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<SEC-DOCUMENT>0000930548-98-000004.txt : 19980327
<SEC-HEADER>0000930548-98-000004.hdr.sgml : 19980327
ACCESSION NUMBER: 0000930548-98-000004
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 20
CONFORMED PERIOD OF REPORT: 19971231
FILED AS OF DATE: 19980326
SROS: NYSE
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: RECKSON ASSOCIATES REALTY CORP
CENTRAL INDEX KEY: 0000930548
STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798]
IRS NUMBER: 113233650
STATE OF INCORPORATION: MD
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-K
SEC ACT:
SEC FILE NUMBER: 001-13762
FILM NUMBER: 98573876
BUSINESS ADDRESS:
STREET 1: 225 BROADHOLLOW RD
CITY: MELVILLE
STATE: NY
ZIP: 11747
BUSINESS PHONE: 5166946900
MAIL ADDRESS:
STREET 1: 225 BROADHOLLOW RD
CITY: MELVILLE
STATE: NY
ZIP: 11747
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<TEXT>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
Commission file number: 1-13762
RECKSON ASSOCIATES REALTY CORP.
(Exact name of registrant as specified in its charter)
Maryland 11-3233650
(State other jurisdiction of incorporation (IRS. Employer
of organization) Identification Number)
225 Broadhollow Road, Melville, NY 11747
(Address of principal executive office) (zip code)
(516) 694-6900
(Registrant's telephone number including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of Each Exchange on Which Registered
------------------- -----------------------------------------
Common Stock, $.01 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K, or any
amendment to this Form 10-K.
Yes No X
The aggregate market value of the shares of common stock held by
non-affiliates was approximately $926,000,000 based on the closing price on the
New York Stock Exchange for such shares on March 20,1998.
The number of the Registrant's shares of common stock outstanding was
38,632,335 as of March 20,1998.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the Annual Shareholder's
Meeting to be held May 21, 1998 are incorporated by reference into Part III.
<PAGE>
TABLE OF CONTENTS
Item No.
- --------
Part I
1. Business . . . . . . . . ... . . . . . . . . . . . . . . . . . .
2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . .
3. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . .
4. Submission of Matters to a Vote of Security-Holders. . . . . . .
Part II
5. Market for Registrant's Common Equity and Related Stockholder Matters
6. Selected Financial Data. . . . . . . . . . . . . . . . . . . . .
7. Management's Discussion and Analysis of Financial Condition and Results
of Operations. ... . . . . . . . . . . . . . . . . . . . . . . .
8. Financial Statements and Supplemental Data . . . . . . . . . . .
9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure. . . . . . . . . . . . . . . . . . . . . . . . .
Part III
10. Directors and Executive Officers of the Registrant . . . . . . .
11. Executive Compensation . . . . . . . . . . . . . . . . . . . . .
12. Security Ownership of Certain Beneficial Owners and Management .
13. Certain Relationships and Related Transactions . . . . . . . . .
Part IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
<PAGE>
Part I
Item 1. Business
General
Reckson Associates Realty Corp. was incorporated in September 1994 and
commenced operations effective with the completion of its initial public
offering (the "IPO") on June 2, 1995. Reckson Associates Realty Corp., together
with Reckson Operating Partnership, L.P. (the "Operating Partnership"), and
their affiliates (collectively, the "Company") 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 metropolitan area. Based on industry surveys, management believes
that the Company is one of the largest owners and operators of Class A suburban
office properties and industrial properties in the New York City tri-state area
(the "Tri-State Area"). The Company operates as a fully-integrated, self-
administered and self-managed Real Estate Investment Trust ("REIT"). As of
December 31, 1997, the Company owned 155 properties (the "Properties")
(including three joint venture properties) encompassing approximately 13.6
million rentable square feet, all of which are managed by the Company. The
Properties consist of 58 Class A suburban office properties (the "Office
Properties") encompassing approximately 7.6 million square feet, 95 industrial
properties (the "Industrial Properties") encompassing approximately 6.0 million
square feet and two 10,000 square foot retail properties. In addition, as of
December 31, 1997 the Company had invested approximately $72.5 million in
certain mortgage indebtedness encumbering five Class A office properties
encompassing approximately 927,000 square feet, a 400 acre parcel of land and a
586,000 square foot industrial property in New Jersey (the "Mortgage Note
Investments"). As of December 31, 1997, the Company also owned or had
contracted to acquire approximately 847 acres of land in 17 separate parcels
that may present future development opportunities.
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 developed by Reckson.
All of the Company's interests in the Properties, the Mortgage Note
Investments and land are held directly or indirectly by, and substantially all
of its operations relating to the Properties are conducted through, the
Operating Partnership. The Company controls the Operating Partnership as the
sole general partner and as of December 31, 1997, owned approximately 84% of the
Operating Partnership's outstanding units of limited partnership ("Units").
The Company seeks to maintain cash reserves for normal repairs,
replacements, improvements, working capital and other contingencies. The
Operating Partnership has established an unsecured credit facility (the
"Unsecured Credit Facility") with a maximum borrowing amount of $250 million
scheduled to mature on April 30, 2000. The Unsecured Credit Facility requires
the Company to comply with a number of financial and other covenants on an
ongoing basis and, under certain circumstances, may be extended by the Operating
Partnership for a period of one year.
In April 1996, the Company completed a public offering of 3,000,000 shares
(pre-split) of Common Stock at a price of $30.50 per share (pre-split) (the
"April 1996 Offering"). In October 1996, the Company completed a public
offering of 1,725,000 shares (pre-split) of Common Stock at a price of $35.50
per share (pre-split) (the "October 1996 Offering"). Net proceeds to the
Company of approximately $86 million from the April 1996 offering and
approximately $60 million from the October 1996 offering were used to make
acquisitions of Properties and to re-pay borrowings.
In March 1997, the Company completed a public offering and sold 4,945,000
common shares (pre-split) at a price of $45.25 (pre-split) (including 645,000
common shares related to the exercise of the underwriter over allotment option)
(the "March 1997 Offering"). In December 1997, the Company completed a public
offering and sold 3,081,777 common shares at a price of $26 per share (the
"December 1997 Offering"). In February 1998, the Company completed a public
stock offering and sold 791,152 common shares at a price of $25.44 per share.
Net proceeds to the Company of approximately $212 million from the March 1997
Offering, $80 million from the December 1997 Offering and $19 million from the
February 1998 Offering were used to make acquisitions of Properties and to
re-pay borrowings.
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.
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 December 31, 1997, the Company had approximately 210 employees.
Recent Developments
Acquisition and Sales Activity.
Set forth below is a brief description of the Company's major acquisition
activity during 1997. All of these Properties are located in the Tri-State
Area.
During 1997, the Company acquired or contracted to acquire approximately
$431 million of Class A suburban office and industrial properties encompassing
approximately 4.9 million square feet located in the Tri-State Area. In
addition, the Company acquired approximately 335 acres of land for an aggregate
purchase price of approximately $24.2 million.
In that regard, during 1997, the Company acquired five Class A suburban
Office Properties and 15 Industrial Properties encompassing approximately
881,000 and 968,000 square feet respectively, located on Long Island.
During 1997, the Company acquired eight office properties encompassing
approximately 830,000 square feet and three industrial properties encompassing
approximately 163,000 square feet in Westchester for an aggregate purchase price
of approximately $117 million. In addition, the Company acquired approximately
32 acres of land for a purchase price of approximately $8 million.
During 1997, the Company acquired one industrial property encompassing
approximately 452,000 square feet in Connecticut for a purchase price of
approximately $27 million.
During 1997, the Company acquired 13 office properties encompassing
approximately 1.5 million square feet and one industrial property encompassing
approximately 128,000 square feet in New Jersey for an aggregate purchase price
of approximately $156 million. Included in these acquisitions is the New Jersey
Portfolio acquisition as described below. In addition, the Company acquired
approximately 303 acres of land for an aggregate purchase price of approximately
$16.2 million.
In October 1997, the Company entered into an agreement to invest $150
million in the Morris Companies, a New Jersey developer and owner of "Big Box"
warehouse facilities. The Morris Companies' properties include twenty-three
industrial buildings encompassing approximately 4.0 million square feet. The
Company's investment will be used to acquire a controlling interest in Reckson
Morris Operating Partnership, L.P. ("RMI"). In connection with the transaction
the Morris Companies will contribute 100% of their interests in certain
industrial properties to RMI in exchange for operating partnership units in RMI.
on January 6, 1998, the Company made its initial investment into RMI of
approximately $65 million. In addition, at December 31, 1997, the Company had
advanced approximately $12 million to the Morris Companies primarily to fund
certain construction costs related to development properties to be contributed
to RMI.
In October 1997, the Company sold 671 Old Willets Path in Hauppauge, New
York for approximately $725,000 and recorded a gain on the sale of $672,000.
In addition, during 1997, the Company invested approximately $29 million in
certain mortgage indebtedness encumbering one Class A office building on Long
Island encompassing approximately 177,000 square feet, a 400 acre parcel of land
located in New Jersey and a 586,000 square foot industrial property located in
New Jersey. In addition, on March 13, 1997 the Company loaned approximately $17
million to its minority partner in Omni, its flagship Long Island office
building, and effectively increased its economic interest in the property owning
partnership.
Set forth below is a brief description of the Company's major acquisition
activity during 1996. All of these Properties are located in the Tri-State Area.
During 1996 the Company's emphasis focused on "Anchor Acquisitions" in suburban
office parks (i.e., an acquisition of a portfolio of properties in a prime
location that provides the Company with a critical mass sufficient to create
operating efficiencies).
New Jersey Portfolio Acquisition. In December 1996, The Company entered
into contract to acquire five Class A office buildings (the "New Jersey
Portfolio") encompassing approximately 500,000 square feet from certain
entities/associates with Robert Heller a New Jersey Developer for approximately
$56.9 million. These properties were acquired during 1997. Four of the
properties are located in the Executive Hill Office Park a 32 acre office park
that contains four buildings with approximately 392,000 square feet and is
located in West Orange, New Jersey, adjacent to route 280, a major interstate
highway. Executive Hill was developed between 1971 and 1984 by various entities
associated with Robert Heller. One of the properties in the office park, 10
Rooney Circle, was a vacant 70,000 square foot building at acquisition that has
undergone a complete renovation including the reskinning of its facade in
granite, installation of two new lobbies and development of a new entranceway.
The property is now fully leased to two tenants. Tenants at Executive Hill
include Chase Manhattan Bank, International Business Machines, Computer Science
Corporation, and State Farm Insurance Company. In connection with this
acquisition, the Company established its Northern New Jersey Division and named
Mark Schaevitz as its Managing Director. Mr. Schaevitz, who acted as Chief
Operating Officer over Mr. Heller's real estate operations for the prior 15
years, joined The Company along with certain key members of his management team
to lead the Company's efforts in Northern New Jersey. The acquisition of the
New Jersey Portfolio, the establishment of the Northern New Jersey Division and
retention of Mr. Schaevitz, and his management team are consistent with the
Company's strategy of developing a local presence in the key suburban markets in
the Tri-State Area through Anchor Acquisitions.
The Landmark Square Acquisition. In October 1996, The Company acquired
Landmark Square, a seven acre office complex containing six buildings and
encompassing 800,000 square feet located in Stamford Connecticut from the
Metropolitan Life Insurance Company("Met Life") for approximately $77 million.
The Company financed the acquisition with a $50 million first mortgage loan from
Met Life which bears interest at a fixed rate of 8.02% and has a ten year term
and proceeds from the October 1996 Offering. Landmark Square was constructed as
part of and is the focal point of a major revitalization development program by
the F.D.Rich Company in the 1970's and 1980's. Met Life obtained title to the
property as a result of a foreclosure of their property mortgage. An affiliate
of The F.D. Rich Company continued to manage Landmark Square until the time it
was purchased by the Company. Landmark Square, contiguous to Stamford Town
Center, a 900,000 square foot upscale shopping mall, offers such amenities as a
full service athletic facility and the Landmark Club, one of Stamford's premier
dining clubs. The Company has commenced an approximately $12.0 million, five
year capital improvement and repositioning program at the complex. Tenants at
Landmark Square include Guiness PLC/United Distillers, Crown Theatre, McKinsey &
Co. and Fleet Bank. In connection with the acquisition of Landmark Square the
Company established its Southern Connecticut Division and named F.D. ("Rick")
Rich III, Managing Director of that division and a Senior Vice President of the
Company . Mr. Rich has over 20 years experience in all facets of real estate
development and operations including operating Landmark Square for the last ten
years. The Landmark Square acquisition, the establishment of the Southern
Connecticut Division and employing Mr. Rich as well as his operations team is
consistent with the Company's strategy of making Anchor Acquisitions in new
markets and in establishing a local presence in each of the key suburban markets
in the Tri-State Area.
The Westchester Acquisition. During 1996, the Company acquired seven Class
A suburban office properties and a 60% joint venture interest in an eighth Class
A suburban office property (collectively, the "Westchester Properties")
encompassing an aggregate of approximately 935,000 square feet located in
Westchester County, New York, and associated management and construction
operations, from affiliates of Halpern Enterprises ("Halpern") for an aggregate
maximum purchase price of approximately $79 million (the "Westchester
Acquisition").
On February 22, 1996, six of the Westchester Properties encompassing
approximately 505,000 square feet (505, 560 and 580 White Plains Road,
Tarrytown, New York; 235 and 245 Main Street, White Plains, New York and 2
Church Street, Ossining, New York), together with the aforementioned management
and construction operations, were acquired by the Company for an aggregate
maximum purchase price of approximately $48.7 million. The purchase price was
funded by $29.0 million of borrowings under the Company's credit facility, the
assumption of $9.4 million of mortgage debt and the issuance of 307,606 (pre-
split) units of limited partnership of the Operating Partnership ("Units"). In
accordance with the terms of the purchase contract, each Unit was valued at
$28.11 (pre-split).
On April 9,1996 The Company acquired the seventh Westchester Property (660
White Plains Road, Tarrytown, New York) and the 60% joint venture interest in
the eighth Westchester Property (520 White Plains Road, Tarrytown, New York) the
purchase of interests in these two properties aggregated approximately $31
million.
The Westchester Acquisition was consistent with the Company's strategy of
developing a local presence in the key suburban markets in the Tri-State Area
through Anchor Acquisitions. The Westchester Acquisition afforded the Company
the opportunity to enter the Westchester market by acquiring a large portfolio
of well-located Class A office properties. In addition, five of the Westchester
Properties are located in the Tarrytown Corporate Center, one of Westchester's
largest office parks containing more than 1.2 million square feet of office
space and a 444-room Marriott Hotel. Completed in 1972, Tarrytown Corporate
Center was the first office development undertaken in the Route 119 corridor in
Westchester County, an area that has developed into a prime commercial location.
Major tenants at the Center include Citibank, Ford Motor Credit, U.S. Philips,
Xerox and the Ciba-Geigy Corporation (which maintains its corporate headquarters
at the Center). Designed by the award-winning architectural firm of Warshauer,
Mellusi, and Warshauer, Tarrytown Corporate Center includes seven office
buildings encompassing approximately 991,000 square feet, of which the company
has acquired six of such buildings encompassing approximately 876,000 square
feet. Finally, as part of the Westchester Acquisition, the Company acquired the
Halpern organization's in-house expertise in management, leasing and
construction. The Halpern organization, which was in existence for over 25
years, was a full service commercial real estate company and one of
Westchester's largest owners and operators of office properties. Acquisition of
the Halpern organization enabled the Company to establish a significant local
presence which management believes is essential to the successful operation of
commercial real estate.
Eleven Industrial Properties acquired by the Company during 1996 are single
story properties encompassing an aggregate of approximately 856,000 square feet.
As of December 31, 1997, nine of these properties were 100% leased to single
tenants, one of these properties is 100% leased to two tenants and one of these
properties is 66% leased to a single tenant with a lease pending for the
remaining portion.
Leasing Activity
During the year ended December 31, 1997, the Company leased 548,992 square
feet at the Office Properties at an average effective rent (i.e., base rent
adjusted on a straight-line basis for free rent periods, tenant improvements and
leasing commissions) of $19.95 per square foot and 790,359 square feet at the
Industrial Properties at an average effective rent of $6.37 per square foot.
Included in this leasing data is 197,239 square feet at the Long Island Office
Properties at an average effective rent of $22.69; 179,061 square feet at the
Westchester Office Properties at an average effective rent of $17.42; 123,501
square feet at the Connecticut Office Properties at an average effective rent of
$20.23; and 49,191 square feet at the New Jersey Office Properties at an average
effective rent of $17.43. Also included in this leasing data is 698,359 square
feet at the Long Island Industrial Properties at an average effective rent of
$6.08 and 92,000 square feet at the Westchester Industrial Properties at an
average effective rent of $8.54.
Financing Activities
The Unsecured Credit Facility. On April 30, 1997, the Company obtained a
three-year $250 million unsecured credit facility from a bank group arranged by
Chase Manhattan Bank and Union Bank of Switzerland (the "Unsecured Credit
Facility"). The Company's ability to borrow thereunder 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 rations, a minimum equity value and a maximum dividend payout
ratio. In addition, borrowings under the Unsecured Credit Facility bear
interest at a floating rate equal to one, two, three or six months LIBOR (at the
Company's election) plus a spread ranging from 1.125% to 1.50%, based on the
Company's leverage ratio. The Unsecured Credit Facility replaced the Company's
$150 million secured credit facility. The Company utilizes the Unsecured Credit
Facility primarily to finance the acquisitions of properties and other real
estate investments, fund its development activities and for working capital
purposes. At December 31, 1997, the Company had availability under the
Unsecured Credit Facility to borrow an additional $35.75 million (net of $4.0
million of outstanding undrawn letters of credit).
On January 2, 1998, the Company obtained a $200 million unsecured credit
facility (the "Bridge Facility") which matures on April 1, 1998. The Bridge
Facility was provided by the two lead members of the Unsecured Credit Facility
bank group and serves as interim financing while the Company seeks to expand the
availability under the Unsecured Credit Facility.
Other Financing Activities. During August 1997, the Company refinanced
approximately $43 million of mortgage debt on its Omni office property with a
$58 million fixed rate mortgage loan. The loan which matures on September 1,
2007 has a fixed rate of 7.72%.
On August 28, 1997, the Company sold $150 million of 7.2% senior unsecured
notes due August 2007. The net proceeds of these notes were used to repay
borrowings under the Unsecured Credit Facility and for acquisitions of
properties.
Stock Split
On February 12, 1997, the Board of Directors of the Company declared a two-
for-one stock split, effected as a stock dividend distributable on April 15,
1997 to stockholders of record on April 4, 1997.
Stock Offerings
On March 12, 1997, the Company sold 4,945,000 shares (pre-split) (including
645,000 common shares related to the exercise of the underwriters over allotment
option) of the Company's common stock at $45.25 per share (pre-split) for an
aggregate consideration of approximately $224 million before deducting offering
expenses.
On December 5, 1997, the Company sold 3,081,177 shares of the Company's
common stock at $26.00 per share for an aggregate consideration of approximately
$80 million before deducting offering expenses.
On February 18, 1998, the Company sold 791,152 shares of the Company's
common stock at $25.44 per share for an aggregate consideration of approximately
$20 million before deducting offering expenses.
Corporate Strategies and Growth Opportunities
The Company's primary business objectives are to maximize current return to
stockholders through increases in distributable cash flow per share and to
increase stockholders' long-term total return through the appreciation in value
of its Common Stock. The Company plans to achieve these objectives by continuing
Reckson's corporate strategies and capitalizing on the internal and external
growth opportunities described below.
Corporate Strategies. Management believes that throughout its 40-year
operating history, Reckson has created value in its properties through a variety
of market cycles by implementing the operating strategies described below. These
operating strategies include the implementation of (I) a multidisciplinary
leasing approach that involves architectural design and construction personnel
as well as leasing professionals, (ii) innovative property marketing programs
such as the Executive Center business, which was established by Reckson to
provide "incubation space" for start-up companies as well as office space for
satellite offices of larger companies, (iii) a comprehensive tenant service
program and property amenities designed to maximize tenant satisfaction and
retention, (iv) cost control management and systems that take advantage of
economies of scale that arise from Reckson's market position and efficiencies
attributable to the state-of-the-art energy control system at many of the Office
Properties and (v) an acquisition and development strategy that is continuously
adjusted in light of anticipated changes in market conditions and that seeks to
capitalize on management's multidisciplinary expertise and market knowledge to
modify, upgrade and reposition a property in its market place in order to
maximize value.
The Company also intends to adhere to a policy of maintaining a Debt Ratio
(defined as the total debt of the Company as a percentage of the market value of
outstanding shares of Common Stock and Units) of less than 50%. As of December
31, 1997, the Company's Debt Ratio was approximately 31.6%. This calculation is
net of minority partners' 40% interest in Omni's debt and including the
Company's share of unconsolidated joint venture debt. This Debt Ratio is
intended to provide the Company with financial flexibility to select the optimal
source of capital (whether debt or equity) with which to finance external
growth.
Growth Opportunities. The Company intends to achieve its primary business
objectives by applying its corporate strategies to the internal and external
growth opportunities described below.
Internal Growth. As the Long Island, Westchester, New Jersey and Southern
Connecticut suburban office and industrial markets continue to improve,
management believes the Company is well positioned to benefit from rental
revenue growth through: (i) contractual annual compounding 4% Base Rent (i.e.,
gross rent excluding tenant payments on account of real estate tax, operating
expense escalations and base electrical charges) increases on approximately 85%
of existing leases at the Long Island Properties; (ii) periodic contractual
increases in Base Rent on existing leases at the Westchester Properties, the New
Jersey Properties and the Southern Connecticut Properties; and (iii) the
potential for increases to Base Rents as leases expire as a result of continuing
tightening of the office and industrial markets with limited new supply.
External Growth. The Company seeks to acquire multi-tenant suburban Class
A office and industrial properties located in the Tri-State Area. Management
believes that the Tri-State Area presents opportunities to acquire or invest in
properties at attractive yields. The Company believes that its (i) capital
structure, in particular its Unsecured Credit Facility providing for a maximum
borrowing amount of up to $250 million, (ii) ability to acquire a property for
Units of the Operating Partnership and thereby defer the seller's income tax on
gain, (iii) operating economies of scale, (iv) relationships with financial
institutions and private real estate owners, and (v) fully integrated operations
in four regional Divisions, will enhance the Company's ability to identify and
capitalize on acquisition opportunities. The Company also intends to selectively
develop new Class A suburban office and industrial properties and to continue to
redevelop existing office and industrial properties as these opportunities
arise. In the near future the Company will concentrate its development
activities on industrial and Class A suburban office properties within it's Tri-
State Area markets.
In October 1997, the Company entered into an agreement to invest $150
million in the Morris Companies, a New Jersey developer and owner of "Big Box"
warehouse facilities. The Morris Companies' properties include 23 industrial
buildings encompassing approximately 4.0 million square feet. The Company's
investment will be used to acquire a controlling interest in Reckson Morris
Operating Partnership, L.P. ("RMI"). In connection with the transaction the
Morris Companies will contribute 100% of their interests in certain industrial
properties to RMI in exchange for operating partnership units in RMI. On
January 6, 1998, the Company acquired an approximate 70% interest in RMI for
approximately $65 million. In addition, at December 31, 1997, the Company had
advanced approximately $12 million to the Morris Companies primarily to fund
certain construction costs related to development properties to be contributed
to RMI.
During 1997, the Company formed Reckson Service Industries, Inc. ("RSI) and
Reckson Strategic Venture Partners, LLC ("RSVP"). RSI will serve as the
managing member of RSVP. RSI will invest in operating companies that generally
will provide commercial services to properties owned by the Company and its
tenants and third parties. Since RSI will not be making REIT qualifying
investments, its shares will be distributed to the Company's shareholders and
trade as a separate public company. RSVP was formed to provide the Company with
a "research and development" vehicle to invest in alternative real estate
sectors. RSVP will invest primarily in real estate and real estate related
operating companies generally outside of the Company's core office and
industrial focus. RSVP's strategy is to identify and acquire interests in
established entrepreneurial enterprises with experienced management teams in
market sectors which are in the early stages of their growth cycle or offer
unique circumstances for attractive investments as well as a platform for future
investments. The research and development vehicle will enable the Company to
minimize its investment risks during the early stages of an investment. The
vehicle permits the Company to monitor the long-term potential for each
investment. As later stage capital is required, the Company will determine the
prudence of additional investment and the potential for incorporating it as a
core business line. To facilitate investments by RSVP, the Company has
committed $100 million of initial capital. In addition, RSVP has obtained a
$200 million preferred equity facility from Paine Webber Real Estate Securities
(PWRES") and a PWRES/George Soros sponsored fund. At December 31, 1997, the
Company had made investments in or loans to RSI and RSVP aggregating
approximately $4.3 million and $7.4 million, respectively.
Environmental Matters
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 audit 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 1 in April
1992). These environmental audits have not revealed any environmental liability
that would have a material adverse effect on the Company's business.
Item 2. Properties
General
As of December 31, 1997, the Company owned 155 properties (including three
joint venture properties) encompassing approximately 13.6 million square feet.
These properties consist of 58 Class A suburban office properties encompassing
approximately 7.6 million square feet, 95 industrial properties encompassing
approximately 6.0 million rentable square feet and two free-standing 10,000
square foot retail properties. The rentable square feet of each property has
been determined for these purposes based on the aggregate leased square footage
specified in currently effective leases and, with respect to vacant space,
management's estimate. In addition, as of December 31, 1997, the Company owned
or had contracted to acquire approximately 847 acres of land in 17 separate
parcels that may present future development opportunities.
Reckson has historically emphasized the development of large scale office
and industrial parks and approximately 66% of the Office Properties and 58% of
the Industrial Properties are located in such parks (measured by rentable square
footage). The Company believes that owning properties in planned office and
industrial parks provides certain strategic advantages, including the following:
(i) certain tenants prefer being located in a park with other high quality
companies to enhance their corporate image, (ii) parks afford tenants certain
aesthetic amenities such as a common landscaping plan, standardization of
signage and common dining and recreational facilities, (iii) tenants may expand
(or contract) their business within a park, enabling them to centralize business
functions and (iv) a park provides tenants with access to other tenants and may
facilitate business relationships between tenants.
Also, as of December 31, 1997, the Company had invested approximately $72.5
million in certain mortgage indebtedness encumbering five Class A office
properties on Long Island, one 586,000 square foot industrial property in New
Jersey and a 400 acre parcel of land. In addition, on March 13, 1997 the
Company loaned approximately $17 million to its minority partner in Omni, its
flagship Long Island office building, and effectively increased its economic
interest in the property owning partnership.
Set forth below is a summary of certain information relating to the
Properties, categorized by office and industrial parks, as of December 31, 1997.
Office Properties
General. As of December 31, 1997, the Company owned or had an interest in
58 Class A suburban office properties that encompass approximately 7.6 million
rentable square feet. As of December 31, 1997, these office properties were
approximately 92% leased to 696 tenants.
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 and achieve among the highest rent,
occupancy and tenant retention rates within their sub-markets. Thirty-seven of
the 58 office properties are located in the following eight planned office
parks: the 23 acre North Shore Atrium, the 32 acre Huntington Melville Corporate
Center, the 50 acre Nassau West Corporate Center, the 29 acre Tarrytown
Corporate Center, the seven acre Landmark Square, the 32 acre Executive Hill
Office Park the 76 acre Royal Executive Park and the 11 acre University Square.
The buildings in these office parks offer a full array of amenities including
health clubs, racquetball courts, sun decks, restaurants, computer controlled
HVAC access systems and conference centers. Management believes that the
location, quality of construction and amenities as well as Reckson's reputation
for providing a high level of tenant service have enabled Reckson to attract and
retain a national tenant base. The office tenants include national service
companies, such as "Big Six" accounting firms, securities brokerage houses,
insurance companies and health care providers.
The Long Island Office Properties are leased to national tenants, as well
as to local tenants. Leases on the Office Properties are typically written for
terms ranging from five to ten years and require (i) payment of a fixed gross
rental amount that excludes payments on account of real estate tax, operating
expense escalations and base electrical charges ("Base Rent"), (ii) payment of a
base electrical charge, (iii) payment of real estate tax escalations over a base
year, (iv) payment of compounded annual increases to Base Rent in lieu of
operating expense escalations (which the Company believes have historically
exceeded the annual increase in actual operating expenses), (v) payment of
overtime HVAC and electric and (vi) payment of electric escalations over a base
year. In virtually all leases, the landlord is responsible for structural
repairs. Renewal provisions typically provide for renewal rates at market rates
or a percentage thereof, provided that such rates are not less than the most
recent renewal rates.
The Westchester Properties, the Southern Connecticut Properties and the New
Jersey Properties are also leased to national tenants, as well as to local
tenants. Leases are typically for terms ranging from five to ten years and
require (i) payment of Base Rent, (ii) payment of a base electrical charge,
(iii) payment of real estate tax escalations over a base year, (iv) payment of
periodic fixed increases in Base Rent, (v) payment of operating expense
escalations over a base year, and (vi) payment of electric escalations over a
base year. In virtually all leases, the landlord is responsible for structural
repairs. Renewal provisions typically provide for renewal rates at market rate
or a percentage thereof, provided that such rates are not less than the most
recent renewal rates.
<TABLE>
The following table sets forth certain information as of December 31, 1997
for each of the Office Properties.
<CAPTION>
Ownership
Interest
(Ground
Company's Lease Land Number
Percentage Expiration Year Area of
Property Ownership Date) <F1> Constructed (Acres) Floors
- ------------------------------------ ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Office Properties:
Huntington Melville Corporate Center,
Melville, NY
Leasehold
395 North Service Rd 100% (2081) 1988 7.5 4
200 Broadhollow Rd. 100% Fee 1981 4.6 4
48 South Service Rd. 100% Fee 1986 7.3 4
35 Pinelawn Rd 100% Fee 1980 6.0 2
275 Broadhollow Rd 100% Fee 1970 5.8 4
1305 Old Walt Whitman Rd <F3> 100% Fee 1950 18.1 3
-----------
Total-Huntington Melville
Corporate Center <F4> 49.3
===========
North Shore Atrium,
Syosset, NY
6800 Jericho Turnpike
(North Shore Atrium I) 100% Fee 1977 13.0 2
6900 Jericho Turnpike
(North Shore Atrium II) 100% Fee 1982 5.0 4
-----------
Total-North Shore Atrium 18.0
===========
Nassau West Corporate Center,
Mitchel Field, NY
50 Charles Lindbergh Blvd. Leasehold
(Nassau West Corporate Center II) 100% (2082) 1984 9.1 6
60 Charles Lindbergh Blvd. Leasehold
(Nassau West Corporate Center I) 100% (2082) 1989 7.8 2
Leasehold
333 Earl Ovington Blvd. (The Omni) 60% (2088) 1991 30.6 10
Leasehold
90 Merrick Rd. 100% (2084) 1985 13.2 9
-----------
Total-Nassau West Corporate Center 60.7
===========
Tarrytown Corp. Center
Tarrytown, NY
505 White Plains Road 100% Fee 1974 1.4 2
520 White Plains Road 60% Fee<F6> 1981 6.8 6
555 White Plains Road 100% Fee 1972 4.2 5
560 White Plains Road 100% Fee 1980 4.2 6
580 White Plains Road 100% Fee 1977 6.1 6
660 White Plains Road 100% Fee 1983 10.9 6
-----------
Total-Tarrytown Corporate Center 33.4
===========
Royal Executive Park,
Rye Brook, NY
1 International Dr. 100% Fee 1983 N/A 3
2 International Dr. 100% Fee 1983 N/A 3
3 International Dr. 100% Fee 1983 N/A 3
4 International Dr. 100% Fee 1986 N/A 3
5 International Dr. 100% Fee 1986 N/A 3
6 International Dr. 100% Fee 1986 N/A 3
-----------
Total- Royal Executive Park 44.4
===========
Landmark Square,
Stamford, CT
One Landmark Square 100% Fee 1973 N/A 22
Two Landmark Square 100% Fee 1976 N/A 3
Three Landmark Square 100% Fee 1978 N/A 6
Four Landmark Square 100% Fee 1977 N/A 5
Five Landmark Square 100% Fee 1976 N/A 3
Six Landmark Square 100% Fee 1984 N/A 10
-----------
Total - Landmark Square 7.2
===========
Stand-alone Long Island
Office Properties
400 Garden City Plaza
Garden City, NY 100% Fee 1989 5.7 5
88 Duryea Rd.
Melville, NY 100% Fee 1986 1.5 2
310 East Shore Rd.
Great Neck, NY 100% Fee 1981 1.5 4
333 East Shore Rd. Leasehold
Great Neck, NY 100% (2030) 1976 1.5 2
520 Broadhollow Rd.
Melville, NY 100% Fee 1978 7.0 1
1660 Walt Whitman Rd.
Melville, NY 100% Fee 1980 6.5 1
125 Baylis Rd.
Melville, NY 100% Fee 1980 8.2 2
150 Motor Parkway,
Hauppauge, NY 100% Fee 1984 11.3 4
-----------
Total-Stand-alone Long Island
Office Properties 43.2
===========
Stand-alone Westchester
Office Properties
155 White Plains Road,
Tarrytown, NY 100% Fee 1963 13.2 2
235 Main Street,
White Plains, NY 100% Fee 1974<F5> 0.4 6
245 Main Street,
White Plains, NY 100% Fee 1983 0.4 6
2 Church Street,
Ossining, NY 100% Fee 1979 1.1 2
120 White Plains Rd.,
Tarrytown, NY 100% Fee 1984 9.7 6
80 Grasslands
Elmsford, NY 100% Fee 1989 4.9 3
360 Hamilton Avenue,
White Plains, NY <F3> 50% Fee 1977 1.5 12
-----------
Total Stand-alone Westchester
Office Properties<F4> 31.2
===========
Executive Hill Office Park
West Orange, NJ
100 Executive Drive 100% Fee 1978 10.1 3
200 Executive Drive 100% Fee 1980 8.2 4
300 Executive Drive 100% Fee 1984 8.7 4
10 Rooney Circle 100% Fee 1971 5.2 3
-----------
Total-Executive Hill Office Park 32.2
===========
University Square,
Princeton, NJ
100 Campus Dr. 100% Fee 1987 N/A 1
104 Campus Dr. 100% Fee 1987 N/A 1
115 Campus Dr. 100% Fee 1987 N/A 1
-----------
Total University Square 11.0
===========
Stand-alone New Jersey Properties
1 Paragon Drive
Montvale, NJ 100% Fee 1980 11 2
101 West John F Kennedy Pkwy,
Short Hills, NJ 100% Fee 1981 9 6
101 East John F, Kennedy Pkwy,
Short Hills, NJ 100% Fee 1981 6 4
One Eagle Rock,
Hanover, NJ 100% Fee 1986 10.4 3
3 University Plaza,
Hackensack, NJ 100% Fee 1985 10.6 6
1255 Broad Street,
Clifton, NJ<F3> 100% Fee 1968 11.1 2
-----------
Total Stand-alone New Jersey
Properties <F4> 58.1
===========
Total-Office Properties <F4> 388.7
===========
<FN>
See next table for footnotes.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Annual Number
Rentable Annual Base Rent of
Square Percent Base Rent Per Leased Tenant
Property Feet Leased <F2> Sq. Ft. Leases
----------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Office Properties:
Huntington Melville Corporate Center,
Melville, NY
395 North Service Rd 187,393 100.0% $ 4,503,308 $ 24.03 6
200 Broadhollow Rd. 67,432 66.1% $ 1,011,703 $ 22.69 10
48 South Service Rd. 125,372 79.3% $ 1,917,281 $ 19.27 6
35 Pinelawn Rd 105,241 96.3% $ 1,977,718 $ 19.51 29
275 Broadhollow Rd 124,441 96.2% $ 2,489,324 $ 20.79 22
1305 Old Walt Whitman Rd <F3> 167,400 --- $ --- $ --- ---
----------- ------------- -----------
Total-Huntington Melville
Corporate Center <F4> 777,279 90.6% $ 11,899,334 $ 21.53 73
=========== ============= ===========
North Shore Atrium,
Syosset, NY
6800 Jericho Turnpike
(North Shore Atrium I) 209,028 84.5% $ 3,065,600 $ 17.36 36
6900 Jericho Turnpike
(North Shore Atrium II) 101,036 54.2% $ 1,105,410 $ 20.19 8
----------- ------------- -----------
Total-North Shore Atrium 310,064 74.6% $ 4,171,010 $ 18.03 44
=========== ============= ===========
Nassau West Corporate Center,
Mitchel Field, NY
50 Charles Lindbergh Blvd.
(Nassau West Corporate Center II) 211,845 90.1% $ 4,159,313 $ 21.78 21
60 Charles Lindbergh Blvd.
(Nassau West Corporate Center I) 186,889 100.0% $ 3,690,130 $ 19.71 8
333 Earl Ovington Blvd. (The Omni) 575,000 91.4% $ 14,878,749 $ 28.31 27
90 Merrick Rd. 221,839 72.2% $ 3,200,818 $ 19.97 20
----------- ------------- -----------
Total-Nassau West Corporate Center 1,195,573 89.0% $ 25,929,010 $ 24.37 76
=========== ============= ===========
Tarrytown Corp. Center
Tarrytown, NY
505 White Plains Road 26,468 96.2% $ 473,430 $ 18.59 18
520 White Plains Road 171,761 100.0% $ 3,192,362 $ 18.59 1
555 White Plains Road 121,585 96.8% $ 1,802,001 $ 15.31 8
560 White Plains Road 126,471 100.0% $ 2,378,519 $ 18.61 19
580 White Plains Road 170,726 97.5% $ 2,775,832 $ 16.67 23
660 White Plains Road 258,715 98.9% $ 4,802,073 $ 18.76 52
----------- ------------- -----------
Total-Tarrytown Corporate Center 875,726 98.8% $ 15,424,217 $ 17.83 121
=========== ============= ===========
Royal Executive Park,
Rye Brook, NY
1 International Dr. 90,000 100.0% $ 1,125,000 $ 12.50 1
2 International Dr. 90,000 100.0% $ 1,125,000 $ 12.50 1
3 International Dr. 91,174 93.3% $ 1,553,377 $ 18.27 5
4 International Dr. 86,694 95.6% $ 1,790,042 $ 21.60 9
5 International Dr. 90,000 100.0% $ 2,416,500 $ 26.85 1
6 International Dr. 94,016 98.0% $ 1,391,926 $ 15.11 7
----------- ------------- -----------
Total- Royal Executive Park 541,884 97.8% $ 9,401,845 $ 17.74 24
=========== ============= ===========
Landmark Square,
Stamford, CT
One Landmark Square 296,716 84.4% $ 5,229,935 $ 20.87 58
Two Landmark Square 39,701 81.8% $ 701,190 $ 21.58 9
Three Landmark Square 128,286 79.7% $ 2,432,326 $ 23.79 18
Four Landmark Square 104,446 96.4% $ 1,827,791 $ 18.14 18
Five Landmark Square 57,273 87.7% $ 175,000 $ 3.48 1
Six Landmark Square 171,899 94.6% $ 3,633,757 $ 22.35 8
----------- ------------- -----------
Total - Landmark Square 798,321 87.5% $ 13,999,999 $ 20.04 112
=========== ============= ===========
Stand-alone Long Island
Office Properties
400 Garden City Plaza
Garden City, NY 176,073 95.3% $ 3,491,953 $ 20.82 23
88 Duryea Rd.
Melville, NY 25,061 79.6% $ 308,404 $ 15.46 3
310 East Shore Rd.
Great Neck, NY 50,000 100.0% $ 1,148,590 $ 22.92 21
333 East Shore Rd.
Great Neck, NY 17,715 99.6% $ 434,960 $ 24.64 9
520 Broadhollow Rd.
Melville, NY 83,176 100.0% $ 1,514,193 $ 18.20 5
1660 Walt Whitman Rd.
Melville, NY 73,115 99.7% $ 1,224,483 $ 16.79 5
125 Baylis Rd.
Melville, NY 98,329 88.8% $ 1,183,658 $ 13.56 10
150 Motor Parkway,
Hauppauge, NY 191,447 70.4% $ 2,310,756 $ 17.14 19
----------- ------------- -----------
Total-Stand-alone Long Island
Office Properties 714,916 88.6% $ 11,616,997 $ 18.33 95
=========== ============= ===========
Stand-alone Westchester Properties
155 White Plains Road,
Tarrytown, NY 60,909 90.6% $ 1,021,179 $ 18.50 5
235 Main Street,
White Plains, NY 83,237 79.0% $ 1,156,248 $ 17.58 23
245 Main Street,
White Plains, NY 73,543 87.3% $ 1,298,363 $ 20.22 15
2 Church Street,
Ossining, NY 24,250 60.6% $ 214,463 $ 14.59 4
120 White Plains Rd.,
Tarrytown, NY 203,000 99.4% $ 4,388,428 $ 22.33 11
80 Grasslands
Elmsford, NY 85,104 93.4% $ 1,509,382 $ 18.99 6
360 Hamilton Avenue,
White Plains, NY <F3> 365,000 --- $ --- $ --- ---
----------- ------------- -----------
Total Stand-alone Westchester
Office Properties<F4> 895,043 90.7% $ 9,588,063 $ 20.14 64
=========== ============= ===========
Executive Hill Office Park
West Orange, NJ
100 Executive Drive 92,872 100.0% $ 1,700,804 $ 18.31 12
200 Executive Drive 102,630 88.9% $ 1,760,392 $ 19.29 16
300 Executive Drive 126,196 99.0% $ 2,532,643 $ 20.28 12
10 Rooney Circle 69,684 100.0% $ 1,406,904 $ 20.19 2
----------- ------------- -----------
Total-Executive Hill Office Park 391,382 96.8% $ 7,400,743 $ 19.53 42
=========== ============= ===========
University Square,
Princeton, NJ
100 Campus Dr. 27,350 100.0% $ 339,125 $ 12.40 2
104 Campus Dr. 70,155 100.0% $ 1,140,019 $ 16.25 1
115 Campus Dr. 33,600 100.0% $ 602,144 $ 17.92 2
----------- ------------- -----------
Total University Square 131,105 100.0% $ 2,081,288 $ 15.87 5
=========== ============= ===========
Stand-alone New Jersey Properties
1 Paragon Drive
Montvale, NJ 104,599 95.6% $ 1,138,187 $ 11.38 12
101 West John F Kennedy Pkwy,
Short Hills, NJ 185,233 100.0% $ 2,963,728 $ 16.00 1
101 East John F, Kennedy Pkwy,
Short Hills, NJ 122,841 100.0% $ 1,965,456 $ 16.00 1
One Eagle Rock,
Hanover, NJ 140,000 96.8% $ 609,525 $ 4.50 2
3 University Plaza,
Hackensack, NJ 216,403 97.9% $ 3,258,186 $ 15.37 24
1255 Broad Street,
Clifton, NJ<F3> 180,000 --- $ -- $ -- --
----------- ------------- -----------
Total Stand-alone New Jersey
Properties <F4> 949,076 98.2% $ 9,935,082 $ 13.15 40
=========== ============= ===========
Total-Office Properties <F4> 7,580,369 92.1% $121,447,588 $ 19.21 696
=========== ============= ===========
<FN>
<F1>
Ground lease expirations assume exercise of renewal options by the lessee.
<F2>
Represents Base Rent of signed leases at December 31, 1997 adjusted for
scheduled contractual increases during the 12 months ending December 31, 1998.
Total Base Rent for these purposes reflects the effect of any lease expirations
that occur during the 12-month period ending December 31, 1998. Amounts
included in rental revenue for financial reporting purposes have been
determined on a straight-line basis rather than on the basis of contractual
rent as set forth in the foregoing table.
<F3>
Property is currently under redevelopment.
<F4>
Percent leases excludes properties under development.
<F5>
Year renovated.
<F6>
The actual fee interest in 520 White Plains Road is held by the County of
Westchester Industrial Development Agency. The fee interest in 520 White
Plains Road may be acquired if the outstanding principal under certain loan
agreements and annual basic installments are prepaid in full.
</FN>
</TABLE>
Industrial Properties
General. As of December 31, 1997, the Company owned or had an interest in 95
Industrial Properties that encompass approximately 6.0 million rentable square
feet. All but six of the Industrial Properties are located on Long Island. As
of December 31, 1997, the Industrial Properties were approximately 94% leased
to 230 tenants. Many of the Industrial Properties have been constructed with
high ceiling heights (i.e., above 18 feet), upscale office building facades,
parking in excess of zoning requirements, drive-in and/or loading dock
facilities, and other features which permit them to be leased for industrial
and/or office purposes.
The Industrial Properties are leased to national tenants as well as to local
companies. These tenants utilize the Industrial Properties for distribution,
warehousing, research and development and light manufacturing/assembly
activities. Leases on the Industrial Properties are typically written for terms
ranging from three to seven years and require (i) payment of a Base Rent, (ii)
payments of real estate tax escalations over a base year, (iii) payments of
compounded annual increases to Base Rent and (iv) reimbursement of all
operating expenses. Electric costs are borne and paid directly by the tenant.
Certain leases are "triple net" (i.e., the tenant is required to pay in
addition to annual Base Rent, all operating expenses and real estate taxes). In
virtually all leases, the landlord is responsible for structural repairs.
Renewal provisions typically provide for renewal rents at market rates,
provided that such rates are not less than the most recent rental rates.
Approximately 58% of the Industrial Properties measured by square footage,
are located in three large scale planned industrial parks that were developed
by Reckson. They are (i) Vanderbilt Industrial Park, a 400-acre industrial
park containing 50 buildings with approximately 3.6 million square feet.(ii)
Airport International Plaza a 200-acre industrial park containing 32 buildings
with approximately 1.4 million square feet, and (iii) County Line Industrial
Center, a 28-acre industrial park containing six buildings and approximately
one million square feet.
In addition to its industrial parks, as of December 31, 1997, the Company
owned 27 standalone Industrial Properties. As of December 31, 1997, these
Properties were approximately 94% leased to 54 tenants. Included in the 27
standalone Industrial Properties are 21 Properties located on Long Island
encompassing approximately 1.6 million square feet, of which 32% are located in
Farmingdale, 13% are located in Islip/Islandia, 13% are located in Melville and
12% are located in Hauppauge.
<TABLE>
The following table sets forth certain information as of December 31, 1997
for each of the Industrial Properties.
<CAPTION>
Ownership Percentage
Interest Office/
(Ground Research
Company's Lease Land Clearance and
Percentage Expiration Year Area Height Development
Property Ownership Date) Constructed (Acres) (Feet)<F1> Finish
-------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Industrial Properties:
Vanderbilt Industrial Park,
Hauppauge, NY
360 Vanderbilt Motor Parkway 100% Fee 1967 4.2 16 62%
410 Vanderbilt Motor Parkway 100% Fee 1965 3.0 15 7%
595 Old Willets Path 100% Fee 1968 3.5 14 14%
611 Old Willets Path 100% Fee 1963 3.0 14 11%
631/641 Old Willets Path 100% Fee 1965 1.9 14 31%
651/661 Old Willets Path 100% Fee 1966 2.0 14 45%
681 Old Willets Path 100% Fee 1961 1.3 14 10%
740 Old Willets Path 100% Fee 1965 3.5 14 5%
325 Rabro Dr. 100% Fee 1967 2.7 14 10%
250 Kennedy Dr. 100% Fee 1979 7.0 16 9%
90 Plant Ave. 100% Fee 1972 4.3 16 13%
110 Plant Ave. 100% Fee 1974 6.8 18 8%
55 Engineers Rd. 100% Fee 1968 3.0 18 8%
65 Engineers Rd. 100% Fee 1969 1.8 22 10%
85 Engineers Rd. 100% Fee 1968 2.3 18 5%
100 Engineers Rd. 100% Fee 1968 5.0 14 11%
150 Engineers Rd. 100% Fee 1969 6.8 22 11%
20 Oser Ave. 100% Fee 1979 5.0 16 18%
30 Oser Ave. 100% Fee 1978 4.4 16 21%
40 Oser Ave. 100% Fee 1974 3.1 16 33%
50 Oser Ave. 100% Fee 1975 4.1 21 15%
60 Oser Ave. 100% Fee 1975 3.3 21 19%
63 Oser Ave. 100% Fee 1974 1.2 20 9%
65 Oser Ave. 100% Fee 1975 1.2 18 10%
73 Oser Ave. 100% Fee 1974 1.2 20 15%
80 Oser Ave. 100% Fee 1974 1.1 18 25%
85 Nicon Ct. 100% Fee 1978 6.1 30 10%
90 Oser Ave. 100% Fee 1973 1.1 16 26%
104 Parkway Dr. 100% Fee 1985 1.8 15 50%
110 Ricefield Ln. 100% Fee 1980 2.0 15 25%
120 Ricefield Ln. 100% Fee 1983 2.0 15 24%
125 Ricefield Ln. 100% Fee 1973 2.0 14 20%
135 Ricefield Ln. 100% Fee 1981 2.1 15 10%
85 Adams Dr. 100% Fee 1980 1.8 15 90%
395 Oser Ave 100% Fee 1980 6.1 14 100%
Leasehold
185 Oser Ave 100% (1999) 1974 2.0 18 40%
25 Davids Dr. 100% Fee 1975 3.2 20 90%
45 Adams Ave 100% Fee 1979 2.1 18 90%
225 Oser Ave 100% Fee 1977 1.2 14 80%
180 Oser Ave 100% Fee 1978 3.4 16 35%
360 Oser Ave 100% Fee 1981 1.3 18 35%
400 Oser Ave 100% Fee 1982 9.5 16 30%
375 Oser Ave 100% Fee 1981 1.2 18 40%
425 Rabro 100% Fee 1980 4.0 16 25%
390 Motor Parkway 100% Fee 1980 10.0 14 4%
600 Old Willets Path<F3> 100% Fee 1965 4.5 14 25%
400 Moreland Road<F3> 100% Fee 1967 6.3 17 10%
--------------
Total Vanderbilt Industrial Park<F4> 160.4
==============
Airport International Plaza,
Islip, NY
20 Orville Dr. 100% Fee 1978 1.0 16 50%
25 Orville Dr. 100% Fee 1970 2.2 16 100%
50 Orville Dr. 100% Fee 1976 1.6 15 20%
65 Orville Dr. 100% Fee 1971 2.2 14 13%
70 Orville Dr. 100% Fee 1975 2.3 22 7%
80 Orville Dr. 100% Fee 1988 6.5 16 21%
85 Orville Dr. 100% Fee 1974 1.9 14 20%
95 Orville Dr. 100% Fee 1974 1.8 14 10%
110 Orville Dr. 100% Fee 1979 6.4 24 15%
180 Orville Dr. 100% Fee 1982 2.3 16 18%
1101 Lakeland Ave. 100% Fee 1983 4.9 20 8%
1385 Lakeland Ave. 100% Fee 1973 2.4 16 18%
125 Wilbur Place 100% Fee 1977 4.0 16 31%
140 Wilbur Place 100% Fee 1973 3.1 20 37%
160 Wilbur Place 100% Fee 1978 3.9 16 30%
170 Wilbur Place 100% Fee 1979 4.9 16 28%
4040 Veterans Highway 100% Fee 1972 1.0 14 100%
--------------
Total Airport International Plaza 52.4
==============
County Line Industrial Center,
Melville, NY
5 Hub Dr. 100% Fee 1979 6.9 20 20%
10 Hub Dr. 100% Fee 1975 6.6 20 15%
30 Hub Drive 100% Fee 1976 5.1 20 18%
265 Spagnoli Rd. 100% Fee 1978 6.0 20 28%
--------------
Total County Line Industrial Center 24.6
==============
Standalone Long Island
Industrial Properties
32 Windsor Pl.,
Islip, NY 100% Fee 1971 2.5 18 10%
42 Windsor Pl.,
Islip, NY 100% Fee 1972 2.4 18 8%
208 Blydenburgh Rd.,
Islandia, NY 100% Fee 1969 2.4 14 17%
210 Blydenburgh Rd.,
Islandia, NY 100% Fee 1969 1.2 14 16%
71 Hoffman Ln.,
Islandia, NY 100% Fee 1970 5.8 16 10%
135 Fell Ct.,
Islip, NY 100% Fee 1965 3.2 16 20%
--------------
Subtotal Islip/Islandia 17.5 --- ---
--------------
70 Schmitt Boulevard,
Farmingdale, NY 100% Fee 1975 4.4 18 10%
105 Price Parkway,
Farmingdale, NY 100% Fee 1969 12.0 26 8.5%
110 BI County Blvd.,
Farmingdale, NY 100% Fee 1984 9.5 19 45%
--------------
Subtotal Farmingdale 25.9 --- ---
--------------
70 Maxess Road,
Melville, NY 100% Fee 1969 9.3 15 38%
20 Melville Road ,
Melville, NY 100% Fee 1965 4.0 23 66%
65 Marcus Dr.,
Melville, NY 100% Fee 1968 5.0 16 50%
--------------
Subtotal Melville 18.3 --- ---
--------------
300 Motor Parkway,
Hauppauge, NY 100% Fee 1979 4.2 14 100%
1516 Motor Parkway,
Hauppauge, NY 100% Fee 1981 7.9 24 5%
--------------
Subtotal Hauppauge 12.1 --- ---
--------------
933 Motor Parkway,
Smithtown, NY 100% Fee 1973 5.6 20 26%
65 S. Service Rd. ,
Plainview, NY<F5> 100% Fee 1961 1.6 14 10%
85 S. Service Rd.,
Plainview, NY 100% Fee 1961 1.6 14 60%
19 Nicholas Drive,
Yaphank, NY <F6> 100% Fee 1989 29.6 24 5%
48 Harbor Park Dr.,
Port Washington, NY 100% Fee 1976 2.7 16 100%
110 Marcus Drive,
Huntington, NY 100% Fee 1980 6.1 20 39%
100 Andrews,
Hicksville, NY 100% Fee 1954 11.7 25 12%
--------------
Total Standalone Long Island
Industrial Properties 132.7
==============
Standalone Westchester Industrial
Properties
100 Grasslands Rd.,
Elmsford, NY 100% Fee 1964 3.6 16 100%
2 Macy Rd.,
Harrison, NY 100% Fee 1962 5.7 16 100%
500 Saw Mill Rd.,
Elmsford, NY 100% Fee 1968 7.3 22 17%
--------------
Total Standalone Westchester
Industrial Properties 16.6
==============
Standalone New Jersey Industrial
Properties
40 Cragwood Rd,
South Plainfield, NJ 100% Fee 1965 13.5 16 49%
492 River Rd,
Nutley, NJ <F3> 100% Fee 1952 17.3 13 100%
--------------
Total New Jersey Standalone
Industrial Properties<F4> 30.8
==============
Standalone Connecticut
Industrial Property
710 Bridgeport
Shelton, CT 100% Fee 1971-1979 36.1 22 30%
--------------
Total Connecticut Standalone
Industrial Property 36.1
==============
Total Industrial Properties <F4> 453.6
==============
<FN>
See footnotes in following table.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Annual Number
Rentable Annual Base Rent of
Square Percent Base Rent Per Leased Tenant
Property Feet Leased <F2><F3> Sq. Ft. Leases
-------------- -------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Industrial Properties:
Vanderbilt Industrial Park,
Hauppauge, NY
360 Vanderbilt Motor Parkway 54,000 100.0% $ 35,910 $ 0.67 1
410 Vanderbilt Motor Parkway 41,784 100.0% $ 192,246 $ 4.60 4
595 Old Willets Path 31,670 100.0% $ 144,433 $ 4.56 4
611 Old Willets Path 20,000 100.0% $ 137,698 $ 6.88 2
631/641 Old Willets Path 25,000 56.0% $ 91,877 $ 6.56 2
651/661 Old Willets Path 25,000 100.0% $ 141,431 $ 5.66 7
681 Old Willets Path 15,000 100.0% $ 12,594 $ 0.84 1
740 Old Willets Path 30,000 100.0% $ 29,676 $ 0.99 1
325 Rabro Dr. 35,000 100.0% $ 193,078 $ 5.44 2
250 Kennedy Dr. 127,980 100.0% $ 379,894 $ 2.97 1
90 Plant Ave. 75,000 100.0% $ 193,035 $ 2.57 3
110 Plant Ave. 125,000 100.0% $ 517,087 $ 4.14 1
55 Engineers Rd. 36,000 100.0% $ 290,916 $ 8.08 1
65 Engineers Rd. 23,000 100.0% $ 126,417 $ 5.50 1
85 Engineers Rd. 40,800 100.0% $ 198,984 $ 4.88 2
100 Engineers Rd. 88,000 100.0% $ 353,088 $ 4.01 1
150 Engineers Rd. 135,000 100.0% $ 232,505 $ 1.72 1
20 Oser Ave. 42,000 98.65% $ 323,107 $ 7.80 2
30 Oser Ave. 42,000 100.0% $ 307,347 $ 7.32 5
40 Oser Ave. 59,800 100.0% $ 310,555 $ 5.18 13
50 Oser Ave. 60,000 100.0% $ 240,000 $ 4.00 1
60 Oser Ave. 48,000 100.0% $ 192,000 $ 4.00 1
63 Oser Ave. 22,000 100.0% $ 104,676 $ 4.76 1
65 Oser Ave. 20,000 100.0% $ 113,628 $ 5.68 1
73 Oser Ave. 20,000 100.0% $ 12,951 $ 0.65 1
80 Oser Ave. 19,500 100.0% $ 62,114 $ 3.19 1
85 Nicon Ct. 104,000 100.0% $ 472,626 $ 4.54 1
90 Oser Ave. 37,500 100.0% $ 120,381 $ 3.21 1
104 Parkway Dr. 27,600 100.0% $ 91,000 $ 3.30 1
110 Ricefield Ln. 32,264 100.0% $ 149,921 $ 4.65 1
120 Ricefield Ln. 33,060 100.0% $ 160,000 $ 4.84 1
125 Ricefield Ln. 30,495 100.0% $ 187,299 $ 6.14 1
135 Ricefield Ln. 32,340 100.0% $ 193,164 $ 5.97 1
85 Adams Dr. 20,000 100.0% $ 260,000 $ 13.00 1
395 Oser Ave 50,000 100.0% $ 400,000 $ 8.00 1
185 Oser Ave 30,000 100.0% $ 13,750 $ 0.46 1
25 Davids Dr. 40,000 100.0% $ 293,495 $ 7.34 1
45 Adams Ave 28,000 100.0% $ 147,525 $ 5.27 1
225 Oser Ave 10,000 100.0% $ 66,250 $ 6.62 2
180 Oser Ave 61,868 76.2% $ 298,120 $ 6.33 9
360 Oser Ave 23,000 100.0% $ 128,800 $ 5.60 1
400 Oser Ave 164,936 76.5% $ 758,761 $ 6.02 23
375 Oser Ave 20,000 100.0% $ 137,250 $ 6.86 1
425 Rabro 65,641 100.0% $ 577,940 $ 8.80 1
390 Motor Parkway 181,155 45.5% $ 300,947 $ 3.65 2
600 Old Willets Path<F3> 69,627 --- $ --- $ --- 0
400 Moreland Road<F3> 56,875 --- $ --- $ --- ---
-------------- -------------- -------------
Total Vanderbilt Industrial Park<F4> 2,379,895 92.8% $ 9,694,476 $ 4.64 112
============== ============== =============
Airport International Plaza,
Islip, NY
20 Orville Dr. 12,852 100.0% $ 96,697 $ 7.52 1
25 Orville Dr. 32,300 100.0% $ 445,550 $ 13.24 2
50 Orville Dr. 28,000 50.0% $ 129,099 $ 9.22 1
65 Orville Dr. 32,000 100.0% $ 158,524 $ 4.95 2
70 Orville Dr. 41,508 100.0% $ 219,020 $ 5.28 2
80 Orville Dr. 92,544 100.0% $ 643,027 $ 6.95 9
85 Orville Dr. 25,000 100.0% $ 0 $ 0.00 0
95 Orville Dr. 25,000 100.0% $ 125,750 $ 5.03 1
110 Orville Dr. 110,000 100.0% $ 629,933 $ 5.73 1
180 Orville Dr. 37,612 100.0% $ 214,228 $ 5.70 2
1101 Lakeland Ave. 90,411 100.0% $ 573,999 $ 6.35 1
1385 Lakeland Ave. 35,000 100.0% $ 171,574 $ 4.90 3
125 Wilbur Place 62,686 76.2% $ 232,168 $ 4.86 10
140 Wilbur Place 48,500 100.0% $ 270,377 $ 5.57 2
160 Wilbur Place 62,710 100.0% $ 263,986 $ 4.21 6
170 Wilbur Place 72,062 96.5% $ 350,222 $ 5.03 8
4040 Veterans Highway 2,800 100.0% $ 54,061 $ 19.31 1
-------------- -------------- -------------
Total Airport International Plaza 810,985 93.2% $ 4,578,215 $ 6.06 52
============== ============== =============
County Line Industrial Center,
Melville, NY
5 Hub Dr. 88,001 100.0% $ 479,106 $ 5.44 2
10 Hub Dr. 95,546 100.0% $ 545,612 $ 5.71 5
30 Hub Drive 73,127 100.0% $ 374,454 $ 5.12 2
265 Spagnoli Rd. 85,500 100.0% $ 585,012 $ 6.84 3
-------------- -------------- -------------
Total County Line Industrial Center 342,174 100.0% $ 1,984,184 $ 5.80 12
============== ============== =============
Standalone Long Island
Industrial Properties
32 Windsor Pl.,
Islip, NY 43,000 100.0% $ 128,128 $ 2.98 1
42 Windsor Pl.,
Islip, NY 65,000 100.0% $ 221,963 $ 3.41 1
208 Blydenburgh Rd.,
Islandia, NY 24,000 100.0% $ 97,190 $ 4.05 4
210 Blydenburgh Rd.,
Islandia, NY 20,000 100.0% $ 102,183 $ 5.11 2
71 Hoffman Ln.,
Islandia, NY 30,400 100.0% $ 167,641 $ 5.51 1
135 Fell Ct.,
Islip, NY 30,000 100.0% $ 222,756 $ 7.43 1
-------------- -------------- -------------
Subtotal Islip/Islandia 212,400 100.0% $ 939,861 $ 4.43 10
-------------- -------------- -------------
70 Schmitt Boulevard,
Farmingdale, NY 76,312 100.0% $ 893,860 $ 11.71 1
105 Price Parkway,
Farmingdale, NY 297,000 100.0% $ 1,308,808 $ 4.41 1
110 BI County Blvd.,
Farmingdale, NY 147,303 88.2% $ 1,199,857 $ 9.24 13
-------------- -------------- -------------
Subtotal Farmingdale 520,615 96.7% $ 3,402,525 $ 6.76 15
-------------- -------------- -------------
70 Maxess Road,
Melville, NY 78,000 100.0% $ 622,578 $ 7.98 1
20 Melville Road ,
Melville, NY 67,922 100.0% $ 370,650 $ 5.46 1
65 Marcus Dr.,
Melville, NY 60,000 100.0% $ 546,075 $ 9.10 1
-------------- -------------- -------------
Subtotal Melville 205,922 100.0% $ 1,539,303 $ 7.48 3
-------------- -------------- -------------
300 Motor Parkway,
Hauppauge, NY 55,942 82.4% $ 750,016 $ 16.26 10
1516 Motor Parkway,
Hauppauge, NY 140,000 100.0% $ 837,200 $ 5.98 1
-------------- -------------- -------------
Subtotal Hauppauge 195,942 95.0% $ 1,587,216 $ 8.53 11
-------------- -------------- -------------
933 Motor Parkway,
Smithtown, NY 48,000 100.0% $ 321,884 $ 6.71 1
65 S. Service Rd. ,
Plainview, NY<F5> 10,000 100.0% $ 65,498 $ 6.55 1
85 S. Service Rd.,
Plainview, NY 20,000 100.0% $ 128,280 $ 6.41 2
19 Nicholas Drive,
Yaphank, NY <F6> 145,000 100.0% $ 907,726 $ 6.26 1
48 Harbor Park Dr.,
Port Washington, NY 35,000 100.0% $ 653,987 $ 18.69 1
110 Marcus Drive,
Huntington, NY 78,240 100.0% $ 596,903 $ 7.63 1
100 Andrews,
Hicksville, NY 167,500 66.1% $ 645,539 $ 5.83 1
-------------- -------------- -------------
Total Standalone Long Island
Industrial Properties 1,638,619 94.9% $ 10,788,722 $ 6.94 47
============== ============== =============
Standalone Westchester Industrial
Properties
100 Grasslands Rd.,
Elmsford, NY 45,000 36.1% $ 82,999 $ 5.10 1
2 Macy Rd.,
Harrison, NY 26,000 100.0% $ 422,500 $ 16.25 1
500 Saw Mill Rd.,
Elmsford, NY 92,000 100.0% $ 772,800 $ 8.40 1
-------------- -------------- -------------
Total Standalone Westchester
Industrial Properties 163,000 82.4% $ 1,278,299 $ 9.52 3
============== ============== =============
Standalone New Jersey Industrial
Properties
40 Cragwood Rd,
South Plainfield, NJ 135,000 74.0% $ 1,242,514 $ 12.43 2
492 River Rd,
Nutley, NJ <F3> 128,000 --- $ --- $ --- ---
-------------- -------------- -------------
Total New Jersey Standalone
Industrial Properties<F4> 263,000 74.0% $ 1,242,514 $ 12.43 2
============== ============== =============
Standalone Connecticut
Industrial Property
710 Bridgeport
Shelton, CT 452,414 100.0% $ 2,849,007 $ 6.30 2
-------------- -------------- -------------
Total Connecticut Standalone
Industrial Property 452,414 100.0% $ 2,849,007 $ 6.30 2
============== ============== =============
Total Industrial Properties <F4> 6,050,087 93.7% $ 32,415,417 $ 5.97 230
============== ============== =============
<FN>
<F1>
Calculated as the difference from the lowest beam to floor.
<F2>
Represents Base Rent of signed leases at December 31, 1997 adjusted for
scheduled contractual increases during the 12 months ending December 31, 1998.
Total Base Rent for these purposes reflects the effect of any lease expirations
that occur during the 12 month period ending December 31, 1998. Amounts
included in rental revenue for financial reporting purposes have been
determined on a straight-line basis rather than on the basis of contractual
rent as set forth in the foregoing table.
<F3>
Property under redevelopment.
<F4>
Percent leased excludes properties under redevelopment.
<F5>
A tenant has been granted an option exercisable after April 30, 1997 and
prior to October 31, 2002 to purchase this property for $600,000.
<F6>
The actual fee interest in 19 Nicholas Drive is currently held by the
Town of Brookhaven Industrial Development Agency. The Company may acquire such
fee interest by making a nominal payment to the Town of Brookhaven Industrial
Development Agency.
</FN>
</TABLE>
Retail Properties
As of December 31, 1997, the Company owned two free-standing 10,000 square
foot retail properties. The retail properties which are located in Great
Neck, New York and Huntington, New York were 100% leased as of December 31,
1997.
Developments in Progress
As of December 31, 1997, the Company owned or had under contract
approximately 847 acres of land in 17 separate parcels, 10 of which are located
in Long Island, 2 of which are located in Westchester and 5 of which are
located in New Jersey. The parcels have been zoned for potential industrial
and retail development. The Company plans to seek development opportunities as
market conditions permit. The Company had invested approximately $29.3 million
in land costs and approximately $25.2 million in additional development costs
at December 31, 1997.
Historical Non-Incremental Revenue-Generating Capital Expenditures, Tenant
Improvement Costs and Leasing Commissions
The following table sets forth annual and per square foot recurring, non-
incremental revenue-generating capital expenditures and non-incremental
revenue-generating tenant improvement costs and leasing commissions incurred by
the Company to retain revenues attributable to existing leased space for the
period 1993 through 1997 for the Office Properties and the Industrial
Properties. As noted, revenue-generating tenant improvement costs and leasing
commissions are excluded from the table set forth immediately below. The
historical capital expenditures, tenant improvement costs and leasing
commissions set forth below are not necessarily indicative of future recurring,
non-incremental revenue-generating capital expenditures or non-incremental
revenue-generating tenant improvement costs and leasing commissions.
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Capital Expenditures
Long Island Office Properties
Total $ 227,996 $ 158,340 $ 364,545 $ 379,026 $ 1,108,675
Per square foot 0.15 0.1 0.19 0.13 0.22
Industrial Properties
Total $ 276,052 $ 524,369 $ 290,457 $ 670,751 $ 733,233
Per square foot 0.09 0.18 0.08 0.18 0.15
Non-Incremental Revenue-Generating Tenant
Improvement Costs and Leasing Commissions
Long Island Office Properties
Annual Tenant Improvement Costs $ 406,602 $ 902,312 $ 452,057 $ 523,574 $ 784,044
Per square foot improved 1.93 5.13 4.44 4.28 7.00
Annual Leasing Commissions 670,736 341,253 144,925 119,047 415,822
Per square foot leased 3.18 1.94 1.42 0.97 4.83
Total per square foot $ 5.11 $ 7.07 $ 5.86 $ 5.25 $ 11.83
Westchester Office Properties
Annual Tenant Improvement Costs N/A N/A N/A $ 834,764 $ 1,211,665
Per square foot improved N/A N/A N/A 6.33 8.90
Annual Leasing Commissions N/A N/A N/A 264,388 366,257
Per square foot leased N/A N/A N/A 2.00 2.69
Total per square foot N/A N/A N/A $ 8.33 $ 11.59
Landmark Square
Annual Tenant Improvement Costs N/A N/A N/A $ 58,000 $ 1,022,421
Per square foot improved N/A N/A N/A 12.45 13.39
Annual Leasing Commissions N/A N/A N/A 0 256,615
Per square foot leased N/A N/A N/A 0.00 3.36
Total per square foot N/A N/A N/A $ 12.45 $ 16.75
Industrial Properties
Annual Tenant Improvement Costs $ 186,761 $ 585,891 $ 210,496 $ 380,334 $ 230,466
Per square foot improved 0.33 0.88 0.90 0.72 0.55
Annual Leasing Commissions 278,905 176,040 107,351 436,213 81,013
Per square foot leased 0.49 0.27 0.46 0.82 0.19
Total per square foot $ 0.82 $ 1.15 $ 1.36 $ 1.54 $ 0.74
</TABLE>
The Option Properties
Six properties owned by Reckson (the "Reckson Option Properties") and four
properties in which Reckson owns a non-controlling minority interest (the
"Other Option Properties") and, together with the Reckson Option Properties,
the ("Option Properties") were not contributed to the Operating Partnership
upon completion of the IPO. However, the Operating Partnership was granted 10
year options to acquire interests in the Option Properties under the terms and
conditions described below. As of the date hereof, the Company had acquired or
contracted to acquire all but two of the Reckson Option Properties.
The two remaining Reckson Option Properties are comprised of 225
Broadhollow Road, Melville, New York, a 185,889 square foot suburban Class A
office property located in the Huntington Melville Corporate Center, and, 593
Acorn Street, Babylon, New York, a 39,551 square foot stand alone industrial
property both of which are managed by the Company.
The Operating Partnership has been granted options, exercisable over a 10
year period that commenced upon closing of the IPO, to acquire each of the
Reckson Option Properties and Reckson's ownership interest in the Other Option
Properties at a purchase price equal to the lesser of (i) a fixed price (the
"Fixed Price") and (ii) the Net Operating Income attributable to such Option
Property during the 12 month period preceding exercise of the option by the
Operating Partnership (multiplied by Reckson's percentage ownership interest in
the case of the Other Option Properties) divided by a capitalization rate of
11.5%; provided that, in no event shall the purchase price be less than the
outstanding balance of the mortgage debt encumbering the Option Property
(multiplied by Reckson's percentage ownership interest in the case of the Other
Option Properties) on the acquisition date. Net Operating Income is defined
generally for these purposes as gross income minus annual operating costs. The
portion of the purchase price not required to repay mortgage debt and other
transaction costs incurred in connection with the sale of such Option Property
shall be payable in Units. The fixed prices for 225 Broadhollow Road and 593
Acorn Street is $21,242,000 and $878,100, respectively.
The Reckson partnerships that currently own the Reckson Option Properties
may sell any of these properties to a party other than the Operating
Partnership, provided that the selling entity provides the Company with 30-days
advance notice of such sale. Upon receiving such notice, the Company may then
elect to exercise the option to acquire the Reckson Option Property and, if it
so chooses, sell the property to such party.
In addition to the foregoing, in the event a sale of any Option Property
to a third party is consummated, the Operating Partnership will receive
"Reckson's Net After Tax Profit" from such sale. Reckson's Net After Tax Profit
is defined generally for such purposes as the product of (i) Reckson's
percentage ownership interest in the Option Property (100% in the case of
Reckson Option Properties) multiplied by (ii) the excess of the gross sales
price over the total of any outstanding mortgage or other encumbrance, the
federal income tax payable by the partners as a result of the sale, as well as
other transaction costs incurred in connection with the sale of such Option
Property, including transfer taxes, closing adjustments, brokerage commissions,
legal fees and accounting fees.
The terms of the options granted to the Operating Partnership with respect
to the Option Properties have not been based on appraisals and are not the
product of an arm's-length negotiation since members of the Rechler family
maintain an ownership interest in such Option Properties. However, management
believes that such terms are fair to the Company and a determination by the
Operating Partnership to exercise an option to acquire an interest in any
Option Property shall be subject to the approval of the Independent Directors
and, with respect to interests in the Other Option Properties, the approval of
Reckson's partners.
Mortgage Indebtedness
<TABLE>
The following table sets forth certain information regarding the mortgage
debt of the Company, as of December 31, 1997.
<CAPTION>
Principal
Amount Interest Maturity Amortization
Property Outstanding Rate Date Schedule
============== ========== ========== ==============
<S> <C> <C> <C> <C>
6800 Jericho Turnpike (North Shore Atrium I) $ 15,001,000 7 1/4% 6/10/00 ---
6900 Jericho Turnpike (North Shore Atrium II) $ 5,279,000 7 1/4% 6/10/00 ---
200 Broadhollow Rd. $ 6,649,000 7 3/4% 6/02/02 <F3>
395 North Service Road $ 9,917,000 6.82% 6/02/00 25 year
50 Charles Lindbergh Blvd. $ 15,479,000 7 1/4% 7/10/01 ---
333 Earl Ovington Blvd. (The Omni) <F1> $ 57,839,000 7.72 % 08/14/07 25 year
310 East Shore Rd. $ 2,322,000 8% 7/01/02 ---
80 Orville Dr. $ 2,616,000 7 1/2% <F2> 2/01/04 ---
70 Maxess Road $ 1,863,000 8 3/4% 12/21/00 20 year
70 Schmitt Boulevard $ 425,000 9 1/4% 8/01/99 <F4>
580 White Plains Road $ 8,811,000 7 3/8% 9/01/00 25 year
Landmark Square $ 49,291,000 8.02% 10/07/06 25 year
110 Bi-County Blvd. $ 4,531,000 9 1/8% 11/30/12 20 year
--------------
Total $ 180,023,000
==============
<FN>
<F1>
The Company has a 60% general partnership interest in the Omni
Partnership. The Company's proportionate share of the aggregate principal
amount of the mortgage debt on the Omni is $34.7 million.
<F2>
Interest rate increases to 10.1% after the first five years of the loan.
<F3>
Interest only during years one through three. Thereafter, the Company will
pay equal monthly installments of principal and interest with amortization
based on a 30 year schedule.
<F4>
Scheduled principal payments of $25,000 per month for the period September
1997 to August 1998. Principal payments of $18,750 per month for the period
September 1998 to August 1999.
</FN>
</TABLE>
Item 3. Legal Proceedings
The Company is not presently subject to any material litigation nor, to
the Company's knowledge, is any litigation threatened against the Company,
other than routine actions for negligence or other claims and administrative
proceedings arising in the ordinary course of business, some of which are
expected to be covered by liability insurance and all of which collectively are
not expected to have a material adverse effect on the liquidity, results of
operations or business or financial condition of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of stockholders during the fourth
quarter of the year ended December 31, 1997.
Part II
Item 5. Market For Registrant's Common Equity and Related Stockholder
matters
The Company's common stock began trading on the New York Stock Exchange
("NYSE") on May 25, 1995, under the symbol "RA". The following table sets
forth the quarterly high and low closing sales prices per share of the common
stock reported on the NYSE and the distributions paid by the Company for each
respective quarter.
<TABLE>
<CAPTION>
High <F4> Low <F4> Distribution <F4>
-------------- -------------- --------------
<S> <C> <C> <C>
June 30, 1995 (from June 2, 1995) $12.313 $12.000 $0.0900 <F1>
September 30, 1995 $13.938 $12.250 $0.2891
December 31, 1995 $14.750 $12.938 $0.2891
March 31, 1996 $16.125 $14.563 $0.2891
June 30, 1996 $16.500 $14.625 $0.3000 <F2>
September 30, 1996 $18.563 $15.500 $0.3000
December 31, 1996 $21.338 $17.625 $0.3000
March 31, 1997 $23.563 $20.438 $0.3000
June 30, 1997 $23.000 $20.875 $0.3000
September 30, 1997 $27.000 $22.375 $0.3125 <F3>
December 31, 1997 $28.750 $24.063 $0.3125
<FN>
<F1>
The Company paid a distribution of $.09 per share of common stock on July 14,
1995, for the period June 2, 1995 (the closing date of the IPO) through June 30,
1995, which is approximately equivalent to a quarterly distribution of $.2891
and annual distribution of $1.154 per share of Common Stock.
<F2>
Commencing with the distribution for the quarter ended June 30, 1996, the Board
of Directors of the Company increasedthe quarterly distribution to $.30 per
share, which is equivalent to an annual distribution of $1.20 per share.
<F3>
Commencing with the distribution for the quarter ended June 30, 1997, the Board
of Directors of the Company increased the quarterly distribution to $.3125 per
share, which is equivalent to an annual distribution of $1.25 per share.
<F4>
Historical amounts adjusted to reflect a two-for-one stock split effective
April 15, 1997.
</FN>
</TABLE>
On September 21, 1994, prior to completion of the IPO, the Company was
capitalized with the issuance to each of Donald Rechler and Roger Rechler of 50
shares (pre-split) of common stock for a purchase price of $10.00 per
share(pre-split). In addition, on June 2, 1995 (the closing date of the IPO),
the Company completed a concurrent offering of 400,000 shares (pre-split) of
common stock to members of the Rechler family at the initial public offering
price of $24.25 per share (pre-split). The Company issued these shares in
reliance on an exception from registration under Section 4(2) of the Securities
Act of 1933.
<TABLE>
Item 6. Selected Financial Data
<CAPTION>
Reckson
Reckson Reckson Associates Reckson
Associates Associates Realty Corp. Group for the Reckson
Realty Corp. Realty Corp. for the Period Period Group for the
Year Ended Year Ended June 3, 1995 to January 1, Year Ended
December 31, December 31, December 31, 1995 to June December 31,
1997 1996 1995 <F1> 2, 1995 <F1> 1994 1993
------------ ------------ -------------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Operating Data:
Revenues $ 153,395 $ 96,141 $ $38,455 $ 20,889 $ 56,931 $ 60,347
Total expenses 107,905 70,951 27,901 20,695 55,685 67,580
Income (loss before minority interests
and extraordinary items 45,490 25,190 10,554 194 1,246 (7,233)
Minority interests 8,624 6,768 3,067 --- --- ---
Extraordinary items - gain (loss)
(net of minority interests' share) (2,230) (895) (4,234) --- 4,434 41,190
Net income 34,636 17,527 3,253 194 5,680 33,957
Per Share Data:
Basic: <F2>
Income before extraordinary items $ 1.13 $ 0.92 $ 0.51 --- --- ---
Extraordinary items (loss) (0.07) (0.04) (0.29) --- --- ---
Net income 1.06 0.88 0.22 --- --- ---
Diluted: <F2a>
Income before extraordinary items $ 1.11 $ 0.91 $ 0.51 --- --- ---
Extraordinary items-(loss) (.07) (.04) (.29) --- --- ---
Diluted net income 1.04 .87 .22 --- --- ---
Balance Sheet Data: (period end)
Real estate, before accumulated
depreciation $ 1,015,282 $ 519,504 $ 290,712 --- $ 162,192 ---
Total assets 1,113,257 543,758 242,728 --- 132,035 ---
Mortgage notes payable 180,023 161,513 98,126 --- 180,286 ---
Credit Facility 210,250 108,500 40,000 --- --- ---
Senior Unsecured notes 150,000 --- --- --- --- ---
Market value of equity <F3> 1,141,592 653,606 303,943 --- --- ---
Total market capitalization including
debt <F3> and <F4> 1,668,800 921,423 426,798 --- --- ---
Other Data:
Funds from operations <F5> $ 69,548 $ 41,133 $ 17,246 --- --- ---
Total square feet (at end of period) 13,645 8,800 5,430 4,529 4,529 4,529
Number of properties (at end of period) 155 110 81 72 72 72
<FN>
<F1>
Represents certain financial information on a consolidated historical basis for
Reckson Associates Realty Corp., and on a combined historical basis for the
Reckson Group.
<F2>
Based on 32,727,000, 19,928,000 and 14,678,000 weighted average shares of
common stock outstanding for the years ended December 31, 1997, 1996 and for
the period June 3, 1995 to December 31, 1995, respectively.
<F2a>
Based on 33,260,000, 20,190,000 and 14,725,000 weighted average shares of
common stock outstanding for the years ended December 31, 1997, 1996 and for
the period June 3, 1995 to December 31, 1995, respectively.
<F3>
Based on the market value of 44,988,846, 31,119,364 and 20,690,448 shares of
common stock and operating partnership units at December 31, 1997, 1996 and
1995, respectively (based on a share price of $25.38, $ 21.13 and $14.69 at
December 31, 1997, 1996 and 1995, respectively).
<F4>
Debt amount is net of minority partners' proportionate share of Omni debt plus
the Company's share of joint venture debt.
<F5>
See "Management's Discussion and Analysis" for a discussion of funds from
operations.
<F6>
The earnings per share amounts prior to 1997 have been restated as required to
comply with Statement of Financial Accounting Standards No. 128, Earnings Per
Share. For further discussion of earnings per share and the impact of
Statement No. 128, see the notes to the consolidated financial statements.
</FN>
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion should be read in conjunction with the historical
financial statements of Reckson Associates Realty Corp. (the "Company") and the
combined financial statements of the Reckson Group and related notes.
Overview and Background
The Reckson Group, the predecessor to the Company (the "Predecessor"), was
engaged in the ownership, management, operation, leasing and development of
commercial real estate properties, principally office and industrial buildings,
and also owned certain undeveloped land located primarily on Long Island, New
York. On June 2, 1995, following completion of the Initial Public Offering (the
"IPO") and the related formation transactions, the Company owned or had an
interest in 72 properties (including one joint venture property) and succeeded
to the Reckson Group's real estate business.
The Company owns all of the interests in its real estate properties
through Reckson Operating Partnership, L.P. (the "Operating Partnership") or
Reckson FS Limited Partnership. At December 31, 1997, the Company owned 155
properties (the "Properties"), (including three joint venture properties)
encompassing approximately 13.6 million square feet. The Properties include 58
suburban office properties containing approximately 7.6 million square feet, 95
industrial properties containing approximately 6.0 million square feet and two
retail properties containing 20,000 square feet.
Since the IPO, the Company has acquired or contracted to acquire
approximately $804 million of Class A suburban office and industrial properties
encompassing approximately 10.7 million square feet located in the New York
City Tri-State Area of Long Island, Westchester, Southern Connecticut and
Northern New Jersey. In that regard, the Company has acquired 13 office
Properties and 32 industrial Properties encompassing approximately 2.1 and 2.5
million square feet, respectively, located on Long Island for an aggregate
purchase price of approximately $302 million. In February 1996, the Company
established its Westchester Division with the acquisition of an eight building
935,000 square foot Class A office portfolio and associated management and
construction operations for an aggregate purchase price of approximately $79
million. Since its initial investment in Westchester the Company has acquired
11 office properties encompassing approximately 1.4 million square feet and
three industrial properties encompassing approximately 163,000 square feet for
an aggregate purchase price of approximately $130.9 million. In October 1996,
the Company established its Southern Connecticut Division with the purchase of
Landmark Square, a six building office complex encompassing approximately
800,000 square feet located in Stamford, Connecticut for an aggregate purchase
price of approximately $77 million. Since its initial investment in Southern
Connecticut the Company has acquired one industrial property encompassing
452,414 square feet for a purchase price of approximately $27.0 million. In
May 1997, the Company acquired five Class A suburban office properties
encompassing approximately 496,000 square feet located in Northern New Jersey
for an aggregate purchase price of approximately $56.9 million and, in
connection with this acquisition, established its Northern New Jersey Division.
Since its initial investment in Northern New Jersey the Company has acquired
eight office properties encompassing approximately 976,000 square feet and six
industrial properties encompassing approximately 903,000 square feet for an
aggregate purchase price of approximately $131.3 million. Additionally, the
Company has invested approximately $31.5 million for approximately 74 acres of
land located in Long Island, 32 acres of land located in Westchester and 268
acres of land located in New Jersey which allows for approximately 3.5 million
square feet of future development opportunities. In addition, the Company has
invested approximately $72.5 million in certain mortgage indebtedness
encumbering five Class A office properties on Long Island encompassing
approximately 927,000 square feet, a 400 acre parcel of land and a 586,000
square foot industrial property in New Jersey. In October 1997, the Company
entered into an agreement to invest $150 million in the Morris Companies, a
New Jersey developer and owner of "Big Box" warehouse facilities. The Morris
Companies' properties include 23 industrial buildings encompassing
approximately 4.0 million square feet. The Company's investment will be used
to acquire a controlling interest in Reckson Morris Operating Partnership, L.P.
("RMI"). In connection with the transaction the Morris Companies will
contribute 100% of their interests in certain industrial properties to RMI in
exchange for operating partnership units in RMI. On January 6, 1998, the
Company acquired an approximate 70% interest in RMI for approximately $65
million. In addition, at December 31, 1997, the Company had advanced
approximately $12 million to the Morris Companies primarily to fund certain
construction costs related to development properties to be contributed to RMI.
During 1997, the Company formed Reckson Service Industries, Inc. ("RSI")
and Reckson Strategic Venture Partners, LLC ("RSVP"). RSI will serve as the
managing member of RSVP. RSI will invest in operating companies that generally
will provide commercial services to properties owned by the Company and its
tenants and third parties. Since RSI will not be making REIT qualifying
investments, its shares will be distributed to the Company's shareholders and
trade as a separate public company. RSVP was formed to provide the Company
with a "research and development" vehicle to invest in alternative real estate
sectors. RSVP will invest primarily in real estate and real estate related
operating companies generally outside of the Company's core office and
industrial focus. RSVP's strategy is to identify and acquire interests in
established entrepreneurial enterprises with experienced management teams in
market sectors which are in the early stages of their growth cycle or offer
unique circumstances for attractive investments as well as a platform for
future investments. The research and development vehicle will enable the
Company to minimize its investment risks during the early stages of an
investment. The vehicle permits the Company to monitor the long-term potential
for each investment. As later stage capital is required, the Company will
determine the prudence of additional investment and the potential for
incorporating it as a core business line. Following the spin off of RSI the
Company will make investments with RSVP on a joint venture basis. To
facilitate investment by RSVP, the Company has committed $100 million of
initial capital. In addition, RSVP has obtained a $200 million preferred
equity facility from Paine Webber Real Estate Securities ("PWRES") and a
PWRES/George Soros sponsored fund has agreed in principal to join the
investment. At December 31, 1997, the Company had made investments in or
loans to RSI and RSVP aggregating approximately $4.3 million and $7.4 million,
respectively.
The market capitalization of the Company, based on the market value of the
44,988,846 issued and outstanding shares of Common Stock and Operating
Partnership Units ("Units") (based on a share price of $25.38 as of December
31, 1997) and the $527 million (net of minority partners' 40% interest in debt
encumbering the Omni and including the Company's share of joint venture debt)
of debt outstanding at December 31, 1997, was approximately $1.7 billion. As a
result, the Company's total debt to market capitalization ratio at December 31,
1997 equaled 31.6%.
Results of Operations
For discussion purposes, the results of operations for the year ended
December 31, 1995 combine the operating results of the Predecessor (excluding
results of properties not transferred to the Company) for the period January 1,
1995 to June 2, 1995.
The Company's total revenues increased by $57.3 million or 60% from 1996
to 1997 and $36.8 million or 62% from 1995 to 1996. The growth in total
revenues is substantially attributable to the Company's acquisition of 46
properties comprising approximately 4.9 million square feet in 1997 and 29
properties comprising approximately 3.3 million square feet in 1996 and nine
properties comprising approximately 900,000 square feet in 1995. Property
operating revenues, which include base rents and tenant escalations and
reimbursements ("Property Operating Revenues") increased by $51 million or 55%
from 1996 to 1997 and by $35.6 million or 62% from 1995 to 1996. The 1997
increase in Property Operating Revenues is comprised of $2.1 million
attributable to increases in rental rates and changes in occupancies and $48.9
million attributable to acquisitions of properties. The 1996 increase in
Property Operating Revenues is comprised of $6.6 million attributable to
increases in rental rates and changes in occupancies and $29 million
attributable to acquisitions of properties. The remaining balance of the
increase in total revenues in 1997 is primarily attributable to interest income
on the Company's investments in mortgage notes and notes receivable. The
increase from 1996 to 1997 was offset by a decrease in the equity in earnings
of service companies as a result of the management and construction companies
focusing most of their resources on the Company's core portfolio and
redevelopment opportunities rather than third party services. The Company's
base rent was increased by the impact of the straight-line rent adjustment by
$4.5 million in 1997, $3.8 million in 1996 and $2.8 million in 1995.
Property operating expenses, real estate taxes and ground rents ("Property
Expenses") increased by $16.8 million from 1996 to 1997 and by $12.9 million
from 1995 to 1996. These increases are primarily due to the acquisition of
properties. Gross operating margins (defined as Property Operating Revenues
less Property Expenses, taken as a percentage of Property Operating Revenues)
for 1997, 1996 and 1995 were 64.7%, 63.4% and 63.2%, respectively. The
increases in gross operating margins reflects increases realized in rental
rates, the Company's ability to realize certain operating efficiencies as a
result of operating a larger portfolio of properties with concentrations of
properties in office and industrial parks or in its established sub-markets,
and to a lesser extent increased ownership of net leased properties.
Marketing, general and administrative expenses were $8.3 million in 1997,
$5.9 million in 1996 and $3.7 million in 1995. The increase in marketing,
general and administrative expenses is due to the increased costs of managing
the acquisition properties, the cost of opening and maintaining the Company's
Westchester, Southern Connecticut and Northern New Jersey divisions and the
increase in corporate management and administrative costs associated with the
growth of the Company. Marketing, general and administrative expenses as a
percentage of total revenues were 5.4% in 1997, 6.1% in 1996 and 6.3% in 1995.
Interest expense was $21.6 million in 1997, $13.3 million in 1996 and
$12.9 million in 1995. The increase of $8.3 million from 1996 to 1997 is
attributable to an increase in mortgage debt including a $50 million mortgage
note incurred in connection with the acquisition of Landmark Square in October
1996, the refinancing of Omni in the amount of $58 million in August 1997,
increased interest cost attributable to an increased average balance on the
Company's credit facilities and interest on the Company's $150 million of
senior unsecured notes (the "Senior Unsecured Notes"). The weighted average
balance outstanding on the Company's credit facilities was $103.2 million for
1997, $71.2 million for 1996 and $24.8 million for the period from June 3, 1995
to December 31, 1995.
Included in amortization expense is amortized finance costs of $.80
million in 1997, $.53 million in 1996 and $.52 million for the period June 3,
1995 to December 31, 1995. The increase of $.27 million from 1996 to 1997 was
the result of the amortization of financing costs associated with the Unsecured
Credit Facility, the Landmark Square mortgage, the Omni refinanced mortgage and
the Senior Unsecured Notes.
Extraordinary items, net of minority interest resulted in a $2.2 million
loss in 1997, a $.9 million loss in 1996 and a $4.2 million loss for the period
June 3, 1995 to December 31, 1995. In 1997, the extraordinary items, net of
minority interest, was attributable to the write off of certain deferred loan
costs incurred in connection with the Company's secured credit facility which
was terminated in April 1997. In 1996, the extraordinary item, net of minority
interest, was attributable to the write-off of certain deferred loan costs
incurred in connection with the secured credit facility which was substantially
modified and restated in February 1996.
Liquidity and Capital Resources
Summary of Cash Flows
Net cash provided by operating activities totaled $70.6 million in 1997,
$39.4 million in 1996 and $18.6 million in 1995. Increases for each year were
primarily attributable to the growth in cash flow provided by the acquisition
of properties and to a lesser extent from interest income from mortgage notes
and notes receivable.
Net cash used by investing activities totaled $547 million in 1997, $273.7
million in 1996 and $79.0 million in 1995. Cash used in investing activities
related primarily to investments in real estate properties including
development costs and investments in mortgage notes and notes receivable.
Net cash provided by financing activities totaled $485.4 million in 1997,
$240 million in 1996 and $63.2 million in 1995. Cash provided by financing
activities during 1997 and 1996 was primarily attributable to proceeds from
public stock offerings and draws on the Company's credit facilities and
additionally in 1997 proceeds from the issuance of Senior Unsecured Notes.
Investing Activities
During 1997, the Company acquired (i) on Long Island, five office
properties encompassing an aggregate of approximately 881,000 square feet for
approximately $87.5 million and 15 industrial properties encompassing
approximately 968,000 square feet for approximately $43.5 million; (ii) in
Westchester, eight office properties encompassing approximately 830,000 square
feet for approximately $109.4 million and three industrial properties
encompassing approximately 163,000 square feet for approximately $8.0 million;
(iii) in Connecticut, one industrial property encompassing 452,000 square feet
for approximately $27.0 million and (iv) in Northern New Jersey, five Class A
office properties including Executive Hill Office Park encompassing
approximately 496,000 square feet for approximately $56.9 million.
Additionally, in New Jersey the Company acquired eight office properties
encompassing approximately 1.5 million square feet for $153 million and one
industrial property encompassing approximately 128,000 square feet for $2.8
million. During 1997, the Company invested $29 million in mortgage notes
receivable encumbering one Class A office property, one industrial property and
a 400 acre parcel of land. In addition, on March 13, 1997, the Company loaned
$17 million to its minority partner in Omni, its flagship Long Island office
property, and effectively increased its economic interest in the property
owning partnership.
Financing Activities
On January 7, 1997, the Operating Partnership issued 101,902 (pre split)
Units in connection with the acquisition of 110 Bi-County Boulevard, a 147,281
square foot office property located in Farmingdale, New York.
On March 12, 1997, the Company completed a public stock offering and sold
4,945,000 common shares at a price of $45.25 (pre-split) (including 645,000
common shares related to the exercise of the underwriters over allotment
option). Net proceeds to the Company were approximately $212 million. The net
proceeds of the offering were used to acquire properties and to repay credit
facility borrowings.
On April 30, 1997, the Company repaid and replaced borrowings under its
existing $150 million secured credit facility with proceeds from the $250
million unsecured credit facility.
During August 1997, the Company refinanced approximately $43 million of
mortgage debt on its Omni office property with a $58 million fixed rate
mortgage loan. The loan which matures on September 1, 2007 has a fixed rate of
interest of 7.72%.
On August 28, 1997, the Company sold $150 million of 7.2% Senior Unsecured
Notes due August 2007. The net proceeds of the Senior Unsecured Notes were
used to repay borrowings under the unsecured credit facility and for
acquisitions of properties.
On December 5, 1997, the Company completed a public stock offering and
sold 3,081,177 common shares at a price of $26 per share. Net proceeds from
the offering were approximately $79.7 million. Net proceeds from the offering
were used to acquire properties and to repay borrowings under the unsecured
credit facility.
During 1997, the Company paid dividends of $1.54 per share (representing
dividends for five quarters).
On February 18, 1998, the Company completed a public stock offering and
sold 791,152 common shares at a price of $25.44 per share. Net proceeds from
the offering were approximately $19.1 million and were used to fund
acquisitions of properties and repay borrowings under the unsecured credit
facilities.
Capitalization
The Company's indebtedness at December 31, 1997 totaled $527 million (net
of the minority partners' 40% interest in Omni's debt and including the
Company's share of joint venture debt of approximately $13 million) and was
comprised of $210.3 million outstanding under the Unsecured Credit Facility,
$150 million of Senior Unsecured Notes and $167 million of mortgage
indebtedness with an average interest rate of approximately 7.71% and an
average maturity of approximately 7.1 years. Based on the Company's total
market capitalization of approximately $1.70 billion at December 31, 1997,
(calculated at a $25.38 stock price at December 31, 1997 and assuming the
conversion of the 7,218,688 Units and $527 million of debt) the Company's debt
represented 31.6% of its total market capitalization.
On April 30, 1997, the Company obtained a three-year $250 million
unsecured credit facility from a bank group led by Chase Manhattan Bank and
Union Bank of Switzerland (the "Unsecured Credit Facility"). The Company's
ability to borrow thereunder 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 Unsecured Credit Facility bear interest at a floating rate
equal to one, two, three or six month LIBOR (at the Company's election) plus a
spread ranging from 1.125% to 1.50%, based on the Company's leverage ratio.
The Unsecured Credit Facility replaced the Company's $150 million secured
credit facility. The Company utilizes the Unsecured Credit Facility primarily
to finance the acquisitions of properties and other real estate investments,
fund its development activities and for working capital purposes. At December
31, 1997, the Company had availability under the Unsecured Credit Facility to
borrow an additional $35.75 million (net of $4.0 million of outstanding undrawn
letters of credit).
On January 2, 1998, the Company obtained a $200 million unsecured credit
facility (the "Bridge Facility") which matures on April 1, 1998. The Bridge
Facility was provided by the two lead members of the Unsecured Credit Facility
bank group and serves as interim financing while the Company seeks to expand
the availability under the Unsecured Credit Facility.
Historically, rental revenue has been the principal source of funds to pay
operating expenses, debt service and capital expenditures, excluding non-
recurring capital expenditures of the Company. In addition, construction,
management, maintenance, leasing and property management fees have provided
sources of cash flow. The Company expects to meet its short term liquidity
requirements generally through its net cash provided by operating activities
along with the Unsecured Credit Facility previously discussed. The Company
expects to meet certain of its financing requirements through long-term secured
and unsecured borrowings and the issuance of debt securities and additional
equity securities of the Company. The Company will refinance existing mortgage
indebtedness or indebtedness under the Unsecured Credit Facility at maturity or
retire such debt through the issuance of additional debt securities or
additional equity securities. The Company anticipates that the current balance
of cash and cash equivalents and cash flows from operating activities, together
with cash available from borrowings and equity offerings, will be adequate to
meet the capital and liquidity requirements of the Company in both the short
and long-term.
In connection with the acquisition of Landmark Square, the Company plans
to incur approximately $12 million of capital improvements to refit the
building to portfolio standards. At December 31, 1997, approximately $3.7
million had been incurred in connection with the refit of this building.
In order to qualify as a REIT for federal income tax purposes, the Company
is required to make distributions to its stockholders of at least 95% of REIT
taxable income. The Company expects to use its cash flow from operating
activities for distributions to stockholders and for payment of expenditures.
The Company intends to invest amounts accumulated for distribution in short-
term investments.
Inflation
Certain office leases provide for fixed base rent increases or indexed
escalations. In addition, certain office leases provide for separate
escalations of real estate taxes and electric costs over a base amount. The
industrial leases also generally provide for fixed base rent increases, direct
pass through of certain operating expenses and separate real estate tax
escalation over a base amount. The Company believes that inflationary increases
in expenses will generally be offset by contractual rent increases and expense
escalations described above.
The Unsecured Credit Facility bears interest at a variable rate, which
will be influenced by changes in short-term interest rates, and is sensitive to
inflation.
Impact of Year 2000
Some of the Company's older computer programs were written using two
digits rather than four to define the applicable year. As a result, those
computer programs have time-sensitive software that recognizes a date using
"00" as the year 1900 rather than the year 2000. This could cause a system
failure or miscalculation causing disruptions of operations, including, among
other things, a temporary inability to process transactions, or engage in
similar normal business activities.
The Company has completed as assessment to modify or replace portions of
its software so that its computer systems will function properly with respect
to dates in the year 2000 and thereafter. Currently, the entire property
management system is year 2000 compliant and has been thoroughly tested. Since
the Company's accounting software is maintained and supported by a third party,
the total year 2000 project cost is estimated to be minimal.
The project is estimated to be completed not later than September 30,
1998, which is prior to any anticipated impact on its operating systems.
Additionally, the Company has received assurances from its contractors that all
of the Company's building management and mechanical systems are currently year
2000 compliant or will be made compliant prior to any impact on those systems.
The Company believes that with modifications to existing software and
conversions to new software, the year 2000 Issue will not pose significant
operational problems for its computer systems. However, if such modifications
and conversions are not made, or are not completed timely, the year 2000 Issue
could have a material impact on the operations of the Company.
The costs of the project and the date on which the Company believes it
will complete the year 2000 modifications are based on management's best
estimates, which were derived utilizing numerous assumptions of future events,
including the continued availability of certain resources and other factors.
However, there can be no guarantee that these estimates will be achieved and
actual results could differ materially from those anticipated. Specific
factors that might cause such material differences include, but are not limited
to, the availability and costs of personnel trained in this area, the ability
to locate and correct all relevant computer codes, and similar uncertainties.
Funds From Operations
Management believes that funds from operations ("FFO") is an appropriate
measure of performance of an equity REIT. FFO is defined by the National
Association of Real Estate Investment Trusts (NAREIT) as net income or loss,
excluding gains or losses from debt restructurings and sales of properties,
plus depreciation and amortization, and after adjustments for unconsolidated
partnerships and joint ventures. FFO does not represent cash generated from
operating activities in accordance with generally accepted accounting
principles and is not indicative of cash available to fund cash needs. FFO
should not be considered as an alternative to net income as an indicator of the
Company's operating performance or as an alternative to cash flow as a measure
of liquidity. (See Selected Financial Data). In March 1995, NAREIT issued a
"White Paper" analysis to address certain interpretive issues under its
definition of FFO. The White Paper provides that amortization of deferred
financing costs and depreciation of non-rental real estate assets are no longer
to be added back to net income to arrive ad FFO.
Since all companies and analysts do not calculate FFO in a similar
fashion, the Company's calculation of FFO presented herein may not be
comparable to similarly titled measures as reported by other companies.
<TABLE>
The following table presents the Company's FFO calculation (in thousands):
<CAPTION>
Pro forma
Year Year June 3, Year <F1>
Ended Ended 1995 to Ended
December December December December
31, 1997 31 1996 31, 1995 31, 1995
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Income before limited partners' interest in
Operating Partnership and Extraordinary items $ 44,683 $ 24,382 $ 10,370 $ 17,331
Less:
Extraordinary loss, net of limited partners' interest
in Operating Partnership of $578, $364 and $1,788,
respectively 2,230 895 4,234 4,234
Limited Partners' minority interest in
Operating Partnership 7,817 5,960 2,883 4,719
-------------- -------------- -------------- --------------
Net Income 34,636 17,527 3,253 8,378
Adjustment for Funds From Operations
Add:
Limited Partners' minority interest in
Operating Partnership 7,817 5,960 2,883 4,719
Depreciation and Amortization 26,834 17,429 7,233 12,369
Minority interests in consolidated partnership 807 808 184 445
Extraordinary loss, net of limited partners' interest in
Operating Partnership of $578, $364 and
$1,788 respectively 2,230 895 4,234 4,234
Less:
Gain on sale of property 672 --- --- ---
Amount distributed to minority partners in
consolidated partnership 2,104 1,486 541 1,015
-------------- -------------- -------------- --------------
Funds From Operations (FFO) $ 69,548 $ 41,133 $ 17,246 $ 29,130
============== ============== ============== ==============
Weighted Average Shares/Units Outstanding <F2> 39,743 26,431 20,326 20,690
============== ============== ============== ==============
<FN>
<F1>
Pro Forma amounts have been prepared as if the IPO and the formation
transactions occurred on January 1, 1995.
<F2>
Assumes conversion of limited partnership units of the Operating Partnership.
</FN>
</TABLE>
Item 8. Financial Statements and Supplemental Data
The response to this item is included in a separate section of this Form
10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
Part III
Item 10. Directors and Executive Officers of the Registrant
The information contained in the section captioned "Proposal I: Election
of Directors" of the Company's definitive proxy statement for the 1998 annual
meeting of stockholders is incorporated herein by reference.
Item 11. Executive Compensation
The information contained in the section captioned "Executive
Compensation" of the Company's definitive proxy statement for the 1998 annual
meeting of stockholders is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information contained in the section captioned "Principal and
Management Stockholders" of the Company's definitive proxy statement for the
1998 annual meeting of stockholders is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
The information contained in the section captioned "Certain Relationships
and Related Transactions" of the Company's definitive proxy statement for the
1998 annual meeting of the stockholders is incorporated herein by reference.
Part IV
Item 14. Financial Statements and Schedules, Exhibits and Reports on Form 8-K
(a)(1 and 2) Financial Statements and Schedules
The following consolidated financial information is included as a separate
section of this annual report on Form 10-K:
Reckson Associates Realty Corp. and the Reckson Group
Report of Independent Auditors ..............................................
Consolidated Balance Sheets as of December 31, 1997 and December 31, 1996....
Consolidated Statements of Income for the years ended December 31, 1997, 1996
and for the period from June 3, 1995 to December 31, 1995 and the Combined
Statement of Income for the period January 1, 1995 to June 2, 1995...........
Consolidated Statements of Stockholders' Equity for the years ended December
31, 1997, 1996 and for the period from June 3, 1995 to December 31, 1995 and
the Combined Statement of Owners' (Deficit) for the period from January 1,
1995 to June 2, 1995.........................................................
Consolidated Statements of Cash Flows for the years ended December 31, 1997,
1996 and for the period from June 3, 1995 to December 31, 1995 and the
Combined Statement of Cash Flows for the period January 1, 1995 to June 2,
1995.........................................................................
Notes to Financial Statements ...............................................
Schedule III Real Estate and Accumulated Depreciation........................
All other schedules are omitted since the required information is not
present in amounts sufficient to require submission of the schedule or because
the information required is included in the financial statements and notes
thereto.
(3) Exhibit Index
Exhibit
Number Description
- ------- --------------
3.1* Articles of Incorporation of Registrant
3.2** By-Laws of Registrant
3.3** Amended and Restated Articles of Incorporation
4.1* Specimen Share Certificate
10.1** Amended and Restated Agreement of Limited Partnership of Reckson
Operating Partnership, L.P.
10.2 Third Amended and Restated Agreement of Limited Partnership of Omni
Partners, L.P.
10.3** Employment and Non-Competition Agreement between Registrant and
Donald Rechler
10.4** Employment and Non-Competition Agreement between Registrant and
Scott Rechler
10.5** Employment and Non-Competition Agreement between Registrant and
Mitchell Rechler
10.6** Employment and Non-Competition Agreement between Registrant and
Gregg Rechler
10.7** Non-Competition Agreement between Registrant and Roger Rechler
10.8** Employment and Non-Competition Agreement between Registrant and
J. Michael Maturo
10.9** Purchase Option Agreements relating to the Reckson Option Properties
10.10** Purchase Option Agreements relating to the Other Option Properties
10.11*** Amended 1995 Stock Option Plan
10.12**** Registrant's Unsecured Credit Facility
10.13*** 1996 Employee Stock Option Plan
10.14** Executive Center Leases
10.15* Ground Leases for certain of the Properties
10.16** Amended and Restated Agreement of Limited Partnership of Reckson
FS Limited Partnership
10.17** Indemnity Agreement relating to 100 Oser Avenue
10.18** Contribution Agreement by and among Registrant, Reckson Operating
Partnership, L.P. and Tarrytown Corporate Center, Tarrytown
Corporate Center IV, L.P., Tarrytown Corporate Center II, Crest
Realties, 2 Church Street Associates, JAH Realties, and Jon
Halpern
10.19 Amended and Restated 1997 Stock Option Plan
10.20 1998 Stock Option Plan
10.21 Amended and Restated Agreement of Limited Partnership of Reckson
Morris Operating Partnership, L.P.
10.22 Registrant's Unsecured Bridge Facility
10.23 Note Purchase Agreement for the Senior Unsecured Notes
10.24 Severance Agreement between Registrant and Donald Rechler
10.25 Severance Agreement between Registrant and Scott Rechler
10.26 Severance Agreement between Registrant and Mitchell Rechler
10.27 Severance Agreement between Registrant and Gregg Rechler
10.28 Severance Agreement between Registrant and Roger Rechler
10.29 Severance Agreement between Registrant and J. Michael Maturo
12.1 Statement of Ratios of Earnings to Fixed Charges
21.1 Statement of Subsidiaries
23.0 Consent of Independent Auditors
24.1 Powers of Attorney (included in Part IV of this Form 10-K)
27.0 Financial Data Schedule
27.1 Restated Financial Data Schedule for the 6 months ended June 30,
1996 reflecting the effect of FASB #128, Earnings Per Share.
27.2 Restated Financial Data Schedule for the 9 months ended September
30, 1996 reflecting the effect of FASB #128, Earnings Per Share.
27.3 Restated Financial Data Schedule for the year ended December 31,
1996 reflecting the effect of FASB #128, Earnings Per Share.
27.4 Restated Financial Data Schedule for the 3 months ended March 31,
1997 reflecting the effect of FASB #128, Earnings Per Share.
27.5 Restated Financial Data Schedule for the 6 months ended June 30,
1997 reflecting the effect of FASB #128, Earnings Per Share.
27.6 Restated Financial Data Schedule for the 9 months ended September
30, 1997 reflecting the effect of FASB #128, Earnings Per Share.
* Previously filed as an exhibit to Registration Statement on Form S-11
(No. 33-84324) and incorporated herein by reference.
** Previously filed as an exhibit to Registration Statement on Form S-11
(No. 333-1280) and incorporated herein by reference.
*** Previously filed as an exhibit to the Company's Form 8-K report filed
with the SEC on November 25, 1996 and incorporated herein by reference.
**** Previously filed as an exhibit to the Company's Form 8-K report filed
with the SEC on May 15, 1997 and incorporated herein by reference.
(b) Reports on Form 8-K
On September 9, 1997 the Company filed a report on Form 8-K relating to
the acquisition of 400 Garden City Plaza, Garden City, New York.
On October 21, 1997, the Company filed a report on Form 8-K announcing
its contract to invest $150,000,000 and acquire a controlling interest in
the Morris Companies.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized on March 24, 1998.
Reckson Associates Realty Corp.
By: /s/ Donald J. Rechler
(Donald J. Rechler)
Chairman of the Board, and
Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that we, the undersigned officers and
directors of Reckson Associates Realty Corp., hereby severally constitute Scott
H. Rechler, Mitchell D. Rechler and J. Michael Maturo, and each of them singly,
our true and lawful attorneys with full power to them, and each of them singly,
to sign for us and in our names in the capacities indicated below, the Form 10-
K filed herewith and any and all amendments to said Form 10-K, and generally to
do all such things in our names and in our capacities as officers and directors
to enable Reckson Associates Realty Corp. to comply with the provisions of the
Securities Exchange Act of 1934, and all requirements of the Securities and
Exchange Commission, hereby ratifying and confirming our signatures as they may
be signed by our said attorneys, or any of them, to said Form 10-K and any and
all amendments thereto.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Name Title Date
/s/ Donald J. Rechler Chairman of the Board, Chief Executive
- ------------------------ Officer and Director (principal executive
(Donald J. Rechler) officer) March 24, 1998
/s/ Scott Rechler President Chief Operating Officer
- ------------------------ and Director
(Scott Rechler) March 24, 1998
/s/ Roger M. Rechler Vice Chairman of the Board and
- ------------------------ Director
(Roger M. Rechler) March 24, 1998
/s/ J. Michael Maturo Executive Vice President, Treasurer
- ------------------------ and Chief Financial Officer (principal
(J. Michael Maturo) financial officer and principal March 24, 1998
accounting officer)
/s/ Mitchell D. Rechler Executive Vice President and
- ------------------------ Director
(Mitchell D. Rechler) March 24, 1998
/s/ Harvey R. Blau Director
- ------------------------
(Harvey R. Blau) March 24, 1998
/s/ Leonard Feinstein Director
- ------------------------
(Leonard Feinstein) March 24, 1998
/s/ John V.N. Klein Director
- ------------------------
(John V.N. Klein) March 24, 1998
/s/ Conrad Stephenson Director
- ------------------------
(Conrad Stephenson) March 24, 1998
/s/ Herve A. Kevenides Director
- ------------------------
(Herve A. Kevenides) March 24, 1998
/s/ Jon L. Halpern Director
- ------------------------
(Jon L. Halpern) March 24, 1998
/s/ Lewis S. Ranieri Director
- ------------------------
(Lewis S. Ranieri) March 24, 1998
Report of Independent Auditors
Board of Directors and Stockholders
Reckson Associates Realty Corp.
We have audited the accompanying consolidated balance sheets of Reckson
Associates Realty Corp. as of December 31, 1997 and 1996, and the related
consolidated statements of income, stockholders' equity, and cash flows for the
years then ended and for the period from June 3, 1995 (commencement of
operations) to December 31, 1995 and the related combined statements of income,
owners' (deficit) and cash flows for the period January 1, 1995 to June 2, 1995
of the Reckson Group. We have also audited the financial statement schedule
listed in the index at item 14(a). These financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Reckson
Associates Realty Corp. at December 31, 1997 and 1996, and the consolidated
results of operations and cash flows for the years then ended and for the
period June 3, 1995 (commencement of operations) to December 31, 1995 and the
combined results of operations and cash flows for the period January 1, 1995 to
June 2, 1995 of the Reckson Group in conformity with generally accepted
accounting principles. Also, in our opinion, the financial statement schedule
referred to above, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
ERNST & YOUNG LLP
New York, New York
February 13, 1998,
except for Note 14 as
to which the date is February 18, 1998.
<TABLE>
Reckson Associates Realty Corp.
Consolidated Balance Sheets
(in thousands, except share amounts)
<CAPTION>
December 31,
1997 1996
------------- -------------
<S> <C> <C>
Assets
Commercial real estate properties, at cost
(Notes 2,3, 5, 7 and 8 )
Land $ 138,526 $ 45,259
Buildings and improvements 818,229 457,403
Developments in progress:
Land 29,309 5,637
Development costs 25,164 8,469
Furniture, fixtures and equipment 4,054 2,736
------------- -------------
1,015,282 519,504
Less accumulated depreciation (111,068) (88,602)
------------- -------------
904,214 430,902
------------- -------------
Investments in real estate joint ventures 7,223 5,437
Investment in mortgage notes and notes
receivable (Note 8) 104,509 51,837
Cash and cash equivalents (Note 12) 21,828 12,688
Tenant receivables 4,975 1,732
Affiliate receivables (Note 7) 18,090 3,826
Deferred rent receivable 14,973 12,573
Prepaid expenses and other assets (Note 7) 13,705 6,225
Contract and land deposits and pre-acquisition costs 7,559 7,100
Deferred lease and loan costs, less accumulated
amortization of $14,844 (1997) and $12,915 (1996) 16,181 11,438
------------- -------------
Total Assets $ 1,113,257 $ 543,758
============= =============
Liabilities
Mortgage notes payable (Note 2) $ 180,023 $ 161,513
Credit facilities (Note 3) 210,250 108,500
Senior unsecured notes ( Note 4) 150,000 ---
Accrued expenses and other liabilities (Note 5) 30,987 15,868
Dividends and distributions payable 120 9,442
Affiliate payables (Note 7) 807 502
------------- -------------
Total Liabilities 572,187 295,825
------------- -------------
Minority interest in consolidated partnership 6,655 9,187
Limited Partners' minority interest in Operating
Partnership 85,750 51,879
------------- -------------
92,405 61,066
------------- -------------
Commitments and other comments
(Notes 9, 10, 12 and 14) --- ---
Stockholders' Equity (Note 6):
Preferred Stock, $.01 par value, 25,000,000 shares
authorized none issued or outstanding --- ----
Common Stock, $.01 par value, 100,000,000
shares authorized, 37,770,158 and 24,356,354,
shares issued and outstanding, respectively 378 244
Additional paid in capital 448,287 186,623
------------- -------------
Total Stockholders' Equity 448,665 186,867
------------- -------------
Total Liabilities and Stockholders' Equity $ 1,113,257 $ 543,758
============= =============
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<TABLE>
Reckson Associates Realty Corp.
Consolidated Statement of Income
And Reckson Group
Combined Statements of Income
(in thousands, except share amounts)
<CAPTION>
Reckson Reckson Reckson Reckson
Associates Associates Associates Group for
Realty Corp Realty Corp Realty Corp the Period
for the Year for the Year for the Period January 1,
Ended Ended June 3, 1995 to 1995 to
December December December 31, June 2,
31, 1997 31, 1996 1995 1995
-------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
Revenues (Note 10):
Base rents $ 128,778 $ 82,150 $ 32,661 $ 16,413
Tenant escalations and reimbursements 14,981 10,628 5,246 2,907
Construction revenues - net --- --- --- 432
Management revenues --- --- --- 589
Equity in earnings of service companies 55 1,031 100 ---
Equity in earnings of real estate joint ventures 459 266 --- ---
Interest income on mortgage notes and notes
receivable 5,437 --- --- ---
Investment and other income (Note 8) 3,685 2,066 448 548
-------------- -------------- --------------- --------------
Total Revenues 153,395 96,141 38,455 20,889
-------------- -------------- --------------- --------------
Expenses:
Property operating expenses 28,943 18,959 7,144 3,985
Real estate taxes 20,579 13,935 5,755 3,390
Ground rents 1,269 1,107 579 234
Marketing, general and administrative 8,292 5,949 1,859 1,858
Interest 21,585 13,331 5,331 7,622
Depreciation and amortization 27,237 17,670 7,233 3,606
-------------- -------------- --------------- --------------
Total Expenses 107,905 70,951 27,901 20,695
-------------- -------------- --------------- --------------
Income before minority interests and extraordinary
items 45,490 25,190 10,554 194
Minority partners' interest in consolidated partnership
income (807) (808) (184) ---
Limited partners' minority interest in Operating
Partnership income (7,817) (5,960) (2,883) ---
-------------- -------------- --------------- --------------
Income before extraordinary items 36,866 18,422 7,487 194
Extraordinary items (loss) on extinguishment of
debts, net of Limited Partners' minority interest in
Operating Partnership share of $578, $364 and $1,788,
respectively, (Notes 1 and 3) (2,230) (895) (4,234) ---
-------------- -------------- --------------- --------------
Net income $ 34,636 $ 17,527 $ 3,253 $ 194
-------------- -------------- --------------- --------------
Basic net income per common share:
Income before extraordinary items $ 1.13 $ 0.92 $ 0.51
Extraordinary items(loss)on extinguishment of debts (0.07) (0.04) (0.29)
-------------- -------------- ---------------
Net income per common share $ 1.06 $ 0.88 $ 0.22
-------------- -------------- ---------------
Weighted average common shares outstanding 32,727,000 19,928,000 14,678,000
-------------- -------------- ---------------
Diluted net income per common shares
(Notes 1 and 6) $ 1.04 $ 0.87 $ 0.22
============== ============== ===============
Diluted weighted average common share
outstanding (Notes 1 and 6) 33,260,000 20,190,000 14,725,000
============== ============== ===============
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<TABLE>
Reckson Associates Realty Corp.
Consolidated Statement of Stockholder's Equity
And Reckson Group
Combined Statements of Owner's Equity
(in thousands)
<CAPTION>
Retained Limited
Additional Earnings Total Partners'
Common Paid in Owners'/ Stockholders' Minority
Stock Capital (Deficit) Equity Interest
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Owners' Deficit, December 31, 1994 $ --- $ --- $ (73,492) $ (73,492) $ ---
Distributions --- --- (4,399) (4,399)
Contributions --- --- 119 119
Adjustment to unrealized gain on available-for-sale
securities --- --- 95 95
Net income --- --- 194 194
------------- ------------- ------------- ------------- -------------
Owners' Deficit, June 2, 1995 --- --- (77,483) (77,483) ---
Deficit not contributed by the Owners of Reckson
Group --- --- 9,589 9,589
Deficit contributed by the Owners of Reckson Group --- (67,894) 67,894 ---
Initial public offering 75 161,936 --- 162,011
Establishment of minority interest in Operating
Partnership --- (25,651) --- (25,651) 25,651
Issuance of Operating Partnership Units --- --- --- --- 3,237
Net income --- --- 3,253 3,253 1,095
Dividends and distributions paid and payable --- (6,707) (3,253) (9,960) (3,835)
------------- ------------- ------------- ------------- -------------
Stockholders' equity, December 31, 1995 75 61,684 --- 61,759 26,148
Proceeds from pubic offerings 47 120,498 --- 120,545 24,671
Issuance of Operating Partnership Units (Note 11) --- 10,909 --- 10,909 3,135
Proceeds from exercise of employee options --- 263 --- 263 75
Two for one stock split (Note 6) 122 (122) --- --- ---
Net Income --- --- 17,527 17,527 5,596
Dividends and distributions paid and payable --- (6,609) (17,527) (24,136) (7,746)
------------- ------------- ------------- ------------- -------------
Stockholders' equity, December 31, 1996 244 186,623 --- 186,867 51,879
Two for one stock split (Note 6) 50 (50) --- --- ---
Proceeds from public offerings 80 256,564 --- 256,644 33,925
Issuance of Operating Partnership Units (Note 11) --- 9,473 --- 9,473 1,236
Proceeds from exercise of employee options 4 1,706 --- 1,710 178
Net Income --- --- 34,636 34,636 7,239
Dividends and distributions paid and payable --- (6,029) (34,636) (40,665) (8,707)
------------- ------------- ------------- ------------- -------------
Stockholder's equity, December 31, 1997 $ 378 $ 448,287 $ --- $ 448,665 $ 85,750
============= ============= ============= ============= =============
<FN>
See accompanying notes to financial statements
</FN>
</TABLE>
<TABLE>
Reckson Associates Realty Corp.
Consolidated Statement of Cash Flows
And Reckson Group
Consolidated Statements of Cash Flows
(in thousands)
<CAPTION>
Reckson Reckson Reckson
Associates Associates Associates Reckson
Realty Corp. Realty Corp. Realty Corp. Group for th
for the Year for the Year for the Period Period
Ended Ended June 3, 1995 to January
December 31, December 31, December 31, 1,1995 to Ju
1997 1996 1995 2, 1995
------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 34,636 $ 17,527 $ 3,253 $ 194
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 27,237 17,670 7,233 3,606
Loss on extinguishment of debts, net of minority interest 2,230 895 4,234 ---
Minority partners' interest in consolidated partnership 807 808 184 ---
Limited Partners' minority interest in Operating Partnership 7,817 5,960 2,883 ---
Gain on sales of property and securities (672) --- --- (134)
Distribution from and share of net loss (income) from investments
in partnerships 408 191 --- (303)
Deferred rents receivable (4,500) (3,837) --- ---
Equity in undistributed earnings of service companies (55) (931) (100) ---
Equity in earnings of real estate partnerships (459) (266) --- ---
Interest income on mortgage notes and notes receivable (2,392) (870) --- ---
Deferred ground rents payable 273 244 --- ---
Changes in operating assets and liabilities:
Prepaid expenses and other assets (1,931) (608) (297) 417
Tenant and affiliate receivables (1,183) (256) (2,438) 302
Accrued expenses and other liabilities 8,427 2,895 2,071 (2,463)
------------- ------------- -------------- -------------
Net cash provided by operating activities 70,643 39,422 17,023 1,619
------------- ------------- -------------- -------------
Cash Flows from Investing Activities:
Cash from contributed net assets --- --- 629 ---
Purchases of commercial real estate properties (429,379) (181,130) (49,241) ---
Repayment of notes payable affiliates --- --- (6,000) ---
Cash paid in exchange for partnership net assets --- --- (16,075) ---
Investment in mortgage notes and notes receivable (50,282) (50,892) --- ---
Increase in contract deposits and preacquisition costs (1,303) (6,668) (810) ---
Additions to developments in progress (40,367) (8,427) (2,567) ---
Additions to commercial real estate properties (12,038) (12,441) (2,326) (814)
Payment of leasing costs (5,417) (5,028) (1,672) (125)
Investment in securities (1,756) --- --- ---
Additions to furniture, fixtures and equipment (1,159) (115) (21) (13)
Investments in and advances to real estate joint ventures (1,734) (5,832) (232) ---
Investment in service companies (4,241) (3,170) --- ---
Distributions from partnership investments --- --- --- 115
Contributions to partnership investments --- --- --- (244)
Proceeds from sales of properties and securities 725 --- --- 371
------------- ------------- -------------- -------------
Net cash (used in) provided by investing activities (546,951) (273,703) (78,315) (710)
------------- ------------- -------------- -------------
Cash Flows from Financing Activities:
Proceeds from borrowings --- 54,402 40,779 14,004
Principal payments on borrowings (1,624) (380) (151,230) (13,088)
Proceeds from issuance of bonds, net of bond issuance costs 147,420 --- --- ---
Proceeds from mortgage refinancings, net of refinancing costs 20,134 --- --- ---
Payment of loan costs and prepayment penalties (2,403) (2,525) (9,138) (268)
Advances to affiliates (20,513) (2,952) (243) (1,060)
Proceeds from credit facilities 421,000 144,500 40,000 ---
Principal payments on credit facilities (319,250) (76,000) --- ---
Proceeds from issuance of common stock, and exercise of
options net of issuance costs 299,991 145,317 162,100 ---
Payment of dividends and distribution to minority partners
in consolidated partnership (53,327) (22,546) (13,795) ---
Distributions to minority partners in operating partnership (8,707) (1,392) (541) ---
Deferred offering costs --- --- --- (400)
Distributions to Predecessor Owners --- --- --- (4,280)
Increase in security deposits payable 2,727 1,561 343 ---
------------- ------------- -------------- -------------
Net cash provided by (used in) financing activities 485,448 239,985 68,275 (5,092)
------------- ------------- -------------- -------------
Net increase (decrease) in cash and cash equivalents 9,140 5,704 6,983 (4,183)
Cash and cash equivalents at beginning of period 12,688 6,984 1 7,041
------------- ------------- -------------- -------------
Cash and cash equivalents at end of period $ 21,828 $ 12,688 $ 6,984 $ 2,858
============= ============= ============== =============
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest $ 20,246 $ 13,261 $ 4,700 $ 8,600
============= ============= ============== =============
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
Reckson Associates Realty Corp.
and
Reckson Group
Notes to Financial Statements
1. Description of Business and Significant Accounting Policies
Description of Business
Reckson Associates Realty Corp. (the "Company") and the Reckson Group
(the "Predecessor") are engaged in the ownership, management, operation,
leasing and development of commercial real estate properties, principally
office and industrial buildings and also own certain undeveloped land
(collectively, the "Properties") located in the New York City tri-state area.
Organization and Formation of the Company
The Company was incorporated in Maryland in September 1994 and is the
successor to the operations of the Reckson Group. On June 2, 1995, the
Company completed an initial public offering of 6,120,000 shares pre
split)of $.01 par value common stock ("the Offering"). The Offering price
was $24.25 per share (pre split) resulting in gross proceeds of
$148,410,000. The Company also issued 400,000 shares (pre split) in a
concurrent offering to the Rechler family resulting in $9,700,000 of
additional proceeds. On June 28, 1995, the underwriters exercised their over
allotment option and, accordingly, the Company issued an additional 918,000
shares (pre split) of common stock and received gross proceeds of $22,261,500.
The aggregate proceeds to the Company, net of underwriters' discount, advisory
fee and offering costs were approximately $162,000,000.
The Company became the sole general partner of Reckson Operating
Partnership L.P. (the "Operating Partnership") by contributing substantially
all of the net proceeds of the Offering, in exchange for an approximate 73%
interest in the Operating Partnership. All properties acquired by the Company
are held by or through the Operating Partnership.
The Operating Partnership executed various option and purchase agreements
whereby it issued 2,758,960 units (pre split) in the Operating Partnership
("Units") to the continuing investors and assumed approximately $163,438,000
(net of the Omni mortgages) of indebtedness in exchange for interests in
certain property partnerships, fee simple and leasehold interests in properties
and development land, certain business assets of the executive center entities
and 100% of the non-voting preferred stock of the management and construction
companies.
Basis of Presentation and Summary of Significant Accounting Policies
The accompanying consolidated financial statements of Reckson Associates
Realty Corp. include the accounts of the Company and its subsidiaries. The
Company's investments in Reckson Management Group, Inc., Reckson Construction
Group, Inc., Reckson Service Industries, Inc. and Reckson Executive Centers,
L.L.C. are accounted for on the equity method. All significant intercompany
balances and transactions have been eliminated in consolidation.
The minority interests at December 31, 1997 represent approximately a 16%
limited partnership interest in the Operating Partnership and a 40% minority
partners' interest in the Omni.
The Reckson Group was not a legal entity but rather a combination of
partnerships, an "S" corporation and affiliated real estate management and
construction corporations which were under the common control of Reckson
Associates (a general partnership) and affiliated entities. All significant
intercompany transactions and balances were eliminated in combination. The
Reckson Group used the equity method of accounting for investments in less
than 50% owned entities and majority owned entities where control was
temporary.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Real Estate
Depreciation is computed utilizing the straight-line method over the
estimated useful lives of ten to thirty years for buildings and improvements
and five to ten years for furniture, fixtures and equipment. Tenant
improvements, which are included in buildings and improvements, are amortized
on a straight-line basis over the term of the related leases.
Cash Equivalents
The Company considers highly liquid investments with a maturity of three
months or less when purchased, to be cash equivalents.
Deferred Costs
Lease fees and loan costs are capitalized and amortized over the life of
the related lease or loan. The Company incurred costs related to offerings of
common stock which were charged to Stockholders' Equity.
Income Taxes
Prior to June 3, 1995 all of the Properties were owned by partnerships and
an S-corporation, whose partners and shareholders were required to include
their respective share of profits and losses in their individual tax returns.
The Company generally will not be subject to federal income taxes as long
as it qualifies as a real estate investment trust ("REIT"). A REIT will
generally not be subject to federal income taxation on that portion of income
that qualifies as REIT taxable income and to the extent that it distributes
such taxable income to its stockholders and complies with certain requirements.
As a REIT, the Company is allowed to reduce taxable income by all or a portion
of distributions to stockholders and must distribute at least 95% of its
taxable income to qualify as a REIT. As distributions have exceeded taxable
income, no federal income tax provision has been reflected in the accompanying
consolidated financial statements. State income taxes are not significant.
During 1997, the Company paid dividends of $1.54 per share (representing
dividends for five quarters) of which approximately 72% was considered ordinary
income and 28% was a return of capital for federal income tax purposes. During
1996, the Company paid dividends of $.89 per share (split adjusted and
representing dividends for three quarters) all of which was ordinary income for
federal income tax purposes.
Revenue Recognition
Minimum rental income is recognized on a straight-line basis over the term
of the lease. The excess of rents recognized over amounts contractually due are
included in deferred rents receivable on the accompanying balance sheets.
Contractually due but unpaid rents are included in tenant receivables on the
accompanying balance sheets. Certain lease agreements provide for reimbursement
of real estate taxes, insurance, common area maintenance costs and indexed
rental increases, which are recorded on an accrual basis.
The Company records interest income on investments in mortgage notes and
notes receivable on an accrual basis of accounting. The Company does not
accrue interest on impaired loans where, in the judgment of management,
collection of interest according to the contractual terms is considered
doubtful. Among the factors the Company considers in making an evaluation of
the collectibility of interest are, the status of the loan, the value of the
underlying collateral, the financial condition of the borrower and anticipated
future events. Loan discounts are amortized over the life of the real estate
using the constant interest method.
Construction Operations
Construction operations are accounted for utilizing the completed contract
method. Under this method, costs and related billings are deferred until the
contract is substantially complete. Estimated losses on uncompleted contracts
are recorded in the period that management determines that a loss may be
incurred.
Stock Options
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its employee stock options because, the
alternative fair value accounting provided for under FASB Statement No. 123,
"Accounting for Stock-Based Compensation," (FAS No. 123) requires use of option
valuation models that were not developed for use in valuing employee stock
options. Under APB 25, no compensation expense was recognized because the
exercise price of the Company's employee stock options equals the market price
of the underlying stock on the date of grant (see Note 6).
Earnings Per Share
In 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings per Share. Statement 128 replaced the calculation of primary and
fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. All earnings per share amounts for all periods have been
presented, and where appropriate, restated to conform to the Statement 128
requirements. The conversion of Units into common stock (Note 6) would not
have a significant effect on per share amounts as the Units share
proportionately with the common stock in the results of the Operating
Partnership's operations.
Reclassifications
Certain prior year amounts have been reclassified to conform to the
current year presentation.
2. Mortgage Notes Payable
At December 31, 1997, there are thirteen mortgage notes payable with an
aggregate outstanding principal amount of approximately $180 million.
Properties with an aggregate carrying value at December 31, 1997 of
approximately $225 million are pledged as collateral against the mortgage notes
payable. In addition, $59.2 million of the $180 million are recourse to the
Company. The mortgage notes bear interest at rates ranging from 6.82% to
9.25%, and mature between 1999 and 2012. The weighted average interest rate on
the outstanding mortgage notes payable at December 31, 1997 is 7.71%. Certain
of the mortgage notes payable are guaranteed by certain minority partners in
the Operating Partnership.
Scheduled principal repayments during the next five years and thereafter
are as follows (in thousands):
Year Ended December 31,
1998 $ 2,327
1999 2,368
2000 33,788
2001 2,336
2002 26,978
Thereafter 112,226
---------------
$ 180,023
===============
3. Credit Facilities
On April 30, 1997, the Company obtained a three-year $250 million
unsecured credit facility from a bank group led by Chase Manhattan Bank and
Union Bank of Switzerland (the "Unsecured Credit Facility"). The Company's
ability to borrow thereunder is subject to the satisfaction of certain
financial covenants, including 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 Unsecured Credit Facility bear interest at a floating rate equal to
one, two, three or six month LIBOR (at the Company's election) plus a spread
ranging from 1.125% to 1.50%, based on the Company's leverage ratio. The
Unsecured Credit Facility replaced the Company's existing $150 million secured
credit facility. As a result, certain deferred loan costs incurred in
connection with the secured credit facility were written off. Such amount is
reflected as an extraordinary loss in the accompanying consolidated statement
of income.
The Company capitalized interest incurred on credit facility borrowings
to fund certain development costs in the amount of $2,351,201 and $800,434 for
the years ended December 31, 1997 and 1996, respectively.
On January 2, 1998, the Company obtained a $200 million unsecured credit
facility (the "Bridge Facility") which matures on April 1, 1998. The Bridge
Facility was provided by the two lead members of the Unsecured Credit Facility
bank group and serves as interim financing while the Company seeks to expand
the availability under the Unsecured Credit Facility.
4. Senior Unsecured Notes
On August 28, 1997, the Company sold $150 million of 10-year senior
unsecured notes in a privately placed transaction. The senior unsecured notes
were priced at par with interest at 110 basis points over the 10- year
treasury note for an all in coupon of 7.2%. Interest is payable semiannually
with principal and unpaid interest due on August 28, 2007.
5. Land Leases
The Company leases, pursuant to noncancellable operating leases, the land
on which seven of its buildings were constructed. The leases, which contain
renewal options, expire between 2018 and 2080. The leases contain provisions
for scheduled increases in the minimum rent and one of the leases additionally
provides for adjustments to rent based upon the fair market value of the
underlying land at specified intervals. Minimum ground rent is recognized on a
straight-line basis over the terms of the leases. The excess of amounts
recognized over amounts contractually due is $1,948,000 and $1,676,000 at
December 31, 1997 and 1996, respectively. These amounts are included in
accrued expenses and other liabilities on the accompanying balance sheets.
Future minimum lease commitments relating to the land leases as of December
31, 1997 are as follows (in thousands):
1998 $ $1,093
1999 1,202
2000 1,203
2001 1,212
2002 1,212
Thereafter 42,114
-------------
$ 48,036
=============
6. Stockholders' Equity
A Unit and a share of common stock have essentially the same economic
characteristics as they effectively share equally in the net income or loss
and distributions of the Operating Partnership. Beginning on the second
anniversary of the consummation of the Offering, Units may be redeemed for
cash or, at the election of the Company, for shares of common stock on a one-
for-one basis.
On February 12, 1997, the Board of Directors of the Company declared a
two for one stock split to be effected as a stock dividend distributable on
April 15, 1997 to stockholders of record on April 4, 1997.
On March 12, 1997, the Company sold 9,890,000 shares (split adjusted) of
the Company's common stock at $22.63 per share (split adjusted) for an
aggregate consideration of approximately $224 million before deducting
offering costs.
On December 5, 1997, the Company sold 3,081,177 shares of the Company's
common stock at $26.00 per share for an aggregate consideration of
approximately $80.1 million before deducting offering costs.
The Company has established the 1995, 1996 and 1997 Employee Stock Option
Plans (the "Plans") for the purpose of attracting and retaining executive
officers, directors and other key employees. As of December 31, 1997,
1,500,000, 400,000 and 3,000,000 of the Company's authorized shares have been
reserved for issuance under the 1995, 1996 and 1997 plans, respectively.
<TABLE>
The following table sets forth the outstanding options and their
corresponding exercise price per share:
<CAPTION>
Options Exercise Price Range
Granted <F1> From <F1> To <F1>
-------------- ----------- -----------
<S> <C> <C> <C>
1995 Employee Stock Option Plan 1,296,216 $ 12.13 $ 22.75
1996 Employee Stock Option Plan 70,433 $ 19.75 $ 22.75
1997 Employee Stock Option Plan 1,147,500 $ 22.75 $ 27.13
--------------
Total 2,514,149
==============
<FN>
<F1>
Prices through December 31, 1996 are split adjusted.
</FN>
</TABLE>
Options granted to new employees vest in three equal installments on the
first, second and third anniversaries of the date of the grant. Options
granted to existing employees are generally exercisable on the date of the
grant.
In addition, the independent directors of the Company have been granted
options to purchase 45,000 shares pursuant to the 1995 Employee Stock Option
Plan at exercise prices ranging from $12.13 to $22.50 per share (split
adjusted) and options to purchase 3,000 shares pursuant to the 1997 Employee
Stock Option Plan at an exercise price of $25.31 per share. The options
granted to the independent directors were exercisable on the date of the
grant.
The Company has made loans to certain executive officers to purchase
310,834 shares of common stock at market prices ranging from $22.50 per share
to $27.13 per share. The loans bear interest at the mid-term Applicable
Federal Rate and are secured by the shares purchased. Such loans including
accrued interest will be forgiven each year on the annual anniversary of the
grant date based upon a ten year amortization period with a balloon payment
due on the fifth anniversary. As of December 31, 1997, the loan balances
aggregated approximately $7,860,000 and have been included as a reduction of
additional paid in capital on the accompanying consolidated balance sheets.
During 1997 and 1996, 140,406 and 13,977, respectively of employee
options were exercised resulting in proceeds to the Company of approximately
$1,888,000 and $338,000, respectively.
During 1998, the Company established the 1998 Employee Stock Option Plan
which reserves 3,000,000 shares of the Company's authorized shares for
issuance under this plan. On January 9, 1998, 1,415,965 options were granted
at an exercise price of $25.75 per share.
Pro forma information regarding net income and earnings per share is
required by FAS No. 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value method of FAS
No. 123. The fair value for these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted-average
assumptions for 1997, 1996 and 1995; respectively: risk-free interest rate of
5%; dividend yields of 4.7%, 7.57% and 10.22%; volatility factors of the
expected market price of the Company's common stock of .142, and a weighted-
average expected life of the option of 5 years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its employee stock
options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The
Company's pro forma information follows (in thousands except for earnings per
share information):
<TABLE>
<CAPTION>
Year Ended Year Ended June 3,1995 to
December 31, December 31, December 31,
1997 1996 1995
---------------- ---------------- ---------------
<S> <C> <C> <C>
Pro forma net income $ 34,287 $ 17,431 $ 3,226
================ ================ ===============
Basic Pro forma earnings per share $ 1.05 $ 0.88 $ 0.22
================ ================ ===============
Diluted pro forma earnings per share $ 1.03 $ 0.86 $ 0.22
================ ================ ===============
</TABLE>
A summary of the Company's stock option activity, and related information
follows:
<TABLE>
<CAPTION>
Weighted-Average
Exercise
Options Price <F1>
----------------- -----------------
<S> <C> <C>
Outstanding - June 3, 1995 --- ---
Granted 864,060 $ 12.23
Exercised --- ---
Forfeited --- ---
-----------------
Outstanding- December 31, 1995 864,060 $ 12.23
Granted 621,478 $ 16.94
Exercised (27,954) $ 12.39
Forfeited (36,370) $ 12.77
-----------------
Outstanding - December 31, 1996 1,421,214 $ 14.28
Granted 1,123,300 $ 26.67
Exercised (126,429) $ 14.94
Forfeited (10,319) $ 16.33
-----------------
Outstanding- December 31, 1997 2,407,766 $ 20.16
=================
<FN>
<F1>
Prices through December 31, 1996 are split adjusted.
</FN>
</TABLE>
The weighted average fair value of options granted for the period June 2,
1995 to December 31, 1995, for the years ended December 31, 1996 and 1997 was
$.25, $.86 and $1.47, respectively. In addition, there were 30,000 options at
a weighted average per share exercise price of $12.13, 403,564 options at a
weighted average per share exercise price of $13.95 and 1,758,534 options at a
weighted average per share exercise price of $20.16 exercisable at December
31, 1995, 1996 and 1997, respectively.
Exercise prices for options outstanding as of December 31, 1997 ranged
from $12.13 per share to $27.13 per share. The weighted-average remaining
contractual life of those options is approximately 8.81 years.
The Company made loans to certain senior officers to purchase units at
market prices ranging from $12.13 per unit to $21.94 per unit. The loans bear
interest at rates ranging between 8% to 8.5% and are secured by the units
purchased. Such loans will be forgiven ratably at each anniversary of
employment over a four to five year period. The loan balances of $325,500 and
$250,000 at December 31, 1997 and 1996, respectively have been included as a
reduction of additional paid in capital on the accompanying consolidated
balance sheets.
The following is the Company's reconciliation of the numerators and
denominators of the basic and diluted net income per weighted average common
share computations and other related disclosures required by FAS Statement 128
(in thousands except share amounts).
<TABLE>
The following table sets forth the computation of basic and diluted
earnings per share:
<CAPTION>
For the year For the year For the period
ended ended June 3,1995 to
December 31, December 31, December 31,
1997 1996 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
Numerator:
Net income before extraordinary items $ $36,866 $ $18,422 $ $7,487
--------------- --------------- ---------------
Numerator for basic and diluted earnings
per share $ $36,866 $ $18,422 $ $7,487
=============== =============== ===============
Denominator:
Denominator for basic earnings per share -
weighted-average shares 32,727 19,928 14,678
Effect of dilutive securities:
Employee stock options 533 262 47
--------------- --------------- ---------------
Denominator for diluted earnings per share -
adjusted weighted-average shares and
assumed conversions 33,260 20,190 14,725
=============== =============== ===============
Basic earnings per common share:
Income before extraordinary items $ 1.13 $ 0.92 $ 0.51
Extraordinary items (.07) (.04) (.29)
--------------- --------------- ---------------
Net income per common share $ 1.06 $ 0.88 $ 0.22
=============== =============== ===============
Diluted earnings per common share:
Income before extraordinary items $ 1.11 $ 0.91 $ 0.51
Extraordinary items (.07) (.04) (.29)
--------------- --------------- ---------------
Diluted net income per common share $ 1.04 $ 0.87 $ 0.22
=============== =============== ===============
</TABLE>
7. Related Party Transactions
The Company, through its subsidiaries and affiliates, provides
management, leasing and other tenant related services to the Properties.
Certain executive officers of the Company have continuing ownership interests
in the unconsolidated service companies.
In connection with the IPO, the Company was granted options, exercisable
over a 10 year period to acquire six properties owned by the Predecessor (the
"Reckson Option Properties") and four properties in which the Predecessor owns
a non-controlling minority interest (the "Other Option Properties" and,
together with the Reckson Option Properties, the "Option Properties") at a
purchase price equal to the lesser of (i) a fixed purchase price and (ii) the
Net Operating Income, as defined, attributable to such Option Property during
the 12 month period preceding the exercise of the option divided by a
capitalization rate of 11.5%, but the purchase price shall in no case be less
than the outstanding balance of the mortgage debt encumbering the Option
Property on the acquisition date.
During 1996, the Company acquired three of the Reckson Option Properties
for an aggregate purchase price of approximately $26 million. In connection
with the purchase of such Option Properties the Company issued 271,228 Units
at prices ranging from $16.38 per unit to $18.50 per unit (split adjusted) as
partial consideration in the transactions. Such Units were issued to certain
members of management and entities whose partners included members of
management.
During 1997, the Company acquired one of the Reckson Option Properties
for a purchase price of approximately $9 million. In connection with the
purchase, the Company issued 203,804 Units at a price of $21 per unit (split
adjusted) as partial consideration in the transaction. Such Units were issued
to certain members of management and entities whose partners include members
of management.
The Company made construction loan advances to fund certain redevelopment
and leasing costs relating to one of the Other Option Properties. At December
31, 1997 and 1996, advances due the Company were approximately $4,200,000 and
$2,940,000, respectively. Such amounts bear interest at the rate of 11% per
annum and are due on demand. In January 1998, the outstanding advances
including accrued and unpaid interest was repaid in full.
During 1997, the Company formed Reckson Service Industries, Inc. ("RSI")
and Reckson Strategic Venture Partners, LLC ("RSVP"). The Operating
Partnership owns a 95% nonvoting interest in RSI. RSI will serve as the
managing member of RSVP. RSI will invest in operating companies that
generally will provide commercial services to properties owned by the Company
and its tenants and third parties. RSVP was formed to provide the Company
with a "research and development" vehicle to invest in alternative real estate
sectors. RSVP will invest primarily in real estate and real estate related
operating companies generally outside of the Company's core office and
industrial focus. RSVP's strategy is to identify and acquire interests in
established entrepreneurial enterprises with experienced management teams in
market sectors which are in the early stages of their growth cycle or offer
unique circumstances for attractive investments as well as a platform for
future growth. The Company will determine the prudence of increasing its
investment and the potential for incorporating it as a core business. At
December 31, 1997, the Operating Partnership had made investments in or loans
to RSI and RSVP aggregating approximately $4.3 million and $7.4 million,
respectively in connection with start up costs and certain initial
investments. Such amounts have been included in other assets on the
accompanying balance sheet.
8. Commercial Real Estate Investments
During the period from June 3, 1995 to December 31, 1996 the Company
acquired 22 office properties encompassing approximately 2.8 million square
feet and 16 industrial properties encompassing approximately 1.4 million
square feet for an aggregate purchase price of approximately $273 million.
During 1997, the Company acquired five office properties encompassing
approximately 881,000 square feet and 15 industrial properties encompassing
approximately 968,000 square feet on Long Island for an aggregate purchase
price of approximately $131 million.
During 1997, the Company acquired eight office properties encompassing
approximately 830,000 square feet and three industrial properties encompassing
approximately 163,000 square feet in Westchester for an aggregate purchase
price of approximately $117 million. In addition, the Company acquired
approximately 32 acres of land located in Westchester for a purchase price of
approximately $8 million.
During 1997, the Company acquired one industrial property encompassing
approximately 452,000 square feet in Connecticut for a purchase price of
approximately $27 million.
During 1997, the Company acquired 13 office properties encompassing
approximately 1.5 million square feet and one industrial property encompassing
approximately 128,000 square feet in New Jersey for an aggregate purchase
price of approximately $156 million. In addition, the Company acquired
approximately 303 acres of land located in New Jersey for an aggregate
purchase price of approximately $16.2 million.
In October 1997, the Company entered into an agreement to invest $150
million in the Morris Companies, a New Jersey developer and owner of "Big Box"
warehouse facilities. The Morris Companies' properties include twenty three
industrial buildings encompassing approximately 4.0 million square feet. The
Company's investment will be used to acquire a controlling interest in Reckson
Morris Operating Partnership, L.P. ("RMI"). In connection with the
transaction the Morris Companies will contribute 100% of their interests in
certain industrial properties to RMI in exchange for operating partnership
units in RMI. On January 6, 1998, the Company made its initial investment
into RMI of approximately $65 million. In addition, at December 31, 1997, the
Company had advanced approximately $12 million to the Morris Companies
primarily to fund certain construction costs related to development properties
to be contributed to RMI.
In October 1997, the Company sold 671 Old Willets Path in Hauppauge, New
York for approximately $725,000 and recorded a gain on the sale of $672,000.
In addition, the Company has invested approximately $72.5 million in
certain mortgage indebtedness encumbering five Class A office buildings
located on Long Island encompassing approximately 927,000 square feet, a 400
acre parcel of land located in New Jersey and, a 586,000 square foot
industrial property in New Jersey. In addition, on March 13, 1997 the Company
loaned approximately $17 million to its minority partner in Omni, its flagship
Long Island office property, and effectively increased its economic interest
in the property owning partnership.
9. Fair Value of Financial Instruments
The following disclosures of estimated fair value at December 31, 1997
were determined by management, using available market information and
appropriate valuation methodologies. Considerable judgment is necessary to
interpret market data and develop estimated fair value. The use of different
market assumptions and/or estimation methodologies may have a material effect
on the estimated fair value amounts.
Cash equivalents and variable rate debt are carried at amounts which
reasonably approximate their fair values.
Mortgage notes payable have an estimated aggregate fair value which
approximates its carrying value. Estimated fair value is based on interest
rates currently available to the Company for issuance of debt with similar
terms and remaining maturities.
10. Rental Income
The Properties are being leased to tenants under operating leases. The
minimum rental amount due under certain leases are generally either subject to
scheduled fixed increases or indexed escalations. In addition, the leases
generally also require that the tenants reimburse the Company for increases in
certain operating costs and real estate taxes above base year costs.
Included in base rents and tenant escalations and reimbursements in the
accompanying statements of operations are amounts from Reckson Executive
Centers, LLC, an equity investee, as follows (in thousands):
Tenant
Escalations and
For the Periods Base Rents Reimbursements
--------------- ---------------
Year ended December 31, 1997 $ 2,154 $ 441
Year ended December 31, 1996 $ 1,898 $ 417
June 3, 1995 to December 31, 1995 $ 1,095 $ 100
January 1, 1995 to June 2, 1995 $ 675 $ 48
Expected future minimum rents to be received over the next five years and
thereafter from leases in effect at December 31, 1997 are as follows (in
thousands):
Reckson
Executive
Centers, LLC Other Tenants Total
-------------- -------------- --------------
1998 $ 2,561 $ 156,909 $ 159,470
1999 2,634 147,473 150,107
2000 1,549 133,814 135,363
2001 787 109,767 110,554
2002 820 94,112 94,932
Thereafter 3,814 206,336 210,150
-------------- -------------- --------------
$ 12,165 $ 848,411 $ 860,576
============== ============== ==============
11. Non-Cash Investing and Financing Activities
Additional supplemental disclosures of non-cash investing and financing
activities are as follows (in thousands):
(1) During 1996, the Company purchased eight office properties located in
Westchester County and associated management and construction operations
as follows:
Cash Paid $58,533
Issuance of 677,534 Units (1) 9,527
Purchase price holdback 1,700
Mortgage assumed 9,366
--------------
Total purchase price $79,126
==============
(2) During 1996, the Company acquired three of the Reckson Option Properties
as follows:
Debt assumed and repaid $21,750
Issuance of 271,228 Units (1) 4,516
--------------
Total purchase price $26,266
==============
(3) In January 1997, the Company acquired one of the Reckson Option
Properties as follows:
Mortgage assumed $4,667
Issuance of 203,804 Units (1) 4,280
Cash paid 61
--------------
Total purchase price $9,008
==============
(4) In November 1997, the Company purchased a 181,000 square foot industrial
building located in Hauppauge, New York as follows:
Mortgage assumed and repaid $3,037
Issuance of 62,905 Units 1,578
Cash paid 10
--------------
Total purchase price $4,625
==============
(5) In December 1997, the Company purchased a 92,000 square foot industrial
building located in Elmsford, New York as follows:
Issuance of 183,469 Units $4,700
----
(1) Split adjusted
12. Commitments and Other Comments
The Company entered into employment agreements with its chairman and five
executive officers. The agreements are for terms expiring through June 1998.
The Company sponsors a defined contribution savings plan pursuant to
section 401(k) of the Internal Revenue Code. Under such plan, there are no
prior service costs. All employees are eligible to participate in the plan
after one year of service. Employer contributions are based on a discretionary
amount determined by the Company's management. During 1997 and 1996, the
Company made no contributions.
At December 31, 1996, the Company had restricted cash of $1.8 million
which collateralized an outstanding letter of credit for an equal amount.
At December 31, 1997, the Company had outstanding undrawn letters of
credit against the Unsecured Credit Facility of approximately $4 million.
13. Quarterly Financial Data (Unaudited)
The following summary represents the Company's results of operations for
each quarter during 1997 and 1996 (in thousands, except share amounts):
<TABLE>
<CAPTION>
1997
--------------- --------------- --------------- ---------------
First Quarter Second Quarter Third Quarter Fourth Quarter
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Total revenues $ 31,692 $ 36,194 $ 40,342 $ 45,167
=============== =============== =============== ===============
Income before minority interests and
extraordinary items $ 8,805 $ 11,990 $ 11,470 $ 13,225
Minority interest (2,021) (2,194) (2,061) (2,348)
Extraordinary (loss) --- (1,962) (268) ---
--------------- --------------- --------------- ---------------
Net income $ 6,784 $ 7,834 $ 9,141 $ 10,877
=============== =============== =============== ===============
Basic net income per weighted
average common share:
Income before extraordinary item $ 0.26 $ 0.29 $ 0.27 $ 0.31
Extraordinary loss --- (.06) (.01) ---
--------------- --------------- --------------- ---------------
Net income $ 0.26 $ 0.23 $ 0.26 $ 0.31
=============== =============== =============== ===============
Weighted average common shares
outstanding 26,569,162 34,298,137 34,477,050 35,445,213
=============== =============== =============== ===============
Diluted net income per common
share (Notes 1 and 6):
Income before extraordinary items $ 0.25 $ 0.28 $ 0.27 $ 0.30
Extraordinary items --- (.06) (.01) ---
--------------- --------------- --------------- ---------------
Diluted net income per common share $ 0.25 $ 0.22 $ 0.26 $ 0.30
=============== =============== =============== ===============
Diluted weighted average common
shares outstanding 27,056,018 34,801,582 35,030,464 36,032,319
=============== =============== =============== ===============
</TABLE>
<TABLE>
<CAPTION>
1996
--------------- --------------- --------------- ---------------
First Quarter Second Quarter Third Quarter Fourth Quarter
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Total revenues $ 19,065 $ 22,694 $ 24,719 $ 29,663
=============== =============== =============== ===============
Income before minority interests and
extraordinary items $ 4,902 $ 6,421 $ 6,395 $ 7,472
Minority interest (1,584) (1,730) (1,682) (1,772)
Extraordinary (loss) (895) --- --- ---
--------------- --------------- --------------- ---------------
Net income $ 2,423 $ 4,691 $ 4,713 $ 5,700
=============== =============== =============== ===============
Basic net income per weighted
average common share:
Income before extraordinary item $ 0.22 $ 0.23 $ 0.23 $ 0.24
Extraordinary loss (.06) --- --- ---
--------------- --------------- --------------- ---------------
Net income $ 0.16 $ 0.23 $ 0.23 $ 0.24
=============== =============== =============== ===============
Weighted average common shares
outstanding 14,889,612 20,349,210 20,880,474 23,541,600
=============== =============== =============== ===============
Diluted net income per common
share (Notes 1 and 6):
Income before extraordinary items $ 0.22 $ 0.23 $ 0.22 $ 0.24
Extraordinary items (.06) --- --- ---
--------------- --------------- --------------- ---------------
Diluted net income per common share $ 0.16 $ 0.23 $ 0.22 $ 0.24
=============== =============== =============== ===============
Diluted weighted average common
shares outstanding 15,049,117 20,557,479 21,173,909 23,929,975
=============== =============== =============== ===============
</TABLE>
14. Subsequent Events
On February 18, 1998 the Company sold 791,152 shares of the Company's
common stock at $25.44 per share for an aggregate consideration of
approximately $20.1 million before deducting offering expenses. Net proceeds
were used to repay borrowings under the Unsecured Credit Facility and for
property acquisitions.
<TABLE>
Reckson Associates Realty Corp.
Schedule III-Real Estate And Accumulated Depreciation
December 31, 1997
(In thousands)
<CAPTION>
Cost Capitalized Gross Amount at
Subsequent to Which Carried at
Initial Cost Acquisition Close of Period
Column A Column B Column C Column D Column E
-------------- -------------------- --------------------- ---------------------
Buildings Buildings Buildings
and and and
Encum- Improve- Improve- Improve-
Description brance Land ments Land ments Land ments Total
------------- --------- ----------- --------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Vanderbilt Industrial Park,
Hauppauge, New York
(27 buildings in an
industrial park) B $ 1,940 $ 9,955 --- $ 8,789 $ 1,940 $ 18,744 $ 20,684
Airport International Plaza,
Islip, New York
(17 buildings in an
industrial park) 2,616(c) 1,263 13,608 --- 9,670 1,263 23,278 24,541
County Line Industrial Center,
Huntington, New York
(3 buildings in an
industrial park) B 628 3,686 --- 2,438 628 6,124 6,752
32 Windsor Place,
Islip, New York B 32 321 --- 46 32 367 399
42 Windsor Place,
Islip, New York B 48 327 --- 542 48 869 917
505 Walt Whitman Rd.,
Huntington, New York B 140 42 --- 52 140 94 234
1170 Northern Blvd.,
N. Great Neck, New York B 30 99 --- 31 30 130 160
50 Charles Lindbergh Blvd.,
Mitchel Field, New York 15,479 A 12,089 --- 3,526 0 15,615 15,615
200 Broadhollow Road,
Melville, New York 6,649 338 3,354 --- 2,362 338 5,716 6,054
48 South Service Road,
Melville, New York B 1,652 10,245 --- 3,351 1,652 13,596 15,248
395 North Service Road,
Melville, New York 9,917 A 15,551 --- 6,475 0 22,026 22,026
6800 Jericho Turnpike,
Syosset, New York 15,001 582 6,566 --- 5,941 582 12,507 13,089
6900 Jericho Turnpike,
Syosset, New York 5,279 385 4,228 --- 1,674 385 5,902 6,287
300 Motor Parkway,
Hauppauge, New York B 276 1,136 --- 828 276 1,964 2,240
88 Duryea Road,
Melville, New York B 200 1,565 --- 616 200 2,181 2,381
210 Blydenburgh Road,
Islandia, New York B 11 158 --- 159 11 317 328
208 Blydenburgh Road,
Islandia, New York B 12 192 --- 145 12 337 349
71 Hoffman Lane,
Islandia, New York B 19 260 --- 172 19 432 451
933 Motor Parkway,
Smithtown, New York B 106 375 --- 361 106 736 842
65 and 85 South Service Rd
Plainview, New York B 40 218 --- 10 40 228 268
333 Earl Ovington Blvd. (Omni)
Mitchel Field, New York 57,839 A 67,221 --- 15,556 0 82,777 82,777
135 Fell Court
Islip, New York B 462 1,265 --- 48 462 1,313 1,775
40 Cragwood Road,
South Plainfield, New Jersey B 708 7,131 17 3,664 725 10,795 11,520
110 Marcus Drive,
Huntington, New York B 390 1,499 --- 13 390 1,512 1,902
333 East Shore Road,
Great Neck, New York B A 564 --- 128 0 692 692
310 East Shore Road,
Great Neck, New York 2,322 485 2,009 --- 265 485 2,274 2,759
70 Schmitt Blvd.,
Farmingdale, New York 425 727 3,408 --- 15 727 3,423 4,150
19 Nicholas Drive,
Yaphank, New York B 160 7,399 --- --- 160 7,399 7,559
1516 Motor Parkway,
Hauppauge, New York B 603 6,722 --- 13 603 6,735 7,338
125 Baylis Road,
Melville, New York B 1,601 8,626 --- 422 1,601 9,048 10,649
35 Pinelawn Road,
Melville, New York B 999 7,073 --- 1,354 999 8,427 9,426
520 Broadhollow Road
Melville, New York B 457 5,572 --- 1,404 457 6,976 7,433
1660 Walt Whitman Road,
Melville, New York B 370 5,072 --- 389 370 5,461 5,831
70 Maxess Road,
Melville, New York 1,863 708 1,859 96 3,806 804 5,665 6,469
85 Nicon Court,
Hauppauge, New York B 797 2,818 --- 54 797 2,872 3,669
104 Parkway Drive So.,
Hauppauge, New York B 54 804 --- 130 54 934 988
20 Melville Park Rd.,
Melville, New York B 391 2,650 --- 96 391 2,746 3,137
105 Price Parkway,
Hauppauge, New York B 2,030 6,327 --- 311 2,030 6,638 8,668
48 Harbor Park Drive,
Hauppauge, New York B 1,304 2,247 --- 89 1,304 2,336 3,640
125 Ricefield Lane,
Hauppauge, New York B 13 852 --- 330 13 1,182 1,195
110 Ricefield Lane,
Hauppauge, New York B 33 1,043 --- 52 33 1,095 1,128
120 Ricefield Lane,
Hauppauge, New York B 16 1,051 --- 30 16 1,081 1,097
135 Ricefield Lane,
Hauppauge, New York B 24 906 --- 473 24 1,379 1,403
30 Hub Drive,
Huntington, New York B 469 1,571 --- 246 469 1,817 2,286
60 Charles Lindbergh,
Mitchel Field, New York B A 20,800 --- 1,344 --- 22,144 22,144
155 White Plains Rd
Tarrytown, New York B 1,613 2,542 --- 595 1,613 3,137 4,750
2 Church Street,
Tarrytown, New York B 232 1,307 --- 385 232 1,692 1,924
235 Main Street,
Tarrytown, New York B 955 5,375 --- 562 955 5,937 6,892
245 Main Street,
Tarrytown, New York B 1,294 7,284 --- 790 1,294 8,074 9,368
505 White Plains Road,
Tarrytown, New York B 236 1,332 --- 163 236 1,495 1,731
555 White Plains Road,
Tarrytown, New York B 712 4,133 13 2,658 725 6,791 7,516
560 White Plains Road,
Tarrytown, New York B 1,553 8,756 --- 1,688 1,553 10,444 11,997
580 White Plains Road,
Tarrytown, New York 8,811 2,591 14,595 --- 1,347 2,591 15,942 18,533
660 White Plains Road,
Tarrytown, New York B 3,929 22,640 --- 1,738 3,929 24,378 28,307
Landmark Square,
Stamford, CT 49,291 11,603 64,466 --- 6,216 11,603 70,682 82,285
110 Bi-County Blvd.,
Farmingdale, New York 4,531 2,342 6,665 --- 124 2,342 6,789 9,131
RREEF Portfolio,
Hauppauge, New York
(10 additional buildings in
Vanderbuilt Industrial Park) B 930 20,619 --- 523 930 21,142 22,072
275 Broadhollow Road,
Melville, New York B 5,250 11,761 --- 464 5,250 12,225 17,475
One Eagle Rock,
East Hanover, New Jersey B 803 7,563 --- 21 803 7,584 8,387
710 Bridgeport Avenue,
Shelton, CT B 5,405 21,620 --- 440 5,405 22,060 27,465
101 JFK Expressway,
Short Hills, New Jersey B 7,745 43,889 --- 263 7,745 44,152 51,897
10 Rooney Circle,
West Orange, New Jersey B 1,302 4,615 --- 408 1,302 5,023 6,325
Executive Hill Office Park,
West Orange, New Jersey B 7,629 31,288 --- 410 7,629 31,698 39,327
3 University Plaza,
Hackensack, New Jersey B 7,894 11,846 --- 110 7,894 11,956 19,850
400 Garden City Plaza,
Garden City, New York B 13,986 10,127 --- 225 13,986 10,352 24,338
425 Rabro Drive,
Hauppauge, New York B 665 3,489 --- 63 665 3,552 4,217
One Paragon Drive,
Montvale, New Jersey B 2,773 9,901 --- 91 2,773 9,992 12,765
90 Merrick Avenue,
East Meadow, New York B --- 19,193 --- 332 --- 19,525 19,525
150 Motor Parkway,
Hauppauge, New York B 1,114 20,430 --- 839 1,114 21,269 22,383
390 Motor Parkway,
Hauppauge, New York B 240 4,459 --- 202 240 4,661 4,901
Royal Executive Park,
Ryebrook, New York B 18,343 55,028 --- 479 18,343 55,507 73,850
120 White Plains Road,
Tarrytown, New York B 3,355 24,605 --- --- 3,355 24,605 27,960
University Square,
Princeton, New Jersey B 8,045 8,888 --- 19 8,045 8,907 16,952
100 Andrews Road,
Hicksville, New York B 2,812 1,711 --- 5,155 2,812 6,866 9,678
2 Macy Road,
Harrison, New York B 642 2,131 --- 19 642 2,150 2,792
80-100 Grasslands,
Elmsford, New York B 1,609 6,823 --- 106 1,609 6,929 8,538
65 Marcus Drive,
Melville, New York B 295 1,966 --- 865 295 2,831 3,126
Land held for development B 29,309 --- --- --- 29,309 --- 29,309
Development in progress B 5,492 10,757 --- 8,915 5,492 19,672 25,164
Other property B --- --- --- 1,998 --- 1,998 1,998
------------- --------- ----------- --------- ----------- --------- ----------- -----------
Total 180,023 $173,201 $ 722,268 $ 126 $ 115,633 $173,327 $ 837,901 $1,011,228
<FN>
<F1>
A - These land parcels are leased (see Note 4).
<F2>
B - There are no encumbrances on these properties.
<F3>
C - The encumbrance of $2,616 is related to one property.
</FN>
</TABLE>
<TABLE>
Reckson Associates Realty Corp.
Schedule III-Real Estate And Accumulated Depreciation
December 31, 1997 (Continued)
(In thousands)
<CAPTION>
Column A Column F Column G Column H Column I
-------------- ------------- -------------- ---------------
Life on which
Accumulated Date of Date Depreciation
Description Depreciation Construction Acquired is Computed
-------------- ------------- -------------- ---------------
<S> <C> <C> <C> <C>
Vanderbilt Industrial Park,
Hauppauge, New York
(27 buildings in an
industrial park) $ 11,432 1961-1979 1961-1979 10-30 years
Airport International Plaza,
Islip, New York
(17 buildings in an
industrial park) 12,463 1970-1988 1970-1988 10-30 years
County Line Industrial Center,
Huntington, New York
(3 buildings in an
industrial park) 3,721 1975-1979 1975-1979 10-30 years
32 Windsor Place,
Islip, New York 294 1971 1971 10-30 years
42 Windsor Place,
Islip, New York 615 1972 1972 10-30 years
505 Walt Whitman Rd.,
Huntington, New York 60 1950 1968 10-30 years
1170 Northern Blvd.,
N. Great Neck, New York 115 1947 1962 10-30 years
50 Charles Lindbergh Blvd.,
Mitchel Field, New York 7,347 1984 1984 10-30 years
200 Broadhollow Road,
Melville, New York 3,151 1981 1981 10-30 years
48 South Service Road,
Melville, New York 5,895 1986 1986 10-30 years
395 North Service Road,
Melville, New York 8,849 1988 1988 10-30 years
6800 Jericho Turnpike,
Syosset, New York 7,338 1977 1978 10-30 years
6900 Jericho Turnpike,
Syosset, New York 2,898 1982 1982 10-30 years
300 Motor Parkway,
Hauppauge, New York 1,101 1979 1979 10-30 years
88 Duryea Road,
Melville, New York 1,027 1980 1980 10-30 years
210 Blydenburgh Road,
Islandia, New York 243 1969 1969 10-30 years
208 Blydenburgh Road,
Islandia, New York 284 1969 1969 10-30 years
71 Hoffman Lane,
Islandia, New York 345 1970 1970 10-30 years
933 Motor Parkway,
Smithtown, New York 490 1973 1973 10-30 years
65 and 85 South Service Rd
Plainview, New York 221 1961 1961 10-30 years
333 Earl Ovington Blvd. (Omni)
Mitchel Field, New York 12,371 1990 1995 10-30 years
135 Fell Court
Islip, New York 238 1965 1992 10-30 years
40 Cragwood Road,
South Plainfield, New Jersey 5,957 1970 1983 10-30 years
110 Marcus Drive,
Huntington, New York 1,113 1980 1980 10-30 years
333 East Shore Road,
Great Neck, New York 430 1976 1976 10-30 years
310 East Shore Road,
Great Neck, New York 1,215 1981 1981 10-30 years
70 Schmitt Blvd.,
Farmingdale, New York 267 1965 1995 10-30 years
19 Nicholas Drive,
Yaphank, New York 597 1989 1995 10-30 years
1516 Motor Parkway,
Hauppauge, New York 560 1981 1995 10-30 years
125 Baylis Road,
Melville, New York 654 1980 1995 10-30 years
35 Pinelawn Road,
Melville, New York 701 1980 1995 10-30 years
520 Broadhollow Road
Melville, New York 736 1978 1995 10-30 years
1660 Walt Whitman Road,
Melville, New York 419 1980 1995 10-30 years
70 Maxess Road,
Melville, New York 193 1967 1995 10-30 years
85 Nicon Court,
Hauppauge, New York 191 1984 1995 10-30 years
104 Parkway Drive So.,
Hauppauge, New York 54 1985 1996 10-30 years
20 Melville Park Rd.,
Melville, New York 105 1965 1996 10-30 years
105 Price Parkway,
Hauppauge, New York 342 1969 1996 10-30 years
48 Harbor Park Drive,
Hauppauge, New York 116 1976 1996 10-30 years
125 Ricefield Lane,
Hauppauge, New York 95 1973 1996 10-30 years
110 Ricefield Lane,
Hauppauge, New York 68 1980 1996 10-30 years
120 Ricefield Lane,
Hauppauge, New York 44 1983 1996 10-30 years
135 Ricefield Lane,
Hauppauge, New York 116 1981 1996 10-30 years
30 Hub Drive,
Huntington, New York 93 1976 1996 10-30 years
60 Charles Lindbergh,
Mitchel Field, New York 1,249 1989 1996 10-30 years
155 White Plains Rd
Tarrytown, New York 133 1963 1996 10-30 years
2 Church Street,
Tarrytown, New York 94 1979 1996 10-30 years
235 Main Street,
Tarrytown, New York 374 1974 1996 10-30 years
245 Main Street,
Tarrytown, New York 507 1983 1996 10-30 years
505 White Plains Road,
Tarrytown, New York 109 1974 1996 10-30 years
555 White Plains Road,
Tarrytown, New York 588 1972 1996 10-30 years
560 White Plains Road,
Tarrytown, New York 837 1980 1996 10-30 years
580 White Plains Road,
Tarrytown, New York 1,108 1977 1996 10-30 years
660 White Plains Road,
Tarrytown, New York 1,603 1983 1996 10-30 years
Landmark Square,
Stamford, CT 2,764 1973-1984 1996 10-30 years
110 Bi-County Blvd.,
Farmingdale, New York 233 1984 1997 10-30 years
RREEF Portfolio,
Hauppauge, New York
(10 additional buildings in
Vanderbuilt Industrial Park) 570 1974-1982 1997 10-30 years
275 Broadhollow Road,
Melville, New York 300 1970 1997 10-30 years
One Eagle Rock,
East Hanover, New Jersey 179 1986 1997 10-30 years
710 Bridgeport Avenue,
Shelton, CT 506 1971-1979 1977 10-30 years
101 JFK Expressway,
Short Hills, New Jersey 978 1981 1997 10-30 years
10 Rooney Circle,
West Orange, New Jersey 119 1971 1997 10-30 years
Executive Hill Office Park,
West Orange, New Jersey 504 1978-1984 1997 10-30 years
3 University Plaza,
Hackensack, New Jersey 167 1985 1997 10-30 years
400 Garden City Plaza,
Garden City, New York 139 1989 1997 10-30 years
425 Rabro Drive,
Hauppauge, New York 49 1980 1997 10-30 years
One Paragon Drive,
Montvale, New Jersey 86 1980 1997 10-30 years
90 Merrick Avenue,
East Meadow, New York 135 1985 1997 10-30 years
150 Motor Parkway,
Hauppauge, New York 151 1984 1997 10-30 years
390 Motor Parkway,
Hauppauge, New York 32 1980 1997 10-30 years
Royal Executive Park,
Ryebrook, New York 195 1983-1986 1997 10-30 years
120 White Plains Road,
Tarrytown, New York 68 1984 1997 10-30 years
University Square,
Princeton, New Jersey 25 1987 1997 10-30 years
100 Andrews Road,
Hicksville, New York 137 1954 1996 10-30 years
2 Macy Road,
Harrison, New York 8 1962 1997 10-30 years
80-100 Grasslands,
Elmsford, New York 24 1989/1964 1997 10-30 years
65 Marcus Drive,
Melville, New York 28 1968 1996 10-30 years
Land held for development --- N/A various N/A
Development in progress ---
Other property 89
--------------
Total $ 108,652
==============
</TABLE>
The aggregate cost for Federal Income Tax purposes was approximately
$932.4 million at December 31, 1997.
<TABLE>
Reckson Associates Realty Corp.
and Reckson Group
Schedule III-Real Estate and Accumulated Depreciation (continued)
(in thousands)
The changes in real estate for each of the periods in the three years ended
December 31, 1997 are as follows:
<CAPTION>
January 1, January 1,
1997 to 1996 to June 3, 1995 January 1,
December 31, December 31, to December 1995 to June
1997 1996 31, 1995 2, 1995
-------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
Real estate balance at beginning of period $ 516,768 $ 288,056 $ 216,333 $ 159,693
Improvements 37,178 15,174 3,768 814
Disposal, including write-off of fully depreciated
building improvements (154) (936) (3,174) ---
Properties not contributed to the Company --- --- --- (15,133)
Consolidation of Omni <F1> --- --- --- 70,959
Acquisitions 456,836 214,474 55,054 ---
Cash paid in exchange for properties --- --- 16,075 ---
-------------- -------------- --------------- --------------
Balance at end of period $ 1,011,228 $ 516,768 $ 288,056 $ 216,333
============== ============== =============== ==============
<FN>
<F1>
The Omni was consolidated as a result of the Company purchasing a
controlling interest as part of the Formation transactions.
</FN>
</TABLE>
The changes in accumulated depreciation, exclusive of amounts relating to
equipment, autos, furniture and fixtures, fo of the periods in the three years
ended December 31, 1997 are as follows:
<TABLE>
<CAPTION>
January 1, January 1,
1997 to 1996 to June 3, 1995 January 1,
December 31, December 31, to December 1995 to June
1997 1996 31, 1995 2,1995
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at beginning of period $ 86,344 $ 72,499 $ 69,841 $ 71,596
Depreciation for period 22,442 14,781 5,832 2,453
Disposal, including write-off of fully depreciated
building improvements (134) (936) (3,174) ---
Properties not contributed to the Company --- --- --- (7,946)
Consolidation of Omni --- --- --- 3,738
-------------- -------------- --------------- --------------
Balance at end of period $ 108,652 $ 86,344 $ 72,499 $ 69,841
============== ============== =============== ==============
</TABLE>
Exhibit Index
Exhibit
Number Description
- ------- --------------
3.1* Articles of Incorporation of Registrant
3.2** By-Laws of Registrant
3.3** Amended and Restated Articles of Incorporation
4.1* Specimen Share Certificate
10.1** Amended and Restated Agreement of Limited Partnership of Reckson
Operating Partnership, L.P.
10.2 Third Amended and Restated Agreement of Limited Partnership of Omni
Partners, L.P.
10.3** Employment and Non-Competition Agreement between Registrant and
Donald Rechler
10.4** Employment and Non-Competition Agreement between Registrant and
Scott Rechler
10.5** Employment and Non-Competition Agreement between Registrant and
Mitchell Rechler
10.6** Employment and Non-Competition Agreement between Registrant and
Gregg Rechler
10.7** Non-Competition Agreement between Registrant and Roger Rechler
10.8** Employment and Non-Competition Agreement between Registrant and
J. Michael Maturo
10.9** Purchase Option Agreements relating to the Reckson Option Properties
10.10** Purchase Option Agreements relating to the Other Option Properties
10.11*** Amended 1995 Stock Option Plan
10.12**** Registrant's Unsecured Credit Facility
10.13*** 1996 Employee Stock Option Plan
10.14** Executive Center Leases
10.15* Ground Leases for certain of the Properties
10.16** Amended and Restated Agreement of Limited Partnership of Reckson
FS Limited Partnership
10.17** Indemnity Agreement relating to 100 Oser Avenue
10.18** Contribution Agreement by and among Registrant, Reckson Operating
Partnership, L.P. and Tarrytown Corporate Center, Tarrytown
Corporate Center IV, L.P., Tarrytown Corporate Center II, Crest
Realties, 2 Church Street Associates, JAH Realties, and Jon
Halpern
10.19 Amended and Restated 1997 Stock Option Plan
10.20 1998 Stock Option Plan
10.21 Amended and Restated Agreement of Limited Partnership of Reckson
Morris Operating Partnership, L.P.
10.22 Registrant's Unsecured Bridge Facility
10.23 Note Purchase Agreement for the Senior Unsecured Notes
10.24 Severance Agreement between Registrant and Donald Rechler
10.25 Severance Agreement between Registrant and Scott Rechler
10.26 Severance Agreement between Registrant and Mitchell Rechler
10.27 Severance Agreement between Registrant and Gregg Rechler
10.28 Severance Agreement between Registrant and Roger Rechler
10.29 Severance Agreement between Registrant and J. Michael Maturo
12.1 Statement of Ratios of Earnings to Fixed Charges
21.1 Statement of Subsidiaries
23.0 Consent of Independent Auditors
24.1 Powers of Attorney (included in Part IV of this Form 10-K)
27.0 Financial Data Schedule
27.1 Restated Financial Data Schedule for the 6 months ended June 30,
1996 reflecting the effect of FASB #128, Earnings Per Share.
27.2 Restated Financial Data Schedule for the 9 months ended September
30, 1996 reflecting the effect of FASB #128, Earnings Per Share.
27.3 Restated Financial Data Schedule for the year ended December 31,
1996 reflecting the effect of FASB #128, Earnings Per Share.
27.4 Restated Financial Data Schedule for the 3 months ended March 31,
1997 reflecting the effect of FASB #128, Earnings Per Share.
27.5 Restated Financial Data Schedule for the 6 months ended June 30,
1997 reflecting the effect of FASB #128, Earnings Per Share.
27.6 Restated Financial Data Schedule for the 9 months ended September
30, 1997 reflecting the effect of FASB #128, Earnings Per Share.
* Previously filed as an exhibit to Registration Statement on Form S-11
(No. 33-84324) and incorporated herein by reference.
** Previously filed as an exhibit to Registration Statement on Form S-11
(No. 333-1280) and incorporated herein by reference.
*** Previously filed as an exhibit to the Company's Form 8-K report filed
with the SEC on November 25, 1996 and incorporated herein by reference.
**** Previously filed as an exhibit to the Company's Form 8-K report filed
with the SEC on May 15, 1997 and incorporated herein by reference.
<TABLE>
Exhibit 12.1
Reckson Associates Realty Corp.
Ratios of Earnings to Fixed Charges
The following table sets forth the Company's consolidated ratios of
earnings to fixed charges for the periods shown:
<CAPTION>
June 3, 1995 January 1, 1995 Year Ended December 31,
Year Ended Year Ended to to ------------------------
December 31, 1997 December 31, 1996 December 31, 1995 December 31, 1995 1994 1993
- ----------------- ----------------- ----------------- ----------------- ------ ------
<C> <C> <C> <C> <C> <C>
2.77x 2.72x 2.71x 0.96x<FN1> 0.97x<FN1> 0.65x<FN1>
<FN>
<FN1>
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.
</FN>
</TABLE>
Exhibit 21.1
Reckson Associates Realty Corp.
Statement of Subsidiaries
Name State of Organization
- ------------------------------ -----------------------------
Reckson Operating Partnership, L.P. Maryland
Omni Partners, L.P. Delaware
Reckson FS Limited Parntership Delaware
Reckson Morris Industrial Trust Maryland
Exhibit 23.0
Reckson Associates Realty Corp.
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement
Form S-3 No. 333-28015 of Reckson Associates Realty Corp. of our report dated
February 14, 1998, except for Note 14, as to which the date is February 18,
1998, with respect to the consolidated financial statements and schedule of
Reckson Associates Realty Corp. included in this Annual Report Form 10-K for
the year ended December 31, 1997.
Ernst & Young
New York, New York
March 23, 1998
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.2
<SEQUENCE>2
<TEXT>
Exhibit 10.2
THIRD AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
OMNI PARTNERS, L.P.
TABLE OF CONTENTS
PAGE
ARTICLE 1 DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE 2 FORMATION AND CONTINUATION . . . . . . . . . . . . . . . . . . 21
2.1. Formation and Continuation of Partnership . . . . . . . . . . . 21
2.2. Statement of Partnership . . . . . . . . . . . . . . . . . . . 21
ARTICLE 3 NAME AND PLACE OF BUSINESS; REGISTERED OFFICE. . . . . . . . . 21
3.1. Name, Place of Business and Office . . . . . . . . . . . . . . 21
3.2. Registered Office and Registered Agent . . . . . . . . . . . . 21
ARTICLE 4 PURPOSES . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE 5 TERM . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.1. Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.2. No Termination, etc . . . . . . . . . . . . . . . . . . . . 22
ARTICLE 6 PERCENTAGE INTERESTS; CAPITAL CONTRIBUTIONS; TI
RESERVE; CAPITAL ACCOUNTS . . . . . . . . . . . . . . . . 23
6.1. Initial Contribution of Reckom, HMCC, Odyli and Odyssey . . . . 23
6.2. Percentage Interests . . . . . . . . . . . . . . . . . . . . . 23
6.3. TI Reserve . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.4. Loans/Additional Contributions. . . . . . . . . . . . . . . . . 24
6.5. Capital Accounts . . . . . . . . . . . . . . . . . . . . . . . 26
6.6. Limited Partner's Liability . . . . . . . . . . . . . . . . . . 28
6.7. Additional Definitions Relating to Allocations . . . . . . . . 28
ARTICLE 7 TAX MATTERS; ALLOCATION OF PROFITS AND LOSSES . . . . . . . . . 29
7.1. Allocations of Profits and Losses . . . . . . . . . . . . . . . 29
7.2. Tax Allocations . . . . . . . . . . . . . . . . . . . . . . . . 30
7.3. Special Allocations. . . . . . . . . . . . . . . . . . . . . . 30
7.5. Other Tax Matters . . . . . . . . . . . . . . . . . . . . . . . 31
ARTICLE 8 DISTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . . . 32
8.1. Distributions of Net Ordinary Cash Flow and Net Extraordinary
Cash Flow . . . . . . . . . . . . . . . . . . . . . . . . . . 32
8.2. Liquidating Distributions . . . . . . . . . . . . . . . . . . . 38
8.3. No Restoration of Funds . . . . . . . . . . . . . . . . . . . . 38
8.4. Limitation on Distributions . . . . . . . . . . . . . . . . . . 38
8.5. Claims Paid Under Title Insurance Policies . . . . . . . . . . 39
ARTICLE 9 BOOKS OF ACCOUNT; REPORTS; FISCAL YEAR, ETC . . . . . . . . . . 39
9.1. Books of Account . . . . . . . . . . . . . . . . . . . . . . . 39
9.2. Annual Reports . . . . . . . . . . . . . . . . . . . . . . . . 40
9.3. Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
9.4. Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . 40
9.5. Tax Returns; Tax Matters Partner . . . . . . . . . . . . . . . 40
9.6. Bank Accounts . . . . . . . . . . . . . . . . . . . . . . . . . 41
9.7. Budgets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
9.8. Partnership Register . . . . . . . . . . . . . . . . . . . . . 42
ARTICLE 10 MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . 43
10.1. Duties and Powers of Managing Partner . . . . . . . . . . 43
10.1.1 General Scope of Duties and Authority . . . . . . . . . . 43
10.1.2 Reckson Affiliate as Managing Agent . . . . . . . . . . . 43
10.1.3 Reckson Affiliate as Construction Manager . . . . . . . . 45
10.2. Major Decisions . . . . . . . . . . . . . . . . . . . . . 46
10.3. Employment of Agents, etc . . . . . . . . . . . . . . . . 48
10.4. Time Devoted by General Partners; Compensation of Partner 48
10.5. Powers of General and Limited Partners . . . . . . . . . . 48
10.6. Sale and Refinancing. . . . . . . . . . . . . . . . . . . 49
10.6.1 Managing Partner's Authority. . . . . . . . . . . . . . . 49
10.6.2 First Refinancing . . . . . . . . . . . . . . . . . . . . 50
10.6.3 Future Refinancing . . . . . . . . . . . . . . . . . . . . 53
10.6.4 Cost and Expenses of the First Mortgage and TI Loan . . . 53
10.6.5 Current Interest Rate Swap . . . . . . . . . . . . . . . . 54
10.7. Conversion . . . . . . . . . . . . . . . . . . . . . . . . 56
10.7.1 Conversion Events . . . . . . . . . . . . . . . . . . . . 56
10.7.2 Co-Managing Partner Authority and Major Decisions . . . . 57
10.7.3 Odyssey Conversion Events . . . . . . . . . . . . . . . . 61
10.7.4 Effectuation of Conversion . . . . . . . . . . . . . . . . 61
10.7.5 Further Assurances . . . . . . . . . . . . . . . . . . . . 61
10.8. Managing Partner Duty . . . . . . . . . . . . . . . . . . 61
ARTICLE11 PRE-EXISTING OBLIGATIONS . . . . . . . . . . . . . . . . . . . 62
11.1. No Capital Contribution . . . . . . . . . . . . . . . . . 62
ARTICLE 12 TRANSFER OF PARTNERSHIP INTERESTS . . . . . . . . . . . . 62
12.1. Prohibited Transfers . . . . . . . . . . . . . . . . . . . 62
12.2. Permitted Transfers . . . . . . . . . . . . . . . . . . . 63
12.3. Conditions Applicable to All Transfers . . . . . . . . . . 64
12.4. Call and Put Rights . . . . . . . . . . . . . . . . . . . 66
12.5. Purchase of Partnership Interests . . . . . . . . . . . . 72
ARTICLE 13 WITHDRAWAL OF A PARTNER . . . . . . . . . . . . . . . . . 73
13.1. No Withdrawal . . . . . . . . . . . . . . . . . . . . . . 73
13.2. Termination of a Partner . . . . . . . . . . . . . . . . . 73
13.3. Effect of General Partner Becoming a Withdrawn Partner . . 73
13.4. Effect of Limited Partner Becoming a Withdrawn Partner . . 77
ARTICLE 14 DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . 77
14.1. Events of Default . . . . . . . . . . . . . . . . . . . . 77
14.2. Remedies . . . . . . . . . . . . . . . . . . . . . . . . . 79
14.3. Security Interest . . . . . . . . . . . . . . . . . . . . 80
ARTICLE 15 DISSOLUTION AND LIQUIDATION . . . . . . . . . . . . . . . 81
15.1. Events of Dissolution . . . . . . . . . . . . . . . . . . 81
15.2. Liquidation . . . . . . . . . . . . . . . . . . . . . . . 82
15.3. Period of Liquidation . . . . . . . . . . . . . . . . . . 83
15.4. Statement of Liquidation . . . . . . . . . . . . . . . . . 83
ARTICLE 16 NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . 83
ARTICLE 17 REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . 85
17.1. Representations and Warranties of Reckson . . . . . . . . 85
17.2. Representations and Warranties of The Odyssey Entities . . 86
ARTICLE 18 AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . 88
ARTICLE 19 GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . 88
ARTICLE 20 INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . 88
ARTICLE 21 MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . 90
21.1. No Third-Party Beneficiaries . . . . . . . . . . . . . . . 90
21.2. No Waiver . . . . . . . . . . . . . . . . . . . . . . . . 90
21.3. Rights and Remedies . . . . . . . . . . . . . . . . . . . 90
21.4. Integration . . . . . . . . . . . . . . . . . . . . . . . 91
21.5. Partial Invalidity . . . . . . . . . . . . . . . . . . . . 91
21.6. Survival . . . . . . . . . . . . . . . . . . . . . . . . . 91
21.7. Counterparts . . . . . . . . . . . . . . . . . . . . . . . 91
21.8. Successors and Assigns . . . . . . . . . . . . . . . . . . 91
21.9. Disposition of Documents . . . . . . . . . . . . . . . . . 91
21.10. Status Reportsbroo . . . . . . . . . . . . . . . . . . . . 92
21.11. Intentionally Omitted . . . . . . . . . . . . . . . . . . 92
21.12. No Oral Modification . . . . . . . . . . . . . . . . . . . 92
21.13. Table of Contents, Article and Section Headings . . . . . 93
21.14. Brokerage . . . . . . . . . . . . . . . . . . . . . . . . 93
21.15. Time of the Essence . . . . . . . . . . . . . . . . . . . 93
21.16. Good Faith Performance . . . . . . . . . . . . . . . . . . 93
21.17. Ownership of Partnership Property . . . . . . . . . . . . 93
21.18. Partnership Name . . . . . . . . . . . . . . . . . . . . . 93
21.19. Litigation; No Dissolution . . . . . . . . . . . . . . . . 93
21.20. No Liability for Return of Capital; No Interest . . . . . 94
21.21. Best Efforts and Sole Discretion . . . . . . . . . . . . . 94
21.22. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . 94
21.23. Other Business . . . . . . . . . . . . . . . . . . . . . . 95
21.24. Obligations Are Without Recourse . . . . . . . . . . . . . 95
21.24.1 Reckson . . . . . . . . . . . . . . . . . . . . . . . . . 95
21.24.2 Odyssey Entities . . . . . . . . . . . . . . . . . . . . . 97
21.25. Construction . . . . . . . . . . . . . . . . . . . . . . . 98
21.26. Insurance . . . . . . . . . . . . . . . . . . . . . . . . 98
EXHIBITS
- --------
A - Legal Description
B - Confirmation of Prior Guaranty
C - Guarantee Milestone Dates and Amounts
THIRD AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
OMNI PARTNERS, L.P.
This Third Amended and Restated Agreement of Limited Partnership (this
"Agreement") dated March 14, 1997 by and between Reckson Operating
Partnership, L.P., a Delaware limited partnership, as a general partner
("Reckson"), Odyli, Inc., a Delaware corporation, as a general partner
("Odyli") and Odyssey Partners, L.P., a Delaware limited partnership, as a
limited partner ("Odyssey").
R E C I T A L S
- - - - - - - -
Omni Partners, L.P., a Delaware limited partnership (the "Partnership"),
was formed pursuant to an agreement of limited partnership dated November 17,
1993 between Reckom, Inc., a New York Corporation ("Reckom") and FMCC
Associates, L.P., a New York limited partnership ("HMCC").
Odyli and Odyssey were admitted as partners to the Partnership pursuant
to an amended and restated agreement of limited partnership dated December
21, 1993 (the 1993 Partnership Agreement") among Reckom, HMCC, Odyli and
Odyssey.
Pursuant to a second amended and restated agreement of limited
partnership dated as of June 2, 1995 (the "Existing Partnership Agreement")
(i) Reckom and HMCC withdrew as partners from the Partnership and (ii)
Reckson was admitted as a general partner of the Partnership.
Odyli, Odyssey and Reckson desire to amend and restate the Existing
Partnership Agreement in its entirety on the terms and conditions set forth
in this Agreement and to continue to carry on the business of the Partnership
on the terms and conditions set forth in this Agreement.
Therefore, in consideration of the mutual agreements set forth herein
and other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties hereto hereby agree that the
Existing Partnership Agreement of the Partnership shall be amended, modified,
supplemented and restated in its entirety, effective as of the date first
above written, to read as follows:
ARTICLE I
DEFINITIONS
The following terms shall have the following meanings when used herein:
"Acceptable Institution" - A bona fide third party lender which is
----------------------
not an Affiliate of any Reckson Entity or any Odyssey Entity or otherwise
related to either such party pursuant to Treasury Regulation Section 1.752-4.
"Accrued AC Distributions" - As defined in Section 8.1(a)(iv).
------------------------
"Accrued CL Distributions" - As defined in Section 8.1(a)(iii).
------------------------
"Accrued Extraordinary Distributions" - As defined in Section
-----------------------------------
8.1(a)(i).
"Accrued Priority Distributions" - As defined in Section 8.1(a)(v).
------------------------------
"AC Distribution" - As defined in Section 8.1(a)(iv).
---------------
"Act" - The Securities Act of 1933, as amended.
---
"Additional Capital Account Amount" - With respect to each Partner,
---------------------------------
the then existing unreturned balance of the Additional Contributions made by
such Partner pursuant to Section 6.4 hereof less amounts of Losses allocated
to such Partner under Section 7.1(b)(iii) plus amounts of Profits allocated
to such Partner under Section 7.1(a)(i)(B).
"Additional Contribution" - As defined in Section 6.4.1.
-----------------------
"Adjusted Capital Account Amount" - With respect to each Partner, the
-------------------------------
balance of such Partner's Capital Account increased by the amount of such
Partner's Restoration Obligation.
"Affiliate" - With reference to a specified Person, any other Person
---------
which (i) directly or indirectly owns or Controls, is Controlled by, or is
under common Control with, the Person in question, or (ii) is an officer,
director or trustee of, or owner of a general partnership interest in (1) the
Person in question, (2) a general partner in the Person in question or (3)
any other Person described in clause (i) above with respect to the Person in
question, or (iii) with respect to any of the Odyssey Entities, is owned by
any partner in Odyssey. For purposes of this definition, "ownership" shall
mean direct or indirect ownership of more than five percent (5%) of the
beneficial interests of the Person in question. Without limiting the
foregoing, all members of the Immediate Rechler Family, their relatives (up
to the third degree of co-sanguinity (other than We're Associates and its
principals and any Person described in clause (i) or (ii) with respect to
We're Associates and its principals)) and their respective Affiliates shall
be deemed Affiliates of each other and of Reckson and its Affiliates.
"Agreement" - This Third Amended and Restated Agreement of Limited
---------
Partnership of Omni Partners, L.P., as it may be amended from time to time.
"Anti-Conversion Provision" - As defined in Section 10.7.1.
-------------------------
"Appraisal Date" - As defined in Section 12.4.2.
--------------
"Appraiser" - As defined in Section 12.4.3.
---------
"Bank Account" - As defined in Section 9.6.
------------
"Bankrupt" - A Partner or the Managing Agent or the Construction
--------
Manager shall be deemed "Bankrupt" if it, or any of its general partners, or
any general partner of any of its general partners, shall (i) make a general
assignment for the benefit of its creditors, (ii) generally not pay its debts
as they become due, (iii) admit in writing its inability to pay its debts as
they mature, or (iv) commence any case, proceeding or other action seeking
reorganization, arrangement, adjustment, liquidation, dissolution or
composition of it or its debts under any law relating to bankruptcy,
insolvency, reorganization or relief of debtors, or seeking appointment of a
receiver, trustee, custodian or other similar official for it or for all or
any substantial part of its property; or, if any case, proceeding or other
action against any such Partner or general partner or general partner of a
general partner shall be commenced seeking to have an order for relief
entered against it as debtor, or seeking reorganization, arrangement,
adjustment, liquidation, dissolution or composition of it or its debts under
any law relating to bankruptcy, insolvency, reorganization or relief of
debtors, or seeking appointment of a receiver, trustee, custodian or other
similar official for it or for all or any substantial part of its property,
and such case, proceeding or other action results in the entry of an order
for relief against it which is not dismissed within one hundred and eighty
(180) days.
"Base Rate" - At any time of determination thereof, the so-called
---------
"base rate" of Citibank, N.A. as in effect at the time in question, except if
Citibank, N.A. no longer publishes its so-called "base rate" then the Base
Rate shall be the so-called "prime rate" of the largest bank, by assets, with
its principal place of business located in New York, New York to publish its
so-called "prime-rate", as in effect at such time.
"Budget" As defined in Section 9.7(a).
------
"Capital Account" - As defined in Section 6.5.1.
---------------
"Capital Budget" - As defined in Section 9.7(a).
--------------
"Capital Loan" - An unsecured loan made by a Partner to the
------------
Partnership pursuant to Section 6.4 on an interest-only basis, for a term of
ten (10) years from the date advanced, with interest payable thereon at the
Capital Loan Rate. Notwithstanding the foregoing, any Capital Loan made in
respect of TI Costs shall have a term which ends at the end of the Lockout
Period.
"Capital Loan Rate" - A floating rate equal to 100 basis points in
-----------------
excess of the lesser of (a) the interest rate paid by Reckson for funds
borrowed under its then existing credit line, if any (or if there is more
than one such credit line, the credit line (excluding credit lines having a
maximum availability (whether or not drawn) of less than $5,000,000) with the
lowest interest rate), and (b) the Base Rate plus 150 basis points.
Notwithstanding the foregoing, to the extent that any Capital Loan or
Additional Contribution is made to pay TI Costs, the Capital Loan Rate
applicable thereto (and to any accrued and unpaid interest thereon) shall be
computed as follows:
(a)If the outstanding principal amount of the Reckson TI Loans is
$750,000 or less interest shall be computed at the following per annum rate:
Through the first anniversary of the date of the Agreement-10.5%
After the first and through the fourth such anniversary -11.0%
After the fourth and through the sixth such anniversary -11.5%
Thereafter -12.0%
(b)If the outstanding principal amount of the Reckson TI Loans is more
than $750,000, interest shall be computed at the rate set forth in (a) above
with respect to the first $750,000 of outstanding principal amount, and any
balance shall bear interest at the same rate of interest as is payable on the
First Refinancing plus 2%. If the First Refinancing has not yet been
effectuated such balance shall bear interest at 10.5% per annum. If the
First Refinancing consists of more than one loan, such balance shall bear
interest at 2% in excess of the weighted average interest rate based upon the
interest rates then in effect under the loans comprising the First
Refinancing.
"Capital Requirements" - The funds necessary to: (a) cure a default
--------------------
in the Mortgage Debt or to satisfy a Mortgage Debt which becomes due in whole
or in part after the Managing Partner shall have exhausted its best efforts
to obtain replacement debt therefor in accordance with Section 10.6; (b) pay
(i) the costs of (i) improvements to the Project required by any Legal
Requirements, (ii) T1 Costs or (iii) subject to Article 4 hereof, capital
renewals, replacements and improvements to the Project that a prudent owner
would make; (c) to the extent not provided for pursuant to the preceding
clauses (a) and (b), pay for the Partnership Expenses; and/or (d) to pay
Capital Loans and Extraordinary Capital Loans at their maturity, in each case
if and to the extent the Partnership shall not have sufficient available Net
Ordinary Cash Flow, Cash Reserves or borrowing capacity under (or the ability
to make draws on) the TI Loan or (to the extent the same relates to TI Costs,
TI Reserves) to pay the same.
"Carrying Value" - With respect to any asset, the asset's adjusted
--------------
basis for federal income tax purposes, except as follows:
(i)the initial Carrying Value of any asset contributed (or deemed
contributed) to the Partnership shall be such asset's gross fair market value
at the time of such contribution;
(ii)upon adjustment of the Partners' Capital Accounts pursuant to
Section 6.5, the Carrying Values of all Partnership assets shall be adjusted
to equal their respective gross fair market values at the time of such
adjustment; and
(iii)if the Carrying Value of an asset has been determined pursuant to
paragraph (i) or (ii) above, such Carrying Value shall thereafter be adjusted
in the same manner as would the asset's adjusted basis for federal income tax
purposes, except that depreciation deductions shall be computed based on the
assets Carrying Value as so determined, and not on the asset's adjusted tax
basis.
"Cash Reserves" - Reserve funds which may be established pursuant to
-------------
the Budget or by the Managing Partner to pay Partnership Expenses and for
which the cash to make such payment(s) is not expected to be received from
operations of the Project subsequent to the establishment of such Cash
Reserves and prior to the time such payments are required to be made.
"CL Distribution" - As defined in Section 8.1(a)(iii).
---------------
"Closing Date" - As defined in Section 12.4.4.
------------
"Code" - The Internal Revenue Code of 1986, as amended from time to
----
time.
"Co-Managing Partner Major Decisions" - As defined in Section 10.7.2.
-----------------------------------
"Construction Agreement" - That certain construction and architect's
----------------------
agreement between Reckson Construction Group, Inc. and the Partnership, dated
as of December 2 1, 1993, and any replacement thereof, as in effect from time
to time.
"Construction Manager" - The construction manager under the
--------------------
Construction Agreement and any successor construction manager as may be
appointed in accordance with Section 10.1.3.
"Control" - (together with correlative meaning "controlled by" and
-------
"under common control with") - With respect to any person, the direct or
indirect power to direct the management and policies of such Person.
"Conversion Event" - Any of the following: (a) if the REIT or Reckson
----------------
becomes Bankrupt, (b) if a monetary or material non-monetary default beyond
any applicable notice and grace period or an Event of Withdrawal occurs with
respect to Reckson under this Agreement, or (c) a monetary or material non-
monetary default (beyond any applicable notice and grace period) occurs under
any instrument evidencing or securing such Indebtedness of the Partnership;
provided, that in the case of any such monetary default under this clause (c)
if under the applicable instrument evidencing or securing any Indebtedness of
the Partnership, the Partnership is not entitled to receive any notice of
such default, a Conversion Event shall not be deemed to occur with respect to
such default until the earlier of (i) the acceleration of such Indebtedness
and (ii) 5 days after notice of such default is given to Reckson by any of
the Odyssey Entities, the lender under such Indebtedness or any other Person.
"Correct Ratio" - As defined in Section 8.1(f).
-------------
"Current Interest" - As defined in the Note.
----------------
"Current Interest Rate Swap" - As defined in Section 10.6.5.
--------------------------
"Current Property Mortgage Debt" - The First Mortgage, the TI Loan
------------------------------
and the Midland Mortgage, collectively.
"Debt Service" - As defined in the definition of "Debt Service
------------
Coverage Ratio".
"Debt Service Coverage Ratio" - Net Operating Income divided by the
---------------------------
annual principal (exclusive of principal due at maturity or on demand) and
interest payments (the "Debt Service") with respect to (a) the proposed
Mortgage Debt in question plus (b) any existing Mortgage Debt which is to
remain after the closing of such proposed Mortgage Debt, in each case
forecasted for the first twelve (12) months following the projected date of
the closing of such proposed Mortgage Debt. In the forecasting of Net
Operating Income, it shall be assumed that the Partnership will receive
rents, percentage rents, expense reimbursements and other charges only from
Persons who have executed leases or other occupancy agreements with the
Partnership (without giving effect to any free-rent periods thereunder i.e.,
during any free-rent period thereunder all such Persons shall be deemed to be
then paying all rents, percentage rents, expense reimbursements and other
charges reserved thereunder which are subject to such free-rent periods as if
the rent commencement date has already occurred). In the forecasting of Debt
Service with respect to any loan or proposed loan having a floating rate of
interest, it shall be assumed that the interest rate shall be (i) the
interest rate on United States treasury securities with a maturity as close
as practicable to the maturity date of such loan or proposed loan plus 75% of
the actual spread over the reference rate (e.g., LIBOR or prime) normally
intended to be applicable to such loan or proposed loan or (ii) if a swap has
been entered into with respect to such loan or proposed loan, the interest
rate to the Partnership as a result of such swap or (iii) if a cap has been
entered into with respect to such loan or proposed loan, the lesser of (x)
the capped rate under such cap and (y) the rate set forth in the preceding
clause (i).
"Default Rate" - A fluctuating interest rate, which, at any time,
------------
shall be a rate per annum equal to the lesser of (i) the Base Rate plus 6% or
(ii) the maximum contract rate then permitted by law.
"Defaulting Partner" - As defined in Section 14.2.
------------------
"Deferral Election" - As defined in Section 12.4.1.
-----------------
"Deferred Interest" - As defined in the Note.
-----------------
"Entity Percentage Interests" - In the case of Reckson, its
---------------------------
Percentage Interest, and, in the case of the Odyssey General Partner, the sum
of the Percentage Interests of the Odyssey Entities.
"Event of Default" - As defined in Section 14.1.
----------------
"Event of Withdrawal" - As defined in Section 13.2.
-------------------
"Excess Distributions" - As defined in Section 8.1(f).
--------------------
"Exercise Notice" - As defined in Section 12.4.3.
---------------
"Existing Partnership Agreement" - As defined in the Recitals.
------------------------------
"Extraordinary Capital Loan" - A loan made by Odyssey to the
--------------------------
Partnership pursuant to Section 6.4 on an interest-only basis, for a term of
one (1) year from the date advanced, with interest payable thereon at the
Default Rate.
"Extraordinary Distribution" - As defined in Section 8.1(a)(i).
--------------------------
"First Mortgage" - That certain Amended and Restated Land Loan
--------------
Mortgage and Security Agreement, dated as of June 2, 1995, made by the
Partnership to Fleet Bank covering the Project and securing the principal
amount of $26,000,000.
"First Refinancing" - As defined in Section 10.6.2(c)(iii).
-----------------
"Fleet Document" - Any document evidencing or securing the Fleet Loan
--------------
or delivered to Fleet Bank in connection therewith.
"Fleet Loan" - As defined in Section 10.6.4(a).
----------
"Fleet Loan Expenses" - As defined in Section 10.6.4(a).
-------------------
"General Partners" - Reckson, Odyli and any other Person which now or
----------------
hereafter becomes a general partner in the Partnership in accordance with the
terms hereof. Reference to a "General Partner" shall refer to any of the
General Partners.
"general partnership interest" - The interest of a partner as a
----------------------------
general partner in a limited partnership.
"Governmental Authority" - The United States, the State of New York,
----------------------
the County of Nassau, the City of Uniondale, and all departments, boards,
agencies, offices, commissions and other subdivisions thereof, and any
official thereof, and any other governmental, public or quasi-public
authority, or any of the foregoing.
"Ground Lease" - As defined in the definition of "Leasehold".
------------
"Guaranty" - As defined in Section 10.6.5.
--------
"Hedge Costs and Payments" - As defined in Section 10.6.5.
------------------------
"Hedge Instrument" - As defined in Section 10.6.5.
----------------
"HMCC" - As defined in the Recitals.
----
"Immediate Rechler Family" - Any one or combination of Donald
------------------------
Rechler, Roger Rechler, Mitchell Rechler, Gregg Rechler, Scott Rechler, Mark
Rechler, Glenn Rechler or Todd Rechler.
"Indebtedness" - With respect to any Person, without duplication, (a)
------------
all obligations of such Person for borrowed money, (b) all obligations of
such Person evidenced by bonds, debentures, notes or other similar
instruments, (c) all obligations of such Person upon which interest charges
are customarily paid, (d) all obligations of such Person under conditional
sale or other title retention agreements relating to property purchased by
such Person, (e) all obligations of such Person issued or assumed as the
deferred purchase price of property or services, (f) all obligations as
lessee under any lease which shall have been or should be, in accordance with
generally accepted accounting principles, treated as a capital lease, (g) all
reimbursement obligations under letters of credit, surety bonds or similar
obligations, (h) all obligations under swaps, caps or other derivative
instruments, and (i) all obligations under direct or indirect guarantees in
respect of, and all obligations (contingent or otherwise) to purchase or
otherwise acquire, or otherwise to assure a creditor against loss in respect
of, indebtedness or obligations of any other Person of the kinds referred to
in clauses (a) through (h) above.
"Indemnitees" - As defined in Article 20.
-----------
"Independent Appraisal" - As defined in Section 12.4.3.
---------------------
"Key Documents" - All mortgages, deeds of trust and other documents
-------------
evidencing Partnership Indebtedness, leases to which the Partnership is a
party or by which the Partnership is bound, brokerage agreements to which the
Partnership is a party or by which the Partnership is bound, the Management
Agreement, the Construction Agreement, service agreements for the Project,
all permits and licenses relating to the Project, all easements and other
recorded and unrecorded agreements affecting the Project or to which the
Partnership is a party or by which the Partnership is bound and the Ground
Lease.
"Land" - That certain real property located in the City of Uniondale,
----
State of New York and described in Exhibit A attached hereto.
"Leasehold" - The leasehold and other interests of the Partnership in
---------
the Land pursuant to a Lease Agreement (together with all modifications and
amendments thereto, the "Ground Lease") dated November 24, 1981 between the
County of Nassau, as ground lessor, and Reckson Associates, as ground lessee,
which ground lease (i) was assigned by Reckson Associates to HMCC by
instrument dated September 22, 1986 as amended by instrument dated March 1,
1988, and (ii) was assigned by HMCC to the Partnership by instrument dated
December 20, 1993.
"Legal Requirements" - All laws, statutes, or ordinances, including
------------------
building codes, zoning regulations, environmental protection and safety laws,
OSHA requirements, and the orders, rules, regulations, directives and
requirements of any Governmental Authority which are applicable to the
Project; all requirements, obligations, terms, restrictions, provisions and
conditions of all instruments now or hereafter applicable to the Project
whether or not of record; and all rules, regulations and requirements of any
insurance company insuring all or any part of the Project.
"Limited Capital Requirements" - The funds necessary to pay for
----------------------------
Capital Requirements other than (a) the principal amount of any non-recourse
Mortgage Debt which becomes due at its maturity, (b) capital improvements to
the Project (other than those required by any Legal Requirement or made in
connection with any life safety system of the Project or for TI Costs), (c)
Extraordinary Capital Loans at their maturity and (d) Partnership Expenses
that are not of the type or category set forth in the Budget as last in
effect when Reckson was a Managing Partner if and to the extent that the
Partnership shall not have sufficient available Net Ordinary Cash Flow, Cash
Reserves or borrowing capacity under (or the ability to make draws on) the TI
Loan or (to the extent the same relates to TI Costs, TI Reserves) to pay the
same.
"Limited Partners" - Odyssey and any other Person which now or
----------------
hereafter becomes a limited partner in the Partnership in accordance with the
terms hereof.
"Limited partnership interest" - The interest of a partner as a
----------------------------
limited partner in a limited partnership.
"Liquidating Partner" - As defined in Section 15.2.
-------------------
"Lockout Period" - As defined in Section 12.4.1.
--------------
"Losses" - As defined in Section 6.7.
------
"Major Capital Event" - Any extraordinary transaction with respect to
-------------------
the Project which generates cash receipts other than ordinary operating
income, including, without limitation, sales of real or personal property
(other than sales of personal property in the ordinary course of business),
condemnations (and conveyances in lieu thereof), recoveries relating to
damage to the Project, receipts of insurance proceeds relating to damage to
the Project and borrowings.
"Major Decisions" - As defined in Section 10.2.
---------------
"Management Agreement" - That certain management and leasing
--------------------
agreement between Reckson Management Group, Inc. and the Partnership, dated
as of December 21, 1993, and any replacement thereof, as in effect from time
to time, covering the leasing and management of the Project.
"Managing Agent" - The managing agent of the Project under the
--------------
Management Agreement and any successor managing agent as may be appointed in
accordance with Section 10.1.2.
"Managing Partner" - Reckson or any other Partner that becomes the
----------------
Managing Partner in accordance with the terms
"Material Difference" - As defined in Section 12.4.3.
-------------------
"Midland Mortgage" - That certain mortgage dated December 20, 1993,
----------------
made by the Partnership to River Bank America covering the Project and
securing the principal amount of $10,000,000 and assigned to Marine Midland
Bank pursuant to an assignment of mortgage dated June 6, 1996.
"Minimum Gain" - The amount determined by computing with respect to
------------
each nonrecourse liability of the Partnership the amount of gain, if any,
that would be realized by the Partnership if it disposed of the property (in
a taxable transaction) securing such liability in full satisfaction thereof
(and for no other consideration) and by then aggregating the amounts so
computed, as provided in Treasury Regulation Section 1.7042(d).
"Mortgage Debt" - The Current Property Mortgage Debt, the First
-------------
Refinancing or any complete or partial replacement thereof in accordance with
this Agreement, each as then in effect.
"Net Extraordinary Cash Flow" - The amount remaining, if any, after
---------------------------
subtracting from cash receipts arising from a Major Capital Event (i) all
expenses of the Partnership related to such Major Capital Event, including,
without limitation, all Indebtedness of the Partnership actually paid by
reason of the occurrence of such Major Capital Event and (ii) such reasonable
reserves for the business of the Partnership as may be established by the
Managing Partner.
"Net Operating Income" - As of any specified date means the Net
--------------------
Ordinary Cash Flow for the twelve (12) complete calendar months immediately
preceding such date or the Net Ordinary Cash Flow for the twelve (12)
complete calendar months immediately succeeding such date projected in
accordance with the provisions of this Agreement, as the case may be,
modified as follows: (a) in computing Receipts and Partnership Expenses,
rents, real estate taxes, and insurance payments shall be accrued regardless
of when actually paid, but there shall be no straight-lining of rents, (b) in
computing Receipts, there shall be excluded the amount of any net reduction
of Cash Reserves, and (c) in computing Partnership Expenses there shall be
excluded (i) all of the items of the type described in items (c), (h) and (i)
of the definition of Partnership Expenses and, in addition, (ii) all
expenses, costs and charges (whether or not specifically described in items
(a) - (k) of the definition of Partnership Expenses) in connection with any
capital renewal, replacement or improvement to the Project or which are
otherwise required to be capitalized for tax or accounting purposes.
"Net Ordinary Cash Flow" - For any given period of time, the Receipts
----------------------
for such period of time minus the Partnership Expenses for such period of
time. Anything to the contrary contained herein notwithstanding, Net
Ordinary Cash Flow shall be determined using cash basis accounting.
"1993 Partnership Agreement" - As defined in the Recitals.
--------------------------
"NML" - As defined in Section 10.6.2(a).
---
"NML Commitment" - As defined in Section 10.6.2(a).
--------------
"Non-Defaulting Partner" - As defined in Section 14.2.
----------------------
"Nonrecourse Deductions" - For a year or other period, an amount of
----------------------
deductions, losses and Section 705(a)(2)(B) Expenditures equal to the excess,
if any, of the net increase in the amount of Partnership Minimum Gain during
such year, over the aggregate amount of any distributions during such year or
proceeds of a nonrecourse liability that are allocable to an increase in
Partnership Minimum Gain, as provided in Treasury Regulation Section 1.704-
2(c).
"Non-Withdrawn Partner" - As defined in Section 13.3(e).
---------------------
"Notice" - As defined in Article 16.
------
"Odyli" - As defined on page 1 of this Agreement.
-----
"Odyssey" - As defined on page 1 of this Agreement.
-------
"Odyssey Acceleration Election" - As defined in Section 12.4.4.
-----------------------------
"Odyssey Commitment" - As defined in Section 10.6.2(b).
------------------
"Odyssey Contribution Election" - As defined in Section 6.4.4.
-----------------------------
"Odyssey Conversion Event" - Any of the following: (a) if the Odyssey
------------------------
General Partner or the Odyssey Successor becomes Bankrupt, (b) provided no
Conversion Event has previously occurred, if a monetary or material non-
monetary default beyond any applicable notice and grace period or an Event of
Withdrawal occurs with respect to the Odyssey General Partner or the Odyssey
Successor under this Agreement, or (c) a monetary or material non-monetary
default (beyond any applicable notice and grace period) under any instrument
executed (or consented to in writing) by the Odyssey General Partner
evidencing or securing any Indebtedness of the Partnership caused by (i) a
monetary or material non-monetary default by the Odyssey General Partner or
the Odyssey Successor under any instrument executed by the Odyssey General
Partner or the Odyssey Successor or (ii) the occurrence of any event with
respect to the Odyssey General Partner or the Odyssey Successor.
"Odyssey Entities" - Odyli and Odyssey collectively and any Affiliate
----------------
to which either or both transfers all or any part of their Partnership
interest in accordance with Section 12.2(b).
"Odyssey General Partner" - Odyli and any Person to which it
-----------------------
transfers all or any part of its Partnership Interest in accordance with
Section 12.2(a) and is admitted to the Partnership in accordance with Section
12.2(b).
"Odyssey Partnership Interest" - As defined in Section 12.4.1(c).
----------------------------
"Odyssey Partnership Interest Payment Amount" - As defined in Section
-------------------------------------------
12.4.1(c).
"Odyssey Put Notice" - As defined in Section 12.4.1(b).
------------------
"Odyssey Put Right" - As defined in Section 12.4.1(b).
-----------------
"Odyssey Refinancing" - As defined in Section 10.6.2(b).
-------------------
"Odyssey Successor" - Any Person to whom Odyssey's interest in the
-----------------
Partnership is transferred in accordance with this Agreement.
"Odyssey Undistributed Income" - As defined in Section 21.24.2.
----------------------------
"Odyssey's Share" - As defined in Section 8.1(f)(C).
---------------
"Operating Budget" - As defined in Section 9.7(a).
----------------
"Partner Minimum Gain" - Minimum Gain that would result if Partner
--------------------
Nonrecourse Debt were treated as a nonrecourse liability of the Partnership
and the Partnership had no other nonrecourse liabilities.
"Partner Nonrecourse Debt" - Partner nonrecourse debt, as defined in
------------------------
Treasury Regulation Section 1.704-2(b)(4).
"Partner Nonrecourse Deductions" - As defined in Section 73(a).
------------------------------
"Partners" - Reckson, Odyli and Odyssey and any Person who may be
--------
admitted as a successor or additional Partner in accordance with the terms of
this Agreement. Reference to a "Partner" shall refer to any of the Partners.
"Partnership" - As defined in the Recitals.
-----------
"Partnership Accountants" - A firm of independent certified public
-----------------------
accountants which is any of (i) David Berdon & Co., (ii) Ernst & Young LLP,
(iii) a "Big Six" accounting firm selected by the Managing Partner or (iv)
acceptable to all of the General Partners.
"Partnership Act" - The Delaware Revised Uniform Limited Partnership
---------------
Act (6 Del.C. Section 17-101, et seq.) or any successor thereto, as in
------ -- ---
effect from time to time.
"Partnership Attorneys" - Weil, Gotshal & Manges and/or Lazer,
---------------------
Aptheker, Feldman, Rosella & Yedid, LLP and, with respect to the First
Refinancing, Fried, Frank, Harris, Shriver & Jacobson or such other attorneys
as are selected by the Managing Partner.
"Partnership Expenses" - For a given period of time, a sum equal to
--------------------
the aggregate of the expenditures, charges and costs actually paid or
required to be paid during such period of time in accordance with the terms
of this Agreement or otherwise in connection with the business of the
Partnership including, without duplication or limitation:
(a) expenses, costs and charges in connection with the ownership,
operation, management or leasing of all or any portion of the Project;
(b) expenses, costs and charges in connection with the repair,
maintenance, replacement, alteration of or capital improvement to any portion
of the Project, including any casualty or condemnation losses, to the extent
that the losses are not reimbursed during such period by any third party
responsible therefor or through insurance maintained by the Partnership;
(c) all payments of principal and interest on loans (other than
Extraordinary Capital Loans and Capital Loans) to the Partnership;
(d) all sales, payroll, real estate, personal property, occupancy and
other excise, property, privilege or similar taxes and assessments imposed
upon the Partnership or the Project;
(e) utility costs and deposits and other costs and deposits required to
obtain or lease any service or equipment relating to the Project;
(f) management fees, leasing fees and reimbursements payable to the
Managing Agent pursuant to the Management Agreement;
(g) all fees and reimbursements payable to the Construction Manager
pursuant to the Construction Agreement;
(h) leasing expenditures required to be made in connection with any
lease covering space in or at the Project, including leasing commissions due
to brokers other than the Managing Agent, tenant improvements, tenant
allowances and payments, costs incurred in connection with the Partnership
assuming a tenant's lease obligations with respect to other real property and
costs incurred in connection with the Partnership's exercise of a right to
"take-back" space in the Project;
(i) the net increase, if any, in the Cash Reserves during such period
of time;
(j) the fees and expenses of the Partnership Accountants, Partnership
Attorneys, architects, engineers, appraisers, and other professionals
retained by or on behalf of the Partnership in accordance with the terms
hereof; and
(k) all other appropriate and necessary direct costs and expenses of
the Partnership incurred in accordance with this Agreement.
Notwithstanding the foregoing, there shall, however, be excluded from
Partnership Expenses:
(1) all non-cash items such as depreciation;
(2) amounts distributed to the Partners pursuant to this Agreement;
(3) all payments and expenses deducted from the proceeds of a Major
Capital Event to determine the Net Extraordinary Cash Flow;
(4) all payments of principal and interest on Extraordinary Capital
Loans and Capital Loans;
(5) any expense, cost or charge enumerated in clauses (a) through (h),
(j) or (k) above, to the extent such expense, cost or charge was paid from
Cash Reserves; and
(6) any and all expenses of Reckson and the REIT.
"Percentage Interest" - As defined in Section 6.3.
-------------------
"Permitted Transferee" - With respect to Reckson, (x) any Person
--------------------
which succeeds to all or substantially all of the assets of Reckson, whether
by merger, consolidation or acquisition of all or substantially all of the
assets of Reckson and/or the REIT, and (y) any Person which at all times is,
directly or indirectly, wholly-owned by Reckson or such successor. With
respect to Odyssey or Odyli, (i) any Person which succeeds to all or
substantially all of the assets of Odyssey or Odyli, whether by merger,
consolidation or acquisition of all or substantially all of the assets of
Odyssey or Odyli, (ii) any Affiliate of Odyssey or Odyli and (iii) any Person
in which 50% or more of the beneficial interests are owned, directly or
indirectly, by one or more Persons who, as of the date hereof, are
(indirectly, through their interests in Odyssey and/or Odyli) investors in
the Partnership (the "Existing Investors") or any of such Existing Investors'
heirs, estates, legal representatives, successors, family members or trusts
or other fiduciary relationships for the benefit of any of the foregoing
Persons (or for the benefit of any of the foregoing Persons and a charity).
For purposes of clause (ii) a Person shall be deemed an Affiliate of Odyssey
or Odyli if such Person would have been deemed an Affiliate on the date
hereof, regardless of whether Odyssey or Odyli is still in existence or such
Person would be deemed an Affiliate of Odyssey or Odyli at the time of
transfer.
"Person" - Any individual, partnership, trust (including, without
------
limitation, a liquidating trust), corporation, limited liability company,
firm or other entity.
"Pledge Agreement" - The Pledge and Security Agreement dated the date
----------------
hereof pursuant to which Odyssey and Odyli granted the Pledge Lender a first
priority security interest in their Partnership interests.
"Pledge Lender" - Reckson and any assignee of its interest in the
-------------
Pledge Loan permitted under the Pledge Agreement.
"Pledge Loan" - The loan made the date hereof from the Pledge Lender
-----------
to Odyssey and Odyli in the principal amount of $16,990,000.
"Pledge Note" - The promissory note dated the date hereof evidencing
-----------
the Pledge Loan.
"Priority Capital Account Amount" - With respect to Reckson, the then
-------------------------------
existing unreturned balance of its Priority Contribution less amounts of
Losses allocated to Reckson under Section 7.1(b)(ii) plus amounts of Profits
allocated to Reckson under Section 7.1(a)(i)(C).
"Priority Contribution" - $11 million less any amounts distributed
---------------------
from time to time pursuant to Section 8.1(c)(viii).
"Priority Distribution" - As defined in Section 8.1(a)(v).
---------------------
"Profits" - As defined in Section 6.7.
-------
"Project" - The real property consisting of the Leasehold and all of
-------
the buildings and other improvements located thereon, commonly known as the
Omni at Nassau West, together with all rights and appurtenances pertaining to
such real property, including any right, title and interest in and to
adjacent roads, streets, alleys or rights of way and together with all
buildings, improvements, fixtures and equipment now or hereafter located
thereon.
"Purchase Notice" - As defined in Section 13.3(e)(i).
---------------
"Purchase Price" - As defined in Section 13.3(e)(ii).
--------------
"Purchase Response Notice" - As defined in Section 13.3(e)(i).
------------------------
"Qualified Income Offset Amount" - As defined in Section 73(c).
------------------------------
"Receipts" - For any given period of time, a sum equal to the
--------
aggregate of all amounts actually received by or unconditionally made
available to the Partnership from or in respect of the Project or other
property of the Partnership during such period, including, without
limitation:
(a) all rents, percentage rent, expense reimbursements and other
charges received from tenants and other occupants of the Project;
(b) proceeds of rent insurance and business interruption insurance;
(c) all utility or other deposits returned to the Partnership;
(d) interest, if any, earned on tenants' security deposits or escrows
to the extent unconditionally retained and security deposits to the extent
applied pursuant to the provisions of the applicable leases;
(e) interest, if any, earned and available to the Partnership on any
Cash Reserves or other Partnership funds, or on any escrow funds deposited by
the Partnership with others;
(f) the amount of any net reduction of Cash Reserves, other than to pay
Partnership Expenses; and
(g) revenue (other than receipts from a Major Capital Event) received
by the Partnership from any other source.
Notwithstanding the foregoing, Receipts shall not include (w) amounts
contributed or loaned by the Partners pursuant to this Agreement, (x) each
tenant's security deposit and interest thereon, if any, as long as the
Partnership has a contingent legal obligation to return that deposit or such
interest thereon and (y) amounts arising from a Major Capital Event.
"Rechler Family" - Any of the Immediate Rechler Family, any children
--------------
or grandchildren of any of the Immediate Rechler Family, any trust
established for the benefit of any of the Immediate Rechler Family or any
trust established for the benefit of the grandchildren or children of any of
the Immediate Rechler Family.
"Recipient" - As defined in Section 12.4.3.
---------
"Recipient's Appraisal" - As defined in Section 12.4.3.
---------------------
"Reckom" - As defined in the Recitals.
------
"Reckson" - As defined on page 1 of this Agreement.
-------
"Reckson Call Notice" - As defined in Section 12.4.1(a).
-------------------
"Reckson Call Right" - As defined in Section 12.4.1(a).
------------------
"Reckson Claims" - As defined in Section 12.4.6.
--------------
"Reckson Default" - As defined in Section 12.4.6.
---------------
"Reckson Entities" - Reckson, Reckom and HMCC collectively and any
----------------
Affiliate to which any such Person transfers all or any part of its
Partnership interest in accordance with Section 12.2(a) and is admitted to
the Partnership pursuant to Section 12.2(b).
"Reckson Equalization Payment" - As defined in Section 10.6.5.
----------------------------
"Reckson Fleet Loan Indemnity Expenses," - As defined in Section
-------------------------------------
10.6.4(a).
"Reckson Hedge Indemnity" - As defined in Section 10.6.5.
-----------------------
"Reckson TI Loans" - All Capital Loans made by Reckson in respect of
----------------
TI Costs.
"Reckson Undistributed Income" - As defined in Section 21.24.1.
----------------------------
"Reckson's Share" - As defined in Section 8.1(f)(C).
---------------
"Refinance" - To effect a Refinancing.
---------
"Refinancing" - Any amendment, modification, replacement, renewal, or
-----------
extension of all or a portion of any Partnership Indebtedness.
"Refinancing Appraisal Date" - As defined in Section 10.6.2(c)(iii).
--------------------------
"Refinancing Guidelines" - As defined in Section 10.6.2(c).
----------------------
"Regular Capital Account Amount" - The excess at a given time of (i)
------------------------------
a Partner's Adjusted Capital Account Amount over (ii) the aggregate of such
Partner's Additional Capital Account Amount and Priority Capital Account
Amount.
"REIT" - Reckson Associates Realty Corp., a Maryland corporation.
----
"Responsible Partner" - As defined in Section 12.3.1(a)(ii).
-------------------
"Restoration Obligation" - For a Partner at a given time, an amount
----------------------
equal to the sum at such time, of (i) such Partner's allocable share (as
determined under Section 752 of the Code) of any recourse indebtedness of the
Partnership which could not be repaid out of the Partnership's assets if all
such assets were sold at their respective Carrying Values, (ii) any
unconditional obligation of such Partner to contribute additional amounts to
the capital of the Partnership in the future (to the extent not previously
taken into account in determining such Partner's share of recourse
liabilities of the Partnership) and (iii) such Partner's share of Minimum
Gain and share of Partner Minimum Gain.
"Sale Transaction Costs" - All costs that would be incurred in
----------------------
connection with the sale in question, including, without limitation, brokers'
commissions, gains and transfer taxes, legal, accounting and other
professional fees and expenses, title insurance costs, recording fees, the
cost of environmental and engineering reports and all other customary costs
of effectuating, documenting and closing a sale (as conclusively determined
by the Partnership Accountants).
"Section 705(a)(2)(B) Expenditure" - An expenditure of the
--------------------------------
Partnership (as described in Section 705(a)(2)(B) of the Code) which is
neither deductible in computing taxable income nor properly chargeable to
capital account, and any other expenditure considered to be such an
expenditure pursuant to Treasury Regulation Section 1.7041-1(b)(2)(4)(h)(i).
"Security Account" - As defined in Section 9.6.
----------------
"Sender" - As defined in Section 12.4.3.
------
"Sender's Appraisal" - As defined in Section 12.4.3.
------------------
"Share" - Either of Odyssey's Share or Reckson's Share.
-----
"Special Odyssey Partnership Interest Payment Amount" - As defined in
---------------------------------------------------
Section 12.4.6.
"Substitute Interest Rate Cap" - As defined in Section 10.6.5.
----------------------------
"Substitute Interest Rate Swap" - As defined in Section 10.6.5.
-----------------------------
"TI Costs" - Costs of tenant space installations, leasing
--------
commissions, legal fees for lease negotiations, or any other payment to be
made in connection with the leasing or releasing of space.
"TI Loan" - A loan in the maximum principal amount of $7,000,000 made
-------
by Fleet Bank to the Partnership to fund the cost of tenant improvements,
leasing commissions and other costs incurred in leasing the space at the
Property which was vacant and available for leasing as of December 15, 1994
secured by that certain Amended and Restated Building Costs Mortgage and
Security Agreement, dated as of the date hereof, made by the Partnership to
Fleet Bank.
"TI Reserve" - As defined in Section 6.3.
----------
"TI Reserve Account" - As defined in Section 6.3.
------------------
"Transaction Costs" - All costs that would be incurred in connection
-----------------
with any refinancing of the Mortgage Debt, including, without limitation,
commitment fees, deposits, origination fees, brokers' commissions, gains and
transfer taxes, legal, accounting and other professional fees and expenses,
title insurance costs, recording fees, the cost of environmental and
engineering reports and all other customary costs of effectuating,
documenting and closing a refinancing (as conclusively determined by the
Partnership Accountants).
"Transferee" - As defined in Section 12.2(a).
----------
"Transferor" - As defined in Section 12.2(a).
----------
"Unites" - "Partnership Units" of "Limited Partner Interests" as such
------
terms are defined in the Reckson L.P. Agreement.
"Withdrawn Partner" - As defined in Section 13.2.
-----------------
ARTICLE 2
FORMATION AND CONTINUATION
2.1.Formation and Continuation of Partnership. The Partnership,
-----------------------------------------
previously formed under the Partnership Act, is hereby continued upon the
terms and conditions set forth below.
2.2.Statement of Partnership. Concurrently with the execution of
------------------------
this Agreement, the Partners shall execute and acknowledge, and the Managing
Partner shall promptly file or record with the proper offices in each
jurisdiction and political subdivision in which the Partnership does
business, and if necessary or desirable, cause to be published, such
certificates or amended certificates, if any, as are required or permitted by
the Partnership Act, or any fictitious name act, or act relating to
qualification to do business, or similar statute or any rule or regulation in
effect in such jurisdiction or political subdivision. The Partners shall
further execute and acknowledge and the Managing Partner shall promptly file
or record such amended certificates or additional certificates or instruments
of whatever nature as may from time to time be called for or required by such
statutes, rules or regulations to permit the continued existence and
operation of the Partnership.
ARTICLE 3
NAME AND PLACE OF BUSINESS; REGISTERED OFFICE
3.1.Name, Place of Business and Office. The business of the
----------------------------------
Partnership shall be conducted under the firm name "Omni Partners, L.P.", or
such other name as the Partners may agree upon. The principal place of
business of the Partnership shall be at 225 Broadhollow Road - CS5431,
Melville, New York 11747, or such other place in New York City or Nassau or
Suffolk County as the Managing Partner shall determine.
3.2.Registered Office and Registered Agent. The address of the
--------------------------------------
registered office and the name and address of the registered agent for
service of process on the Partnership in the state of Delaware is The
Prentice-Hall Corporation System, Inc., 32 Lockerman Square, Suite L-100,
Dover, Kent County, Delaware 19904.
ARTICLE 4
PURPOSES
The sole purposes of the Partnership shall be to own, hold, maintain,
operate, use, lease, finance and sell the Project or any portion thereof, and
to do all other things reasonably incident thereto, in accordance with the
terms of this Agreement. The Partnership shall not acquire any land or
interest therein in addition to the Project nor further improve, develop,
renovate (except for repairs in the ordinary course of business), or expand
the Project. Except as herein expressly provided and to the extent required
by applicable Legal Requirements, no easement; restrictive covenant or other
encumbrance or title condition shall be placed on any part of the Project and
no existing easement, restrictive covenant or other encumbrance or title
condition shall be modified, provided that the Managing Partner may grant or
modify utility or similar easements to the extent necessary to provide
services to the Project.
ARTICLE 5
TERM
5.1.Term. The term of the Partnership shall continue until December
----
31, 2043, unless sooner terminated pursuant to the provisions hereof.
5.2.No Termination, etc. Except as specifically provided in this
--------------------
Agreement:
(a) the Partners shall continue as Partners hereunder;
(b) no Partner shall terminate or attempt to terminate this Agreement
or voluntarily take any action which would result in such termination; and
(c) no Partner shall file for, pursue or seek any partition of the
Project or other assets of the Partnership.
ARTICLE 6
PERCENTAGE INTERESTS;
CAPITAL CONTRIBUTIONS; TI RESERVE; CAPITAL ACCOUNTS
6.1.Initial Contribution of Reckom, HMCC, Odyli and Odyssey. As
-------------------------------------------------------
provided in the Existing Partnership Agreement and the 1993 Partnership
Agreement, Odyli, Odyssey and Reckson have previously made contributions to
the Partnership, and Reckson has succeeded to the right, title and interest
in the initial contributions of Reckom and HMCC.
6.2.Percentage Interests. As of the date hereof, the "Percentage
--------------------
Interest" of (a) Odyli, as a General Partner, is .5 %, (b) Odyssey, as a
Limited Partner, is 39.5 % and (c) Reckson, as a General Partner, is 60%,
subject in each instance, however, to adjustment as provided in Section
6.4.4.
6.3.TI Reserve. On the date hereof the Managing Partner shall
----------
establish a "TI Reserve Account" at a bank selected by the Managing Partner.
The TI Reserve Account shall be kept separate from other accounts of the
Partnership and shall be interest-bearing. At any time and from time to time
during which the amount (including accrued interest) on deposit in the TI
Reserve Account (herein, the "TI Reserve") is less than $2.5 million, amounts
which would otherwise be distributed to the Partners under Section 8.1 shall,
to the extent provided in such Section, be deposited into the TI Reserve
Account. Although the TI Reserve shall be Partnership property, the Managing
Partner shall separately record on the books and records of the Partnership
the amounts deposited by or on behalf of each of the Reckson Entities and the
Odyssey Entities in the TI Reserve Account and the interest earned on account
of the amounts deposited by each of the Reckson Entities and the Odyssey
Entities. Funds in the TI Reserve Account shall only be withdrawn as
follows:
(A)to pay TI Costs incurred by the Partnership after the date hereof, in
which event the amount of the withdrawal shall be debited against Reckson's
Share and Odyssey's Share in accordance with the Correct Ratio;
(B)if all accrued and unpaid Current Interest and Deferred Interest under the
Pledge Note is not paid on any "Interest Payment Date" (as defined in the
Pledge Note) from distributions of Net Ordinary Cash Flow or Net
Extraordinary Cash Flow (other than Extraordinary Distributions and
distributions in respect of the First Refinancing or Extraordinary Capital
Loans), and the Odyssey Entities fail to pay the shortfall from other funds,
then to pay to Pledge Lender an amount (which shall be debited against
Odyssey's Share) equal to the lesser of (x) Odyssey's Share and (y) such
shortfall;
(C)as provided in Section 14.3, in which event the amount of the withdrawal
shall be debited against the Share of the Defaulting Partner; or
(D)if the Pledge Loan is accelerated, then to pay to Pledge Lender an amount
(which shall be debited against Odyssey's Share) equal to the lesser of (x)
Odyssey's Share and (y) the amount owed under the Pledge Loan.
6.4.Loans/Additional Contributions.
------------------------------
6.4.1The Managing Partner shall promptly provide notice to the Partners
of any Capital Requirement and the nature thereof, including without
limitation as to whether the same relates to a TI Cost. The Odyssey Entities
shall not be required to make any contributions or loans to the Partnership
on account of any Capital Requirement unless they so elect. If the Odyssey
Entities elect to make a contribution to the Partnership on account of any
Capital Requirement, then each Partner shall make a contribution (each, an
"Additional Contribution") to the Partnership on account of such Capital
Requirement in proportion to their respective Percentage Interests within
thirty (30) days (or any shorter period (but not less than ten (10) business
days) as may be required under the circumstances) following the giving of
notice by the Managing Partner of such Capital Requirement. In no event
shall the Odyssey Entities' Percentage Interests, share of Profits or Losses
or distribution of Net Ordinary Cash Flow or Net Extraordinary Cash Flow be
reduced or diminished by reason of any contributions or loans made by Reckson
on account of any Capital Requirement nor shall the Capital Accounts of the
Odyssey Entities be adjusted as a result of their election not to make any
contribution or loan to the Partnership on account of any Capital
Requirement.
6.4.2(a)If (i) the Managing Partner provides notice to the Partners of a
Capital Requirement and (ii) the Odyssey Entities elect not to contribute
their respective Percentage Interests of such Capital Requirement to the
Partnership, then Reckson shall make a Capital Loan to the Partnership of the
entire amount of such Capital Requirement (i.e., the amount thereof allocated
to both Reckson and the Odyssey Entities).
(b)Notwithstanding the foregoing Section 6.4.2(a), if (i) Reckson's
interest in the Partnership shall have been converted into a limited
partnership interest pursuant to Section 10.7 prior to the date on which the
Managing Partner provides notice to the Partners of a Capital Requirement and
(ii) the Odyssey General Partner is the sole Managing Partner of the
Partnership, then, during any such period when Reckson is a Limited Partner
(x) Reckson shall only be obligated to make Capital Loans to the Partnership
pursuant to Section 6.4.2(a) if such Capital Requirement is a Limited Capital
Requirement, in which case Reckson and the Odyssey Entities shall each make a
Capital Loan to the Partnership on account of such Limited Capital
Requirement in accordance -with their respective Percentage Interests within
thirty (30) days (or any shorter period (but not less than ten (10) days) as
may be required under the circumstances) following the giving of notice by
the Managing Partner of such Limited Capital Requirement and (y) if such
Capital Requirement is not a Limited Capital Requirement, Reckson shall not
be obligated to make a Capital Loan to the Partnership on account of such
Capital Requirement and the Odyssey Entities may elect, in their sole
absolute discretion, to make a Capital Loan to the Partnership of all or any
portion of such Capital Requirement.
6.4.3Any amounts contributed by a Partner to the Partnership on account
of any Capital Requirements pursuant to this Section 6.4 shall be treated as
a capital contribution to the Partnership, but such contributions shall not
increase such Partner's Percentage Interest, share of Profits and Losses, or
distribution of Net Ordinary Cash Flow or Net Extraordinary Cash Flow, except
as otherwise provided in Section 6.4.4.
6.4.4If at any time or times Reckson shall fail to timely make any loan
or capital contribution to the Partnership which Reckson is obligated to make
under this Section 6.4, and such failure shall continue for a period of five
(5) business days after notice of such failure from another Partner, Reckson
shall be deemed to be a "Defaulting Partner" under Article 14. In addition
to any remedies the Odyssey Entities may have elsewhere under this Agreement,
Odyssey may, but shall not be required to, elect to (i) make an Extraordinary
Capital Loan to the Partnership for all or any portion of the amount which
Reckson failed to loan or contribute to the Partnership and/or (ii) to the
extent not so loaned to the Partnership by Odyssey, contribute all or any
portion of such amount which Reckson failed to loan or contribute to the
Partnership (each, an "Odyssey Contribution Election"), and the making of
either/or both of such elections shall not be deemed to cure such default by
Reckson. If Odyssey makes an Odyssey Contribution Election and contributes
capital to the Partnership in accordance with this Section 6.4.4, (x) the
Percentage Interest of Reckson shall be decreased immediately thereafter by
that number of percentage points equal in amount to the quotient (expressed
as a percentage) of the amount so contributed by Odyssey divided by the total
amount of the Capital Accounts (minus the amount of the Priority
Contribution) of all of the Partners on the date hereof plus the entire
amount of all contributions made by any Partner after the date hereof through
and including the date of such Odyssey Contribution Election and after giving
effect thereto) and (y) the Percentage Interest of Odyssey shall be increased
by the same number of percentage points.
6.4.5No Partner shall be obligated to make any capital contributions to
the Partnership except as set forth in this Article 6. Any election on the
part of the Odyssey Entities not to contribute any amounts requested to be
contributed in accordance with this Section 6.4 (other than as expressly
provided in Section 6.4.2(b)) shall not constitute a default or Event of
Default hereunder or give rise to any right or remedy on the part of Reckson.
6.5.Capital Accounts.
----------------
6.5.1Each Partner shall have a capital account (a "Capital Account")
equal to its Capital Account on the date immediately prior hereto.
6.5.2Each Partner's Capital Account shall be maintained and adjusted in
accordance with Treasury Regulations Sections 1.704-1(b) and 1.704-2.
Consistent with such Regulations, (a) there shall be credited to each
Partner's Capital Account: (i) the amount of any cash and the fair market
value of any property contributed by such Partner to the capital of the
Partnership, (ii) such Partner's share of Profits (as determined in
accordance with Section 7.1), and (iii) any items of income or gain allocated
to such Partner pursuant to any provision of Section 7.3; and (b) there shall
be charged against each Partner's Capital Account: (i) the amount of all cash
distributions to such Partner (other than any amounts treated as guaranteed
payments), (ii) the fair market value of any property distributed to such
Partner by the Partnership (net of any liability secured by such property
that the Partner is considered to assume or take subject to under Section 752
of the Code), (iii) such Partner's share of Losses (as determined in
accordance with Section 7.1), and (iv) any items of loss, deduction or
Section 705(a)(2)(B) Expenditures allocated to such Partner pursuant to any
provision of Section 7.3. Any liabilities of a Partner assumed by the
Partnership and any liabilities of the Partnership assumed by a Partner shall
be treated in a manner consistent with Treasury Regulation Section
1.7041(b)(2)(iv)(c).
6.5.3Except as otherwise provided in this Agreement, whenever it is
necessary to determine the Capital Account of any Partner, the Capital
Account of such Partner shall be determined after giving effect to all
allocations pursuant to Article 7 and all distributions in respect to
transactions effected before the date as of which such determination is to be
made.
6.5.4Except as otherwise set forth in Section 6.4, no Partner with a
negative balance in its Capital Account shall have any obligation to the
Partnership or the other Partners to restore such negative balance.
6.5.5The transferee of any Partnership interest transferred in
accordance with the terms of this Agreement shall succeed to the Capital
Account of the transferor to the extent it relates to the transferred
interest.
6.5.6If the Partnership at any time distributes any of its assets in-
kind to any Partner, the Capital Accounts of the Partners shall be adjusted
to account for the Partners' allocable shares (as determined, in each case,
in accordance with Article 7) of Profits or Losses that would have been
realized by the Partnership had it sold the distributed assets at their
respective fair market values immediately prior to their distribution.
6.5.7In the event that the Partnership makes an election under Section
754 of the Code, the amounts of any adjustments to the bases (or Carrying
Values) of the assets of the Partnership made pursuant to Section 743 of the
Code shall not be reflected in the Capital Accounts of the Partners, but the
amounts of any adjustments to the bases (or Carrying Values) of the assets of
the Partnership made pursuant to Section 734 of the Code as a result of the
distribution of property by the Partnership to a Partner (to the extent that
such adjustments have not previously been reflected in the Partners' Capital
Accounts) shall (i) be reflected in the Capital Account of the Partner
receiving such distribution in the case of a distribution in liquidation of
such Partner's interest in the Partnership and (ii) otherwise be reflected in
the Capital Accounts of the Partners in the manner in which the unrealized
income and gain that is displaced by such adjustments would have been shared
had the property been sold at its Carrying Value immediately prior to such
adjustments.
6.5.8Immediately prior to any Partner making a capital contribution, at
the election of such Partner, the Capital Accounts of all Partners shall be
adjusted (pursuant to Treasury Regulation Section 1.704-1(b)(2)(iv)(f))
upward or downward to reflect any unrealized gain or loss attributable to
each Partnership property, as if such unrealized gain or loss had been
recognized upon an actual sale of each Partnership property for its fair
market value, immediately prior to such distribution or issuance, and had
been allocated to the Partners at such time pursuant to Article 7.
6.5.9Upon the withdrawal of a Partner requiring a payment to the
Withdrawn Partner under Section 13.3 or 13.4, the Capital Accounts of all
Partners shall be adjusted (pursuant to Treasury Regulation Section 704-
1(b)(2)(iv)(f)) upward or downward to reflect any unrealized gain or loss
attributable to each Partnership property, as if such unrealized gain or loss
had been recognized upon an actual sale of each Partnership property for its
fair market value, at the time of the withdrawal, and had been allocated to
the Partners at such time pursuant to Article 7.
6.6.Limited Partner's Liability. The liability of a Limited Partner,
---------------------------
as such, to make capital contributions to the Partnership, shall be limited
to the amount of capital contributions which it has made and is obligated to
make pursuant to this Article 6. No Limited Partner shall have any further
obligation to contribute money to or in respect of any liability or other
obligation of the Partnership, nor shall any Limited Partner be personally
liable for any liability or other obligation of the Partnership.
Notwithstanding the foregoing two sentences, if the general partnership
interest of Reckson is converted into a limited partnership interest pursuant
to Section 10.7, then Reckson shall remain liable for, and be obligated to
make, all loans and contributions in accordance with Section 6.4 which it was
theretofore obligated to make, subject to the limitation as to Capital Loans
set forth in Section 6.4.2(b).
6.7.Additional Definitions Relating to Allocations. "Profits" and
----------------------------------------------
"Losses" shall mean the taxable income or loss, respectively, for a period as
determined for federal income tax purposes, computed with the following
adjustments:
(a)items of gain, loss and deduction relating to Partnership assets
shall be computed based upon the Carrying Values of the Partnership's assets
rather than upon the assets' adjusted basis for federal income tax purposes;
(b)tax-exempt income received by the Partnership shall be deemed, for
purposes of this definition only, to be gross income;
(c)the amount of any adjustment to the Carrying Value of any asset of
the Partnership pursuant to Section 743 of the Code shall not be taken into
account in computing Profits and Losses;
(d)Section 705(a)(2)(B) Expenditures shall be treated as deductible
expenses;
(e)any items of gross income, gain, loss, deduction or Section
705(a)(2)(B) Expenditures allocated pursuant to any provision of Section 7.3
shall be excluded from the computation of Profits and Losses; and
(f)Nonrecourse Deductions and Partner Nonrecourse Deductions shall be
excluded from the computation of Profits and Losses.
ARTICLE 7
TAX MATTERS; ALLOCATION OF PROFITS AND LOSSES
7.1.Allocations of Profits and Losses. (a) Profits for each fiscal
---------------------------------
period of the Partnership shall be allocated among the Partners in the
following amounts and order of priority:
(i)to the extent Losses have been allocated pursuant to Section 7.1(b) for
any prior period, first (A) to the General Partners to offset any Losses
allocated pursuant to subclause (iv) of Section 7.1(b) not previously
reversed with an allocation of Profits under this subclause (and in
proportion to any Losses so allocated), second (B) to the Partners to offset
any Losses allocated pursuant to subclause (iii) of Section 7.1(b) not
previously reversed with an allocation of Profits under this subclause (and
in proportion to any Losses so allocated), third (C) to Reckson to offset any
Losses allocated pursuant to subclause (ii) of Section 7.1(b) not previously
reversed with an allocation of Profits under this subclause, and fourth (D)
to the Partners to offset any Losses allocated pursuant to subclause (i) of
Section 7.1(b) not previously reversed with an allocation of Profits under
this subclause (and in proportion to any Losses so allocated); and
(ii)thereafter, to the Partners, pro rata in accordance with their Percentage
Interests.
(b)Losses for each fiscal period of the Partnership shall be allocated
among the Partners in the following amounts and order of priority:
(i)first, to the Partners, pro rata in accordance with their Percentage
Interests, until their Regular Capital Account Amounts are reduced to zero;
(ii)second, to Reckson until its Priority Capital Account Amount is reduced
to zero;
(iii)third, to the Partners, pro rata in accordance with their respective
remaining positive Adjusted Capital Account Amounts until their Adjusted
Capital Account Amounts are reduced to zero; and
(iv)thereafter, to the General Partners, pro rata in accordance with their
respective Entity Percentage Interests.
(c)Notwithstanding paragraphs (a) and (b) of this Section 7.1, (i) all
Fleet Loan Expenses and any other loss, cost or expense described in Section
10.6.4(a) payable by Reckson and all Hedge Costs and Payments shall be
allocated exclusively to Reckson and (ii) an amount of gross income equal to
the amount of any Reckson Equalization Payment made to Reckson shall be
allocated to Reckson.
7.2.Tax Allocations. (a) For tax purposes, all items of income, gain,
loss, or deduction shall be allocated to the Partners in the same
manner as are Profits and Losses and any amounts allocated under Section
7.3; provided, however, that if the Carrying Value of any property of the
Partnership differs from its adjusted basis for tax purposes, then items of
income, gain, loss, deduction for tax purposes shall be allocated among the
Partners in a manner that takes account of the variation between the adjusted
basis of the property for tax purposes and its Carrying Value in the manner
provided for under Sections 704(b) and 704(c) of the Code and the related
Treasury Regulations thereunder.
(b)Items of credit shall be allocated among the Partners in the manner
provided in Treasury Regulation Section 1.704-1(b)(4)(ii).
(c)Notwithstanding any other provision hereof, any income from the full
or partial discharge of indebtedness arising prior to the admission of the
Odyssey Entities to the Partnership shall be allocated entirely to Reckson.
(d)Notwithstanding anything to the contrary contained herein, the
Partnership shall continue to allocate to Odyssey amortization deductions
relating to $100,000 of Partnership organization expense currently being
allocated to Odyssey. Such allocations shall have no effect on the Capital
Accounts of the Partners.
7.3.Special Allocations. (a) Allocation of Nonrecourse Deductions
-------------------
and Partner Nonrecourse Deductions. Notwithstanding the provisions of
Section 7.1, and subject to the provisions of subsections (b) and (c) of this
Section 7.3, (i) Nonrecourse Deductions for the year or other period shall be
allocated to the Partners pro rata in accordance with their respective
Percentage Interests, and (ii) items of loss and deductions and Section
705(a)(2)(B) Expenditures attributable, under Treasury Regulation Section
1.704-2(i), to Partner Nonrecourse Debt ("Partner Nonrecourse Deductions")
shall be allocated in accordance with the ratios in which the Partners bear
the economic risk of loss for such debt (as determined pursuant to Treasury
Regulation Section 1.752-2).
(b)Minimum Gain Chargeback. If in any year or other period, there is
-----------------------
a net decrease in the amount of the Partnership's Minimum Gain or in Partner
Minimum Gain, then prior to any allocation pursuant to Section 7.1, each
Partner shall be allocated income and gain for such year or other period
(and, if necessary, for subsequent years) in proportion to, and to the extent
of, the portion of such Partner's share of the net decrease in Minimum Gain
or Partner Minimum Gain during such year or period as determined in
accordance with Treasury Regulation Sections 1.704-2(g) or 1.704-2(i).
(c)Qualified Income Offset. If, during any year any Partner
-----------------------
unexpectedly receives any adjustment, allocation or distribution described in
Treasury Regulation Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6), then items
of income and gain for such year or other period (and if necessary subsequent
years), shall (prior to any allocation pursuant to Sections 7.1 or 7.3(a)) be
allocated to such Partner in an amount equal to its Qualified Income Offset
Amount, if any; provided, however, that an allocation pursuant to this
sentence shall be made only if, and only to the extent that, such Partner
would have a Qualified Income Offset Amount after all other allocations
provided for in this Section 73(c) were tentatively made as if this Section
73(c) were not contained in this Agreement. As used herein, the term
"Qualified Income Offset Amount" for a Partner means the excess, if any, of
(i) the negative balance such Partner has in its Capital Account following
the adjustment, allocation or distribution described in the preceding
sentence over (ii) such Partner's Restoration Obligation. All terms not
otherwise defined shall have the meaning given them under Section 704(b) of
the Code and the related Treasury Regulations.
7.4.Modifications to Preserve Economic Effect. The Partners intend
-----------------------------------------
that allocations of tax items corresponding to allocations under this Article
7 be respected as having substantial economic effect under the Code and the
related Treasury Regulations. If at any time it appears, in the judgment of
the Managing Partner, that such result would not be achieved, including as a
result of a change in the Percentage Interests of the Partners pursuant to
Section 6.4.4, the Partners agree to amend the provisions of this Article 7
to the extent and in such manner as may be necessary to achieve such result,
provided that such amendments shall not, in any event, affect the amounts
distributable to any Partner pursuant to Article 8.
7.5.Other Tax Matters. (a) Notwithstanding anything to the contrary
-----------------
contained herein, for all purposes herein, each Partner's share of "excess
nonrecourse liabilities," as such term is defined in Treasury Regulation
Section 1.752-3(a)(3), shall be the amount of such liabilities multiplied by
its Percentage Interest.
(b)Notwithstanding anything to the contrary contained herein, the AC
Distributions and the Priority Distribution shall be treated as guaranteed
payments under Section 707(c) of the Code, and accordingly, shall be deducted
by the Partnership in calculating Profits and Losses as such amounts accrue
to the benefit of the Partners. Capital Loans and Extraordinary Capital
Loans shall be treated as loans, and Extraordinary Distributions, CL
Distributions and AC Distributions shall be treated as interest payments.
ARTICLE 8
DISTRIBUTIONS
8.1.Distributions of Net Ordinary Cash Flow and Net Extraordinary
-------------------------------------------------------------
Cash Flow.
- ---------
(a) Distribution of Net Ordinary Cash Flow. Except as provided in
--------------------------------------
Section 8.5, all distributions of Net Ordinary Cash Flow with respect to any
calendar year shall be made in the following manner:
(i)to the extent that Odyssey has made any Extraordinary Capital Loans
which remain outstanding, Odyssey shall receive a distribution (the
"Extraordinary Distribution") equal to (x) the principal amount of each of
its outstanding Extraordinary Capital Loans multiplied by (y) the Default
Rate multiplied by (z) a fraction, the numerator of which equals the number
of days in such year that each such Extraordinary Capital Loan was
outstanding and the denominator of which equals 365. In the event there is
insufficient Net Ordinary Cash Flow to pay the entire Extraordinary
Distribution, the unpaid amount thereof shall accrue with interest at the
Default Rate, compounding quarterly. All such accrued, but unpaid, amounts
(together with such accrued, but unpaid, interest thereon, collectively
"Accrued Extraordinary Distributions") shall be payable from subsequent Net
Ordinary Cash Flow distributions as an Extraordinary Distribution;
(ii)to the extent that Odyssey has made any Extraordinary Capital Loans
which remain outstanding, Odyssey shall receive an amount equal to the
principal amount of its then outstanding Extraordinary Capital Loans;
(iii)to the extent that any Partner has made any Capital Loans which
remain outstanding, such Partner shall receive a distribution (the "CL
Distribution") for each such Capital Loan which remains outstanding equal to
(x) the principal amount of such outstanding Capital Loan multiplied by (y)
the Capital Loan Rate multiplied by (z) a fraction, the numerator of which
equals the number of days in such year that such Capital Loan was outstanding
and the denominator of which equals 365. In the event there is insufficient
Net Ordinary Cash Flow to pay the entire CL Distribution, the unpaid amount
thereof shall accrue with interest at the Capital Loan Rate, compounding
quarterly. All such accrued, but unpaid, amounts (together with such
accrued, but unpaid, interest thereon, collectively "Accrued CL
Distributions") shall be payable from subsequent Net Ordinary Cash Flow
distributions as a CL Distribution. If more than one Partner has made
Capital Loans, the CL Distribution will be made on a pro rata basis, in
proportion to the respective outstanding principal amounts of their Capital
Loans. If any Partner holds Capital Loans which bear different interest
rates, such Partner shall apply any CL Distribution distributed to it to the
interest due on each such Capital Loan on a pro rata basis, in proportion to
the respective principal amounts of such Capital Loans;
(iv)to the extent that any Partner has made Additional Contributions
which remain outstanding, each such Partner shall receive a distribution (the
"AC Distribution") for each such Additional Contribution which remains
outstanding equal to (x) the principal amount of such outstanding Additional
Contribution multiplied by (y) the Capital Loan Rate multiplied by (z) a
fraction, the numerator of which equals the number of days in such year that
such Additional Contribution was outstanding and the denominator of which
equals 365. In the event there is insufficient Net Ordinary Cash Flow to pay
the entire AC Distribution, the unpaid amount thereof shall accrue with
interest at the Capital Loan Rate, compounding quarterly. All such accrued,
but unpaid, amounts (together with such accrued, but unpaid, interest
thereon, collectively "Accrued AC Distributions") shall be payable from
subsequent Net Ordinary Cash Flow distributions as an AC Distribution. If
more than one Partner has made Additional Contributions, the AC Distribution
will be made on a pro rata basis, in proportion to their respective
outstanding amounts of Additional Contributions. If any Partner has made
Additional Contributions which bear different interest rates, such Partner
shall apply any AC Distribution distributed to it on a pro rata basis to the
interest due on each such AC Distribution in proportion to their respective
principal amounts;
(v)a distribution (the "Priority Distribution") to Reckson equal to (x)
the outstanding Priority Contribution multiplied by (y) 12% multiplied by (z)
a fraction, the numerator of which equals the number of days in such year
that such Priority Contribution was outstanding and the denominator of which
equals 365. In the event there is insufficient Net Ordinary Cash Flow to pay
the entire Priority Distribution, the unpaid amount thereof shall accrue with
interest at 12% per annum, compounding quarterly. All such accrued, but
unpaid, amounts (together with such accrued, but unpaid, interest thereon,
collectively "Accrued Priority Distributions") shall be payable from
subsequent Net Ordinary Cash Flow distributions as a Priority Distribution;
and
(vi)thereafter, the balance of any remaining Net Ordinary Cash Flow
shall be distributed to the Partners pro rata in accordance with their then
Percentage Interests.
Notwithstanding the foregoing, so long as the Pledge Loan remains
outstanding, distributions of Net Ordinary Cash Flow (other than
Extraordinary Distributions and distributions in respect of the First
Refinancing or Extraordinary Capital Loans) otherwise payable to the Odyssey
Entities in accordance with this Section 8.1(a) shall be applied in
accordance with Section 8.1(f) below.
(b)Net Ordinary Cash Flow. Net Ordinary Cash Flow shall be
----------------------
determined monthly and shall be applied and distributed by the Managing
Partner as provided in Section 8.1(a) on or before the twentieth (20th) day
of the next succeeding calendar month following the end of such month.
Notwithstanding the preceding sentence, which is intended to permit interim
distributions of Net Ordinary Cash Flow, Net Ordinary Cash Flow shall be
ultimately determined on an annual basis, and if the annual audited report of
the Partnership shall show that there was any overdistribution of Net
Ordinary Cash Flow to a Partner, the amount of such overdistribution shall be
deducted from the next distributions of Net Ordinary Cash Flow which such
Partner may be entitled to hereunder. If such annual audited report shall
show that there was an underdistribution of Net Ordinary Cash Flow to a
Partner, such underdistribution shall within thirty (30) days after receipt
of such report be paid to such Partner.
(c)Net Extraordinary Cash Flow. Except as provided in Section 8.5,
---------------------------
and subject to the provisions of paragraph (f) below, all distributions of
Net Extraordinary Cash Flow shall be made in the following manner:
(i)to Odyssey in an amount equal to its then accrued, but unpaid Accrued
Extraordinary Distributions computed through the date of such distribution
hereunder, if any;
(ii)to Odyssey in an amount equal to its then outstanding Extraordinary
Capital Loans, if any;
(iii)to the Partners, on a pro rata basis (in proportion to the
respective outstanding principal amounts of their Capital Loans), in an
amount equal to their then accrued, but unpaid Accrued CL Distributions
computed through the date of such distribution hereunder, if any;
(iv)to the Partners, on a pro rata basis (in proportion to the
respective outstanding principal amounts of their Capital Loans), in an
amount equal to their then outstanding Capital Loans, if any;
(v)to the Partners, on a pro rata basis (in proportion to their
respective outstanding amounts of Additional Contributions), in an amount
equal to the then accrued, but unpaid Accrued AC Distributions computed
through the date of such distribution hereunder, if any;
(vi)to the Partners, on a pro rata basis (in proportion to their
respective outstanding amounts of Additional Contributions), in an amount
equal to their then outstanding Additional Contributions, if any;
(vii)to Reckson in an amount equal to the then accrued, but unpaid
Accrued Priority Distributions computed through the date of such distribution
hereunder, if any;
(viii)to Reckson in an amount equal to the then outstanding amount of
the Priority Contribution; and
(ix)the balance of any remaining Net Extraordinary Cash Flow shall be
distributed to the Partners pro rata in accordance with their then Percentage
Interests.
(d)If any Partner has outstanding Capital Loans and/or outstanding
Additional Contributions which bear different interest rates and there is
insufficient Net Extraordinary Cash Flow to pay the entire amount of accrued
but unpaid Accrued CL Distributions, Capital Loans, Accrued AC Distributions
or Additional Contributions, any amounts distributed to such Partner shall be
applied (i) if received in respect of outstanding Capital Loans and/or
Accrued CL Distributions pro rata in the proportion which the principal
amounts of outstanding Capital Loans bearing different interest rates bear to
each other, and (ii) if received in respect of outstanding Additional
Contributions or Accrued AC Distributions, pro rata in the proportion which
the principal amounts of outstanding Additional Contributions bearing
different interest rates bear to each other.
(e)Net Extraordinary Cash Flow. Net Extraordinary Cash Flow (other
---------------------------
than Net Extraordinary Cash Flow arising from a sale incidental to the
dissolution and liquidation of the Partnership) shall be applied and
distributed by the Managing Partner as provided in Section 8.1(c) promptly
after receipt.
(f)Reference is made to the Pledge Agreement and to the provisions of
Section 6.3 of this Agreement. Pursuant to the terms of the Pledge Agreement
the Odyssey Entities have directed as follows:
(i)any distributions of Net Ordinary Cash Flow or Net Extraordinary Cash
Flow (other than Extraordinary Distributions and distributions in respect of
the First Refinancing or Extraordinary Capital Loans) which the Odyssey
Entities are entitled to receive pursuant to this Section 8.1 shall be
applied to the extent necessary to pay accrued and unpaid Current Interest
and Deferred Interest under the Pledge Note; and
(ii)any distributions of Net Extraordinary Cash Flow (other than
Extraordinary Distributions and distributions in respect of the First
Refinancing or Extraordinary Capital Loans) which the Odyssey Entities are
entitled to receive pursuant to this Section 8.1 remaining after payment of
accrued and unpaid Current Interest and Deferred Interest under the Pledge
Note shall be applied to prepayment of the Pledge Note (without penalty or
premium, except as expressly provided in Section 3 of the Pledge Note).
Distribution to the Odyssey Entities of Net Ordinary Cash Flow (other than
Extraordinary Distributions and distributions in respect of the First
Refinancing or Extraordinary Capital Loans) in excess of accrued and unpaid
Current Interest and Deferred Interest under the Pledge Note are herein
referred to as "Excess Distributions."
Excess Distributions shall be applied as follows:
(A)if there are any outstanding Capital Loans in respect of TI Costs
made by Reckson (other than Capital Loans made pursuant to Section 6.4.2(b)),
the greater of (x) 60% of such Excess Distributions and (y) 60% of Odyssey's
and Odyli's taxable income (for the tax year to which the amount being
distributed is allocated) attributable to Odyssey's and Odyli's interest in
the Partnership shall be applied to repay the principal amount of any Capital
Loans in respect of TI Costs made by Reckson (other than Capital Loans made
pursuant to Section 6.4.2(b)), until the principal amount of such Capital
Loans have been paid in full);
(B)an amount equal to 66 2/3% of the amount, if any, applied to
repayment of Capital Loans in respect of TI Costs made by Reckson pursuant to
subclause (A) shall be distributed to the Odyssey Entities;
(C)if there is any balance of the Excess Distribution remaining' after
payment of the amounts under (A) and (B) above, and the portion of the funds
in the TI Reserve Account deposited by or on behalf of the Odyssey Entities
plus--a interest accrued thereon, less amounts properly
withdrawn from such account and charged against such funds and interest
(herein, "Odyssey's Share") is less than $1 million, 60% of such remaining
Excess Distribution shall be deposited by the Managing Partner (for the
account of the Odyssey Partners) in the TI Reserve until Odyssey's Share of
the funds in the TI Reserve Account equals $1 million provided that
simultaneously therewith Reckson shall deposit (or, if Reckson is not the
Managing Partner, the Managing Partner shall deposit from amounts
distributable to Reckson) in the TI Reserve an amount equal to 150% of the
amount deposited by the Odyssey Entities in the TI Reserve Account until the
portion of the funds in the TI Reserve Account deposited by or on behalf of
Reckson plus interest accrued thereon, less amounts properly
withdrawn from such account and charged against such funds and interest
(herein, "Reckson's Share") equals $1.5 million; and
(D)If there is any balance of the Excess Distribution remaining after
payment of the amounts under subclauses (A), (B) and (C) above, such balance
shall be remitted to the Odyssey Entities.
For purposes of subclause (A) above, Odyssey's and Odyli's taxable
income for a tax year shall be deemed to equal the sum of (1) all items of
income that it is anticipated will appear on the Schedules K-1 for Odyssey
and Odyli of the Partnership's Form 1065 (or any successor information return
or schedule thereof), plus (2) all distributions to Odyssey and Odyli in
excess of their respective tax bases in the Partnership for such tax year.
If the amount of income actually appearing on Odyssey's or Odyli's Schedule
K-1 (or any successor schedule) (the "Actual K-1 Amounts") for any tax year
differs from the amount originally anticipated to appear on such Schedule
pursuant to the immediately preceding sentence, then, to the extent that
using the Actual K-1 Amounts in computing Odyssey's and Odylis' taxable
income would have resulted in Reckson or the Odyssey Entities receiving more
or less of the Excess Distributions for such tax year in accordance with the
provisions of this Section 8.1(f), such overpayment or underpayment shall be
corrected from the next application of Excess Distributions hereunder before
any other application of such Excess Distributions. Notwithstanding the
provisions of subclause (C) above, if pursuant to Section 6.3 funds from the
TI Reserve are properly withdrawn for a reason other than to pay TI Costs and
as a result thereof the ratio of the Reckson Share to the Odyssey Share
ceases to be 1.5 to 1 (the "Correct Ratio") then (I) if funds which were so
withdrawn are debited against the Odyssey Share, then notwithstanding the
provisions of subclause (C) above Reckson shall have no obligation to make
deposits into the TI Reserve Account until the Correct Ratio has been
achieved and (II) if funds which were so withdrawn are debited against the
Reckson Share, Reckson shall immediately deposit an amount such that the
Correct Ratio has been achieved, and until then, in addition to the other
rights and remedies the Odyssey Entities may have, they may suspend making
payments into the TI Reserve and the Odyssey Entities shall be entitled to
receive the amount of such payments which would otherwise be required to be
paid into the TI Reserve by the Odyssey Entities.
8.2.Liquidating Distributions. Subject to Section 15.2, liquidating
-------------------------
distributions (whether of Net Ordinary Cash Flow or Net Extraordinary Cash
Flow) shall be made in the same manner as distributions of Net Ordinary Cash
Flow and Net Extraordinary Cash Flow as provided in Section 8.1; provided,
however, that to the extent funds on deposit in the TI Reserve are available
after payment of Partnership liabilities, the Odyssey Entities shall receive
Odyssey's Share thereof (provided, that if and to the extent that the Pledge
Loan is then outstanding, Odyssey's Share of the TI Reserve shall be paid to
Pledge Lender to the extent necessary to pay the Pledge Loan in full and the
remainder of Odyssey's Share thereof shall be paid to the Odyssey Entities)
and Reckson shall receive Reckson's Share thereof.
8.3.No Restoration of Funds. Except as provided in Section 8.1(b),
-----------------------
no Partner shall be required to restore to the Partnership any funds properly
distributed to such Partner pursuant to any of the provisions of this Article
8 or pursuant to Article 15, unless required by applicable law.
8.4.Limitation on Distributions. No Partner shall be entitled to (a)
---------------------------
receive any distribution from the Partnership (including a withdrawal of any
of such Partner's capital) except pursuant to this Article 8 and Article 15,
(b) receive interest upon any capital contributed to the Partnership except
in accordance with the provisions of this Article 8, or (c) receive property
other than cash in return for such Partner's capital contributions. No
distributions from the Partnership shall be made except as expressly provided
in this Article 8 and Article 15.
8.5.Claims Paid Under Title Insurance Policies. In the event a claim
------------------------------------------
for damages is made by the Partnership under the policy or policies of title
insurance insuring the Partnership's title to the Project, which claim could
have been properly denied or successfully defended based on prior knowledge
of the Reckson Entities, but for which payment is nevertheless made to the
Partnership by reason of the non-imputation endorsement contained in such
policy or policies of title insurance, any such funds paid by the title
insurers shall be paid immediately to the Odyssey Entities (in the proportion
which the Percentage Interest of each such entity bears to the total of the
then Percentage Interests of the Odyssey Entities) and the Reckson Entities
shall not receive any portion thereof. No such payment to the Odyssey
Entities shall be treated as a return of such entities' capital contributions
to the Partnership.
ARTICLE 9
BOOKS OF ACCOUNT; REPORTS; FISCAL YEAR, ETC.
9.1. Books of Account. At all times during the existence of the
----------------
Partnership, the books of account of the Partnership shall be prepared and
kept by the Managing Partner in accordance with generally accepted accounting
principles and procedures applied in a consistent manner, which shall reflect
all Partnership transactions and shall be appropriate and adequate for the
Partnership's business, and which books of account shall be maintained at the
principal place of business of the Partnership. There shall be maintained at
the principal place of business of the Partnership (a) copies of the
Partnership's federal, state and local income tax returns and reports
(including all reporting work papers and documentation), if any, for the six
most recent years, (b) a copy of this Agreement and all amendments thereto
and of any financial statements of the Partnership (including all reporting
work papers and documentation) for the six most recent years and (c) copies
of all Key Documents and other Partnership records, including, without
limitation, the records regarding the TI Reserve required by this Agreement.
Any Partner or its duly authorized representatives shall have the right at
any time to inspect and copy such books and documents during normal business
hours upon reasonable notice. Each Partner and their duly authorized
representatives shall have the right to examine (and copy) or conduct an
audit of the Partnership's books and records at any time during normal
business hours and upon reasonable notice at the Partnership's principal
place of business set forth in Article 3 hereof. Any such examination or
special audit (i.e., audits other than the annual audits for the
Partnership which shall be conducted as of December 31 at the Partnership's
sole cost and expense) shall be performed at such Partner's sole cost and
expense.
9.2. Annual Reports. As soon as practicable after December 31, but
--------------
no later than March 31, the Managing Partner shall deliver to the Partners a
financial report of the Partnership for the preceding fiscal year, including
a balance sheet and a statement of operations, and statements of Partners'
Capital Accounts, changes in financial position, Net Ordinary Cash Flow and
Net Extraordinary Cash Flow, all of which shall be audited by the Partnership
Accountants in accordance with generally accepted auditing standards, and all
of which (except for the reports of Net Ordinary Cash Flow and Net
Extraordinary Cash Flow and other reports prepared on a cash basis) shall be
prepared in accordance with generally accepted accounting principles,
consistently applied. At the request of any Partner made from time to time,
the Managing Partner shall deliver to the Partners as soon as reasonably
practicable (but in any event within thirty (30) days of such request) (a) a
calculation of Net Operating Income for the twelve (12) months immediately
preceding such request and (b) a projection of Net Operating Income for the
twelve (12) months immediately succeeding any date (or dates) specified in
such request (in which rental revenues are projected solely on the basis of
executed leases or occupancy agreements without giving effect to any free-
rent periods thereunder (i.e., during any free-rent periods thereunder all
Persons thereunder shall be deemed to be then paying all rents reserved
thereunder which are subject to such free-rent periods as if the rent
commencement date had already occurred)).
9.3. Reports. Pursuant to the Management Agreement, the Managing
-------
Agent is required to prepare and deliver to the Partnership the quarterly
reports described therein by no later than the dates set forth in the
Management Agreement (which reports shall set forth the expiration dates for
each of the leases, licenses and other occupancy agreements affecting the
Project). Upon the Managing Partner's receipt of such reports from the
Managing Agent, it shall promptly deliver copies of such reports to the other
Partners.
9.4. Fiscal Year. The Partnership's fiscal year shall be the
-----------
calendar year for all operating, audit and accounting purposes including,
without limitation, the reports and Budget referred to in Sections 9.2, 9.3
and 9.7.
9.5. Tax Returns; Tax Matters Partner. The Managing Partner shall
--------------------------------
cause to be prepared by the Partnership Accountants and shall within seventy-
five (75) days after the end of each Partnership fiscal year submit to the
other Partners for their approval a copy of the proposed annual federal and
necessary state or local Partnership tax returns. Such returns (including
all elections made therein) shall be subject to the approval of the General
Partners. The Managing Partner shall cause all tax returns to be timely
filed with the applicable government authorities. Reckson shall be the tax
matters partner (as described in Section 6231(a)(7) of the Code) of the
Partnership provided it is not a Defaulting Partner, and if it is, the
Odyssey General Partner shall be the tax matters partner. The tax matters
partner shall not extend the statute of limitations on behalf of the
Partnership, select the Partnership's choice of litigation forum in any tax
action or take any other action in its capacity as tax matters partner
without the consent of the other General Partners. The tax matters partner
shall keep the other Partners fully advised of the progress of any audit and
shall, promptly upon receipt, supply the other Partners with copies of any
written communications received from the Internal Revenue Service, or other
taxing authority, relating to any audit promptly after receipt thereof, and
shall, at least five (5) business days prior to submitting any materials to
the Internal Revenue Service, or other taxing authority, provide such
materials to the other Partners for their approval. The Partnership will
report the transactions contemplated herein on its tax returns in a manner
consistent with the description of such transactions contained herein.
9.6. Bank Accounts. All funds of the Partnership shall be deposited
-------------
in the Partnership name in one or more separate bank accounts (each, a "Bank
Account") at a bank selected by the Managing Partner. Each General Partner
shall designate two authorized signatories for withdrawals and other
activities in respect of each such Bank Account. Each such Bank Account
shall be used exclusively for Partnership funds and no other funds shall be
commingled therein. Withdrawals may be made from such Bank Account only by
the Managing Partner and only for purposes authorized under this Agreement.
All security deposits shall be deposited in the Partnership name in a
separate bank account ("Security Account") at a bank selected by the Managing
Partner. All withdrawals from the Bank Account or the Security Account shall
be made only upon the signature of an authorized signatory of the Managing
Partner. As used in this Section 9.6, an "authorized signatory" of a General
Partner shall refer, (a) if such General Partner is corporation, to an
officer of such corporation who is in the position of vice-president or
higher in such corporation, (b) if such General Partner is a general or
limited partnership, (i) to an individual general partner thereof or (ii) if
there is a corporate general partner, an officer thereof who is in the
position of vice-president or higher in such corporation.
9.7. Budgets. Pursuant to the Management Agreement, the Managing
-------
Agent is required to prepare and submit to the Partnership by November 30th
of each year for approval by the Managing Partner a proposed pro forma budget
for the operation and maintenance of the Project during the succeeding fiscal
year commencing January 1 and ending December 31 (the "Budget"). The
Managing Partner shall deliver a copy of the proposed Budget to the other
Partners promptly after its receipt thereof. The Budget shall consist of an
operating budget (the, "Operating Budget") and a capital improvements budget
(the "Capital Budget"). The Operating Budget shall show, on a month-by-month
basis, in reasonable detail, each line item of anticipated income and expense
(on a cash and accrual basis), including, without limitation, amounts
required to establish, maintain and/or increase Cash Reserves. The Capital
Budget shall show, on a month-by-month basis, in reasonable detail, each line
item of anticipated capital expenditures. The Budget shall also contain a
statement of the Net Ordinary Cash Flow the Project is expected to generate
during the succeeding calendar year. If the Managing Partner modifies the
Budget during the course of any fiscal year, such modification shall be
included in the next quarterly report delivered to the other Partners
pursuant to Section 9.3. On or before April 1 of each year, the Managing
Partner shall deliver to the other Partners a reasonably detailed comparison
of the Budget for the preceding fiscal year and the actual Partnership
Expenses for such fiscal year. The Managing Partner shall use diligent, good
faith efforts to operate the Project in conformity with the Budget, as
modified from time to time. Nothing in this Section 9.7 shall require the
Managing Partner to obtain the consent of any other Partner to approve or
modify the Budget.
9.8. Partnership Register. The Managing Partner shall keep a
--------------------
register for the Partnership on which the transfer, pledge or release of
partnership interests shall be shown and pursuant to which entries must be
made to effect all transfers, pledges or releases as required by Sections 8-
207, 8-313(l) and 8-321 of the Uniform Commercial Code, as amended, in effect
in the States of New York and Delaware; provided, however, that if there is
any conflict between such requirements, the provisions of the Delaware
Uniform Commercial Code shall govern. The Managing Partner shall (i) place
proper entries in such register clearly showing each transfer and each pledge
and grant of security interest (including, without limitation, the pledge and
grant of security interest by Reckson to the Odyssey Entities and by the
Odyssey Entities to Reckson of their respective partnership interests
pursuant to Section 14.3 hereof and by the Odyssey Entities to Reckson of
their respective partnership interests pursuant to the Pledge) and the
transfer and assignment pursuant thereto, such entries to be endorsed by the
Managing Partner and (ii) maintain the register and make the register
available for inspection by all of the Partners and their pledgees at all
times during the term of this Agreement. Nothing herein shall be deemed a
consent to any pledge or transfer otherwise prohibited under this Agreement.
ARTICLE 10
MANAGEMENT
10.1. Duties and Powers of Managing Partner.
-------------------------------------
10.1.1 General Scope of Duties and Authority. Subject to the
-------------------------------------
provisions of this Article 10 (including, without limitation, Section 10.7),
the Managing Partner shall have the obligation and authority to (a) implement
all Major Decisions approved by the General Partners, (b) conduct (or cause
to be conducted under its supervision) the day-today business and affairs of
the Partnership subject to, and in accordance with, this Agreement, and (c)
perform or observe all of the specific obligations to be performed by the
Managing Partner hereunder. The Managing Partner shall use due care and
shall use its best efforts in performing its obligations hereunder.
10.1.2 Reckson Affiliate as Managing Agent. So long as the
-----------------------------------
Managing Agent is an Affiliate of Reckson:
(a) any default by the Managing Agent under the Management
Agreement shall be deemed a default by Reckson under this Agreement if
(i) except as set forth in subparagraph (ii), such default shall be of
such a nature so as to constitute (v) willful malfeasance, (w) fraud,
(x) embezzlement, (y) theft and/or (z) a violation of the criminal laws
of the State of New York by the Managing Agent, or any of its partners,
principals, agents or employees and if the monies and/or other property
which is the subject of such willful malfeasance, fraud, embezzlement,
theft or other criminal violation shall not be repaid and/or returned to
the Partnership or the Partners, as the case may be, within five (5)
business days following notice thereof to Reckson, or (ii) such default
shall be of the nature described in subparagraph (i) above and such
default was actually committed by the president or an executive vice
president of the corporate general partner of Reckson (or, if there is
no such corporate general partner, the individuals holding equivalent
positions) whether or not such monies and/or property shall have been
paid and/or returned to the Partnership or the Partners;
(b) (i) if the Managing Agent shall default in the performance of
any of its obligations under the Management Agreement beyond any
applicable grace period, (ii) if Reckson is a Defaulting Partner or
(iii) if Reckson is a Withdrawn Partner, then, the Odyssey General
Partner shall have the right, on behalf of the Partnership and without
the consent of any other Partner, to enforce and/or terminate the
Management Agreement subject to and in accordance with the terms
thereof;
(c) if the Management Agreement shall be terminated as a result of
any of the events described in paragraph (b) above, the Odyssey General
Partner shall have the right on behalf of the Partnership, subject to
the consent of Reckson (not to be unreasonably withheld and to be deemed
given if not denied, by notice specifying in reasonable detail the
reason for such denial, within 10 days after request by the Odyssey
General Partner) to appoint a new Managing Agent selected by the Odyssey
General Partner provided that such new Managing Agent shall be of good
character and reputation and shall have been actively involved in the
management of first class suburban office buildings for not less than
the preceding five (5) years, and in such event, the Odyssey General
Partner shall have the sole right to negotiate and determine the terms
of the new Management Agreement provided such terms are no more
favorable to the new Managing Agent than those terms that are then
customary for management agreements with managing agents comparable in
stature and reputation to the Managing Agent appointed for first class
suburban office buildings;
(d) the Odyssey General Partner shall have the sole right on
behalf of the Partnership, without the consent of any other Partner, to
enforce the material obligations of the Managing Agent and/or exercise
any right to terminate the Management Agreement in accordance with the
terms thereof; provided, that if the Odyssey General Partner shall
become the Managing Partner hereunder and shall subsequently become a
Defaulting Partner, then the General Partners (including any Defaulting
Partner) shall have the right to enforce the obligations of the Managing
Agent and/or exercise any right to terminate the Management Agreement in
accordance with the terms thereof; and
(e) the Management Agreement shall not be modified, changed,
amended or renewed (other than any renewal of the Management Agreement
on the same terms and conditions as the existing Management Agreement).
10.1.3 Reckson Affiliate as Construction Manager. So long as
-----------------------------------------
the Construction Manager is an Affiliate of Reckson:
(a) any default by the Construction Manager under the Construction
Agreement shall be deemed a default by Reckson under this Agreement if
(i) except as set forth in subparagraph (ii), such default shall be of
such a nature so as to constitute (v) willful malfeasance, (w) fraud,
(x) embezzlement, (y) theft and/or (z) a violation of the criminal laws
of the State of New York by the Construction Manager, or any of its or
their partners, principals, agents or employees and if the monies and/or
other property which is the subject of such willful malfeasance, fraud,
embezzlement, theft or other criminal violation shall not be repaid
and/or returned to the Partnership or the Partners, as the case may be,
within five (5) business days following notice thereof to Reckson, or
(ii) such default shall be of the nature described in subparagraph (i)
above and such default was actually committed by the president or an
executive vice president of the corporate general partner of Reckson
(or, if there is no such corporate general partner, the individuals
holding equivalent positions) whether or not such monies and/or property
shall have been paid and/or returned to the Partnership or the Partners;
(b) (i) if the Construction Manager shall default in the
performance of any of its obligations under the Construction Agreement
beyond any applicable grace period, (ii) if Reckson is a Defaulting
Partner or (iii) if Reckson is a Withdrawn Partner, then the Odyssey
General Partner shall have the right, on behalf of the Partnership and
without the consent of any other Partner, to enforce and/or terminate
the Construction Agreement subject to and in accordance with the terms
thereof;
(c) if the Construction Agreement shall be terminated as a result
of any of the events described in paragraph (b) above, the Odyssey
General Partner shall have the right on behalf of the Partnership,
subject to the consent of Reckson (not to be unreasonably withheld and
to be deemed given if not denied, by notice specifying in reasonable
detail the reason for such denial, within 10 days after request by the
Odyssey General Partner) to appoint a new Construction Manager selected
by the Odyssey General Partner provided that such new Construction
Manager shall be of good character and reputation and shall have
experience in work similar to the work undertaken to be performed in the
Construction Agreement, and in such event, the Odyssey General Partner
shall have the sole right to negotiate and determine the terms of the
new Construction Agreement provided such terms are no more favorable to
the new Construction Manager than terms that are then customary for
construction and architect's agreements with construction managers
comparable in stature and reputation to the new Construction Manager so
appointed;
(d) the Odyssey General Partner shall have the sole right on behalf
of the Partnership, without the consent of any other Partner, to enforce
the obligations of the Construction Manager and/or exercise any right to
terminate the Construction Agreement in accordance with the terms
thereof; provided, that if the Odyssey General shall become the Managing
Partner hereunder and shall subsequently become a Defaulting Partner,
then the General Partners (including any Defaulting Partner) shall have
the right to enforce the obligations of the Construction Manager and/or
exercise any right to terminate the Construction Agreement in accordance
with the terms thereof, and
(e) the Construction Agreement shall not be modified, changed,
amended or renewed.
10.2. Major Decisions. No act shall be taken, sum expended or
---------------
obligation incurred by the Managing Partner within the scope of the major
decisions expressly set forth below (collectively, the "Major Decisions")
unless such Major Decision has been approved by all of the General Partners.
The Major Decisions shall be:
(a) any selection of a replacement Managing Agent or Construction
Manager or the determination of the terms of any replacement Management
Agreement or Construction Agreement (except as otherwise specifically
provided in Section 10.1), which approvals shall not be unreasonably
withheld;
(b) any material modification, change or amendment to, or
termination or cancellation of, any mortgage, deed of trust or other
document evidencing Partnership Indebtedness (except in connection with
a refinancing of Mortgage Debt which shall be governed by Section 10.6
below), or the approval of or consent to any material matter under any
of the foregoing documents;
(c) modifying, amending or otherwise taking any action under the
Ground Lease, if any such modification, amendment or action is, or could
be deemed to be, a disposition of Partnership property or substantially
equivalent thereto; provided, that in no event shall the Odyssey General
Partner have any approval rights with respect to any amendment or
modification of the Ground Lease required by NML in connection with the
First Refinancing;
(d) any material tax election (including, without limitation, the
making of an election under Section 754 of the Code); the selection of
accounting methods or the material variation of existing accounting
methods (but only to the extent such accounting methods could affect the
tax position of the Partnership or any of its Partners); provided, that
the selection or variation of generally accepted accounting principles
shall not constitute a Major Decision so long as the same could not
affect the tax position of any of the Odyssey Entities;
(e) any other action with respect to any matter which, pursuant to
the express provisions of this Agreement, requires the approval, consent
or agreement of all of the General Partners;
(f) determination of the maximum and minimum requirements for any
reserve upon dissolution and liquidation of the Partnership;
(g) any direction to the Managing Agent to perform any service for
which the Managing Agent is entitled to or will charge additional fees;
(h) all environmental matters requiring remediation estimated to
cost in excess of $ 100,000 and for which there is, or may be, a
recourse claim against any of the Odyssey Entities (including, without
limitation, Odyli in its capacity as a general partner of the
Partnership); or
(i) the sale, or other disposition of all or any portion of the
Project except in accordance with the provisions of Sections 10.6 and
12.4.6 of this Agreement, or incurrence of any Partnership Indebtedness
except in accordance with the provisions of Sections 6.4 and 10.6.
The General Partners agree that they shall use their good faith efforts
to expeditiously resolve any disputes regarding proposed Major Decisions;
provided, that failure of the General Partners to agree with respect to any
Major Decision shall constitute disapproval of such Major Decision and any
such dispute shall not be arbitrated.
10.3. Employment of Agents, etc.
--------------------------
(a) Subject to the provisions of Section 10.2 and to paragraphs
(b) and (c) below, the Managing Partner may employ, on behalf of the
Partnership, such firms or corporations as it shall deem advisable for the
operation of the Partnership and, on such terms and for such compensation as
the Managing Partner shall determine, provided such terms are reasonable, and
provided further that such services are reasonably necessary and customary.
(b) Except for the Management Agreement and the Construction
Agreement, no Partner shall enter into any agreement or other arrangement for
the furnishing to or by the Partnership of goods or services (including any
construction work) with any Person which is an Affiliate of such Partner or
any partner of such Partner (or permit the Managing Agent to enter into any
such agreement or arrangement with any person which is an Affiliate of such
Partner or of any partner of such Partner or of such Managing Agent) unless
such agreement or arrangement has been approved by the General Partners after
the nature of the relationship or affiliation and the terms of such agreement
or arrangement have been disclosed in writing. Notwithstanding the
foregoing, the REIT, Reckson and/or any Affiliates thereof (including the
Construction Manager and the Managing Agent) may lease up to 25,000 rentable
square feet of space at the Project, in the aggregate, for their own use
provided such lease reflects, in the Odyssey General Partner's judgment,
market terms and conditions.
(c) The Managing Partner shall employ, on behalf of the
Partnership, the Partnership Attorneys and the Partnership Accountants and no
other Person shall be retained to provide legal or accounting services to the
Partnership.
10.4. Time Devoted by General Partners;. Compensation of Partner.
----------------------------------------------------------
Each General Partner shall devote such time to the Partnership as is
reasonably necessary to perform its obligations hereunder. Except as
otherwise expressly provided herein, the Partners shall not be entitled to
any salary or other compensation from the Partnership except for their
respective distributions as set forth in Articles 8 and 15.
10.5. Powers of General and Limited Partners.
--------------------------------------
10.5.1 Subject to the provisions of this Article 10 and the
other provisions of this Agreement, the General Partners shall have the
exclusive right, power and authority to conduct the business of the
Partnership and, except as otherwise expressly provided herein, shall possess
the same rights and powers as general partners in a general partnership
formed under Delaware law. Except where the Partnership Act expressly
provides to the contrary, all decisions of the Partnership made by the
General Partner or those General Partners entitled to make such decision
under the terms of this Agreement shall be binding on the Partnership and
each of the Partners.
10.5.2 To the extent permitted by law, each General Partner may
execute for and on behalf of the Partnership any documents or instruments in
connection with any transactions permitted by this Agreement and approved by
any Partner whose approval is required hereunder. Nevertheless, if a General
Partner requests, any of the other Partners will execute and deliver within
ten (10) business days following request any instruments the General Partner
may reasonably require to confirm its authority hereunder.
10.5.3 The General Partners shall use their best efforts to
cause the Partnership to do or refrain from doing such acts as shall be
required by the Partnership Act in order to preserve the valid existence of
the Partnership as a Delaware limited partnership and the limited liability
of the Limited Partners.
10.5.4 A Limited Partner in its capacity as a limited partner,
shall have no right to, and shall not, take part in the management or control
of the Partnership's business or act for or bind the Partnership, except that
each Limited Partner shall have the rights and powers granted to Limited
Partners hereunder or under the Partnership Act.
10.5.5 For the avoidance of doubt, each Partner agrees that any
action taken by a Partner in accordance with the terms of this Agreement in
its capacity as General Partner or Managing Partner during the period it is
properly acting as such shall be binding upon the Partnership notwithstanding
that such Partner subsequently loses such capacity.
10.6. Sale and Refinancing
--------------------
10.6.1 Managing Partner's Authority.
----------------------------
(a) Unless and until the Lockout Period has expired, the Managing
Partner shall have no right to sell, or otherwise dispose of all or any
portion of the Project (or enter into any agreement with respect thereto)
without the consent of the Odyssey General Partner. Thereafter, subject to
the provisions of Section 12.4.6, the Managing Partner shall have the sole
authority to enter into any agreement to sell (and to consummate such
agreement to sell) all (but not less than all) the Project. Notwithstanding
the foregoing, each General Partner shall have the right to fully participate
in the negotiation of any agreement to sell the Project.
(b) Subject to the rights provided to the Odyssey General Partner
set forth in Section 10.6.2 below (which shall apply only if the Odyssey
General Partner is not the sole Managing Partner), the Managing Partner shall
have the sole authority to refinance the then existing Mortgage Debt.
10.6.2 First Refinancing.
-----------------
(a) The Managing Partner shall use its best efforts to Refinance
the Current Property Mortgage Debt with Northwestern Mutual Life Insurance
Company ("NML") in accordance with the terms and conditions of the NML
commitment letter dated December 2, 1996 (the "NML Commitment") and in a
manner consistent with the Refinancing Guidelines. If the Managing Partner
is unable to Refinance the Current Property Mortgage Debt with NML in
accordance with the NML Commitment, the Managing Partner may seek to
Refinance such debt on or before December 31, 1997 with another lender,
provided that such Refinancing satisfies the Refinancing Guidelines.
(b) If the Managing Partner is unable to Refinance the Current
Property Mortgage Debt on or before December 31, 1997 in accordance with
paragraph (a) above, the Odyssey General Partner may at any time during 1998
elect, by notice given to the Managing Partner, to seek to Refinance all or
part of the Current Property Mortgage Debt in an aggregate principal amount
of up to $58 million upon terms which satisfy the Refinancing Guidelines (an
"Odyssey Refinancing"). Such financing or refinancing may differ from the
Refinancing contemplated by the NML Commitment. If the Odyssey General
Partner so elects, the Managing Partner shall not seek to effectuate a
Refinancing until the earliest to occur of (i) the later of (A) January 1,
1999 and (B) 180 days after the entering into of the Odyssey Commitment, in
either case without an Odyssey Refinancing having occurred, (ii) the closing
of an Odyssey Refinancing, and (iii) the Odyssey General Partner notifying
the Managing Partner that is no longer seeking to effectuate an Odyssey
Refinancing. The Odyssey General Partner may, at any time during 1998,
produce a commitment or term sheet (the "Odyssey Commitment") for a
Refinancing that satisfies the Refinancing Guidelines for an aggregate
principal amount of not more than -$58 million, and which contemplates a
closing no later than the later of 180 days after the entering into of the
Odyssey Commitment and the end of 1998.
(c) The "Refinancing Guidelines" are as follows:
(i) the lender shall be an Acceptable Institution;
(ii) the interest rate shall be a market rate and may be a fixed or
floating rate, or a floating rate subject to a swap, "cap" or other
hedge (provided, that in the case of any Odyssey Refinancing, such
interest rate shall be subject to the approval of Reckson, not to be
unreasonably withheld and to be deemed given if not denied within 10
days after request by the Odyssey General Partner);
(iii) the loan amount may not exceed the greater of (x) subject
to the following provisions of this subclause (iii), an amount such that
the loan-to-value ratio would equal seventy-five (75%) percent of the
appraised fair market value of the Project on a date which is not more
than 180 days prior to the date of the closing of the Refinancing in
question (the "Refinancing Appraisal Date") based on an appraisal
prepared by an Appraiser retained by the Managing Partner and approved
by the Acceptable Institution committing to make such Loan or, at the
Managing Partner's election, an Appraiser retained by the Acceptable
Institution committing to make such Loan setting forth the Appraiser's
opinion of the fair market value of the Project valued free and clear of
the Mortgage Debt and other Indebtedness of the Partnership and (y) the
then outstanding amount of the Indebtedness of the Partnership to be
refinanced plus Transaction Costs. Notwithstanding the foregoing no
appraisal shall be required in connection with the Refinancing
contemplated by the NML Commitment or any other Refinancing of the
Current Mortgage Property Debt effected by the Managing Partner in
accordance with this Section 10.6 or for an Odyssey Refinancing (any of
which is herein referred to as the "First Refinancing") it being agreed
that the principal amount thereof shall not exceed $58 million;
(iv) any Refinancing shall be nonrecourse to the Partnership and
the Partners except for (x) environmental issues, (y) with respect to
any particular Partner, fraud and/or misapplication of funds by such
Partner and (z) with respect to the Managing Partner, other standard
carve-outs which are then customary in similar non-recourse mortgage
loans;
(v) the term shall be at least five (5) years;
(vi) the Debt Service Coverage Ratio shall be at least 1.35 to 1;
(vii) cap and hedge costs shall be amortized on a straight-line
basis (or on such other basis as agreed to by all of the General
Partners), without interest, over the term of the mortgage and treated
as additional interest costs;
(viii) participation or contingent payments based on revenues,
sales, refinancing proceeds, appreciation in value or other items shall
not be permitted;
(ix) the lender shall not be permitted to convert any of its debt
into equity;
(x) transfers of interests in the Partnership between the Partners
and by the Odyssey Entities shall not be prohibited or restricted in any
manner whatsoever; provided that this Refinancing Guideline may be
waived in whole or in part by the Odyssey General Partner in its sole
and absolute discretion;
(xi) any Refinancing shall not (x) be cross-defaulted or cross
collateralized with any obligations of Reckson or the REIT or their
Affiliates or (y) contain any defaults based on the status of, or any
events relating to, Reckson or the REIT or their Affiliates (other than
a default based upon the Bankruptcy of Reckson); provided that this
Refinancing Guideline may be waived in whole or in part by the Odyssey
General Partner in its sole and absolute discretion; and
(xii) principal or interest payments under any Refinancing
shall not be guaranteed by any Person, except that principal may be
guaranteed by Reckson or its designees such that the amount of principal
so guaranteed at any time does not exceed the amount set forth opposite
the dates on Exhibit C and the terms of any guarantee shall provide for
automatic reduction of the principal amount so guaranteed in accordance
with Exhibit C (for example, if the refinancing occurred on the date
hereof, the principal amount guaranteed could not exceed $40,200,000 and
the guarantee would be required to provide that the principal amount
guaranteed would be reduced to no more than $22,600,000 from and after
June 3, 1997); provided that this Refinancing Guideline may be waived by
the Odyssey General Partner in whole or in part in its sole and absolute
discretion, but the Odyssey General Partner may not require Reckson to
provide a guaranty.
(d) The Managing Partner shall provide the Odyssey General Partner
with such information concerning the Project that the Odyssey General Partner
may reasonably request in order to obtain the Odyssey Commitment. In the
event the Odyssey General Partner delivers an Odyssey Commitment which
complies with the Refinancing Guidelines, the Managing Partner will use its
best efforts to negotiate and execute the Odyssey Commitment and close the
loan contemplated thereby. At the request of the Odyssey General Partner,
the Managing Partner shall timely pay from Partnership assets any deposit or
commitment fee for the Odyssey Commitment and the same shall be a Partnership
Expense.
(e) Notwithstanding anything herein contained to the contrary, the
Odyssey General Partner shall have the right, so long as no monetary or
material non-monetary default beyond any applicable notice and grace period
exists under the Pledge Loan to fully participate in the negotiation of all
loan documents related to the NML Commitment or any other or future
Refinancing and Reckson shall have the right, so long as Reckson is not a
Defaulting Partner, to fully participate in the negotiation of all loan
documents related to an Odyssey Refinancing.
10.6.3 Future Refinancing. Following the First Refinancing
------------------
(or the inability of either Reckson or the Odyssey General Partner to
effectuate the First Refinancing), the Managing Partner may at any time and
from time to time seek to Refinance all or any portion of the Mortgage Debt
in accordance with the following:
(a) The terms of any Refinancing shall comply with the Refinancing
Guidelines.
(b) The Managing Partner shall give the Odyssey General Partner at
least 60 days' advance notice of the terms and conditions of any
proposed Refinancing and shall provide the Odyssey General Partner with
a commitment or term sheet describing such terms and conditions and
evidencing satisfaction of the Refinancing Guidelines.
10.6.4 Cost and Expenses of the First Mortgage and TI Loan.
---------------------------------------------------
(a) All costs and expenses (collectively, the "Fleet Loan Expenses")
incurred in obtaining the First Mortgage and TI Loan (collectively, the
"Fleet Loan") shall be borne solely by Reckson and the same shall not be
deemed to affect the Percentage Interests of the Partners or any
distributions by the Partnership. The payment of any such costs and expenses
by Reckson shall be deemed to be a contribution to Reckson's Capital Account
and such costs and expenses shall be written off immediately by the
Partnership without any amortization whatsoever. Furthermore, Reckson hereby
indemnifies the Partnership and Odyssey Entities and holds it and them and
their Affiliates, directors and officers harmless against any and all claims,
demands, losses, damages, liabilities, lawsuits and other proceedings,
judgments, costs, expenses and reasonable attorneys' fees (including, without
limitation, if the same arise directly or indirectly from any acceleration of
the Fleet Loan), to the extent the same arise directly or indirectly from (i)
any breach of any of the terms, covenants or conditions contained in any
Fleet Document (including, without limitation, under any indemnity by
Reckson, the REIT or any of their Affiliates) by the Partnership resulting
from any act or omission of Reckson or its Affiliates or (ii) any claimed
misrepresentation made by Reckson or its Affiliates on their own behalf or on
behalf of the Partnership in respect of the Fleet Loan or in any Fleet Loan
Document (unless such misrepresentation is based upon information, if any,
provided by either of the Odyssey Entities or their Affiliates), in each case
other than by Reckson or its Affiliates as Managing Partner and not involving
gross negligence or willful misconduct on the part of Reckson or its
Affiliates as Managing Partner (collectively, the "Reckson Fleet Loan
Indemnity Expenses").
(b) The Odyssey Entities hereby indemnify the Partnership and
Reckson and holds it and them and its Affiliates, directors and officers
harmless against any and all claims, demands, losses, damages, liabilities,
lawsuits and other proceedings, judgments, costs, expenses and reasonable
attorneys' fees (including, without limitation, if the same arise directly or
indirectly from any acceleration of the Fleet Loan), to the extent the same
arise directly or indirectly from (i) any breach of any of the terms,
covenants or conditions contained in any Fleet Document by the Partnership
resulting from any act or omission of the Odyssey Entities or their
Affiliates or (ii) any claimed misrepresentation made by either of the
Odyssey Entities or their Affiliates on their own behalf or on behalf of the
Partnership in respect of the Fleet Loan or in any Fleet Document (unless
such misrepresentation is based upon information, if any, provided by Reckson
or its Affiliates), in each case other than by an Odyssey Entity or its
Affiliates as Managing Partner and not involving gross negligence or willful
misconduct on the part of such Odyssey Entity or its Affiliates as Managing
Partner.
10.6.5 Current Interest Rate Swap. In connection with the
--------------------------
Fleet Loan, the Partnership has entered into an interest rate swap agreement
with Fleet Bank (the "Current Interest Rate Swap"), the effect of which is to
cause the effective interest rate (including the actual spread over the LIBOR
reference rate) on the Fleet Loan to be not greater than 8.5% per annum. If
the Current Interest Rate Swap (or any substitute therefor) is terminated
prior to the maturity date of the Fleet Loan, then Reckson shall, within five
(5) days of the date of such termination, cause the Partnership to enter into
a substitute interest rate swap agreement (the "Substitute Interest Rate
Swap") with a bank having at least a "AA" long term debt rating, the effect
of which is to limit the interest rate (including the actual spread over the
LIBOR reference rate) on the Fleet Loan to not greater than 8.5% per annum.
If Reckson does not cause the Partnership to enter into a Substitute Interest
Rate Swap within five (5) days of such termination, the Odyssey General
Partner shall have the right to cause the Partnership to purchase an interest
rate cap (the "Substitute Interest Rate Cap") from a bank having at least a
"AA" long term debt rating, the effect of which is to limit the interest rate
(including the actual spread over the LIBOR reference rate) on the Fleet Loan
to 8.5% per annum (or a higher rate selected by the Odyssey General Partner
in its sole discretion). All costs and expenses of the Current Interest Rate
Swap, the Substitute Interest Rate Swap, the Substitute Interest Rate Cap
(each a "Hedge Instrument") and all amounts that may be due and payable
pursuant to any of the foregoing, including, without limitation, all amounts
which may become due upon a termination for any reason (including, without
limitation, a termination resulting from the prepayment or acceleration of
the Fleet Loan) of any of the foregoing (collectively, the "Hedge Costs and
Payments") shall be borne and paid solely by Reckson, and the same shall not
be deemed to affect the Percentage Interests of the Partners or any
distributions by the Partnership except as expressly provided in this Section
10.6.5. Notwithstanding the foregoing, the Hedge Costs and Payments
(including amounts due on termination of any Hedge Instrument) shall not
include payments which are equal to interest at a rate of up to 8.5% per
annum payable on a notional amount equal to the outstanding principal amount
of the Fleet Loan from time to time. Without limiting the foregoing, Reckson
acknowledges and agrees that the Odyssey General Partner may exercise its
right under this Section 10.6 to refinance the Fleet Loan notwithstanding
that such refinancing will require termination of the Current Interest Rate
Swap (or any substitute therefor) which may have a substantial cost to
Reckson. The payment of any of the Hedge Costs and Payments by Reckson shall
be deemed to be a contribution to Reckson's Capital Account and the same
shall be written off immediately by the Partnership without any amortization
whatsoever. In connection with a permitted refinancing of the Current
Property Mortgage Debt in accordance with this Section 10.6, any Hedge
Instrument shall be terminated unless Reckson, at its sole cost and expense,
modifies such Hedge Instrument to provide that (a) the Partnership is not a
party to such Hedge Instrument, (b) the assets of the Partnership (including,
without limitation, the Project) do not secure such Hedge Instrument and (c)
the Partnership has no liability whatsoever with respect to such Hedge
Instrument. Except as provided in the preceding sentence, no Hedge
Instrument shall be amended, modified or terminated without the consent of
Reckson and the Odyssey General Partner, which consent, in the case of the
Odyssey General Partner, shall not be unreasonably withheld; provided,
however, that if the effective interest rate (including the actual spread
over the LIBOR reference rate) on the Fleet Loan would be greater than 8.5%
per annum after giving effect to any such amendment, modification or
termination or the amendment, modification or termination would result in any
cost or expense to the Partnership or the Odyssey Entities or in any increase
in any liability or potential liability of the Partnership or the Odyssey
Entities, the Odyssey General Partner may withhold its consent thereto in its
sole discretion. Regardless of the actual rate of interest on the Fleet
Loan, for purposes of calculating distributions of Net Ordinary Cash Flow,
the interest rate on the Fleet Loan shall be deemed to equal 8.5% per annum.
To the extent that interest payable by the Partnership pursuant to the Fleet
Loan for any period, after giving effect to the Current Interest Rate Swap or
Substitute Interest Rate Swap as then in effect (if any), is at a rate that
is less than 8.5% per annum, the Partnership will, at the same time that the
Managing Partner makes its monthly distribution of Net Ordinary Cash Flow
pursuant to Section 8.1, make a distribution to Reckson (a "Reckson
Equalization Payment") equal in amount to the difference between (i) the
interest payment that would be payable by the Partnership for such monthly
period under the Fleet Loan for such period if the rate were 8.5% per annum
and (ii) the actual interest payable by the Partnership for such monthly
period under the Fleet Loan, after giving effect to any payment received
under any Hedge Instrument as then in effect (if any); provided, however,
that a Reckson Equalization Payment shall not be paid at any time that a
monetary default or an Event of Default then exists hereunder with respect to
Reckson, but any amount not paid shall be payable if and when such monetary
default or Event of Default has been cured. Any Reckson Equalization Payment
made or payable shall not be deemed to affect the Percentage Interests of the
Partners. Reckson hereby indemnifies the Partnership and the Odyssey
Entities and holds them and their Affiliates, partners, directors and
officers harmless against any and all claims, demands, losses, damages,
liabilities, lawsuits and other proceedings, judgments, awards, costs and
expenses (including reasonable attorneys' fees) to the extent the same arise
directly or indirectly from any Hedge Instrument or any interest rate costs
payable by the Partnership in respect of the Fleet Loan, after giving effect
to any Hedge Instrument as then in effect (if any), exceeding 8.5% per annum
on the outstanding principal amount of the Fleet Loan (the "Reckson Hedge
Indemnity"). The obligations of Reckson with respect to the Fleet Loan
Expenses, the Reckson Fleet Loan Indemnity Expenses, any Hedge Instrument,
the Hedge Costs and Payments and the Reckson Hedge Indemnity under Section
10.6.4 and this Section 10.6.5 are unconditionally guaranteed, jointly and
severally, by Reckson and the REIT and Reckson and the REIT as evidenced by
the Guaranty attached as Exhibit E to the Existing Partnership Agreement (as
amended, the "Guaranty"), which Guaranty has been confirmed on the date
hereof. Such confirmation is attached hereto as Exhibit B.
10.7. Conversion.
----------
10.7.1 Conversion Events. If any Conversion Event occurs,
-----------------
then the Odyssey General Partner shall become the sole General Partner and
the Managing Partner of the Partnership and the general partnership interest
of Reckson in the Partnership shall be automatically converted to a limited
partnership interest. Notwithstanding the foregoing, if the general
partnership interest of Reckson in the Partnership is so converted into a
limited partnership interest and if within one hundred eighty (180) days
after the date of such conversion, Reckson cures the default that is the
basis for the Conversion Event, then the partnership interest of Reckson in
the Partnership shall be reconverted to a general partnership interest and
Reckson and the Odyssey General Partner shall thereafter be co-Managing
Partners of the Partnership; provided, however, that if the Mortgage Debt (or
any Mortgage Debt proposed in any commitment for any Refinancing or any draft
documentation thereof) contains a provision (a "Anti-Reconversion Provision")
prohibiting such reconversion or requiring the consent of the holder of such
Mortgage Debt (or the proposed holder of such proposed Mortgage Debt) to such
reconversion, then such reconversion shall be subject to the consent of the
holder (or such proposed holder); and provided further that if the Conversion
Event was the REIT or Reckson becoming Bankrupt, such reconversion shall be
subject to the Rechler Family possessing, whether legally or in practical
effect, the power to direct or cause the direction of the management and
policy of the REIT (whether through the ownership of voting securities, by
statute or according to the provisions of a contract) at the time of such
reconversion. Notwithstanding anything herein contained to the contrary, if
(i) on any one occasion following a Conversion Event Reckson reconverts its
partnership interest in the Partnership from a limited partnership interest
to a general partnership interest and (ii) thereafter any single Conversion
Event occurs, then (1) the Odyssey General Partner shall automatically become
the sole Managing Partner, (2) the general partnership interest of Reckson in
the Partnership shall be automatically converted to a limited partnership
interest and (3) Reckson shall have no further right hereunder to again
become a general partner of the Partnership. Reckson shall from time to time
promptly inform the Odyssey General Partner if any Conversion Event has
occurred and if so, the nature thereof. Upon request from time to time by
the Odyssey General Partner, Reckson shall provide the Odyssey General
Partner documentation and evidence reasonably satisfactory to the Odyssey
General Partner that no Conversion Event has occurred, or if it has, the
nature thereof. Notwithstanding anything herein contained to the contrary,
following the automatic conversion of the general partnership interest of
Reckson in the Partnership to a limited partnership interest pursuant to this
Section 10.7.1, the Odyssey General Partner shall have the right by notice
given to Reckson (which notice may be given or withheld in the sole and
absolute discretion of the Odyssey General Partner) to cause the partnership
interest of Reckson in the Partnership to reconvert from a limited
partnership interest to a general partnership interest, in which case Reckson
and the Odyssey General Partner shall be co-Managing Partners of the
Partnership.
10.7.2 Co-Managing Partner Authority and Major Decisions.
-------------------------------------------------
(a) Except as otherwise expressly provided in this Agreement, the
provisions of this Section 10.7.2 shall control during any period when
Reckson and the Odyssey General Partner are co-Managing Partners.
(b) The Odyssey General Partner shall conduct (or cause to be
conducted under its supervision) the day-to-day business and affairs of the
Partnership subject to, and in accordance with, this Agreement.
Notwithstanding anything contained in this Agreement to the contrary, in the
event of a dispute between the co-Managing Partners (or the failure of the
co-Managing Partners to agree) regarding the sale, transfer, financing or
refinancing of the Project or the incurrence of third party Indebtedness of
the Partnership or any of the Co-Managing Partner Consulting Decisions (as
defined below), the decision of the Odyssey General Partner shall govern.
(c) No act shall be taken, sum expended or obligation incurred by
the Odyssey General Partner within the scope of the decisions expressly set
forth below (collectively, the "Co-Managing Partner Consulting Decisions")
unless the Odyssey General Partner first consults with all of the other
General Partners. The Co-Managing Partner Consulting Decisions shall be:
(i) any lease, license or occupancy agreement (or any
modification, amendment, termination or surrender thereof) covering in
excess of 5,000 rentable square feet in the Project;
(ii) the granting or modification of any easement permitted
under Article 4;
(iii) any selection of a replacement Managing Agent or the
determination of the terms of any replacement Management Agreement
(except as otherwise specifically provided in Section 10.1); the
employment of any third party broker (other than in connection with the
multiple listing of the Project) by the Partnership or the Managing
Agent;
(iv) the approval of the standard -form of lease for the
Project and any material modification or change to the standard form of
lease for the Project made generally or in connection with any lease to
a tenant, it being acknowledged that each Partner has heretofore been
provided with a copy of the current standard form of lease;
(v) any material modification, change or amendment to, or
termination or cancellation of, any of the Key Documents (except in
connection with a refinancing of Mortgage Debt which shall be governed
by Section 10.6) or any of the other instruments or agreements which
grant the Partnership any rights with respect to the Project or any
portion thereof or which restrict the use thereof, or the approval of or
consent to any material matter under any Key Document;
(vi) in the event of a fire, other casualty or partial
condemnation, determination of whether to construct or reconstruct the
improvements located on the Project, where such construction or
reconstruction (i) is not required under the terms of any Key Document
affecting the damaged or condemned portion of the Project and (ii) will
cost in excess of $100,000;
(vii) in the event of a fire or other casualty, the right
to adjust, settle and receive all insurance proceeds payable in
connection with any such fire or other casualty loss in excess of $
100,000;
(viii) any material tax election (including, without
limitation, the making of an election under Section 754 of the Code);
the selection of accounting methods or the material variation of
existing accounting methods;
(ix) approval of, or modification or change to, the Budget or
determination to make an expenditure which is not in the Budget except
in the case of emergency which is of such a nature as to make it
impractical to consult with the other General Partners prior to taking
such action (such as fire or other casualty) because of time constraints
imposed by such emergency, in which event the Odyssey General Partner
shall be authorized to spend such amounts as shall be reasonably
necessary to deal with such emergency without making such consultation;
(x) subject to Section 21.26, determination of the types,
amounts and carriers of insurance to be maintained in respect of the
Project or any other assets of the Partnership and any other material
insurance matters (provided that such carrier shall have a "Best" rating
of not lower than A-VII);
(xi) entering into any agreement or other arrangement with a
Person which is an Affiliate of any Partner (except as provided in
Section 10.3), or the modification, amendment or change of any such
agreement or other arrangement;
(xii) initiation or settlement of any claim (including
claims made by or against tenants) by or against the Partnership for an
amount in excess of $50,000;
(xiii) termination of any lease or the bringing of any
summary dispossess proceeding with respect to any Lease for space in
excess of 10,000 rentable square feet;
(xiv) any other action with respect to any matter which,
pursuant to the express provisions of this Agreement, requires the
approval, consent or agreement of all of the General Partners;
(xv) determination of whether or not distributions should be
made to the Partners, except as provided in Article 8 or Article 15;
(xvi) determination of the maximum and minimum
requirements for Cash Reserves or a reserve upon dissolution and
liquidation of the Partnership;
(xvii) approval of or consent to any matter which pursuant
to the terms of the Management Agreement requires the approval or
consent of the Partnership or any direction to the Managing Agent to
perform any service for which the Managing Agent is entitled to or will
charge additional fees;
(xviii) all environmental matters requiring remediation
(except in case of an emergency which is of such a nature as to make it
impractical to consult with the other General Partners prior to taking
such action because of time constraints imposed by such emergency, in
which event the Odyssey General Partner shall be authorized to spend
such amounts as shall be reasonably necessary to deal with such
emergency without making such consultation); or
(xix) taking any action which would cause the Partnership
to be Bankrupt.
(d) If the General Partners do not agree with respect to any Co-
Managing Partner Consulting Decision within 10 days after the Odyssey General
Partner first consults with the other General Partners (or such earlier date
in the case of emergency or other time constraints) the decision of the
Odyssey General Partner shall govern and the Odyssey General Partner shall be
entitled to take such action as it deems appropriate.
10.7.3 Odyssey Conversion Events. If any Odyssey Conversion
-------------------------
Event occurs, then the general partnership interest of the Odyssey General
Partner in the Partnership shall be automatically converted to a limited
partnership interest.
10.7.4 Effectuation of Conversion. In the event of any
--------------------------
conversion of the general partnership interest of Reckson or the Odyssey
General Partner to a limited partnership interest pursuant to this Section
10.7, (a) if any filing, application, approval or consent is required in
connection therewith, the Managing Partner shall promptly make such filing or
application or obtain such approval or consent at the sole cost and expense
of the party whose general partnership interest was converted to a limited
partnership interest, (b) Reckson or the Odyssey General Partner, as the case
may be, shall execute, acknowledge and deliver any partnership certificates,
fictitious name certificates and all other instruments of whatever nature
that are called for or required by the applicable statutes, rules or
regulations of the State of Delaware, including, without limitation, the
Partnership Act, to effect such conversion and (c) Reckson and the Odyssey
General Partner each hereby irrevocably appoint the Managing Partner, as its
agent and attorney-in-fact, irrevocably and coupled with an interest and with
power of substitution, to execute all filings, applications, documents and
instruments necessary or desirable to effect the provisions of this Section
10.7.
10.7.5 Further Assurances. Each Partner agrees that it shall
------------------
be reasonable and cooperate with the Managing Partner, including, without
limitation, executing any documents which may be reasonably required, in
order to effectuate the provisions of this Section 10.7.
10.8. Managing Partner Duty. Consistent with their fiduciary and
---------------------
other obligations as Managing Partner (if applicable) and as a General
Partner, neither General Partner shall (nor, in the case of Reckson, permit
the REIT to) enter into any agreement which would limit the rights or powers
of the General Partner(s) to operate the Project or the Partnership or impose
any restraints on the discretion or decision making authority of the Managing
Partner(s) or the General Partner(s).
ARTICLE 11
PRE-EXISTING OBLIGATIONS
11.1. No Capital Contribution. Except as expressly provided in
-----------------------
this Agreement, the Reckson Entities shall not receive any credit to their
Capital Account for any debts, liabilities or obligations incurred by any of
the Reckson Entities on behalf of the Project or the Partnership prior to
December 21, 1993 or for any payments made with respect to any of the matters
covered by the indemnification contained in Section 11.1 of the Existing
Partnership Agreement.
ARTICLE 12
TRANSFER OF PARTNERSHIP INTERESTS
12.1. Prohibited Transfers. Except in accordance with, and as
--------------------
permitted by Sections 12.2, 12.4, 13.3(e), 13.4 and 14.3, a Partner may not
sell, assign, transfer, mortgage, pledge, hypothecate or otherwise encumber
all or any part of its interest in the Partnership (including, without
limitation, the right to receive any distributions or other income in respect
of any such partnership interest) and any attempt to do so shall be null and
void. Any of the following, whether accomplished directly or indirectly, by
contract, operation of law, voluntarily or involuntarily, shall be deemed a
transfer for purposes hereof:
(a) any sale, assignment or other transfer, mortgage,
hypothecation or other encumbrance of (i) any of the partnership interests of
any Partner that is a partnership, (ii) any of the stock of any Partner that
is a corporation or (iii) any of the legal or beneficial interests in any
Partner that is a trust or other entity;
(b) the admission of any additional partners to any Partner which
is a partnership, or the issuance of additional stock in any Partner which is
a corporation, or the issuance of any beneficial interests in any Partner
that is a trust or other entity; and
(c) the occurrence of any of the transactions described in
paragraphs (a) or (b) above with respect to any partnership, corporation,
trust or other entity which is itself a partner of a Partner; or any other
transaction, howsoever effected, which changes the ultimate beneficial
ownership of a Partner from that existing on the date hereof.
Notwithstanding the preceding clauses (a), (b) and (c), nothing contained in
this Section 12.1 shall be deemed to prohibit (A) sales, assignments,
transfers, hypothecations and encumbrances of (x) the partnership interests
of the partners of Reckson Operating Partnership, L.P. or any successor
thereof permitted under clause (x) of the definition of "Permitted
Transferee" (but specifically excluding any successor permitted under clause
(y) of the definition of "Permitted Transferee") or Odyssey (or of the direct
or indirect ownership interests therein) or (y) the stock of Odyli by the
holders thereof (or of the direct or indirect ownership interests therein) or
(B) the sale or issuance of stock in the REIT or the admission of limited
partners in Reckson, provided that the foregoing shall not affect the
provisions of any other Section of this Agreement.
12.2. Permitted Transfers.
-------------------
(a) Notwithstanding the provisions of Section 12.1 hereof, a
Partner (the "Transferor") shall have the right, without the consent of the
other Partners, to sell, assign or transfer all or some of its Partnership
interests to any Permitted Transferee of such Partner (the "Transferee"). A
Transferee who acquires one or more Partnership interests but who is not
admitted as a substituted Partner pursuant to Section 12.2(b) hereof shall be
entitled only to allocations and distributions with respect to such interests
in accordance with this Agreement, and shall have no right to any information
or accounting of the affairs of the Partnership, shall not be entitled to
inspect the books or records of the Partnership, and shall not have any of
the rights of a General Partner or a Limited Partner under the Partnership
Act or this Agreement.
(b) Subject to the other provisions of this Article 12, a
Transferee may be admitted to the Partnership as a substituted Partner only
upon satisfaction of the following conditions:
(i) The Transferee becomes a party to this Agreement as a
Partner and executes such documents and instruments as the Managing
Partner may reasonably request (including, without limitation,
amendments to the Certificate) as may be necessary or appropriate to
confirm such Transferee as a Partner in the Partnership and such
Transferee's agreement to be bound by the terms and conditions hereof;
and
(ii) The Transferee pays or reimburses the Partnership for all
reasonable legal, filing, and publication costs that the Partnership
incurs in connection with the admission of the Transferee as a Partner
with respect to the transferred interests.
(c) Upon satisfaction of the terms and conditions of Section
12.2(b), a Transferee shall be admitted to the Partnership as a Partner
effective immediately prior to the effective date of the transfer, and,
immediately following such admission, if the Transferor has transferred its
entire interest in the Partnership, the Transferor shall cease to be a
partner of the Partnership. In such event, the Partnership shall not
dissolve if the business of the Partnership is continued without dissolution
in accordance with Articles 13 and 15 hereof.
12.3. Conditions Applicable to All Transfers.
--------------------------------------
12.3.1 (a) (i) Notwithstanding anything to the contrary
contained in this Agreement (but subject to Section 12.3.1(a)(iii) below),
any sale, assignment or transfer, whether direct or indirect, of any interest
in the Partnership, or of any ownership interest in any Partner, shall be
made in full compliance with (x) all applicable Legal Requirements and (y)
the material contracts, deeds of trust, mortgages, certificates, easement
agreements, insurance policies, service agreements and any other agreements
affecting the Project, so that the operation of the Project can continue
without interruption and without violation of any applicable law or any of
such instruments. In the event that any filing, application, approval or
consent is required in connection with any such sale, assignment or transfer,
the "Responsible Partner" (as hereinafter defined) shall promptly make such
filing or application or obtain such approval or consent, at its sole
expense, and shall reimburse the other Partner for any costs or expenses
(including attorneys' fees) incurred by such Partner in connection with any
filing, application, approval or consent.
(ii) The "Responsible Partner" shall be (w) in the case of a
transfer under Section 12.2 the transferring Partner, (x) in the case of a
transfer under Section 12.4, Reckson, (y) in the case of a transfer under
Section 13.3 or 13.4, the Withdrawn Partner and (z) in the case of a transfer
under Section 14.2, the Defaulting Partner. In the event the Responsible
Partner shall fail to comply with its obligations under Section 12.3.1(a)(i)
above, the other Partner, upon ten (10) business days' prior written notice
to the Responsible Partner may do so at the sole cost and expense of the
Responsible Partner and adjourn the closing for such periods of time as are
necessary, and all amounts so incurred by the other Partner, including
accounting, attorneys and other professional fees, shall be payable by the
Responsible Partner within ten (10) days after demand.
(iii) Notwithstanding anything herein contained to the
contrary, in the case of a transfer under Sections 12.4, 13.3, 13.4 or 14.2,
if the Responsible Partner shall fail to comply with its obligations under
Section 12.3.1(a)(i) above, then (x) the other Partner shall have the option
to require that the Responsible Partner close on such transfer even if (1)
any required filing or application has not been made or (2) any required
consent or approval has not been obtained and (y) the Responsible Partner
shall indemnify the other Partner against any loss, liability or damage
suffered or incurred by the other Partner as a result of the Responsible
Partner's failure to comply with its obligations under Section 12.3.1(a)(i)
above.
(b) Notwithstanding anything to the contrary contained in this
Agreement, each Partner and each transferee of all or any part of an interest
in the Partnership and each Person which is the general partner of the owner
of any interest in the Partnership, (x) shall at all times maintain an office
or agency for the service of process in the United States of America, which
shall also be its address for delivery of notices under Article 16 and (y)
shall be a "United States person" as defined in Section 7701(a)(30) of the
Code.
12.3.2 Notwithstanding anything to the contrary contained in this
Agreement, no change in ownership of the interest of any Partner (excluding,
for purposes hereof, a transfer described in paragraphs (a), (b) or (c) of
Section 12.1 with respect to direct or indirect ownership of any Partner)
shall be binding upon the other Partner unless and until (a) true copies of
the instruments of transfer executed and delivered pursuant to or in
connection with such transfer shall have been delivered to such other
Partner, (b) the Transferee shall have delivered to such other Partner an
executed and acknowledged assumption agreement pursuant to which the
Transferee assumes all the obligations of the Transferor from and after the
date of such transfer under, and agrees to be bound by all the provisions of,
this Agreement, and (c) the Transferee shall have executed, acknowledged and
delivered any instruments required under the Partnership Act to effect such
transfer and its admission to the Partnership. Upon the execution and
delivery of such assumption agreement, the Transferor shall have no further
obligation hereunder thereafter accruing except that (x) the Transferor shall
remain primarily liable for all accrued obligations (as of the date of
transfer) of the Transferor under this Agreement and (y) if the Transferor is
Reckson, Reckson shall remain primarily liable for its obligations under
Section 12.4, in each case, notwithstanding any transfer pursuant to this
Article 12. In connection with any transfer of an interest in the
Partnership permitted under this Article 12, each Partner hereby consents to
the withdrawal of the Transferor Partner as a Partner and the admission of
the Transferee Partner as a Partner with the rights of the Transferor Partner
hereunder, including, without limitation, rights with respect to management
and distributions.
12.3.3 If, notwithstanding the provisions of Section 12.1, any
party or entity acquires all or any part of the interest of a Partner in the
Partnership or an ownership interest in a Partner in violation of this
Article 12 by operation of law or judicial proceeding, the holder(s) of the
affected interest shall have no right to take action under this Agreement,
and the Partner whose interest was affected shall be deemed to be in default
under Article 14.
12.3.4 Notwithstanding anything to the contrary herein
contained, a Partner shall not be obligated to cooperate with the selling
Partner under Section 12.2 if such cooperation would result in such Partner
incurring liability or expense for any item not contemplated by the
provisions thereof, it being agreed, however, that in any event such Partner
shall bear the cost of its legal expenses.
12.3.5 Notwithstanding anything to the contrary herein
contained, no Partner shall be entitled to consummate a transfer of all or
any part of its Partnership interest if the same would result in the
Partnership being characterized as an "association" pursuant to Reg.
301.7701-2 of the Code. Prior to the consummation of any such transfer, such
Partner shall deliver to the other Partners a legal opinion, in form and
delivered by counsel reasonably satisfactory to such other Partners stating
that such transfer shall not result in the Partnership being so characterized
or in a termination of the Partnership within the meaning of Section 708 of
the Code.
12.4. Call and Put Rights.
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12.4.1 (a) The Odyssey Entities hereby grant to Reckson the
right (the "Reckson Call Right") to elect to purchase all (but not less than
all) their interest in the Partnership at the time and on the terms and
conditions set forth in this Section 12.4.
At least one year (but not more than two years) prior to the end of
the "Lockout Period" (as hereinafter defined), as it may be extended, Reckson
shall give the Odyssey Entities a notice (the "Reckson Call Notice") stating
whether or not Reckson has elected to exercise the Reckson Call Right. The
failure of Reckson to timely give the Reckson Call Notice shall be deemed an
election by Reckson not to exercise the Reckson Call Right.
The "Lockout Period" shall be the period commencing on the date of this
Agreement and ending on the tenth anniversary thereof; provided, however,
that Reckson may elect to extend the Lockout Period until the fifteenth
anniversary of the date of this Agreement by giving notice of such election
(a "Deferral Election") on or before the ninth anniversary of the date of
this Agreement; and provided, further, however, that (i) no Deferral Election
may be made if a Reckson Call Notice has been previously given and (ii) if
the Pledge Loan is still outstanding on the date of any Deferral Election,
such Deferral Election shall not be effective unless it is accompanied by a
notice from the Pledge Lender unconditionally extending the term of the
Pledge Loan to be co-terminous with the extended Lockout Period.
(b) If Reckson fails to timely exercise the Reckson Call Right,
the Odyssey Entities shall have the right (the "Odyssey Put Right") to
require Reckson (or its designee) to purchase all the Partnership Interests
of the Odyssey Entities at the time and on the terms and conditions set forth
in this Section 12.4. The Odyssey Put Right shall be exercised no later than
180 days prior to the end of the Lockout Period by notice given by the
Odyssey Entities to Reckson (the "Odyssey Put Notice"). The failure of the
Odyssey Entities to timely give the Odyssey Put Notice shall be deemed an
election by the Odyssey Entities not to exercise the Odyssey Put Right.
(c) Each of the Reckson Call Notice and the Odyssey Put Notice
shall constitute a binding agreement of purchase and sale between the Odyssey
Entities and Reckson with respect to the Partnership interests of the Odyssey
Entities (collectively, the "Odyssey Partnership Interest"). The price to be
paid for the Odyssey Partnership Interest (the "Odyssey Partnership Interest
Payment Amount") will be the fair market value of the Odyssey Partnership
Interest computed in accordance with Section 12.4.2.
12.4.2 The fair market value of the Odyssey Partnership Interest
shall be the amount that would have been distributed to the Odyssey Entities
under Section 8.2 if (a) the Project were sold for 90% of its appraised fair
market value as determined in accordance with Section 12.4.3 (reflecting the
fact that the Odyssey Entities have only a minority interest in the
Partnership with limited approval rights) as of a date (the "Appraisal Date")
specified in the Reckson Call Notice or Odyssey Put Notice, as the case may
be (which date shall be not more than 60 days prior to the giving of such
notice), subject to deduction therefrom of the actual out-of-pocket costs
paid by Reckson in connection with the purchase by Reckson of the Odyssey
Partnership Interest in accordance with this Section 12.4 and (b) the
Partnership was immediately thereafter liquidated in accordance with Article
15.
12.4.3 Accompanying either the Reckson Call Notice or the
Odyssey Put Notice (each, an "Exercise Notice") will be a fair market value
appraisal, as of the Appraisal Date, of the Project commissioned by the party
sending the Exercise Notice ("Sender") (the "Sender's Appraisal"). The
Sender's Appraisal must be prepared by an independent MAI designated
appraiser having at least ten (10) years' experience in appraising Class A
Office Buildings in New York City and Nassau County (an "Appraiser") and
shall set forth the Appraiser's opinion of the fair market value of the
Project valued free and clear of the Mortgage Debt and other Indebtedness of
the Partnership. The recipient of the Exercise Notice ("Recipient") may
accept the Sender's Appraisal or may deliver to the Sender, within thirty
(30) days after receipt of the Sender's Appraisal, a fair market value
appraisal, as of the Appraisal Date, of the Project (the "Recipient's
Appraisal") also prepared by an Appraiser and shall set forth such
Appraiser's opinion of the fair market value of the Project valued free and
clear of the Mortgage Debt and other Indebtedness of the Partnership. The
failure of the Recipient to timely deliver the Recipient's Appraisal or to
state its determination of the fair market value shall conclusively
constitute its agreement with the fair market value stated in the Sender's
Appraisal. In the event the fair market value as determined by the Appraisal
prepared for the Odyssey Entities is 106% or more of the fair market value as
stated in the Appraisal prepared for Reckson (herein, a "Material
Difference"), either the Odyssey General Partner or Reckson may, within five
(5) days of delivery of the Recipient's Appraisal, request that a third
Appraiser (who has not been employed by either the Odyssey Entities or
Reckson or any of their Affiliates within the preceding three (3) years) be
retained to render a fair market value appraisal (the "Independent
Appraisal"), as of the Appraisal Date, of the Project and shall set forth
such Appraiser's opinion of the fair market value of the Project valued free
and clear of the Mortgage Debt and other Indebtedness of the Partnership, but
shall not be greater than the fair market value as set forth in the Appraisal
prepared at the request of Odyssey or less than the fair market value set
forth in the Appraisal prepared at the request of Reckson. The Independent
Appraisal shall be delivered to the Odyssey General Partner and Reckson
within thirty (30) days after the appointment of such third Appraiser. In
the event the Odyssey General Partner and Reckson cannot agree within five
(5) days on an Appraiser to render the Independent Appraisal, either party
shall have the right to apply to the American Arbitration Association to
appoint such Appraiser. After receipt of the Independent Appraisal, the fair
market value shall be determined by averaging the respective fair market
values of the two appraisals that are closest in value to each other. In the
event there is no Material Difference between the Appraisal prepared for the
Odyssey Entities and the Appraisal prepared for Reckson or neither the
Odyssey Entities nor Reckson elects to seek the Independent Appraisal, the
fair market value of the Project shall be the average of the Sender's
Appraisal and the Recipient's Appraisal.
12.4.4 The closing of the purchase shall be on the last day of
the Lockout Period (the "Closing Date") (subject to adjournment (i) as
provided in Section 12.3 and Section 12.4.5(h) below and (ii) if, for any
reason, the Odyssey Partnership Interest Payment Amount has not yet been
finally determined by the last day of the Lockout Period, then on a date
designated by the Odyssey Entities within 10 days after such final
determination)) and at a place in New York, New York designated by the
Managing Partner. Notwithstanding anything herein contained to the contrary,
if on the last day of the Lockout Period the Odyssey Partnership Interest
Payment Amount has not yet been fully determined, then the Odyssey Entities
may elect (the "Odyssey Acceleration Election"), in their sole and absolute
discretion, to have the Closing Date occur (and cause Reckson to close on the
purchase of, and pay for, the Odyssey Partnership Interest) on any date on or
after the last day of the Lockout Period and prior to such final
determination, in which case, for purposes of such closing only, the Odyssey
Partnership Interest Payment Amount shall be calculated based on the Reckson
Appraisal and there shall be a subsequent adjustment of the Odyssey
Partnership Interest Payment Amount promptly following such final
determination. If Odyssey makes the Odyssey Acceleration Election, then, as
security for the payment of any balance due the Odyssey Entities on account
of the Odyssey Partnership Interest Payment Amount, at the closing Reckson
shall execute and deliver a separate security agreement, UCC financing
statements and such other documents as are reasonably requested by the
Odyssey General Partner pursuant to which Reckson shall assign and grant to
the Odyssey Entities a first priority lien upon, and a security interest in,
Reckson's Partnership interest (including, without limitation, the interests
in the Partnership transferred to Reckson by the Odyssey Entities) and all
amounts, payments and proceeds becoming distributable or payable to Reckson
by the Partnership, as collateral security for the payment of such balance.
Such security agreement shall contain the same substantive provisions
(appropriately modified) as are set forth in Section 14.3 of the Existing
Partnership Agreement and shall otherwise be in form reasonably satisfactory
to the Odyssey Entities.
12.4.5 At the closing:
(a) the Odyssey Entities shall deliver to Reckson (or its
designee) a duly executed and acknowledged instrument of assignment
transferring the interests of the Odyssey Entities to Reckson (or its
designee) free and clear of all liens and encumbrances (other than that
created pursuant to Section 14.3 or pursuant to the Pledge Agreement),
which instrument shall contain surviving representations concerning due
organization and authority of the Odyssey Entities and the absence of
liens and encumbrances and shall contain a provision indemnifying and
holding Reckson harmless from any loss, liability, cost or expense
(including reasonable attorneys' fees) it may incur by reason of any
breach of such representation;
(b) subject to Section 21.22, the Odyssey Entities shall pay
all transfer, stamp or similar taxes due in connection with the
conveyance of its 40% Partnership interest;
(c) Reckson shall pay the Odyssey Partnership Interest
Payment Amount to the Odyssey Entities in immediately available funds.
In addition, Reckson shall deliver to the Odyssey Entities a duly
executed agreement (which shall survive the closing under this Section
12.4.4) indemnifying the Odyssey Entities against (i) claims based upon
events arising from or in connection with the Partnership or the Project
from and after the closing date and (ii) any Partnership liabilities for
which the Odyssey Entities are liable on a recourse basis;
(d) the Partnership Accountants shall close the books of the
Partnership as of the Closing Date, and all items of Partnership income
and expense shall be apportioned between the Odyssey Entities and
Reckson in proportion to their respective shares of Net Ordinary Cash
Flow for the current calendar period, as of 11:59 p.m. of the day
preceding the Closing Date in accordance with the customs and practices
usual in Nassau County, New York in transactions involving property
comparable to the Project;
(e) to the extent not otherwise distributed to the Odyssey
Entities as part of the Odyssey Partnership Interest Payment Amount, Net
Ordinary Cash Flow and Net Extraordinary Cash Flow up to the Closing
Date, taking into account clause (d) above, shall be distributed in
accordance with the provisions of Article 8, which provisions shall
survive the closing pursuant hereto for purposes of making or correcting
any customary closing adjustments;
(f) there shall be distributed to the Odyssey Entities their
Percentage Interests of Cash Reserves (to the extent not otherwise
distributed to the Odyssey Entities as part of the Odyssey Partnership
Interest Payment Amount) and Odyssey's Share of the TI Reserve;
(g) to the extent not otherwise taken into account in
determining the Odyssey Partnership Interest Payment Amount, the Odyssey
Partnership Interest Payment Amount shall be decreased by any amounts of
Net Extraordinary Cash Flow distributed to the Odyssey Entities pursuant
to Article 8 during the period between the Appraisal Date and the
Closing Date;
(h) the Odyssey Entities shall discharge of record all liens
and encumbrances affecting their interests in the Partnership (other
than liens in favor of the holder of any Mortgage Debt and any lien
created under Section 14.3 or pursuant to the Pledge Agreement), and if
they fail to do so, Reckson may use any portion of the Odyssey
Partnership Interest Payment Amount to pay and discharge any such liens
and/or encumbrances and any related expenses and adjourn the closing for
such period as may be necessary for such purpose; and
(i) the Partners shall execute all amendments to fictitious
name, limited partnership or similar certificates necessary to effect
the withdrawal of the Odyssey Entities from the Partnership and, if
applicable, the termination of the Partnership.
The Odyssey Entities acknowledge and agree that pursuant to the Pledge
Agreement they have agreed that if the Pledge Loan is then outstanding, on
the Closing Date any amounts payable to them under this Section 12.4
(including, without limitation, any amounts payable to the Odyssey Entities
on the Closing Date if the Odyssey Entities make the Odyssey Acceleration
Election and any amounts payable to the Odyssey Entities after such Closing
Date upon the final determination of the Odyssey Partnership Interest Payment
Amount) shall be applied first to pay any amounts outstanding under the
Pledge Loan and the balance, if any, shall be paid over to or at the
direction of the Odyssey Entities. Without limiting the provisions of
Section 19 of the Pledge Agreement and Section 11 of the Note, in no event
will the Odyssey Entities have any liability if the amounts payable to them
under this Agreement, including, without limitation, Section 12.4, are
insufficient to repay the amounts outstanding under the Pledge Loan.
12.4.6 If Reckson fails to close on the purchase of the Odyssey
Entities' Partnership interests and/or pay the Odyssey Partnership Interest
Payment Amount (a "Reckson Default"), then, in addition to all rights at law
or in equity that the Odyssey Entities may have (including, without
limitation, the right to bring actions seeking specific performance and/or
damages), but subject to Section 21.24.1(g), at the Odyssey Entities'
election, either (a) the Odyssey Entities shall have the right to purchase
Reckson's then Percentage Interest in the Partnership at a price equal to the
amount that would have been distributed to Reckson under Section 8.2 if (x)
the Project were sold for its appraised fair market value (determined in
accordance with Section 12.4.3) as of the Appraisal Date after making a
deduction for all Sale Transaction Costs that would have been incurred in
connection with such sale (in which case such closing shall occur in the
manner described in Section 12.4.5 mutatis mutandis) and (y) the Partnership
was immediately thereafter liquidated in accordance with Article 15, or (b)
the Odyssey General Partner shall be entitled to sell the Project on behalf
of the Partnership without the consent of Reckson. If the Odyssey General
Partner so sells the Project, then, notwithstanding anything herein contained
to the contrary, after payment of all third-party Indebtedness and third-party
obligations of the Partnership and all Sale Transaction Costs, the Special
Odyssey Partnership Interest Payment Amount (as defined below) shall be paid
to the Odyssey Entities from the proceeds of such sale (even if such proceeds
are less than the appraised fair market value of the Project determined in
accordance with the procedures in Section 12.4.3 above) before any proceeds
therefrom are paid to Reckson whether on account of Capital Loans made by
Reckson to the Partnership, distributions that would otherwise be made to
Reckson or otherwise (collectively, the "Reckson Claims") and the Odyssey
Entities shall have no liability whatsoever to Reckson if the proceeds of
such sale are not sufficient to pay all or any portion of the Reckson Claims.
"Special Odyssey Partnership Interest Payment Amount"
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means the fair market value of the Odyssey Partnership Interest calculated in
accordance with Section 12.4.2; provided, that clause (a) of Section 12.4.2
shall be deemed amended so that the fair market value of the Odyssey
Partnership Interest shall be calculated as if the Project were sold for 100%
of its appraised fair market value as determined in accordance with Section
12.4.3.
12.4.7 As provided in the Pledge Note, if for any reason (other
than default by the Odyssey Entities in closing the sale of their Partnership
interests hereunder) the Closing Date occurs after the end of the Lockout
Period, the maturity date of the Pledge Loan will automatically be deemed
extended until such Closing Date with interest payable at the same non-
default rate as was in effect at the Lockout Period; provided, however, in
the event of a Reckson Default the maturity of the Pledge Loan shall be
extended until the earlier of (a) the date the Project is sold under clause
(b) of Section 12.4.6 or (b) five (5) years after the end of the Lockout
Period.
12.4.8 If the Odyssey Entities default in closing the sale of
the Odyssey Partnership Interest following the exercise of the Odyssey Put
Right, then as Reckson's sole remedy therefor, the Odyssey Entities shall
have no further rights under this Section 12.4 to exercise the Odyssey Put
Right. If the Odyssey Entities default in closing the sale of the Odyssey
Partnership Interest following the exercise of the Reckson Call Right, then
(i) the Odyssey Entities shall have no further rights under this Section 12.4
to exercise the Odyssey Put Right and (ii) the same shall constitute an Event
of Default by the Odyssey Entities and Reckson shall have the right to pursue
its remedies under Section 14.2.
12.4.9 Each Partner agrees that it shall be reasonable and
cooperate with the other Partner, including, without limitation, executing
any documents which may be reasonably required, in order to consummate the
transactions contemplated by this Section 12.4.
12.5. Purchase of Partnership Interests.
---------------------------------
Any purchase by a Partner of another Partner's interest in the
Partnership pursuant to Section 12.4 shall be deemed to include the purchase
of all of such other Partner's Extraordinary Capital Loans, Capital Loans,
Additional Contributions, Priority Contributions and all related interest
thereon and accruals thereof, if any.
ARTICLE 13
WITHDRAWAL OF A PARTNER
13.1. No Withdrawal. No Partner shall withdraw or retire from
-------------
the Partnership without the prior consent of the other Partners, except in
connection with a transfer of its entire Partnership interest in accordance
with Article 12 or Article 14.
13.2. Termination of a Partner. If any of the following events
------------------------
shall occur with respect to a Partner (each, an "Event of Withdrawal") such
General Partner shall be deemed a "Withdrawn Partner":
(a) if it becomes Bankrupt;
(b) if he is a natural person, upon his death, or adjudicated
incompetence;
(c) if it is a corporation, upon the filing of a certificate of
dissolution or its equivalent for such corporation, or the revocation of
its charter or certificate of incorporation and the expiration of ninety
(90) days after the date of notice to the corporation of revocation
without reinstatement of its charter;
(d) if it is a partnership, upon the dissolution and commencement
of winding up of such partnership, or the occurrence of any of the
events described in paragraphs (a), (b) and (c) above with respect to
the last general partner of such partnership; or
(e) if it withdraws or retires from the Partnership in
contravention of Article 12 or Section 13.1.
No Partner shall voluntarily take any action (or omit to take any
action) which would cause any of the events described in paragraphs (a), (c),
(d) or (e) to occur with respect to it. Anything to the contrary contained
herein notwithstanding, the provisions of this Section 13.2 shall not apply
to Odyssey and in no event shall Odyssey be deemed to be a Withdrawn Partner
13.3. Effect of General Partner Becoming a Withdrawn Partner. If
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a General Partner becomes a Withdrawn Partner, the following shall apply:
(a) the business of the Partnership may, at the option of the
other General Partner, be continued as a limited partnership without
dissolution;
(b) at the option of the other General Partner to be exercised
within ninety (90) days after the occurrence of the Event of Withdrawal
(i) the estate, legal representatives or successors of the General
Partner who retired, withdrew or with respect to whom the Event of
Withdrawal occurred shall be admitted as a successor General Partner,
except that such successor General Partner shall have no right to
participate in Partnership decisions or management, or (ii) the interest
of the Withdrawn Partner shall be converted to a limited partnership
interest, and the estate, legal representative or successor of the
Withdrawn Partner shall be admitted as a Limited Partner hereunder (it
being agreed that if the other General Partner fails to timely exercise
such option, then the other General Partner shall be deemed to have
opted for the preceding clause (ii));
(c) for a period of one hundred eighty (180) days after the other
General Partner obtains notice that a General Partner has become a
Withdrawn Partner (which 180-day period shall be extended if any stay or
injunction is in effect during such period for a number of days equal to
the number of days that any such stay or injunction is in effect), the
Partnership interest of such Withdrawn Partner and the Partnership
interest of any Limited Partner that is an Affiliate of such Withdrawn
Partner may be purchased by the other General Partner or its Affiliates
in accordance with the procedures set forth in Section 13.3(e), except
if the Event of Withdrawal is an event described in Section 13.2(b), or
in Section 13.2(b) insofar as it relates to Section 13.2(d), the
purchase price to be paid thereunder shall be paid in cash, certified
check or immediately available funds, and accordingly there shall be no
promissory note;
(d) from and after the date on which such General Partner becomes
a Withdrawn Partner, the interest of such Withdrawn Partner shall be
converted to a limited partnership interest and such Withdrawn Partner
shall be a Limited Partner hereunder;
(e) a General Partner which is not a Withdrawn Partner or its
Affiliates (a "Non-Withdrawn Partner") may purchase the interest in the
Partnership of a General Partner that has become a Withdrawn Partner in
accordance with the following:
(i) The Non-Withdrawn Partner shall send a notice ("Purchase
Notice") to the Withdrawn Partner stating its election to purchase the
Withdrawn Partner's interest in the Partnership pursuant to this
paragraph (e) and its determination of the fair market value of the
Partnership assets, free and clear of all Partnership liabilities and
other encumbrances. Such notice shall constitute a binding agreement of
purchase and sale between the Partners, subject to the cancellation
rights of the Non-Withdrawn Partner set forth below. The Withdrawn
Partner shall send a notice ("Purchase Response Notice") to the Non-
Withdrawn Partner within ten (10) business days of receipt of the
Purchase Notice stating that it agrees with the fair market value of the
Partnership stated in the Purchase Notice or, if it does not, its
determination of the fair market value of such Partnership assets. The
failure of the Withdrawn Partner to timely send a Purchase Response
Notice or to state its determination of the fair market value of the
Partnership assets shall conclusively constitute its agreement with the
fair market value stated in the Purchase Notice. If in its Purchase
Response Notice the Withdrawn Partner disagrees with the fair market
value specified in the Purchase Notice and sets forth a different fair
market value, such fair market value shall be determined by arbitration
before a single arbitrator (who has not been employed by any Partner or
any of its Affiliates within the preceding three (3) years) held in New
York, New York in accordance with the rules of the American Arbitration
Association for commercial arbitration, subject, however, to the
following: (1) the arbitrator shall be an Appraiser; and (2) the
arbitrator shall fix as the fair market value of the Partnership assets
either the fair market value of the Partnership assets as specified by
the Non-Withdrawn Partner in its Purchase Notice, or as specified by the
Withdrawn Partner in its Purchase Response Notice, depending on which is
closer to the fair market value of the assets of the Partnership as
determined by the arbitrator. The decision of the arbitrator shall be
conclusive and judgment may be had thereon in any court of competent
jurisdiction; provided, however, that if the arbitrator selects the fair
market value as specified by the Withdrawn Partner, the Non-Withdrawn
Partner may, within thirty (30) days after receipt of the arbitrator's
decision, cancel its election to purchase the Partnership interest of
the Withdrawn Partner.
(ii) The purchase price (the "Purchase Price") of the Withdrawn
Partner's interest shall be an amount equal to the amount which would
have been distributed to such Withdrawn Partner under Article 15 if the
Project were sold for its fair market value, as determined in accordance
with clause (i) above (after paying all Partnership liabilities and the
costs that would have been incurred in connection with any such sale,
including, without limitation, broker's commissions, gains and transfer
taxes and other customary closing costs as conclusively determined by
the Partnership Accountants), and less deductions for any damages or
costs to the Partnership or the Non-Withdrawn Partner resulting from the
Event of Withdrawal, including all costs to the Non-Withdrawn Partner in
connection with the purchase (including reasonable attorneys' fees)
together with interest thereon at the Default Rate on such amounts,
costs or damages from the date incurred until the date paid. Such
amounts, costs, damages and interest shall first be deducted from the
cash portion of the Purchase Price and then from the principal amount of
the promissory note delivered in connection with the purchase of the
Withdrawn Partner's interest (as described in clause (iii) below).
Notwithstanding the foregoing, if the Withdrawn Partner is the Odyssey
General Partner or the Odyssey Successor, then the Purchase Price of
such Withdrawn Partner's interest shall be an amount equal to the amount
which would have been distributed to such Withdrawn Partner if the
Project were sold for 90% of its fair market value as determined in
accordance with clause (i) above (subject to the payment of Partnership
liabilities and such costs as provided above in this clause (ii) and the
deduction of such amounts, costs, damages and interest as provided above
in this clause (ii)).
(iii) On a closing date, which date shall be not later than one
hundred eighty (180) days after delivery of the Purchase Notice (which
180-day period shall be extended if any stay or injunction is in effect
during such period for a number of days equal to the number of days that
any such stay or injunction is in effect), and at a place specified by
the Non-Withdrawn Partner upon not less than ten (10) business days'
notice to the Withdrawn Partner, the Withdrawn Partner shall sell, and
the Non-Withdrawn Partner shall purchase, all of the Withdrawn Partner's
interest in the Partnership in the manner described in Section 12.4.5,
except that the Non-Withdrawn Partner shall, subject to Section 13.3(c),
pay the Purchase Price by delivering not less than twenty-five percent
(25%) of the Purchase Price, less the deductions provided for in clause
(ii) above, in cash, certified check, or immediately available funds,
and an unsecured promissory note for the balance, such promissory note
to bear interest at the Base Rate as published from time to time during
the term of said note, payable quarterly in arrears, and to have a term
of ten (10) years at the end of which the outstanding principal balance,
and all accrued and unpaid interest due thereon, will become due and
payable. Such promissory note shall provide that it may be prepaid at
any time, in whole or in part, without penalty or premium.
(iv) In the event the Non-Withdrawn Partner shall elect to purchase
the Withdrawn Partner's interest pursuant to this Section 13.3(e), then
the Non-Withdrawn Partner shall be entitled to deduct from the Purchase
Price the amount of all actual damages incurred by the Non-Withdrawn
Partner as a result of the Event of Withdrawal. The deductions shall
first be applied in reduction of the cash portion of the Purchase Price
and then from the principal amount of the promissory note delivered in
connection with the purchase of the Withdrawn Partner's interest (as
described in clause (iii) above).
13.4. Effect of Limited Partner Becoming a Withdrawn Partner. A
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Limited Partner's becoming a Withdrawn Partner shall not, in and of itself,
cause, the Partnership to be dissolved or terminated. If an Event of
Withdrawal occurred with respect to such Limited Partner, the estate, legal
representative or successor of such Limited Partner shall be entitled to be
admitted as a successor Limited Partner in the Partnership subject to
compliance with the provisions of this Agreement, including, without
limitation, Section 12.3. However, whether or not such estate, legal
representative or successor is so admitted, for a period of one hundred
eighty (180) days after the General Partners obtain notice that a Limited
Partner has become a Withdrawn Partner (which 180-day period shall be
extended if any stay or injunction is in effect during such period for a
number of days equal to the number of days that any such stay or injunction
is in effect), the Partnership interest of such Withdrawn Partner may be
purchased by the General Partner (or its designee) that is not an Affiliate
of such Withdrawn Partner in accordance with the procedures set forth in
Section 13.3(e), except, if the Event of Withdrawal is by reason of
bankruptcy, death or incompetency, the purchase price shall be paid in cash,
certified check or immediately available funds, and accordingly there shall
be no promissory note.
ARTICLE 14
DEFAULT
14.1. Events of Default. Each of the following events shall
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constitute an "Event of Default" hereunder:
(a) if any Partner fails to make any contribution, loan or payment
which it is required to make under this Agreement within ten (10)
business days after notice from another Partner that such Partner failed
to make such contribution or payment on the due date therefor; or
(b) if any Partner defaults in the observance or performance of
any term, covenant or condition of this Agreement, other than a default
in making a contribution or payment or a default in the performance of
its obligations under Article 12 and such default continues for thirty
(30) days after such Partner receives notice thereof from another
Partner (or, if such default cannot reasonably be cured within such 30-
day period by virtue of the nature of such default, such Partner does
not commence to cure such default within such period and thereafter
diligently prosecute such cure to completion); or
(c) if any Partner defaults in the observance or performance of
its obligations under Section 12.1 or 12.2; or
(d) if any Partner withdraws or retires from the Partnership in
contravention of Section 13.1 (provided, that in no event shall Odyssey
be deemed to be a Defaulting Partner by reason of the foregoing) or
voluntarily takes any action (or omits to take any action) which causes
any of the events described in paragraph (a), (c) or (d) of Section 13.2
to occur with respect to it; or
(e) if in the case of Reckson, any of the representations and
warranties of Reckson Entities contained in Section 17.1 hereof or, in
the case of the Odyssey Entities, any of the representations and
warranties of the Odyssey Entities contained in Section 17.2 hereof,
shall not be true and complete in all material respects; or
(f) with respect to Reckson so long as an Affiliate of Reckson is
the Managing Agent, if the Managing Agent shall be in default under the
Management Agreement and (i) except as set forth in subparagraph (ii),
such default shall be of such a nature so as to constitute (v) willful
malfeasance, (w) fraud, (x) embezzlement, (y) theft, and/or (z) a
criminal violation of the laws of the State of New York by the Managing
Agent, or any of its partners, principals, agents or employees, and if
the monies and/or other property which is the subject of such willful
malfeasance, fraud, embezzlement, theft or other criminal violation
shall not be repaid and/or returned to the Partnership or the Partners,
as the case may be, within five (5) business days following notice
thereof to Reckson or (ii) such default shall be of the nature described
in subparagraph (i) above and such default was actually committed by the
president or an executive vice president of the corporate general
partner of Reckson (or if there is no such corporate general partner,
the individuals holding equivalent positions) whether or not such monies
and/or property shall have been paid and/or returned to the Partnership
or the Partners; or
then such Partner shall be deemed to be in default hereunder; or
(g) with respect to Reckson, if Reckson or the REIT defaults in
the observance or performance of any of its obligations under the
Guaranty or if any of the representations or warranties of Reckson or
the REIT contained therein shall prove to be untrue or incorrect in any
material respect; or
(h) with respect to Reckson, if any act or omission of Reckson or
its Affiliates causes an event of default to occur under the Mortgage
Debt (other than an act or omission by Reckson or its Affiliates as
Managing Partner if such act or omission does not involve the gross
negligence or willful misconduct of such Managing Partner); or
(i) with respect to the Odyssey Entities, if any act or omission
of the Odyssey Entities or their Affiliates causes an event of default
to occur under the Mortgage Debt (other than an act or omission by an
Odyssey Entity or its Affiliates as Managing Partner if such act or
omission does not involve gross negligence or willful misconduct of such
Managing Partner); or
(j) with respect to the Odyssey Entities, if a monetary or
material non-monetary default beyond any applicable notice and grace
period occurs with respect to the Pledge Loan.
If the Defaulting Partner is Odyli, then Odyssey (and any Affiliate to
whom the Odyssey Entities have transferred part of their Partnership
interest) shall also be deemed a Defaulting Partner, and if the Defaulting
Partner is Odyssey, then Odyli shall also be deemed a Defaulting Partner, and
any remedy exercised by the other Partners pursuant to Section 14.3(c) shall
be exercised with respect to both the limited and general partnership
interests of the Odyssey Entities. If the Defaulting Partner is Reckson,
then any Affiliate to whom Reckson has transferred part of its Partnership
interest shall also be deemed a Defaulting Partner and if the Defaulting
Partner is an Affiliate to whom Reckson has transferred part of its
Partnership interest, Reckson shall also be deemed a Defaulting Partner.
14.2. Remedies. If a Partner (the "Defaulting Partner") is in
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default hereunder, then either Reckson or the Odyssey Entities, as the case
may be (in either case, and only if it is not then a Defaulting Partner, the
"Non-Defaulting Partner") may exercise any one or more of the remedies
described below:
(a) institute suit in any court of competent jurisdiction to
obtain (i) specific performance of the obligations of the Defaulting
Partner under this Agreement, (ii) reimbursement for all costs of court
and reasonable attorneys' fees thereby incurred and (iii) damages, if
any, resulting to the Partnership or the Non-Defaulting Partner from
such default by the Defaulting Partner plus interest thereon at the
Default Rate from the date incurred until the date paid;
(b) cure the default, in which case the Defaulting Partner shall
pay to the Non-Defaulting Partner, on demand, the cost of such cure
(including any interest on funds borrowed for the purpose) together with
interest thereon at the Default Rate from the date incurred until the
date paid; and
(c) elect to terminate the Partnership.
If Reckson is the Defaulting Partner, then the Odyssey Entities may
set-off amounts owed by Reckson under this Agreement against amounts
owed by the Odyssey Entities under the Pledge Note and Pledge Agreement.
14.3. Security Interest. (a) For purposes of this Section 14.3,
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(i) the Odyssey Entities (and any other Affiliate of the Odyssey Entities to
whom the Odyssey Entities transfer any part of their Partnership interests
pursuant to Section 12.2(a)) shall be deemed a single "Partner" and (ii)
Reckson and any other Affiliate of Reckson to whom Reckson transfers any part
of its Partnership interests pursuant to Section 12.2(a) shall be deemed a
single "Partner", and any action taken by the Odyssey Entities or the Reckson
Entities, as the case may be, in either capacity shall bind it in both
capacities, the interest in the Partnership of such "Partner" shall be deemed
to be both the limited and general partnership interests, and any notice to
or from any such Partner shall be deemed a notice to or from both of such
Partners. Each Partner hereby assigns and grants to the other Partner a
first priority lien upon, and a security interest in, the interest of such
Partner in the Partnership and all amounts, payments and proceeds becoming
distributable or payable to such Partner by the Partnership (including,
without limitation, the TI Reserve), as collateral security for the payment
and performance of such Partner's obligations under this Agreement
(including, without limitation, all of Reckson's obligations with respect to
the Odyssey Put Right); provided, however, that for so long as the Pledge
Loan is outstanding the lien and security interest granted by the Odyssey
Entities hereunder shall be subject and subordinate to the lien and security
interest granted to the Pledge Lender. Each Partner shall execute such
financing statements as the other Partner shall reasonably request in order
to perfect and maintain the perfection of the lien and security interest
herein granted. Any transfer of the Partnership interest of a Partner shall
be subject to such lien and security interest. Each Partner shall notify
each other Partner within thirty (30) days of any change in its chief
executive offices from that set forth in Article 17.
(b) If (and only if) a Partner becomes a Defaulting Partner, (x)
all amounts, payments and proceeds which may become distributable or payable
by the Partnership to such Defaulting Partner which are secured by a security
interest created pursuant to paragraph (a) above shall, subject to the rights
of the Pledge Lender if Reckson is not the Defaulting Partner and the Pledge
Loan is then outstanding, be paid to the Non-Defaulting Partner until all
amounts due to the Non-Defaulting Partner have been paid in full, but shall
nevertheless be deemed to have been distributed to the Defaulting Partner and
(y) the Non-Defaulting Partner may withdraw from the TI Reserve all amounts
due to it up to the amount of the Defaulting Partner's Share.
(c) Notwithstanding that each Partner has granted to the other
Partners a lien and security interest in such Partner's interest in the
Partnership, no Partner shall have the right to exercise its remedy as a
secured party under such version of the Uniform Commercial Code as is
applicable pursuant to Section 9.8 hereof to sell, assign or deliver a
Defaulting Partner's interest in the Partnership unless and until such
Partner obtains a final judgment from a court of competent jurisdiction as to
the default by such Defaulting Partner.
ARTICLE 15
DISSOLUTION AND LIQUIDATION
15.1. Events of Dissolution. The Partnership shall be dissolved
upon the earliest to occur of the following:
(a) the expiration of the term of the Partnership;
(b) the mutual consent of all the General Partners;
(c) the occurrence of any of the events described in Section 13.2
above with respect to any General Partner or the occurrence of any other
event that results in a General Partner ceasing to be a general partner
of the Partnership under the Partnership Act, unless (i) at the time of
such event there is at least one remaining General Partner who is hereby
authorized to and does elect to continue the business of the Partnership
pursuant to Section 13.3, or (ii) within ninety (90) days after the
occurrence of such event, all of the remaining Partners agree in writing
to continue the business of the Partnership and to the appointment,
effective as of the date of such event, if required, of one or more
additional general partners of the Partnership;
(d) the sale, taking in condemnation or by eminent domain or other
disposition of all or substantially all of the Partnership's assets,
unless the Partnership acquires an asset, other than cash, in connection
with any such sale or disposition, in which event the Partnership shall
be dissolved upon the conversion of such asset to cash;
(e) any other termination of the Partnership in accordance with
the provisions of this Agreement; and
(f) the entry of a decree of judicial dissolution pursuant to
Section 17-802 of the Partnership Act.
15.2. Liquidation. If the Partnership is dissolved, the Managing
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Partner shall be the "Liquidating Partner". The Liquidating Partner shall
immediately file any notice, publish any advertisements or take any other
action required under applicable law to effect such dissolution, commence to
wind up the affairs of the Partnership, liquidate the assets of the
Partnership by converting the same to cash and shall apply and distribute the
proceeds of such liquidation and any undistributed Net Ordinary Cash Flow in
the following order of priority:
(a) first, to the payment of all debts and obligations of the
Partnership (including any debts of the Partnership to a Partner other
than with respect to any Extraordinary Capital Loans, Capital Loans,
Additional Contributions, Priority Contributions or any interest thereon
or accruals thereof); provided, however, to the fullest extent permitted
by law, that all debts and obligations of the Partnership as to which
personal liability exists with respect to any Partner shall be satisfied
or a reserve shall be established therefor, prior to the satisfaction of
any debt or other obligation of the Partnership as to which no such
personal liability exists; and provided, further, that where a
contingent debt, obligation or liability exists, a reserve in such
amount as the Liquidating Partner deems reasonable and appropriate
(subject to Section 10.2(f) above), shall be established to satisfy such
contingent debt, obligation or liability, which reserve shall be
deposited in a separate interest-bearing account in accordance with
Section 9.6 and distributed as provided in this Section 15.2 only upon
the termination of such contingency; and
(b) the balance, if any, in the same order of priority as set
forth in Section 8.2.
15.3. Period of Liquidation. A reasonable time shall be allowed
---------------------
for the orderly liquidation of the assets of the Partnership and the
discharge of liabilities to creditors so as to enable the Partners to
minimize losses.
15.4. Statement of Liquidation. Each of the Partners shall be
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furnished with a statement prepared by, or under the supervision of, the
Liquidating Partner and the Partnership Accountants which shall set forth the
assets and liabilities of the Partnership as of the date of complete
liquidation. Upon dissolution and liquidation of the Partnership, the
Liquidating Partner shall execute, acknowledge and cause to be filed any
notice or certificate required by law to reflect the termination of the
Partnership.
ARTICLE 16
NOTICES
Any notice or other communication that is required or permitted to be
given under the terms of this Agreement (each, a "Notice") shall be in
writing and shall be given by (a) registered or certified mail, return
receipt requested, (b) personal delivery, (c) a nationally recognized
overnight courier, or (d) facsimile transmission with an original of such
Notice sent by one of the methods described in clauses (a), (b), or (c) above
on the same day as such facsimile transmission, to the parties hereto at the
following addresses or at such other address as any party hereto shall
hereafter specify by ten (10) business days' prior Notice given and received
in the manner provided in this Article 16 to the other parties described in
this Article 16. Any notice of any default hereunder shall specifically
state that it is a notice of default and shall contain a specific reference
to the provision hereof under which such default is alleged.
If to Reckson:
c/o Reckson Associates
225 Broadhollow Road - CS5341
Melville, New York 11747
Attn: Mr. Scott Rechler
with a copy of all default notices to:
Brown & Wood
One World Trade Center
New York, New York 10048
Attn: Lee Saltzman, Esq.
If to Odyli or Odyssey:
c/o Odyssey Partners, L.P.
31 West 52nd Street
New York, New York 10019
Attn: Chief Financial Officer
with copies to:
Martin Rabinowitz, Esq.
c/o Odyssey Partners, L.P.
31 West 52nd Street
New York, New York 10019
and
Joshua Mermelstein, Esq.
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004
If to the Partnership, to both Reckson and the Odyssey Entities as
aforesaid.
A Notice shall be deemed to have been duly received (and the time period
in which a response thereto is required shall commence) (w) if mailed, on the
date set forth on the return receipt, (x) if personally delivered, on the
date of such delivery (as evidenced by the receipt of the personal delivery
service), (y) if delivered by overnight courier, on the date of such delivery
(as evidenced by the receipt of the overnight courier service), or (z) if
delivered by facsimile transmission, on the date of delivery of the original
of such Notice as described above by mail, personal delivery or overnight
courier. The inability to make delivery because of changed address of which
no notice was given, or rejection or refusal to accept any Notice offered for
delivery shall be deemed to be receipt of the Notice as of the date of such
inability to deliver or rejection or refusal to accept. Any Notice may be
given by counsel for the party giving same.
ARTICLE 17
REPRESENTATIONS AND WARRANTIES
17.1. Representations and Warranties of Reckson. Reckson hereby
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represents and warrants as of the date hereof that:
17.1.1 Reckson is a duly formed and validly existing limited
partnership formed under the laws of the State of Delaware. The sole general
partner of Reckson is the REIT. A true, correct and complete copy of the
limited partnership agreement of Reckson and all amendments thereto have
heretofore been delivered to the Odyssey Entities.
17.1.2 Reckson has the requisite partnership power and authority
to enter into and perform the terms of this Agreement and the Guaranty, the
execution and delivery of this Agreement and the Guaranty, and the
consummation of the transactions contemplated hereby and thereby have been
duly authorized and no other partnership or other action on the part of
Reckson or any of its partners is necessary in order to permit Reckson or any
of its partners to consummate the transactions contemplated hereby or
thereby. This Agreement and the Guaranty constitute valid and binding
obligations of Reckson, enforceable in accordance with their respective terms
as the same may be limited, however, by applicable insolvency, bankruptcy or
other laws affecting creditors' rights generally or by general principles of
equity.
17.1.3 Neither the execution, delivery or performance by the
Reckson Entities of this Agreement, the Guaranty, or the transactions
contemplated hereby or thereby will conflict with, or will result in a breach
of, or will constitute a default under, (i) any agreement or instrument by
which the Reckson Entities may be bound or (ii) any Legal Requirement or any
other judgment, statute, rule, law, order, decree, writ or injunction of any
court or Governmental Authority.
17.1.4 No approval, consent, order or authorization of, or
designation, registration or declaration with, any Governmental Authority is
required in connection with the valid execution and delivery of, and
compliance with, this Agreement and the Guaranty by the Reckson Entities and
the performance by the Reckson Entities of the transactions contemplated
hereby and thereby. The Reckson Entities have paid or shall pay all
transfer, gains and other taxes required by the State of New York to be paid
with respect to the formation of the Partnership.
17.1.5 The chief executive offices of Reckso