumulative
dividend, full dividends on the Preferred Stock of any series have been or
contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof set apart for payment for the then current dividend
period, the Company shall not purchase or otherwise acquire, directly or
indirectly, any shares of Preferred Stock of such series (except by
conversion into or exchange for capital stock of the Company ranking junior
to the Preferred Stock of such series as to dividends and upon liquidation);
provided, however, that the foregoing shall not prevent the purchase or
acquisition of Preferred Stock of such series to preserve the REIT status of
the Company or pursuant to a purchase or exchange offer made on the same
terms to holders of all outstanding Preferred Stock of such series.
If fewer than all of the outstanding shares of Preferred Stock of any
series are to be redeemed, the number of shares to be redeemed will be
determined by the Company and such shares may be redeemed pro rata from the
holders of record of such shares in proportion to the number of such shares
held or for which redemption is requested by such holder (with adjustments to
avoid redemption of fractional shares) or by lot in a manner determined by
the Company.
Notice of redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each holder of record of Preferred
Stock of any series to be redeemed at the address shown on the share transfer
books of the Company. Each notice shall state: (i) the redemption date;
(ii) the number of shares and series of the Preferred Stock to be redeemed;
(iii) the redemption price; (iv) the place or places where certificates for
such Preferred Stock are to be surrendered for payment of the redemption
price; (v) that dividends on the shares to be redeemed will cease to
accumulate on such redemption date; and (vi) the date upon which the holder's
conversion rights, if any, as to such shares shall terminate. If fewer than
all the shares of Preferred Stock of any series are to be redeemed, the
notice mailed to each such holder thereof shall also specify the number of
shares of Preferred Stock to be redeemed from each such holder. If notice of
redemption of any Preferred Stock has been given and if the funds necessary
for such redemption have been set aside by the Company in trust for the
benefit of the holders of any Preferred Stock so called for redemption, then
from and after the redemption date dividends will cease to accumulate on such
Preferred Stock, and all rights of the holders of such Preferred Stock will
terminate, except the right to receive the redemption price.
Liquidation Preference
Upon any voluntary or involuntary liquidation, dissolution or winding up
of the affairs of the Company (referred to herein as a "liquidation"), then,
before any distribution or payment shall be made to the holders of any Common
Stock or any other class or series of capital stock of the Company ranking
junior to the Preferred Stock of such series in the distribution of assets
upon any liquidation, dissolution or winding up of the Company, the holders
of such Preferred Stock shall be entitled to receive out of assets of the
Company legally available for distribution to shareholders liquidating
distributions in the amount of the liquidation preference per share (set
forth in the applicable Prospectus Supplement), plus an amount equal to all
dividends accumulated and unpaid thereon (which shall not include any
accumulation in respect of unpaid dividends for prior dividend periods if
such Preferred Stock does not have a cumulative dividend). After payment of
the full amount of the liquidating distributions to which they are entitled,
the holders of Preferred Stock will have no rights or claim to any of the
remaining assets of the Company. In the event that, upon any such voluntary
or involuntary liquidation, dissolution or winding up, the available assets
of the Company are insufficient to pay the amount of the liquidating
distributions on all outstanding Preferred Stock of such series and the
corresponding amounts payable on all shares of other classes or series of
capital stock of the Company ranking on a parity with such Preferred Stock in
the distribution of assets, then the holders of such Preferred Stock and all
other such classes or series of capital stock shall share ratably in any such
distribution of assets in proportion to the full liquidating distributions to
which they would otherwise be respectively entitled.
The consolidation or merger of the Company with or into any other
entity, or the merger of another entity with or into the Company, or a
statutory share exchange by the Company, or the sale, lease or conveyance of
all or substantially all of the property or business of the Company, shall
not be deemed to constitute a liquidation, dissolution or winding up of the
Company.
Voting Rights
Holders of the Preferred Stock will not have any voting rights, except
as set forth below or as indicated in the applicable Prospectus Supplement.
Whenever dividends on any series of Preferred Stock shall be in arrears
for six or more quarterly periods, the holders of such Preferred Stock
(voting separately as a class with all other series of Preferred Stock upon
which like voting rights have been conferred and are exercisable) will be
entitled to vote for the election of two additional directors of the Company
at a special meeting called by the holders of record of at least ten percent
(10%) of any series of Preferred Stock so in arrears (unless such request is
received less than 90 days before the date fixed for the next annual or
special meeting of the stockholders) or at the next annual meeting of
stockholders, and at each subsequent annual meeting until (i) if such series
of Preferred Stock has a cumulative dividend, all dividends accumulated on
such shares of Preferred Stock for the past dividend periods and the then
current dividend period shall have been fully paid or declared and a sum
sufficient for the payment thereof set aside for payment or (ii) if such
series of Preferred Stock does not have a cumulative dividend, four quarterly
dividends shall have been fully paid or declared and a sum sufficient for the
payment thereof set aside for payment. In such cases, the entire Board of
Directors of the Company will be increased by two directors.
Unless provided otherwise for any series of Preferred Stock, so long as
any shares of such Preferred Stock remain outstanding, the Company will not,
without the affirmative vote or consent of the holders of at least two-thirds
of the shares of such series of Preferred Stock outstanding at the time,
given in person or by proxy, either in writing or at a meeting (such series
voting separately as a class), (i) authorize or create, or increase the
authorized or issued amount of, any class or series of capital stock ranking
senior to such Preferred Stock with respect to payment of dividends or the
distribution of assets upon liquidation, dissolution or winding up of the
Company, or reclassify any authorized capital stock of the Company into such
stock, or create, authorize or issue any obligation or security convertible
into or evidencing the right to purchase any such stock; or (ii) amend, alter
or repeal the provisions of the Company's Charter or the Designating
Amendment for such series of Preferred Stock, whether by merger,
consolidation or otherwise (an "Event"), so as to materially and adversely
affect any right, preference, privilege or voting power of such series of
Preferred Stock or the holders thereof; provided, however, that the holders
of such series of Preferred Stock shall not be entitled to any voting rights
in connection with an Event if as a result of the Event (a) such series of
Preferred Stock remains outstanding with the terms thereof materially
unchanged, or (b) the Company is not the surviving entity but the surviving
entity issues to the holders of such series of Preferred Stock the same
number of shares of any other series of preferred stock with rights,
preferences, privileges and voting powers that are materially unchanged from
the rights, preferences, privileges and other terms of such series of
Preferred Stock; and provided, further, that (x) any increase in the amount
of the authorized Preferred Stock or the creation or issuance of any other
series of Preferred Stock, or (y) any increase in the amount of authorized
shares of such series of Preferred Stock or any other series of Preferred
Stock, in each case ranking on a parity with or junior to the Preferred Stock
of such series with respect to payment of dividends or the distribution of
assets upon liquidation, dissolution or winding up of the Company, shall not
be deemed to materially and adversely affect such rights, preferences,
privileges or voting powers.
The foregoing voting provisions will not apply if, at or prior to the
time when the act with respect to which such vote or consent would otherwise
be required shall be effected, all outstanding shares of such series of
Preferred Stock shall have been converted, redeemed or called for redemption
and sufficient funds shall have been deposited in trust to effect such
redemption.
Conversion Rights
The terms and conditions, if any, upon which any series of Preferred
Stock is convertible into shares of Common Stock will be set forth in the
applicable Prospectus Supplement. Such terms will include the number of
shares of Common Stock into which the shares of Preferred Stock are
convertible, the conversion price (or manner of calculation thereof), the
conversion period, provisions as to whether conversion will be at the option
of the holders of the Preferred Stock or the Company, the events requiring an
adjustment of the conversion price and provisions affecting conversion in the
event of the redemption of the Preferred Stock.
Shareholder Liability
As discussed below under "Description of Common Stock General,"
applicable Maryland law provides that no shareholder, including holders of
Preferred Stock, shall be personally liable for the acts and obligations of
the Company and that the funds and property of the Company shall be the only
recourse for such acts or obligations.
Restrictions on Ownership
As discussed below under "Restrictions on Ownership of Capital Stock,"
for the Company to qualify as a REIT under the Code, not more than 50% in
value of its outstanding capital stock may be owned, directly or indirectly,
by five or fewer individuals (as defined in the Code to include certain
entities) during the last half of a taxable year. Therefore, the Designating
Amendment for each series of Preferred Stock may contain provisions
restricting the ownership and transfer of such Preferred Stock. The
applicable Prospectus Supplement will specify any additional ownership
limitation relating to a series of Preferred Stock.
Registrar and Transfer Agent
The Registrar and Transfer Agent for the Preferred Stock will be set
forth in the applicable Prospectus Supplement.
DESCRIPTION OF DEPOSITARY SHARES
General
The Company may issue receipts ("Depositary Receipts") for Depositary
Shares, each of which will represent a fractional interest or a share of a
particular series of a class of Preferred Shares, as specified in the
applicable Prospectus Supplement. Preferred Shares of each series of each
class represented by Depositary Shares will be deposited under a separate
Deposit Agreement (each, a "Deposit Agreement") among the Company, the
depositary named therein (such depositary or its successor, the "Preferred
Shares Depositary") and the holders from time to time of the Depositary
Receipts. Subject to the terms of the Deposit Agreement, each owner of a
Depositary Receipt will be entitled, in proportion to the fractional interest
of a share of the particular series of a class of Preferred Shares
represented by the Depositary Shares evidenced by such Depositary Receipt, to
all the rights and preferences of the Preferred Shares represented by such
Depositary Shares (including dividend, voting, conversion, redemption and
liquidation rights).
The Depositary Shares will be evidenced by Depositary Receipts issued
pursuant to the applicable Deposit Agreement. Immediately following the
issuance and delivery of the Preferred Shares by the Company to the Preferred
Shares Depositary, the Company will cause the Preferred Shares Depositary to
issue, on behalf of the Company, the Depositary Receipts. Copies of the
applicable form of Deposit Agreement and Depositary Receipt may be obtained
from the Company upon request.
Dividends and Other Distributions
The Preferred Shares Depositary will distribute all cash dividends or
other cash distributions received in respect of the Preferred Shares to the
record holders of the Depositary Receipts evidencing the related Depositary
Shares in proportion to the number of such Depositary Receipts owned by such
holder, subject to certain obligations of holders to file proofs,
certificates and other information and to pay certain charges and expenses to
the Preferred Shares Depositary.
In the event of a distribution other than in cash, the Preferred Shares
Depositary will distribute property received by it to the record holders of
Depositary Receipts entitled thereto, subject to certain obligations of
holders to file proofs, certificates and other information and to pay certain
charges and expenses to the Preferred Shares Depositary, unless the Preferred
Shares Depositary determines that it is not feasible to make such
distribution, in which case the Preferred Shares Depositary may, with the
approval of the Company, sell such property and distribute the net proceeds
from such sale to such holders.
Withdrawal of Shares
Upon surrender of the Depositary Receipts at the corporate trust office
of the Preferred Shares Depositary (unless the related Depositary Shares have
previously been called for redemption), the holders thereof will be entitled
to delivery at such office, to or upon such holder's order, of the number of
whole or fractional Preferred Shares and any money or other property
represented by the Depositary Shares evidenced by such Depositary Receipts.
Holders of Depositary Receipts will be entitled to receive whole or
fractional shares of the related Preferred Shares on the basis of the
proportion of Preferred Shares represented by each Depositary Share as
specified in the applicable Prospectus Supplement, but holders of such
Preferred Shares will not thereafter be entitled to receive Depositary Shares
therefor. If the Depositary Receipts delivered by the holder evidence a
number of Depositary Shares in excess of the number of Depositary Shares
representing the number of Preferred Shares to be withdrawn, the Preferred
Shares Depositary will deliver to such holder at the same time a new
Depositary Receipt evidencing such excess number of Depositary Shares.
Redemption of Depositary Shares
Whenever the Company redeems Preferred Shares held by the Preferred
Shares Depositary, the Preferred Shares Depositary will redeem as of the same
redemption date the number of Depositary Shares representing the Preferred
Shares so redeemed, provided the Company shall have paid in full to the
Preferred Shares Depositary the redemption price of the Preferred Shares to
be redeemed plus an amount equal to any accrued and unpaid dividends thereon
to the date fixed for redemption. The redemption price per Depositary Share
will be equal to the redemption price and any other amounts per share payable
with respect to the Preferred Shares. If less than all the Depositary Shares
are to be redeemed, the Depositary Shares to be redeemed will be selected by
the Preferred Shares Depositary by lot.
After the date fixed for redemption, the Depositary Shares so called for
redemption will no longer be deemed to be outstanding and all rights of the
holders of the Depositary Receipts evidencing the Depositary Shares so called
for redemption will cease, except the right to receive any moneys payable
upon such redemption and any money or other property to which the holders of
such Depositary Receipts were entitled upon such redemption upon surrender
thereof to the Preferred Shares Depositary.
Voting of the Underlying Preferred Shares
Upon receipt of notice of any meeting at which the holders of the
Preferred Shares are entitled to vote, the Preferred Shares Depositary will
mail the information contained in such notice of meeting to the record
holders of the Depositary Receipts evidencing the Depositary Shares which
represent such Preferred Shares. Each record holder of Depositary Receipts
evidencing Depositary Shares on the record date (which will be the same date
as the record date for the Preferred Shares) will be entitled to instruct the
Preferred Shares Depositary as to the exercise of the voting rights
pertaining to the amount of Preferred Shares represented by such holder's
Depositary Shares. The Preferred Shares Depositary will vote the amount of
Preferred Shares represented by such Depositary Shares in accordance with
such instructions, and the Company will agree to take all reasonable action
which may be deemed necessary by the Preferred Shares Depositary in order to
enable the Preferred Shares Depositary to do so. The Preferred Shares
Depositary will abstain from voting the amount of Preferred Shares
represented by such Depositary Shares to the extent it does not receive
specific instructions from the holders of Depositary Receipts evidencing such
Depositary Shares.
Liquidation Preference
In the event of liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, each holder of a Depositary Receipt will be
entitled to the fraction of the liquidation preference accorded each
Preferred Share represented by the Depositary Share evidenced by such
Depositary Receipt, as set forth in the applicable Prospectus Supplement.
Conversion of Preferred Shares
The Depositary Shares, as such, are not convertible into Common Shares
or any other securities or property of the Company. Nevertheless, if so
specified in the applicable Prospectus Supplement relating to an offering of
Depositary Shares, the Depositary Receipts may be surrendered by holders
thereof to the Preferred Shares Depositary with written instructions to the
Preferred Shares Depositary to instruct the Company to cause conversion of
the Preferred Shares represented by the Depositary Shares evidenced by such
Depositary Receipts into whole Common Shares, other Preferred Shares of the
Company or other shares of capital stock, and the Company has agreed that
upon receipt of such instructions and any amounts payable in respect thereof,
it will cause the conversion thereof utilizing the same procedures as those
provided for delivery of Preferred Shares to effect such conversion. If the
Depositary Shares evidenced by a Depositary Receipt are to be converted in
part only, one or more new Depositary Receipts will be issued for any
Depositary Shares not to be converted. No fractional Common Shares will be
issued upon conversion, and if such conversion will result in a fractional
share being issued, an amount will be paid in cash by the Company equal to
the value of the fractional interest based upon the closing price of the
Common Shares on the last business day prior to the conversion.
Amendment and Termination of the Deposit Agreement
The form of Depositary Receipt evidencing the Depositary Shares which
represent the Preferred Shares and any provision of the Deposit Agreement may
at any time be amended by agreement between the Company and the Preferred
Shares Depositary. However, any amendment that materially and adversely
alters the rights of the holders of Depositary Receipts will not be effective
unless such amendment has been approved by the existing holders of at least
a majority of the Depositary Shares evidenced by the Depositary Receipts then
outstanding.
The Deposit Agreement may be terminated by the Company upon not less
than 30 days' prior written notice to the Preferred Shares Depositary if
(i) such termination is to preserve the Company's status as a REIT or (ii) a
majority of each class of Preferred Shares affected by such termination
consents to such termination, whereupon the Preferred Shares Depositary shall
deliver or make available to each holder of Depositary Receipts, upon
surrender of the Depositary Receipts held by such holder, such number of
whole or fractional Preferred Shares as are represented by the Depositary
Shares evidenced by such Depositary Receipts. In addition, the Deposit
Agreement will automatically terminate if (i) all outstanding Depositary
Shares shall have been redeemed, (ii) there shall have been a final
distribution in respect of the related Preferred Shares in connection with
any liquidation, dissolution or winding up of the Company and such
distribution shall have been distributed to the holders of Depositary
Receipts evidencing the Depositary Shares representing such Preferred Shares
or (iii) each related Preferred Share shall have been converted into capital
stock of the Company not so represented by Depositary Shares.
Charges of Preferred Shares Depositary
The Company will pay all transfer and other taxes and governmental
charges arising solely from the existence of the Deposit Agreement. In
addition, the Company will pay the fees and expenses of the Preferred Shares
Depositary in connection with the performance of its duties under the Deposit
Agreement. However, holders of Depositary Receipts will pay the fees and
expenses of the Preferred Shares Depositary for any duties requested by such
holders to be performed which are outside of those expressly provided for in
the Deposit Agreement.
Resignation and Removal of Depositary
The Preferred Shares Depositary may resign at any time by delivering to
the Company notice of its election to do so, and the Company may at any time
remove the Preferred Shares Depositary, any such resignation or removal to
take effect upon the appointment of a successor Preferred Shares Depositary.
A successor Preferred Shares Depositary must be appointed within 60 days
after delivery of the notice of resignation or removal and must be a bank or
trust company having its principal office in the United States and having a
combined capital and surplus of at least $50,000,000.
Miscellaneous
The Preferred Shares Depositary will forward to holders of Depositary
Receipts any reports and communications from the Company which are received
by the Preferred Shares Depositary with respect to the related Preferred
Shares.
Neither the Preferred Shares Depositary nor the Company will be liable
if it is prevented from or delayed in, by law or any circumstances beyond its
control, performing its obligations under the Deposit Agreement. The
obligations of the Company and the Preferred Shares Depositary under the
Deposit Agreement will be limited to performing their duties thereunder in
good faith and without negligence, gross negligence or willful misconduct,
and the Company and the Preferred Shares Depositary will not be obligated to
prosecute or defend any legal proceeding in respect of any Depositary
Receipts, Depositary Shares or Preferred Shares represented thereby unless
satisfactory indemnity is furnished. The Company and the Preferred Shares
Depositary may rely on written advice of counsel or accountants, or
information provided by persons presenting Preferred Shares represented
thereby for deposit, holders of Depositary Receipts or other persons believed
to be competent to give such information, and on documents believed to be
genuine and signed by a proper party.
If the Preferred Shares Depositary shall receive conflicting claims,
requests or instructions from any holders of Depositary Receipts, on the one
hand, and the Company, on the other hand, the Preferred Shares Depositary
shall be entitled to act on such claims, requests or instructions received
from the Company.
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. Limitations on the ownership of
Preferred Stock may also be imposed by the Company. See "Description of
Preferred Stock -Restrictions on Ownership." 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. See "Risk
Factors-Risks of Failure to Qualify as a REIT."
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 or Preferred 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 or Preferred 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 or Preferred 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.
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 LLP, Baltimore, Maryland, as to
certain matters of Maryland law.
EXPERTS
The consolidated balance sheets of Reckson Associates Realty Corp. as of
December 31, 1997 and December 31, 1996, and the related consolidated
statements of operations, stockholders' equity and cash flows for the years
ended December 31, 1997 and 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 appearing in the Company's Annual Report on Form 10-K
for the year ended December 31, 1997; 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, and the
statement of revenues and certain expenses of the Christiana Office Property
(as defined therein) for the year ended June 30, 1997, appearing in the
Company's Form 8-K dated February 10, 1998, and the statement of revenues and
certain expenses of the Stamford Office Towers Property (as defined therein)
for the year ended December 31, 1997, appearing in the Company's Form 8-K
dated March 24, 1998, 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.
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<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 1,093,744 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 RECKSON
PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL, OR ASSOCIATES
A SOLICITATION OF AN OFFER TO BUY, COMMON STOCK IN REALTY CORP.
ANY JURISDICTION TO ANY PERSON TO WHOM 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 COMMON STOCK
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF.
PROSPECTUS SUPPLEMENT
---------------------
TABLE OF CONTENTS
PAGE
PROSPECTUS SUPPLEMENT
FORWARD-LOOKING INFORMATION...................S-2
THE COMPANY...................................S-2
LEGISLATIVE DEVELOPMENTS......................S-2
USE OF PROCEEDS...............................S-2
UNDERWRITING..................................S-3 MERRILL LYNCH & CO.
LEGAL MATTERS.................................S-3
PROSPECTUS
AVAILABLE INFORMATION...........................2
INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE.....................................2 APRIL 23, 1998
THE COMPANY.....................................3
RISK FACTORS....................................3
USE OF PROCEEDS................................10
RATIOS OF EARNINGS TO COMBINED FIXED
CHARGES......................................11
DESCRIPTION OF COMMON STOCK....................11
DESCRIPTION OF WARRANTS........................12
DESCRIPTION OF PREFERRED STOCK.................13
DESCRIPTION OF DEPOSITARY SHARES...............19
RESTRICTIONS ON OWNERSHIP OF CAPITAL STOCK.....22
FEDERAL INCOME TAX CONSIDERATIONS..............24
PLAN OF DISTRIBUTION...........................25
LEGAL MATTERS..................................25
EXPERTS........................................25
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