SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------
FORM 10-Amendment No. 3
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR 12(g) OF
THE SECURITIES EXCHANGE ACT OF 1934
METROPOLIS REALTY TRUST, INC.
(Exact name of registrant as specified in its charter)
Maryland 13-3910684
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
885 Third Avenue, New York, New York 10022
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 593-5400
Securities to be registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
None Not Applicable
Securities to be registered pursuant to Section 12(g) of the Act:
Class A Common Stock, par value $10.00 per share
(Title of class)
Class B Common Stock, par value $10.00 per share
(Title of class)
Class C Common Stock, par value $10.00 per share
(Title of class)
C/M: 11764.0009 421963.14
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INFORMATION REQUIRED IN REGISTRATION STATEMENT
Item 1. Business.
See "BUSINESS AND PROPERTIES."
Item 2. Financial Information.
See "SELECTED FINANCIAL INFORMATION" and Financing Statements
appearing elsewhere in this Registration Statement."
Item 3. Properties.
See "BUSINESS AND PROPERTIES."
Item 4. Security Ownership of Certain Beneficial Owners and Management.
See "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT."
Item 5. Directors and Executive Officers.
See "MANAGEMENT OF THE COMPANY."
Item 6. Executive Compensation.
See "MANAGEMENT OF THE COMPANY."
Item 7. Certain Relationships and Related Transactions.
See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."
Item 8. Legal Proceedings.
See "BUSINESS AND PROPERTIES -- Legal Proceedings."
Item 9. Market Price of and Dividends on the Registrant's Common Equity and
Related Stockholder Matters.
See "DESCRIPTION OF STOCK OF THE COMPANY" and BUSINESS AND
PROPERTIES -- Distribution Policy."
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Item 10. Recent Sales of Unregistered Securities.
See "RECENT SALES OF UNREGISTERED SECURITIES."
Item 11. Description of Registrant's Securities to be Registered.
See "DESCRIPTION OF STOCK OF THE COMPANY."
Item 12. Indemnification of Directors and Officers.
See "CERTAIN PROVISIONS OF MARYLAND LAW AND OF THE COMPANY'S
CHARTER AND BYLAWS -- Indemnification Agreements" and -- "Limitation of
Liability and Indemnification."
Item 13. Financial Statements and Supplementary Data.
See Financial Statements appearing elsewhere in this Registration
Statement.
Item 14. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
See "AUDITORS."
Item 15. Financial Statements and Exhibits.
See Financial Statements appearing elsewhere in this Registration
Statement.
See "EXHIBITS."
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TABLE OF CONTENTS
Page
INFORMATION REQUIRED IN REGISTRATION STATEMENT.............................iii
INTRODUCTION .............................................................. 1
BUSINESS AND PROPERTIES.................................................... 3
Business.......................................................... 3
Properties........................................................ 3
The 1290 Property............................................ 3
The 237 Property............................................. 6
Other Assets...................................................... 8
Tenant Notes................................................. 8
JMB Notes.................................................... 9
Claims Reserve............................................... 9
Tax Certiorari Proceedings and Tenant Reimbursement Claims... 9
Priority Utility Tax Claims.................................. 0
Certain Assets Related to 2 Broadway......................... 1
Qualification as a REIT...................................... 1
Distribution Policy.......................................... 3
Competition.................................................. 3
Indebtedness................................................. 3
Legal Proceedings............................................ 4
Retention of Jurisdiction by Bankruptcy Court................ 4
Employees.................................................... 4
SELECTED FINANCIAL DATA.................................................... 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS..................................................... 18
Overview...................................................... 18
Historical - Twelve Months Ended December 31, 1995 and
December 31, 1994.......................................................... 18
Historical - Period January 1, 1996 to October 10, 1996
and Twelve months ended December 31, 1995.................................. 18
Liquidity and Capital Resources............................... 19
Funds from Operations......................................... 19
DESCRIPTION OF CHASE FINANCING AND MORTGAGE................................ 20
Credit Agreement.............................................. 20
Mortgage Modification, Restatement and Security Agreement..... 24
DESCRIPTION OF THE LIMITED PARTNERSHIP AGREEMENTS OF THE PARTNERSHIPS...... 25
The Lower Tier Limited Partnership Agreement.................. 26
The Upper Tier Limited Partnership Agreement.................. 29
Property Owning Partnership Agreements........................ 30
MANAGEMENT OF THE COMPANY.................................................. 32
Directors and Officers........................................ 32
Compensation of Directors................................ 34
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Page
Asset Management Agreement............................... 34
Management and Leasing Agreements........................ 35
BACKGROUND .............................................................. 37
The Debtors and Certain Affiliates............................ 37
Summary of the Plan........................................... 37
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............. 41
Description of Registration Rights Agreement.................. 42
Description of Stock Plan..................................... 43
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................. 44
DESCRIPTION OF STOCK OF THE COMPANY........................................ 44
General....................................................... 44
Common Stock.................................................. 45
Preferred Stock............................................... 47
Restrictions on Transfer...................................... 47
CERTAIN PROVISIONS OF MARYLAND LAW AND OF THE COMPANY'S CHARTER AND
BYLAWS.................................................................... 49
Affiliate Transactions........................................ 49
Business Combinations......................................... 50
Certain Voting Provisions..................................... 51
Control Share Acquisitions.................................... 51
Amendment of Charter and Bylaws............................... 52
Dissolution of the Company.................................... 52
Meetings of Stockholders...................................... 52
Additional Provisions Related to The Board of Directors....... 53
Limitation of Liability and Indemnification................... 55
Indemnification Agreements.................................... 55
RECENT SALES OF UNREGISTERED SECURITIES.................................... 56
AUDITORS .............................................................. 56
SIGNATURES ..............................................................F-1
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INTRODUCTION
Metropolis Realty Trust, Inc., a Maryland corporation (the
"Company"), which intends to qualify as a real estate investment trust (a
"REIT") under the Internal Revenue Code of 1986, as amended (the "Internal
Revenue Code"), was formed on May 13, 1996 to facilitate the consummation of the
Second Amended Joint Plan of Reorganization of 237 Park Avenue Associates,
L.L.C. ("237 LLC") and 1290 Associates, L.L.C. ("1290 LLC" and, together with
237 LLC, the "Debtors"), dated September 20, 1996 (as amended, the "Plan"), and,
thereby, acquire the interests of 237 LLC and 1290 LLC in the properties located
in New York City at 237 Park Avenue (the "237 Property") and 1290 Avenue of the
Americas (the "1290 Property," and together with the 237 Property, the
"Properties"). The Debtors were two of the many companies, partnerships and
joint ventures that collectively constituted the United States operations of the
Olympia & York ("O&Y") group of companies. The transactions contemplated by the
Plan were consummated on October 10, 1996 (the "Effective Date").
As depicted in the following chart, the Company owns a 95%
partnership interest, as general partner, in 237/1290 Lower Tier Associates,
L.P., a Delaware limited partnership (the "Lower Tier Limited Partnership")
which owns a 99% partnership interest, as limited partner, in each of 237 Park
Partners, L.P., a Delaware limited partnership (the "237 Property Owning
Partnership") and 1290 Partners, L.P., a Delaware limited partnership (the "1290
Property Owning Partnership," and together with the 237 Property Owning
Partnership, the "Property Owning Partnerships"). The Property Owning
Partnerships own the Properties. The remaining 1% interest in each of the
Property Owning Partnerships is owned by one of two wholly-owned subsidiaries of
the Company (the "GP Corps"), as general partner. Pursuant to the Plan, the
Company has also succeeded to certain other assets held by the Debtors, and
certain affiliates of the Debtors (as further described under the caption titled
"BUSINESS -- Other Assets"). The remaining 5% interest in the Lower Tier Limited
Partnership (the "LP Interest") is owned by a limited partnership (the "Upper
Tier Limited Partnership") which is owned almost entirely by JMB/NYC Office
Building Associates, L.P. ("JMB LP"), a former holder of equity interests in the
Debtors, as limited partner. The 5% LP Interest is subordinated to the 95%
partnership interest of the Company with respect to certain priority
distributions from the Lower Tier Limited Partnership. See "DESCRIPTION OF THE
LIMITED PARTNERSHIP AGREEMENTS OF THE PARTNERSHIPS." The Upper Tier Limited
Partnership, the Lower Tier Limited Partnership and the Property Owning
Partnerships are hereinafter referred to, collectively, as the "Partnerships."
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The following chart depicts the Company's indirect ownership of the
Properties as described above.
[CHART]
2
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BUSINESS AND PROPERTIES
Business
Since the Effective Date, the Company has held, through its
interests in the Partnerships, the assets described below under "Properties" and
"Other Assets." The Company's principal business objective is to operate the
Properties in a manner that will maximize the Properties' revenues and value and
in turn maximize stockholder value. The Company may acquire additional
properties in the future, although it has no present plans to do so. As further
described under "MANAGEMENT OF THE COMPANY -- Asset Management Agreement" and "
- -- Management and Leasing Agreements," the Property Owning Partnerships have
retained 970 Management, LLC (the "Asset Manager"), an affiliate of Victor
Capital Group, L.P. ("VCG"), to serve as asset manager and Tishman Speyer
Properties, L.P. ("Tishman Speyer" or the "Property Manager/Leasing Agent"), an
affiliate of Tishman-Speyer Properties, Inc., to serve as property
manager/leasing agent to manage the day-to-day operations of the Properties.
The Company intends to operate so as to qualify as a REIT
under the Internal Revenue Code commencing with its taxable year ending December
31, 1996. If it so qualifies, the Company's REIT income, with certain limited
exceptions, will not be subject to federal income tax at the corporate level. In
order to maintain its REIT status, the Company will be required, among other
things, to distribute annually (as determined under the Internal Revenue Code)
to its stockholders at least 95% of REIT income and to meet certain asset,
income and stock ownership tests. See "Qualification as a REIT" below.
Properties
The 1290 Property
The 1290 Property Owning Partnership holds the fee title to
the 1290 Property and all improvements thereon. The 1290 Property, completed in
1963, is a 43-story, first class commercial office building with approximately
1,963,000 rentable square feet of space. The building is centrally located in
midtown Manhattan and is connected to the famed "Rockefeller Center" complex via
an underground passageway.
The average occupancy rates for the 1290 Property for the
years 1991 to 1995 were 97%, 97%, 98%, 94% and 78% respectively.
As of October 10, 1996, the 1290 Property was approximately
97% leased and there were leases and license agreements with 38 tenants and 4
licensees covering approximately 1,912,000 rentable square feet of space. As of
October 10, 1996, the annual average rent (including electricity and additional
rent payable on account of operating expenses and real estate tax escalations)
for space leased in the building was approximately $43.50 per square foot. As of
October 10, 1996, approximately 48,400 square feet of space was under lease to
retail tenants, at an average annual rent (including electricity and additional
rent payable on account of operating and real estate tax escalations) of
approximately $65.00 per rentable square foot. As of October 10, 1996,
approximately 51,000 rentable square feet of office and retail space was
available for rent.
The building serves as the corporate headquarters of The
Equitable Life Assurance Society of the United States ("Equitable"). In addition
to Equitable, the building houses a variety of tenants, including law firms,
financial institutions and entertainment companies.
3
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The following table summarizes certain information regarding
the largest leases at the 1290 Property:
<TABLE>
<CAPTION>
Annual Base
Leased Rent Gross Rent Date(s) of
square per square per square Lease
Tenant Nature of Business footage foot leased(1) foot leased(2) Expiration
<S> <C> <C> <C> <C> <C>
Equitable (3) Insurance/Financial
Services 502,480 $36.25 $36.47 12/31/11
Warner Communications, Inc. Entertainment 268,577 $37.32(4) $39.58(4) 6/30/12(5)
The Bank of New York Financial Services 167,574 $35.98(6) $36.20(6) 12/31/10(7)
EMI Entertainment World, Inc. Entertainment 144,981 $37.09(8) $37.50(8) 9/30/02
Other Tenants Various 860,000 $39.15 $43.50 1996-2005
</TABLE>
(1) Annual Base Rent means the amount contractually due (excluding recoveries
from tenants for common area maintenance charges, taxes, utilities or other
items) for the calendar month ending September 30, 1996, annualized. The
Company believes that base rent is a conservative and appropriate measure
for comparative purposes of commercial real estate rental revenue from
office building properties that do not generate percentage rents based on
sales.
(2) Gross Rent means Annual Base Rent plus recoveries from tenants for common
area maintenance charges, taxes, utilities and other items. Information
necessary to compute effective rent, including rent concessions, leasing
commissions and tenant improvements is not available with respect to leases
entered into prior to the date the Properties were acquired by the Property
Owning Partnerships.
(3) The lease agreement with Equitable provides for the delivery of space to
Equitable in three separate blocks; Block A, comprising 287,664 rentable
square feet, Block B, comprising 135,528 rentable square feet and Block C,
comprising 79,288 rentable square feet. Equitable is currently in possession
of the space designated as Block A, and is entitled to a free rent period
for such space through June 1997. The space designated as Block B was
delivered to Equitable on October 1, 1996. Equitable is entitled to a free
rent period for such space through October 1997. The space designated as
Block C is currently occupied by another tenant and such space will be
delivered to Equitable on March 1, 1999. In addition to free rent, Equitable
is entitled to a credit against rent of up to approximately $1,600,000 for
all three blocks as reimbursement for the cost of certain tenant
improvements made by and paid for by Equitable.
(4) The lease agreements with Warner Communications, Inc. ("Warner") provide
that, with respect to 133,011 rentable square feet of space, Warner will not
be required to pay rent until July 1, 1997. A block of space constituting
24,380 rentable square feet is not scheduled to be delivered to Warner until
June 30, 1998, following which Warner is entitled to a free rent period of
approximately 14 1/2 months with respect to such space. Does not include
6,422 square feet of space leased in the basement at an Annual Base Rent of
$18.50 per square foot and a Gross Rent of $20.80 per square foot.
(5) Leases with Warner expire 5/31/99 (with respect to 76,708 square feet);
2/28/00 (with respect to 28,056 square feet and 6,422 square feet in the
basement); and 6/30/12 (with respect to 157,391 square feet).
(6) Does not include 11,633 square feet of space leased in the basement at an
Annual Base Rent and a Gross Rent of $40.00 per square foot.
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(7) The Bank of New York lease expires 5/31/98 (with respect to 24,380 square
feet); 4/30/03 (with respect to 31,463 square feet and 11,633 square feet in
the basement); and 12/31/10 (with respect to 100,159 square feet). The Bank
of New York lease provides that the Bank of New York has the option to
terminate its lease with respect to the third floor of the 1290 Property
effective as December 31, 2006 by giving the 1290 Property Owning
Partnership notice on December 31, 2005 and by paying a fee of $1,000,000.
(8) Does not include (i) 923 square feet of space leased in the basement at an
Annual Base Rent of $4.84 per square foot and a Gross Rent of $5.84 per
square foot and (ii) an additional 1,533 square feet of space leased in the
basement at an Annual Base Rent of $28.50 per square foot and a Gross Rent
of $35.50 per square foot.
A major capital project at the 1290 Property which included a
renovation of the building's lobby was substantially completed in December 1996.
The total budget for the project was $7,700,000 with approximately $1,900,000
remaining to be expended as of the Effective Date. Anticipated expenditures for
capital projects for the 1290 Property in 1997 are approximately $3,000,000 and
relate primarily to: (i) the commencement of an elevator modernization program;
(ii) conversion of a refrigeration machine (in accordance with the 1992 Clean
Air Act); (iii) the repair of certain roof setbacks; and (iv) removal of
asbestos in several mechanical rooms. Capital expenditures in future years are
estimated to be $1,000,000 per annum, and relate primarily to the continuation
of the elevator modernization program.
An environmental report prepared for the Properties indicates that the
1290 Property contains asbestos or asbestos containing materials in several
mechanical rooms and certain other locations. The cost of removing the asbestos
in accordance with the operations and maintenance plan for the 1290 Property is
estimated to be between $2,000,000 and $3,000,000.
The following table shows anticipated lease expirations on an aggregate
basis for the period from October 10, 1996 through December 31, 1996 and for
each calendar year from 1997 through and including 2005. Such chart assumes that
there are no early terminations of leases and that leases expire without
extension by existing tenants pursuant to lease options.
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<TABLE>
<CAPTION>
Percentage of Total
1290 Property
Owning Partnership
Rentable Square Annual Base Rent Annual Base Rent
Year of Lease Number of Feet Subject to Represented by Represented
Expiration Leases Expiring Expiring Leases Expiring Leases by Expiring Leases
- ------------ --------------- --------------- ----------------- -------------------
<S> <C> <C> <C> <C>
1996 2 45,762 $1,795,356 2.68%
1997 2 69,834 $2,042,876 3.85%
1998 2 16,925 $ 666,628 .97%
1999 3 80,562 $2,908,093 4.31%
2000 2 35,596 $1,466,036 1.79%
2001 2 98,501 $4,216,092 5.56%
2002 3 221,334 $8,703,463 11.84%
2003 2 45,044 $1,821,539 2.44%
2004 3 171,746 $7,861,370 10.30%
2005 5 16,734 $1,012,162 1.22%
</TABLE>
Annual real estate taxes assessed against the 1290 Property for the
fiscal years ended June 30, 1995 and 1996 were $19,094,400 and $19,023,178,
respectively, which amounts were calculated on assessed values of approximately
$180,000,000 and $189,000,000 respectively. On July 1, 1996, 1290 LLC paid a
portion of the real estate taxes assessed against the 1290 Property for the tax
year July 1, 1996 through June 30, 1997 in an amount equal to $8,776,687.50. See
"Tax Certiorari Proceedings and Tenant Reimbursement Claims."
The 237 Property
The 237 Property Owning Partnership holds the fee title to the 237
Property and all improvements thereon. The 237 Property is a 23-story, first
class commercial office building with approximately 1,140,000 rentable square
feet of space. The building was completed in 1981 as a comprehensive renovation
of an existing structure and now features an interior layout of an open full
atrium. The building, centrally located in midtown Manhattan, is situated off of
one of New York City's prestigious thoroughfares and is within close proximity
to Grand Central Station, a transportation hub.
The average occupancy rates for the 237 Property for years 1991 to 1995
were 100%, 98%, 98%, 98% and 98%, respectively.
As of October 10, 1996, the 237 Property was approximately 98% leased
and there were leases and license agreements with 16 tenants and 2 licensees
covering approximately 1,119,000 rentable square feet of space. As of October
10, 1996, the annual average rent (including electricity and additional rent on
this space payable on account of operating expenses and real estate tax
escalations) for space leased in the building was approximately $42.00 per
square foot. As of October 10, 1996, approximately 23,000 square feet of space
was under lease to retail tenants, at an average annual rent (including
electricity and additional rent on this space payable on account of operating
expenses and real estate tax escalations) of approximately $54.00 per rentable
square foot. As of October 10, 1996, approximately 23,000 rentable square feet
of retail space was available for rent.
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The following table summarizes certain information regarding the
largest leases at the 237 Property:
<TABLE>
<CAPTION>
Annual Base Gross
Leased Rent per Rent per Year of
Square square foot square foot Lease
Tenant Nature of Business Footage leased(1) leased(2) Expiration
<S> <C> <C> <C> <C> <C>
J. Walter Thompson Advertising 456,132 $22.39 $32.07 8/31/06
Company(3)
Swiss Reinsurance
Company, U.S. Branch
(and certain of its Insurance/Financial
affiliates) Services 279,906 $36.09 $57.74 8/31/01
E.M. Warburg, Pincus
& Co., Inc. Financial Services 148,197 $48.57(4) $54.81 10/31/09
Champion International Pulp and Paper
Corporation Industry 110,800 $39.20 $44.80 9/30/11
Other Tenants Various 124,000 $23.17 $24.25 1998-2004
</TABLE>
(1) Annual Base Rent means the amount contractually due (excluding
recoveries from tenants for common area maintenance charges, taxes,
utilities or other items) for the calendar month ending September 30,
1996, annualized. The Company believes that base rent is a
conservative and appropriate measure for comparative purposes of
commercial real estate rental revenue from office building properties
that do not generate percentage rents based on sales.
(2) Gross Rent means Annual Base Rent plus recoveries from tenants for
common area maintenance charges, taxes, utilities and other items.
Information necessary to compute effective rent, including rent
concessions, leasing commissions and tenant improvements is not
available with respect to leases entered into prior to the date the
Properties were acquired by the Property Owning Partnerships.
(3) J. Walter Thompson Company ("JWT") has the option to terminate its
lease on September 30, 2000 with respect to up to 110,607 rentable
square feet of space on the 8th Floor and the 9th Floor if JWT's
subtenant exercises its option to terminate its sublease. JWT must
provide notice to the 237 Property Owning Partnership with respect to
such termination at least one year in advance of such date.
(4) The lease agreement with E.M. Warburg, Pincus & Co. ("Warburg Pincus")
provides that with respect to 56,243 rentable square feet Warburg
Pincus will not be required to pay rent until May 1, 1997.
Anticipated expenditures for capital projects for the 237
Property in 1997 are approximately $1,000,000 and relate primarily to facade and
roof repairs, as well as an upgrade of the condenser water system. Capital
expenditures in future years are estimated to be $225,000 per annum.
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The following table sets forth anticipated lease expirations
on an aggregate basis for the period from October 10, 1996 through December 31,
1996 and for each calendar year from 1997 through and including 2005. This chart
assumes that there are no early terminations of leases and that leases expire
without extension by existing tenants pursuant to lease options.
<TABLE>
<CAPTION>
Percentage of Total
237 Property Owning
Rentable Square Annual Base Rent Partnership Annual
Year of Lease Number of Feet Subject to Represented by Base Rent Represented
Expiration Leases Expiring Expiring Leases Expiring Leases by Expiring Leases
------------ --------------- --------------- ----------------- -------------------
<S> <C> <C> <C> <C>
1996 - - - -
1997 - - - -
1998 1 900 $ 36,000 .10%
1999 2 28,452 $ 902,880 2.70%
2000 1 3,450 $ 190,665 .55%
2001 3 282,546 $ 10,152,775 31.46%
2002 - - - -
2003 2 21,641 $ 6,116,810 1.91%
2004 2 9,693 $ 241,085 .59%
2005 - - - -
</TABLE>
Annual real estate taxes assessed against the 237 Property for the
fiscal years ended June 30, 1995 and June 30, 1996 were $8,900,056 and
$9,511,807, respectively, which amounts were calculated on assessed values of
approximately $102,000,000 and $108,450,000, respectively. On July 1, 1996, the
237 LLC paid a portion of the real estate taxes assessed against the 237
Property for the tax year July 1, 1996 through June 30, 1997 in an amount equal
to $4,989,605.34. See "Tax Certiorari Proceedings and Tenant Reimbursement
Claims."
Other Assets
Tenant Notes
An affiliate of O&Y was the holder of a note (the "Robinson Silverman
Note") issued by Robinson, Silverman, Pearce & Aronsohn ("Robinson Silverman")
dated April 1, 1989 in the face amount of $6,500,000, which note was executed in
connection with Robinson Silverman's lease at the 1290 Property. The Robinson
Silverman Note was assigned to the 1290 Property Owning Partnership on the
Effective Date. In 1991 and 1992, Robinson Silverman claimed certain concessions
regarding the payment terms of such note. Although 1290 LLC was unable to locate
any records evidencing an agreement to such concessions, Robinson Silverman has
made payments reflecting such concessions and such payments were not rejected by
1290 LLC and have not been rejected by the Property Owning Partnerships. Without
the Company expressing any opinion with regard thereto, if such concessions were
granted, the Robinson Silverman note would have an outstanding principal balance
as of the Effective Date of $5,317,690, would bear interest at 7.5% per annum,
would require level monthly payments of interest and principal of $75,000 and
would mature on September 1, 1999. If such concessions were not granted, then
the Robinson Silverman Note would bear interest at 10% and, based on the monthly
payments of $75,000 received from Robinson Silverman, the outstanding balance as
of the Effective Date would be approximately $6,113,946.
An affiliate of O&Y was the holder of a note (the "Warburg Pincus
Note," and together with the Robinson Silverman Note, the "Tenant Notes"),
issued by Warburg Pincus dated August 20, 1985, in the face amount of
$4,354,758.09, which note was executed in connection with Warburg Pincus' lease
at the 237 Property. The note is payable on October 31, 1999 and does not bear
interest prior to its maturity.
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On the Effective Date, such affiliates of O&Y holding the Tenant Notes
assigned their interests in the Tenant Notes to the applicable Property Owning
Partnership and an amount equal to $450,000 representing all cash paid in
respect of the Tenant Notes from January 1, 1996 through the Effective Date, net
of certain payments made in connection with the consummation of the Plan.
JMB Notes
Certain notes (the "JMB Notes") were issued by JMB LP's predecessor in
interest to an affiliate of O&Y in 1984 in connection with the admission of such
predecessor as a partner of the predecessor of the Debtors and an affiliate of
the Debtors which owned the property located at 2 Broadway, New York, New York
("2 Broadway"). The amount outstanding on an aggregate basis under all the JMB
Notes, as of the Effective Date, was $83,918,815. On the Effective Date, the JMB
Notes and related security agreements were assigned by such O&Y affiliate to the
Company. Immediately prior to such assignment, the Company entered into a
Participation Agreement with an affiliate of JMB LP pursuant to which the
Company or its designee will receive the first $750,000 of payments made
pursuant to, or in respect of, the JMB Notes and the JMB LP affiliate will
receive all further payments in respect of the JMB Notes. Amounts, if any,
distributable to JMB LP from the Upper Tier Limited Partnership, including
pursuant to the Company's purchase option and JMB LP's put option as described
under "DESCRIPTION OF THE LIMITED PARTNERSHIP AGREEMENTS OF THE PARTNERSHIPS --
The Upper Tier Limited Partnership Agreement," would first be applied to the
prepayment of the JMB Notes. On the Effective Date, the JMB Notes were restated.
The JMB Notes, as restated, bear interest at 12.75% per annum and have a
maturity date of January 1, 2001. The JMB Notes are non-recourse and are payable
solely out of the distributions JMB LP receives from the Upper Tier Limited
Partnership.
Claims Reserve
On the Effective Date, the Indenture Trustee (as hereinafter defined)
transferred to segregated accounts maintained by Bankers Trust Company, as
disbursing agent under the Plan (the "Disbursing Agent"), $4,966,595,
representing the amount of cash estimated to be required to pay in full all
claims (disputed or otherwise), including Priority Utility Tax Claims, discussed
below, arising from the Debtors' bankruptcy cases. As of December 1, 1996,
$3,466,595 plus interest is being held in the Claims Reserve pending resolution
of such claims. The cash held in the Claims Reserve will be held in trust for
the benefit of holders of such claims pending determination of their entitlement
thereto. The Company believes that amounts in the Claims Reserve will be
sufficient to pay in full all claims arising from the Debtors' bankruptcy cases.
Payments and distributions to each holder of a disputed claim will be
made in accordance with the provisions of the Plan as soon as practicable after
the date that the order or judgment of the United States Bankruptcy Court for
the Southern District of New York (the "Bankruptcy Court") allowing such
disputed claim to be paid, without any interest thereon, from cash held in the
Claims Reserve becomes a final order.
In the event that any cash held in the Claims Reserve remains after all
claims have been allowed or disallowed and distributions have been made in
accordance with the Plan, such cash will be transferred to the Company.
Tax Certiorari Proceedings and Tenant Reimbursement Claims
The Debtors and their predecessors-in-interest commenced tax certiorari
proceedings which remain outstanding against the City of New York, for
over-assessment of property taxes for the tax year ending June 30, 1996 with
respect to the 237 Property and for the tax years ending June 30, 1991 through
June 30, 1996 with respect to the 1290 Property. In addition, 2 Broadway
Associates, L.P. ("2 Broadway LP") similarly commenced tax certiorari
proceedings against the City of New York for over-assessment of property taxes
with respect to the property located at 2 Broadway, New York, New York. The
rights to the proceeds of the 2 Broadway tax certiorari proceedings were
assigned to the Company. See "--Certain Assets Related to
9
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<PAGE>
2 Broadway." The Property Owning Partnerships and the Company have executed
stipulations which would substitute the Property Owning Partnerships and the
Company for the Debtors and 2 Broadway LP, respectively, in such tax certiorari
proceedings. Such stipulations have been filed with the Bankruptcy Court and the
Property Owning Partnerships and the Company are awaiting the Bankruptcy Court's
approval. The Company estimates Net Tax Proceeds (as hereinafter defined) from
such tax certiorari proceedings of approximately $14,000,000. Certain current
and former tenants of the Properties and 2 Broadway hold unsecured claims (the
"Tenant Reimbursement Claims") against the Property Owning Partnerships and the
Company based upon a right to payment provided in such tenant's lease,
contingent upon the realization by the Property Owning Partnerships and the
Company of the proceeds, if any, of any tax certiorari proceedings which were
commenced by the Debtors and 2 Broadway LP with respect to the Properties, net
of any amounts, fees and expenses incurred to prepare for, institute and
prosecute such tax certiorari proceedings (the "Net Tax Proceeds"). The Property
Owning Partnerships and/or the Company receiving such Net Tax Proceeds will
cause an amount necessary, in their sole determination, to reserve in full for
all Tenant Reimbursement Claims to be transferred to the Disbursing Agent for
deposit in the Claims Reserve. Within 30 days after the date of such deposit,
the Property Owning Partnerships and the Company will determine the entitlement
of holders of Tenant Reimbursement Claims to payment of such Tenant
Reimbursement Claims by reason of the receipt of such Net Tax Proceeds and, in
making such determination, will be entitled to give effect to any rights of
setoff, recoupment or other claims that the Property Owning Partnerships and/or
the Company or any predecessor-in- interest may have against the holders of such
Tenant Reimbursement Claims. Thereafter, the Property Owning Partnerships and/or
the Company will deliver a notice of such determination to each holder of a
Tenant Reimbursement Claim. Each holder of a Tenant Reimbursement Claim will
have 30 days after receipt of such notice to object to the determination of the
amount to which it is entitled. If the holder of a Tenant Reimbursement Claim
does not object to the determination by the Property Owning Partnerships and/or
the Company within such 30 day period, then such Tenant Reimbursement Claim will
be paid from the Claims Reserve at the request of the Property Owning
Partnerships and/or the Company, without the necessity of Bankruptcy Court
approval. If the holder of a Tenant Reimbursement Claim objects on a timely
basis to the determination by the Property Owning Partnerships and/or the
Company, then such Tenant Reimbursement Claim will be a disputed claim and no
payments will be made on account of such claim until such claim is allowed, in
whole or in part, by final order of the Bankruptcy Court. All remaining Net Tax
Proceeds held by the Property Owning Partnerships will be distributed to the
Lower Tier Limited Partnership which will in turn distribute such Net Tax
Proceeds related to the Properties to the Company; provided, that, the Property
Owning Partnerships are required to retain sufficient cash to pay all disputed
Tenant Reimbursement Claims until such claims have been allowed or disallowed.
The Company estimates that approximately $6,156,000 will be paid to current and
former tenants in respect of Tenant Reimbursement Claims.
Priority Utility Tax Claims
Pursuant to the Plan, the Debtors were deemed to have objected to all
claims against the Debtors arising from the nonpayment of New York State or New
York City utility taxes (the "Priority Utility Tax Claims") evidenced by a filed
proof of claim. As successor to the Debtors, the Upper Tier Limited Partnership
has the exclusive right to prosecute any objection to Priority Utility Tax
Claims, any litigation related to any objection to Priority Utility Tax Claims
and to compromise or settle any such objection or litigation. Pursuant to the
Plan, the Company deposited approximately $1,405,000 in the Claims Reserve for
such claims. In the event that the Upper Tier Limited Partnership compromises
any objection to any Priority Utility Tax Claim, the Property Owning Partnership
owning the Property in question will indemnify the holders of equity interests
in the Debtor which had formerly owned the Property in question (and their
successors and assigns) from all claims which may be made by the City or State
of New York in respect of utility taxes, interest and penalties in connection
with such Property unless such compromise includes a release of such holders
from all such claims. At such time as the Priority Utility Tax Claims are
disallowed or allowed (as determined by either a court of competent jurisdiction
or by agreement between the Company and the relevant taxing authority), the
Disbursing Agent will at the direction of the Company pay any such allowed
claims from cash held in the Claims Reserve
10
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<PAGE>
and any amount held in the Claims Reserve in excess of the amount of such
allowed claims will be paid to the Company.
Certain Assets Related to 2 Broadway
Prior to the Merger (as hereinafter defined) of the Debtors into the
Upper Tier Limited Partnership, 1290 LLC assigned to the Company all of its
rights in certain assets related to the sale of 2 Broadway that was owned by 2
Broadway LP, an affiliate of the Debtors (to the extent that the same had not
been paid to the Indenture Trustee prior to the Effective Date), including the
assets described below and segregated reserve accounts established by the
Indenture Trustee, as disbursing agent under the 2 Broadway Plan (as hereinafter
defined) (the "2 Broadway Claims Reserves"), (i) in the amount of $2,400,000 for
potential utility tax claims of the taxing authorities of the City and State of
New York (the "2 Broadway Priority Utility Tax Claims") and (ii) in the amount
of $811,278, for the payment of all claims which were not then, but might become
allowed claims (other than the 2 Broadway Priority Utility Tax Claims) in
connection with the 2 Broadway Plan. See "BACKGROUND -- The Debtors and Certain
Affiliates." As of the Effective Date, the $811,278 reserve was reduced to
$346,139 as a result of the payment of certain claims. Pursuant to an Assumption
and Indemnification Agreement, dated as of the Effective Date, by and among 1290
LLC, 2 Broadway LP, the Company and the Indenture Trustee, (i) the Company
assumed any and all remaining obligations of 1290 LLC and 2 Broadway LP in
connection with any claims reserved pursuant to section 9.3 of the 2 Broadway
Plan, and (ii) the Company received the remaining $346,139 of the claims
reserve. The Company believes that amounts held in the 2 Broadway utility tax
reserves will be sufficient to pay in full all claims arising under the 2
Broadway Plan. The assets related to 2 Broadway that were assigned to the
Company include the following:
(a) the right to receive any surplus amounts in the claims reserve
and the utility tax reserve under the 2 Broadway Plan;
(b) the right to proceeds of certain tax certiorari proceedings
existing with respect to 2 Broadway (net of costs of collections
and payments to be made to tenants);
(c) the right to receive any remaining post-closing apportionments
under the contract of sale pursuant to which 2 Broadway was
sold; and
(d) the right to receive dividends and distributions under certain
non-transferable stock received by 2 Broadway LP in connection
with the bankruptcy of Drexel Burnham Lambert, a former tenant
of 2 Broadway.
The Company has executed stipulations which would substitute the
Company for 2 Broadway LP in the tax certiorari proceedings described in (b)
above. Such stipulations have been filed with the Bankruptcy Court and the
Company is awaiting the Bankruptcy Court's approval.
Qualification as a REIT
The Company intends to operate so as to qualify as a REIT under the
Internal Revenue Code commencing with its taxable year ending December 31, 1996.
A REIT generally is not taxed at the corporate level on income it currently
distributes to stockholders so long as it distributes at least 95% of its REIT
taxable income. For any year in which the Company does not meet the requirements
for electing to be taxed as a REIT, it will be taxed as a corporation. Although
the Company believes that it will operate in such a manner so as to qualify and
remain so qualified, qualification as a REIT involves the application of highly
technical and complex Internal Revenue Code provisions for which there are only
limited judicial or administrative interpretations. The determination of various
factual matters and circumstances not entirely within the Company's control may
affect its ability to qualify and to continue to qualify as a REIT. Moreover, no
assurance can be given that legislation, new regulations, administrative
interpretations or court decisions will not
11
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<PAGE>
change the tax laws with respect to qualification as a REIT or the Federal
income tax consequences of such qualification.
To obtain the favorable tax treatment accorded to a REIT under the
Internal Revenue Code, the Company generally will be required each year to
distribute to its stockholders at least 95% of its taxable income. The Company
will be subject to income tax on any of its undistributed taxable income and net
capital gain, and to a 4% nondeductible excise tax on the amount, if any, by
which certain distributions paid by it with respect to any calendar year are
less than the sum of 85% of its ordinary income plus 95% of its capital gain net
income for the calendar year, plus 100% of its undistributed income from prior
years.
The Company intends to make distributions to its stockholders to comply
with the distribution provisions of the Internal Revenue Code and to avoid
Federal income taxes and the nondeductible 4% excise tax. A substantial portion
of the Company's income will consist of the income of the Property Owning
Partnerships and the Company's cash flow will consist primarily of distributions
from the Property Owning Partnerships through the Lower Tier Limited
Partnership.
Differences in timing between the receipt of income and the payment of
expenses in arriving at taxable income of the Company, the Upper Tier Limited
Partnership, the Lower Tier Limited Partnership or the Property Owning
Partnerships, the effect of nondeductible capital expenditures, the creation of
reserves or required debt amortization payments could require the Company to
borrow funds on a short-term or long-term basis to meet the distribution
requirements that are necessary to continue to qualify as a REIT. In such
circumstances, the Company might need to borrow funds to avoid adverse tax
consequences even if the Company's management believes that the then prevailing
market conditions generally are not favorable for such borrowings or that such
borrowings are not advisable in the absence of such tax considerations. There is
no assurance that the Company will be able to continue to satisfy the annual
distribution requirement so as to qualify as a REIT.
In order for the Company to qualify as a REIT under the Internal
Revenue Code, not more than 50% in value of its outstanding stock may be owned,
directly or indirectly, by five or fewer individuals (defined in the Internal
Revenue Code to include certain entities) during the last half of a taxable year
(other than the first year)(the "Five or Fewer Requirement"), and such shares of
stock must be beneficially owned by 100 or more persons during at least 335 days
of a taxable year of 12 months (other than the first year) or during a
proportionate part of a shorter taxable year. In order to protect the Company
against the risk of losing its status as a REIT on account of a concentration of
ownership among its stockholders, the Company's Amended and Restated Articles of
Incorporation (the "Charter") subject to certain exceptions, provides that no
Person (as defined in the Charter) may beneficially own, or be deemed to own by
virtue of the attribution provisions of the Internal Revenue Code, more than
7.9% (the "Ownership Limit") of the aggregate value of the Company's shares of
stock. See "DESCRIPTION OF STOCK OF THE COMPANY." The restrictions contained in
the Charter, however, may not ensure that the Company will be able to satisfy
the Five or Fewer Requirement in all cases. If the Company fails to satisfy such
requirement, the Company's status as a REIT will terminate, and the Company will
not be able to prevent such termination. If the Company were to fail to qualify
as a REIT in any taxable year, the Company would be subject to Federal income
tax (including any applicable alternative minimum tax) on its taxable income at
regular corporate rates, and would not be allowed a deduction in computing its
taxable income for amounts distributed to its stockholders. Moreover, unless
entitled to relief under certain statutory provisions, the Company also would be
ineligible for qualification as a REIT for the four taxable years following the
year during which qualification was lost. Such disqualification would reduce the
net earnings of the Company available for investment or distribution to its
stockholders due to the additional tax liability of the Company for the years
involved.
Subject to certain exceptions, the Charter does not permit any person
to acquire or own (either actually or constructively under the applicable
attribution rules of the Code) more than the Ownership Limit. In addition, no
holder may own or acquire (either actually or constructively under the
applicable attribution rules
12
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<PAGE>
of the Code) shares of any class of the Company's common stock, par value $10.00
per share (the "Common Stock") if such ownership or acquisition (i) would cause
more than 50% in value of the outstanding Common Stock to be owned by five or
fewer individuals or (ii) would otherwise result in the Company failing to
qualify as a REIT. The Charter provides that the foregoing ownership
restrictions will not apply to persons designated by Apollo Real Estate
Investment Fund, L.P. ("Apollo") provided that the aggregate percentage by which
all individuals permitted, by designation, to exceed the Ownership Limit will
not be greater than 10%.
Any attempted acquisition (actual or constructive) of Common Stock by a
person who, as a result of such acquisition, would violate certain of the
limitations set forth in the Charter will cause the Common Stock purportedly
transferred to be automatically transferred to the trustee of a trust for the
benefit of a charitable beneficiary and such shares will not be entitled to
voting rights or rights to distributions and the transfer resulting in such
violation may be deemed void ab initio. Violations of the ownership limitations
may result in a repurchase by the Company of shares in excess of the Ownership
Limit.
Distribution Policy
The Company has not yet established a formal distribution policy and
has not made any distributions in respect of its Common Stock. The Company
intends to make periodic distributions to comply with the REIT distribution
requirements. In order to maintain its qualification as a REIT, the Company must
make annual distributions to stockholders of at least 95% of its taxable income
(excluding capital gains).
On December 18, 1996, the Company's Board of Directors authorized a
special distribution of $.50 per share of Common Stock, payable on January 20,
1997 to holders of record of Common Stock on December 31, 1996.
Competition
Numerous office building properties in New York City compete with the
Properties in attracting tenants to lease space. Some of these competing
properties are newer or better located than the Properties. The amount of space
available in competitive commercial properties in the New York City area could
have a material effect on the Property Owning Partnerships' ability to lease
space in the Properties and on the rents charged.
Indebtedness
On the Effective Date, The Chase Manhattan Bank ("Chase") and certain
other lenders made a loan to the Property Owning Partnerships in the aggregate
principal amount of $420,000,000. See "DESCRIPTION OF CHASE FINANCING AND
MORTGAGE." The net proceeds (after fees, expenses and escrows) of the Chase
financing (approximately $398,741,189) were used to make distributions to the
Noteholders (as hereinafter defined) and the Morgan Loan Lenders (as such term
is defined in the Plan) pursuant to the Plan. The Company intends to cause the
Property Owning Partnerships to pay debt service on this indebtedness out of the
Property Owning Partnerships' revenues from their operation of the Properties.
The Company and the Property Owning Partnerships do not intend to incur any
additional indebtedness, other than trade payables incurred in the ordinary
course of business. The Company believes that the cash flow generated by the
Properties will be sufficient to meet the debt service requirements of the Loan
and that it has sufficient cash to fund its working capital needs for the next
twelve months.
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<PAGE>
Legal Proceedings
There are no material pending legal proceedings, other than ordinary
routine litigation incidental to the business of the Company, against or
involving the Company, the Partnerships or the Properties.
Retention of Jurisdiction by Bankruptcy Court
The Bankruptcy Court may retain jurisdiction, and if the Bankruptcy
Court exercises its retained jurisdiction, will have exclusive jurisdiction of
all matters arising out of, and related to, the Plan and, for among other
things, the following purposes: (a) to determine any and all adversary
proceedings, applications and contested matters; (b) to ensure that
distributions to holders of Allowed Claims (as defined in the Plan) are
accomplished in accordance with the Plan; (c) to hear and determine any timely
objections to Administrative Expense Claims (as defined in the Plan) or to
proofs of claim and equity interests filed, including to allow or disallow any
Disputed Claim (as defined in the Plan), in whole or in part; (d) to issue such
orders in aid of execution of the Plan, to the extent authorized by section 1142
of the Bankruptcy Code; (e) to consider any modifications of the Plan, to cure
any defect or omission, or reconcile any inconsistency in any order of the
Bankruptcy Court, including the Confirmation Order; (f) to hear and determine
disputes arising in connection with the interpretation, implementation, or
enforcement of the Plan; (g) to hear and determine matters concerning state,
local and federal taxes in accordance with sections 346, 505 and 1146 of the
Bankruptcy Code including, without limitation, the New York Real Property
Transfer Gains Tax, Article 31-B of the New York Tax Law; and (h) to enter a
final decree closing the reorganization cases of the Debtors.
Employees
The Company does not have any employees. The Property Owning
Partnerships assumed the Debtors' labor agreements with respect to union
employees employed at the Properties. The Property Manager/Leasing Agent has
employed such union employees on behalf of the Property Owning Partnerships. The
Property Manager/Leasing Agent offered employment to the non-union employees of
the Properties and will continue the Debtors' non-union employee policies
relating to seniority, vacations and severance.
The Plan provided that pursuant to section 1129(a)(13) of the
Bankruptcy Code, the Property Owning Partnerships or their successors and
assigns will continue to pay all retiree benefits related to the Properties
(within the meaning of section 1114 of the Bankruptcy Code), at the level
established in accordance with subsection (e)(1)(B) or (g) of section 1114 of
the Bankruptcy Code at any time prior to the Confirmation Date (as such term is
defined in the Plan) for the duration of the period the Debtors obligated
themselves to provide such benefits. The Company believes that there are no
unfunded retiree benefits liabilities under the pension plans established
pursuant to the labor agreements referred to above.
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<PAGE>
SELECTED FINANCIAL DATA
The following unaudited Pro Forma Consolidated Condensed Statements of Income
have been presented as if the transactions described under the heading captioned
"BACKGROUND" had been consummated on January 1, 1995. The unaudited Pro Forma
Consolidated Condensed Statements of Income are derived from and should be read
in conjunction with the Combined Statements of Revenue and Certain Expenses for
the period January 1, 1996 to October 10, 1996 and for the year ended December
31, 1995 included elsewhere in this Registration Statement. The unaudited Pro
Forma Consolidated Condensed Statements of Income are presented in lieu of
historical financial statements for the Debtors principally because the Company
does not believe that the historical operations of the Debtors are comparable to
the expected future operations of the Company. Specifically, the Company's
Properties will be encumbered with less debt and related interest and the
Company's valuation of the Properties for purposes of computing depreciation
differs significantly from the historical valuation used by the Debtors.
Accordingly, the statements do not reflect the Debtors' historical operations
for the period January 1, 1996 to October 10, 1996 and for the year ended
December 31, 1995 as certain expenses which are not comparable to the expenses
expected to be incurred in the future operations of the Company have been
excluded. Expenses excluded consist of interest, depreciation and amortization
and other costs not directly related to the future operations of the Company.
The unaudited Pro Forma Consolidated Condensed Statements of Income are not
necessarily indicative of what actual results of operations of the Company would
have been had these transactions actually occurred as of January 1, 1995, nor do
they purport to represent the results of operations of the Company for future
periods.
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<PAGE>
<TABLE>
<CAPTION>
Pro Forma Consolidated Condensed Statements of Income
For the Period January 1, 1996 to For the Year Ended
October 10, 1996 (Unaudited) December 31, 1995 (Unaudited)
------------------------------------------- ------------------------------------------
Combined Combined
Statement of Statement of
Revenues and Metropolis Revenues and Metropolis
Certain Pro Forma Realty Trust Certain Pro Forma Realty Trust
Expenses Adjustments Pro Forma Expenses Adjustments Pro Forma
--------------- ---------------- ------------ ------------ ---------------- -----------
(In thousands, except share amounts)
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Rental Income $90,993 - $90,993 $121,209 - $121,209
Interest Income 410 - 410 820 - 820
---------- ---------- ---------- ----------
Total Revenues 91,403 - 91,403 122,029 - 122,029
OPERATING EXPENSES
Payroll & Benefits 3,258 - 3,258 4,058 - 4,058
Operating and Maintenance 4,798 - 4,798 7,397 - 7,397
Utilities 5,288 - 5,288 6,685 - 6,685
Management Fees 528 1,070 (A) 1,598 1,163 955 (A) 2,118
Real Estate Taxes 21,299 - 21,299 28,309 - 28,309
General and Administrative 379 - 379 1,359 - 1,359
Bad Debt Expense 1,214 - 1,214 2,015 - 2,015
Insurance Expense 398 - 398 582 - 582
---------- ----------- ---------- ---------- ----------- ----------
Total Operating 37,162 1,070 38,232 51,568 955 52,523
OTHER EXPENSES:
Depreciation and
Amortization - 15,111 (B) 15,111 - 18,900 (B) 18,900
Interest Expense - 26,101 (C) 26,101 - 33,545 (C) 33,545
----------- -------- -------- ----------- -------- --------
Total Other Expenses - 41,212 41,212 - 52,446 52,446
----------- -------- -------- ----------- -------- --------
NET INCOME(LOSS) $54,241 ($42,282) $11,959 $70,461 ($53,401) $17,060
======== ========= ======== ======== ========= ========
Primary Earnings Per Share
of Common Stock:
Net Income from
Continuing Operations $0.92 $1.32
====
Weighted Average Number
of Shares of Common
Stock Outstanding 12,962,046 12,962,046
========== ==========
Fully Diluted Earnings Pe
Share of Common Stock:r $0.92 $1.32
===== =====
Net Income from
Continuing Operations
Weighted Average Number
of Shares of Common
Stock Outstanding 12,989,046 12,989,046
========== ==========
Funds from Operations (D) $25,046 $33,879
======= =======
Total Assets as of
October 10, 1996 $762,320
========
Long-Term Debt as of
October 10, 1996
$420,000
========
</TABLE>
<TABLE>
<S> <C> <C>
(A) Reflects the following activity in management fees:
For the period January 1, 1996 to October 10, 1996:
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C>
Reflects pro forma adjusted management fees pursuant to the Asset
Management Agreement and the Property Management Agreements $1,598
Reflects historical management fee (528)
--------------
$1,070
==============
For the year ended December 31, 1995:
Reflects pro forma adjusted management fees pursuant to the Asset
Management Agreement and the Property Management Agreements $2,118
Reflects historical management fee (1,163)
--------------
$955
==============
(B) Reflects the following activity in depreciation and amortization:
For the period January 1, 1996 to October 10, 1996:
Reflects pro forma adjusted depreciation and amortization of the
Company's Properties including capitalized financing costs $15,111
==============
For the year ended December 31, 1995:
Reflects pro forma adjusted depreciation and amortization of the Company's
Properties including capitalized financing costs $18,900
==============
(C) Reflects the following activity in interest expense:
For the period January 1, 1996 to October 10, 1996:
Reflects interest costs associated with the Secured Notes $26,101
==============
For the year ended December 31, 1995:
Reflects interest costs associated with the Secured Notes $33,545
==============
(D) The Company generally considers Funds from Operations to be a useful measure of the operating
performance of an equity REIT because, together with net income and cash flows, Funds from
Operations provides investors with an additional basis to evaluate the ability of a REIT to incur and
service debt and to fund acquisitions and other capital expenditures. Funds from Operations does not
represent net income or cash flows from operations as defined by generally accepted accounting
principles ("GAAP") and does not necessarily indicate that cash flows will be sufficient to fund cash
needs. It should not be considered as an alternative to net income as an indicator of the Company's
operating performance or to cash flows as a measure of liquidity. Funds from Operations does not
measure whether cash flow is sufficient to fund all of the Company's cash needs, including principal
amortization, capital improvements and distributions to shareholders. Funds from operations also does
not represent cash flows generated from operating, investing or financing activities as defined by GAAP.
Further, Funds from Operations as disclosed by other REITs may not be comparable to the Company's
calculation of Funds from Operations. The Company adopted the NAREIT definition of Funds from
Operations in 1996 and has used it for all periods presented. Funds from Operations is calculated as net
income (loss) computed in accordance with GAAP adjusted for depreciation expense attributable to real
property, amortization expense attributable to capitalized leasing costs, tenant allowances and
improvements, gains and losses on sales of real estate investments and extraordinary and nonrecurring
items. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -- Funds From Operations."
</TABLE>
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
The following discussion should be read in conjunction with Selected Financial
Data and the Combined Statements of Revenues and Certain Expenses appearing
elsewhere in this Registration Statement. The Company receives income primarily
from rental revenue (including tenant reimbursements) from the Properties.
Historical - Twelve Months Ended December 31, 1995 and
December 31, 1994
The Company's revenues, which consist of rental income, tenant expense
reimbursements, interest income and other income were $122,029,000 in 1995,
compared to $132,583,000 in 1994, a decrease of $10,554,000 or 8.0%.
Rental income was $121,209,000 in 1995, compared to $132,460,000 in 1994, a
decrease of $11,257,000 or 8.5%. The change is primarily due to lease
expirations during 1995.
Interest income was $820,000 in 1995, compared to $123,000 in 1994, an increase
of $697,000 or 566.7%, reflecting a short term increase in cash and cash
equivalents due to the receipt of a lease termination payment in late 1994.
Payroll and benefits expenses was $4,058,000 in 1995, compared to $3,711,000 in
1994, an increase of $347,000 or 9.4%. Operating and maintenance expense was
$7,397,000, compared to $7,742,000, a decrease of $345,000 or 4.5%. Utilities
expense was $6,685,000 in 1995, compared to $6,414,000, an increase of $271,000
or 4.2%. Management fees were $1,163,000 in 1995 compared to $1,633,000 in 1994,
a decrease of $470,000 or 28.8%, reflecting a reduction in cash receipts of
rental income. Real estate taxes were $28,309,000 in 1995 compared to
$28,822,000, reflecting a reduction of $513,000 or 1.8% primarily caused by a
reduction in the assessed value of the properties. General and administrative
expense was $1,359,000 in 1995 compared to $694,000 in 1994, an increase of
$665,000 or 95.8%. The increase is caused primarily by an increase in legal and
professional fees associated with the litigation of a delinquent tenant lease in
1995. Bad debt expense in 1995 was $2,015,000 compared to $3,342,000 in 1994; a
decrease of $1,327,000 or 39.7%. The decrease is caused primarily by the
resolution of certain delinquent tenant leases in 1995. Insurance expense was
$582,000 in 1995 compared to $577,000 in 1994, an increase of $5,000 or 0.9%.
Historical - Period January 1, 1996 to October 10, 1996
and Twelve months ended December 31, 1995
Variations between the period January 1, 1996 to October 10, 1996 and the twelve
months ended December 31, 1995 are, generally, the result of the shorter 1996
period.
Management fees decreased by $482,000 or 41.4% on an annualized basis from the
year end December 31, 1995 to the period ending October 10, 1996. The decrease
is caused by a reduction in the cash receipts of rental income due to the
commencement of significant leases at the 1290 Property in 1996.
General and administrative expense decreased by $870,000 or 56.2% on an
annualized basis due to higher legal and professional fees associated with the
costly litigation of a delinquent tenant lease in 1995.
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<PAGE>
Bad debt expense decreased by $449,000 or 22.2% on an annualized basis due to
the resolution of matters with certain delinquent tenants in 1995 and 1996.
Liquidity and Capital Resources
At October 10, 1996, the Company had unrestricted cash on hand of approximately
$39,000,000. On October 10, 1996, the Property Owning Partnerships borrowed
$420,000,000 secured by the 1290 Property and the 237 Property. The Loan is
cross-collateralized by the Properties and prohibits the Property Owning
Partnerships from incurring any additional indebtedness. The Company believes
that cash on hand and existing cash flow from operations are sufficient to
satisfy the Company's foreseeable cash requirements; principally property
operating expenses, real estate taxes, capital expenditures, debt service on the
Loan and distributions necessary to enable the Company to continue to qualify as
a REIT. The Loan matures on October 10, 2001. The Property Owning Partnerships
will be required to refinance the Loan on that date. There can be no assurance,
however, that the Company will be able to refinance the Loan on that date or
what the terms of any refinancing will be.
Funds from Operations
The Company generally considers Funds from Operations as one measure of
REIT performance. The Company adopted the NAREIT definition of Funds from
Operations in 1996 and has used this definition for all periods presented in
this Registration Statement. Funds from Operations is calculated as net income
(loss) computed in accordance with GAAP adjusted for depreciation expense
attributable to real property, amortization expense attributable to capitalized
leasing costs, tenant allowances and improvements, gains and losses on sales of
real estate investments and extraordinary and nonrecurring items. Funds from
Operations should not be considered as an alternative to net income as an
indication of the Company's performance or to cash flows as a measure of
liquidity.
Funds from Operations on a pro forma basis for the period January 1,
1996 to October 10, 1996 and for the year ended December 31, 1995 is summarized
in the following table (in thousands, except share data).
<TABLE>
<CAPTION>
Pro Forma
Period January 1, 1996 Year Ended
to October 10, 1996 December 31, 1995
----------------------------- ----------------------
<S> <C> <C>
Net Income $ 11,959 $ 17,060
Add:
Depreciation attributable to real property 13,087 16,819
Funds from Operations 25,046 33,879
Weighted average number of shares of Common Stock outstanding (1) $12,989,046 $12,989,046
=========== ===========
(1) Includes 27,000 shares of Common Stock issuable upon the exercise of outstanding options.
</TABLE>
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<PAGE>
DESCRIPTION OF CHASE FINANCING AND MORTGAGE
Credit Agreement
The following is a summary of the material terms of the Credit
Agreement and the Loan. Such summary does not purport to be complete and is
qualified in its entirety by reference to the Credit Agreement and other Loan
Documents which have been filed as exhibits to this Registration Statement.
Pursuant to the Credit Agreement, dated as of the Effective
Date (the "Credit Agreement"), among the Property Owning Partnerships, the
lenders listed therein (the "Lenders") and Chase, as agent, the Lenders made a
loan (the "Loan") to the Property Owning Partnerships in the principal amount of
$420,000,000, of which $250,000,000 was allocated to the 1290 Property (the
"1290 Allocated Loan Amount") and $170,000,000 was allocated to the 237 Property
(the "237 Allocated Loan Amount"). The aggregate amount of closing costs and
escrows funded from the Loan was approximately $21,000,000. The Property Owning
Partnerships executed promissory notes (the "Notes") payable to the Lenders
evidencing their obligation to repay the Loan.
The Property Owning Partnerships and Chase entered into an
Interest Rate Exchange Agreement dated as of the Effective Date pursuant to
which the Property Owning Partnerships entered into an interest rate swap
arrangement. Such agreement provides for an effective interest rate on the Loan
of 7.987% per annum for a term of five years from the Effective Date.
The Loan is scheduled to mature on October 10, 2001 (the
"Termination Date"). The Loan requires the Property Owning Partnerships to make
aggregate amortization payments beginning in the second year in the following
amounts: $7,500,000, $7,500,000, $10,000,000 and $15,000,000, respectively, for
years 2 through 5 of the Loan. Such payments for each such year shall be made in
equal monthly installments. However, if any such scheduled payments would cause
the Company to fail to comply with any income test requirements necessary for
the Company to maintain its status as a REIT, then the Property Owning
Partnerships may, in lieu of such payment, post an irrevocable letter of credit
in the amount of such payment. If the Loan is outstanding on the Termination
Date, such outstanding amount will be due and payable (together with accrued
interest thereon) on such date.
Pursuant to the Credit Agreement, the Property Owning
Partnerships entered into lock box agreements for the collection of rents and
established escrow accounts for real estate taxes, insurance and the completion
of the 1290 Property's lobby renovation project, which is expected to be
completed in late December 1996. Commencing 36 months after the Effective Date,
each of the Property Owning Partnerships will also be required to establish a
reserve account pursuant to which each of the Property Owning Partnerships will
deposit 50% of its monthly net cash flow into such reserve account until the
combined balance of the reserve accounts is equal to $15,000,000. The Property
Owning Partnerships may draw upon such reserves to pay for the costs of
re-tenanting space currently demised to tenants with leases expiring from
January 1, 2001 through January 1, 2003. In lieu of any payment to such reserve
account and in substitution for any amounts in such reserve account, the
Property Owning Partnerships may post an irrevocable letter of credit. In
addition, on the Effective Date, reserves were funded for the remaining costs of
completing the renovation of the 1290 Property's lobby and for the remaining
balance of the tenant work allowance under the Warner Communications Inc. lease
at the 1290 Property. Such accounts were pledged as additional security for the
Loan.
The Credit Agreement requires the consent of Chase to the
transfer of any direct or indirect interest in the Property Owning Partnerships,
except with respect to the transfer (pursuant to the terms of the Partnership
Agreements) of all or any portion of the interest owned by JMB LP in the Upper
Tier Limited Partnership or of interests within JMB LP as to which transfer no
consent is required. Transfers of Common Stock will be subject to the following
restriction: at all times, not less than 30% of the Common Stock of the
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<PAGE>
Company will be held by "Permitted Owners." Chase has preapproved as Permitted
Owners, (i) any investment fund managed by, or other entity controlled by, (A)
Apollo Real Estate Advisors, L.P. (which fund or entity would include, without
limitation, Apollo Real Estate Investment Fund, L.P.), (B) Whitehall (which fund
or entity would include, without limitation, WSB Realty, LLC), (C) Oaktree
(which fund or entity would include, without limitation, TCW Special Credits
Fund and other related funds thereof), or (D) Tishman Speyer, and (ii) Nyprop,
L.L.C., so long as Tishman family members, Crown family members and/or senior
management or senior employees of Tishman Speyer Crown Equities or Tishman
Speyer Properties, Inc. own directly or indirectly more than 50% of the
interests therein. Permitted Owners may also include such stockholders as are
either, in each case as certified to by Property Owning Partnerships: (A)
investors (or entities controlled by investors) having, as of the date such
investor or entity is proposed as a Permitted Owner, (x) investment management
experience in commercial real estate, (y) a current net worth, as determined in
accordance with generally accepted accounting principles ("GAAP") (exclusive of
goodwill) or on an audited tax basis if GAAP is not available, of no less than
$100,000,000, exclusive of its interest in the Company, and (z) ownership of
assets and/or assets under management with an aggregate fair market value of no
less than $200,000,000, exclusive of its interest in the Company, (B) an
investment vehicle advised by an investment manager or advisor, which investment
manager or advisor has, as of the date such investor or entity is proposed as a
Permitted Owner, (x) investment management experience in commercial real estate,
(y) a current net worth and/or investment vehicles under management having a
current net worth, as determined in accordance with GAAP (exclusive of good
will) or on an audited tax basis if GAAP is not available, of no less than
$100,000,000, exclusive of its interest in the Company, and (z) ownership of
assets and/or assets under management with an aggregate fair market value of no
less than $200,000,000, exclusive of its interest in the Company, (C) a pension
fund, account or trust, commercial bank, investment bank, savings and loan,
savings bank or REIT or an investment vehicle established by such an entity,
which pension fund, account or trust, commercial bank, investment bank, savings
and loan, savings bank or REIT or investment vehicle has, as of the date such
investor or entity is proposed as a Permitted Owner, (y) a current net worth, as
determined in accordance with GAAP (exclusive of good will) or on an audited tax
basis if GAAP is not available, of no less than $100,000,000, exclusive of its
interest in the Company, in the aggregate, and (z) ownership of assets and/or
assets under management with an aggregate fair market value of no less than
$200,000,000, exclusive of its interest in the Company; provided that, in each
such case, such proposed Permitted Owners are approved as a Permitted Owner by
Chase and the Lenders holding Notes evidencing at least 66 2/3% of the aggregate
unpaid principal amount of the Notes held by Lenders which are entitled to vote
under the Credit Agreement (the "Super Required Lenders"), which consent will
not be unreasonably withheld or delayed, and (iv) such other Company
stockholders as are approved as a Permitted Owner by Chase and the Super
Required Lenders in their sole and absolute discretion.
If at any time Permitted Owners own, in the aggregate, less
than 30% of the total outstanding shares of Common Stock of the Company, then
upon notice of such event by Chase upon the written direction of the Lenders
holding Notes evidencing at least 51% of the aggregate unpaid principal amount
of the Notes held by Lenders (the "Required Lenders"), the Loan will be
accelerated and the Property Owning Partnerships will be required to pay the
outstanding amount of the Loan along with accrued interest thereon (such event
being a "Mandatory Prepayment Event") on the date that is 180 days after such
notice (the "Mandatory Prepayment Date"). However, if such condition did not
occur more than one time within the 18 month period prior to Chase's notice,
then the Loan will not be accelerated if Permitted Owners do not own less than
30% of the total outstanding shares of the Company at any time prior to the
expiration of such 180 day period following the date of such notice. The
Mandatory Prepayment Date will be extended for a period of 90 days ("Extended
Prepayment Date") if the Property Owning Partnerships obtain a commitment for
refinancing the Loan in its entirety, provided, that such commitment is
satisfactory to Chase in its sole discretion.
An "Event of Default" under the Credit Agreement includes: (i)
failure to pay within three business days after the same is due and telephonic
notice has been delivered (a) any payment of principal or interest on the Loan,
or (b) any reserve amounts, fees or other amounts payable under the Credit
Agreement or any other Loan Document (as defined in the Credit Agreement), (ii)
occurrence and continuation of an Event of
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<PAGE>
Default (as defined therein) under the Mortgage, (iii) failure to maintain
certain insurance as provided in the Mortgage, (iv) sale of the Properties
except as permitted under the Credit Agreement, (v) subject to the right to
contest as provided in the Mortgage, failure to cause, within 45 days after
notice thereof, any mechanic's, public improvement, laborer's or materialmen's
lien filed against the Properties to be discharged, (vi) failure to observe or
perform certain covenants (including covenants relating to certain leases, the
Management and Leasing Agreements and the Asset Management Agreement, and
retaining an asset manager and property manager/leasing agent as described
below) and such failure continues for 10 business days after notice is given by
Chase, (vii) occurrence of certain events related to liabilities under ERISA;
(viii) the entrance by a court of competent jurisdiction of one or more final
non-appealable judgments or decrees in an aggregate amount of $5,000,000 or more
if such judgments or decrees have not been stayed, discharged, paid or vacated
within 10 days after such entry of filing, (ix) (a) the institution of an action
with respect to any Environmental Claim (as defined in the Credit Agreement)
with respect to the Properties if such action has not been dismissed within 90
days, (b) any release, emission, discharge or disposal of a Hazardous Substance
(as defined in the Credit Agreement) that is likely to form the basis of an
Environmental Claim, or (c) failure to obtain any permit, license or other
authorization under any laws relating to the environment necessary for the
operation of the Properties; in the case of any of the events described in (b)
and (c), if such event has not been remedied within 30 days (which period may be
extended to 120 days) and in the case of any of the events described in (a), (b)
and (c), if the existence of such condition has had or is likely to have a
Material Adverse Effect; (x) the occurrence of any event which results in a
Material Adverse Effect, as reasonably determined by Chase; and (xi) other
customary loan defaults. "Material Adverse Effect" as defined in the Credit
Agreement means a material adverse affect upon (i) the business, operations,
financial conditions, properties or assets of either or both of the Property
Owning Partnerships, (ii) the operation or condition of either or both of the
Properties, or (iii) the ability of the Property Owning Partnerships to pay
interest and principal on the Loan when due.
Upon the occurrence of certain bankruptcy-related defaults or
the occurrence of a Mandatory Prepayment Event beyond the Mandatory Prepayment
Date or Extended Prepayment Date, as applicable, the unpaid principal amount of,
and any and all accrued interest on the Loan, and any other fees or obligations
under the Credit Agreement will automatically become immediately due and
payable. Upon the occurrence and during the continuance of any other Event of
Default, Chase may and, upon the written direction of the Required Lenders will,
give notice to the Property Owning Partnerships declaring the entire outstanding
principal balance of the Loan, together with accrued interest thereon and any
and all accrued fees and other obligations, immediately due and payable. To the
extent permitted by law, any overdue payment of principal or interest on the
Loan will bear interest at a rate equal to the 3% plus the rate per annum equal
to the higher of (x) the rate of interest publicly announced by Chase in New
York City from time to time as its prime rate, and (y) the sum of 1.565% plus
the Federal Funds Rate, as published by the Federal Reserve Bank.
Under the Credit Agreement, the Property Owning Partnerships
are required to cause the Company's transfer agent to provide to Chase, monthly,
a list of the then current stockholders of the Company, indicating, with respect
to each stockholder, the number of shares of Common Stock owned by it.
The Property Owning Partnerships covenant in the Credit
Agreement that they will not, among other things, (i) create, assume or suffer
to exist any lien on the Properties or any other assets owned or acquired by the
Property Owning Partnerships or the GP Corps, except for certain permitted
liens, (ii) incur, create or assume any debt for borrowed money other than
unsecured loans from partners, (iii) liquidate, windup or dissolve (or suffer
any liquidation or dissolution), discontinue its business or otherwise dispose
of, in one transaction or a series of transactions, all or any substantial part
of its business or property, (iv) amend their partnership agreements or other
organizational documents in any "material manner" nor permit the partnership
agreements of the Lower Tier Limited Partnership or the Upper Tier Limited
Partnership nor the organizational documents of the Company to be amended in any
"material manner" without the consent of Chase, (v) subject to certain
exceptions, permit any transfer of any direct or indirect beneficial ownership
interest in (a) either Property Owning Partnership, (b) either GP Corp., (c) any
of the partners of the Upper Tier Limited Partnership or (d) the Company, for
such entity as such entity existed as of the Effective Date, without the
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<PAGE>
consent of the Super Required Lenders (notwithstanding the foregoing, no consent
will be required to transfer (A) all or a portion of the limited partnership
interests of the Upper Tier Limited Partnership owned by JMB LP or any interest
therein, (B) any stockholder interests in the Company (subject to the
requirement that Permitted Owners own at least 30% of the total outstanding
shares of Common Stock of the Company) or (C) the interests of the Upper Tier
Limited Partnership in the Lower Tier Limited Partnership as provided in the
Lower Tier Partnership Agreement or a similar transfer of such interest at the
direction of the Company), (vi) undertake any "major alterations" of the
Properties without the consent of Chase, and with respect to any "major
alteration" in which the aggregate cost equals or exceeds $10,000,000, the
consent of the Required Lenders, (vii) enter into, renew, terminate or amend in
any material respect any lease at a Property demising in the aggregate of all
such leases with a tenant no less than 40,000 rentable square feet without
obtaining the prior written consent of the Required Lenders, (viii) retain any
property manager or leasing agent for the Properties other than Tishman Speyer
or any asset manager for the Properties other than 970 Management, LLC without
the written consent of the Required Lenders; (ix) modify or renew (other than in
accordance with the terms thereof) the Management and Leasing Agreements and the
Asset Management Agreement without the prior written consent of Chase if such
modification or renewal would cause a Material Adverse Effect, and (x) other
customary loan affirmative and negative covenants. "Material Manner" as defined
in the Credit Agreement means any amendment or modification to any such
partnership agreement or other organizational document which would have a
Material Adverse Effect. "Major Alteration" as defined in the Credit Agreement
means an Alteration or series of Alterations which affects the structural
portion, the building systems, the lobby, the facade, the plaza or the elevators
of either Property excluding (i) normal and customary tenant work primarily
within the demised space under the Leases, (ii) repair and maintenance, (iii)
replacements of equal or greater utility for building systems and equipment
only, (iv) work which is decorative or cosmetic in nature and (v) work on the
1290 Property lobby. "Alteration" as defined in the Mortgage means any
alteration, improvement, demolition or removal of the Properties.
The Property Owning Partnerships may, upon at least 5 days
notice to Chase, prepay without premium or penalty, the Loan in whole at any
time, or from time to time in part, in amounts aggregating at least $500,000.
The Property Owning Partnerships may obtain the release (in whole, but not in
part) of one of the Properties from the lien of the Mortgage upon satisfaction
of certain conditions which include the following: (i) immediately prior to and
after giving effect to the proposed release, no Event of Default or Mandatory
Prepayment Event has occurred or is continuing, (ii) not later than 12:00 Noon
New York City time on the date of such release, the Property Owning Partnerships
deliver to Chase the applicable "Release Price" together with all interest
accrued and unpaid thereon, (iii) not later than 15 business days prior to the
date of such release, the Property Owning Partnerships deliver a notice to Chase
specifying (a) the Property to be released, (b) the Release Price, (c) the date
of the release (the "Release Date"), (d) an officer's certificate certifying
that the conditions to such release specified under the Credit Agreement have
been satisfied, and (e) all other documentation required to be delivered by the
Credit Agreement to Chase to effect the release together with certain officer's
certificates, and (iv) the Property Owning Partnerships deliver to Chase a paid
endorsement to the title policy confirming (in Chase's sole satisfaction) that
the release of the Released Property will not affect the lien of the Mortgage on
the Property which is not released.
"Release Price" as defined in the Credit Agreement means as of
the applicable Release Date (i) with respect to the 237 Property, an amount
equal to 1.10 times the 237 Allocated Loan Amount, less amortization applied to
that portion of the Loan, and (ii) with respect to the 1290 Property, an amount
equal to 1.10 times the 1290 Allocated Loan Amount, less amortization applied to
that portion of the Loan.
In the event the Released Property is the 1290 Property, in
addition to releasing the lien of the Mortgage and the Assignment of Leases with
respect to the 1290 Property, Chase will also release (i) the 1290 Property
Owning Partnership with respect to the Notes and the other Loan Documents other
than matters relating to the 1290 Property stated in the Credit Agreement and
other Loan Documents to survive the repayment of the Loan, (ii) the lien of the
note pledge with respect to the Robinson Silverman Note (and Chase will return
the Robinson Silverman Note to the 1290 Property Owning Partnership), (iii) any
funds held in the
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<PAGE>
Expiring Lease Costs Reserve Sub-Account (as defined in the Credit Agreement)
(or letters of credit, if any, held in lieu of such funds) in excess of
$6,000,000, other than any Reserve Portion (as such term is defined in the
Credit Agreement) to be held in accordance with Section 2.9(e) of the Credit
Agreement and (iv) any funds held in the Imposition Sub-Account and the
Insurance Sub-Account (as such terms are defined in the Cash Collateral
Agreement) relating to the 1290 Property.
In the event the Released Property is the 237 Property, in
addition to releasing the lien of the Mortgage and the Assignment of Leases with
respect to the 237 Property, Chase shall also release (i) the 237 Property
Owning Partnership with respect to the Notes and the other Loan Documents other
than matters relating to the 237 Property stated in the Credit Agreement and the
other Loan Documents to survive the repayment of the Loan, (ii) the lien of the
note pledge with respect to the Warburg Pincus Note (and Chase will return the
Warburg Pincus Note to the 237 Property Owning Partnership), (iii) any funds
held in the Expiring Lease Costs Reserve Sub-Account (or letters of credit, if
any, held in lieu of such funds) in excess of $9,000,000 and (iv) any funds held
in the Imposition Sub-Account and the Insurance Sub-Account relating to the 237
Property.
In the event of a release of a Property, the Release Price
will be applied as follows: (i) notwithstanding anything to the contrary
contained in the Credit Agreement, in the event the 1290 Property is the
Property that is released from the lien of the Mortgage, Chase with the consent
of the Required Lenders will have the option, exercisable on the date of such
release, to require that up to $10,000,000 of the Release Price (such amount
being the "Reserve Portion") be deposited into the Expiring Lease Costs Reserve
Sub-Account of the Cash Collateral Account as additional collateral for the
Loan, to be disbursed pursuant to the terms of the Cash Collateral Agreement (as
defined in the Credit Agreement) (notwithstanding the foregoing, in the event
(A) such release is consummated either (x) prior to the third anniversary of the
Effective Date or (y) subsequent to the date that the Expiring Lease Costs (as
such term is defined in the Credit Agreement) have been fully funded (as
determined by Chase in its sole discretion) or (B) at any time after such
release, the Expiring Lease Costs have been fully funded (as determined by Chase
in its sole discretion), provided no Event of Default has occurred and is then
continuing, the remaining Reserve Portion will be applied to the then
outstanding principal amount of the Loan); and (ii) provided no Event of Default
has occurred and is then continuing, the remaining Release Price (less the
Reserve Portion, if any) will be applied by Chase to reduce the outstanding
principal amount of the Loan. Any amounts so prepaid may not be reborrowed or
reinstated.
Mortgage Modification, Restatement and Security Agreement
The payment and performance by the Property Owning
Partnerships of all covenants, conditions, liabilities and obligations contained
in the Note, the Credit Agreement and in each of the other loan documents are
secured by the Mortgage Modification, Restatement and Security Agreement, dated
as of the Effective Date, made by the Property Owning Partnerships to Chase, in
its capacity as agent for the Lenders (the "Mortgage"). The Mortgage grants the
Lenders a security interest in, among other things, (i) the land and
improvements on the Properties, (ii) rents, leases, and security deposits, (iii)
all personal and intangible property and equipment utilized in connection with
the Properties, (iv) all rights and interests of the Property Owning
Partnerships in and under (a) all contracts, including the Management and
Leasing Agreements, the Asset Management Agreement and other agreements relating
to the Properties, (b) all consents, licenses, warranties, guaranties and
building and other permits required or useful for the construction, occupancy
and operation of the Properties, and (c) all plans and specifications,
engineering reports, maps, surveys and any other reports, exhibits or plans and
specifications used in connection with the construction, operation or
maintenance of the Properties, (v) the Property Owning Partnerships' interests
in the Tenant Notes, and (vi) the Property Owning Partnerships' right, title and
interest in all proceeds, both cash and non-cash, of the foregoing.
An "Event of Default" under the Mortgage includes (i) failure
to pay any amounts payable under the Mortgage where such failure continues for 3
business days after Chase delivers notice thereof, (ii) cancellation of the
insurance required under the Mortgage without substitution of replacement
coverage
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<PAGE>
meeting the requirements set forth therein, (iii) subject to the right to
contest (as provided in the Mortgage), failure to pay all Impositions (as
defined in the Mortgage, such term includes taxes and all other governmental
charges) prior to the date such Impositions become delinquent or late charges
may be imposed thereon, (iv) subject to the right to contest (as provided in the
Mortgage), failure to (a) keep the Properties and the equipment located on the
Properties free from all liens (other than the Mortgage and certain permitted
liens), (b) pay when due all claims and demands of mechanics, materialmen,
laborers and others which, if unpaid, might result in or permit the creation of
a lien on the Properties and equipment, and (c) cause the discharge of all liens
imposed on or against the Property and equipment within 45 days after the
Property Owning Partnership receives notice thereof, (v) except as permitted
under the Credit Agreement and the Mortgage, (a) transfer of the Properties, (b)
transfer of ownership interest of either Property Owning Partnership, either GP
Corp, any of the partners of the Upper Tier Limited Partnership or Lower Tier
Limited Partnership, or the Company as the same exists as of the Effective Date
without the consent of the Super Required Lenders or (c) compliance with
Sections 5.9 and 5.10 of the Credit Agreement, (vi) an Event of Default under
the Credit Agreement or any other Loan Documents, (vii) the occurrence of any
other default in the performance, or breach, of any material covenant,
representation or warranty of either Property Owning Partnership or in any other
Loan Document and the continuance of such default or breach for 30 days (which
period may be extended to 120 days) after written notice thereof from Chase, and
(viii) other customary mortgage defaults.
Upon the occurrence and continuation of an Event of Default
under the Mortgage, Chase may, among other things, (i) subject to any applicable
provisions of the Notes, the Credit Agreement and the other Loan Documents,
declare all or any portion of the unpaid principal balance of the Loan, together
with all accrued and unpaid interest, immediately payable, (ii) enter into all
or any part of the Properties and may operate and control the Properties, (iii)
sell the Properties, to the extent permitted by law, or (iv) institute
proceedings for the complete or partial foreclosure of the Mortgage.
The Property Owning Partnerships covenant in the Mortgage that
they will, among other things, keep in full force and effect insurance of the
type and with the minimum limits as set forth in the Mortgage. The Property
Owning Partnerships covenant in the Mortgage that they will not, among other
things, (i) partition the Properties, (ii) transfer all or a portion of the
Properties other than in accordance with the terms of the Credit Agreement and
the Mortgage, (iii) file a petition for voluntary bankruptcy, (iv) dissolve,
terminate, liquidate or consolidate with another person, or (v) engage in any
activity that would subject them to ERISA, other than with respect to plans or
benefit arrangements sponsored or contributed to on the Effective Date.
DESCRIPTION OF THE LIMITED PARTNERSHIP AGREEMENTS OF THE PARTNERSHIPS
The certificate of limited partnership of the Upper Tier
Limited Partnership was filed with the Office of the Secretary of State of the
State of Delaware on October 7, 1996. Prior to the merger of the Debtors into
the Upper Tier Limited Partnership, O&Y NY Building Corp. ("Building Corp."), an
affiliate of O&Y that held equity interests in the Debtors, as general partner,
and 237/1290 Upper Tier GP Corp., a Delaware corporation and wholly owned
subsidiary of the Company (the "Upper Tier GP Corp.") pursuant to an initial
limited partnership agreement and an initial certificate of limited partnership.
After the merger such initial agreement was amended to provide that all items of
income, gain, loss or deduction attributable to the assumption or reduction of
the 237 Excess Amount (as hereinafter defined) and the 1290 Excess Amount
occurring on or about the date of such amendment will be allocated solely to O&Y
Equity Company L.P., an affiliate of O&Y that held equity interests in the
Debtors ("Equityco"), and Building Corp. in such manner as they shall agree (as
hereinafter defined) (See "BACKGROUND -- Summary of the Plan").
The certificate of limited partnership of the Lower Tier
Limited Partnership was filed with the office of the Secretary of State of the
State of Delaware on September 30, 1996. On the Effective Date, the
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<PAGE>
limited partnership agreement of the Lower Tier Limited Partnership (the "Lower
Tier Limited Partnership Agreement") became effective, with the Company holding
a 95% partnership interest, as general partner, and the Upper Tier Limited
Partnership holding a 5% partnership interest, as limited partner, therein.
The certificates of limited partnership of the Property Owning
Partnerships were filed with the Office of the Secretary of State of the State
of Delaware on September 30, 1996. On the Effective Date, the limited
partnership agreements of the Property Owning Partnerships (the "Property Owning
Partnership Agreements") became effective, with the Lower Tier Limited
Partnership holding a 99% interest, as limited partner, and each of the GP Corps
holding a 1% interest, as general partner, in the respective Property Owning
Partnership.
The Lower Tier Limited Partnership Agreement
The following is a summary of the material terms of the Lower
Tier Limited Partnership Agreement. Such summary does not purport to be complete
and is qualified in its entirety by reference to the Lower Tier Limited
Partnership Agreement, a copy of which has been filed as an exhibit to this
Registration Statement.
Pursuant to the Plan and the various Contribution Agreements,
on the Effective Date, (i) the Lower Tier Limited Partnership received the
Contributed Debt (as hereinafter defined) as a capital contribution from the
Company, as general partner, and as a capital contribution from the Debtors, as
limited partners, the Properties and certain related personalty, subject to the
lien of the Indenture (as hereinafter defined), were transferred at the
direction of the Lower Tier Limited Partnership to the Property Owning
Partnerships. The Lower Tier Limited Partnership Agreement does not require
either the Upper Tier Limited Partnership, as limited partner, or the Company,
as general partner, to make additional capital contributions. The Company has
overall management responsibilities and powers, as the general partner, of the
Lower Tier Limited Partnership. The Company, as general partner, is required to
use its best efforts to cause the Lower Tier Limited Partnership to make
adequate distributions to the Company in order to enable the Company to pay
dividends so as to satisfy the Internal Revenue Code requirements for qualifying
as a REIT. See "BUSINESS AND PROPERTIES -- Qualification as a REIT. "
The Lower Tier Limited Partnership Agreement provides that the
aggregate Available cash (as defined in the Lower Tier Limited Partnership
Agreement), from distributions from the Property Owning Partnerships will be
distributed no less frequently than quarterly to the partners of the Lower Tier
Limited Partnership as follows:
(i) 100% to the Company, as general partner, until it has
received, together with all prior distributions pursuant to this clause and
clauses (i) and (iv) of the succeeding paragraph, aggregate distributions equal
to a cumulative compounded return, commencing on the Effective Date (or with
respect to capital contributions made after the Effective Date, the date of such
capital contributions), of 12% per annum on the sum of (x) the Contributed Debt,
(y) any additional capital contributions made by the Company, as general
partner, to the Lower Tier Limited Partnership, and (z) a $100,000,000
preference amount (the "Preference Amount") (the amounts in (x), (y) and (z), as
reduced by distributions in respect of such amounts referred to herein as the
"Adjusted GP Contribution");
(ii) 100% to the Company, as general partner, until it has
received in total, taking into account distributions made to it from Available
cash and sale or refinancing proceeds, the Adjusted GP Contribution; and
(iii) the balance, 95% to the Company, as general partner, and
5% to the Upper Tier Limited Partnership.
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Net proceeds from any distributions from the Property Owning
Partnerships related to any sale, refinancing, condemnation or insurance
recovery of the Properties or any loan made to the Partnership will be
distributed by the Lower Tier Limited Partnership to its partners as follows:
(i) 100% to the Company, as general partner, until it has
received, together with all prior distributions pursuant to this clause (i) and
clause (i) of the immediately preceding paragraph, aggregate distributions equal
to the product of (x) 0.5 and (y) a 12% per annum cumulative compounded return
on the Adjusted GP Contribution from the Effective Date (or with respect to
capital contributions made after the Effective Date, the date of such capital
contributions);
(ii) 100% to the Company, as general partner, until it has
received, together with all prior distributions pursuant to this clause (ii) and
clause (ii) of the immediately preceding paragraph, aggregate distributions
equal to the product of (x) .75 and (y) the Adjusted GP Contribution;
(iii) from the next $500,000, 90% to the Upper Tier Limited
Partnership and 10% to the Company, as general partner;
(iv) 100% to the Company, as general partner, until it has
received, together with all prior distributions pursuant to this clause (iv),
clause (i) of this paragraph and clause (i) of the immediately preceding
paragraph, a 12% per annum cumulative compounded return on the Adjusted GP
Contribution commencing with respect to each capital contribution, on the date
such Capital Contribution was made;
(v) 100% to the Company, as general partner, until it has
received, together with all prior distributions pursuant to this clause (v),
clause (ii) of this paragraph and clause (ii) of the immediately preceding
paragraph, aggregate distributions equal to the Adjusted GP Contribution; and
(vi) 95% to the Company, as general partner, and 5% to the
Upper Tier Limited Partnership.
The Lower Tier Limited Partnership Agreement provides that the
Upper Tier Limited Partnership may transfer its interests in the Lower Tier
Limited Partnership, as limited partner, only with the written consent of the
Company, which consent may be withheld in the sole and absolute discretion of
the Company. Any attempted or actual transfer by the Upper Tier Limited
Partnership to any person without the approval of the Company will be null and
void ab initio and of no force and effect.
The Company has the right (the "Purchase Right"), exercisable
on or after the earliest of (i) the Default Date (as hereinafter defined), (ii)
January 2, 2001 and (iii) the date on which JMB LP no longer holds any
partnership interest in the Upper Tier Limited Partnership, to acquire or cause
its designee to acquire the partnership interest of the Upper Tier Limited
Partnership, as limited partner, in the Lower Tier Limited Partnership, for an
amount (the "Upper Tier Partnership Purchase Price") equal to the greater of (x)
the amount that would be distributed to the Upper Tier Limited Partnership
(after taking into account existing partnership debt and the distribution
priorities of the Company, as general partner) if the Properties held by the
Property Owning Partnerships were sold (and the proceeds therefrom distributed
in accordance with the Lower Tier Limited Partnership Agreement and the Property
Owning Partnership Agreements) for an amount equal to (a) the product of two
times the Properties' net operating income (excluding extraordinary items) for
the period January 1, 2000 through June 30, 2000, (b) divided by 0.12, and (y)
$100.
The Upper Tier Limited Partnership has the right, exercisable
at any time after the Effective Date, to require the Company to acquire the
partnership interests of the Upper Tier Limited Partnership in the Lower Tier
Limited Partnership (the "Put Right") based on the same formula described in the
immediately preceding paragraph, except that the Properties' net operating
income shall be for the immediately preceding calendar year and such amount
shall not be multiplied by two (the "Put Price"). Pursuant to the Upper Tier
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<PAGE>
Limited Partnership Agreement, JMB LP has the right (the "JMB Put Right") to
cause the Upper Tier Limited Partnership to exercise the Put Right. In each
case, JMB LP will be responsible for any transfer taxes, gains taxes and other
similar costs incurred in connection with the exercise of such rights and also
including any additional transfer taxes and transfer gains taxes which would be
retroactively assessed with respect to the transfer of the Properties to the
Property Owning Partnerships pursuant to the Plan by reason of the exercise of
such rights.
Pursuant to the Upper Tier Limited Partnership Agreement, JMB
LP covenants that neither it nor any of its affiliates will intentionally
interfere with (i) the exercise by the Company of the Purchase Right, (ii) any
disposition, mortgage, pledge, encumbrance, hypothecation or exchange (a) of the
LP Interest by the Upper Tier Limited Partnership, (b) of the Lower Tier Limited
Partnership's interest in the Property Owning Partnerships by the Lower Tier
Limited Partnership or (c) of the Properties by either Property Owning
Partnership or (iii) the merger or other combination of the Lower Tier Limited
Partnership or the Property Owning Partnerships with or into another entity, in
each case, in accordance with the terms of the Upper Tier Limited Partnership
Agreement, the Lower Tier Limited Partnership Agreement or the Property Owning
Partnership Agreements.
Pursuant to the Lower Tier Limited Partnership Agreement, JMB
LP delivered to the Company (i) stripped United States Treasury Notes with a
face value of $10,175,000 and a maturity date of February 15, 2001 (the "JMB
Collateral"), and (ii) an Indemnity Agreement (the "JMB Indemnity") from
JMB/Manhattan Associates, Ltd., Carlyle Real Estate Limited Partnership - XIII
and Carlyle Real Estate Limited Partnership - XIV, the constituent partners of
JMB LP (collectively, the "JMB Indemnitors"). If JMB LP breaches its obligation
not to engage in the acts described in the preceding paragraph beyond the
expiration of applicable notice and cure periods, (i) the Company may liquidate
the JMB Collateral and distribute such proceeds free and clear of all
encumbrances, and (ii) the JMB Indemnitors will be obligated to pay the Company
an amount equal to $25,000,000 less any amounts realized by the Company upon
liquidation of the JMB Collateral. There can be no assurance that the JMB
Indemnitors will have sufficient funds available to make such payment if
required to do so. Furthermore, the Company's recourse under the JMB Indemnity
is limited to the assets of the JMB Indemnitors and the Company will not have
recourse against the partners of the JMB Indemnitors.
After the expiration of the Preference Period under section
547 of the Bankruptcy Code and upon the completion of (i) any transfer of
partnership interests resulting from JMB LP's exercise of the JMB Put Right, the
Upper Tier Limited Partnership's exercise of the Put Right or the Company's
exercise of the Purchase Right, (ii) a permitted sale of the Properties, or
(iii) a permitted transfer of the Lower Tier Limited Partnership's partnership
interest in the Property Owning Partnerships, the Company will release its
security interest in and return the JMB Collateral to JMB LP provided, however,
that JMB LP did not interfere with the completion of such transfers or sale.
The Lower Tier Limited Partnership Agreement provides that,
subject to certain limitations described below, the Company, as general partner,
has full power and authority to do all things deemed necessary or desirable by
it to conduct the business of the Lower Tier Limited Partnership, including,
without limitation, (i) the lending or borrowing of money, (ii) the acquisition
or disposition of any assets of the Lower Tier Limited Partnership, and (iii)
the issuance of additional partnership interests to additional limited partners.
The Lower Tier Limited Partnership Agreement also provides that the Company may
transfer all or any part of its partnership interest, as general partner, in its
sole discretion and without the consent of the limited partners.
The Lower Tier Limited Partnership Agreement also provides
that until the earliest of (i) January 2, 2001, (ii) the date on which the Upper
Tier Limited Partnership no longer holds partnership interests in the Lower Tier
Limited Partnership as a result of the authorized exercise of the Purchase Right
or the Put Right or as otherwise permitted pursuant to the Upper Tier Limited
Partnership Agreement, (iii) the date on which the Lower Tier Limited
Partnership no longer holds partnership interests in the Property Owning
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<PAGE>
Partnerships to the extent permitted by the Lower Tier Limited Partnership
Agreement, (iv) the date on which JMB LP no longer holds a partnership interest
in the Upper Tier Limited Partnership as a result of the authorized exercise of
the JMB Put Right or as otherwise permitted pursuant to the Upper Tier Limited
Partnership Agreement, and (v) the Default Date (the earliest such date, the
"Approval Right Termination Date"), the Company, as general partner, will not,
without the prior written consent of the Upper Tier Limited Partnership (which,
in turn, will be subject to the prior written consent of JMB LP), cause or
permit (to the extent within the Company's reasonable control) any Adverse
Transaction, provided, however, that the Company will be under no obligation to
commence litigation or to incur any expense (unless JMB LP funds such expense)
in order to avoid or prevent an Adverse Transaction. Under the Upper Tier
Limited Partnership Agreement, the Lower Tier Limited Partnership Agreement and
the Property Owning Partnership Agreement, "Adverse Transaction" means (i) any
sale, disposition, transfer or exchange of the Properties (or the interests of
the Lower Tier Limited Partnership in the Property Owning Partnerships and the
interests of the Upper Tier Limited Partnership in the Lower Tier Limited
Partnership), (ii) any release, discharge or reduction of the non-recourse
indebtedness of the Property Owning Partnerships (other than through payment of
scheduled amortization, actions taken by a secured lender, such as application
of insurance proceeds or condemnation awards or the exercise of remedies, or
where the released indebtedness is concurrently being replaced with other
non-recourse indebtedness complying with the last sentence of this paragraph),
(iii) any distribution of the applicable Partnership assets (other than the
distribution of cash and other distributions by the Upper Tier Limited
Partnership, the Lower Tier Limited Partnership and the Property Owning
Partnerships, in each case, in the ordinary course of business), or (iv) any
other transaction or agreement to which any of the Upper Tier Limited
Partnership, the Lower Tier Limited Partnership or the Property Owning
Partnerships is a party, if as a result of any such transaction or agreement
described in (i), (ii), (iii) or (iv), JMB LP would be required to recognize a
material amount of taxable income or gain prior to the Approval Right
Termination Date. Adverse Transactions specifically exclude (A) Partnership
income derived in the ordinary course of the Upper Tier Limited Partnership's,
the Lower Tier Limited Partnership's or the Property Owning Partnerships'
business, (B) non-recourse refinancing of the Properties on commercially
reasonable terms in an aggregate amount equal to not less than the lesser of
$325,000,000 and the amortized balance of the then existing non-recourse
financing encumbering the Properties (utilizing an amortization schedule no
shorter than twenty (20) years), (C) payment of amortization on non-recourse
financing encumbering the Properties, provided that the outstanding balance of
such financing is not reduced below $325,000,000, in the aggregate, as such
amount would be reduced between the Effective Date and the Approval Right
Termination Date based on a twenty (20) year amortization schedule and except as
otherwise provided in clause (ii) above, (D) the consummation of the
transactions contemplated by the Plan (i.e., the property transfers and the
issuance of the securities provided therein), (E) a transfer of the Properties
pursuant to an involuntary foreclosure or similar action arising from a default
by the Property Owning Partnerships with respect to their obligations under
their indebtedness, and (F) a transfer of the Properties pursuant to a
consensual foreclosure or similar action (including, without limitation, a deed
in lieu of foreclosure) arising from a default by the Property Owning
Partnerships with respect to their obligations under their indebtedness.
The Upper Tier Limited Partnership Agreement
The following is a summary of the material terms of the Upper
Tier Limited Partnership Agreement. Such summary does not purport to be complete
and is qualified in its entirety by reference to the Upper Tier Limited
Partnership Agreement, a copy of which has been filed as an exhibit to this
Registration Statement.
Initially, Building Corp., as general partner, and Upper Tier
GP Corp., as limited partner, formed the Upper Tier Limited Partnership pursuant
to an initial limited partnership agreement and an initial certificate of
limited partnership. After the merger of 237 LLC and 1290 LLC into the Upper
Tier Limited Partnership, such initial agreement was amended to provide that all
items of income, gain, loss or deduction attributable to the assumption or
reduction of the 237 Excess Amount and the 1290 Excess Amount occurring on or
about the date of such amendment will be allocated solely to Equityco and
Building Corp. in such manner as
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<PAGE>
they shall agree. After consummation of the transactions contemplated by the
Redemption and Substitution Agreement (as hereinafter defined), the limited
partnership agreement was amended and restated in its entirety (as so amended
and restated, the "Upper Tier Limited Partnership Agreement").
Pursuant to the Upper Tier Limited Partnership Agreement, all
distributions of net cash flow will be distributed in accordance with the
respective ownership interests of the partners, except that all distributions
payable to JMB LP will be applied first to the prepayment of the JMB Notes and
will be distributed to the Company or its designee as participant in the JMB
Notes with any remainder payable to the other participant therein (subject to
the JMB Note Participation Agreement). See "BUSINESS AND PROPERTIES -- Other
Assets -- JMB Notes" for a description of the JMB Notes. Until the Approval
Right Termination Date, the Upper Tier GP Corp. as general partner of the Upper
Tier Limited Partnership, may not, on behalf of the Upper Tier Limited
Partnership as a limited partner of the Lower Tier Limited Partnership, take the
following actions without the consent of JMB LP: (i) consent to any Adverse
Transaction pursuant to the Lower Tier Limited Partnership Agreement and the
Property Owning Partnership Agreements, (ii) exercise the Upper Tier Limited
Partnership's Put Right, (iii) effect a sale of the Upper Tier Limited
Partnership's interest in the Lower Tier Limited Partnership if such transaction
would constitute an Adverse Transaction, (iv) consent to certain amendments of
the Lower Tier Limited Partnership Agreement or the Property Owning Partnership
Agreements, (v) consent to the dissolution of the Lower Tier Limited Partnership
or the Property Owning Partnerships pursuant to the Lower Tier Limited
Partnership Agreement, or (vi) cause or permit (to the extent within the Upper
Tier GP Corp's reasonable control) any Adverse Transaction; provided, however,
that the Upper Tier GP Corp. will be under no obligation to commence litigation
or to incur any expense (unless JMB LP funds such expense) in order to avoid or
prevent an Adverse Transaction.
Subject to the provisions described below, the Upper Tier
Limited Partnership Agreement provides that limited partners may not transfer
their interests in the Upper Tier Limited Partnership without the prior written
consent of the Upper Tier GP Corp. Such consent may be granted or withheld by
the Upper Tier GP Corp. in its sole discretion. Notwithstanding the foregoing,
at any time after the Effective Date JMB LP will have the right to cause the
Upper Tier GP Corp. to purchase or designate an entity to purchase JMB LP's
partnership interest, as a limited partner, in the Upper Tier Limited
Partnership, for a cash amount calculated in the same manner as the Put Price.
The Upper Tier Limited Partnership Agreement also provides that the Upper Tier
GP Corp. will, at the request of JMB LP, cause the Upper Tier Limited
Partnership to exercise its right under the Lower Tier Limited Partnership
Agreement to cause the Company to purchase or designate an entity to purchase
the Upper Tier Limited Partnership's interest in the Lower Tier Limited
Partnership. JMB LP will pay all transfer taxes, gains taxes and similar costs
incurred in connection with the exercise of such rights, including any
additional transfer taxes and transfer gains taxes which would be retroactively
assessed with respect to the transfer of the Properties by the Debtors to the
Property Owning Partnerships pursuant to the Plan by reason of the exercise of
such rights.
Property Owning Partnership Agreements
The following is a summary of the material terms of the
Property Owning Partnership Agreements. Such summary does not purport to be
complete and is qualified in its entirety by reference to the Property Owning
Partnership Agreements, copies of which have been filed as exhibits to this
Registration Statement.
Pursuant to the Debt Contribution Agreement and the Property
Contribution Agreements (as such terms are hereinafter defined), on the
Effective Date (i) the Lower Tier Limited Partnership contributed to the 1290
Property Owning Partnership $160,059,084 of the Contributed Debt and the 1290
Property as a capital contribution in exchange for a 99% partnership interest,
as limited partner, and (ii) the Lower Tier Limited Partnership contributed to
the 237 Property Owning Partnership $119,940,916 of the Contributed Debt and the
237 Property as a capital contribution in exchange for a 99% partnership
interest, as limited partner. The Property Owning Partnership Agreements do not
require either the Lower Tier Limited Partnership, as limited
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<PAGE>
partner, or the GP Corps, as general partner, to make additional capital
contributions. The GP Corps, as general partners of the Property Owning
Partnerships are required to use their best efforts to cause the Property Owning
Partnership to make adequate distributions to the Lower Tier Limited Partnership
so that the Lower Tier Limited Partnership may, in turn, make adequate
distributions to the Company in order to enable the Company to pay dividends so
as to satisfy the Internal Revenue Code requirements for qualifying as a REIT.
See "BUSINESS AND PROPERTIES -- Qualification as a REIT".
The Property Owning Partnership Agreements provide that,
except with respect to Adverse Transactions, in exercising its authority as
general partners, the GP Corps may, but will be under no obligation to, take
into account the tax consequences to any limited partners (and any partners
thereof) of any action taken by the GP Corps, provided, that, if the GP Corps
decide to refinance any outstanding indebtedness of the Property Owning
Partnerships, the GP Corps will, until the Approval Right Termination Date, use
commercially reasonable efforts to structure such refinancing in a manner that
allows all of the Property Owning Partnership's non-recourse indebtedness to be
included in the tax basis of the limited partners' partnership interests.
Pursuant to the Property Owning Partnership Agreements, all
distributions of net cash flow will be distributed in accordance with the
respective ownership interests of the partners and will be made from time to
time as determined by the GP Corps but in any event not less frequently than
quarterly. The Property Owning Partnership Agreements may not be amended without
the written consent of both the general partner and limited partner. Until the
Approval Right Termination Date, the GP Corps, as general partners of the
Property Owning Partnerships, may not, without the written consent of the Lower
Tier Limited Partnership, cause or permit (to the extent within the GP Corps'
reasonable control) any Adverse Transaction, provided, however, that the GP
Corps will be under no obligation to commence litigation or to incur any expense
(unless JMB LP funds such expense) in order to avoid or prevent an Adverse
Transaction from occurring. All consents of the Lower Tier Limited Partnership,
described in this paragraph, may only be granted with the consent of JMB LP
pursuant to the Upper Tier Limited Partnership Agreement.
The Property Owning Partnership Agreements provide that,
subject to certain limitations relating to Adverse Transactions, the GP Corps,
as general partners, have full power and authority to do all things deemed
necessary or desirable by them to conduct the business of the respective
Property Owning Partnerships, including, without limitation, (i) the lending or
borrowing of money, (ii) the acquisition or disposition of any assets of the
Property Owning Partnerships, and (ii) the issuance of additional partnership
interests to additional limited partners. The Property Owning Partnership
Agreements also provide that the GP Corps may transfer all or any part of their
partnership interest, as general partner, in their sole discretion and without
the consent of the limited partners.
The Property Owning Partnership Agreements provide that the
limited partners may not transfer their interests in the Property Owning
Partnerships without the prior written consent of the respective GP Corps. Such
consent may be granted or withheld by the GP Corps in their sole discretion.
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<PAGE>
MANAGEMENT OF THE COMPANY
Directors and Officers
The current directors and executive officers of the Company
are as follows:
Name Age Position
William L. Mack............... 56 Director and Chairman of the Board
Lee S. Neibart................ 46 Director and President
W. Edward Scheetz............. 31 Director and Vice President
Bruce H. Spector.............. 54 Director
John R. Klopp................. 42 Director
Russel S. Bernard............. 38 Director
Ralph F. Rosenberg............ 32 Director
David A. Strumwasser.......... 45 Director
David Roberts................. 34 Director
Each of the officers and directors listed above has served in
the positions listed for the Company, the GP Corps and the Upper Tier GP Corp.
since September 1996.
William L. Mack has been a limited partner of Apollo Real
Estate Advisors, L.P. since its inception in 1993 and serves as President of its
corporate general partner. Since 1969, Mr. Mack has been President and a Senior
Partner of the Mack Organization, a national owner and developer of and investor
in office and industrial buildings and other income-producing real estate
investments. Mr. Mack is also the controlling stockholder of Patriot American,
an owner and manager of office buildings in the Southwest and West. Mr. Mack is
a director of Gillett Holdings, Inc., the owner and operator of the Vail and
Beaver Creek ski areas; and Koger Equities Inc., a REIT that owns and operates
office parks in the Southeastern and Southwestern regions of the United States.
Mr. Mack also serves as a director of the New York State Urban Development
Corporation, as Chairman of the Undergraduate Executive Board of the University
of Pennsylvania's Wharton School of Business and as Chairman Emeritus of the
Board of Trustees of the Long Island Jewish Center. Mr. Mack received a BS in
Business Administration from the New York University School of Business.
Lee S. Neibart is a limited partner of Apollo Real Estate
Advisors, L.P., with which he has been associated since 1994, and directs
portfolio and asset management. From 1979 to 1993, he was Executive Vice
President and Chief Operating Officer of the Robert Martin Company, a private
real estate development and management firm which owns and manages approximately
seven million square feet of commercial real estate and with which he was
associated for over fourteen years. Mr. Neibart is a director of Roland
International, Inc., a land development company; Allright Corporation, an owner
and operator of parking facilities throughout the United States; Koger Equities,
Inc., a REIT that owns and operates office parks in the Southeastern and
Southwestern regions of the United States; and NextHealth, Inc., an owner and
operator of spa and wellness facilities. He is also a past president of the New
York Chapter of the National Association of
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<PAGE>
Industrial and Office Parks. Mr. Neibart received a BA from the University of
Wisconsin and an MBA from New York University.
W. Edward Scheetz is a principal of Apollo Real Estate
Advisors, L.P., with which he has been associated since 1993 and has been
responsible for directing the evaluation and completion of all new investments
made by Apollo Real Estate Advisors, L.P. since such time. From 1989 to 1993,
Mr. Scheetz was a principal with Trammell Crow Ventures, where he was
responsible for investment activities relating to public and private syndicated
partnerships, REIT, developer recapitalizations and corporate real estate
portfolios. Prior to 1989, Mr. Scheetz was associated with various Trammell Crow
Company affiliates, including Trammell Crow Medical, Wyndham Hotel Co. and
Trammell Crow Interests, and acted as assistant to the Chief Financial Officer
during the firm's reorganization and recapitalization. Mr. Scheetz is a director
of Roland International, Inc., a land development company; NextHealth, Inc., an
owner and operator of spa and wellness facilities; and Koger Equity, Inc., a
REIT that owns and operates office parks in the Southeastern and Southwestern
regions of the United States. Mr. Scheetz serves on the compensation committee
of Koger Equity, Inc. Mr. Scheetz received an AB in Economics from Princeton
University.
Bruce H. Spector is a principal of Apollo Real Estate
Advisors, L.P., with which he has been involved since 1993 and has been
responsible for advising on matters of reorganization strategy. From 1967 to
1992, Mr. Spector was a member of the law firm of Stutman, Treister and Glatt,
spending a substantial amount of that time as a senior partner and head of the
firm's executive committee. Mr. Spector serves on the boards of United
International Holdings, Inc., a designer and owner of cable and telephone
systems outside of North America; Telemundo Group, Inc., a national
Spanish-language oriented television producer; and Nexthealth, Inc., an owner
and operator of spa and wellness facilities. Mr. Spector graduated from the
University of Southern California with a degree in economics and from the UCLA
School of Law with a JD.
John R. Klopp has been a Managing Partner of VCG since 1989.
VCG served as financial advisor to the ad hoc committee of Noteholders in the
Debtors' Chapter 11 case. VCG is a private real estate merchant banking firm
which was formed in 1989 and is based in New York City. From 1978 to 1989, Mr.
Klopp was a Managing Director and co-head of Chemical Realty Corporation
("Chemical Realty"), the real estate investment banking affiliate of Chemical
Bank. Prior to founding Chemical Realty, he held various positions in Chemical
Bank's closing and monitoring portfolios of construction and interim loans. He
received a B.A. from Tufts University in 1976 with a major in economics, and an
M.B.A. in 1978 from the Wharton School at the University of Pennsylvania with a
major in real estate and finance.
Russel S. Bernard is a principal of Oaktree Capital
Management, LLC, with which he has been involved since 1995, and is the
portfolio manager of Oaktree's real estate and mortgage fund. Prior to joining
Oaktree, in 1994 and 1995, Mr. Bernard was a Managing Director of Trust Company
of the West (TCW). Under subadvisory relationships with Oaktree, Mr. Bernard
continues to serve as portfolio manager for the TCW Special Credits distressed
mortgage funds. From 1986 to 1994, Mr. Bernard was a partner in Win Properties,
Inc., a national real estate investment company, where he was responsible for
the acquisition, financing and operation of a national real estate portfolio.
Mr. Bernard is a director of Cadillac Fairview Corporation, which owns, manages
and develops shopping centers and office and mixed use properties in the U.S.
and Canada. Mr. Bernard holds a B.S. in Business Management and Marketing from
Cornell University.
Ralph F. Rosenberg has been a Vice President in the Investment
Banking Division at Goldman, Sachs & Co. since 1994. Prior to that he was in the
Real Estate Principalling Department from 1992 to 1994, and he served as an
Associate from 1990 to 1992. Mr. Rosenberg was a Financial Analyst at Goldman,
Sachs & Co. from 1986 until 1988. Mr. Rosenberg is a director of Cadillac
Fairview, Inc. and Rockefeller Center Properties, Inc. He received a B.A. from
Brown University in 1986, and an M.B.A. from the Stanford Graduate School of
Business in 1990.
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David A. Strumwasser has been a Managing Director and General
Counsel of Whippoorwill Associates, Incorporated, since 1993. Prior to that, he
was a Partner and co-head of the Bankruptcy and Reorganization Practice at
Berlack, Israels & Liberman from 1984 to 1993. Prior to that, he practiced
bankruptcy law at Anderson Kill & Olick, from 1981 to 1984, and at Weil, Gotshal
& Manges LLP from 1976 to 1979. From 1979 to 1981, Mr. Strumwasser was an
Assistant Vice President at Citicorp Industrial Credit Inc. Mr. Strumwasser
received a B.A. in political science from the State University of New York at
Buffalo in 1973, and a J.D. from Boston College Law School in 1976.
David Roberts has been a Managing Director of Angelo, Gordon &
Co., L.P. ("Angelo, Gordon") an investment management firm, since 1993, where he
oversees the firm's real estate investment activities. From 1988 until 1993, Mr.
Roberts was a principal of Gordon Investment Corporation, a Canadian merchant
bank, where he participated in a wide variety of principal transactions
including investments in the real estate and mortgage banking industries. Prior
to that, Mr. Roberts worked in the Corporate Finance Department of L.F.
Rothschild & Co. Incorporated, an investment bank, as a Senior Vice President
specializing in mergers and acquisitions. Mr. Roberts has a B.S. in Economics
from the Wharton School of the University of Pennsylvania.
Compensation of Directors
The members of the Board of Directors will each receive as an
annual retainer (i) $10,000 which will be paid in cash, and (ii) 400 shares of
Common Stock to be issued under the Stock Plan. Such stock and cash will be paid
to the current Board of Directors at the 1997 annual meeting of directors.
Directors will receive an additional payment of $750 for each Board of Directors
meeting attended. Upon election to the Board of Directors, each Director
received options to purchase 3,000 shares of the Company's common stock which
will vest over two years and will be exercisable at $25.00 per share. See
"SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT -- Description
of the Company's Stock Plan."
The Company has purchased a directors' and officers' liability
insurance policy in the amount of $10,000,000.
The Directors and officers of the Company, the Upper Tier GP
Corp. and the GP Corps are identical. The officers of the Company will not
receive any compensation from the Company, other than any compensation they may
receive as Directors. The Directors and officers of the Upper Tier GP Corp. and
the GP Corps will not receive any compensation from the Upper Tier GP Corp. or
the GP Corps.
Asset Management Agreement
The following are summaries of the material terms of the Asset
Management Agreement and the Subordination Agreement (as hereinafter defined).
Such summaries do not purport to be complete and are qualified in their entirety
by reference to the Asset Management Agreement and Consent and Subordination of
Asset Management Agreement which have been filed as exhibits to this
Registration Statement.
The Company and the Asset Manager entered into an Asset
Management Agreement, dated as of the Effective Date (the "Asset Management
Agreement"). Pursuant to the Asset Management Agreement, the Asset Manager will
act as the Company's advisor and consultant with respect to the management of
the Properties and the Company's interests in the Property Owning Partnerships
and Lower Tier Limited Partnership (collectively, the "Existing Assets"). The
Asset Management Agreement provides that the Asset Manager will, among other
things, (i) advise the Company regarding the employment of and will monitor the
performance of the property manager and leasing agent for each Property, (ii)
review and make recommendations to the Company with respect to annual budgets
for the Properties proposed by the Property Manager/Leasing Agent, (iii) review
and advise the Company with respect to any capital projects proposed by
34
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<PAGE>
the property manager, (iv) coordinate with the property manager and the
Company's lawyers the tax planning for the Properties and the Company's
interests in the Properties and will assist the Company and its accountants in
developing cash management and dividend policies to satisfy requirements for the
maintenance of the Company's status as a REIT; (v) assist the Company in
maintaining records, preparing reports and holding stockholder meetings; (vi) be
the Company's liaison with the holder of any mortgage encumbering the
Properties, and (viii) make recommendations to the Company concerning the hiring
of professionals to perform services with respect to the Existing Assets.
The Asset Management Agreement has an initial term of one
year, which term will be automatically extended for consecutive one year periods
thereafter unless the Company or the Asset Manager notify the other at least 30
days before the then current term would otherwise terminate, of its election not
to extend the term.
The Company may terminate the Asset Management Agreement (i)
after the expiration of a cure period, by notice to the Asset Manager if the
Asset Manager defaults in any material respect in its performance under the
Asset Management Agreement, and (ii) immediately upon notice to the Asset
Manager if the Properties are sold or if there is a change in control of the
Asset Manager. The Asset Manager may terminate the Asset Management Agreement if
the Company defaults in the payment of any amount due and payable to the Asset
Manager and such failure continues for 30 days after the Asset Manager's written
notice of such failure. Either party may terminate the Asset Management
Agreement by giving notice to the other upon the occurrence of certain events
relating to the bankruptcy or insolvency of the other party.
The Company will pay the Asset Manager a fee (the "Asset
Management Fee") in an amount equal to $25,000 per month. In addition to the
payment of the Asset Management Fee, the Company will reimburse the Asset
Manager for certain expenses. If the Company sells or disposes of one but not
both of the Properties, the Company and the Asset Manager will review whether an
adjustment to the Asset Management Fee is appropriate. If the Company believes
that the Asset Management Fee should be reduced and the parties are unable in
good faith to agree upon a reduced fee, the Asset Management Agreement will be
terminable by either party upon 90 days notice to the other.
In connection with the Loan, the Company, the Property Owning
Partnerships, the Asset Manager and Chase entered into a Consent and
Subordination Agreement, dated as of the Effective Date (the "Subordination
Agreement"). Under the Subordination Agreement, the Asset Manager agreed, among
other things, (i) not to terminate the Asset Management Agreement without first
obtaining Chase's consent, provided, that if Chase denies its consent to any
such termination, Chase will cure any monetary default by the Company which is
the basis for such termination, (ii) that any and all liens, rights and interest
held by the Asset Manager in and to the Properties will be subordinate to the
liens and security interests of the Lenders under the Credit Agreement, (iii)
that upon the occurrence of an event of default under the Credit Agreement or
any other Loan Documents, the Asset Manager will, at the request of Chase,
continue performance of all of the Asset Manager's obligations under the terms
of the Asset Management Agreement to the extent so requested by Chase, provided,
that Chase performs or causes to be performed the obligations of the Company
under the Asset Management Agreement, and (iv) not to materially modify or amend
any material term of or renew the Asset Management Agreement without the prior
written consent of Chase.
Management and Leasing Agreements
The following is a summary of the material terms of the
Management and Leasing Agreements. Such summary does not purport to be complete
and is qualified in its entirety by reference to the Management and Leasing
Agreements which have been filed as exhibits to this Registration Statement.
Each of the Property Owning Partnerships entered into a
Management and Leasing Agreement, dated as of the Effective Date (the "Property
Management Agreements") with the Property Manager/Leasing
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<PAGE>
Agent. Pursuant to the Property Management Agreements, the Property
Manager/Leasing Agent will perform all supervisory, management and leasing
services and functions reasonably necessary or incidental to the leasing,
management and operations of the Properties. The Property Management Agreements
provide that the Property Manager/Leasing Agent will, among other things, (i)
prepare and submit to the Property Owning Partnerships for approval annual
budgets for the Properties, (ii) use reasonable efforts to cause the actual
costs of operating and maintaining the Properties not to exceed the annual
budgets and will not, without the Property Owning Partnerships' prior approval,
incur operating expenses or make capital expenditures for each Property in
excess of (x) 110% of the amount set forth in the respective annual budget or
(y) 105% of the total amount of the respective annual budget; and (iii) prepare
and submit to the Property Owning Partnerships for approval leasing guidelines
for the Properties.
The Property Management Agreements provide that the Property
Manager/Leasing Agent may contract with any of its affiliates to provide goods,
services or supplies under the Property Management Agreements so long as (i) the
Property Manager/Leasing Agent discloses the relationship to the appropriate
Property Owning Partnership, (ii) the economic and material non-economic terms
of the contract are reasonable and no more favorable than terms generally
available from third parties of comparable experience providing similar goods,
services or supplies, (iii) such contracts otherwise conform to the requirements
under the Property Management Agreements, and (iv) the appropriate Property
Owning Partnership has given its written approval of such contract.
The Property Management Agreements have an initial term of two
years, which term will be automatically extended for additional consecutive 90
day terms until such time as a Property Owning Partnership notifies the Property
Manger/Leasing Agent in writing, at least 30 days before the then current term
would otherwise terminate, of its election not to extend the term of a Property
Management Agreement.
A Property Owning Partnership may terminate its Property
Management Agreement on 60 days notice if its Property is either sold by the
Property Owning Partnership or refinanced by the Property Owning Partnership
pursuant to a securitized financing of the Property, provided that termination
of the Property Management Agreement as a result of such financing will only be
effective if the Property Manager/Leasing Agent is not approved by the rating
agency participating in such financing. Each Property Owning Partnerships may
terminate its Property Management Agreement (i) after a certain cure period,
upon notice to the Property Manager/Leasing Agent if the Property
Manager/Leasing Agent breaches a material term of the Property Management
Agreement, and (ii) immediately upon notice to the Property Manager/Leasing
Agent if (x) the Property Manager/Leasing Agent or any principal of the Property
Manager/Leasing Agent intentionally misappropriates funds of the Property Owning
Partnership or commits fraud against the Property Owning Partnership or if there
is a change in control of the Property Manager/Leasing Agent. The Property
Manager/Leasing Agent may terminate a Property Management Agreement (i) after a
certain cure period, upon notice to the Property Owning Partnership if the
Property Owning Partnership breaches a material term of the Property Management
Agreement, and (ii) upon 60 days notice to the Property Owning Partnership if
the Property Owning Partnership fails to provide funds on a consistent basis to
operate and maintain the Property. Either party may terminate a Property
Management Agreement upon notice to the other party in the event that a petition
in bankruptcy is filed against the other party and is not dismissed within 60
days, or a trustee, receiver or other custodian is appointed for a substantial
part of the other party's assets and is not vacated within 60 days or the other
party makes an assignment for the benefit of its creditors.
On the Effective Date, each Property Owning Partnership paid
the Property Manager/Leasing Agent $50,000 per month (pro rated for any partial
month) for services provided by the Property Manager/Leasing Agent prior to the
Effective Date in connection with the transition of ownership and management of
the Properties from the Property Owning Partnerships' predecessors, for the
period commencing August 1, 1996 and ending on the Effective Date. Each Property
Owning Partnership will (i) pay the Property Manager/Leasing Agent a fee (a
"Management Fee") in an amount equal to 1.5% of gross revenues from the
respective Property, which fee will be paid monthly, and (ii) reimburse the
Property Manager/Leasing Agent for
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<PAGE>
all reasonable out-of-pocket expenses incurred by the Property Manager/Leasing
Agent related to the performance of its responsibilities under the Property
Management Agreement, to the extent set forth in the annual budget. In addition,
the Property Manager/Leasing Agent will be entitled to receive commissions in
connection with the leasing of space at the Properties and renewals and
extensions of leases.
BACKGROUND
The Debtors and Certain Affiliates
The Debtors were limited liability companies organized under
the laws of the State of New York and were two of the many companies,
partnerships and joint ventures that collectively constituted the O&Y group of
companies.
On March 20, 1984, predecessors of the Debtors issued
$970,000,000 original principal amount of notes (the "Original Notes") pursuant
to that certain Mortgage Spreader and Consolidation Agreement and Trust
Indenture, dated March 20, 1984, as subsequently supplemented and amended (the
"Indenture"). The Properties, together with 2 Broadway secured the indebtedness
evidenced by the Original Notes and obligations under the Indenture.
On June 20, 1995, 2 Broadway LP filed a voluntary petition for
relief under chapter 11 of the Bankruptcy Code. Concurrently with the filing of
the petition, 2 Broadway LP filed its plan of reorganization (the "2 Broadway
Plan"). On August 28, 1995, the Bankruptcy Court confirmed the 2 Broadway Plan
and, by order dated September 6, 1995, the Bankruptcy Court authorized the sale
of 2 Broadway. Pursuant to the 2 Broadway Plan and an amendment to the
Indenture, 2 Broadway LP and its immediate predecessors were relieved of the
obligations under the Original Notes and the Indenture, and 2 Broadway was sold
and was released from the blanket mortgage lien of the Indenture. The Debtors,
however, continued to be jointly and severally obligated under the Original
Notes on a non-recourse basis, and their interests in the Properties continued
to be subject to the mortgage lien of the Indenture. The net proceeds from the
sale of 2 Broadway in the amount of $14,021,156.93 were used to pay, among other
things, debt service and certain property-related expenses of the Properties,
including capital improvement and leasing costs.
From and after January 1, 1996, combined cash flows generated
from the operations of the Properties and the proceeds from the sale of 2
Broadway were insufficient to service the obligations evidenced by the Original
Notes and to fund the costs and expenses of operating and maintaining the
Properties.
On April 23, 1996, Building Corp. and Equityco (affiliates of
O&Y that held equity interests in the Debtors) filed involuntary bankruptcy
petitions against the Debtors pursuant to section 303 of the Bankruptcy Code. On
April 25, 1996, the Debtors consented to relief under chapter 11 of the
Bankruptcy Code. As of April 23, 1996, the outstanding principal balance of the
Original Notes was $902,603,492 and interest was accrued and unpaid since
December 1, 1995.
Summary of the Plan
The following is a brief overview of certain material
provisions of the Plan which does not purport to be complete and is qualified in
its entirety by reference to the Plan, a copy of which has been filed as an
exhibit to this Registration Statement.
Pursuant to the Plan, on the Effective Date (the date of the
consummation of the transactions contemplated by the Plan), the following
actions were taken:
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<PAGE>
1. Pursuant to a series of documents executed in accordance
with the Plan, the outstanding principal balance of the Original Notes in excess
of $700,000,000 (the "Excess Amount") was released.
2. Pursuant to the Noteholders Contribution and Participation
Agreement, dated the Effective Date, between Bankers Trust Company, in its
capacity as successor indenture trustee under the Indenture (the "Indenture
Trustee") and the Company, the Indenture Trustee, on behalf of the holders of
the Original Notes (the "Noteholders"), contributed to the Company an undivided
interest in $280,000,000 principal amount of Original Notes (the "Contributed
Debt") in exchange for 11,135,411 shares of the Company's Common Stock, issued
under the Plan.
3. Prior to the merger described in paragraph 4 below (the
"Merger"), the operating agreement for 237 LLC was modified pursuant to the
Modification of Operating Agreement of 237 LLC, dated as of the Effective Date,
among the Upper Tier Limited Partnership, Building Corp., Equityco and JMB LP,
to provide that any income arising from the release of the Excess Amount in
excess of $60,000,000 (the "237 Excess Amount") would be allocated to Building
Corp. and Equityco. In addition, prior to the Merger and pursuant to the Debt
Assumption, Release and Security Agreement, dated as of the Effective Date (the
"237 Assumption and Security Agreement"), among the Debtors, Building Corp.,
Equityco and the Indenture Trustee, (i) Building Corp. and Equityco assumed the
obligations of the Debtors to repay the 237 Excess Amount, (ii) Building Corp.
and Equityco granted to the Indenture Trustee for the benefit of the holders of
the Original Notes a first priority perfected security interest in and lien on
their interests in the Debtors securing their obligation to repay the 237 Excess
Amount, and (iii) the Indenture Trustee released the Debtors from their
obligation to repay the 237 Excess Amount.
4. Initially, Building Corp. held a 1% partnership interest in
the Upper Tier Limited Partnership, as general partner, and the Upper Tier GP
Corp. held a 99% partnership interest, as limited partner. Each of the Debtors
merged with and into the Upper Tier Limited Partnership pursuant to the
Agreement and Plan of Merger, dated the Effective Date (the "Merger Agreement"),
among the Upper Tier Limited Partnership and each of the Debtors and Building
Corp., Equityco and JMB LP received, respectively, 2.6%, 49.9%, and 46.5%
limited partnership interests therein. Upon consummation of the Merger, Upper
Tier GP Corp. withdrew as the initial limited partner of the Upper Tier Limited
Partnership, Building Corp. retained its 1% general partnership interest and the
Upper Tier Limited Partnership succeeded to the Debtor's ownership of the
Properties, subject to the obligations under the Indenture. In addition, (i)
Building Corp. and Equityco assumed the obligation of the Upper Tier Limited
Partnership to repay the difference between the Excess Amount and the 237 Excess
Amount (the "1290 Excess Amount") pursuant to the Debt Assumption, Release and
Security Agreement, dated as of the Effective Date (the "1290 Assumption and
Security Agreement"), among the Upper Tier Limited Partnership, Building Corp.,
Equityco and the Indenture Trustee, (ii) Building Corp. and Equityco granted to
the Indenture Trustee for the benefit of the Noteholders a first priority
perfected security interest in and lien on their interests in the Upper Tier
Limited Partnership (equal in priority with the security interest granted under
the 237 Assumption and Security Agreement) securing their obligations to repay
the 1290 Excess Amount, and (iii) the Indenture Trustee released the Upper Tier
Limited Partnership from its obligation to repay the 1290 Excess Amount. The
partnership agreement of the Upper Tier Limited Partnership in effect prior to
the effectiveness of the Redemption and Substitution Agreement, dated as of the
Effective Date (the "Redemption and Substitution Agreement"), among the Upper
Tier Limited Partnership, Building Corp., Equityco, JMB LP and Upper Tier GP
Corp. provided that all items of income, gain, loss or deduction attributable to
the assumption or reduction of the 237 Excess Amount and the 1290 Excess Amount
occurring on or about the date of such agreement would be allocated solely to
Equityco and Building Corp. in such manner as they agree. See "DESCRIPTION OF
THE LIMITED PARTNERSHIP AGREEMENTS OF THE PARTNERSHIPS."
5. Pursuant to the 237 Property Contribution Agreement and the
1290 Property Contribution Agreement, each dated as of the Effective Date
(collectively, the "Property Contribution
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<PAGE>
Agreements"), among the Upper Tier Limited Partnership, the Lower Tier Limited
Partnership and the respective Property Owning Partnerships and the other
documents providing for the transfer and assignment of the Properties and
certain other property of the Debtors to the Property Owning Partnerships or the
Company, as the case may be, and certain agreements related thereto (the
"Conveyancing Documents"), the Lower Tier Limited Partnership directed the Upper
Tier Limited Partnership to transfer and contribute to the Property Owning
Partnerships the respective Properties and certain related personalty, in each
case, subject to the lien of the Indenture securing the Original Notes, as
reduced by the Excess Amount and the Contributed Debt, as well as the right to
pursue tax certiorari proceedings with respect to the Properties and, in
consideration therefor the Upper Tier Limited Partnership received the LP
Interest which is an aggregate 5% partnership interest, as limited partner, in
the Lower Tier Limited Partnership.
6. Pursuant to the Debt Contribution Agreement, dated as of
the Effective Date, among the Company, the Lower Tier Limited Partnership and
the Property Owning Partnerships, the Company contributed the Contributed Debt
to the Lower Tier Limited Partnership in exchange for a 95% partnership
interest, as general partner, in the Lower Tier Limited Partnership, which
interest entitles the Company to a significant priority in respect of
distributions made by the Lower Tier Limited Partnership. The Lower Tier Limited
Partnership (i) contributed the Contributed Debt (allocated approximately 57.16%
to the 1290 Property Owning Partnership, and approximately 42.84% to the 237
Property Owning Partnership) and (ii) caused the Upper Tier Limited Partnership
to transfer and contribute the Properties to the Property Owning Partnerships in
exchange for a 99% partnership interest, as limited partner, in each of the
Property Owning Partnerships. The Property Owning Partnerships and the Indenture
Trustee then cancelled the Contributed Debt (resulting in an aggregate
outstanding indebtedness under the Original Notes of $420,000,000). The GP Corps
hold the remaining 1% partnership interest, as general partner, in each of the
Property Owning Partnerships. See "DESCRIPTION OF THE LIMITED PARTNERSHIP
AGREEMENTS OF THE PARTNERSHIPS."
7. Pursuant to the Redemption and Substitution Agreement (i)
the Upper Tier GP Corp. was admitted to the Upper Tier Limited Partnership as a
general partner, (ii) Building Corp. withdrew as general partner, (iii) the
Upper Tier GP Corp. received a 1% general partner interest in the Upper Tier
Limited Partnership, (iv) Equityco and Building Corp. withdrew from the Upper
Tier Limited Partnership as limited partners, and (v) JMB LP received a 99%
limited partnership interest in the Upper Tier Limited Partnership.
The foregoing description of the various transactions
effectuated pursuant to the Plan does not purport to be complete and is
qualified in its entirety by reference to the Merger Agreement, the Redemption
and Substitution Agreement and the Conveyance Documents, copies of which have
been filed as exhibits to this Registration Statement.
8. Affiliates of O&Y holding the Tenant Notes, at the
direction of the Company, assigned and delivered to the applicable Property
Owning Partnership the Tenant Notes and an amount equal to $450,000 representing
all cash paid in respect of the Tenant Notes from January 1, 1996 through the
Effective Date, net of certain payments made in connection with the consummation
of the Plan. See "BUSINESS AND PROPERTIES -- Other Assets -- Tenant Notes."
9. The JMB Notes were issued by JMB LP's predecessor in
interest to an affiliate of O&Y in 1984 in connection with the admission of JMB
LP's predecessor as a partner of the predecessors of the Debtors and an
affiliate of the Debtors which party owned 2 Broadway. On the Effective Date,
the JMB Notes and related security agreements were assigned by such O&Y
affiliate to the Company. Immediately prior to such assignment, the Company
entered into a Participation Agreement with an affiliate of JMB LP pursuant to
which the Company or its designee will receive the first $750,000 of payments
made pursuant to or in respect, of the JMB Notes and the JMB LP affiliate will
receive all further payments in respect of the JMB LP Notes.
See "BUSINESS AND PROPERTIES -- Other Assets -- JMB Notes."
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<PAGE>
10. On the Effective Date, the Indenture Trustee and the
Debtors transferred all cash then in their control to the Company and any
remaining cash in any accounts of the Debtors will be transferred to the Company
as soon as practicable.
11. Certain assets related to 2 Broadway, which were
transferred to 1290 LLC subject to the lien of the Indenture, were transferred
to the Company. See "BUSINESS AND PROPERTIES -- Other Assets -- Certain Assets
Related to 2 Broadway."
12. The Company entered into an Asset Management Agreement
with the Asset Manager, (which is an affiliate of VCG). Each of the Property
Owning Partnerships entered into a Property Management and Leasing Agreement
with Tishman-Speyer. Nyprop, LLC, an affiliate of the Property Manager/Leasing
Agent, entered into the Subscription Agreement with the Company and purchased
545,707 shares of Common Stock at a price equal to $21.6667 per share. See
"MANAGEMENT OF THE COMPANY -- Asset Management Agreement," and "-- Management
and Leasing Agreements."
13. In addition to the 545,707 shares of Common Stock sold to
Nyprop, LLC, the Company sold an aggregate of 377,228 shares of Common Stock to
the Noteholders and the Morgan Loan Lenders (as such term is defined in the
Plan) at a price equal to $21.6667 per share pursuant to a subscription rights
offering under the Plan.
14. On the Effective Date, the net proceeds of the Loan and a
portion of the proceeds received from sales of Common Stock were used to make
distributions of $400,000,000 to Noteholders and the Morgan Loan Lenders under
the Plan.
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth in the following table is furnished
as of the Effective Date, with respect to any person (including, any "group," as
that term is used in Section 13(d)(3) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) who is known to the Company to be the beneficial
owner of more than 5% of any class of the Company's voting securities, and as to
those shares of the Company's equity securities beneficially owned by each of
its Directors, its executive officers, and all of its executive officers and
Directors as a group. As of the Effective Date, there were 12,962,046 shares of
Common Stock outstanding.
<TABLE>
<CAPTION>
Number of Shares Percent of Common
Beneficially Owned Stock
<S> <C> <C>
Principal Stockholders
Apollo Real Estate Investment Fund, L.P. (1) 4,936,060 38.1%
Oaktree Capital Management, LLC (2) 2,117,286 16.3%
Whitehall Street Real Estate, Ltd. (3) 1,122,421 8.7%
Fernwood Associates, L.P. (4) 704,197 5.4%
Fernwood Foundation Fund LP (5) 704,197 5.4%
Directors and Executive Officers
William L. Mack (6) 4,937,060 38.1%
Lee S. Neibart (7) 4,937,060 38.1%
W. Edward Scheetz (8) 4,937,060 38.1%
Bruce H. Spector (9) 4,937,060 38.1%
John R. Klopp (10) 21,000 *
Russel S. Bernard (11) 2,118,286 16.3%
Ralph F. Rosenberg (12) 1,123,421 8.7%
David A. Strumwasser (13) 336,558 2.6%
David Roberts (14) 604,600 4.7%
Directors and Executive Officers as a group (15) 9,140,925 70.5%
</TABLE>
- ---------------------------
* Less than 1%
(1) Held of record by Atwell & Co., c/o The Chase Manhattan Bank, N.A., 4
New York Plaza - 11th Floor, New York, NY 10004.
(2) Held of record by (i) Taylor & Co., c/o Sanwa Bank California Trust
Operations, 1977 Saturn Street, Monterey Park, CA 91754 (1,840,637
shares), (ii) Cun & Co, c/o The Bank of New York, One Wall Street, New
York, NY 10005 (176,049 shares) and (iii) Salkeld & Co., c/o Bankers
Trust Company, 14 Wall Street, New York, NY 10015 (100,600 shares).
Includes (i) 140,839 shares held by a limited partnership of which
Oaktree is the general partner, (ii) 35,210 shares held by a third
party account for which Oaktree is the investment manager, (iii)
1,941,237 shares held by various limited partnerships, trusts and third
party accounts for which TCW Asset Management Company or certain of its
affiliates are the general partner, trustee or investment manager,
respectively. Oaktree is a sub-advisor of TCW Asset Management Company
and acts as a fiduciary on behalf of such funds and accounts.
(3) Held of record by J. Romeo & Co., c/o The Chase Manhattan Bank, N.A., 4
New York Plaza - 11th Floor, New York, NY 10004.
(4) Fernwood Associates, L.P.'s address is c/o NSCC NY Window, 55 Water
Street, Concourse Level - South Bldg., New York, NY 10041. Includes the
12,574 shares of Common Stock owned by Fernwood Foundation Fund, L.P.
("Fernwood Foundation"); Fernwood Foundation and Fernwood Associates,
L.P. ("Fernwood Associates") have the same general partner.
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<PAGE>
(5) Fernwood Foundation Fund LP's address is NSCC NY Window, 55 Water
Street, Concourse Level - South Bldg., New York, NY 10041. Includes the
691,623 shares of Common Stock owned by Fernwood Associates; Fernwood
Foundation and Fernwood Associates have the same general partner.
(6) Includes all shares owned by Apollo and 1,000 shares of Common Stock
issuable upon the exercise of options granted to Mr. Mack on the
Effective Date under the Company's Stock Plan. Mr. Mack is a limited
partner of Apollo Real Estate Advisors, L.P., the general partner of
Apollo, and the President of its corporate general partner. Mr. Mack
disclaims beneficial ownership of the shares of Common Stock owned by
Apollo.
(7) Includes all shares owned by Apollo and 1,000 shares of Common Stock
issuable upon the exercise of options granted to Mr. Neibart on the
Effective Date under the Company's Stock Plan. Mr. Neibart is a limited
partner of Apollo Real Estate Advisors, L.P. Mr. Neibart disclaims
beneficial ownership of the shares of Common Stock owned by Apollo.
(8) Includes all shares owned by Apollo and 1,000 shares of Common Stock
issuable upon the exercise of options granted to Mr. Scheetz on the
Effective Date under the Company's Stock Plan. Mr. Scheetz is a
principal of Apollo Real Estate Advisors, L.P. Mr. Scheetz disclaims
beneficial ownership of the Common Stock owned by Apollo.
(9) Includes all shares owned by Apollo and 1,000 shares of Common Stock
issuable upon the exercise of options granted to Mr. Spector on the
Effective Date under the Company's Stock Plan. Mr. Spector is a
principal of Apollo Real Estate Advisors, L.P. Mr. Spector disclaims
beneficial ownership of the shares of Common Stock owned by Apollo.
(10) Includes 1,000 shares of Common Stock issuable upon the exercise of
options granted to Mr. Klopp on the Effective Date under the Company's
Stock Plan.
(11) Includes all shares owned by Oaktree and 1,000 shares of Common Stock
issuable upon the exercise of options granted to Mr. Bernard on the
Effective Date under the Company's Stock Plan. Mr. Bernard is a
principal of Oaktree. Mr. Bernard disclaims beneficial ownership of the
shares of Common Stock owned by funds and accounts managed by Oaktree.
Mr. Bernard has declined the Company's grant of stock options to him
and has requested that the Company grant such stock options to the
funds and accounts managed by Oaktree.
(12) Includes all shares owned by Whitehall and 1,000 shares of Common Stock
issuable upon the exercise of options granted to Mr. Rosenberg on the
Effective Date under the Company's Stock Plan. Mr. Rosenberg disclaims
beneficial ownership of the shares of Common Stock owned by Whitehall.
Mr. Rosenberg is a Vice President of Goldman Sachs & Co. Pursuant to
Mr. Rosenberg's employment arrangements with Goldman Sachs, Mr.
Rosenberg is required to transfer to Goldman Sachs any shares of Common
Stock he receives either directly under the Company's Stock Plan or
purchases upon an exercise of options granted under the Company's Stock
Plan.
(13) Includes all shares held by Whippoorwill Associates, Inc. as agent
and/or general partner of various discretionary accounts and 1,000
shares of Common Stock issuable upon the exercise of options granted to
Mr. Strumwasser on the Effective Date under the Company's Stock Plan.
Mr. Strumwasser is a Managing Director and General Counsel of
Whippoorwill Associates. Mr. Strumwasser disclaims beneficial ownership
of the shares of Common Stock held by Whippoorwill Associates as set
forth above.
(14) Includes all shares owned by Angelo Gordon and 1,000 shares of Common
Stock issuable upon the exercise of options granted to Mr. Roberts on
the Effective Date under the Company's Stock Plan. Mr. Roberts is a
Managing Director of Angelo Gordon. Mr. Roberts disclaims beneficial
ownership of the shares of Common Stock owned by Angelo Gordon.
(15) See notes 1 through 14 above with respect to the nature of the
ownership of Directors and Executive Officers as a group, including
disclaimers of beneficial ownership described therein.
Description of Registration Rights Agreement
The following is a summary of the material terms of the
Registration Rights Agreement. Such summary does not purport to be complete and
is qualified in its entirety by reference to the Registration Rights Agreement,
a copy of which has been filed as an exhibit to this Registration Statement.
The Registration Rights Agreement, between the Company and the
holders of Common Stock distributed under the Plan, became effective on the
Effective Date. Pursuant to the Registration Rights Agreement, Apollo has the
right to "demand" on three occasions that the Company register its Common Stock
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<PAGE>
for sale; and Oaktree, Whitehall and any other stockholder from whom a Director
of the Company receives compensation have the right to demand such registration
on one occasion. These rights will become effective on January 1, 1997. If a
holder of Registrable Securities (as defined on the Registration Rights
Agreement) making a "demand" cannot dispose of at least 75% of its Registrable
Securities in such registered offering, such holder's demand right will be
reinstated. A holder of Registrable Securities that has been granted demand
rights may not exercise such rights within the 12 month period immediately
following the sale of Registrable Securities pursuant to a previously exercised
demand if such holder did not exercise its right to cause all of its Registrable
Securities to be included in such prior registered offering. Other holders of
Registrable Securities are granted "piggy-back" registration rights in
connection with the sale by the Company of its securities in a registered
offering. "Registrable Securities" means (i) the shares of Common Stock issued
pursuant to the Plan to the stockholders of the Company and (ii) any securities
issued or issuable with respect to such shares of Common Stock by way of a stock
dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization. Any particular
Registrable Securities will cease to be such when (y) a registration statement
under the Registration Rights Agreement covering such Registrable Securities has
been declared effective and such Registrable Securities have been disposed of
pursuant to such effective registration statement, or (z) such Registrable
Securities have been distributed to the public pursuant to Rule 144 promulgated
under the Securities Act of 1933, as amended (the "Securities Act"). Holders of
Registrable Securities will be subject to customary pro rata cutbacks on the
number of shares they intend to sell, if, in the opinion of the underwriter, the
sale of all such shares would adversely affect the offering. Expenses in
connection with an offering will be paid pro rata by the holders of Registrable
Securities participating in the offering.
Description of Stock Plan
The following is a summary of the material terms of the Stock
Plan. Such summary does not purport to be complete and is qualified in its
entirety by reference to the Stock Plan, a copy of which has been filed as an
exhibit to this Registration Statement.
The Board of Directors adopted the Stock Plan on the Effective
Date. The purpose of the Stock Plan is to attract and retain qualified persons
as Directors. Pursuant to the Stock Plan, the Board of Directors of the Company
has the authority to issue to members of the Company's Board of Directors
options to purchase, in the aggregate, 100,000 shares of Common Stock. Pursuant
to the Plan and the Stock Plan, on the Effective Date, the initial members of
the Company's Board of Directors were granted options entitling each director to
purchase an aggregate of 3,000 shares of Common Stock at an exercise price of
$25.00 per share. Thereafter, each Director who is elected or appointed after
the Effective Date will be granted options to purchase 3,000 shares of Common
Stock on the date of the meeting of the Company's stockholders at which such
Director is first elected to the Board of Directors or the date of the Board of
Directors meeting at which such Director is first appointed to the Board of
Directors to fill a vacancy on the Board of Directors. Each holder of an option
issued under the Stock Plan will be entitled to exercise the option to purchase
one-third of the shares of Common Stock covered by such option on the date of
original issuance thereof, one-third on the first anniversary of such date and
one-third on the second anniversary of such date, in each case, any time prior
to the tenth anniversary of the Effective Date (the "Expiration Date"). Pursuant
to the Stock Plan, Directors will receive 400 shares of Common Stock on the date
of each annual meeting of the Company's stockholders beginning with the annual
meeting of stockholders in 1997.
If the holder of an option ceases to serve as a Director of
the Company for any reason, options that have been previously granted to such
holder and that have not been vested will be forfeited and options that are
vested as of the date of such cessation may be exercised by such holder in
accordance with and subject to the Stock Plan. If the holder of an option dies
while serving as a Director of the Company, options that have been previously
granted to such holder and that are vested as of the date of such holder's death
may be exercised by such holder's legal representative in accordance with and
subject to the Stock Plan.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has entered into an Asset Management Agreement
with the Asset Manager. The Asset Manager is an affiliate of VCG. John R. Klopp,
one of the Company's Directors and a stockholder of the Company, is a Managing
Partner of VCG. The Asset Manager provides asset advisory, consultation and
management services for the Company. For a description of the Asset Management
Agreement see "MANAGEMENT OF THE COMPANY -- Asset Management Agreement."
Pursuant to the Plan, VCG received fees of $1,000,000 for services rendered in
connection with the financing of the Properties, $500,000 for services rendered
in connection with the consummation of the Plan and approximately $416,000 for
services rendered to the Ad Hoc Committee of Noteholders in connection with the
Plan. In addition, 40,000 shares of Common Stock payable to VCG under the Plan
for services rendered in connection with the consummation of the Plan were
issued to the Managing Partners of VCG.
The Company has also entered into Management and Leasing
Agreements with the Property Manager/Leasing Agent, Nyprop, LLC, a stockholder
of the Company, and a wholly-owned subsidiary of the Property Manager Leasing
Agent. The Property Manager/Leasing Agent manages and operates the Properties
and provides all supervisory, management and leasing services. For a description
of the Management and Leasing Agreements see "MANAGEMENT OF THE COMPANY --
Management and Leasing Agreements."
On December 17, 1996, the Bankruptcy Court approved the
payment by the Company to Goldman Sachs & Co. of approximately $345,000 in fees
and expenses for services rendered in connection with the financing of the
Properties. Ralph Rosenberg, a director of the Company, is a Vice President of
Goldman Sachs & Co. Goldman Sachs & Co. is the managing partner of Whitehall
Street Real Estate, Ltd., a stockholder of the Company.
DESCRIPTION OF STOCK OF THE COMPANY
The following is a summary of the material terms of the
Company's stock. Such summary does not purport to be complete and is subject to
and qualified in its entirety by reference to the Company's Charter and Bylaws,
copies of which have been filed as exhibits to this Registration Statement.
General
Under the Charter, the Company has authority to issue up to
60,000,000 shares of stock, consisting of 50,000,000 shares of common stock, par
value $10.00 per share (the "Common Stock"), and 10,000,000 shares of preferred
stock, par value $10.00 per share (the "Preferred Stock"). The Company did not
issue any shares of Common Stock or Preferred Stock prior to the Effective Date,
and no Preferred Stock is issued or outstanding. On the Effective Date, the
Company issued an aggregate of 12,962,046 shares of Common Stock to (i) the
Morgan Loan Lenders and the Noteholders electing to receive or otherwise
receiving Common Stock under the Plan, (ii) Nyprop, LLC, an affiliate of the
Property Manager/Leasing Agent pursuant to a Subscription Agreement between the
Company and Nyprop, LLC, and (iii) the Managing Partners of VCG as part of a fee
paid by the Company to VCG pursuant to the Plan. The Company has also reserved
for issuance 100,000 shares of its Common Stock for issuance to its Directors
pursuant to the Company's 1996 Director Stock Plan (the "Stock Plan"). In
addition, an aggregate of 1,000 shares of Common Stock were issued to charitable
institutions in December 1996 for no consideration in accordance with the Plan.
The Common Stock is not listed on any exchange, the Company
does not intend to list the Common Stock on any exchange in the near term, there
is not currently a public market for the Common Stock and there can be no
assurance that an active trading market for the Common Stock will develop or be
sustained.
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The Charter authorizes the Directors to classify or reclassify
any unissued shares of stock by setting or changing the preferences, conversion
or other rights, voting powers, restrictions, limitations as to dividends and
other distributions, qualifications, or terms or conditions of redemption of
such stock; provided, however, that the Charter prohibits the issuance of
nonvoting equity securities and provides that as to the several classes of
common or preferred stock possessing voting power, an appropriate distribution
of such power among such classes, including, in the case of any class of stock
having a preference over another class of stock with respect to dividends,
adequate provisions for the election of directors representing such preferred
class in the event of default in the payment of such dividends.
Common Stock
Pursuant to the Charter, until the occurrence of a
Simplification Event, the Common Stock is divided into Class A Common Stock,
Class B Common Stock, and Class C Common Stock; provided, that, if a "Class C
Conversion Date" (as hereinafter defined) occurs prior to the occurrence of a
"Simplification Event" (as hereinafter defined), from the date of the Class C
Conversion Date, the Common Stock will be divided into Class A Common Stock and
Class B Common Stock. The Class A Common Stock, the Class B Common Stock and the
Class C Common Stock have identical rights and privileges, and are treated as a
single class, with respect to all matters (other than certain voting rights
described below) including, without limitation, the payment of distributions and
upon liquidation. On the Effective Date, (i) Apollo received 4,936,060 shares of
Class B Common Stock and is the sole holder of all of the outstanding shares of
Class B Common Stock, (ii) all other holders of the Original Notes and all the
Morgan Loan Lenders (other than Apollo) received an aggregate of 7,985,986
shares of Class A Common Stock, and (iii) John R. Klopp, and Craig M. Hatkoff,
the Managing Partners of VCG, received an aggregate of 40,000 shares of Class C
Common Stock and are the sole holders of all of the outstanding shares of Class
C Common Stock.
Pursuant to the Charter, until the occurrence of a
Simplification Event, the Company's nine-member Board of Directors will be
divided into five classes. The Class I Director, Lee S. Neibart, was designated
by Apollo, (and after the Effective Date, by the holders of Class B Common
Stock); the Class II Directors consist of Bruce Spector, a director designated
by Apollo (and, after the Effective Date, by the holders of the Class B Common
Stock) and David Roberts, a director reasonably acceptable to Apollo designated
by Noteholders other than Apollo, Whitehall Street Real Estate, Ltd.
("Whitehall") and Oaktree Capital Management, LLC ("Oaktree") (and, after the
Effective Date, by the holders of the Class A Common Stock); the Class III
Directors consist of W. Edward Scheetz, a director designated by Apollo (and,
after the Effective Date, by the holders of Class B Common Stock) and David
Strumwasser, a director reasonably acceptable to Apollo designated by
Noteholders other than Apollo, Whitehall and Oaktree (and, after the Effective
Date, by the holders of Class A Common Stock); the Class IV Directors consist of
William Mack, a director designated by Apollo (and, after the Effective Date, by
the holders of Class B Common Stock) and Ralph Rosenberg, a director reasonably
acceptable to Apollo designated by Whitehall (the "Whitehall Director"); and the
Class V Directors consist of Russel Bernard, a director designated by Oaktree
(the "Oaktree Director") and John R. Klopp, a director designated by Noteholders
(other than Apollo, Whitehall and Oaktree).
The term of the initial Class I Director will terminate on the
date of the 1997 annual meeting of stockholders; the term of the initial Class
II Directors will terminate on the date of the 1998 annual meeting of
stockholders; the term of the initial Class III Directors will terminate on the
date of the 1999 annual meeting of stockholders; the term of the initial Class
IV Directors will terminate on the date of the 2000 annual meeting of
stockholders; and the term of the initial Class V Directors will terminate on
the date of the 2001 annual meeting of stockholders. At the 1997 annual meeting
of stockholders, the successor to the initial Class I Director will be elected
for a four-year term; at the 1998 annual meeting of stockholders, the successors
to the initial Class II Directors shall be elected for a three-year term; at the
1999 annual meeting of stockholders, the successors to the initial Class III
Directors will be elected for a two-year term; at the 2000 annual meeting of
stockholders, the successors to the initial Class IV Directors shall be elected
for a one-year term; at the 2001 annual meeting of stockholders, the successors
to the Class I, Class II, Class III, Class IV and Class V
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Directors will be elected for a one year term. Directors will hold office until
the annual meeting for the year in which their terms expire and until their
successors shall be elected and qualify, subject, however, to prior death,
resignation, retirement, disqualification or removal from office. The terms of
the Initial Directors will commence on the Effective Date. The Charter provides
that the Company will at all times have at least two directors that are not
affiliated with Apollo, any Transferee (as hereinafter defined) or any other
stockholder of more than 10% of the stock of the Company.
For so long as any shares of Class C Common Stock are
outstanding as Class C Common Stock (i.e., until a Class C Conversion Date),
holders of Class C Common Stock will not be permitted to vote in any election of
Directors.
"Simplification Event" means the earliest to occur of (i) the
date on which Apollo and its affiliates (taken together) or any Transferee and
its affiliates (taken together) no longer hold a number of shares of Common
Stock representing at least 30% of the combined voting power of all outstanding
shares of stock of the Company; (ii) the date on which Apollo and its affiliates
(taken together) or any Transferee and its affiliates (taken together) or any
other person or entity and its affiliates (taken together) holds a number of
shares of Common Stock representing at least 75% of the combined voting power of
all outstanding shares of stock of the Company; (iii) the fifth anniversary of
the Effective Date; and (iv) the date of the annual meeting of stockholders in
2001.
Upon the occurrence of a Simplification Event, notwithstanding
any provision of the Charter or Bylaws to the contrary, the provisions of the
Charter with respect to the classification of the Board of Directors and the
division of Common Stock into Class A Common Stock and Class B Common Stock
(and, if applicable, Class C Common Stock) will terminate and will be of no
further force and effect and, thereafter, the term of each Director will expire
on the date of the annual meeting of stockholders immediately following or
concurrent with such Simplification Event, all Directors then or thereafter
elected will serve one-year terms and voting for the election of Directors will
be in the manner set forth in the Bylaws.
Upon a transfer of shares of Class B Common Stock so that such
shares are not beneficially owned by Apollo, a Transferee or their respective
affiliates, such shares shall be automatically converted into shares of Class A
Common Stock. Shares of Class C Common Stock may be converted into shares of
Class A Common Stock, (i) at any time, by the Company upon written notice (the
"Company Notice") by the Company to the holders of Class C Common Stock, and
(ii) at any time after the first anniversary of Effective Date, by the holders
of Class C Common Stock upon written notice (the "Class C Holders Notice") by
the holders of Class C Common Stock to the Company (the earlier of the date of
the Company Notice and the Class C Holders Notice, the "Class C Conversion
Date"). On the Class C Conversion Date, shares of Class C Common Stock will
automatically and without any action on the part of the holder thereof be
converted into the same number of shares of Class A Common Stock. Except as
described in the immediately preceding two sentences, holders of Common Stock
have no conversion, sinking fund or redemption rights, or preemptive rights to
subscribe for any securities of the Company.
"Transferee" means any Person to whom Apollo, its affiliates,
or any Transferee shall transfer shares of Class B Common Stock representing at
least 30% of the aggregate number of shares of Class A and Class B Common Stock
then outstanding.
All shares of Common Stock issued in accordance with the terms
and conditions of the Plan are duly authorized, fully paid and nonassessable.
Subject to the preferential rights of any other shares or series of shares and
to the provisions of the Charter regarding shares of Common Stock held by any
person in excess of the Ownership Limit (as hereinafter defined), holders of
Common Stock will be entitled to receive distributions on Common Stock if, as
and when authorized and declared by the Board of Directors of the Company out of
assets legally available therefor and to share ratably in the assets of the
Company legally
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available for distribution to its stockholders in the event of its liquidation,
dissolution or winding-up after payment of, or adequate provision for, all known
debts and liabilities of the Company.
Subject to the provisions of the Charter regarding shares of
Common Stock held by any person in excess of the Ownership Limit and the
restrictions on voting set forth in the Charter and Bylaws, each outstanding
share of Common Stock (except shares of Class C Common Stock while they are
outstanding, which have no voting rights in the election of directors) entitles
the holder thereof to one vote on all matters submitted to a vote of
stockholders. There is no cumulative voting in the election of directors, which
means that the holders of a majority of the outstanding shares of Class A Common
Stock or Class B Common Stock can elect all of the directors then standing for
election by such Class, and the holders of the remaining Common Stock of such
Class may not be able to elect any director.
Pursuant to the Maryland General Corporation Law (the "MGCL"),
a corporation generally cannot dissolve, amend its charter, merge, sell all or
substantially all of its assets or engage in a share exchange unless approved by
the affirmative vote of stockholders holding at least two-thirds of the shares
entitled to vote on the matter, unless a lesser percentage (but not less than a
majority of all of the votes to be cast on the matter) is set forth in the
charter of the corporation. The Charter does not provide for a lesser percentage
in such situations. See "CERTAIN PROVISIONS OF MARYLAND LAW AND OF THE COMPANY'S
CHARTER AND BYLAWS."
Preferred Stock
Preferred Stock may be issued from time to time, in one or
more series, as authorized by the Board of Directors. Prior to the issuance of
shares of each series, the Board of Directors is required by the MGCL and the
Charter to fix for each series, subject to the provisions of the Charter
regarding shares of stock held by any Person in excess of the Ownership Limit,
such terms, preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends or other distributions, qualifications
and terms or conditions of redemption, as are permitted by Maryland law. Such
rights, powers, restrictions and provisions could include the right to receive
specified dividend payments and payments on liquidation prior to any such
payments being made to the holders of some, or a majority, of the shares of
Common Stock. The Board of Directors could authorize the issuance of Preferred
Stock with terms and conditions that could have the effect of discouraging a
takeover or any other transaction that holders of Common Stock might believe to
be in their best interests or in which holders of some, or a majority, of the
shares of Common Stock might receive a premium for their shares over the
then-current market price of such shares. See "CERTAIN PROVISIONS OF MARYLAND
LAW AND OF THE COMPANY'S CHARTER AND BYLAWS." As of the date hereof, no shares
of Preferred Stock are outstanding, and the Company has no present plans to
issue any Preferred Stock.
Restrictions on Transfer
In order for the Company to qualify as a REIT under the
Internal Revenue Code, among other things, the Company is required to satisfy
the Five or Fewer Requirement at any time during the last half of a taxable year
(other than the first year), and such shares of stock must be beneficially owned
by one hundred (100) or more persons during at least 335 days of a taxable year
of 12 months (other than the first year) or during a proportionate part of a
shorter taxable year. See "BUSINESS AND PROPERTIES -- Qualification as a REIT."
In order to protect the Company against the risk of losing its status as a REIT
on account of a concentration of ownership among its stockholders, the Charter,
subject to certain exceptions, provides that no Person (as defined in the
Charter) may beneficially own, or be deemed to own by virtue of the attribution
provisions of the Internal Revenue Code, more than the Ownership Limit of the
aggregate value of the Company's shares of stock. Pursuant to the Internal
Revenue Code, stock held by certain types of entities, such as pension trusts
qualifying under Section 401(a) of the Internal Revenue Code, United States
investment companies registered under the Investment Company Act of 1940, as
amended, partnerships, trusts and corporations, will be attributed to the
beneficial owners of such entities for purposes of the Five or Fewer
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Requirement (i.e., the beneficial owners of such entities will be counted as
holders). Pursuant to the Charter, no person (other than Apollo or a transferee
of at least 30% of the aggregate number of shares of Class A Common Stock or
Class B Common Stock) may acquire any shares of Common Stock if, as a result of
such acquisition, the fair market value of shares of stock of the Company owned
directly or indirectly by Non U.S. Persons (as defined in the Charter) would
exceed 50% of the fair market value of all issued and outstanding shares of
stock of the Company. Any acquisition of shares of stock or of any security
convertible into shares of stock that would result in the disqualification of
the Company as a REIT, including any transfer that results in the Company being
"closely held" within the meaning of Section 856(h) of the Internal Revenue
Code, shall be null and void, and the intended transferee will acquire no rights
to the shares of stock. The foregoing restrictions on transferability and
ownership will not apply if the Board of Directors determines that it is no
longer in the best interests of the Company to attempt to qualify, or to
continue to qualify, as a REIT. The Board of Directors may, in its sole
discretion, waive the Ownership Limit if evidence satisfactory to the Board of
Directors and the Company's tax counsel is presented that the changes in
ownership will not then or in the future jeopardize the Company's status as a
REIT and the Board of Directors otherwise decides that such action is in the
best interest of the Company.
The Charter excludes from the foregoing ownership restriction
persons designated by Apollo (or another person designated by Apollo to
designate such persons) to exceed the Ownership Limit; provided that no
Individual (as defined in the Charter) shall be permitted, by designation, to
exceed the Ownership Limit by more than 10% (i.e., own more than 17.9% of the
aggregate value of outstanding stock of the Company), and the aggregate
percentage by which all Individuals permitted, by designation, to exceed the
Ownership Limit shall not be greater than 10%.
Shares of Common Stock owned, or deemed to be owned, or
acquired by a stockholder (other than an Individual permitted, by designation,
to exceed the Ownership Limit) (a "Prohibited Owner") in violation of the above
transfer and ownership limitations and shares acquired by a person that would
cause more than 50% in value of the outstanding shares of the Common Stock to be
owned by Non U.S. Persons (as defined in the Charter), will automatically be
transferred to a trustee, in his capacity as trustee of a trust for the
exclusive benefit of one or more charitable beneficiaries (the "Charitable
Beneficiaries"). Such stock held by the trustee will be issued and outstanding
stock of the Company. The Prohibited Owner shall not benefit economically from
ownership of any shares of stock held in the Trust, shall have no rights to
dividends and shall not possess any rights to vote or other rights attributable
to the shares of stock held in the Trust. The trustee of the Trust (the
"Trustee") shall have all voting rights and rights to dividends or other
distributions with respect to shares of stock held in the Trust, which rights
shall be exercised for the exclusive benefit of the Charitable Beneficiary. Any
dividend or other distribution paid prior to the discovery by the Company that
shares of stock have been transferred to the Trustee shall be paid by the
recipient of such dividend or distribution to the Trustee upon demand, and any
dividend or other distribution authorized but unpaid shall be paid when due to
the Trustee. Any dividend or distribution so paid to the Trustee shall be held
in trust for the Charitable Beneficiaries. Any distribution paid to the
Prohibited Owner of such stock prior to the discovery by the Company that stock
has been transferred in violation of the provisions of the Charter will be
repaid to the trustee upon demand. Within 20 days after receiving notice from
the Company that stock has been transferred to the trust, the trustee will sell
such stock to a person designated by the trustee whose ownership of the shares
of stock will not violate the Ownership Limit. Upon such sale, the interest of
the Charitable Beneficiaries will terminate and the trustee will distribute the
net proceeds of such sale to the Prohibited Owner and the Charitable
Beneficiaries as set forth in the Charter. The Charter provides that the
Prohibited Owner will receive the lesser of (i) the price paid by the Prohibited
Owner for the shares of stock that were transferred to the trust, or if the
Prohibited Owner did not give value for such shares (e.g., such stock was
received through a gift, devise or other transaction), the Market Price (as
defined in the Charter) of such shares on the day of the event causing such
shares to be held in trust, and (ii) the price received by the trustee from the
sale of such shares. Any net sales proceeds in excess of the amount payable to
the Prohibited Owner will be immediately paid to the Charitable Beneficiaries,
together with any dividends or other distributions thereon. If, prior to the
discovery by the Company that stock had been transferred to the trustee, such
shares are sold by the Prohibited Owner
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then (X) such shares will be deemed to have been sold on behalf of the trust,
(Y) the proceeds of such sale will be deemed to be held by such Prohibited Owner
as an agent for the trustee and (Z) to the extent that the Prohibited Owner
received an amount for such shares that exceeds the amount that such Prohibited
Owner was entitled to receive pursuant to the Charter, such excess will be paid
to the trustee upon demand. Stock transferred to the trustee will be deemed to
have been offered for sale to the Company, or its designee, at a price per share
equal to the Market Price on the date the Company, or its designee, accepts such
offer. The Company will have the right to accept such offer until the trustee
has sold the shares held in the trust pursuant to the Charter. Upon such a sale
to the Company, the interest of the Charitable Beneficiaries in the shares sold
will terminate and the trustee will distribute the net proceeds of the sale to
the Prohibited Owner and to the Charitable Beneficiaries in the manner described
above. If the foregoing transfer restrictions are determined to be void or
invalid by virtue of any legal decision, statute, rule or regulations, then the
transfer of such stock will be void ab initio.
Each stockholder will upon demand be required to disclose to
the Company in writing any information with respect to its direct, indirect and
constructive ownership of stock as the Board of Directors deems reasonably
necessary to comply with the provisions of the Internal Revenue Code applicable
to the Company, to comply with the requirements of any taxing authority or
governmental agency or to determine any such compliance.
The Ownership Limit may have the effect of precluding
acquisition of control of the Company unless the Board of Directors determines
that maintenance of REIT status is no longer in the best interests of the
Company.
All certificates representing shares of Common Stock bear a
legend referring to the restrictions described above.
CERTAIN PROVISIONS OF MARYLAND LAW
AND OF THE COMPANY'S CHARTER AND BYLAWS
The following is a summary of certain material provisions of
Maryland law and the Charter and Bylaws. Such summary does not purport to be
complete and is subject to and qualified in its entirety by reference to
Maryland law and the Charter and Bylaws, copies of which have been filed as
exhibits to this Registration Statement.
Affiliate Transactions
The Bylaws provide that the Company shall not engage in any
transaction (other than transactions entered into in the ordinary course of
business, including payments of dividends, salaries or directors compensation)
with any stockholder holding more than 10% of the outstanding shares of the
Common Stock without the approval of a majority of the Company's disinterested
Directors. A Director shall be "disinterested" for the purposes of the Bylaws if
such director is unaffiliated (which shall be determined by the Board of
Directors, which determination shall be final) with, and does not receive
compensation from the stockholder with whom the transaction is to be effected or
any subsidiaries thereof.
The Bylaws provide that, to the extent the Company requires
investment banking services and so long as Whitehall remains a significant
stockholder of the Company, the Board of Directors will, in good faith in light
of all appropriate considerations, consider engaging Goldman Sachs & Company
(among any other investment banking firms it considers) to provide investment
banking services to the Company on terms customary for such services.
Notwithstanding the preceding paragraph, any Director affiliated with Whitehall
may vote upon any engagement of investment bankers, including Goldman Sachs &
Company.
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Business Combinations
Under the MGCL, certain "business combinations" (including a
merger, consolidation, share exchange, or, in certain circumstances, an asset
transfer or issuance or reclassification of equity securities) between a
Maryland corporation and any person who beneficially owns 10% or more of the
voting power of the corporation's shares or an affiliate of the corporation who,
at any time within the two-year period prior to the date in question, was the
beneficial owner of 10% or more of the voting power of the then-outstanding
voting stock of the corporation (an "Interested Stockholder") or an affiliate
thereof are prohibited for five years after the most recent date on which the
Interested Stockholder becomes an Interested Stockholder. Thereafter, any such
business combination must be recommended by the board of directors of the
corporation and approved by the affirmative vote of at least (a) 80% of the
votes entitled to be cast by holders of outstanding voting shares of the
corporation and (b) two-thirds of the votes entitled to be cast by holders of
outstanding voting shares of the corporation other than shares held by the
Interested Stockholder with whom (or with whose affiliate) the business
combination is to be effected, unless, among other conditions, the corporation's
common stockholders receive a minimum price (as defined in the MGCL) for their
shares and the consideration is received in cash or in the same form as
previously paid by the Interested Stockholder for its shares. These provisions
of the MGCL do not apply, however, to business combinations that are approved or
exempted by the board of directors of the corporation prior to the time that the
Interested Stockholder becomes an Interested Stockholder. The Charter exempts
from the provisions of Maryland law all business combinations involving the
Company.
The Charter provides, however, that any Business Combination
(as used in Section 3-601(e)(1) and (e)(2) of the MGCL) with, or involving, an
Interested Stockholder (as hereinafter defined) will require the affirmative
vote of not less than 662/3% of the votes entitled to be cast by the holders of
all the then outstanding shares of Common Stock, voting together as a single
class, excluding Common Stock beneficially owned by such Interested Stockholder
or by any Person having more than 50% beneficial ownership of the Interested
Stockholder or of whom the Interested Stockholder has more than 50% beneficial
ownership.
"Interested Stockholder" is defined in the Charter to mean any
person (other than an Exempt Person (as hereinafter defined)) that (a) is the
beneficial owner of Common Stock representing 20% or more of the votes entitled
to be cast by the holders of all then outstanding shares of Common Stock (or an
affiliate of such person) and (b) has held such Common Stock for less than five
years.
"Exempt Person" means (a) (i) Apollo, its partners, Affiliates
and Associates (as such terms are defined in Rule 12b-2 under the Exchange Act,
as in effect on May 20, 1996 and including without limiting the generality of
the foregoing any investment fund under common control with Apollo), (ii) any
Transferee or Person that would be a Transferee, but for the occurrence of a
Simplification Event, (iii) with respect to the interest so transferred and so
long as no Simplification Event shall have occurred, any other transferee of any
part of Apollo's interest in the Company and (iv) any such Transferee's or
Transferee's partners, stockholders, Affiliates and Associates, and (b) any
person that prior to the acquisition of beneficial ownership of Common Stock
representing 20% or more of the votes entitled to be cast by the holders of all
then outstanding shares of Common Stock obtained the approval of a majority of
Directors of the Company to exempt such person from the provisions of the
Charter related to Business Combinations; provided, however, that a Director of
the Company shall not vote in any such determination if such Director has been
appointed by the acquiror or any person acting together with the acquiror in
connection with such transaction as part of a "group" (as such term is used in
Rule 13d-5 under the Exchange Act or if such person is affiliated with the
selling stockholder in the transaction in which the acquiror exceeds the 20%
threshold referred to above (other than in the case of a tender offer or other
transaction in which there are a substantial number of selling stockholders)).
This provision could have the effect of delaying, deferring or
preventing a change in control, or discouraging others from acquiring shares of
Common Stock and increase the difficulty of consummating any offer to acquire
such shares.
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<PAGE>
Certain Voting Provisions
In addition to any vote required by law, the Company will not
take any action regarding the following matters without the affirmative vote of
the holders of at least 662/3% of the outstanding shares of stock (including,
solely with respect to the matters set forth in items (a), (b) and (c) below,
the holders of Class C Common Stock) voting as a single class:
(a) any merger or consolidation of the Company (other
than any merger between the Company and any direct or indirect wholly owned
subsidiary of the Company);
(b) any sale or transfer of either of the real
properties owned by the Company and its subsidiaries (but excluding any pledge,
hypothecation or encumbrance of such assets to provide security for any bona
fide debt);
(c) any dissolution or liquidation of the Company; or
(d) any acquisition in excess of $25,000,000 (other
than in connection with the leasing, improvement and other operations of the
Company's properties or as contemplated by the annual budget with respect to
such properties, such exclusion to include, without limitation, any acquisition
of, any providers of services to such properties and any easements, air rights
or appurtenances, necessary or desirable for the operation of the properties).
Control Share Acquisitions
The MGCL provides that "control shares" of a Maryland
corporation acquired in a "control share acquisition" have no voting rights
except to the extent approved by a vote of two-thirds of the votes entitled to
be cast on the matter, excluding shares of stock owned by the acquiror or by
officers or by directors who are employees of the corporation. "Control shares"
are voting shares of stock that, if aggregated with all other shares of stock
previously acquired by that person or in respect of which the acquiror is able
to exercise or direct the exercise of voting power (except solely by virtue of a
revocable proxy), would entitle the acquiror to exercise voting power in
electing directors within one of the following ranges of voting power: (i)
one-fifth or more but less than one-third, (ii) one-third or more but less than
a majority, or (iii) a majority of all voting power. Control Shares do not
include shares the acquiring person is then entitled to vote as a result of
having previously obtained stockholder approval. A "control share acquisition"
means the acquisition of control shares, subject to certain exceptions.
A person who has made or proposes to make a control share
acquisition, upon satisfaction of certain conditions (including an undertaking
to pay expenses), may compel the board of directors to call a special meeting of
stockholders to be held within 50 days of demand to consider the voting rights
of the shares. If no request for a meeting is made, the corporation may itself
present the question at any stockholders' meeting.
If voting rights are not approved at the meeting or if the
acquiring person does not deliver an acquiring person statement as required by
the statute, then, subject to certain conditions and limitations, the
corporation may redeem any or all of the control shares (except those for which
voting rights have previously been approved) for fair value determined, without
regard to the absence of voting rights for the control shares, as of the date of
the last control share acquisition or of any meeting of stockholders at which
the voting rights of such shares are considered and not approved. If voting
rights for control shares are approved at a stockholders meeting and the
acquiror becomes entitled to vote a majority of the shares entitled to vote, all
other stockholders may exercise appraisal rights. The fair value of the shares
as determined for purposes of the appraisal rights referred to in the preceding
sentence may not be less than the highest price per share paid in the control
share acquisition, and certain limitations and restrictions otherwise applicable
to the exercise of dissenter's rights do not apply in the context of a control
share acquisition.
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<PAGE>
The control share acquisition statute does not apply to
certain shares, including shares acquired in a merger, consolidation or share
exchange if the corporation is a party to the transaction, or to acquisitions
approved or exempted by the corporation's charter or bylaws. The Charter
contains provisions which exempt from the control shares acquisition statute the
issuance of Common Stock on the Effective Date and any and all future
acquisitions by any person of shares of the Company's stock. There can be no
assurance that such provisions will not be eliminated at any point in the
future.
If the Charter were amended to subject the Company to the
control share acquisition statute, such amendment could have the effect of
delaying, deferring or preventing a change in control, or discouraging others
from acquiring shares of Common Stock and increase the difficulty of
consummating any offer to acquire such shares.
Reference is made to the full text of the foregoing statutes
for their entire terms, and the partial summary contained herein is not intended
to be complete.
Amendment of Charter and Bylaws
The provisions of the Charter relating to (a) the Board of
Directors, (b) the division of Common Stock into Class A Common Stock, Class B
Common Stock and Class C Common Stock, and (c) voting rights (other than
super-majority voting rights), dividend rights, rights upon liquidation and
conversion rights of stockholders, the effect of a Simplification Event and the
definition of a Transferee may be amended, prior to the occurrence of a
Simplification Event, by the affirmative vote of two-thirds of the outstanding
shares of each of Class A Common Stock and Class B Common Stock, voting
separately as a class. The provisions of the Charter relating to (a) the
super-majority voting rights of stockholders and (b) the substantive provisions
related to the Ownership Limit and ownership by Non U.S. Persons, may be amended
by two-thirds of the outstanding shares of Class A Common Stock and Class B
Common Stock, voting together as a single class. Provisions of the Charter
relating specifically to Apollo, Transferees (as such term is defined in the
Charter) or transferees of Apollo or the Affiliates or Associates of any such
Person may not be amended or modified without the written consent thereto of
Apollo. Provisions of the Charter relating specifically to the Class C
Conversion Date may not be amended or modified without the affirmative vote of
holders of 66 2/3% of the outstanding shares of Class C Common Stock voting
together as a single class. The stockholders may amend the Company's Bylaws,
except for its provisions relating to indemnification of officers and directors
and the right of the Board of Directors and the stockholders to amend the
Bylaws, by the affirmative vote of the holders of two thirds of the outstanding
shares of stock of the Company entitled to vote. Subject to such stockholder
rights, a majority of the Board of Directors may amend the Bylaws, except that
provisions relating to 662/3% and 75% super-majority voting of the Board and
powers delegated to committees may only be amended by the affirmative vote of
not less than 662/3% and 75%, respectively, of Directors then in office.
Dissolution of the Company
The MGCL permits the dissolution of the Company by (i) the
adoption of a resolution by a majority of the entire Board of Directors, and
(ii) upon proper notice, approval by the stockholders by the affirmative vote of
two-thirds of all the votes entitled to be cast on the matter.
Meetings of Stockholders
The Company's Bylaws provide for annual meetings of
stockholders to be held during the month of August in each year or at such other
time and/or date as the Board of Directors shall determine. Special meetings of
stockholders may be called by (i) the Chairman of the Board or the President, or
(ii) the Board of Directors, and must be called upon the written request of
stockholders entitled to cast at least 25% of all the votes entitled to be cast
at the meeting.
52
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<PAGE>
The Company's Bylaws provide that any stockholder of record
wishing to nominate a Director or to propose any new business at an annual or
special meeting of stockholders must provide written notice to the Company
relating to the nomination or proposal not less than 60 days nor more than 90
days prior to the anniversary date of the prior year's annual meeting or special
meeting in lieu thereof.
The purpose of requiring stockholders to give the Company
advance notice of nominations and other business is to afford the Board of
Directors a meaningful opportunity to consider the qualifications of the
proposed nominees or the advisability of the other proposed business and, to the
extent deemed necessary or desirable by the Board of Directors, to inform
stockholders and make recommendations about the qualifications or business, as
well as to provide a more orderly procedure for conducting meetings of
stockholders. Although the Company's Bylaws do not give the Board of Directors
any power to disapprove stockholder nominations for the election of Directors or
proposals for action, they may have the effect of precluding a contest for the
election of Directors or the consideration of stockholder proposals if the
proper procedures are not followed, and of discouraging or deterring a third
party from conducting a solicitation of proxies to elect its own slate of
Directors or to approve its own proposal, without regard to whether
consideration of the nominees or proposals might be harmful or beneficial to the
Company and its stockholders.
Additional Provisions Related to The Board of Directors
The Charter provides that the number of Directors initially
will be nine, and, after the occurrence of a Simplification Event, may be
increased or decreased from time to time by a vote of the majority of the
Directors then in office; provided, however, that the total number of Directors
shall not be fewer than the minimum number permitted by the MGCL nor more than
nine. No reduction in the number of Directors shall cause the removal of any
Director from office prior to the removal of such Director in accordance with
the Charter or the expiration of his or her term.
Any Director may resign from the Board of Directors or any
committee thereof at any time by written notice to the Board of Directors,
effective upon execution and delivery to the Company of such notice or upon any
future date specified in the notice. A Director may be removed from office, but
only for cause and only at a meeting of the stockholders called for that
purpose, by the affirmative vote of the holders of not less than two-thirds of
the Common Stock then outstanding and entitled to vote in the election of
Directors (or, at any time prior to the occurrence of a Simplification Event, by
the affirmative vote of the holders of not less than two-thirds of the same
class of Common Stock as elected such Director). Any vacancy created by the
resignation, removal or death of a Director (other than the Whitehall Director
and the Oaktree Director) shall be filled by the remaining Directors (or, at any
time prior to the occurrence of a Simplification Event, by the remaining
Directors elected, or entitled to be elected, by the same class of Common Stock
as such Director). Any vacancy created by the resignation, removal or death of a
Whitehall Director or an Oaktree Director, as the case may be, prior to the
expiration of the initial term of such Director and prior to the occurrence of a
Simplification Event will be filled by the remaining Directors elected, or
entitled to be elected, by the same class of Common Stock as such Director who
will elect the nominee of Whitehall or Oaktree, as the case may be. For purposes
of the Charter, the sale, transfer or other disposition by a stockholder of more
than 80% of the shares of Common Stock distributed to such stockholder pursuant
to the Plan will, among other things, constitute cause for removing a Director
that receives compensation directly or indirectly from such stockholder unless
after giving effect to such sale, the stockholder will continue to hold shares
of Common Stock representing at least 5% of the combined voting power of all of
the outstanding shares of Common Stock. Except as described in the immediately
preceding sentence, neither the Company's Charter, its Bylaws nor the MGCL
contains a definition of cause. If a dispute arises with respect to the removal
of director for cause, it is likely that the parties disputing such removal
would resort to legal proceedings in order to resolve such dispute.
The Company's Bylaws provide that prior to the occurrence of a
Simplification Event, the Company may not take (or agree to take), and the Board
of Directors shall not authorize the Company to take
53
C/M: 11764.0009 421963.14
<PAGE>
(or agree to take), any action regarding the following matters without the
affirmative vote of 66 2/3% of the entire Board of Directors:
(a) approval of the annual budget of the Company,
provided that, if, with respect to a proposed budget for any fiscal year, the
requisite vote of Directors is not obtained, the annual budget for the
immediately preceding fiscal year, increased (but in no event decreased) on a
line-by-line basis by the increase in the Consumer Price Index for all Urban
Consumers (1982-1984 = 100 relating to New York- Northern New Jersey-Long Island
Region and issued by the Bureau of Labor Statistics of the United States
Department of Labor or if no longer published, or such publication is
temporarily or indefinitely suspended, then any comparable index issued by the
Bureau of Labor Statistics of the United States Department of Labor or by any
successor agency of the United States, or any other generally recognized and
accepted index for similar determinations of the cost of living, in lieu of such
index) for the period beginning in January and ending in December of the
immediately preceding fiscal year, shall be the annual budget for such fiscal
year;
(b) other than expenditures for tenant improvements
and building improvements in connection with any lease, any individual capital
expenditure in excess of $1,500,000 or aggregate capital expenditures for any
fiscal year in excess of $3,500,000, in each case, not provided for in the
Company's annual budget;
(c) any amendment to, modification of, or expenditure
(other than capital expenditures not requiring approval pursuant to paragraph
(b) above) in excess of 110% of, any amounts included in an annual budget;
provided that expenditures in excess of 110% of budgeted amounts may be made in
order to comply with the provisions of any laws, leases or other agreements to
which the Company or its properties are subject or to pay operating expenses in
the ordinary course including, without limitation, debt service, real estate
taxes, utilities and insurance, or to effect repairs or maintenance in an
emergency and prompt notification thereof shall be given to the Board;
(d) authorization, declaration or payment of any
distributions with respect to shares of stock in the form of properties or
assets of the Company other than cash or stock;
(e) any adoption or modification of significant
accounting policies or practices or any change in the Company's independent
auditors;
(f) termination of any property management contract
between the Company and a property management company;
(g) refinancing of the indebtedness of the Company or
its properties (other than the Chase Financing);
(h) settlement of any litigation or consent to the
entry of any order, in either case requiring the payment by the Company of an
uninsured amount greater than $2,500,000;
(i) entering into any lease with respect to an amount
of rentable square feet of space established by the affirmative vote of 75% of
the Directors; provided, that, if 75% of the Directors shall fail to establish
such amount, such amount shall be 150,000 or more rentable square feet of space;
or
(j) any acquisition in excess of $2,500,000 (other
than in connection with the leasing, improvement and other operations of the
Company's properties or as contemplated by the annual budget with respect to
such properties including, without limitation, any acquisition of, or investment
in, any providers of services to such properties and any easements, air rights
or appurtenances, necessary or desirable for the operation of the properties)
and not subject to approval of stockholders.
54
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<PAGE>
In addition, the Bylaws provide that prior to the occurrence
of a Simplification Event, the Company shall not take (or agree to take), and
the Board of Directors shall not authorize the Company to take (or agree to
take), without the affirmative vote of 75% of the Directors, any action
regarding any offering by the Company of new equity interests in the Company
pursuant to a single transaction or series of related transactions, whether
public or private, if the aggregate equity interest offered thereby exceeds 25%
of the equity of the Company.
Pursuant to the Bylaws, the Board of Directors has established
an Executive Committee to oversee the day-to-day operations of the Company and
its properties. The Executive Committee is comprised of Messrs. W. Edward
Scheetz, Lee S. Neibart and Mr. John Klopp. Until the occurrence of a
Simplification Event, Directors appointed by holders of Class B Common Stock
will annually elect two members of the Executive Committee and Directors
appointed by holders of Class A Common Stock will elect one member thereof. The
duties and powers of the Executive Committee will be established by the vote of
75% of the entire Board. The members of the Executive Committee will serve
one-year terms. See "MANAGEMENT OF THE COMPANY."
Limitation of Liability and Indemnification
The MGCL permits a Maryland corporation to include in its
charter a provision limiting the liability of its directors and officers to the
corporation or its stockholders for money damages, except (i) to the extent that
it is determined that the person actually received an improper benefit or profit
in money, property or services, or (ii) to the extent that a judgment or other
final adjudication adverse to the person is entered in a proceeding finding that
the person's action or failure to act was the result of active and deliberate
dishonesty material to the cause of action adjudicated in the proceeding. The
Charter contains a provision which eliminates such liability to the fullest
extent permitted from time to time by Maryland law. This provision does not
limit the ability of the Company or its stockholders to obtain other relief,
such as an injunction or rescission.
The Company's Bylaws require the Company to indemnify and to
advance expenses to its Directors, officers and certain other parties to the
fullest extent permitted from time to time by Maryland law. The MGCL permits a
corporation to indemnify its directors, officers and certain other parties
against judgments, penalties, fines, settlements and reasonable expenses
actually incurred by them in connection with any proceeding to which they may be
made a party by reason of their service to or at the request of the corporation,
unless it is established that the act or omission of the indemnified party was
material to the matter giving rise to the proceeding and (i) the act or omission
was committed in bad faith or was the result of active and deliberate
dishonesty, (ii) the indemnified party actually received an improper personal
benefit, or (iii) in the case of any criminal proceeding, the indemnified party
had reasonable cause to believe that the act or omission was unlawful.
Indemnification Agreements
Pursuant to the Plan, the Company entered into indemnification
agreements with its initial officers and Directors. The indemnification
agreements require, among other things, that the Company indemnify its officers
and Directors to the fullest extent permitted by law and advance to the
executive officers and Directors all related expenses, subject to reimbursement
if it is subsequently determined that indemnification is not permitted. Under
these agreements, the Company must also indemnify and advance all expenses
incurred by officers and Directors seeking to enforce their rights under the
indemnification agreements and may cover officers and Directors under the
Company's Directors' and officers' liability insurance. Although the
indemnification agreements offer substantially the same scope of coverage
afforded by law, they provide greater assurance to Directors and officers that
indemnification will be available, because, as a contract, they cannot be
modified unilaterally in the future by the Board of Directors or the
stockholders to eliminate the rights they provide.
55
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<PAGE>
RECENT SALES OF UNREGISTERED SECURITIES
Under the Charter, the Company has authority to issue up to 60,000,000
shares of stock, consisting of 50,000,000 shares of Common Stock and 10,000,000
shares of Preferred Stock. The Company did not issue any shares of Common Stock
or Preferred Stock prior to the Effective Date, and no Preferred Stock is issued
and outstanding. Pursuant to the Plan, on the Effective Date, the Company issued
an aggregate of 12,962,046 shares of Common Stock which shares were issued as
follows: (i) 11,135,411 shares were issued to the Noteholders in exchange for
the contribution by the Indenture Trustee, on behalf of the Noteholders, to the
Company of an undivided interest in $280,000,000 principal amount of Original
Notes; (ii) 863,558 shares of Common Stock were issued to the Morgan Loan
Lenders under the Plan in consideration for the Morgan Loan Lenders resolving
their claims against O&Y (U.S.) in accordance with the terms of the Settlement
Agreement (as such term is defined in the Plan), the consummation of which
Settlement Agreement was a condition to the consummation of the Plan; (iii)
545,707 shares were issued to Nyprop, LLC pursuant to a Subscription Agreement
between the Company and Nyprop, LLC for a price of $21.6667 per share and an
aggregate price of $11,867,003; (iv) 377,370 shares were issued to Noteholders
that elected to subscribe to purchase such shares in accordance with the Plan
and the Morgan Loan Lenders (other than Apollo), pursuant to Subscription
Agreements between such parties and the Company for a price of $21.6667 per
share and an aggregate price of $7,179,694; and (v) 40,000 shares were issued to
the Managing Partners of VCG in payment of the non-cash portion of the fee paid
by the Company to VCG pursuant to the Plan.
The shares of Common Stock issued pursuant to the Plan were not
registered under the Securities Act. With respect to the issuance of shares of
Common Stock to Noteholders, the Company relied upon an exemption from the
registration requirements of the Securities Act provided by section 1145(a)(1)
of the Bankruptcy Code. With respect to the issuance of shares of Common Stock
to the Morgan Loan Lenders, VCG and Nyprop, LLC, the Company, in each case,
relied upon the exemption provided by section 4(2) of the Securities Act.
AUDITORS
The Company's Board of Directors has designated Deloitte & Touche LLP
as the Company's independent auditors for the fiscal year 1996-1997. This firm
has audited the Company's financial statements since its inception.
56
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<PAGE>
Exhibits
2.1 Second Amended Joint Plan of Reorganization of 237 Park Avenue
Associates, L.L.C. and 1290 Associates, L.L.C.*
2.2 Technical Amendment to Second Amended Joint Plan of Reorganization
of 237 Park Avenue Associates, L.L.C. and 1290 Associates, L.L.C.*
2.3 Second Technical Amendment to Second Amended Joint Plan of
Reorganization of 237 Park Avenue Associates, L.L.C. and 1290
Associates, L.L.C.*
3.1 Articles of Amendment and Restatement of Metropolis Realty, Trust,
Inc., dated October 7, 1996.*
3.2 Amended and Restated By-Laws of Metropolis Realty Trust, Inc.*
10.1 Agreement and Plan of Merger among 1290 Associates, L.L.C., 237 Park
Avenue Associates, L.L.C. and 237/1290 Upper Tier Associates, L.P.,
as of October 10, 1996.*
10.2 Limited Partnership Agreement of 237 Park Partners, L.P.*
10.3 Limited Partnership Agreement of 1290 Partners, L.P.*
10.4 Agreement of Limited Partnership of 237/1290 Lower Tier Associates,
L.P.*
10.5 Amended and Restated Limited Partnership Agreement of 237/1290 Upper
Tier Associates, L.P.*
10.6 Redemption and Substitution Agreement among JMB/NYC Office Building
Associates, L.P., O&Y Equity Company, L.P., O&Y NY Building Corp.,
237/1290 Upper Tier GP Corp., and 237/1290 Upper Tier Associates,
L.P., dated October 10, 1996.*
10.7 Metropolis Realty Trust, Inc. 1996 Directors' Stock Plan.*
10.8 Form of Metropolis Realty Trust, Inc. Stock Option Agreement for
Directors.*
10.9 Form of Indemnification Agreement, dated as of October 10, 1996.*
10.10 Registration Rights Agreement, dated as of October 10, 1996.*
10.11 Participation Agreement (JMB Notes) between Metropolis Realty Trust,
Inc. and Michigan Avenue L.L.C., dated as of October 10, 1996.*
10.12 Indemnification Agreement given by Property Partners, L.P.,
Carlyle-XIII Associates, L.P., and Carlyle-XIV Associates, L.P. to
Metropolis Realty Trust, Inc., dated as of October 10, 1996.*
10.13 Modification of Operating Agreement of 237 Park Avenue Associates,
L.L.C., dated as of October 10, 1996.*
10.14 Noteholders Contribution and Participation Agreement between
Metropolis Realty Trust, Inc. and Bankers Trust Company, dated as of
October 10, 1996.*
10.15 Debt Contribution Agreement, dated as of October 10, 1996, among
Metropolis Realty Trust, Inc., 237/1290 Lower Tier Associates, L.P.,
237 Park Partners, L.P., and 1290 Partners, L.P.*
- ----------------
*Previously filed.
57
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<PAGE>
10.16 Debt Assumption, Release and Security Agreement (237 Excess amount)
dated October 10, 1996.*
10.17 Debt Assumption, Release and Security Agreement (1290 Excess amount)
dated October 10, 1996.*
10.18 Release of Assumed Debt and Termination of Security Interest by
Bankers Trust Company for the benefit of O&Y NY Building Corp. and
O&Y Equity Company, L.P., dated as of October 10, 1996.*
10.19 237 Property Contribution Agreement between 237/1290 Upper Tier
Associates, L.P., 237/1290 Lower Tier Associates, L.P. and 237 Park
Partners, L.P. dated as of October 10, 1996.*
10.20 1290 Property Contribution Agreement among 237/1290 Upper Tier
Associates, L.P., 237/1290 Lower Tier Associates, L.P. and 1290
Partners, L.P. dated as of October 10, 1996.*
10.21 Credit Agreement among 1290 Partners, L.P., 237 Park Partners, L.P.,
the lenders listed herein and The Chase Manhattan Bank, dated as of
October 10, 1996.*
10.22 Consolidated, Amended and Restated Promissory Note in the amount of
$420,000,000 from 1290 Partners, L.P., and 237 Park Partners, L.P.
to The Chase Manhattan Bank, dated October 10, 1996.*
10.23 Mortgage Modification, Restatement and Security Agreement from 1290
Partners, L.P., and 237 Park Partners, L.P., to The Chase Manhattan
Bank, dated as of October 10, 1996.*
10.24 Master Agreement among The Chase Manhattan Bank, 1290 Partners, L.P.
and 237 Park Partners, L.P., dated as of October 10, 1996.*
10.25 Schedule to the Master Agreement between The Chase Manhattan Bank
and 1290 Partners, L.P. and 237 Park Partners, L.P., dated as of
October 10, 1996.*
10.26 Interest Rate Agreement Pledge, and Security Agreement among 1290
Partners, L.P., 237 Park Partners, L.P., and The Chase Manhattan
Bank, dated as of October 10, 1996.*
10.27 Assignment of Leases, Rents and Security Deposits, dated October 10,
1996, by 1290 Partners, L.P. and 237 Park Partners L.P. to The Chase
Manhattan Bank.*
10.28 Note Pledge and Security Agreement among 1290 Partners, L.P., 237
Park Partners, L.P. and The Chase Manhattan Bank, dated as of
October 10, 1996.*
10.29 Consent and Subordination of Property Management Agreement, dated as
of October 10, 1996.*
10.30 Cash and Collateral Account Security, Pledge and Assignment
Agreement among 1290 Partners, L.P., 237 park partners, L.P., and
The Chase Manhattan Bank, dated as of October 10, 1996.*
10.31 Management and Leasing Agreement between 237 Park Partners, L.P. and
Tishman Speyer Properties, L.P.*
10.32 Management and Leasing Agreement between 1290 Partners, L.P. and
Tishman Speyer Properties, L.P.*
10.33 Asset Management Agreement between Metropolis Realty Trust, Inc. and
970 Management, L.L.C., dated as of October 10, 1996.*
- ----------------
*Previously filed.
58
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<PAGE>
METROPOLIS REALTY TRUST, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
<S> <C>
PRO FORMA (Unaudited)
Consolidated Condensed Statements of Income for the period January 1,
1996 to October 10, 1996 and for the year ended
December 31, 1995............................................................................... F-2
HISTORICAL FINANCIAL STATEMENTS
Report of Independent Accountants............................................................... F-4
Consolidated Balance Sheet as of October 10, 1996............................................... F-5
Notes to Consolidated Balance Sheet............................................................. F-6
PURCHASED PROPERTIES
Report of Independent Accountants............................................................... F-10
Combined Balance Sheet as of December 31, 1995.................................................. F-11
Combined Statements of Revenues and Certain Expenses for the period
January 1, 1996 to October 10, 1996 and for the years ended
December 31, 1995 and 1994...................................................................... F-12
Notes to Combined Balance Sheet and Statements of Revenues
and Certain Expenses............................................................................ F-13
</TABLE>
F-1
C/M: 11764.0009 421963.14
<PAGE>
METROPOLIS REALTY TRUST, INC.
PRO-FORMA CONSOLIDATED CONDENSED STATEMENTS OF INCOME
For the period January 1, 1996 to October 10, 1996 (Unaudited)
and
For the year ended December 31, 1995 (Unaudited)
The following unaudited Pro Forma Consolidated Condensed Statements of Income
have been presented as if the transactions described under the heading captioned
"BACKGROUND" had been consummated on January 1, 1995. The unaudited Pro Forma
Consolidated Condensed Statements of Income are derived from and should be read
in conjunction with the Combined Statements of Revenue and Certain Expenses for
the period January 1, 1996 to October 10, 1996 and for the year ended December
31, 1995 included elsewhere in this Registration Statement. The unaudited Pro
Forma Consolidated Condensed Statements of Income are presented in lieu of
historical financial statements for the Debtors principally because the Company
does not believe that the historical operations of the Debtors are comparable to
the expected future operations of the Company. Specifically, the Company's
Properties will be encumbered with less debt and related interest and the
Company's valuation of the Properties for purposes of computing depreciation
differs significantly from the historical valuation used by the Debtors.
Accordingly, the statements do not reflect the Debtors' historical operations
for the period January 1, 1996 to October 10, 1996 and for the year ended
December 31, 1995 as certain expenses which are not be comparable to the
expenses expected to be incurred in the future operations of the Company have
been excluded. Expenses excluded consist of interest, depreciation and
amortization and other costs not directly related to the future operations of
the Company. The unaudited Pro Forma Consolidated Condensed Statements of Income
are not necessarily indicative of what actual results of operations of the
Company would have been had these transactions actually occurred as of January
1, 1995, nor do they purport to represent the results of operations of the
Company for future periods.
<TABLE>
<CAPTION>
Pro Forma Consolidated Condensed Statements of Income
For the Period January 1, 1996 to For the Year Ended
October 10, 1996 (Unaudited) December 31, 1995 (Unaudited)
------------------------------------------- ------------------------------------------
Combined Combined
Statement of Statement of
Revenues and Metropolis Revenues and Metropolis
Certain Pro Forma Realty Trust Certain Pro Forma Realty Trust
Expenses Adjustments Pro Forma Expenses Adjustments Pro Forma
--------------- ---------------- ------------- ---------------- ----------- ------------
(In thousands, except share amounts)
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Rental Income $90,993 - $90,993 $121,209 - $121,209
Interest Income 410 - 410 820 - 820
---------- ---------- ---------- ----------
Total Revenues 91,403 - 91,403 122,029 - 122,029
OPERATING EXPENSES
Payroll & Benefits 3,258 - 3,258 4,058 - 4,058
Operating and Maintenance 4,798 - 4,798 7,397 - 7,397
Utilities 5,288 - 5,288 6,685 - 6,685
Management Fees 528 1,070 (A) 1,598 1,163 955 (A) 2,118
Real Estate Taxes 21,299 - 21,299 28,309 - 28,309
General and Administrative 379 - 379 1,359 - 1,359
Bad Debt Expense 1,214 - 1,214 2,015 - 2,015
Insurance Expense 398 - 398 582 - 582
---------- ----------- ---------- ---------- ----------- ----------
Total Operating 37,162 1,070 38,232 51,568 955 52,523
OTHER EXPENSES:
Depreciation and
Amortization - 15,111 (B) 15,111 - 18,900 (B) 18,900
Interest Expense - 26,101 (C) 26,101 - 33,545 (C) 33,545
----------- -------- -------- ----------- -------- --------
Total Other Expenses - 41,212 41,212 - 52,446 52,446
----------- -------- -------- ----------- -------- --------
NET INCOME(LOSS) $54,241 ($42,282) $11,959 $70,461 ($53,401) $17,060
======== ========= ======== ======== ========= ========
Primary Earnings Per Share
of Common Stock:
Net Income from
Continuing Operations $0.92 $1.32
===== =====
Weighted Average Number
of Shares of Common
Stock Outstanding 12,962,046 12,962,046
========== ==========
Fully Diluted Earnings Pe
Share of Common Stock:r $0.92 $1.32
===== =====
Net Income from
Continuing Operations
Weighted Average Number
of Shares of Common
Stock Outstanding 12,989,046 12,989,046
========== ==========
Funds from Operations (D) $25,046 $33,879
======= =======
Total Assets as of
October 10, 1996 $762,320
========
Long-Term Debt as of
October 10, 1996
$420,000
========
</TABLE>
F-2
C/M: 11764.0009 421963.14
<PAGE>
<TABLE>
<S> <C>
(A) Reflects the following activity in management fees
For the period January 1, 1996 to October 10, 1996
Reflects pro-forma adjusted management fees pursuant to the Asset
Management Agreement and the Property Management Agreements $1,598
Reflects historical management fee (528)
-------------
$1,070
=============
For the year ended December 31, 1995
Reflects pro-forma adjusted management fees pursuant to the Asset
Management Agreement and the Property Management Agreements $2,118
Reflects historical management fee (1,163)
-------------
$955
=============
(B) Reflects the following activity in depreciation and amortization:
For the period January 1, 1996 to October 10, 1996
Reflects pro forma adjusted depreciation and amortization of the Company's
Properties including capitalized financing costs $15,111
=============
For the year ended December 31, 1995
Reflects pro forma adjusted depreciation and amortization of the Company's
Properties including capitalized financing costs $18,900
=============
(C) Reflects the following activity in interest expense:
For the period January 1, 1996 to October 10, 1996
Reflects interest costs associated with the Secured Notes $26,101
=============
For the year ended December 31, 1995
Reflects interest costs associated with the Secured Notes $33,545
=============
</TABLE>
F-3
C/M: 11764.0009 421963.14
<PAGE>
INDEPENDENT ACCOUNTANT'S REPORT
To the Stockholders of Metropolis Realty Trust, Inc.:
We have audited the accompanying consolidated balance sheet of Metropolis Realty
Trust, Inc. as of October 10, 1996. This consolidated balance sheet is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this balance sheet based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, such consolidated balance sheet presents fairly, in all material
respects, the financial position of Metropolis Realty Trust, Inc. as of October
10, 1996 in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
New York, New York
December 5, 1996
F-4
C/M: 11764.0009 421963.14
<PAGE>
METROPOLIS REALTY TRUST, INC.
CONSOLIDATED BALANCE SHEET
October 10, 1996
(In thousands, except share amounts)
ASSETS
Rental property $655,853
Cash and cash equivalents 38,999
Escrow deposits 21,934
Tenant security deposits 553
Accounts receivable -trade 4,741
Deferred financing costs 10,406
Real estate tax refunds 14,088
Notes receivable 8,849
Prepaid expenses and other assets 6,897
-----------
TOTAL ASSETS $ 762,320
===========
LIABILITIES AND STOCKHOLDERS EQUITY
Liabilities
Secured Notes $ 420,000
Accounts payable and accrued expenses 16,121
Unearned revenue 5,646
Security Deposit Payable 553
Minority Interest 99
----------
Total Liabilities 442,419
==========
Stockholders' Equity
Common Stock - $10 Par Value
(Class A - Outstanding - 7,985,986 shares;
Class B - Outstanding - 4,936,060 shares;
and Class C - Outstanding - 40,000 shares) 129,620
=========
Paid in capital 190,281
=========
Total Stockholders' Equity 319,901
=========
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 762,320
=========
See notes to consolidated balance sheet.
F-5
C/M: 11764.0009 421963.14
<PAGE>
METROPOLIS REALTY TRUST, INC.
NOTES TO CONSOLIDATED BALANCE SHEET
October 10, 1996
($000's omitted)
1. BACKGROUND; BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Organization - Metropolis Realty Trust, Inc., a Maryland corporation
("Metropolis" or the Company"), was formed on May 13, 1996 to
facilitate the consummation of the Second Amended Joint Plan of
Reorganization of 237 Park Avenue Associates, L.L.C. ("237 LLC") and
1290 Associates, L.L.C. ("1290 LLC" and together with 237 LLC, the
"Predecessors"), dated September 20, 1996 (the "Plan"). Pursuant to the
Plan, on October 10, 1996, the date operations commenced (the
"Effective Date"), the Company acquired the interests of 237 LLC and
1290 LLC in the properties located at 237 Park Avenue (the "237
Property") and 1290 Avenue of the Americas (the "1290 Property," and
together with the 237 Property, the "Properties"). The Company owns a
95% interest, as general partner, in 237/1290 Lower Tier Associates,
L.P., a Delaware limited partnership (the "Lower Tier Limited
Partnership") which owns a 99% partnership interest, as limited partner
in each of 237 Park Partners, L.P., a Delaware limited partnership (the
"237 Property Owning Partnership") and 1290 Partners, L.P., a Delaware
limited partnership (the "1290 Property Owning Partnership," and
together with the 237 Property Owning Partnership, the "Property Owning
Partnerships"). The Property Owning Partnerships were formed to own the
Properties. The remaining 1% general partnership interest in each of
the Property Owning Partnerships is owned by one of two wholly-owned
subsidiaries of the Company.
Basis of Presentation - The consolidated balance sheet includes
Metropolis, the Lower Tier Limited Partnership, the Property Owning
Partnerships and each of the Property Owning Partnerships' general
partners. The consolidated balance sheet has been presented using the
purchase method of accounting as specified by APB #16 based upon the
reorganization value specified in the Plan. The reorganization value of
$700,000,000 approximates fair value.
The presentation of the consolidated balance sheet requires estimates
and assumptions that affect the reported amounts of assets and
liabilities at the balance sheet date. Actual results could differ from
those estimates.
Minority Interest - The limited partnership which owns a minority
interest in the Lower Tier Limited Partnership is entitled to receive
distributions from the Lower Tier Limited Partnership only after the
Company has received certain priority distributions. As of October 10,
1996, the Company is entitled to receive $380,000,000 and a 12%
cumulative compounded return on such amount from the Lower Tier Limited
Partnership, before any distributions are made in respect of the
minority interest. The minority interest has been reflected on the
balance sheet based upon the balance of the capital account in the
Lower Tier Limited Partnership attributable to the holder of the
minority interest. The limited partnership which owns a minority
interest in the Lower Tier Limited Partnership has the right to require
the Company to acquire the minority interest. The acquisition price is
a formula based upon a multiple of the net operating income of the
Properties for the immediately preceding calendar year reduced by the
debt encumbering the Properties and any priority distributions to which
the Company is entitled as general partner of the Lower Tier Limited
Partnership. As of October 10, 1996, no economic obligation exists
based upon such formula. The Company will record the obligation, if
any, to purchase the minority interest through a charge to additional
paid-in capital.
F-6
C/M: 11764.0009 421963.14
<PAGE>
Rental Property - Rental Property includes land, land improvements,
building, tenant improvements and building equipment recorded at the
reorganization value described above. Land is valued at $134,984 and
building, tenant improvements and building equipment are valued at
$520,869. In accordance with SFAS No. 121, "Accounting for Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed of,"
impairment is determined to exist when estimated amounts recoverable
through future operations and sale of a property on an undiscounted
basis are below that property's carrying value. If a property is
determined to be impaired, it must be written down to its estimated
fair value.
Depreciation and Amortization - Building is depreciated over its useful
life of 39 years. Building equipment is depreciated over its useful
life, ranging from 5 to 7 years. Tenant improvements are amortized on a
straight-line basis over the terms of the respective leases.
Rental Income - Rental income is recognized on a straight-line basis
over the terms of the related leases.
Cash and Cash Equivalents - Cash and cash equivalents includes
investments purchased with an original maturity of three months or
less.
Escrow Deposits - Escrow deposits includes reserves for certain claims
made in conjunction with the Plan and escrow deposits for building and
tenant improvements, insurance and real estate taxes.
Disclosure of Fair Value of Financial Instruments - In accordance with
Statement of Financial Accounting Standards No. 107, "Disclosures About
Fair Value of Financial Instruments," the Company will estimate fair
values based on pertinent information available to management as of the
reporting dates.
Income Taxes - The Company intends to qualify as a REIT under the
Internal Revenue Code, as amended, and will generally not be taxed at
the corporate level on income it currently distributes to its
stockholders so long as it distributes at least 95% of its REIT taxable
income.
2. REAL ESTATE TAX REFUNDS
Real estate tax refunds represent real estate tax proceeds expected to
be recovered by the Company as a result of real estate tax certiorari
proceedings commenced by the Predecessors, net of any fees and expenses
incurred to collect such proceeds (the "Tax Proceeds"). The Company has
reserved approximately $6,156 for tenant claims against the Tax
Proceeds. This reserve is included in accounts payable and accrued
expenses on the accompanying balance sheet.
3. NOTES RECEIVABLE
Included in Notes Receivable is the estimated fair value of two tenant
notes aggregating approximately $8,849. The first note, dated April 1,
1989 with a face amount of $6,500 and a maturity date of September 1,
1999, has been valued at $5,444, based on certain payment terms. Such
payment terms include a stated interest rate of 10% and concessions
claimed by the tenant including a level monthly payment of $75 to be
applied first to interest with the remainder to principal (versus
constant payments calculated to liquidate the note by the maturity date
stated in the original note). The Company has not agreed to such
concessions claimed by the tenant and may contest them. The second note
dated August 20, 1985 with a face value of $4,355, has been valued at
$3,405. The second note does not bear interest and is payable on
October 31, 1999.
F-7
C/M: 11764.0009 421963.14
<PAGE>
4. SECURED NOTES
Secured Notes consist of promissory notes ("Loan") issued by the
Property Owning Partnerships in the original principal amount of
$420,000 ("notional amount") pursuant to a Credit Agreement
("Agreement") among the Property Owning Partnerships, the lenders
signatories thereto and the lead lender. Of the aggregate principal
amount of the loan, $250,000 of the Loan is allocated to the 1290
Property and $170,000 is allocated to the 237 Property. The Loan is
cross collateralized by the Properties. The Loan is scheduled to mature
on October 10, 2001. The Loan requires the Property Owning Partnerships
to make interest only payments during the first year of the loan and
then make principal payments of $7,500, $7,500, $10,000 and $15,000 in
each of the second, third, fourth and fifth years, respectively, of the
Loan. If any such scheduled principal payments would cause the Company
to fail to comply with any income test requirements necessary for the
Company to maintain its status as a REIT, then the Property Owning
Partnerships may, in lieu of such principal payment, post an
irrevocable letter of credit in the amount of such payment. The costs
associated with securing the Loan are included in deferred financing
costs on the accompanying balance sheet and will be amortized over the
term of the Loan. The Property Owning Partnerships have also entered
into lock box agreements for the collection of rents and have
established escrow accounts for real estate taxes and insurance.
The Property Owning Partnerships and the lead lender entered into an
Interest Rate Exchange Agreement dated as of October 10, 1996 (the
"Swap Agreement"). The Swap Agreement has a term of 5 years and
provides that the Property Owning Partnerships will pay interest at an
effective rate of 7.987% per annum of the notional amount of $420,000.
Management believes the risk of incurring losses related to the credit
risk is remote and any losses would be immaterial.
5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses include funded reserves held by
the Company for utility tax claims, certain claims related to the Plan,
tenant claims against Tax Proceeds and property operating expenses
payable. The utility tax claims of $4,427 include approximately $2,677
of claims pertaining to a property owned by an affiliate of the
Predecessors which was disposed of prior to October 10, 1996.
6. STOCKHOLDERS' EQUITY
The Company has the authority to issue 50,000,000 shares of common
stock, par value $10 per share (the "Common Stock"), and 10,000,000
shares of Preferred Stock, par value $10 per share. Stockholders equity
consists of 12,962,046 shares of Common Stock issued and outstanding.
Of the 12,962,046 shares issued and outstanding, 7,985,986 represent
shares of Class A Common Stock, 4,936,060 represent shares of Class B
Common Stock, and 40,000 represent shares of Class C Commons Stock
which were issued to affiliates of the Company's Asset Manager. Of the
7,985,986 of Class A Common Stock issued and outstanding, approximately
923,000 shares were issued as part of a subscription rights offering
under the Plan. All of such shares were issued on the effective date
pursuant to the Plan. The Class A Common Stock, the Class B Common
Stock and the Class C Common Stock have identical rights and
privileges, and are treated as a single class, with respect to all
matters (other than certain voting rights) including, without
limitation, the payment of distributions and upon liquidation.
7. STOCK PLAN AND REGISTRATION RIGHTS
F-8
C/M: 11764.0009 421963.14
<PAGE>
The Board of Directors of the Company adopted a Directors' Stock Plan
effective October 10, 1996. Pursuant to the Stock Plan, the Board of
Directors of the Company has the authority to issue to members of the
Company's Board of Directors options to purchase, in the aggregate,
100,000 shares of Common Stock. On the effective date, the initial
members of the Company's Board of Directors were granted options
entitling each Director to purchase an aggregate of 3,000 shares of
Common Stock at an exercise price of $25 per share in accordance with
the Plan. Each Director will receive an additional 400 shares of Common
Stock at the 1997 annual meeting and each subsequent annual meeting.
Total outstanding options at October 10, 1996 aggregated 27,000, of
which 9,000 are exercisable currently and 9,000 are exercisable on
October 10, 1997 and October 10, 1998.
The Company has entered into a Registration Rights Agreement between
the Company and the holders of Common Stock. The Registration Rights
Agreement permits certain of the Company's stockholders to demand,
subject to certain conditions, that the Company register their Common
Stock for sale and provides all of the Company's stockholders with the
right to participate proportionally in any public offering of the
Company's securities.
8. RELATED PARTY TRANSACTIONS
Asset Management - The Company has entered into an Asset Management
Agreement with a company ("Asset Manager") that is directly affiliated
with two of Metropolis' shareholders. One of these shareholders is a
also a Director of the Company. The Asset Manager provides asset
advisory, consultation and management services for the Company. Fees
for such services are payable in arrears, on a monthly basis of
twenty-five thousand dollars. The Asset Management Agreement also
provides for reimbursement for costs and expenses for contractors and
professional fees, payable as incurred.
Property Management - The Company has also entered into a Management
and Leasing Agreement with a company ("Property Manager") that is an
affiliate of a shareholder. The Property Manager is to manage and
operate the property and provide all supervisory, management and
leasing services. The Management and Leasing Agreement provides for a
management fee of 1.5 percent of Gross Revenues, payable monthly, and
reimbursement for overhead and all reasonable out-pocket-expenses
incurred. The Management and Leasing Agreement also provides for
leasing commissions to be calculated on a sliding scale percentage
basis of the lease's base rent.
9. LEASES
Minimum future rents due to the Company under noncancelable leases as
of October 10, 1996 are as follows:
1996 $ 20,423
1997 90,148
1998 101,492
1999 97,235
2000 96,314
Thereafter 665,041
--------
$1,070,653
==========
F-9
C/M: 11764.0009 421963.14
<PAGE>
INDEPENDENT ACCOUNTANT'S REPORT
To the Stockholders of Metropolis Realty Trust, Inc.:
We have audited the combined balance sheet of the Purchased Properties owned
indirectly by Metropolis Realty Trust, Inc. as described in Note 1 as of
December 31, 1995 and the combined statements of revenues and certain expenses
as described in Note 1 for the period January 1, 1996 to October 10, 1996 and
for the years ended December 31, 1995 and 1994. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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.
The accompanying combined statements of revenue and certain expenses were
prepared in compliance with the rules and regulations of the Securities and
Exchange Commission (for inclusion in the registration statement on Form 10 of
Metropolis Realty Trust, Inc.) and as described in Note 1, are not intended to
be a complete presentation of the Purchased Properties' revenue and expenses.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined financial position of the Purchased
Properties owned indirectly by Metropolis Realty Trust, Inc. as described in
Note 1 as of December 31, 1995 and the statements of combined revenues and
certain expenses as described in Note 1 for the period January 1, 1996 to
October 10, 1996 and for the years ended December 31, 1995 and 1994 in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
New York, New York
December 5, 1996
F-10
C/M: 11764.0009 421963.14
<PAGE>
PURCHASED PROPERTIES
COMBINED BALANCE SHEET
December 31, 1995
($000's Omitted)
ASSETS
Rental property $ 645,235
Cash and restricted cash 7,218
Escrow deposits 493
Rent receivables 54,573
Deferred expenses 18,169
Other assets 1,024
----------
TOTAL ASSETS $ 726,712
=========
LIABILITIES & CUMULATIVE DEFICIT
Liabilities
Long-term debt $ 902,603
Deferred rent 20,706
Accounts payable and accrued expenses 11,280
Security deposit payable 493
----------
Total Liabilities 935,082
----------
Cumulative Deficit (208,370)
---------
TOTAL LIABILITIES AND CUMULATIVE DEFICIT $ 726,712
=========
See notes to combined balance sheet.
F-11
C/M: 11764.0009 421963.14
<PAGE>
PURCHASED PROPERTIES
COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES
Period January 1, to October 10, 1996 and
For the Years Ended December 31, 1995 and 1994
($000's Omitted)
Period
January 1, Year Ended Year Ended
to October December December
10, 1996 31, 1995 31, 1994
----------- ---------- ----------
REVENUES:
Rental Income $90,993 $121,209 $132,460
Interest Income 410 820 123
----------- ---------- ----------
Total Revenues 91,403 122,029 132,583
CERTAIN EXPENSES:
Payroll and Benefits 3,258 4,058 3,711
Operating and Maintenance 4,798 7,397 7,742
Utilities 5,288 6,685 6,414
Management Fees 528 1,163 1,633
Real Estate Taxes 21,299 28,309 28,822
General and Administrative 379 1,359 694
Bad Debt Expense 1,214 2,015 3,342
Insurance Expense 398 582 577
----------- ---------- ----------
Total Certain Expenses 37,162 51,568 52,935
----------- ---------- ----------
REVENUES IN EXCESS OF CERTAIN EXPENSES $54,241 $70,461 $79,648
=========== ========== ==========
See notes to Combined Statements of Revenues and Certain Expenses.
F-12
C/M: 11764.0009 421963.14
<PAGE>
PURCHASED PROPERTIES
NOTES TO COMBINED BALANCE SHEET
As of December 31, 1995
AND NOTES TO COMBINED STATEMENTS OF REVENUES AND
CERTAIN EXPENSES For the period January 1, 1996 to
October 10, 1996 and
For the years ended December 31, 1995 and 1994
($000's Omitted)
1. BACKGROUND, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Organization - Metropolis Realty Trust, Inc., a Maryland
corporation ("Metropolis" or the Company"), was formed on May
13, 1996 to facilitate the consummation of the Second Amended
Joint Plan of Reorganization of 237 Park Avenue Associates,
L.L.C. ("237 LLC") and 1290 Associates, L.L.C. ("1290 LLC" and
together with 237 LLC, the "Predecessors"), dated September
20, 1996 (the "Plan"). Pursuant to the Plan, on October 10,
1996 ( the "Effective Date") the Company acquired the
interests of 237 LLC and 1290 LLC in the office properties
located at 237 Park Avenue (the "237 Property") and 1290
Avenue of the Americas (the "1290 Property," and together with
the 237 Property, the "Properties"). The Company owns a 95%
interest, as general partner, in 237/1290 Lower Tier
Associates, L.P., a Delaware limited partnership (the "Lower
Tier Limited Partnership") which owns a 99% partnership
interest, as limited partner in each of 237 Park Partners,
L.P., a Delaware limited partnership (the "237 Property Owning
Partnership") and 1290 Partners, L.P., a Delaware limited
partnership (the "1290 Property Owning Partnership," and
together with the 237 Property Owning Partnership, the
"Property Owning Partnerships"). The Property Owning
Partnerships were formed to own the Properties. The remaining
1% interest in each of the Property Owning Partnerships is
owned by one of two wholly-owned subsidiaries of the Company
Basis of Presentation - The combined statements relate to the
operations of the Properties (the "Purchased Properties"). The
Purchased Properties have a combined net leasable area of
approximately 3,103,000 square feet. As of October 10, 1996,
the Purchased Properties are encumbered with less debt and
related interest; the asset base and related depreciation is
significantly different; one of the Predecessor's equity
holders has a remaining subordinated 5% indirect interest; and
the properties are managed by an affiliated property manager
with a different management structure. Accordingly, Management
believes the combined statements are the most meaningful
presentation as they present the Purchased Properties'
operations in a manner which excludes variables associated
with the ownership and management of the Predecessors.
Combined Statements of Revenue and Certain Expenses:
The accompanying combined statements of revenue and certain
expenses are presented in conformity with Rule 3-14 of
Regulation S-X of the Securities and Exchange Commission.
Accordingly, the statements are not representative of the
actual operations for the period January 1, 1996 to October
10, 1996 and for the years ended December 31, 1995 and 1994 as
certain expenses which may not be comparable to the expenses
expected to be incurred in the proposed future operations of
the Purchased Properties have been excluded. Expenses
F-13
C/M: 11764.0009 421963.14
<PAGE>
excluded consist of interest, depreciation and amortization
and other costs not directly related to the future operations
of the Purchased Properties.
Rental income is recognized on a straight line basis over the
term of the related leases.
Combined Balance Sheet:
The accompanying combined balance sheet of the Purchased
Properties include the separate balance sheets of each of the
Properties.
The presentation of the accompanying combined balance sheet in
accordance with generally accepted accounting principles
requires the management of the Purchased Properties to make
estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the balance sheet.
Actual results could differ from those estimates.
In conjunction with the negotiations with representatives of
the first mortgage lender regarding a loan restructure,
affiliates of the Predecessors reached an agreement with the
first mortgage lender whereby effective January 1, 1993, the
affiliates of the Purchased Properties were limited to taking
distributions of $250 on a monthly basis from the Purchased
Properties reserving the remaining excess cash flow in a
separate interest-bearing account to be used exclusively to
meet the obligations of the Purchased Properties. Such
reserved amounts, of approximately $6,576 in the aggregate at
December 31, 1995, are classified as restricted funds in the
accompanying combined balance sheet.
Provisions for value impairment are recorded with respect to
the investment properties whenever the estimated future cash
flows from a property's operations and projected sale are less
than the property's net carry value. The investment properties
are carried at historical cost on the accompanying balance
sheet.
Deferred expenses are comprised of leasing and renting costs
which are amortized using the straight-line method over the
terms of the related leases.
No provision for State or Federal income taxes has been made
as the liability for such taxes is that of the Purchased
Properties' owners.
Depreciation on the investment properties has been provided
over the estimated useful lives of 5 to 39 years using the
straight-line method.
Although certain leases of the Purchased Properties provide
for tenant occupancy during periods for which no rent is due,
the Purchased Properties accrue prorated rental income for the
full period of occupancy. In addition, although certain leases
provide for step increases in rent during the lease term, the
Purchased Properties recognize the total rents receivable on a
straight-line basis. Such amounts are included in accrued
rents receivable in the accompanying combined balance sheet.
Significant betterments and improvements are capitalized and
depreciated over their estimated useful lives. An affiliate of
the Predecessor Owners of the Purchased Properties' performs
certain maintenance and repair work and construction of
certain tenant improvements.
F-14
C/M: 11764.0009 421963.14
<PAGE>
2. LONG TERM DEBT
Long term debt consists of a first mortgage loan of $902,603
bearing interest at the short-term U.S. Treasury obligation
note rate plus 1-3/4% with a minimum rate on the loan of 7%
per annum; allocated among and cross-collaterally secured by
the Properties. Monthly payments of principal and interest are
based upon a 30-year amortization schedule. The loan is in
technical default at December 31, 1995. The terms of default
were subsequently cured through the Plan. The stated maturity
of the principal plus accrued interest is due March 1999.
3. LEASES
At December 31, 1995, all leases relating to the properties
are properly classified as operating leases. Leases with
commercial tenants range in term from 1 to 17 years and
provide for fixed minimum rent and partial to full
reimbursement of operating costs. Affiliates of the
Predecessor Owner of the Purchased Properties have lease
agreements and occupy approximately 95,000 square feet of
space at 237 Park Avenue at rental rates which approximate
market.
Deferred rent represents the unearned portion of lease
termination fees paid by certain tenants of the 1290 Avenue of
America's property. The lease termination fees are being
amortized over the remaining terms of the tenant and
sub-tenant leases.
Minimum future rents due under noncancelable leases as of
December 31, 1995 are as follows:
1996 $80,951
1997 90,148
1998 101,492
1999 97,235
2000 96,314
Thereafter 665,041
----------
$1,131,181
==========
4. CAPITAL EXPENDITURES
For the period from January 1, 1996 to October 10, 1996 and for the
years ended December 31, 1995 and 1994, capital expenditures related to
the rental property aggregated $4,048, $4,142 and $107, respectively.
F-15
C/M: 11764.0009 421963.14
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized.
METROPOLIS REALTY TRUST, INC.
By: /s/ Lee S. Neibart
Name: Lee S. Neibart
Title: President
Date: January 22, 1997
S-1
C/M: 11764.0009 421963.14
