<PAGE>
As filed with the Securities and Exchange Commission on December 18, 1996
Registration No. 33-____
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________________
FORM S-11
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
_________________________
THE MENDIK COMPANY, INC.
(Exact name of registrant as specified in its governing instrument)
330 MADISON AVENUE
NEW YORK, NY 10017
(Address of principal executive offices)
_________________________
DAVID R. GREENBAUM
PRESIDENT AND CHIEF OPERATING OFFICER
330 MADISON AVENUE
NEW YORK, NY 10017
(Name and address of agent for service)
_________________________
Copies to:
J. WARREN GORRELL, JR. DOUGLAS A. SGARRO
DAVID W. BONSER BROWN & WOOD LLP
HOGAN & HARTSON L.L.P. ONE WORLD TRADE CENTER
555 THIRTEENTH STREET, N.W. NEW YORK, NEW YORK 10048-0557
WASHINGTON, D.C. 20004-1109 (212) 839-5300
(202) 637-5600
_________________________
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If this form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of
the earlier effective registration statement for the same offering. / /
______________
If this form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / / ___________
If delivery of the prospectus is expected to be made pursuant to
Rule 434, please check the following box. / /
_________________________
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS AMOUNT BEING OFFERING PRICE AGGREGATE OFFERING REGISTRATION
OF SECURITIES BEING REGISTERED REGISTERED (1) PER SHARE (2) PRICE (2) FEE
<S> <C> <C> <C> <C>
Common Stock, $.01 par value per share 11,500,000 $22.00 $253,000,000 $76,667
</TABLE>
(1) Includes 1,500,000 shares that are issuable upon exercise of the
Underwriters' over-allotment option.
(2) Estimated solely for the purpose of calculating the registration fee.
_________________________
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
<PAGE>
CROSS REFERENCE SHEET
Item Number and Caption Location or Heading in Prospectus
1. Forepart of Registration Statement and
Outside Front Cover Page of Prospectus Forepart of Registration
Statement and Outside Front
Cover Page of Prospectus
2. Inside Front and Outside Back Cover
Pages of Prospectus Inside Front and Outside
Back Cover Pages of
Prospectus
3. Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges Prospectus Summary; The
Company; Risk Factors
4. Determination of Offering Price Outside Front Cover Page;
Underwriting
5. Dilution Dilution
6. Selling Security Holders Not applicable
7. Plan of Distribution Outside Front Cover Page;
Underwriting
8. Use of Proceeds Use of Proceeds; Structure
and Formation of the
Company
9. Selected Financial Data Selected Financial Information
10. Management's Discussion and Analysis of
Financial Condition and Results of
Operations Management's Discussion and
Analysis of Financial
Condition and Results of
Operations
11. General Information as to Registrant Outside Front Cover
Page; Prospectus Summary;
The Company; Management;
Structure and Formation of
the Company; Capital Stock
12. Policy with Respect to Certain
Activities Prospectus Summary;
The Company; Policies with
Respect to Certain Activities;
Partnership Agreement; Capital
Stock; Additional Information
13. Investment Policies of Registrant Prospectus Summary; The
Company; Business and
Growth Strategies; Policies
with Respect to Certain
Activities
14. Description of Real Estate Prospectus Summary; The
Properties
15. Operating Data The Company; The Properties;
Financial Statements
16. Tax Treatment of Registrant and Its
Security Holders Prospectus Summary; Federal
Income Tax Considerations
17. Market Price of and Dividends on the
Registrant's Common Equity and
Related Stockholder Matters Risk Factors;
Distributions; The Company;
Structure and Formation of
the Company
18. Description of Registrant's Securities Capital Stock
19. Legal Proceedings The Properties
20. Security Ownership of Certain
Beneficial Owners and Management Principal Stockholders
21. Directors and Executive Officers Management
22. Executive Compensation Management
23. Certain Relationships and Related
Transactions The Company; Management;
Structure and Formation of
the Company; Certain
Relationships and Transactions
24. Selection, Management and Custody
of Registrant's Investments Outside Front Cover Page;
Prospectus Summary; The
Company; The Properties
25. Policies with Respect to Certain
Transactions Policies with Respect to
Certain Activities
26. Limitations of Liability The Company; Capital Stock;
Management
27. Financial Statements and Information Prospectus Summary;
Selected Financial
Information; Financial
Statements
28. Interests of Named Experts and Counsel Experts; Legal Matters
29. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities Management
<PAGE>
EXPLANATORY NOTE
This Registration Statement contains a Prospectus relating to a
public offering in the United States and Canada (the "U.S. Offering") of an
aggregate of 8,500,000 shares of common stock (the "Common Stock") of The
Mendik Company, Inc., a Maryland corporation, together with separate
Prospectus pages relating to a concurrent offering outside the United States
and Canada of an aggregate of 1,500,000 shares of Common Stock (the
"International Offering"). The complete Prospectus for the U.S. Offering
follows immediately. After such Prospectus are the following alternate pages
for the International Offering: a front cover page; an "Underwriting"
section; and a back cover page. All other pages of the Prospectus for the
U.S. Offering are to be used for both the U.S. Offering and the International
Offering.
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED DECEMBER 18, 1996
PROSPECTUS
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
10,000,000 SHARES
THE MENDIK COMPANY, INC.
COMMON STOCK
------------------
The Mendik Company, Inc. (together with its subsidiaries, the "Company") has
been formed to continue and expand the operations of Mendik Realty Company, Inc.
and its affiliates, which for 40 years have been engaged in acquiring, owning,
managing, leasing, renovating and redeveloping office properties in New York
City. Upon completion of this offering (the "Offering"), the Company will own
interests in seven office properties located in midtown Manhattan which contain
approximately 5.5 million rentable square feet. The Company will operate as a
fully integrated, self-administered and self-managed real estate company and
expects to qualify as a real estate investment trust (a "REIT") for Federal
income tax purposes. Upon completion of the Offering, the Company will be one of
the largest owners and operators of Manhattan office properties and expects to
be the first publicly traded REIT formed primarily to own, operate and acquire
Manhattan office properties.
All of the shares of Common Stock, par value $.01 per share, of the Company
("Common Stock") offered hereby are being sold by the Company. Of the 10,000,000
shares of Common Stock offered hereby, 8,500,000 shares are being offered
initially in the United States and Canada and 1,500,000 shares are being offered
initially outside the United States and Canada. In addition, 954,545 shares of
restricted Common Stock (representing an investment of approximately $21
million) will be sold concurrently by the Company at the initial public offering
price to an entity with which two directors of the Company are affiliated. Upon
completion of the Offering, approximately 36% of the equity in the Company will
be beneficially owned by officers and directors of the Company and certain other
affiliated parties.
Prior to the Offering, there has been no public market for the Common Stock.
It is currently anticipated that the initial public offering price per share
will be $22.00. See "Underwriting" for a discussion of the factors to be
considered in determining the initial public offering price. An application to
list the Common Stock on the New York Stock Exchange will be made.
SEE "RISK FACTORS" BEGINNING ON PAGE 12 FOR CERTAIN FACTORS RELEVANT TO AN
INVESTMENT IN THE COMMON STOCK, INCLUDING:
- Concentration of all of the Company's properties in midtown Manhattan, and
the dependence of such properties on the conditions of the New York
economy and the Manhattan office market.
- Risks associated with non-controlling interests that the Company will own
in four of the Company's properties.
- Absence of arm's length negotiations with respect to the properties and
other assets contributed to the Company in connection with its formation,
resulting in the risk that the consideration given by the Company for such
assets may exceed the fair market value of such assets and other potential
conflicts of interest.
- Limitations on the Company's ability to sell, or reduce the amount of
mortgage indebtedness on, certain of the Properties.
- Limitations on the stockholders' ability to change control of the Company,
including restrictions on ownership of more than 8.5% of the outstanding
shares of Common Stock.
------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
<S> <C> <C> <C>
Per Share................................................ $ $ $
Total(3)................................................. $ $ $
</TABLE>
(1) The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting estimated expenses of $ payable by the Company.
(3) The Company has granted the U.S. Underwriters a 30-day option to purchase up
to an additional 1,275,000 shares of Common Stock, and has granted the
International Managers a 30-day option to purchase up to an additional
225,000 shares of Common Stock, on the same terms and conditions as set
forth above, solely to cover over-allotments, if any. If such option is
exercised in full, the total Price to Public, Underwriting Discount and
Proceeds to Company will be $ , $ and $ ,
respectively. See "Underwriting."
------------------------------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if issued to and accepted by them, subject to
approval of certain legal matters by counsel to the Underwriters. The
Underwriters reserve the right to withdraw, cancel or modify such offer and to
reject orders in whole or in part. It is expected that delivery of the shares of
Common Stock offered hereby will be made in New York, New York, on or about
, 1997.
------------------------------
MERRILL LYNCH & CO.
BEAR, STEARNS & CO. INC.
DEAN WITTER REYNOLDS INC.
LEHMAN BROTHERS
PAINEWEBBER INCORPORATED
LEGG MASON WOOD WALKER,
INCORPORATED
UBS SECURITIES
------------------------------
The date of this Prospectus is , 1997.
<PAGE>
[INSERT MAP, CHARTS AND/OR PICTURES]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
<PAGE>
TABLE OF CONTENTS
Page
----
PROSPECTUS SUMMARY 1
The Company 1
Risk Factors 2
Business and Growth Strategies 5
Acquisition Strategy 5
Operating Strategies 6
The Properties 6
Structure and Formation of the Company 7
Structure of the Company 7
Formation Transactions 9
Benefits to Related Parties 9
The Offering 10
Distributions 10
Tax Status of the Company 11
Summary Selected Financial Information 11
RISK FACTORS 13
Geographic Concentration in Midtown Manhattan 13
Non-Controlling Interest in Certain Properties 13
No Assurance of Fair Price for Company's Assets 13
Conflicts of Interest in the Formation Transactions
and the Business of the Company 14
The Lock-out Provisions 15
Substantial Vacant Space at Two Penn Plaza 16
Reliance on Major Tenants 17
Acquisition Risks 17
Competition 17
Risks of Property Management Business 17
Real Estate Investment Risks 18
Possible Environmental Liabilities 20
Limits on Changes in Control 21
Tax Risks 22
Other Risks of Ownership of Common Stock 24
Dependence on Key Personnel 25
Uninsured Loss 26
THE COMPANY 27
BUSINESS AND GROWTH STRATEGIES 29
Business Strategy 29
Acquisition Strategy 29
Operating Strategy 31
USE OF PROCEEDS 33
DISTRIBUTIONS 34
CAPITALIZATION 39
DILUTION 40
SELECTED FINANCIAL INFORMATION 42
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 45
Overview 45
Results of Operations 45
NEW YORK ECONOMY AND MANHATTAN OFFICE MARKET 50
i
<PAGE>
New York Economy 50
Midtown Manhattan Office Market 52
Submarkets 54
THE PROPERTIES 56
The Portfolio 56
Two Penn Plaza 63
1740 Broadway (The MONY Building) 66
866 United Nations Plaza 68
Eleven Penn Plaza (47.7% interest) 70
Two Park Avenue (40% interest) 73
330 Madison Avenue (24.8% interest) 75
570 Lexington Avenue (5.6% interest) 77
Mortgage Indebtedness 80
Line of Credit 80
Property Management and Leasing 81
Employees 81
Assets Not Being Transferred to the Company 82
Competition 83
Regulation 83
Legal Proceedings 84
ii
<PAGE>
MANAGEMENT 85
Directors, Director Nominees and Executive Officers 85
Committees of the Board of Directors 89
Compensation of Directors 89
Executive Compensation 90
Employment Agreements 91
Noncompetition Agreements 91
Stock Option and Restricted Stock Plans 92
Incentive Compensation Plan 92
401(k) Plan 92
Limitation of Liability and Indemnification 92
STRUCTURE AND FORMATION OF THE COMPANY 94
The Operating Entities of the Company 94
Formation Transactions 95
Consequences of the Offering and the Formation
Transactions 96
Benefits of the Formation Transactions and the Offering
to Affiliates of the Company 96
POLICIES WITH RESPECT TO CERTAIN ACTIVITIES 98
Investment Policies 98
Disposition Policies 99
Financing Policies 100
Conflict of Interest Policies 100
Interested Director and Officer Transactions 101
Business Opportunities; Noncompetition Arrangements 101
Policies with Respect to Other Activities 102
CERTAIN RELATIONSHIPS AND TRANSACTIONS 103
Formation Transactions 103
Management and Leasing Services 103
Cleaning Services 103
Engineering and Preventive Maintenance Services 103
Security Services 104
PARTNERSHIP AGREEMENT 105
Operational Matters 105
Liability and Indemnification 108
Transfers of Interests 109
PRINCIPAL STOCKHOLDERS 111
CAPITAL STOCK 113
General 113
Common Stock 113
Preferred Stock 113
Transfer Agent and Registrar 113
Restrictions on Transfer 114
CERTAIN PROVISIONS OF MARYLAND LAW AND THE COMPANY'S
CHARTER AND BYLAWS 116
Classification and Removal of Board of Directors;
Other Provisions 116
Business Combination Statute 117
Control Share Acquisition Statute 117
Amendments to the Charter 118
Advance Notice of Director Nominations and New Business 118
Anti-takeover Effect of Certain Provisions of
Maryland Law and of the Charter and Bylaws 118
Rights to Purchase Securities and Other Property 118
SHARES AVAILABLE FOR FUTURE SALE 120
General 120
Registration Rights 121
FEDERAL INCOME TAX CONSEQUENCES 122
General 122
Taxation of the Company 122
Taxation of Stockholders 128
Other Tax Considerations 132
Importance of Obtaining Professional Tax Assistance 133
ERISA CONSIDERATIONS 133
UNDERWRITING 137
EXPERTS 139
LEGAL MATTERS 140
ADDITIONAL INFORMATION 141
GLOSSARY 142
iii
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE
DETAILED INFORMATION INCLUDED ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE
INDICATED, THE INFORMATION CONTAINED IN THIS PROSPECTUS ASSUMES THAT (i) THE
TRANSACTIONS DESCRIBED UNDER "STRUCTURE AND FORMATION OF THE COMPANY" ARE
CONSUMMATED, AND (ii) THE UNDERWRITERS' OVERALLOTMENT OPTION IS NOT
EXERCISED. AS USED HEREIN, THE "COMPANY" MEANS THE MENDIK COMPANY, INC., A
MARYLAND CORPORATION, AND ONE OR MORE OF ITS SUBSIDIARIES (INCLUDING THE
MENDIK COMPANY, L.P.), AND THE PREDECESSORS THEREOF OR, AS THE CONTEXT MAY
REQUIRE, THE MENDIK COMPANY, INC. ONLY OR THE MENDIK COMPANY, L.P. ONLY. AS
USED HEREIN, THE "MENDIK GROUP" MEANS MENDIK REALTY COMPANY, INC., A NEW YORK
CORPORATION ("MENDIK REALTY"), THE ENTITIES AFFILIATED WITH MENDIK REALTY,
AND BERNARD H. MENDIK AND DAVID R. GREENBAUM INCLUDING THE PROPERTY-OWNING
ENTITIES BUT EXCLUDING MENDIK/FW LLC (AS DEFINED BELOW). SEE "GLOSSARY" FOR
THE DEFINITIONS OF CERTAIN TERMS USED IN THIS PROSPECTUS.
THE COMPANY
The Company has been formed to continue and expand the real estate
business of the Mendik Group, which is engaged in acquiring, owning,
managing, leasing, renovating and redeveloping office properties in New York
City. Upon the completion of this offering of shares of Common Stock (the
"Offering"), the Company will own interests in seven Class A office
properties located in midtown Manhattan which contain approximately 5.5
million rentable square feet (the "Properties") and will manage 16 properties
(including the Properties) located in the New York metropolitan area which
contain approximately 10.0 million rentable square feet. The Company will be
a fully integrated, self-administered and self-managed real estate company
and expects to qualify as a real estate investment trust (a "REIT") for
Federal income tax purposes. Upon completion of the Offering, the Company
will be one of the largest owners and operators of Manhattan office
properties and expects to be the first publicly traded REIT formed primarily
to own, operate and acquire Manhattan office properties.
The economy of the New York metropolitan area is larger than the
economies of the next two largest metropolitan areas combined (Los Angeles
and Chicago) and larger than the economy of any individual state except
California. At the core of the New York metropolitan area is Manhattan,
which is the largest office market in the United States, and contains more
rentable square feet than the next six largest U.S. office markets combined.
In addition, Manhattan is the headquarters to many of the leading
corporations and service firms in the U.S., including more Fortune 500
companies than any other U.S. city, three of the four largest U.S. commercial
banks and 23 of the 25 largest U.S. securities firms.
The Company believes that current supply/demand fundamentals in the
Manhattan office market provide an attractive environment for acquiring,
owning and operating Class A office properties. The Company believes that
demand for Class A office space in the midtown Manhattan office market has
increased recently because of strong net private sector job growth, a
strengthening New York metropolitan economy and an improving business
environment and quality of life offered by New York City. At the same time,
the supply of Class A office space in midtown Manhattan has remained
virtually unchanged since 1992, and the Company believes that supply is
unlikely to increase substantially over the near term primarily because there
are relatively few sites available for construction, the lead time required
for construction typically exceeds three years and new construction generally
is not economically feasible given current market rental rates. As a result
of increasing demand for Class A office space in midtown Manhattan and
limited new supply of such space, vacancy rates in midtown Manhattan have
declined in each of the last five years and the Company believes that
effective rental rates (i.e., rental rates after taking into account tenant
improvement costs and leasing concessions) for office properties in midtown
Manhattan have increased. See "New York Economy and Manhattan Office Market."
1
<PAGE>
The Company intends to achieve growth through acquisitions and
focused operating strategies, including proactive leasing efforts. The
Company believes that opportunities exist to acquire office properties in
Manhattan on attractive terms, including at prices significantly below
replacement cost. In contrast, in order to justify new construction in the
Manhattan office market, base rents, not taking into account any tax benefits
which may apply, generally would have to increase to at least 40% more than
current asking rents for Class A office space in midtown Manhattan (as
estimated by Cushman & Wakefield). The Company believes that its experienced
management team and its access to capital, as well as its ability to engage
in transactions that offer sellers favorable tax treatment, will provide it
with significant advantages in pursuing acquisitions of office properties.
In addition, the Company intends to market aggressively and
re-lease two significant blocks of space in its portfolio which recently have
become available (as the result, in one case, of a recent lease expiration
and, in the other case, of a relocation of a large tenant to another Property
in the Company's portfolio, which relocation the Company believes was
effected on favorable terms). Upon the re-leasing of these blocks of space,
the Company expects to increase the weighted average occupancy of its
Properties from its current rate of 88% (excluding one Property in which the
Company will own a 5.6% interest and which is being leased following a
substantial renovation program) to a level more comparable to the historical
occupancy rate of the Properties, which has averaged in excess of 94% over
the past five calendar years.
Bernard H. Mendik, the Chairman and Chief Executive Officer of the
Company, has been involved in the real estate business for 40 years. Mr.
Mendik, David R. Greenbaum, the President and Chief Operating Officer of the
Company, and the other five executive officers of the Company have been
actively involved in the Manhattan commercial office business for an average
of over 20 years, including an average of over 17 years with the Mendik
Group. The extensive experience of the Company's management provides the
Company with a substantial base of information concerning Manhattan real
estate dynamics, including submarket rent levels, operating, renovation and
redevelopment costs, regulatory processes and other factors relevant to the
acquisition, ownership and operation of Manhattan office properties. Upon
completion of the Offering, approximately 36% of the equity in the Company
will be beneficially owned by officers and directors of the Company and
certain other affiliated parties.
RISK FACTORS
An investment in the Common Stock involves various risks, and
prospective investors should carefully consider the matters discussed under
"Risk Factors" prior to making an investment in the Company. Such risks
include, among others:
- concentration of all of the Properties in midtown Manhattan,
and the dependence of the Properties on the conditions of the
New York metropolitan economy and the office market of
midtown Manhattan, which increases the risk of the Company's
being adversely affected by a downturn in the New York
metropolitan economy or the Manhattan office market;
- risks associated with the non-controlling interests that the
Company will own in the partnerships that own Eleven Penn
Plaza, Two Park Avenue, 330 Madison Avenue and 570 Lexington
Avenue, including (i) the inability to control decisions with
respect to these Properties (including decisions regarding
management, sale, refinancing and the timing and amount of
distributions), other than the ability to veto participation
by these Properties in certain types of major transactions,
and (ii) "buy-sell" rights, rights of first refusal and/or
forced sale rights that exist with respect to each of these
Properties;
2
<PAGE>
- absence of arm's length negotiations with respect to the
Company's interests in the Properties and the other assets to
be contributed to the Company in its formation, resulting in
the risks that the consideration to be paid by the Company for
such assets may exceed the fair market value of such assets
and that the market value of the Common Stock may exceed its
proportionate share of the aggregate fair market value of
such assets;
- conflicts of interest in connection with the Formation
Transactions (as defined below), including the fact that
officers, directors and affiliates of the Company will
receive equity interests in the Company with a value of
approximately $_____ million, based on the initial public
offering price;
- conflicts of interest involving officers and directors of the
Company in business decisions regarding the Company,
including conflicts associated with the provision of cleaning
(and related) services and security services with respect to
the Company's properties by an entity owned by the Mendik
Group and an affiliate of two other directors of the Company,
and sales and refinancings of certain of the Company's
properties;
- limitations on the ability of the Company to sell, or reduce
the amount of mortgage indebtedness on, three of the
Properties (Two Penn Plaza, 866 United Nations Plaza and
Eleven Penn Plaza) for up to 15 years following the
completion of the Offering (the "Lock-out Period"), except in
certain circumstances (the "Lock-out Provisions"), even if
any such sale or reduction in mortgage indebtedness would be
in the best interests of the Company's stockholders, and the
likelihood that future property acquisitions in which the
Company uses partnership interests as consideration will
include comparable limitations;
- the anti-takeover effect of limiting actual or constructive
ownership of Common Stock to 8.5% of the number of such
outstanding shares, subject to certain exceptions, and of
certain other provisions contained in the organizational
documents of the Company and the Operating Partnership, which
could have the effect of delaying, deferring or preventing a
transaction or change in control of the Company that might
involve a premium price for the Common Stock or otherwise
would be in the best interests of the Company's stockholders;
- risks associated with real estate investments, such as the
need to renew leases or relet space upon lease expirations
(including two significant blocks of space in the Company's
portfolio which recently have become available) and to pay
renovation and re-leasing costs in connection therewith, the
effect of economic and other conditions on office property
cash flows and values, the ability of tenants to make lease
payments, the ability of a property to generate revenue
sufficient to meet operating expenses, (including future debt
service), the illiquidity of real estate investments and the
possibility that acquired properties fail to perform as
expected;
- taxation of the Company as a corporation if it fails to
qualify as a REIT for Federal income tax purposes, and the
Company's liability for certain Federal, state and local
income taxes in such event and the resulting decrease in cash
available for distribution; and
- risks associated with borrowing, such as the inability to
refinance outstanding indebtedness upon maturity or refinance
such indebtedness on favorable terms.
3
<PAGE>
BUSINESS AND GROWTH STRATEGIES
The Company's primary business objective is to maximize stockholder
value by growing the Company's asset base, enhancing the value of its assets
and maximizing cash flow from operations. More specifically, the Company
intends to (i) acquire interests in additional office properties, primarily
in midtown Manhattan, at attractive equity returns, thereby taking advantage
of the favorable supply/demand fundamentals that currently exist in the
midtown Manhattan office market, and (ii) continue to provide tenants at its
properties with a high quality office environment in terms of building
systems, public spaces and tenant services and, in so doing, to retain
existing tenants, attract new tenants and obtain rent increases while
achieving operating cost efficiencies attributable to the size and geographic
concentration of its portfolio. In addition, the Company intends to market
aggressively and re-lease two significant blocks of space in its portfolio
which recently have become available.
ACQUISITION STRATEGY
The Company intends to expand its portfolio of properties by
acquiring additional office properties, primarily in midtown Manhattan. The
Company will continue the Mendik Group's strategy of pursuing growth by
owning, operating and acquiring office properties. The Company's experienced
management team will utilize its extensive knowledge of the Manhattan office
market to identify and evaluate acquisition opportunities in light of
submarket effective rent levels, operating, renovation and redevelopment
costs, regulatory processes and other factors relevant to the acquisition of
Manhattan office properties.
In pursuing acquisition opportunities, the Company believes that it
will have certain competitive advantages, including the following:
- EXPERIENCED MANAGEMENT TEAM WITH EXTENSIVE LOCAL MARKET
KNOWLEDGE. Messrs. Mendik and Greenbaum and the other five
executive officers of the Company have been actively involved
in acquiring, owning, managing, leasing, renovating and
redeveloping Manhattan real estate for an average of over 20
years, including an average of over 17 years with the Mendik
Group.
- ACCESS TO CAPITAL. The Company believes that, as a result of
its size and status as a public company, it may have better
access to capital in the global capital markets than
generally is available to private real estate companies.
Access to substantial capital on attractive terms is crucial
to completing acquisitions in the midtown Manhattan office
market because, in general, properties are larger and
property values (on an absolute basis) are higher than in
other U.S. office markets.
- ABILITY TO EFFECT UNIT TRANSACTIONS. The Company believes
that its status as a publicly traded REIT conducting business
through a partnership (an "UPREIT") will enhance its ability
to acquire office properties by providing the Company with
the ability to structure transactions using partnership
interests as consideration in order to provide sellers with
increased liquidity and diversification, while affording
sellers deferral of income taxes that otherwise might be due
as a result of a cash sale.
4
<PAGE>
OPERATING STRATEGIES
The Company believes that the Mendik Group's commitment to and
reputation for providing a high-quality office environment in terms of
building systems, public spaces and tenant services have encouraged tenants
to renew their leases, attracted new tenants to its properties and supported
competitive rent levels. The Company intends to provide a high-quality office
environment to its tenants by continuing the following operating strategies:
- MARKETING AND LEASING. The Company intends to utilize its
market position and relationships with a broad array of
brokers and tenants to continue its proactive marketing and
leasing programs. Where appropriate, the Company intends to
continue to renew leases early and otherwise aggressively
manage the tenant base of its properties by seeking, for
example, to buy out or take back existing leases at opportune
times, relocate tenants to create large blocks of space and
otherwise coordinate and plan appropriate timing of lease
expirations. Taking into account leases renewed prior to
expiration as well as other leasing transactions, the Mendik
Group has re-leased approximately 50% of the space at the
Properties since 1993, with an average lease term of
approximately 11 years.
- CAPITAL IMPROVEMENTS IN BUILDING SYSTEMS AND PUBLIC SPACES.
The Mendik Group has committed considerable resources to
maintaining and upgrading the appearance, operations and
mechanical systems of its properties. Pursuant to a recently
completed renovation program which began in 1988,
approximately $79 million was expended at the Properties
(excluding the redevelopment costs associated with one
Property) for building improvements and equipment upgrades
(excluding the costs of tenant improvements). As a result of
this extensive renovation program, the Company believes that
the Properties are technologically advanced and well
positioned to compete with other Class A office properties in
their submarkets. The Company similarly will commit
resources to any newly acquired properties if necessary to
reposition such properties as first class buildings.
- TENANT SERVICES. The Company will continue the Mendik
Group's approach to identifying and responding quickly to
tenant requirements. The Company will establish personal
contacts with its tenants and maintain a program of regular
tenant visits. In addition, the Company will continue the
Mendik Group's approach of rotating its building managers
through each of its properties in order to encourage a
critical review of each property's facilities and tenant
services.
- IN-HOUSE PROPERTY SERVICES CAPABILITIES. The Company will
provide a high-quality office environment to tenants and, as
a result of the size and geographic concentration of its
portfolio, expects to achieve operating cost efficiencies
through its ability to maintain substantial in-house
expertise. The Company will employ an experienced staff with
extensive property management experience and specific
knowledge of a wide variety of Manhattan leasing and
marketing practices, office building systems and equipment,
and financing, accounting and computer systems.
THE PROPERTIES
Upon completion of the Offering, the Company will own interests in
seven office properties located in midtown Manhattan which contain
approximately 5.5 million rentable square feet. Cushman & Wakefield has
classified each of the Properties as Class A, which it defines as buildings
which meet three or more of the following criteria: centrally located;
professionally managed and maintained; attract high-quality tenants and
command upper-tier rental rates; and are modern structures or have been
modernized to successfully compete with newer buildings.
5
<PAGE>
The following table sets forth certain information with respect to
the Properties as of September 30, 1996:
<TABLE>
<CAPTION>
ANNUAL
TOTAL ESCALATED
RENTABLE RENT PER
OWNERSHIP SQUARE PERCENT LEASED SQUARE
PROPERTY INTEREST FEET (1) LEASED (1)(2) FOOT (1)(2)
- -------- --------- -------- ------------- ---------------
<S> <C> <C> <C> <C>
Two Penn Plaza 100.0% 1,478,592 67.2% (3) $28.02 (3)
1740 Broadway (The MONY Building) 100.0 551,301 100.0 32.74
866 United Nations Plaza 100.0 384,815 97.5 31.35
Eleven Penn Plaza 47.7 961,375 95.1 27.53
Two Park Avenue 40.0 946,697 97.1 23.53
330 Madison Avenue 24.8 770,828 96.3 34.43
570 Lexington Avenue 5.6 433,342 33.5 (4) 29.38 (4)
--------- ----- -----
TOTAL PORTFOLIO /WEIGHTED AVERAGE 5,526,950 88.2% (3)(5) $28.92 (3)(5)
--------- ----- -----
--------- ----- -----
</TABLE>
(1) Includes, in the aggregate, 158,516 square feet of retail space and
151,439 square feet of basement and storage space. Also includes 42,674
square feet of underground parking garage space at 866 United
Nations Plaza.
(2) Includes space for leases that were in effect as of September 30, 1996.
(3) After giving effect to the expiration of a 430,000 square foot lease that
expired on October 31, 1996. See "The Properties -- Two Penn Plaza."
(4) 570 Lexington Avenue was acquired in 1994 with substantially all of the
building unoccupied at that time. The building has been substantially
renovated and currently is being leased.
(5) Excludes 570 Lexington Avenue.
Of the seven Properties, three were constructed in the 1960s, one
was constructed in the 1950s, one was constructed in the 1930s and two were
constructed in the 1920s. In 1988, the Mendik Group initiated an extensive
renovation program in order to retain tenants and assure the continued
competitiveness of its properties. Approximately $79 million was expended at
the Properties (excluding the redevelopment costs associated with 570
Lexington Avenue) for building improvements and equipment upgrades (excluding
the costs of tenant improvements). As a result of this recently completed
renovation program, the Company believes that the Properties are
technologically advanced and well positioned to compete with other Class A
office properties in their respective submarkets. For each of 1997 and 1998,
the projected cost of building improvements and equipment upgrades at the
Properties (excluding the costs of tenant improvements) is approximately
$690,000 (or $0.20 per square foot, based on the Company's pro rata share of
the rentable square feet at the Properties).
STRUCTURE AND FORMATION OF THE COMPANY
STRUCTURE OF THE COMPANY
The Company will be the sole general partner of The Mendik Company,
L.P., a Delaware limited partnership (the "Operating Partnership"). The
Company will conduct substantially all of its business, and will hold all of
its interests in the Properties, through the Operating Partnership. As the
sole general partner of the Operating Partnership, the Company will have
exclusive power to manage and conduct the business of the Operating
Partnership, subject to certain exceptions (including the Lock-out
Provisions). See "Partnership Agreement."
The following diagram depicts the ownership structure of the
Company and the Operating Partnership upon completion of the Offering and
the Formation Transactions (as defined below):
6
<PAGE>
[DIAGRAM REGARDING OWNERSHIP STRUCTURE OF COMPANY]
7
<PAGE>
FORMATION TRANSACTIONS
Certain transactions will be completed concurrently with the
completion of the Offering. These transactions (the "Formation
Transactions") include the following:
- Certain participants in the Formation Transactions (including
the Mendik Group) will contribute direct or indirect interests
in certain of the Properties to the Company in exchange for
units of partnership interest in the Operating Partnership
("Units") and shares of Common Stock.
- The Company will acquire for cash from certain participants in
the Formation Transactions the remaining direct or indirect
interests being acquired by the Company in certain of the
Properties.
- The Mendik Group will transfer (i) its management and leasing
business with respect to Properties in which the Company will
have a 100% interest to a partnership in which the Company
will own substantially all of the economic interest (the
"Management Partnership"), and (ii) its management and leasing
business with respect to properties in which the Company will
have a partial ownership interest or no ownership interest to
a corporation in which the Company will own substantially all
of the economic interest (the "Management Corporation").
- FWM II, L.P., an affiliate of RMB Realty, Inc., a Texas
corporation ("RMB Realty"), in which two directors of the
Company have a financial interest, will purchase 954,545
shares of Common Stock in a concurrent private placement at
the initial public offering price (the "Concurrent Placement").
- The Company will use approximately $91 million of the net
proceeds of the Offering and the Concurrent Placement to repay
certain mortgage indebtedness secured by two of the Properties.
- The Company will refinance with its existing lenders
approximately $113 million of indebtedness secured by two of
the Properties.
- The Company expects to obtain a line of credit (the "Line of
Credit") which will be used to facilitate acquisitions of
properties and for working capital purposes.
BENEFITS TO RELATED PARTIES
The Mendik Group and FW/Mendik REIT, L.L.C., a Delaware limited
liability company in which Messrs. Mendik and Greenbaum and two additional
members of the Company's board of directors have an indirect financial
interest ("Mendik/FW LLC"), will realize certain benefits as a result of the
Offering and the Formation Transactions, including the following: -
- Members of the Mendik Group will receive Units and shares of
Common Stock in consideration for their interests in the
Properties and the Mendik Group's management and leasing
business with a total value of approximately $_____ million,
based on the initial public offering price.
- Mendik/FW LLC owns an interest in the Operating Partnership
that will initially have a value of approximately $____
million, based on the initial public offering price.
8
<PAGE>
- Messrs. Mendik and Greenbaum will enter into employment
agreements with the Company. See "Management -- Employment
Agreements." In addition, the Company will grant to Messrs.
Mendik and Greenbaum and other executive officers of the
Company options to purchase an aggregate of 700,000 shares of
Common Stock at the initial public offering price under the
Company's stock option plan, subject to certain vesting
requirements. See "Management."
- Pursuant to the Lock-out Provisions, the Company will be
restricted in its ability to sell, or reduce the amount of
mortgage indebtedness on, three of the Properties (Two Penn
Plaza, 866 United Nations Plaza and Eleven Penn Plaza) for up
to 15 years following the completion of the Offering, which
could enable certain participants in the Formation
Transactions (including the Mendik Group) to defer certain tax
consequences associated with the Formation Transactions.
Additional information concerning benefits to executive officers,
directors and significant stockholders of the Company is set forth under
"Formation Transactions" and "Certain Relationships and Transactions."
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered by the Company 10,000,000 shares
U.S. Offering . . . . . . . . . 8,500,000 shares
International Offering. . . . . 1,500,000 shares
Common Stock Outstanding
After the Offering. . . . . . . 11,294,318 shares
Common Stock and Units Outstanding
After the Offering. . . . . . . 17,700,000 shares (1)
Use of Proceeds . . . . . . . . . . Prepayment of mortgage indebtedness and
certain expenses related thereto; acquisition
of interests in certain of the Properties;
establishment of an initial reserve for
leasing costs, capital expenditures and
working capital needs; and payment of certain
expenses incurred in connection with the
Offering and the Formation Transactions.
</TABLE>
- ---------------------
(1) Includes 6,405,682 Units expected to be issued in connection with
the Formation Transactions that may be exchanged for cash or,
at the option of the Company, shares of Common Stock on a
one-for-one basis generally commencing two years after completion of
the Offering. Excludes 935,000 shares reserved for issuance upon
the exercise of options to be granted pursuant to the option
plans concurrently with the Offering.
DISTRIBUTIONS
The Company intends to make regular quarterly distributions to its
stockholders. The initial distribution, covering a partial quarter
commencing on the date of the closing of the Offering and ending on March 31,
1997, is expected to be $_____ per share, which represents a pro rata
distribution based upon a full quarterly distribution of $_____ per share and
an annual distribution
9
<PAGE>
of $_____ per share (or an annual distribution rate of _____%, based on the
initial public offering price). See "Distributions."
The Company intends to cause the Operating Partnership initially to
distribute annually approximately ___% of estimated cash available for
distribution. The Company's estimate of the cash available for distribution
after the Offering is based upon pro forma Funds from Operations (as defined
below) for the 12 months ending September 30, 1997, with certain adjustments
as described in "Distributions." The Company intends to maintain its initial
distribution rate for the 12-month period following the completion of the
Offering unless actual results of operations, economic conditions or other
factors differ materially from the assumptions used in its estimate.
Distributions by the Company will be determined by the Board of Directors and
will be dependent upon a number of factors. The Company believes that its
estimate of cash available for distribution is reasonable; however, no
assurance can be given that the estimate will prove accurate, and actual
distributions may therefore be significantly different from the expected
distributions. See "Distributions." The Company does not intend to reduce
the expected distribution per share if the Underwriters' overallotment option
is exercised.
TAX STATUS OF THE COMPANY
The Company intends to elect to be taxed as a REIT under Sections
856 through 860 of the Internal Revenue Code of 1986, as amended (the
"Code"), commencing with its taxable year ending December 31, 1997, and
believes its organization and proposed method of operation will enable it to
meet the requirements for qualification as a REIT. To maintain REIT status,
an entity must meet a number of organizational and operational requirements.
In addition, in order to maintain its qualification as a REIT under the Code,
the Company generally will be required each year to distribute at least 95%
of its net taxable income. As a REIT, the Company generally will not be
subject to Federal income tax on net income it distributes currently to its
stockholders. If the Company fails to qualify as a REIT in any taxable year,
it will be subject to Federal income tax at regular corporate rates. See
"Federal Income Tax Consequences -- Taxation of the Company -- Failure to
Qualify" and "Risk Factors -- Tax Risks -- Failure to Qualify as a REIT."
Even if the Company qualifies for taxation as a REIT, the Company may be
subject to certain Federal, state and local taxes on its income and property.
SUMMARY SELECTED FINANCIAL INFORMATION
The following table sets forth summary selected financial and
operating information on a pro forma basis for the Company, and on a
historical combined basis for the Mendik Predecessors (as defined below), and
should be read in conjunction with all of the financial statements and notes
thereto included in this Prospectus. The combined historical balance sheet
information as of December 31, 1995 and 1994 and statements of income for the
years ended December 31, 1995 and 1994 of the Mendik Predecessors (as defined
below) have been derived from the historical combined financial statements
audited by Ernst & Young LLP, independent auditors, whose report with respect
thereto is included elsewhere in this Prospectus. The combined historical
balance sheet information as of September 30, 1996 and statements of income
for the nine months ended September 30, 1996 and 1995 have been derived from
the unaudited combined financial statements of the Mendik Predecessors. In
the opinion of the management of the Mendik Predecessors, all adjustments
considered necessary for a fair presentation of the results of the interim
periods have been included, and all adjustments are of a normal and recurring
nature. The results of operations for the interim periods ended September
30, 1996 and 1995 are not necessarily indicative of the results to be
obtained for the full fiscal year.
The "Mendik Predecessors" consists of 100% of the net assets and
results of operations of three Properties (Two Penn Plaza, 1740 Broadway and
866 United Nations Plaza), equity interests in four other Properties (Eleven
Penn Plaza, Two Park Avenue, 330 Madison Avenue and
10
<PAGE>
570 Lexington Avenue), which interests are accounted for under the equity
method, and 100% of the net assets and results of operations of the
affiliated entities which conduct the management and leasing business of the
Mendik Group.
The unaudited pro forma financial and operating information for the
Company as of and for the nine months ended September 30, 1996 and for the
year ended December 31, 1995 assumes completion of the Offering and the
Formation Transactions as of the beginning of the periods presented for the
operating data and as of the stated date for the balance sheet data.
THE COMPANY (PRO FORMA) AND THE MENDIK PREDECESSORS (HISTORICAL)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31,
--------------------------------- --------------------------------
PRO FORMA HISTORICAL PRO FORMA HISTORICAL
--------- ------------------ --------- -------------------
1996 1996 1995 1995 1995 1994
------- ------- ------ ------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues
Rental revenue $ 52,820 $ 51,706 $48,859 $66,004 $65,050 $65,176
Escalation and reimbursement
revenues . . . . 8,252 8,252 8,688 11,668 11,668 11,331
Management revenues -- 3,013 3,968 -- 5,671 5,061
Other . . . . . . 5,048 3,847 3,758 9,578 7,029 4,759
------- ------- ------ ------ ------ ------
Total revenues. . 66,120 66,818 65,273 87,250 89,418 86,327
------- ------- ------ ------ ------ ------
Expenses
Operating expenses 27,519 27,452 27,609 36,563 36,462 36,280
Interest. . . . . 5,933 11,782 12,167 7,910 16,247 16,121
Depreciation and amortization 5,919 8,356 8,418 7,992 11,305 10,788
Marketing, general and
administrative . 1,152 4,209 4,665 2,093 6,485 6,350
------- ------- ------ ------ ------ ------
Total expenses. . 40,523 51,799 52,859 54,558 70,499 69,539
------- ------- ------ ------ ------ ------
Income before minority interest $ 25,597 $15,019 $12,414 $32,692 $18,919 $16,788
------- ------- ------ ------ ------ ------
------- ------- ------ ------ ------ ------
Net income per share $1.45 $1.85
BALANCE SHEET DATA:
Real estate, before
accumulated depreciation $226,589 $265,443 -- -- $261,515 $253,678
Total assets 224,802 280,794 -- -- 263,708 266,152
Mortgages payable . . . . . 113,000 208,879 -- -- 208,829 208,891
Minority interest . . . . . 30,979 N/A N/A -- N/A N/A
Owners' equity. . . . . . . 54,621 45,031 -- -- 34,617 32,364
OTHER DATA:
Funds from Operations (1) $35,770 $ 27,142 $24,845 $46,945 $35,931 $32,453
Net cash provided by (used in)
operating activities -- 8,914 20,271 -- 24,296 23,600
Net cash provided by (used in)
investing activities -- (2,237) (18,818) -- (9,017) (7,781)
Net cash provided by (used in)
financing activities -- (4,395) (10,331) -- (17,700) (15,161)
</TABLE>
- ------------------
(1) The Company generally considers Funds from Operations an
appropriate measure of liquidity of an equity REIT because
industry analysts have accepted it as a performance measure of
equity REITs. "Funds from Operations" as defined by the
National Association of Real Estate Investment Trusts
("NAREIT") means net income (computed in accordance with
generally accepted accounting principles ("GAAP")) excluding
gains (or losses) from debt restructuring and sales of
property, plus depreciation and amortization on real estate
assets, and after adjustments for unconsolidated partnerships
and joint ventures. The Company's Funds from Operations are
not comparable to Funds from Operations reported by other
REITs that do not define the term using the current NAREIT
definition. The Company believes that in order to facilitate
a clear understanding of the combined historical operating
results of the Mendik Predecessors and the Company, Funds from
Operations should be examined in conjunction with net income
as presented in the audited combined financial statements and
information included elsewhere in this Prospectus. Funds from
Operations does not represent cash generated from operating
activities in accordance with GAAP and 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 or ability to make distributions.
11
<PAGE>
RISK FACTORS
An investment in the Common Stock involves various risks.
Prospective investors should carefully consider the following information in
conjunction with the other information contained in this Prospectus before
making a decision to purchase Common Stock in the Offering.
GEOGRAPHIC CONCENTRATION IN MIDTOWN MANHATTAN
All of the Properties are located in midtown Manhattan. In
addition, the Company initially intends to concentrate its future
acquisitions primarily in the midtown Manhattan office market. Like other
office markets, the Manhattan office market has experienced economic
downturns in the past, and future declines in the New York metropolitan
economy or the Manhattan office market could adversely affect the Company's
financial performance. The Company's financial performance and its ability
to make distributions to stockholders are therefore dependent on conditions
in the New York metropolitan economy and the Manhattan office market. The
Company's revenue and the value of its properties may be affected by a number
of factors, including the economic climate in metropolitan New York (which
may be adversely impacted by business layoffs or downsizing, industry
slowdowns, relocations of businesses, changing demographics, increased
telecommuting, infrastructure quality, New York State and City budgetary
constraints and priorities and other factors) and conditions in the Manhattan
office market (such as oversupply of or reduced demand for office space).
There can be no assurance as to the continued growth of the New York
metropolitan economy, the continued strength of the Manhattan office market
or the future growth rate of the Company.
NON-CONTROLLING INTEREST IN CERTAIN PROPERTIES
The Company expects that it will, immediately after the completion
of the Formation Transactions, own non-controlling interests in the
partnerships that own Eleven Penn Plaza, Two Park Avenue, 330 Madison Avenue
and 570 Lexington Avenue. As a result, the Company will not have the ability
to control certain decisions with regard to property-level transactions with
respect to these Properties (including decisions regarding management, sale,
refinancing and the timing and amount of distributions), other than the
ability, in certain of the Properties, to veto participation by these
Properties in certain types of major transactions. In addition, the Company
will be subject to certain "buy-sell" rights, rights of first refusal,
consent rights and/or forced sale rights contained in the partnership
agreement of each of these Property-owning partnerships, as well as
contractual provisions of any financing or other agreements. See "The
Properties -- Eleven Penn Plaza," "-- Two Park Avenue," "-- 330 Madison
Avenue" and "--570 Lexington Avenue."
NO ASSURANCE OF FAIR PRICE FOR COMPANY'S ASSETS
The amount of consideration in the Company received by the Mendik
Group and certain related parties in the Formation Transactions was not
determined as a result of arm's length negotiations with such persons or with
purchasers in the Offering. The amount of cash payments to be made by the
Company to acquire interests in the Properties was determined by the Mendik
Group, and the Mendik Group will receive substantial economic benefits as a
result of the consummation of the Formation Transactions and the Offering.
See "Structure and Formation of the Company -- Benefits to Related Parties."
The valuation of the Company has not been determined by a valuation of its
assets, but instead has been determined based upon a capitalization of the
Company's pro forma adjusted Funds from Operations, estimated cash available
for distribution and potential for growth, and the other factors discussed
under "Underwriting." Therefore, there can be no assurance that the price
paid by the Company for its interests in the Properties and for its other
assets will not exceed the fair market value of such assets, and it is
12
<PAGE>
possible that the market value of the Common Stock may exceed its
proportionate share of the aggregate fair market value of such assets.
CONFLICTS OF INTEREST IN THE FORMATION TRANSACTIONS AND THE BUSINESS OF THE
COMPANY
SUBSTANTIAL BENEFITS TO RELATED PARTIES. The Mendik Group
(including Messrs. Mendik and Greenbaum, who are owners of Mendik Realty and
senior executive officers of the Company) and Mendik/FW LLC (of which the
Mendik Group is a member) will receive material benefits from the Formation
Transactions that generally will not be received by other participants in the
Formation Transactions. Because these persons were involved in structuring
the Formation Transactions, they had the ability to determine the type and
level of benefits they received. As such, these persons may have interests
that conflict with the interests of other participants in the Formation
Transactions and with the interests of persons acquiring Common Stock in the
Offering. The type and level of benefits to be received by the Mendik Group
might have been different if the Mendik Group had not participated in
structuring the Formation Transactions. These benefits include, but are not
limited to, the following: (i) receipt of Units and shares of Common Stock
(with a value of approximately $_____ million, based on the estimated initial
public offering price); (ii) receipt by the executive officers of the Company
of options to purchase an aggregate of 700,000 shares of Common Stock under
the Company's stock option plan at the estimated initial public offering
price, subject to certain vesting requirements; (iii) deferral of certain tax
consequences to members of the Mendik Group from the conveyances of their
interests in the Properties to the Company and from the Lock-out Provisions
(see "-- Lock-out Provisions" below); and (iv) entry by Messrs. Mendik and
Greenbaum into employment agreements with the Company. See "Formation
Transactions -- Benefits to Related Parties" and "Management."
FUTURE DEALINGS WITH AFFILIATES OF THE COMPANY. After the
completion of the Offering and the Formation Transactions, the Mendik Group
and an affiliate of RMB Realty will own interests in an entity which will
provide cleaning (and related) services to office properties, including the
Company's properties. In addition, the Mendik Group will provide security
services to office properties, including the Company's properties. Although
the Company believes that the terms and conditions of the contracts pursuant
to which these services will be provided, taken as a whole, will not be less
favorable to the Company than those which could have been obtained from a
third party providing comparable services, such contracts will not be the
result of arm's length negotiations and, therefore, there can be no assurance
to this effect. The Company has adopted certain policies relating to
conflicts of interest. These policies include a bylaw provision requiring
all transactions in which executive officers or directors have a conflicting
interest to that of the Company to be approved by a majority of the
disinterested directors or by the holders of a majority of the shares of
Common Stock held by disinterested stockholders. There can be no assurance,
however, that the Company's policies will be successful in eliminating the
influence of such conflicts, and if they are not successful, decisions could
be made that might fail to reflect fully the interests of all stockholders.
See "Policies with Respect to Certain Activities -- Conflict of Interest
Policies."
OUTSIDE INTERESTS OF OFFICERS AND DIRECTORS. Certain officers and
directors of the Company will continue to own direct and indirect interests
in office properties and other real estate assets, and certain property
services businesses, including businesses which provide cleaning (and
related) services, security services and facilities management services,
which interests may give rise to certain conflicts of interest concerning the
fulfillment of their responsibilities as officers and directors of the
Company. See "The Properties -- Assets Not Being Transferred to the Company."
For a discussion of the role of the Company's disinterested directors and the
Company's policies and agreements designed to minimize any adverse effects
from these conflicts of interest, see "Policies with Respect to Certain
Activities -- Conflict of Interest Policies."
13
<PAGE>
LEASING SERVICES PROVIDED TO OTHER PROPERTIES. After the
completion of the Offering and the Formation Transactions, the Management
Corporation (which will be controlled by the Mendik Group and not by the
Company) will provide management and leasing services to properties in which
the Company owns less than a 100% interest as well as to other office
properties (including several properties in which the Mendik Group has an
interest but in which the Company will not acquire an interest in the
Formation Transactions). Certain conflicts of interest may result from the
Management Corporation's providing leasing services both to properties in
which the Company has an interest and other properties in which the Mendik
Group has an interest.
TAX CONSEQUENCES UPON THE SALE, REDUCTION IN MORTGAGE INDEBTEDNESS
ON OR ACQUISITION OF PROPERTIES. Certain holders of Units may experience
different and more adverse tax consequences compared to those experienced by
holders of shares of Common Stock or other holders of Units upon the sale of,
or reduction of mortgage indebtedness on, any of the Company's properties, or
upon the acquisition by the Company of any additional properties. Therefore,
such holders, including the Mendik Group and the Company, may have different
objectives regarding the appropriate pricing and timing of any sale of, or
reduction of mortgage indebtedness on, the Company's properties, and
regarding the appropriate characteristics of additional properties to be
considered for acquisition. Certain members of the Board of Directors of the
Company initially will be holders of Units, and their status as holders of
Units may influence the Company not to sell particular properties, or not to
pay down mortgage indebtedness on particular properties, even though such
sales or debt paydowns might otherwise be financially advantageous to the
Company and its stockholders. Such status also may influence the Company not
to acquire properties which do not have significant mortgage indebtedness
(which may affect the type of potential acquisition properties that the
Company pursues and may affect the level of the Company's leverage). See "--
The Lock-out Provisions."
RISK OF LESS VIGOROUS ENFORCEMENT OF TERMS OF CONTRIBUTION AND
OTHER AGREEMENTS. The Mendik Group has ownership interests in the Properties
and in the other assets to be acquired by the Company. Following the
completion of the Offering and the Formation Transactions, the Company, under
the agreements relating to the contribution of such interests, will be
entitled to indemnification and damages in the event of breaches of
representations or warranties made by the contributors of such interests
(including the Mendik Group). In addition, Messrs. Mendik and Greenbaum will
enter into employment and noncompetition agreements with the Company pursuant
to which they have agreed, among other things, not to engage in certain
business activities in competition with the Company. See "Management --
Employment Agreements." To the extent that the Company chooses to enforce
its rights under any of these contribution, employment and noncompetition
agreements, it may determine to pursue available remedies, such as actions
for damages or injunctive relief, less vigorously than it otherwise might
because of its desire to maintain its ongoing relationship with the
individual involved.
THE LOCK-OUT PROVISIONS
Pursuant to the Lock-out Provisions, the Company may not sell
(except in certain events, including certain transactions that would not
result in the recognition of any gain for tax purposes) or, earlier than one
year prior to its maturity, reduce the mortgage indebtedness on, Two Penn
Plaza, 866 United Nations Plaza and Eleven Penn Plaza during the Lock-out
Period without, in the case of each such Property, the consent of holders of
75% of the Units originally issued to limited partners in the Operating
Partnership who immediately prior to completion of the Formation Transactions
owned direct or indirect interests in such Property that remain outstanding
at the time of such vote (other than Units held by the Company). (This vote
requirement does not apply to a sale of all or substantially all of the
assets of the Operating Partnership, but such a transaction during the
Lock-out Period generally would require the approval of the holders, as a
group, of 75% of the aggregate Units originally issued with respect to Two
Penn Plaza, 866 United Nations Plaza
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and Eleven Penn Plaza that remain outstanding (excluding Units held by the
Company) unless the transaction would not result in the recognition of any
gain for tax purposes with respect to such Units and certain other conditions
are satisfied.) In addition, during the Lock-out Period, the Company is
obligated to use commercially reasonable efforts, commencing one year prior
to the stated maturity, to refinance at maturity (on a basis that is
nonrecourse to the Operating Partnership and the Company, with the least
principal amortization as is available on commercially reasonable terms) the
mortgage indebtedness secured by each of these three Properties at not less
than the principal amount outstanding on the maturity date. Finally, during
the Lock-out Period, the Company may not incur debt secured by any of these
three Properties if the amount of the new debt would exceed the greater of
75% of the value of the Property securing the debt or the amount of existing
debt being refinanced (plus costs associated therewith). Thus, the Lock-out
Provisions materially restrict the Company from selling or otherwise
disposing of or refinancing Two Penn Plaza, 866 United Nations Plaza and
Eleven Penn Plaza without obtaining such consents. The Lock-out Provisions
apply even if it would otherwise be in the best interests of the stockholders
for the Company to sell one or more of these three Properties, reduce the
outstanding indebtedness with respect to any of these Properties or not
refinance such indebtedness on a nonrecourse basis at maturity, or increase
the amount of indebtedness with respect to these three Properties.
The Lock-out Provisions may impair the ability of the Company to
take actions during the Lock-out Period that would otherwise be in the best
interests of the Company's stockholders and, therefore, may have an adverse
impact on the value of the Common Stock (relative to the value that would
result if the Lock-out Provisions did not exist). In particular, the
Lock-out Provisions could preclude the Operating Partnership (and thus the
Company) from participating in certain major transactions that could result
in a disposition of the Operating Partnership's assets or a change in control
of the Company even though that disposition or change in control might be in
the best interests of the stockholders.
The Company also anticipates that, in connection with future
acquisitions of interests in properties in which the Company uses Units as
consideration, the Company may agree to limitations on its ability to sell,
or reduce the amount of mortgage indebtedness on, such acquired properties,
which may increase the Company's leverage. Such limitations may impair the
Company's ability to take actions that would otherwise be in the best
interests of its stockholders and, therefore, may have an adverse impact on
the value of the Common Stock (relative to the value that would result if
such limitations did not exist). Such possible future limitations, together
with the Lock-out Provisions, may restrict the ability of the Company to sell
substantially all of its assets, even if such a sale would be in the best
interests of its stockholders.
SUBSTANTIAL VACANT SPACE AT TWO PENN PLAZA
Following the expiration of the lease for approximately 430,000
square feet of space at Two Penn Plaza with The Equitable Life Assurance
Society of the United States ("Equitable") on October 31, 1996, Equitable
relocated the operations that it had conducted at Two Penn Plaza to a
building closer to its Manhattan headquarters. The available space constitutes
approximately 30% of Two Penn Plaza's total rentable square feet and
approximately 18% of the aggregate rentable square feet of the three
Properties in which the Company will have a 100% interest. The Company
anticipates that any leasing of a significant portion of this space as well
as certain other space will require expenditures for tenant improvements and
brokerage commissions and has established a reserve of approximately $30
million to cover these expenses (although the cost could exceed the amount of
such reserve). If the Company is unable to re-lease this space on a timely
basis and on favorable terms, the Company's ability to make expected
distributions to the Company's stockholders in the future could be adversely
affected.
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RELIANCE ON MAJOR TENANTS
On a pro forma basis for the twelve months ended September 30, 1996
(excluding Equitable, which departed upon expiration of its lease on October
31, 1996), two tenants (Mutual of New York and The Times Mirror Company) each
accounted for more than 5% of the Company's pro forma total annual escalated
rent, and 15 tenants collectively accounted for approximately 27% of the
Company's pro forma total annual escalated rent. See "The Properties." The
Company would be adversely affected in the event of bankruptcy or insolvency
of, or a downturn in the business of, any major tenant which resulted in a
failure or delay in such tenant's rent payments.
ACQUISITION RISKS
In the future, the Company expects to acquire additional office
properties. Acquisitions entail the risk that investments will fail to
perform in accordance with expectations, including operating and leasing
expectations. The Company anticipates that certain of its acquisitions will
be financed using the proceeds of periodic equity or debt offerings, lines of
credit or other forms of secured or unsecured financing that will result in a
risk that permanent financing for newly acquired projects might not be
available or would be available only on disadvantageous terms. If permanent
debt or equity financing is not available on acceptable terms to refinance
acquisitions undertaken without permanent financing, further acquisitions may
be curtailed or cash available for distribution may be adversely affected.
In addition, it is anticipated that acquisition risks may be heightened for
acquisitions of Manhattan office properties due to the large size of many
Manhattan office properties and the complexity of acquisition transactions in
the Manhattan office market.
COMPETITION
All of the Properties are located in highly developed areas of
midtown Manhattan that include a large number of other office properties.
Manhattan is by far the largest office market in the United States. The
number of competitive office properties in Manhattan could have a material
adverse effect on the Company's ability to lease office space at its
properties, and on the effective rents the Company is able to charge. These
competing properties may be newer or better located. In addition, the
Company may compete with other property owners that have greater resources
than the Company. In particular, although currently no other publicly traded
REITs have been formed primarily to own, operate and acquire Manhattan office
properties, the Company may in the future compete with such other REITs. In
addition, the Company may face competition from other real estate companies
(including other REITs that invest in markets other than Manhattan) that have
greater financial resources than the Company or that are willing to acquire
properties in transactions which are more highly leveraged than the Company
is willing to undertake. The Company also will face competition from other
real estate companies that provide management, leasing and other services
similar to those to be provided by the Management Corporation.
RISKS OF PROPERTY MANAGEMENT BUSINESS
On a pro forma basis for each of the year ended December 31, 1995
and the nine months ended September 30, 1996, approximately 2.4% of the
Company's income before minority interest was provided by the management and
leasing business that will be conducted by the Management Corporation. (See
"Structure and Formation of the Company -- The Operating Entities of the
Company -- The Management Corporation" for a description of the Company's
management and leasing business.) Accordingly, the Company will be subject
to the risks associated with this business. These risks include the risk
that management and leasing contracts with third party property owners will
not be renewed upon expiration (or will be canceled pursuant to cancellation
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options) or will not be renewed on terms at least as favorable to the Company
as current terms, that the rental revenues upon which management and leasing
fees are based will decline as a result of general real estate market
conditions or specific market factors affecting properties serviced by the
Company, and that leasing activity generally will decline. Each of these
developments could adversely affect the revenues of the Management
Corporation and could adversely affect the ability of the Company to make
expected distributions to its stockholders.
In order to maintain its qualification as a REIT, the Company will
not have voting control over the Management Corporation. It currently is
anticipated that the Mendik Group will own 100% of the voting common stock of
the Management Corporation. As a result, the Company will not have the
ability to elect or remove any members of the board of directors of the
Management Corporation, and, therefore, its ability to influence the
day-to-day decisions of the Management Corporation will be limited. As a
result, the board of directors or management of the Management Corporation
may implement business policies or decisions that might not have been
implemented by persons elected by the Company and that are adverse to the
interests of the Company or that lead to adverse financial results, which
could adversely affect the ability of the Company to make expected
distributions to the Company's stockholders.
REAL ESTATE INVESTMENT RISKS
REAL ESTATE OWNERSHIP RISKS. Real estate investments are subject
to varying degrees of risk. The yields available from equity investments in
real estate and the Company's ability to service debt depend in large part on
the amount of income generated, expenses incurred and capital expenditures
required. The Company's income and ability to make distributions to its
stockholders is dependent upon the ability of its properties to generate
income in excess of its requirements to meet operating expenses, including
debt service and capital expenditures. The Company's income from office
properties and the value of its properties may be adversely affected by a
number of factors, including national, state and local economic climates and
real estate conditions (such as an oversupply of or a reduction in demand for
office space in the area; the perceptions of tenants and prospective tenants
of the safety, convenience and attractiveness of the Company's properties;
the Company's ability to provide adequate management, maintenance and
insurance; the quality, philosophy and performance of the Company's
management; competition from comparable properties; the ability to collect on
a timely basis all rent from tenants; the effects of any bankruptcies of
major tenants; the expense of periodically renovating, repairing and
re-leasing spaces (including, without limitation, substantial tenant
improvement costs and leasing costs of re-leasing office space); and
increasing operating costs (including increased real estate taxes) which may
not be passed through fully to tenants). In addition, income from properties
and real estate values also are affected by such factors as the cost of
compliance with laws, including zoning and tax laws, the potential for
liability under applicable laws, interest rate levels and the availability of
financing. Certain significant expenditures associated with equity
investments in real estate (such as mortgage payments, real estate taxes,
insurance and maintenance costs) also may not be reduced if circumstances
cause a reduction in income from a property. If any of the above occurred,
the Company's ability to make expected distributions to its stockholders
could be adversely affected.
TENANT DEFAULTS AND BANKRUPTCY. Substantially all of the Company's
income will be derived from rental income on the Properties and,
consequently, the Company's distributable cash flow and ability to make
expected distributions to stockholders would be adversely affected if a
significant number of tenants at the Properties failed to meet their lease
obligations. If a tenant at the Properties seeks the protection of the
bankruptcy laws, such an action could result in delays in rental payments or
in the rejection and termination of such tenant's lease, thereby causing a
reduction in the Company's cash flow and, possibly, the amounts available for
distribution to stockholders. No assurance can be given that tenants will
not file for bankruptcy protection in the future, or if any tenants file,
that they will affirm their leases and continue to make rental
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payments in a timely manner. In addition, a tenant from time to time may
experience a downturn in its business which may weaken its financial
condition and result in the failure to make rental payments when due. If
tenant leases are not affirmed following bankruptcy or if a tenant's
financial condition weakens, the Company's cash flow and ability to make
expected distributions to its stockholders could be adversely affected.
RISKS OF LEASE RENEWAL AND RE-LEASING OF SPACE. The Company will
be subject to the risk that upon expiration of leases for space located in
the Properties, the leases may not be renewed, the space may not be relet or
the terms of renewal or reletting (including the cost of required
renovations) may be less favorable than current lease terms. In particular,
two significant blocks of space in the Company's portfolio recently have
become available. See "The Properties -- Two Penn Plaza" and " -- Eleven
Penn Plaza." Although the Company has established an initial reserve for
re-leasing expenses with respect to one of these two blocks of space as well
as certain other space, which takes into consideration the Company's views of
both the current and expected business conditions in the appropriate markets,
no assurance can be given that this reserve will be sufficient to cover such
expenses or that the Company will have sufficient resources to cover the cost
of re-leasing space at the Properties.
In addition, leases on a total of approximately 5.9% and 9.5% of
the total net rentable square feet in the Properties will expire in 1997 and
in 1998, respectively. If the Company were unable promptly to re-lease or
renew the leases for all or a substantial portion of this space, if the
rental rates upon such renewal or re-leasing were significantly lower than
expected rates or if its reserves for these purposes proved inadequate, then
the Company's cash flow and ability to make expected distributions to
stockholders could be adversely affected.
DEBT FINANCING. The Company is subject to the risks normally
associated with debt financing, including the risk that the Company will
generate insufficient funds to meet required payments of principal and
interest, the risk of violating loan covenants, the risk of rising interest
rates on the Company's floating rate debt and the risk that the Company will
not be able to repay or refinance existing indebtedness on the Properties at
maturity (which generally will not have been fully amortized at maturity) or
that the terms of such refinancing will not be as favorable as the terms of
existing indebtedness. Because the Company currently anticipates that no
significant portion of the principal of such indebtedness will be amortized
prior to maturity and the Company does not expect to have sufficient funds on
hand to repay all of such indebtedness at maturity, and because the Company
is obligated under the Lock-out Provisions to use its commercially reasonable
efforts during the Lock-out Period to refinance (on a nonrecourse basis) at
maturity the mortgage indebtedness on three of the Properties (Two Penn
Plaza, 866 United Nations Plaza and Eleven Penn Plaza) at not less than the
principal amount outstanding, it likely will be necessary for the Company to
refinance such mortgage indebtedness either through additional debt
financings secured by individual properties or groups of properties or, in
the case of debt with respect to Properties not subject to the Lock-out
Provisions, by unsecured private or public debt offerings or by additional
equity offerings. If prevailing interest rates or other factors at the time
of refinancing result in higher interest rates on refinancings, the Company's
interest expense would increase, which would adversely affect the Company's
cash flow from operations and the Company's ability to make expected
distributions to its stockholders. If the Company were unable to secure
refinancing of such indebtedness on acceptable terms, the Company could be
forced to dispose of properties upon disadvantageous terms, which could
result in losses to the Company and could adversely affect the cash flow
available for distribution.
If one or more properties are mortgaged to secure payment of
indebtedness and the Company is unable to generate funds to cover debt
service, the mortgage securing such properties could be foreclosed upon by,
or such properties could otherwise be transferred to, the mortgagee with a
consequent loss of income and asset value to the Company. During the
downturn in the real estate market in the late 1980s and early 1990s, certain
real estate assets (including three office
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properties in Manhattan) owned or controlled by partnerships affiliated with
the Mendik Group did not generate sufficient cash flow to service the debt
secured by such properties. As a result, the partnerships which owned or
controlled certain of these properties filed with their lenders a consensual
plan for protection under the federal bankruptcy laws or transferred their
properties to the lenders in satisfaction of the loans.
ILLIQUIDITY OF REAL ESTATE. Real estate investments are relatively
illiquid and, therefore, will tend to limit the ability of the Company to
sell and purchase properties promptly in response to changes in economic or
other conditions. In addition, the Code places limits on the Company's
ability to sell properties held for fewer than four years, and the Lock-out
Provisions impose certain special restrictions with respect to the sale of
certain of the Properties during the Lock-out Period. These considerations
could make it difficult for the Company to sell properties, even if a sale
were in the best interests of the Company's stockholders.
POSSIBLE ENVIRONMENTAL LIABILITIES
Under various Federal, state and local laws, ordinances and
regulations, a current or previous owner or operator of real estate may be
required to investigate and clean up certain hazardous substances released at
a property, and may be held liable to a governmental entity or to third
parties for property damage or personal injuries and for investigation and
clean-up costs incurred by the parties in connection with any contamination.
In addition, some environmental laws create a lien on a contaminated site in
favor of the government for damages and costs it incurs in connection with
the contamination. The presence of contamination or the failure to remediate
contamination may adversely affect the owner's ability to sell or lease real
estate or to borrow using the real estate as collateral. No assurances can
be given that (i) a prior owner, operator or occupant, such as a tenant, did
not create a material environmental condition not known to the Company or the
Mendik Group, (ii) a material environmental condition with respect to any
Property does not exist, or (iii) future uses or conditions (including,
without limitation, changes in applicable environmental laws and regulations)
will not result in the imposition of environmental liability.
The Company engaged an independent consulting firm, Law Engineering
and Environmental Services, P.C. ("Law Engineering"), to perform Phase I
environmental assessments on the Properties (with the exception of 570
Lexington Avenue, due to the Company's relatively small expected ownership
interest therein and the structure of the acquisition of such interest) in
order to assess existing environmental conditions. Under American Society of
Testing of Materials Standards, a Phase I assessment consists of a site
visit, a historical record review, interviews and a report, with the purpose
of identifying potential environmental conditions associated with real
estate. These assessments also include an evaluation of asbestos,
polychlorinated biphenyls ("PCBs"), lead paint and lead in drinking water.
These environmental assessments did not reveal any known environmental
liability that the Company believes will have a material adverse effect on
the financial condition of the Company or would represent a material
environmental cost.
The following summarizes certain environmental issues described in
Law Engineering's reports. The description is, however, a summary only and
does not include all information in the reports. Six Properties have
asbestos containing materials ("ACMs") in ceiling, roofing, caulking, and/or
floor tile or other materials. Law Engineering has advised the Company that,
except in limited circumstances, removal of ACMs from these Properties is not
necessary or advisable. The Company has programs in place to monitor ACMs at
the Properties and to abate any localized areas as necessary. In addition,
although there are no standards for lead in drinking water in commercial
office buildings, Law Engineering also tested the water supply at each
building and found lead levels in three of the buildings (Eleven Penn Plaza,
Two Park Avenue and 330 Madison Avenue) in excess of the standards for
residential properties recommended by the U.S. Environmental
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Protection Agency. The Company will continue to monitor and, if appropriate,
address the conditions raised in Law Engineering's reports and does not
believe that such conditions will have a material adverse effect on the
financial condition of the Company, as noted above.
LIMITS ON CHANGES IN CONTROL
POTENTIAL EFFECTS OF OWNERSHIP LIMITATION. For the Company to maintain
its qualification as a REIT under the Code, not more than 50% in value of the
outstanding shares of Common Stock of the Company may be owned, directly or
indirectly, by five or fewer individuals (as defined in the Code to include
certain entities) at any time during the last half of the Company's taxable
year (other than the first taxable year for which the election to be treated
as a REIT has been made).
To ensure that the Company will not fail to qualify as a REIT under this
and other tests under the Code, the Company's Articles of Incorporation, as
supplemented or amended (the "Charter"), subject to certain exceptions,
authorizes the directors to take such actions as are necessary and desirable
to preserve its qualification as a REIT and limits any person to direct or
indirect ownership of no more than (i) 8.5% (the "Ownership Limit") in number
or value of the outstanding shares of Common Stock, except for Mr. Mendik and
FWM, L.P., each of which may own initially no more than 15% of the number of
such outstanding shares or (ii) 9.8% in number or value of outstanding shares
of preferred stock of the Company, par value $.01 per share ("Preferred
Stock") of any series of Preferred Stock. The Ownership Limit will adjust
upward to a maximum of 9.8%, and the limit applicable to Mr. Mendik and FWM,
L.P. will adjust downward to a minimum of 9.8%, in proportion to any
reduction in Mr. Mendik and FWM, L.P.'s direct or indirect consolidated
percentage ownership of the Company as a result of additional issuances of
securities by the Company or the Operating Partnership or dispositions or
redemption of the Units held directly or indirectly by Mr. Mendik and FWM,
L.P. The Company's Board of Directors, upon receipt of a ruling from the
IRS, an opinion of counsel or other evidence satisfactory to the Board and
upon such other conditions as the Board may establish, may exempt a proposed
transferee from the Ownership Limit. However, the Board may not grant an
exemption from the Ownership Limit to any proposed transferee whose
ownership, direct or indirect, of shares or beneficial interest of the
Company in excess of the Ownership Limit would result in the termination of
the Company's status as a REIT. See "Capital Stock --Restrictions on
Transfer." The foregoing restrictions on transferability and ownership will
continue to apply until (i) the Company's 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, and (ii) there is an affirmative vote
of a majority of the votes entitled to be cast on such matter at a regular or
special meeting of the stockholders of the Company.
The Ownership Limit may have the effect of delaying, deferring or
preventing a transaction or a change in control of the Company that might
involve a premium price for the Common Stock or otherwise be in the best
interests of the shareholders. See "Capital Stock -- Restrictions on
Transfer."
POTENTIAL EFFECTS OF STAGGERED BOARD. The Company's Board of Directors
will be divided into three classes. The initial terms of the first, second
and third classes will expire in 1997, 1998 and 1999, respectively.
Beginning in 1997, directors of each class will be chosen for three-year
terms upon the expiration of their current terms and each year one class of
directors will be elected by the stockholders. The staggered terms for
directors may reduce the possibility of a tender offer or an attempt to
effect a change in control of the Company, even if a tender offer or a change
in control would be in the best interests of the stockholders.
POTENTIAL EFFECTS OF ISSUANCE OF ADDITIONAL SHARES. The Company's
Charter authorizes the Board of Directors to issue up to 100,000,000 shares
of capital stock and to establish
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the preferences and rights of any capital stock issued. 90,000,000 of those
shares will be classified as Common Stock and the remaining 10,000,000 shares
will be classified as Preferred Stock. See "Capital Stock." Although the
Board of Directors has no such intention to do so at the present time, it
could establish a class or series of shares of stock that could, depending on
the terms of such class or series, delay, defer or prevent a transaction or a
change in control of the Company that might involve a premium price for the
Common Stock or otherwise be in the best interests of the stockholders.
LIMITATIONS ON ACQUISITION OF AND CHANGES IN CONTROL PURSUANT TO
MARYLAND LAW. Certain provisions of the Maryland General Corporation Law
(the "MGCL") may have the effect of inhibiting a third party from making an
acquisition proposal for the Company or of impeding a change in control of
the Company under circumstances that otherwise could provide the holders of
shares of Common Stock with the opportunity to realize a premium over the
then-prevailing market price of such shares. In particular, the MGCL
provides that, unless exempted by action of the Board of Directors, certain
"business combinations" between a Maryland corporation, such as the Company,
and a stockholder holding 10% or more of the corporation's voting securities
(an "Interested Stockholder") may not occur for a period of five years after
such stockholder becomes an Interested Stockholder. Therefore, a business
combination may be impeded or prohibited, even if such a combination were in
the best interests of the Company's stockholders. The MGCL also provides
that so-called "control shares" may be voted only upon the approval of
two-thirds of the outstanding stock of the corporation exclusive of the
control shares. Control shares are shares which, if aggregated with all
other shares previously acquired by the acquiror, would entitle the acquiror
to vote certain statutorily determined percentages of outstanding shares.
Under certain circumstances, a Maryland corporation also may redeem the
control shares and, in the event the control shares are permitted to vote,
the other stockholders of the corporation are entitled to appraisal rights.
Therefore, a control share acquisition could be impeded and the attempt of
any such transaction could be discouraged, even if it were in the best
interests of the Company's stockholders. The Company has opted out of the
business combination and control share provisions of the MGCL, but the Board
of Directors may elect to adopt these provisions of the MGCL in the future.
TAX RISKS
FAILURE TO QUALIFY AS A REIT. The Company intends to operate so as
to qualify as a REIT for Federal income tax purposes. The Company expects to
qualify initially as a REIT, but no assurance can be given that it will so
qualify or be able to remain so qualified. Although the Company has only
requested a ruling from the Internal Revenue Service (the "IRS") with regard
to certain limited REIT qualification issues, the Company expects to qualify
initially as a REIT and it will receive at the closing of the Offering an
opinion of its tax counsel, Roberts & Holland LLP, that, based on certain
assumptions and representations, the Company is organized in conformity with
the requirements for qualification as a REIT under the Code, and that the
Company's proposed method of operation will enable it to meet the
requirements for qualification and taxation as a REIT. Investors should be
aware, however, that opinions of counsel are not binding on the IRS or any
court. The REIT qualification opinion only represents the view of counsel to
the Company based on counsel's review and analysis of existing law, which
includes no controlling precedent. Furthermore, both the validity of the
opinion and the qualification of the Company as a REIT will depend on the
Company's continuing ability to meet various requirements concerning, among
other things, the ownership of its outstanding stock, the nature of its
assets, the sources of its income and the amount of its distributions to its
shareholders. Because the Company has no history of operating so as to
qualify as a REIT, there can be no assurance that the Company will do so
successfully. See "Federal Income Tax Considerations --Taxation of the
Company -- Failure to Qualify."
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If the Company were to fail to qualify as a REIT for any taxable
year, the Company would not be allowed a deduction for distributions to its
stockholders in computing its taxable income and would be subject to Federal
income tax (including any applicable minimum tax) on its taxable income at
regular corporate rates. Unless entitled to relief under certain Code
provisions, the Company also would be disqualified from treatment as a REIT
for the four taxable years following the year during which qualification was
lost. As a result, cash available for distribution would be reduced for each
of the years involved. No assurance can be given, however, that new
legislation, Treasury Regulations, administrative interpretations or court
decisions will not significantly change the tax laws with respect to the
Company's qualification as a REIT or the Federal income tax consequences of
such qualification. In addition, although the Company intends to operate in
a manner designed to qualify as a REIT, it is possible that future economic,
market, legal, tax or other considerations may cause the Board of Directors,
with the consent of shareholders holding at least a majority of all of the
outstanding shares of Common Stock, to revoke the REIT election. See
"Federal Income Tax Considerations."
REIT MINIMUM DISTRIBUTION REQUIREMENTS; POSSIBLE INCURRENCE OF
ADDITIONAL DEBT. In order to qualify as a REIT, the Company generally will
be required each year to distribute to its stockholders at least 95% of its
net taxable income (excluding any net capital gain). In addition, the
Company may be subject to a nondeductible excise tax if the Company does not
meet certain distribution requirements. See "Federal Income Tax
Considerations -- Taxation of the Company -- Annual Distribution
Requirements."
The Company intends to make distributions to its stockholders to
comply with the 95% distribution requirement and to avoid the nondeductible
excise tax. The Company's income will consist primarily of its share of the
income of the Operating Partnership, and the cash available for distribution
by the Company to its stockholders will consist of its share of cash
distributions from the Operating Partnership. Differences in timing between
(i) the actual receipt of income and actual payment of deductible expenses,
and (ii) the inclusion of such income and deduction of such expenses in
arriving at taxable income of the Company, could require the Company, through
the Operating Partnership, to borrow funds on a short-term basis to meet the
95% distribution requirement and to avoid the nondeductible excise tax. The
requirement to distribute a substantial portion of the Company's net taxable
income could cause the Company to distribute amounts that otherwise would be
spent on future acquisitions, unanticipated capital expenditures or repayment
of debt, which could require the Company to borrow funds or to sell assets to
fund the costs of such items.
FAILURE OF THE OPERATING PARTNERSHIP OR PROPERTY-OWNING ENTITIES TO
BE CLASSIFIED AS PARTNERSHIPS FOR FEDERAL INCOME TAX PURPOSES; NEGATIVE
IMPACT ON REIT STATUS. Although the Company has not requested, and does not
expect to request, a ruling from the IRS that the Operating Partnership and
the Property-owning entities will be classified as partnerships for Federal
income tax purposes, the Company will receive at the closing of the Offering
an opinion of its tax counsel, Roberts & Holland LLP, stating that the
Operating Partnership and the Property-owning entities will be classified as
partnerships, and not as corporations or associations taxable as
corporations, for Federal income tax purposes. If the IRS were to challenge
successfully the tax status of the Operating Partnership (or a
Property-owning entity) as a partnership for Federal income tax purposes,
such entity would be taxable as a corporation. In such event, the Company
would cease to qualify as a REIT for a variety of reasons. Furthermore, the
imposition of a corporate income tax on the Operating Partnership (or a
Property-owning entity) would reduce significantly the amount of cash
available for distribution from the Operating Partnership to the Company and
its stockholders. See "Federal Income Tax Considerations -- Other Tax
Considerations -- Effect of Tax Status of Operating Partnership and
Property-owning Entities on REIT Qualification."
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OTHER TAX LIABILITIES. Even if the Company qualifies as a REIT, it
will be subject to certain Federal, state and local taxes on its income and
property. In particular, the Company will derive a portion of its operating
cash flow from the activities of the Management Corporation, which will be
subject to Federal, state and local income tax. See "Federal Income Tax
Considerations -- Other Tax Considerations -- Management Corporation."
OTHER RISKS OF OWNERSHIP OF COMMON STOCK
INFLUENCE OF OFFICERS, DIRECTORS AND SIGNIFICANT STOCKHOLDERS.
Upon completion of the Offering, Mendik/FW LLC, the executive officers of the
Company and two directors affiliated with FWM, L.P. collectively will
beneficially own approximately 36% of the issued and outstanding shares of
Common Stock and Units (which will be exchangeable by the holders for cash
or, at the election of the Company, shares of Common Stock on a one-for-one
basis after up to two years). See "Principal Stockholders." Messrs. Mendik,
Greenbaum, Thomas R. Delatour, Jr. and William S. Janes, all of whom have
indirect interests in Mendik/FW LLC, will serve on the initial board of
directors of the Company. In addition, Mr. Mendik will be Chairman of the
Board and Chief Executive Officer and Mr. Greenbaum will be President and
Chief Operating Officer of the Company. Accordingly, such persons will have
substantial influence on the Company, which influence may not be consistent
with the interests of other stockholders, and may in the future have a
substantial influence on the outcome of any matters submitted to the
Company's stockholders for approval if all of their Units are exchanged for
shares of Common Stock. In addition, although there is no current agreement,
understanding or arrangement for these stockholders to act together on any
matter, these stockholders would be in a position to exercise significant
influence over the affairs of the Company if they were to act together in the
future.
ABSENCE OF PRIOR PUBLIC MARKET FOR COMMON STOCK. Prior to the
Offering, there has been no public market for the Common Stock and there can
be no assurance that an active trading market will develop or be sustained or
that shares of Common Stock will be resold at or above the estimated initial
public offering price. The initial public offering price of the Common Stock
will be determined by agreement among the Company and the underwriters and
may not be indicative of the market price for the Common Stock after the
Offering. See "Structure and Formation of the Company -- Formation of the
Company" and "Underwriting."
EFFECT ON COMMON STOCK PRICE OF SHARES AVAILABLE FOR FUTURE SALE.
Sales of a substantial number of shares of Common Stock, or the perception
that such sales could occur, could adversely affect prevailing market prices
of the Common Stock. Beginning two years after the closing of the Offering
(or less in certain circumstances), holders of Units may be able to sell
shares of Common Stock received upon exercise of their redemption right in
the public market pursuant to registration or available exemptions from
registration. In addition, beginning one year after the closing of the
Offering, FWM II, L.P. may be able to sell the shares of Common Stock it is
receiving in the Concurrent Placement in the public market pursuant to
registration or available exemptions from registration. Finally, a
substantial number of shares of Common Stock will, pursuant to employee
benefit plans, be issued or reserved for issuance from time to time,
including shares of Common Stock reserved for issuance pursuant to options
issued concurrently with the completion of the Offering, and these shares of
Common Stock will be available for sale in the public market from time to
time pursuant to exemptions from registration or upon registration. No
prediction can be made about the effect that future sales of shares of Common
Stock will have on the market price of the Common Stock.
EFFECT ON COMMON STOCK PRICE OF MARKET CONDITIONS. As with other
publicly traded equity securities, the value of the Common Stock will depend
upon various market conditions, which may change from time to time. Among
the market conditions that may affect the value of the Common Stock are the
following: the extent to which a secondary market develops for the Common
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Stock following the Offering; the extent of institutional investor interest
in the Company; the general reputation of REITs and the attractiveness of
their equity securities in comparison to other equity securities (including
securities issued by other real estate-based companies); the Company's
financial performance; and general stock and bond market conditions.
Although the Offering price of the Common Stock will be determined by the
Company in consultation with the underwriters, there can be no assurance that
the Common Stock will not trade below the Offering price following the
Offering.
EFFECT ON COMMON STOCK PRICE OF EARNINGS AND CASH DISTRIBUTIONS.
It is generally believed that the market value of the equity securities of a
REIT is based primarily upon the market's perception of the REIT's growth
potential and its current and potential future cash distributions, whether
from operations, sales or refinancings, and is secondarily based upon the
value of the underlying assets. For that reason, shares of Common Stock may
trade at prices that are higher or lower than the net asset value per share
of Common Stock or per Unit. To the extent the Company retains operating
cash flow for investment purposes, working capital reserves or other
purposes, these retained funds, while increasing the value of the Company's
underlying assets, may not correspondingly increase the market price of the
Common Stock. The failure of the Company to meet the market's expectation
with regard to future earnings and cash distributions likely would adversely
affect the market price of the Common Stock. If the market price of the
Common Stock declined significantly, the Company might breach certain
covenants with respect to the Line of Credit that the Company expects to
establish (or with respect to other future debt obligations), which breach
might adversely affect the Company's liquidity and the Company's ability to
make future acquisitions.
EFFECT ON COMMON STOCK PRICE OF MARKET INTEREST RATES. One of the
factors that will influence the price of the Common Stock will be the
dividend yield on the Common Stock (as a percentage of the price of the
Common Stock) relative to market interest rates. Thus, an increase in market
interest rates may lead prospective purchasers of Common Stock to expect a
higher dividend yield, which would adversely affect the market price of the
Common Stock.
EFFECT ON COMMON STOCK PRICE OF UNRELATED EVENTS. As with other
publicly traded equity securities, the value of the Common Stock will depend
upon various market conditions, including conditions unrelated to the New
York metropolitan economy, the Manhattan office market or real estate
investments generally. Thus, events which depress equity market prices may
not have any effect on real estate market values, and shares of Common Stock
may trade at prices below the Company's net asset value.
DEPENDENCE ON EXTERNAL SOURCES OF CAPITAL. In order to qualify as
a REIT under the Code, the Company generally is required each year to
distribute at least 95% of its net taxable income (excluding any net capital
gain). See "Federal Income Tax Considerations -- Taxation of the Company --
Annual Distribution Requirements." Because of these distribution
requirements, it is unlikely that the Company will be able to fund all future
capital needs from cash retained from operations. As a result, to fund
future capital needs, the Company likely will have to rely on third-party
sources of capital, which may or may not be available on favorable terms or
at all. The Company's access to third-party sources of capital will depend
upon a number of factors, including the market's perception of the Company's
growth potential and its current and potential future earnings and cash
distributions and the market price of the Common Stock.
DEPENDENCE ON KEY PERSONNEL
The Company is dependent on the efforts of its executive officers,
particularly Messrs. Mendik and Greenbaum. The loss of their services could
have a material adverse effect on the operations of the Company. Prior to
the completion of the Offering, each of Messrs. Mendik
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and Greenbaum will enter into an employment agreement with the Company. See
"Management -- Employment Agreements."
UNINSURED LOSS
The Company initially will carry comprehensive liability, fire,
flood, extended coverage, rental loss (for rental losses extending up to 12
months) and director and officer liability insurance with respect to its
properties with policy specifications and insured limits customarily carried
for similar properties. Certain types of losses (such as from wars,
environmental hazards and employee discrimination claims), however, may be
either uninsurable or not economically insurable. Should an uninsured loss
or a loss in excess of insured limits occur, the Company could lose both its
capital invested in, and anticipated profits from, one or more of its
properties, and may continue to be obligated on the mortgage indebtedness or
other obligations related to the property. Any such loss may adversely
affect the business of the Company and its financial condition and results of
operations.
It is anticipated that new owner's title insurance policies will
not be obtained for any of the Properties in connection with the Formation
Transactions. Each of the Properties (other than possibly Eleven Penn Plaza)
is covered by existing title insurance policies insuring the interests of the
Property-owning entities. (It is unclear whether an existing title insurance
policy purchased with respect to Eleven Penn Plaza will afford coverage to the
Company.) Each title insurance policy covering a Property (other than 1740
Broadway and Two Park Avenue), however, is for an amount which is less than
the current value of the Property. In the event of a loss with respect to a
Property relating to a title defect that is in excess of the amount of such
title insurance policy, the Company could lose both its capital invested in
and anticipated profits from such property.
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THE COMPANY
The Company has been formed to continue and expand the real estate
business of the Mendik Group, which is engaged in acquiring, owning,
managing, leasing, renovating and redeveloping Manhattan office properties.
Upon the completion of the Offering, the Company will own interests in seven
Class A office Properties located in midtown Manhattan which contain
approximately 5.5 million rentable square feet and will manage 16 properties
(including the Properties) located in the New York metropolitan area which
contain approximately 10.0 million rentable square feet. The Company will be
a fully-integrated, self-administered and self-managed real estate company
and expects to qualify as a REIT for Federal income tax purposes.
Manhattan is the largest office market in the United States, and
contains more rentable square feet than the next six largest U.S. office
markets combined. In addition, Manhattan is the headquarters to many of the
leading corporations and service firms in the U.S., including: more Fortune
500 companies (47) than any other U.S. city; three of the four largest U.S.
commercial banks (approximately 400 international banks have offices in New
York City -- more than any other city in the world); and 23 of the 25 largest
U.S. securities firms. Upon completion of the Offering, the Company will be
one of the largest owners and operators of Manhattan office properties and
expects to be the first publicly traded REIT formed primarily to acquire, own
and operate Manhattan office properties.
The Company intends to achieve growth through acquisitions and
focused operating strategies, including aggressive leasing efforts. The
Company believes that opportunities exist to acquire office properties in
Manhattan on attractive terms, including at prices significantly below
replacement cost. In contrast, in order to justify new construction in the
Manhattan office market, base rents, not taking into account any tax benefits
that may apply, generally would have to increase to at least 40% more than
current asking rents for Class A office space in midtown Manhattan (as
estimated by Cushman & Wakefield). The Company believes that its experienced
management team and its access to capital, as well as its ability to engage
in transactions that offer sellers deferral of income taxes that otherwise
would be due as a result of a cash sale, will provide it with a significant
advantage in pursuing acquisitions of office properties.
In addition, the Company intends to aggressively market and
re-lease two significant blocks of space in its portfolio which recently have
become available (as the result, in one case, of a recent lease expiration
and, in the other case, of a relocation of a large tenant to another Property
in the Company's portfolio, which relocation the Company believes was
effected on favorable terms). Upon the re-leasing of these blocks of space,
the Company expects to increase the weighted average occupancy of its
Properties from its current rate of 88% (excluding 570 Lexington Avenue, in
which the Company will own a 5.6% interest and which currently is being
leased following a substantial renovation program) to a level more comparable
to the historical occupancy rate of the Properties, which has averaged in
excess of 94% over the past five calendar years.
Bernard H. Mendik, the Chairman and Chief Executive Officer of the
Company, has been involved in the real estate business for 40 years. Messrs.
Mendik and Greenbaum, and the other five executive officers of the Company
have been actively involved in the Manhattan commercial office business for
an average of over 20 years, including an average of over 17 years with the
Mendik Group. The extensive experience of the Company's management provides
the Company with a substantial base of information concerning Manhattan real
estate dynamics, including submarket rent levels, operating, renovation and
redevelopment costs, regulatory processes and other factors relevant to the
acquisition, ownership and operation of Manhattan office properties. Upon
completion of the Offering, approximately 36% of the equity of the Company
will be beneficially owned by officers and directors of the Company and
certain other affiliated parties.
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The Company initially intends to employ approximately 50 persons.
Of such 50 employees, approximately 40 will be "home office" executive and
administrative personnel and approximately 10 will be on-site management and
administrative personnel. Immediately following the Offering and the
Formation Transactions, the Company currently expects that none of its
employees will be represented by a labor union.
The Company is a Maryland corporation whose predecessor was
incorporated in December 1995. The Company's executive offices are located
at 330 Madison Avenue, New York, New York 10017 and its telephone number is
(212) 557-1100.
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BUSINESS AND GROWTH STRATEGIES
BUSINESS STRATEGY
The Company's primary business objective is to maximize stockholder
value by growing the Company's asset base, enhancing the value of its assets
and maximizing cash flow from operations. The Company intends to achieve
this objective primarily by pursuing the following strategies:
- - ACQUIRING INTERESTS IN ADDITIONAL OFFICE
PROPERTIES. The Company intends to acquire
direct or indirect interests in additional
office properties, primarily in midtown
Manhattan, at attractive equity returns,
thereby taking advantage of the favorable
supply/demand fundamentals that currently exist
in the midtown Manhattan office market.
- - PROVIDING A HIGH-QUALITY OFFICE ENVIRONMENT.
The Company intends to continue to provide
tenants at its properties (including any newly
acquired properties) with a high quality office
environment in terms of building systems,
public spaces and tenant services and, in so
doing, seeking to retain existing tenants,
attract new tenants and increase rental
revenues, while achieving operating cost
efficiencies attributable to the size and
geographic concentration of its portfolio.
ACQUISITION STRATEGY
The Company will continue the Mendik Group's strategy of pursuing
growth by acquiring, owning and operating office properties. The Company's
experienced management team will utilize its extensive knowledge of the
Manhattan office market to identify and evaluate acquisition opportunities.
Upon completion of the Offering, the Company will be one of the largest
owners and operators of Manhattan office properties and expects to be the
first publicly traded REIT formed primarily to own, operate and acquire
Manhattan office properties.
The Company believes that current supply/demand fundamentals in the
Manhattan office market provide an attractive environment for acquiring,
owning and operating Class A office properties. The Company believes that
demand for Class A office space in the midtown Manhattan office market has
increased recently because of strong net private sector job growth, a
strengthening New York metropolitan economy and an improving business
environment and quality of life offered by New York City. At the same time,
the supply of Class A office space in midtown Manhattan has remained
virtually unchanged since 1992, and the Company believes that supply is
unlikely to increase substantially over the near term primarily because there
are relatively few sites available for construction, the lead time required
for construction typically exceeds three years and new construction generally
is not economically feasible given current market rental rates. As a result
of increasing demand for Class A office space in midtown Manhattan and
limited new supply of such space, vacancy rates in midtown Manhattan have
declined in each of the last five years and the Company believes that
effective rental rates (I.E., rental rates after taking into account tenant
improvement costs and leasing concessions) in midtown Manhattan have
increased. See "New York Economy and Manhattan Office Market."
The Company believes that opportunities exist to acquire office
properties in Manhattan on attractive terms, including at prices
significantly below replacement cost. The Company believes that its
experienced management team and its access to capital, as well as its ability
to use Units as consideration for acquisitions designed to afford sellers
continued deferral of income taxes that otherwise would be due as a result of
a cash sale, will provide it with significant advantages in
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pursuing acquisitions of office properties. In addition, the Company may,
under certain circumstances, be able to structure acquisitions in a manner
that qualifies for reduced rates under the New York State and New York City
transfer tax laws, which reduced rates currently are applicable only to
certain REIT transactions through October 1999.
The Company intends to expand its portfolio of properties by acquiring
additional office properties, primarily in midtown Manhattan. In evaluating
acquisitions of existing buildings, the Company will consider the building's
location, the quality and condition of the building's structure, design,
materials and construction, the building's market potential, operating and
maintenance costs, occupancy rate, lease expirations, capital structure and
cash flow, and other relevant factors. The Company will seek properties for
acquisition that it believes are under-performing under current ownership and
management (or that are over-leveraged), and that may permit the Company to
realize improved performance through application of its management,
renovation and redevelopment capabilities and its access to capital. There
can, however, be no assurance that the Company will acquire any additional
office properties. See "Risk Factors -- Acquisition Risks."
In pursuing acquisition opportunities, the Company believes that it will
have certain competitive advantages, including the following:
EXPERIENCED MANAGEMENT TEAM WITH EXTENSIVE LOCAL MARKET KNOWLEDGE.
Messrs. Mendik and Greenbaum and the other five executive officers of the
Company have been actively involved in acquiring, owning, managing, leasing,
renovating and redeveloping Manhattan real estate for an average of over 20
years, including an average of over 17 years with the Mendik Group. The
Company intends to continue to rely on its experienced personnel to identify
and evaluate acquisition opportunities.
The Company has extensive knowledge of the Manhattan office market
as a result of its experience in acquiring, owning and operating major office
properties primarily in Manhattan (and, to a lesser extent, in certain other
parts of the New York metropolitan area) for 40 years, which experience
provides the Company with a substantial base of information concerning
submarket rent levels, operating, renovation and redevelopment costs,
regulatory processes and other factors relevant to the acquisition of
Manhattan office properties. This experience also should be beneficial in
pursuing acquisition transactions involving Manhattan office properties,
which can be more complicated in light of the large size of Manhattan office
properties and other factors unique to the Manhattan office market.
ACCESS TO CAPITAL. The Company believes that, as a result of its
size and status as a public company, it should have better access to capital
in the global capital markets than generally is available to private real
estate companies. Access to substantial capital on attractive terms is
crucial to completing acquisitions in the midtown Manhattan office market
because, in general, properties are larger and, as a result, property values
(on an absolute basis) are higher than in other U.S. office markets. The
Company's access to capital should provide significant financing flexibility
for property acquisitions. In addition, the Company expects to obtain the
Line of Credit to facilitate acquisitions in certain circumstances. The
Company intends to deploy substantial capital by pursuing attractive
acquisition opportunities.
ABILITY TO EFFECT UNIT TRANSACTIONS. The Company believes that its
status as a publicly traded UPREIT will enhance its ability to acquire office
properties by providing the Company with the ability to structure
transactions using Units as consideration in order to provide sellers with
increased liquidity and diversification, while affording sellers substantial
deferral of income taxes that otherwise would be due as a result of a cash
sale. Accordingly, the Company's ability to offer Units to sellers may create
acquisition opportunities not otherwise available and may provide the
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Company with an advantage over potential competitors that are unable to offer
tax-efficient consideration.
In addition, the Mendik Group has a reputation in Manhattan for
acquiring undervalued office properties and repositioning such properties as
attractive, well-managed and competitive office properties characterized by a
high level of tenant satisfaction and long-term financial stability. The
Company believes that this reputation may enhance its ability to acquire
additional properties in exchange for a continuing equity interest in the
Company (through ownership of Units).
FAVORABLE TRANSFER TAX TREATMENT. The Company may, under certain
circumstances, be able to structure acquisitions in a manner that qualifies
for reduced rates under the New York State and New York City transfer tax
laws, which reduced rates are applicable only to certain REIT transactions
through October 1999. The rates applicable to certain REIT acquisitions
under the New York State and New York City transfer tax laws recently were
reduced from 3.025% to 1.5125%, in the aggregate.
FIRST PUBLICLY TRADED REIT TO FOCUS ON MANHATTAN OFFICE MARKET.
Upon completion of the Offering, the Company will be one of the largest
owners and operators of Manhattan office properties and expects to be the
first publicly traded REIT formed primarily to own, operate and acquire
Manhattan office properties. The Company believes that this initially will
be a significant competitive advantage in pursuing acquisitions using Units
as consideration.
OPERATING STRATEGY
The Company believes that the Mendik Group's commitment to and
reputation for providing a high-quality office environment in terms of
building systems, public spaces and tenant services have encouraged tenants
to renew their leases, attracted new tenants to its properties and supported
competitive rent levels. The Company will provide a high-quality office
environment to its tenants by continuing the following operating strategies
of the Mendik Group:
MARKETING AND LEASING. The Company intends to utilize its market
position and relationships with a broad array of brokers and tenants to
continue its proactive marketing and leasing programs in order to maintain
the historically high rate of occupancy achieved by the Properties (which,
over the last five calendar years, has averaged in excess of 94%). Where
appropriate, the Company intends to continue to renew leases early and
otherwise aggressively manage the tenant base of its properties by seeking,
for example, to buy out or take back existing leases at opportune times,
relocate tenants to create large blocks of space and otherwise coordinate and
plan appropriate timing of lease expirations. Taking into account leases
renewed prior to expiration as well as other leasing transactions, the Mendik
Group has re-leased approximately 50% of the space at the Properties since
1993, with an average lease term of approximately 11 years. As a result of
its re-leasing efforts and the long-term leases typical in the Manhattan
office market, leases covering approximately one-third of the office space at
the Properties do not expire before 2006, and in no single year are leases
covering more than 10% of the office space at the Properties scheduled to
expire (in each case, assuming no tenants exercise renewal or cancellation
options and no tenant bankruptcies or other tenant defaults).
CAPITAL IMPROVEMENTS IN BUILDING SYSTEMS AND PUBLIC SPACES. The Mendik
Group has committed considerable resources to maintaining and upgrading the
appearance, operations and mechanical systems of its properties. The Company
believes that the commitment of such resources generally has increased the
income, long-term value and market appeal of the Properties.
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Pursuant to a recently completed renovation program which began in 1988,
approximately $79 million was expended at the Properties (excluding the
redevelopment costs associated with 570 Lexington Avenue, in which the
Company will own a 5.6% interest) for building improvements and equipment
upgrades (excluding the costs of tenant improvements), including installation
of state-of-the-art steam absorbers to provide air conditioning, elevator
computerization and refurbishment, lobby and facade renovation, security
systems upgrades, sprinkler system installation, asbestos removal, window
replacement and mechanical and electrical systems upgrades. As a result of
this recently completed renovation program, the Company believes that the
Properties are technologically advanced and well positioned to compete with
other Class A office properties in their respective submarkets, and
relatively few capital projects remain to be undertaken at the Properties at
this time. For each of 1997 and 1998, the projected cost of building
improvements and equipment upgrades (excluding the costs of tenant
improvements) at the Properties is approximately $690,000, (or $0.20 per
square foot, based on the Company's pro rata share of the total rentable
square feet at the Properties). The Company expects such cost to be paid
from operating cash flows or cash reserves. The Company similarly will
commit resources to any newly acquired properties if necessary to reposition
such properties as first class buildings.
TENANT SERVICES. The Company will continue the Mendik Group's
approach to identifying and responding quickly to tenant requirements. The
Company will establish personal contacts with its tenants and maintain a
program of regular tenant visits. In addition, the Company will continue the
Mendik Group's approach of rotating its building managers through each of its
properties in order to encourage a critical review of each property's
facilities and tenant services. The Company also will continue the Mendik
Group's approach of encouraging each of its employees to make suggestions
relating to the enhancement of a building's appearance or its efficiency.
IN-HOUSE PROPERTY SERVICES CAPABILITIES. The Company will provide
a high-quality office environment to tenants and, as a result of the size and
geographic concentration of its portfolio, expects to achieve operating cost
efficiencies through its ability to maintain substantial in-house expertise.
The Company will employ an experienced staff with extensive property
management experience and specific knowledge of a wide variety of Manhattan
leasing and marketing practices, office building systems and equipment, and
financing, accounting and computer systems. The Company's in-house property
services capabilities, coupled with the cleaning (and related) services and
security services to be provided by an entity affiliated with the Mendik Group
with respect to the Properties, will encompass many facets of physical care and
upkeep of the Company's properties.
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USE OF PROCEEDS
The net cash proceeds to the Company from the Offering, after
deducting the estimated underwriting discount and estimated expenses of the
Offering, are estimated to be approximately $___ million (approximately $___
million if the Underwriters' overallotment option is exercised in full),
based on the estimated initial public offering price of $22.00 per share.
The net cash proceeds to the Company of the Concurrent Placement, after
deducting the estimated expenses of the Concurrent Placement, are expected to
be approximately $21.0 million, based on the estimated initial public
offering price of $22.00 per share. The net cash proceeds of the Offering
and the Concurrent Placement will be used by the Company as follows: (i)
approximately $96.4 million for repayment of certain mortgage indebtedness
secured by the Properties, including approximately $5.5 million in interest
rate swap agreement termination costs; (ii) approximately $92.5 million for
payments to certain participants in the Formation Transactions for their
direct or indirect interests in the Properties; (iii) approximately $30.0
million to establish a reserve for capital expenditures, tenant improvements
for renewing and re-leasing space and working capital purposes; and (iv)
approximately $___ million to pay certain expenses incurred in connection
with the Formation Transactions.
If the Underwriters' overallotment option to purchase 1,500,000
shares of Common Stock is exercised in full, the Company expects to use the
additional net cash proceeds (which will be approximately $30.7 million,
based on the estimated initial public offering price) to acquire interests in
additional office properties and for general corporate purposes.
Pending application of the net proceeds of the Offering, the
Company will invest such portion of the net proceeds in interest-bearing
accounts and short-term, interest-bearing securities, which are consistent
with the Company's intention to qualify for taxation as a REIT.
Upon completion of the Offering, mortgage indebtedness secured by
two of the Properties will be repaid. Approximately $74.1 million of the net
proceeds of the Offering and the Concurrent Placement will be used to repay
mortgage indebtedness secured by Two Penn Plaza. This indebtedness is
scheduled to mature on May 10, 2000 and, as of September 30, 1996, had a
weighted average interest rate of 7.4%. In addition, approximately $16.8
million of the net proceeds of the Offering and the Concurrent Placement will
be used to repay mortgage indebtedness secured by 866 United Nations Plaza.
This indebtedness is scheduled to mature on December 31, 1998 (although the
borrower has the right to extend the maturity date until December 31, 2000 if
certain conditions are met) and, as of September 30, 1996, had a weighted
average interest rate of 7.6%.
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DISTRIBUTIONS
Subsequent to the Offering, the Company intends to make regular
quarterly distributions to the holders of its Common Stock. The initial
distribution, covering a partial quarter, commencing on the closing of the
Offering and ending on March 31, 1997, is expected to be $____ per share,
which represents a pro rata distribution based on a full quarterly
distribution of $____ per share and an annual distribution of $_____ per
share (or an annual distribution rate of approximately ____% based on the
estimated initial public offering price of $____. The Company does not
intend to reduce the expected distribution per share if the Underwriters'
overallotment option is exercised. The following discussion and the
information set forth in the table and footnotes below should be read in
conjunction with the financial statements and notes thereto, the pro forma
financial information and notes thereto and "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" included elsewhere in this Prospectus.
The Company intends to cause the Operating Partnership initially to
distribute annually approximately ___% of estimated Cash Available for
Distribution. The Company's estimate of the Cash Available for Distribution
after the Offering is based upon pro forma Funds from Operations for the 12
months ended September 30, 1997, with certain adjustments based on the items
described below. To estimate Cash Available for Distribution for the first
12 months subsequent to the Offering, pro forma Funds from Operations for the
12 months ended September 30, 1996 was adjusted (i) without giving effect to
any changes in working capital resulting from changes in current assets and
current liabilities (which changes are not anticipated to be material) or the
amount of cash estimated to be used for (A) investing activities for
acquisition and other activities (other than a reserve for capital
expenditures, tenant improvements for renewing space and working capital) and
(B) financing activities, (ii) for certain known events and/or contractual
commitments that either occurred subsequent to September 30, 1996 or during
the 12 months ended September 30, 1996, but were not effective for the full
12 months, and (iii) for certain non-GAAP adjustments consisting of (A)
revising historical rent estimates from a GAAP basis to amounts currently
being paid or due from tenants, (B) pro forma amortization of financing
costs, and (C) an estimate of amounts anticipated for recurring tenant
improvements, leasing commissions and capital expenditures. The estimate of
Cash Available for Distribution is being made solely for the purpose of
setting the initial distribution and is not intended to be a projection or
forecast of the Company's results of operations or its liquidity, nor is the
methodology upon which such adjustments were made necessarily intended to be
a basis for determining future distributions. Future distributions by the
Company will be at the discretion of the Board of Directors. There can be no
assurance that any distributions will be made or that the estimated level of
distributions will be maintained by the Company.
The Company anticipates that its distributions will exceed earnings
and profits for income tax reporting purposes due to non-cash expenses,
primarily depreciation and amortization, to be incurred by the Company.
Therefore, approximately ____% (or $____ per share) of the distributions
anticipated to be paid by the Company for the first 12 months subsequent to
the Offering are expected to represent a return of capital for Federal income
tax purposes and in such event will not be subject to Federal income tax
under current law to the extent such distributions do not exceed a
stockholder's basis in his Common Stock. The nontaxable distributions will
reduce the stockholder's tax basis in the Common Stock and, therefore, the
gain (or loss) recognized on the sale of such Common Stock or upon
liquidation of the Company will be increased (or decreased) accordingly. The
percentage of stockholder distributions that represents a nontaxable return
of capital may vary substantially from year to year.
Federal income tax law requires that a REIT distribute annually at
least 95% of its taxable income. See "Federal Income Tax Consequences --
Taxation of the Company." The amount of
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<PAGE>
distributions on an annual basis necessary to maintain the Company's REIT
status based on pro forma taxable income of the Company for the 12 months
ended September 30, 1996, as adjusted for certain items in the following
table, would have been approximately $____ million. The estimated Cash
Available for Distribution is anticipated to be in excess of the annual
distribution requirements applicable to REITs. Under certain circumstances,
the Company may be required to make distributions in excess of Cash Available
for Distribution in order to meet such distribution requirements. For a
discussion of the tax treatment of distributions to holders of Common Stock,
see "Federal Income Tax Consequences -- Taxation of Shareholders."
The Company believes that its estimate of Cash Available for
Distribution constitutes a reasonable basis for setting the initial
distribution, and the Company expects to maintain its initial distribution
rate for the 12 months subsequent to the Offering unless actual results of
operations, economic conditions or other factors differ from the assumptions
used in the estimate. The Company's actual results of operations will be
affected by a number of factors, including the revenue received from the
Properties, the operating expenses of the Company, interest expense, the
ability of tenants of the Properties to meet their obligations and
unanticipated capital expenditures. Variations in the net proceeds from the
Offering and the Concurrent Placement as a result of a change in the initial
public offering price or the exercise of the Underwriters' overallotment
option may affect the Cash Available for Distribution and the payout ratio of
Cash Available For Distribution and available reserves. No assurance can be
given that the Company's estimate will prove accurate. Actual results may
vary substantially from the estimate.
34
<PAGE>
The following table describes the calculation of pro forma Funds from
Operations for the 12 months ended September 30, 1996 and the adjustments to
pro forma Funds from Operations for the 12 months ended September 30, 1996 in
estimating initial Cash Available for Distribution for the 12 months ended
September 30, 1997:
<TABLE>
<CAPTION>
(Dollars in
thousands)
-----------
<S> <C>
Pro forma net income before minority interest for the year ended
December 31, 1995. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 32,692
Pro forma net income before minority interest for the nine months ended
September 30, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . (22,116)
Pro forma net income before minority interest for the nine months ended
September 30, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . 25,597
--------
Pro forma net income before minority interest for the 12 months ended
September 30, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . 36,173
Plus: Pro forma real estate depreciation for the 12 months ended
September 30, 1996 (1) . . . . . . . . . . . . . . . . . . . . . . . 12,027
Plus: Pro forma amortization (excluding financing costs) for the
12 months ended September 30, 1996 (2) . . . . . . . . . . . . . . . 2,092
--------
Pro forma Funds from Operations for the 12 months ended September 30,
1996 (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,292
Adjustments:
Net increases in contractual rental income (4) . . . . . . . . . . . . 4,569
Provision for lease expirations, assuming no renewals (5). . . . . . . (16,108)
Net effect of tenant relocation (6). . . . . . . . . . . . . . . . . . 179
--------
Estimated Pro forma Funds from Operations for the 12 months ending
September 30, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . 38,932
--------
Net effect of straight-line rents (7). . . . . . . . . . . . . . . . .
Pro forma amortization of financing costs for the 12 months ended
September 30, 1996 (8) . . . . . . . . . . . . . . . . . . . . . . . 344
Estimated capitalized tenant improvements and leasing commissions (9). (5,178)
Estimated capital expenditures (10) . . . . . . . . . . . . . . . . . (689)
--------
Estimated Cash Available for Distribution for the 12 months ending
September 30, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . $
--------
--------
Company's share of Estimated Cash Available for
Distribution (11). . . . . . . . . . . . . . . . . . . . $
--------
--------
Minority interest's share of Estimated Cash Available for
Distribution . . . . . . . . . . . . . . . . . . . . . . $
--------
--------
Total estimated initial annual cash distributions . . . . . . . . . . . . $
--------
--------
Estimated initial annual cash distributions to stockholders of the
Company (11). . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
--------
--------
Estimated initial annual distribution per share (12). . . . . . . . . . $
--------
--------
Payout ratio based on Estimated Cash Available for Distribution (13). . %
--------
--------
</TABLE>
_____________________
(1) Pro forma real estate depreciation for the year ended December 31, 1995 of
$12,321 minus pro forma real estate depreciation for the nine months ended
September 30, 1995 of $9,018 plus pro forma real estate depreciation for
the nine months ended September 30, 1996 of $8,724.
(2) Pro forma amortization (excluding financing costs) for the year ended
December 31, 1995 of $2,016 minus pro forma amortization (excluding
financing costs) for the nine months ended September 30, 1995 of $1,421
plus pro forma amortization (excluding financing costs) for the nine months
ended September 30, 1996 of $1,498.
(3) The Company generally considers Funds from Operations an appropriate
measure of liquidity of an equity REIT because industry analysts have
accepted it as a performance measure of equity REITs. "Funds from
Operations" as defined by NAREIT means net income (computed in accordance
with GAAP) excluding gains (or losses) from debt restructuring and sales of
property, plus depreciation and amortization on real estate assets, and
after adjustments for unconsolidated partnerships and joint ventures. The
Company's Funds from Operations are not comparable to Funds from Operations
reported by other REITs that do not define the term using the current
NAREIT definition. The Company believes that in order to facilitate a
clear understanding of the combined historical operating results of the
Mendik Predecessors and the Company, Funds from Operations should be
examined in conjunction with net income as presented in the audited
combined financial statements and information included elsewhere in this
Prospectus. Funds from Operations does not represent cash generated from
operating activities in accordance with GAAP and 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 or ability to make
distributions.
(4) Represents the effect on Estimated Pro Forma Funds from Operations for the
12 months ending September 30, 1997 from the net increases in contractual
rental income, compared to contractual rental income for the 12 months
35
<PAGE>
ended September 30, 1996, as a result of (i) the actual contractual rent
due during the period (not annualized) under new leases and renewals in
effect prior to September 30, 1996 ($1,872) and (ii) the actual contractual
rent due during the period (not annualized) ending September 30, 1997 under
new leases and renewals in effect between October 1, 1996 through
January 15, 1997 ($2,697).
(5) The provision for expiring leases assumes no lease renewals (other than
month-to-month leases) and no new leases for existing leases expiring after
September 30, 1996 for which no new leases or renewals have been entered
into by January 15, 1997. Of the total decrease of $16,108, a reduction of
$11,893 is the result of a $13,062 decrease in contractual rent from one
tenant that has vacated space at Two Penn Plaza, net of expense reductions
of $1,169. The remaining $4,216 decrease represents the net rental income
loss that would occur if none of the leases of tenants in occupancy on
January 15, 1997 were renewed or re-leased, partially offset by a net
increase of $167 of rental income from tenants on month-to-month leases
which are assumed to continue throughout the period.
(6) As described in "The Properties -- Eleven Penn Plaza," a tenant of Eleven
Penn Plaza relocated to another Property as part of a corporate
reorganization. The tenant is required to make certain payments to the
Company through the remainder of the original lease term expiring in June
2001, including monthly rental payments. Under GAAP, the Company is
required to record the present value of future rental payments as rental
income at the time occupancy is surrendered rather than recording rental
income as the rental payments are required to be made. Accordingly, pro
forma Funds from Operations for the 12 months ended September 30, 1996
includes income from monthly rental payments and the present value of
future rental payments for one floor surrendered in October 1995 totaling
$4,545. The surrender of the remaining three floors in January 1997 will
result in rental and interest income of $7,815 for the 12 months ending
September 30, 1997 in accordance with GAAP, or an increase of $3,269 over
the prior 12 months' income. During this same period the Company will
receive rental payments of only $4,725, consisting of aggregate monthly
rental payments of $2,958 and a lump sum payment of $1,769. In order to
reflect the effect of this differential, pro forma Funds from Operations
for the 12 months ending September 30, 1997 is reduced by $3,090. This
results in a net adjustment for tenant relocation of $179 for the 12 months
ending September 30, 1997. In 1998 through June 2001, the Company will
receive aggregate monthly rental payments of $3,095 on an annual basis, all
of which already will have been included in rental income for the 12 month
periods ended September 30, 1996 and 1997 in accordance with GAAP and which
will have been adjusted out of Funds from Operations each such year as
described above. Accordingly, in reporting its Funds from Operations in
1998 through 2001, the Company will make an adjustment of $3,095 each year
($1,547 for 2001).
(7) Represents the effect of adjusting straight-line rental revenue included in
pro forma net income for the 12 months ending September 30, 1997 from the
straight-line accrual basis to amounts currently being paid or due from
tenants.
(8) Pro forma amortization of financing costs for the year ended December 31,
1995 of $353 minus pro forma amortization of financing costs for the nine
months ended September 30, 1995 of $251 plus pro forma amortization of
financing costs for the nine months ended September 30, 1996 of $242.
(9) Reflects recurring tenant improvements ("TI") and leasing commissions
("LC") for the 12 months ending September 30, 1997 based on the weighted
average TI and LC expenditures for renewed and retenanted space at the
Properties incurred during 1993, 1994, 1995 and 1996, multiplied by the
average annual square feet of leased space for which leases expire during
the years ending December 31, 1997 through December 31, 2001. The weighted
average annual per square foot cost of TI and LC expenditures is presented
below:
<TABLE>
<CAPTION>
Weighted
1993 1994 1995 1996 Average
---- ---- ---- ---- --------
<S> <C> <C> <C> <C> <C>
TI per square foot $ 8.22 $25.13 $14.46 $19.90 $ 15.97
LC per square foot $ 3.72 $ 5.54 $ 4.64 $ 8.25 $ 5.49
------ ------ ------ ------ --------
Total TI and LC $11.94 $30.67 $19.10 $28.15 $ 21.46
------ ------ ------ ------ --------
------ ------ ------ ------ --------
Average annual square feet for which leases expire during the
years ending December 31, 1997 through December 31, 2001 x241,287(a)
--------
Total estimated annual TI and LC $ 5,178
--------
--------
</TABLE>
____________________
(a) The average annual square footage for which leases expire during the
years ending December 31, 1997 through December 31, 2001 includes the
garage square footage at 866 United Nations Plaza expiring in 2001 of
42,675.
Excludes tenant improvement and leasing commission costs relating to
the 401,000 feet of vacant space resulting from the move out of one
tenant from Two Penn Plaza in November 1996. The Company has
established a cash reserve of $38,000,000 to pay for tenant
improvements and leasing costs of vacant space, as well as interest
and operating costs relating to vacant space and for general working
capital needs. A portion of the reserve will be escrowed with the
lender at the Two Penn Plaza Property to provide for the funding of
such expenses.
(10) As a result of the extensive renovation program that the Company started in
1988, the Company has relatively few capital projects remaining to be
undertaken at this time. For the year ending September 30, 1997, the
estimated cost of recurring building improvements and equipment upgrades
and replacements (excluding costs of tenant improvements) at the Properties
is approximately $689 and is based upon an annual estimated cost of $.20
per square foot (based on the Company's pro rata share of the total
rentable square feet at the Properties).
36
<PAGE>
(11) The Company's share of estimated Cash Available for Distribution and
estimated initial annual cash distributions to stockholders of the Company
are based on its approximately 63.81% aggregate partnership interest in the
Operating Partnership.
(12) Based on a total of 11,294,318 shares of Common Stock to be outstanding
after the Offering. The Company estimates that approximately ___% of the
estimated initial annual cash distributions with respect to the 12 months
ending September 30, 1997 will represent a return of capital for federal
income tax purposes.
(13) Calculated as estimated initial annual cash distributions to stockholders
of the Company divided by the Company's share of estimated Cash Available
for Distribution for the 12 months ending September 30, 1997. The payout
ratio based on estimated pro forma Funds from Operations is _____%.
37
<PAGE>
CAPITALIZATION
The following table sets forth the combined historical
capitalization of the Mendik Predecessors as of September 30, 1996 and as
adjusted to give effect to the Formation Transactions, the Offering, the
Concurrent Placement and use of the net proceeds from the Offering and the
Concurrent Placement as set forth under "Use of Proceeds." The information
set forth in the table should be read in conjunction with the financial
statements and notes thereto, the pro forma financial information and notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources" included elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
-------------------
COMBINED
HISTORICAL AS ADJUSTED
---------- ------------
(IN THOUSANDS)
<S> <C> <C>
Mortgage debt (1) . . . . . . . . . . . . . . . . . $208,879 $113,000
Minority interests in Operating Partnership N/A 30,979
Stockholders' equity:
Preferred Stock, $.01 par value; 10,000,000 shares authorized;
none issued and outstanding. . . . . . -- --
Common Stock, $.01 par value; 90,000,000 shares authorized;
11,294,318 issued and outstanding (2) -- 113
Additional paid-in capital. . . . . . . . -- 54,508
Owners' equity. . . . . . . . . . . . . . 45,031 --
-------- ----------
Total owners'/stockholders' equity . . 45,031 54,621
-------- ----------
Total capitalization. . . . . . . . $253,910 $198,600
-------- ----------
-------- ----------
</TABLE>
_____________________
(1) Mortgage debt excludes the Mendik Predecessors' and the Company's pro rata
share of the mortgage debt secured by three Properties in which the Company
will own non-controlling interests, which Properties will be accounted for
under the equity method. Including the Company's pro rata share of such
indebtedness, the Company's mortgage debt, as adjusted, would be
approximately $197.5 million as of September 30, 1996. See "The
Properties -- Mortgage Indebtedness."
(2) Includes shares of Common Stock to be issued in the Offering and the
Concurrent Placement. Does not include (i) 6,405,682 shares of Common
Stock that may be issued upon the exchange of Units issued in connection
with the Formation Transactions generally commencing two years after the
completion of the Offering, or (ii) 935,000 shares of Common Stock subject
to options being granted concurrently with the Offering under the Company's
stock option plans.
38
<PAGE>
DILUTION
At September 30, 1996, the Company had a deficiency in net tangible
book value attributable to continuing investors of approximately $130
million. After giving effect to (i) the sale of the shares of Common Stock
offered hereby (at an estimated initial public offering price of $22.00 per
share) and the receipt by the Company of approximately $215 million in net
proceeds from the Offering and Concurrent Placement, after deducting the
underwriting discount and other estimated expenses, (ii) the repayment of
approximately $91 million of mortgage indebtedness secured by certain of the
Properties, and (iii) the other Formation Transactions, the pro forma net
tangible book value at September 30, 1996 would have been $50 million, or
$4.44 per share of Common Stock. This amount represents an immediate
increase in net tangible book value of $19.61 per share to the continuing
investors and an immediate dilution in pro forma net tangible book value of
$17.56 per share of Common Stock to new investors. The following table
illustrates this dilution:
<TABLE>
<S> <C> <C>
Estimated initial public offering price per share $22.00
Deficiency in net tangible book value per share prior to the Offering and
the Concurrent Placement attributable to continuing investors (1) . . $(15.17)
Increase in net tangible book value per share attributable to the
Offering and the Concurrent Placement (2) . . . . . . . . . . . . . . . $19.61
--------
Pro forma net tangible book value after the Offering and the
Concurrent Placement (3). . . . . . . . . . . . . . . . . . . . . . . . $4.44
------
Dilution in net tangible book value per share of Common Stock to new
investors (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $17.56
------
------
</TABLE>
__________________
(1) Deficiency in net tangible book value per share prior to the Offering and
the Concurrent Placement attributable to continuing investors is determined
by dividing net tangible book value of the Company attributable to
continuing investors (based on the September 30, 1996 net book value of the
tangible assets, net of liabilities to be assumed) by the number of shares
of Common Stock (i) issued and (ii) issuable (upon the exchange of all
Units to be issued) to continuing investors in the Formation Transactions.
(2) Based on an estimated initial public offering price of $22.00 per share and
after deducting Underwriters' discounts and commissions and estimated
Offering and Formation Transaction expenses.
(3) Based on total pro forma net tangible book value of $50 million divided by
the total number of shares of Common Stock. There is no impact on dilution
attributable to the issuance of Common Stock in exchange for Units to be
issued to the participants in the Formation Transactions because such Units
would be exchanged for Common Stock on a one-for-one basis.
(4) Dilution is determined by subtracting net tangible book value per share of
Common Stock after the Offering from the estimated initial public offering
price of $22.00.
The following table summarizes, on a pro forma basis giving effect
to the Offering, the Concurrent Placement and the Formation Transactions, the
number of shares of Common Stock to be sold by the Company in the Offering
and the Concurrent Placement and the number of shares of Common Stock and
Units to be issued in the Formation Transactions to the continuing investors,
the deficiency in the net tangible book value as of September 30, 1996 of the
assets contributed in the Formation Transactions by the continuing investors
and the net tangible book value of the average contribution per share based
on total contributions.
39
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
CASH/
COMMON STOCK/ BOOK VALUE OF PURCHASE PRICE
UNITS ISSUED CONTRIBUTIONS BOOK VALUE OF
------------------ --------------------- AVERAGE
SHARES/ CONTRIBUTION
UNITS PERCENT $ PERCENT PER SHARE/UNIT
------- ------- ---------- ------- --------------
(IN THOUSANDS EXCEPT PERCENTAGES)
New investors in the Offering and
the Concurrent Placement 10,955 61.9% 214,820 251.0% $22.00(1)
Common Stock issued to
continuing investors 340 1.9% 841 1.0% 2.47
Units issued to Continuing
Investors . . . . . . . . . 6,406 36.2% $(130,061)(2) (152.0)% $20.31
------ ----- --------- ------
Total . . . . . . . . . . 17,700 100.0% $ 85,600 100.0%
------ ----- --------- ------
------ ----- --------- ------
</TABLE>
______________________
(1) Before deducting underwriting discount and other estimated expenses of the
Offering.
(2) Based on the September 30, 1996 net book value of the assets, net of
liabilities to be assumed and adjusted for Formation Transactions.
40
<PAGE>
SELECTED FINANCIAL INFORMATION
The following table sets forth unaudited pro forma financial and
other information for the Company and combined historical financial
information for the Mendik Predecessors. The following selected financial
information should be read in conjunction with the financial statements and
notes thereto contained in this Prospectus.
The combined historical balance sheets as of December 31, 1995 and
1994 and statement of income for the years ended December 31, 1995, 1994 and
1993 of the Mendik Predecessors have been derived from the historical
combined financial statements audited by Ernst & Young LLP, independent
auditors, whose report with respect thereto is included elsewhere in this
Prospectus. The combined historical balance sheet as of September 30, 1996
and statements of income for the nine months ended September 30, 1996 and
1995 have been derived from the unaudited historical combined financial
statements of the Mendik Predecessors. In the opinion of the management of
the Mendik Predecessors, all adjustments considered necessary for a fair
presentation of the results of the interim periods have been included, and
all adjustments are of a normal and recurring nature. The results of
operations for the interim periods ending September 30, 1996 and 1995 are not
necessarily indicative of the results to be obtained for the full fiscal
year.
Unaudited pro forma operating information for the year ended
December 31, 1995 and the nine months ended September 30, 1996 is presented
as if the consummation of the Offering, the Concurrent Placement and the
Formation Transactions occurred at the beginning of such periods and,
therefore, incorporates certain assumptions that are described in the notes
to the Pro Forma Condensed Consolidated Statements of Operations included
elsewhere in this Prospectus. The unaudited pro forma balance sheet data is
presented as if the aforementioned transactions had occurred on September 30,
1996.
The pro forma information does not purport to represent what the
Company's financial position or results of operations would actually have
been if these transactions had, in fact, occurred on such date or at the
beginning of the period indicated, or to project the Company's financial
position or results of operations at any future date or for any future period.
41
<PAGE>
THE COMPANY (PRO FORMA) AND THE MENDIK PREDECESSORS (HISTORICAL)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31,
--------------------------------- ------------------------------------------------------------------
PRO FORMA HISTORICAL PRO FORMA HISTORICAL
--------- ----------------- --------- ----------------------------------------------------
1996 1996 1995 1995 1995 1994 1993 1992 1991
--------- ------ ---- ----- -------- ------- -------- ------- -------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues:
Rental revenue $ 52,820 $51,706 $ 48,859 $ 66,004 $ 65,050 $ 65,176 $ 63,826 $ 64,573 $ 64,872
Escalation and
reimbursement revenues 8,252 8,252 8,688 11,668 11,668 11,331 13,385 14,941 14,604
Construction revenues
from affiliates -- 45 134 -- 204 130 107 254 411
Management revenues -- 3,013 3,968 -- 5,671 5,061 4,160 4,310 4,561
Leasing commissions -- 958 588 -- 754 1,995 1,219 1,977 2,489
Investment income 1,768 1,282 1,346 2,698 2,096 1,357 1,263 540 503
Dividend from
subsidiary corporation 617 -- -- 790 -- -- -- -- --
Equity in net income
of investees 2,663 1,562 1,690 6,090 3,975 1,277 750 2,315 2,289
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total revenues 66,120 66,818 65,273 87,250 89,418 86,327 84,710 88,910 89,729
-------- -------- -------- -------- -------- -------- -------- -------- --------
Expenses:
Operating expenses 27,519 27,452 27,609 36,563 36,462 36,280 36,743 39,417 37,217
Interest 5,933 11,782 12,167 7,910 16,247 16,121 16,749 20,912 21,385
Depreciation and
amortization 5,919 8,356 8,418 7,992 11,305 10,788 11,290 11,042 9,690
Marketing, general
and administrative 1,152 4,209 4,665 2,093 6,485 6,350 5,689 5,718 6,320
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total expenses 40,523 51,799 52,859 54,558 70,499 69,539 70,471 77,089 74,612
-------- -------- -------- -------- -------- -------- -------- -------- --------
Income before minority
interest and write-down
of investment per 1%
interest (1) $ 25,597 $ 15,019 $ 12,414 $ 32,692 $ 18,919 $ 16,788 $ 14,239 $ 11,821 $ 15,117
-------- -------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net income per share $ 1.45 $ 1.85
BALANCE SHEET DATA:
Real estate, before
accumulated depreciation $226,589 $265,443 $ $ -- $261,515 $253,678 $248,779 $245,027 $239,129
Total assets 224,802 280,794 -- 263,708 266,152 266,829 261,151 265,393
Mortgages payable 113,000 208,879 -- 208,829 208,891 206,958 208,958 199,103
Minority interest 30,979 N/A N/A -- N/A N/A N/A N/A N/A
Owners' equity 54,621 45,031 -- 34,617 32,364 27,419 23,023 9,368
OTHER DATA:
Funds from
Operations (2) $ 35,770 $ 27,142 $ 24,845 $ 46,945 $ 35,931 $ 32,453 $ 30,261 $ 27,990 $ 29,569
Net cash provided
by (used in) operating
activities -- 8,914 20,271 -- 24,296 23,600 15,786 19,872 14,113
Net cash provided
by (used in) financing
activities -- (4,395) (10,331) -- (17,700) (15,161) (9,805) 1,296 (4,788)
Net cash provided
by (used in) investing
activities -- (2,237) (18,818) -- (9,017) (7,781) (4,949) (14,960) (11,252)
</TABLE>
42
<PAGE>
(1) At December 31, 1992, Two Park Company determined that the investment
in Two Park Avenue had declined in value and deemed such decline to be
other than temporary. Accordingly, the investment was written down by
$25 millionin 1992.
(2) The Company generally considers Funds from Operations an appropriate
measure of liquidity of an equity REIT because industry analysts have
accepted it as a performance measure of equity REITs. "Funds from
Operations" as defined by NAREIT means net income (computed in accordance
with GAAP) excluding gains (or losses) from debt restructuring and sales of
property, plus depreciation and amortization on real estate assets, and
after adjustments for unconsolidated partnerships and joint ventures. The
Company's Funds from Operations are not comparable to Funds from Operations
reported by other REITs that do not define that term using the current
NAREIT definition. The Company believes that in order to facilitate a
clear understanding of the combined historical operating results of the
Mendik Group and the Company, Funds from Operations should be examined in
conjunction with net income (loss) as presented in the audited combined
financial statements and information included elsewhere in this Consent
Solicitation/Prospectus. Funds from Operations does not represent cash
generated from operating activities in accordance with GAAP and 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 or
ability to make distributions.
43
<PAGE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The following discussion should be read in conjunction with the
Selected Combined Financial Data, the Historical Combined Financial
Statements and the Pro Forma Combined Balance Sheet and Combined Statement
of Income of the Company in this Prospectus.
The Combined Financial Statements of the Mendik Predecessors
include financial data for three office property entities and equity
interests in four property-owning partnerships and entities which provide
management and leasing services to the participating office property
entities, non-participating properties and unaffiliated third parties.
Specifically, the Combined Financial Statements of the Mendik Predecessors
include 100% of the net assets and results of operations of three
Properties (Two Penn Plaza, 1740 Broadway and 866 United Nations Plaza),
equity interests in four other properties (Two Park Avenue, Eleven Penn
Plaza, 330 Madison Avenue and 570 Lexington Avenue) (which interests are
accounted for under the equity method) and 100% of the net assets and
results of operations of the affiliated companies which provide real estate
management and leasing services to the Properties and to the other
properties in which the Mendik Group owns an interest, as well as to
unaffiliated third parties.
RESULTS OF OPERATIONS
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1996 TO NINE MONTHS ENDED
SEPTEMBER 30, 1995
Rental revenue increased $2.8 million, or 5.7%, to $51.7 million
from $48.9 million for the nine months ended September 30, 1996 compared to
the nine months ended September 30, 1995. The increase was primarily due
to increased rents on new leases replacing expiring and existing leases at
lower rents.
Escalation and reimbursement revenues decreased by $436,000, or 5%,
to $8.3 million from $8.7 million for the nine months ended September 30,
1996 compared to the nine months ended September 30, 1995. The decrease
was primarily attributable to a decrease in real estate taxes (tenants
generally pay their pro rata share of increases in real estate taxes over a
base year; however, with the decrease in real estate taxes, real estate tax
escalation payments by tenants also decreased). In addition, recent new
and renewed leases were signed with current base years, which generally are
higher than base years in old leases that expired; as a result, real estate
tax escalation payments declined.
Management revenues decreased $1.0 million, or 25.0%, to $3.0
million from $4.0 million for the nine months ended September 30, 1996
compared to the nine months ended September 30, 1995. The decrease in
revenues is attributable to fees earned from Building Maintenance Service
Corp., an affiliate of the Mendik Group, in 1995 which will not be earned
in 1996 or subsequently.
Leasing commission revenues increased $370,000, or 62.9%, to
$958,000 from $588,000 for the nine months ended September 30, 1996
compared to the nine months ended September 30, 1995. The increase in
leasing commission revenues is primarily attributable to new leases signed
at 570 Lexington Avenue.
Investment income decreased $64,000, or 4.6%, to $1.3 million from
$1.4 million for the nine months ended September 30, 1996 compared to the
nine months ended September 30, 1995.
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At September 30, 1996 and 1995, the Mendik Predecessors held
noncontrolling interests in four partnerships which have been accounted for
under the equity method. Equity in net income of investees decreased
$128,000, or 7.5%, to $1.6 million from $1.7 million for the nine months
ended September 30, 1996 compared to the nine months ended September 30,
1995. The decrease in equity in net income from the entity which owns
Eleven Penn Plaza of $885,000 was partially offset by the decrease in
equity in net loss from the entity which owns Two Park Avenue of $413,000
and the increase in equity in net income from the entity which owns 330
Madison Avenue of $392,000 for the period. Eleven Penn Plaza's decrease
was primarily due to lease cancellation of indebtedness income during the
nine months ended September 30, 1995.
Operating expenses increased $377,000, or 2.4%, to $16.0 million
from $15.6 million for the nine months ended September 30, 1996 compared to
the nine months ended September 30, 1995. The increase was due primarily
to increased energy costs caused by the comparatively severe winter during
the first quarter of 1996.
Real estate taxes decreased $563,000, or 4.9%, to $11.0 million from
$11.5 million for the nine months ended September 30, 1996 compared to the
nine months ended September 30, 1995. The decrease was due primarily to a
reduction in property assessments and rates and a refund of prior years
taxes.
Interest expense decreased $385,000, or 3.2%, to $11.8 million from
$12.2 million for the nine months ended September 30, 1996 compared to the
nine months ended September 30, 1995. The decrease was due primarily to the
refinancing of $9.7 million of debt at 866 United Nations Plaza in January
1996 at a lower interest rate.
Depreciation and amortization of $8.4 million was substantially
unchanged for the nine months ended September 30, 1996 compared to the nine
months ended September 30, 1995.
Marketing, general and administrative expenses decreased $456,000,
or 9.7%, to $4.2 million from $4.7 million for the nine months ended
September 30, 1996 compared to the nine months ended September 30, 1995.
The decrease was principally from a reduction in professional fees at Two
Penn Plaza.
As a result of the foregoing, net income increased $2.6 million, or
21.0%, to $15.0 million from $12.4 million for the nine months ended
September 30, 1996 compared to the nine months ended September 30, 1995.
COMPARISON OF YEAR ENDED DECEMBER 31, 1995 TO YEAR ENDED DECEMBER 31, 1994
Rental revenue decreased $126,000, or 0.2%, to $65.1 million from
$65.2 million for the year ended December 31, 1995 compared to the year
ended December 31, 1994.
Escalation and reimbursement revenues increased $337,000, or 3.0%,
from $11.3 million to $11.7 million for the year ended December 31, 1995
compared to the year ended December 31, 1994.
Management revenues increased $610,000, or 12.0%, to $5.7 million
from $5.1 million for the year ended December 31, 1995 compared to the year
ended December 31, 1994. The increase was due primarily to the acquisition
of new third-party contracts in early 1995 and the addition of 570
Lexington Avenue in October 1994.
Leasing commission revenues decreased $1.2 million, or 60%, from
$2.0 million to $754,000 for the year ended December 31, 1995 compared to
the year ended December 31, 1994 due to a decrease in leasing activity.
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<PAGE>
Investment income increased by $739,000, or 52.8%, to $2.1 million
from $1.4 million for the year ended December 31, 1995 compared to the year
ended December 31, 1994 due to an increase in funds invested and higher
rates.
Equity in net income of investees increased $2.7 million, or 207.7%,
to $4.0 million from $1.3 million for the year ended December 31, 1995 as
compared to the year ended December 31, 1994. The increase in net income
is related to an increase in equity in net income from the entity which
owns Eleven Penn Plaza to $3.6 million from $669,000, and a decrease in
equity in net loss from $690,000 to $349,000 from the entity which owns Two
Park Avenue, which was partially offset by a decrease in equity in net
income from the entity which owns 330 Madison Avenue to $816,000 from $1.3
million.
Operating expenses increased $142,000, or 0.7%, to $20.5 million
from $20.4 million for the year ended December 31, 1995 compared to the
year ended December 31, 1994. Thus, the composition and amount of
operating expenses remained substantially constant.
Real estate taxes of $15.3 million were substantially identical for
the years ended December 31, 1995 and December 31, 1994.
Interest expense increased $126,000, or 0.8%, to $16.2 million from
$16.1 million for the year ended December 31, 1995 compared to the year
ended December 31, 1994.
Depreciation and amortization increased $577,000, or 5.3%, to $11.3
million from $10.8 million for the year ended December 31, 1995 compared to
the year ended December 31, 1994. The increase was due principally to a
mortgage of $131 million recorded in 1995 which resulted in an increase in
amortization of mortgage costs of $650,000.
Marketing, general and administrative expenses increased $135,000,
or 2.1%, to $6.5 million from $6.4 million for the year ended December 31,
1995 compared to the year ended December 31, 1994.
As a result of the foregoing, net income increased $2.1 million, or
12.5%, to $18.9 million from $16.8 million for the year ended December 31,
1995 compared to the year ended December 31, 1994.
COMPARISON OF YEAR ENDED DECEMBER 31, 1994 TO YEAR ENDED DECEMBER 31, 1993
Rental revenue increased by $1.4 million, or 2.2%, to $65.2 million
from $63.8 million for the year ended December 31, 1994 compared to the
year ended December 31, 1993. The increase resulted from an increase in
base rentals at each of the consolidated properties.
Escalation and reimbursement revenues decreased $2.1 million, or
15.7%, to $11.3 million from $13.4 million for the year ended December 31,
1994 compared to the year ended December 31, 1993. This decrease was
primarily attributable to a decrease in real estate taxes (which are passed
through to tenants) and leases which have rolled over with more current
base years for expenses.
Management revenues increased $901,000, or 21.5%, to $5.1 million
from $4.2 million for the year ended December 31, 1994 as compared to the
year ended December 31, 1993. The increase was primarily attributable to a
fee earned from Building Maintenance Service Corp., an affiliate of the
Mendik Group.
Leasing commissions revenues increased $776,000, or 64.7%, to $2
million from $1.2 million for the year ended December 31, 1994 as compared
to the year ended December 31, 1993 due to an increase in leasing activity.
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<PAGE>
Investment income increased by $94,000, or 7.2%, to $1.4 million
from $1.3 million for the year ended December 31, 1994 as compared to the
year ended December 31, 1993.
Equity in net income of investees increased by $527,000, or 70.3%,
to $1.3 million from $750,000 for the year ended December 31, 1994 as
compared to the year ended December 31, 1993. The increase was
attributable to an increase in equity in net income in the entity which
owns Eleven Penn Plaza of $656,000 and a decrease in equity in net loss of
$192,000 from the entity which owns Two Park Avenue offset by a decrease in
equity in net income in the entity which owns 330 Madison Avenue of
$309,000.
Operating expenses decreased $130,000, or 0.6%, to $20.4 million
from $20.5 million for the year ended December 31, 1994 compared to the
year ended December 31, 1993.
Real estate taxes decreased $322,000, or 2.1%, to $15.3 million from
$15.6 million for the year ended December 31, 1994 as compared to the year
ended December 31, 1993. Real estate taxes decreased for each of the
entities which own Eleven Penn Plaza, Two Park Avenue, 330 Madison Avenue
and 570 Lexington Avenue.
Interest expense decreased $628,000, or 3.8%, to $16.1 million from
$16.7 million for the year ended December 31, 1994 compared to the year
ended December 31, 1993. The decrease was due to a small decrease in
interest rates related to variable interest debt.
Depreciation and amortization decreased $502,000, or 4.4%, to $10.8
million from $11.3 million for the year ended December 31, 1994 compared to
the year ended December 31, 1993.
Marketing, general and administrative expenses increased $661,000,
or 11.6%, to $6.4 million from $5.7 million for the year ended December 31,
1994 compared to the year ended December 31, 1993.
As a result of the foregoing, net income increased $2.5 million, or
17.6%, to $16.8 million from $14.2 million for the year ended December 31,
1994 compared to the year ended December 31, 1993.
PRO FORMA OPERATING RESULTS
NINE MONTHS ENDED SEPTEMBER 30, 1996
On a pro forma basis, combined income before minority interest would
have been $25.6 million for the nine months ended September 30, 1996,
representing an increase of $10.6 million over the historical income for
the same period. The increase is primarily attributable to a reduction in
interest expense of $5.8 million. The balance of the increase as compared
to the historical income arises from a decrease in depreciation and
amortization of $2.4 million, primarily attributable to the purchase of
partners' interests in 1740 Broadway, an increase of $409,000 resulting
from the restructuring of the Management Corporation and the Management
Partnership and the elimination of nonrecurring income and expense items,
an increase in equity in net income of investees of $1.1 million
attributable to a decrease in interest expense from Two Park Avenue and
Eleven Penn Plaza and an increase in rental revenue of $1.1 million
principally attributable to the accounting treatment of straight-line
rental income relating to the purchase of partners' interests in 1740
Broadway.
The Management Corporation historically has been combined with the
other affiliated companies, and management revenues, leasing commissions
and construction revenues were included in the combined statements along
with certain operating expenses, marketing and general
47
<PAGE>
and administrative expenses. Following the consummation of the
Consolidation, income from the Management Corporation will be recognized in
accordance with the equity method of accounting.
YEAR ENDED DECEMBER 31, 1995
On a pro forma basis, combined income before minority interest would
have been $32.7 million for the year ended December 31, 1995, representing
an increase of $13.8 million over the historical income for the same
period. The increase is primarily attributable to a reduction in interest
expense of $8.3 million. The balance of the increase as compared to the
historical income arises from a decrease in depreciation and amortization
of $3.3 million, primarily attributable to the purchase of partners'
interests in 1740 Broadway, an increase in rental revenue of $1.0 million
attributable to the treatment of straight-line rental income relating to
the purchase of partners' interests in 1740 Broadway, a decrease of
$440,000 resulting from the restructuring of the Management Corporation and
the elimination of nonrecurring income and expense items, and an increase
in equity in net income of investees of $2.1 million resulting primarily
from a decrease in interest expense due to a reduction of the interest rate
on the refinancing of debt related to the Company's investments in the
entities which own Two Park Avenue and Eleven Penn Plaza.
As discussed in the section relating to pro forma operating results
for the nine months ended September 30, 1996, the Management Corporation,
which had been reported as part of the combined results, will now be
reported using the equity method of accounting.
LIQUIDITY AND CAPITAL RESOURCES
Upon completion of the Offering and the Formation Transactions and
the application of the net proceeds therefrom as described in "Use of
Proceeds," the Company expects to have reduced the total mortgage debt
secured by the Properties that will be consolidated in the financial
statements of the Company from approximately $209 million to approximately
$113 million (including cancellation of certain indebtedness). This
mortgage debt will be floating, but the Company expects to enter into
interest rate swap agreements in order to fix its interest costs.
Approximately $80 million of such mortgage debt will mature in May 2005 and
approximately $33 million of such mortgage debt will mature in May 2004.
There will be no principal amortization of this debt prior to maturity.
Based on an estimated total market capitalization of $589 million, the
Company's debt (including approximately $85 million of unconsolidated
mortgage debt on properties in which the Company will have a minority
interest), would represent approximately 34% of its total market
capitalization.
The Company also is engaged in discussions with several lenders
regarding the establishment of the Line of Credit, which the Company
expects to have in place by the completion of the Offering, although there
can be no assurance that this will be the case. The Line of Credit will be
used primarily to facilitate acquisitions and for working capital purposes.
After paying down mortgage debt as well as expenses of the
transaction, the Company expects to have cash and working capital reserves
of approximately $38 million. A substantial portion of such cash reserves
will be used as collateral for a letter of credit in the amount of $30
million which will be held by the lender at the Two Penn Plaza Property, in
order to assure the re-leasing of approximately 430,000 square feet of space
that became available following the expiration of a lease for such space on
October 31, 1996. In addition, a portion of the letter of credit will be
used to fund the costs of re-leasing certain space that is leased to a tenant
whose lease expires in January 1998. The balance of the Company's cash and
working capital reserves will be available for other general corporate
purposes, including to fund leasing and capital costs (including, as
necessary, the Company's pro rata share of such costs at the Properties in
which the Company will have a minority interest), as well as to pay normal
operating expenses and real estate taxes. In particular,
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<PAGE>
the Company anticipates that capital may be required (i) in connection with
the re-leasing of certain space at the Eleven Penn Plaza Property, (ii)
at 330 Madison Avenue in connection with the pay down and refinancing of the
existing mortgage loan secured by that Property, and (iii) at 570 Lexington
Avenue in connection with the ongoing lease-up of that building. The
Company will benefit from cash that is being held by certain of the
partnerships in which the Company will have a minority interest. As of
September 30, 1996, the cash balances held by certain of these
partnerships was approximately $15.4 million, of which the Company's share
on a pro forma basis would have been approximately $5.7 million.
As a result of a recently completed renovation program (see "The
Properties -- The Portfolio -- Historical Capital Expenditures"),
relatively few capital projects remain to be undertaken at the Properties
over the next several years. For each of 1997 and 1998, the Company's pro
rata share (based on its ownership interest) of the projected cost of
building improvements and equipment upgrades (excluding the cost of tenant
improvements) at the Properties is approximately $690,000 (or approximately
$.20 per square foot, based on the Company's pro rata share of the total
rentable square footage at the Properties). This cost is expected to be
funded from existing cash reserves or net cash provided by operations.
The Company also expects to acquire properties in the future. Such
acquisitions may require substantial capital commitments from the Company,
either in the form of purchase price, pay down of existing debt secured by
a target property, assumption of debt secured by such property or costs
associated with the renovation and re-leasing of a property. The Company
expects that a portion of such costs will be funded from draws under the
Line of Credit, to the extent the Line of Credit is obtained, from
additional borrowings secured by the target property and from future issuances
of equity.
The Company believes that its initial cash reserves, the
Company's share of reserves held by the partnerships in which the Company
has a minority interest and net cash provided by operations will be
sufficient to meet the Company's capital needs in the near term. In the
long term, the Company expects that capital needs will be met through a
combination of net cash provided by operations, borrowings and additional
equity issuances.
The Company expects to make distributions from cash available for
distributions, which the Company believes will exceed cash available for
distributions historically available as a result of the reduction in debt
service expected to result from the repayment of debt as described above.
Amounts accumulated for distribution, as well as the initial cash received
by the Company upon completion of the Offering, will be invested by the
Company primarily in short-term investments that are collateralized by
securities of the United States government or any of its agencies,
high-grade commercial paper and bank deposits, as well as other permitted
investments. See "Distributions."
INFLATION
Substantially all of the office leases provide for separate real
estate tax and operating expense escalations over a base amount. In
addition, many of the leases provide for fixed base rent increases or
indexed escalations. The Company believes that inflationary increases may
be at least partially offset by the contractual rent increases described
above.
49
<PAGE>
NEW YORK ECONOMY AND MANHATTAN OFFICE MARKET
The Company believes that the strength of the New York
metropolitan economy and the current supply/demand fundamentals in the
Manhattan office market provide an attractive environment for acquiring,
owning and operating Class A office properties.
UNLESS INDICATED OTHERWISE, INFORMATION CONTAINED HEREIN
CONCERNING THE NEW YORK METROPOLITAN ECONOMY AND THE MANHATTAN OFFICE
MARKET IS DERIVED FROM A REPORT COMMISSIONED BY THE COMPANY AND PREPARED BY
THE ROSEN CONSULTING GROUP, A NATIONALLY KNOWN REAL ESTATE CONSULTING
COMPANY, AND IS INCLUDED HEREIN (THE "ROSEN MARKET STUDY") WITH THE CONSENT
OF THE ROSEN CONSULTING GROUP.
NEW YORK ECONOMY
New York City is a leading international city with a large,
dynamic and diverse economy. According to the U.S. Census Bureau, as of
July 1994, the economy of the New York metropolitan area was larger than
the economies of the next two largest U.S. metropolitan areas combined (Los
Angeles and Chicago), and larger than the economy of any individual state
except California, based on aggregate personal income (which the
Company believes is a good proxy for overall economic output). The New
York metropolitan area also has experienced consistent economic growth over
the past four years, during which period some 135,000 private sector jobs
have been added, an average of approximately 35,000 each year. New York City's
broad economic base and concentration of businesses create a "critical
mass" which encourages companies and firms in the financial, legal,
accounting, advertising, publishing, entertainment/broadcasting and retail
sectors to establish and maintain a presence in New York City.
With its unique appeal, New York City is headquarters to many of
the leading corporations and service firms in the U.S., including:
- more Fortune 500 Companies (47) than any other U.S. city;
- three of the four largest U.S. commercial banks (400
international banks have offices in New York City -- more than
any other city in the world);
- twenty-three of the 25 largest U.S. securities firms;
- four of the 10 largest U.S. money managers;
- twenty-seven of the 100 largest U.S. law firms (64 of the 100
largest U.S. law firms have offices in New York City);
- four of the "Big Six" accounting firms; and
- four of the largest U.S. entertainment/media conglomerates.
Part of New York City's appeal to employers is a highly educated work force
- -- over 40% of Manhattan's residents over the age of 25 have
received a college degree and nearly half of such residents have received a
graduate or professional degree. In addition, with a population of
approximately 7.4 million, including 169,000 households that have an annual
income in excess of $150,000, New York City also provides a large base of
potential customers, which is of particular appeal to businesses providing
goods and services.
50
<PAGE>
The continuing attractiveness of New York City to corporate America
is evidenced by the recent commitments made to New York City by companies
such as GE (which owns NBC), Viacom, Morgan Stanley, Credit Suisse/First
Boston and Mutual of New York (MONY), all of which have either purchased
office buildings for their own use or signed long-term leases to occupy
office space. New York City also has a strong and growing base of small
businesses. According to the New York City Office of the Comptroller,
small businesses (which are defined as businesses with fewer than 500
employees) comprise approximately 99.7% of all businesses in New York City
and employ approximately 70.7% of the private-sector work force. Between
1978 and 1995, small businesses added nearly 275,000 jobs to the New York
City economy (including close to 70,000 jobs added between 1994 and 1995),
which represented approximately 65% of all job growth in New York City over
that period.
New York City is an international financial and cultural capital
that, in addition to housing the United Nations and numerous foreign
missions, attracts tourism, is a center for international investment and a
favored North American base for many multinational corporations
headquartered overseas. The lower cost of office rents is a competitive
advantage in attracting such overseas companies to New York City.
According to Richard Ellis Company's July 1996 survey, New York City ranks
14th in the world in terms of office rental rates, after such cities as
Tokyo, London, Paris, Hong Kong and Singapore.
New York City is the consummate "24-hour city," featuring a wide
variety of restaurants, entertainment and cultural offerings, such as
Broadway theater and productions at Carnegie Hall and Lincoln Center. In
addition, many of the world's finest museums, including The Metropolitan
Museum of Art, The Museum of Modern Art, The Guggenheim Museum, The Whitney
Museum and The Museum of Natural History, are located in New York City.
New York City is also home to major educational institutions, including
Columbia University, New York University and Rockefeller University.
The quality of life in New York City also has improved with the
implementation of various public/private ventures and government
initiatives. For example, Business Improvement Districts ("BIDs"), which
are public/private ventures that provide security, sanitation and other
services within their boundaries, operate in the Grand Central Station,
Penn Station and Times Square areas and in thirty-three additional areas
within New York City. In addition, crime in New York City has declined by
25% over the past two years; in 1995, New York City ranked 148th, in terms
of crimes reported per person, out of the 184 largest U.S. cities, after
such cities as Philadelphia (1), Atlanta (4) and Miami (6), as well as
Minneapolis (38), Milwaukee (82) and Omaha (95).
The New York City government is "reinventing" itself in an effort to
streamline its operations and attract and retain businesses. For example,
the New York Economic Development Council has been actively involved in
encouraging businesses to remain in New York City. New York City also has
recently reduced or eliminated numerous taxes, including the real property
transfer tax, the unincorporated businesses tax, the commercial rent tax,
the hotel occupancy tax and the sidewalk vault tax. New York City also was
influential in eliminating the New York State real property gains tax.
Even with the reduction or elimination of numerous taxes, the New York City
government recently announced an estimated budget surplus for its current
fiscal year in excess of $350 million, as a result of savings in operating
expenses and improvements in the New York City economy.
With its dynamic and diverse base of businesses, New York City is
poised to continue its course of steady growth and economic improvement.
Private sector job creation in the New York metropolitan area is
anticipated to continue at an average rate of 1% per annum, or
approximately 30,000 private sector jobs per annum through 1998.
51
<PAGE>
MIDTOWN MANHATTAN OFFICE MARKET
OVERVIEW. The Company believes that current supply/demand
fundamentals in the midtown Manhattan office market provide an attractive
environment for acquiring, owning and operating Class A Manhattan office
properties. Specifically, the midtown Manhattan office market has the
following favorable characteristics: (i) the Class A midtown Manhattan
office market has experienced five consecutive years of positive implied net
absorption and declining vacancy rates; (ii) there have been virtually no
new additions to supply in midtown Manhattan since 1992; and (iii)
significant new office development is unlikely at the current time, because
there are relatively few sites available for construction, the lead time
required for construction typically exceeds three years and new
construction generally is not economically feasible given current market
rental rates.
According to Cushman & Wakefield Research Services ("Cushman &
Wakefield"), the midtown Manhattan office market extends from West 30th and
East 32nd Streets on the south to 70th Street on the north, and from the
East River on the east to the Hudson River on the west.
SIZE OF MARKET. The Manhattan office market is the largest office
market in the U.S and is larger than the next six largest U.S. central
business district office markets combined (Chicago, Washington, D.C.,
Boston, San Francisco, Philadelphia and Los Angeles). The following chart
sets forth the size of the Manhattan office market and the size of certain
other U.S. office markets, as of September 30, 1996:
[BAR CHART REGARDING TOTAL INVENTORY IN MANHATTAN, CHICAGO,
WASHINGTON DC, BOSTON, SAN FRANCISCO, PHILADELPHIA AND LOS ANGELES]
DIVERSITY OF TENANT BASE. The midtown Manhattan office market
attracts a diverse base of tenants across a wide range of industries. The
following table sets forth employment by industry group in the United
States as a whole and in midtown Manhattan, as of September 30, 1996:
<TABLE>
<CAPTION>
EMPLOYMENT BY INDUSTRY GROUP
----------------------------
TOTAL MIDTOWN
U.S. MANHATTAN
---------- ---------
<S> <C> <C>
Agriculture. . . . . . . . . . . . . . . 2.9% 0.5%
Construction . . . . . . . . . . . . . . 7.0 1.2
Manufacturing. . . . . . . . . . . . . . 16.1 11.4
Transportation and Utilities . . . . . . 7.0 6.2
Wholesale Trade. . . . . . . . . . . . . 3.9 9.1
Retail Trade . . . . . . . . . . . . . . 17.1 10.7
Financial, Insurance and Real Estate . . 6.4 18.6
Services . . . . . . . . . . . . . . . . 34.9 41.9
Public Administration. . . . . . . . . . 4.7 0.4
----- -----
100.0% 100.0%
</TABLE>
Source: New York State Department of Labor
HISTORICAL PERSPECTIVE. The midtown Manhattan office market
experienced rapid growth both in demand for, and supply of, office space
during the 1980s. A wave of new construction peaked in the late 1980s and,
between 1985 and 1990, approximately 20 million square feet of space was
delivered. However, since 1992, there has been very little new
construction in the midtown Manhattan office market.
52
<PAGE>
[TABLE REGARDING NEW CONSTRUCTION BEGINNING IN 1980]
In the late 1980s and early 1990s, as much of the new supply of
office space was being delivered, the demand for space in the midtown
Manhattan office market fell off abruptly as a result of the general
downturn in the economy and subsequent corporate downsizings. As a result
of the increase in inventory and the significant decrease in employment in
Manhattan, Class A vacancy rates in midtown Manhattan increased into the
double digits, peaking at 17.2% in 1990.
In the early 1990s, however, conditions began to improve in the
midtown Manhattan office market, as a result of the following factors: new
jobs were created as the national and New York metropolitan economies
recovered from their downturns; existing midtown Manhattan businesses
experienced an increased need for office space; and some traditional
downtown Manhattan tenants, such as banks and securities firms, moved to
midtown in search of greater amenities and improved access to
transportation.
INCREASING DEMAND FOR MIDTOWN OFFICE SPACE. As of September 30,
1996, the Class A office vacancy rate in midtown Manhattan had fallen to
11.0% from a peak of 17.2% in 1990. Tenants generating strong demand for
midtown office space include those in the advertising, printing and
publishing, financial services, legal services and communications
industries. As a result of the demand generated by these and other
tenants, combined with a lack of projected new construction through 1998,
Rosen Consulting Group projects that the Class A midtown vacancy rate will
continue to fall to 7.9% in 1998.
[BAR CHART REGARDING CLASS A MIDTOWN MANHATTAN VACANCY RATES
BEGINNING IN 1991, WITH AN OVERLAY LINE CHART OF ASKING RENTAL RATES]
Since 1991, the midtown Manhattan office market has experienced
significant growth in gross leasing activity. (Gross leasing activity
equates to all of the leases signed in the market, including renewals of
existing leases and moves within the market. Rosen Consulting Group
believes that gross leasing activity is a good measure of the overall
health of the market for office space.) As shown in the following chart,
gross leasing activity exceeded 20 million square feet in each of 1994 and
1995.
[BAR CHART REGARDING GROSS LEASING ACTIVITY BEGINNING IN 1991]
In addition, implied net absorption of Class A office space in
midtown Manhattan has been positive since 1991 and surged in 1994 and 1995,
reaching 3.7 million and 3.0 million square feet, respectively. Implied
net absorption has slowed somewhat during 1996, but net absorption is
forecasted to reach 1.8 million square feet.
[BAR CHART REGARDING IMPLIED AND DERIVED NET ABSORPTION FROM
BEGINNING IN 1991]
LIMITED SUPPLY OF NEW OFFICE SPACE. The Company expects the supply
of Class A office space in the midtown Manhattan market to remain
relatively stable for the foreseeable future because there are relatively
few sites available for construction, the lead time required for
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<PAGE>
construction typically exceeds three years and new construction generally
is not economically feasible at current market rental rates. Virtually no
new construction of office space in midtown Manhattan is anticipated in the
near term, except one major development, containing approximately 1.6
million square feet, scheduled to be delivered in 1999, which has
substantial grandfathered tax benefits. (The Company does not believe that
this property will have a material impact on the market because it
represents less than 1% of the total Class A midtown office space and is
already substantially pre-leased to two tenants.) In the absence of tax
incentives, the Company believes that rents generally would have to
increase significantly to justify the cost of new construction. Assuming
development costs of $300-350 per square foot (as estimated by Cushman &
Wakefield), a market base rent of at least $50 per square foot would be
needed to make construction economically viable. This suggests that, in
order to justify new construction, market base rents (not taking into account
any tax benefits that may apply) generally would have to
increase to at least 40% more than current asking rents for Class A office
space in midtown Manhattan (as estimated by Cushman & Wakefield).
POSITIVE OUTLOOK FOR EFFECTIVE RENTAL RATES. As discussed above,
the Company anticipates continued growth in the demand for Class A office
space in the midtown Manhattan office market and relatively little new
supply of such space being delivered over the next several years.
Accordingly, the Company believes that vacancy rates among Class A
properties in the midtown Manhattan office market should continue to
decrease, which the Company believes should result in increased rental
rates and decreased re-leasing costs in well-managed, well-located Class A
office properties, such as the Properties. However, there can be no
assurance that any of these expectations will be met.
Submarkets
Cushman & Wakefield broadly divides the midtown Manhattan office
market into three submarkets: Midtown West; Grand Central; and Plaza.
Three Properties (Two Penn Plaza, 1740 Broadway and Eleven Penn Plaza) are
located in the Midtown West submarket; two Properties (Two Park Avenue and
330 Madison Avenue) are located in the Grand Central submarket; and two
Properties (866 United Nations Plaza and 570 Lexington Avenue) are located
in the Plaza submarket.
MIDTOWN WEST SUBMARKET. Cushman & Wakefield considers the Midtown
West submarket to be the area from 30th Street to 47th Street, west of
Fifth Avenue, and the area from 47th Street to 70th Street, west of Seventh
Avenue. Located within the Midtown West submarket is Pennsylvania Station,
the busiest train station in the United States, and Port Authority Bus
Terminal, the main bus terminal in Manhattan. Also located within the
Midtown West submarket is Times Square (the theater district), which
currently is undergoing a major redevelopment, and the Garment District
(the center for fashion design and clothing manufacturing in New York City).
Conditions in the Midtown West submarket have improved dramatically
since 1991. The Class A vacancy rate has fallen from 20.1% in 1991 to 9.9%
as of September 30, 1996.
[BAR CHART REGARDING CLASS A MIDTOWN WEST VACANCY RATES
BEGINNING IN 1991, WITH AN OVERLAY LINE CHART OF ASKING RENTAL RATES]
Following the Formation Transactions and the Offering, the Company
expects to have a presence in the Midtown West submarket through a 100%
interest in each of Two Penn Plaza and 1740 Broadway and a 47.7% interest in
Eleven Penn Plaza. For more information regarding Two Penn Plaza, 1740
Broadway and Eleven Penn Plaza, see "The Properties -- Two Penn Plaza," "--
1740 Broadway" and "--Eleven Penn Plaza," respectively.
54
<PAGE>
GRAND CENTRAL SUBMARKET. Cushman & Wakefield considers the Grand
Central submarket to be the area from 32nd Street to 47th Street, from
Fifth Avenue to the East River. Located within the Grand Central submarket
is Grand Central Terminal, the second busiest train station in the United
States.
Office market conditions in the Grand Central submarket have
improved notably during the past several years. The vacancy rate for Class
A space has fallen from 18.8% in 1993 to 13% as of September 30, 1996.
[BAR CHART REGARDING CLASS A GRAND CENTRAL VACANCY RATES
BEGINNING IN 1991, WITH AN OVERLAY LINE CHART OF ASKING RENTAL RATES]
Following the Formation Transactions and the Offering, the Company
expects to have a presence in the Grand Central submarket through a 40%
interest in Two Park Avenue and an approximate 25% interest in 330 Madison
Avenue. For more information regarding Two Park Avenue and 330 Madison
Avenue, see "The Properties -- Two Park Avenue" and "-- 330 Madison
Avenue," respectively.
PLAZA SUBMARKET. Cushman & Wakefield considers the Plaza submarket
to be the area from 47th Street to 65th Street, Seventh Avenue to the East
River. It is the largest of the Midtown submarkets.
The Plaza submarket has experienced marked improvement during the
past several years. The Class A vacancy rate fell from 16.3% in 1992 to
9.9% as of September 30, 1996. The only scheduled construction projects
are a build-to-suit 112,000 square foot tower for the mission of the
Federal Republic of Germany, which is building its headquarters near the
United Nations, and a build-to-suit 103,000 square foot building for
the parent corporation of Louis Vuitton.
[BAR CHART REGARDING CLASS A PLAZA VACANCY RATES BEGINNING IN
1991, WITH AN OVERLAY LINE CHART OF ASKING RENTAL RATES]
Following the Formation Transactions and the Offering, the Company
expects to have a presence in the Plaza submarket through a 100% interest
in 866 United Nations Plaza and a 5.6% interest in 570 Lexington Avenue.
For more information regarding 866 United Nations Plaza and 570 Lexington
Avenue, see "The Properties -- 866 United Nations Plaza" and "-- 570
Lexington Avenue," respectively.
55
<PAGE>
THE PROPERTIES
THE PORTFOLIO
GENERAL. Upon completion of the Offering, the Company will own
interests in seven office Properties located in midtown Manhattan which
contain approximately 5.5 million rentable square feet. See "Formation of
the Company -- Formation Transactions." Cushman & Wakefield has classified
each of the Properties as Class A, which it defines as buildings which meet
three or more of the following criteria: centrally located; professionally
managed and maintained; attract high-quality tenants and command upper-tier
rental rates; and are modern structures or have been modernized to
successfully compete with newer buildings. Each of the Properties includes
at least a small amount of retail space on its lower floors, as well as
basement/storage space. One Property (866 United Nations Plaza) includes an
underground parking garage which is leased to a single tenant. The Company
believes that each of the Properties is adequately covered by property and
liability insurance.
The Company will own non-controlling partial interests in four of the
Properties (Eleven Penn Plaza, Two Park Avenue, 330 Madison Avenue and 570
Lexington Avenue). The Company will not act as the direct managing general
partner of any such Properties. With respect to three of the Properties
(Eleven Penn Plaza, Two Park Avenue and 330 Madison Avenue), Mr. Mendik will
be the managing general partner, directly or indirectly, of the entities
which own those Properties. However, by reason of the provisions of the
existing partnership agreements governing the entities which own all four of
these Properties, and the ownership interests of the Company in each of such
Properties, the Company will have significant influence over, or have the
right to consent to, the management and operations of these Properties. In
addition, no capital transactions may be undertaken with respect to these
Properties without the consent of the Company, except for refinancing of the
indebtedness secured by Eleven Penn Plaza within six months of the scheduled
maturity of such indebtedness and sales and financing transactions of 570
Lexington Avenue. See "Eleven Penn Plaza" and "-- 570 Lexington Avenue"
below.
The following table sets forth certain information with respect to each
of the Properties as of September 30, 1996:
<TABLE>
<CAPTION>
ANNUAL
TOTAL ESCALATED RENT
RENTABLE PERCENT PER LEASED
OWNERSHIP YEAR SQUARE LEASED SQUARE FOOT SIGNIFICANT
PROPERTY INTEREST SUBMARKET BUILT FEET (1) (1)(2) (1)(2)(3) TENANTS (4)
- -------- --------- --------- ------- --------- ------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Two Penn Plaza 100.0% Midtown West 1968 1,478,592 67.2% (5) $28.02 (5) Digital Equipment (12%)
1740 Broadway 100.0 Midtown West 1950 551,301 100.0 32.74 Mutual of New York (48%);
(The MONY Building) William Douglas McAdams (11%)
866 United Nations Plaza 100.0 Plaza 1966 384,815 97.5 31.35 Bear Stearns (17%);
Eleven Penn Plaza (7) 47.7 Midtown West 1923 961,375 95.1 27.53 Times Mirror (24%);
General Mills (16%)
Two Park Avenue (7) 40.0 Grand Central 1928 946,697 97.1 23.53 Times Mirror (30%);
Smith Barney (11%)
330 Madison Avenue (7) 24.8 Grand Central 1963 770,828 96.3 34.43 BDO Seidman (15%)
570 Lexington Avenue (7) 5.6 Plaza 1930 433,342 33.5 (6) 29.38 (6) (6)
-------- ----- ------
TOTAL/WEIGHTED AVERAGE 5,526,950 (7) 88.2% (7)(8) $28.92 (7)(8)
--------- ---- -----
--------- ---- -----
</TABLE>
___________________________
(1) Includes, in the aggregate, 158,516 square feet of retail space
(which, as of September 30, 1996, was 90.3% leased to 46 tenants)
and 151,439 square feet of basement and storage space (which, as of
September 30, 1996, was 76.5% leased to 48 tenants). Also includes
42,674 square feet of underground parking garage space at 866 United
Nations Plaza (which, as of September 30, 1996, was 100% leased to a
single tenant).
(2) Includes space for leases that were executed as of September 30,
1996.
56
<PAGE>
(3) Annual Escalated Rent Per Leased Square Foot, as used throughout
this Prospectus, represents the annualized monthly base rent in
effect (after giving effect to any contractual increases in monthly
base rent that have occurred up to September 30, 1996) including
monthly tenant pass-throughs of operating and other expenses (but
excluding tenant electricity costs) under each lease executed as of
September 30, 1996, or, if such monthly rent has been reduced by a
temporary rent concession, the monthly rent that would have been in
effect at such date in the absence of such concession.
(4) Percentage shown with respect to each significant tenant represents
the percentage of square footage leased by such tenant at the
Property.
(5) Excludes a lease for approximately 430,000 square feet
(approximately one-third of the building) which expired on October
31, 1996. See "--Two Penn Plaza."
(6) 570 Lexington Avenue was acquired in 1994 with substantially all of
the building unoccupied at that time. The building has been
substantially renovated and currently is being leased.
(7) The Company will own partial interests in Eleven Penn Plaza, Two
Park Avenue, 330 Madison Avenue and 570 Lexington Avenue.
Information for each of these Properties is presented without regard
to the effect of such partial interest. The Company's pro rata
share of total rentable square feet, taking into account such
partial interests, is 3,456,212 square feet.
(8) Excludes 570 Lexington Avenue.
HISTORICAL OCCUPANCY. The Properties historically have achieved
consistently high occupancy rates in comparison to the overall midtown
Manhattan office market, as shown in the following table:
<TABLE>
<CAPTION>
PERCENT OCCUPANCY RATE OF
LEASED AT THE CLASS A MIDTOWN
PROPERTIES AT MANHATTAN OFFICE
DATE PERIOD END (1) PROPERTIES (2)
----- -------------- ----------------
<S> <C> <C>
September 30, 1996 88.2% (3) 91.4%
December 31, 1995 95.5% 90.5%
December 31, 1994 95.0% 89.5%
December 31, 1993 93.0% 86.8%
December 31, 1992 94.4% 87.2%
December 31, 1991 92.2% 87.0%
</TABLE>
(1) Includes space for leases that were executed at the end of the
relevant date. Percent Leased at the Properties is the weighted
average for all the Properties (excluding 570 Lexington Avenue) as
of the relevant date, treating Eleven Penn Plaza, Two Park Avenue
and 330 Madison Avenue as if they were 100% owned by the Company.
(2) Includes space for direct leases, but does not include subleased
space. Source: Cushman & Wakefield. Cushman & Wakefield has
classified each of the Properties as Class A office properties.
(3) Excludes a lease for approximately 430,000 square feet
(approximately one-third of the building) with Equitable which
expired on October 31, 1996. See "-- Two Penn Plaza."
LEASE EXPIRATIONS. Leases at the Properties typically extend for a
term of ten or more years, compared to typical lease terms of 5-10 years in
other large U.S. office markets. Taking into account leases renewed prior to
expiration as well as other leasing transactions, the Mendik Group has
re-leased approximately 50% of the space at the Properties since 1993, with
an average lease term of approximately 11 years. As a result of its
re-leasing efforts and the long-term leases typical in the Manhattan office
market, leases covering approximately one-third of the office space at the
Properties do not expire before 2006, and in no single year are leases
covering more than 10% of the office space at the Properties scheduled to
expire (in each case, assuming no tenants exercise renewal or cancellation
options and no tenant bankruptcies or other tenant defaults).
57
<PAGE>
The following table sets out a schedule of the annual lease
expirations at the Properties (excluding 570 Lexington Avenue) for leases in
place as of September 30, 1996 for each of the next ten years and thereafter
(assuming that no tenants exercise renewal or cancellation options and that
there are no tenant bankruptcies or other tenant defaults):
<TABLE>
<CAPTION>
ANNUAL
ESCALATED
RENT PER
ANNUAL LEASED
ANNUAL ESCALATED RENT SQUARE FOOT
SQUARE PERCENTAGE ESCALATED PER LEASED OF EXPIRING
YEAR OF NUMBER OF FOOTAGE OF RENT OF SQUARE FOOT LEASES WITH
LEASE EXPIRING OF EXPIRING TOTAL LEASED EXPIRING OF EXPIRING WITH FUTURE
EXPIRATION LEASES (1) LEASES (1) SQUARE FEET LEASES (1)(2) LEASES (1)(2) STEP-UPS (1)(3)
- ---------- ---------- ----------- ------------ ------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
1996 38 38,169 (4) 0.7% (4) $901,117 $23.61 (5) $23.61 (5)
1997 38 300,437 5.9 10,388,304 34.58 34.58
1998 46 481,873 9.5 15,400,048 31.96 31.98
1999 54 420,195 8.2 12,370,529 29.44 29.75
2000 23 144,963 2.8 4,597,807 31.72 31.81
2001 21 440,561 (6) 8.6 (6) 14,770,640 3.53 32.48
2002 13 224,974 4.4 7,366,265 32.74 34.48
2003 19 257,305 5.1 7,344,468 28.54 31.96
2004 15 164,546 3.2 4,824,060 29.32 34.25
2005 20 290,827 5.7 9,432,659 32.43 36.71
2006 and thereafter 53 1,730,414 34.0 42,583,931 24.61 32.51
--- --------- ------ ------------ ----- -----
SUBTOTAL/WEIGHTED AVERAGE 340 4,494,264 (4) 88.2% (4) $129,979,828 $28.92 $32.63
------------ ------ ------
------------ ------ ------
Unleased at 9/30/96 599,344 (4) 11.8 (4)
---------- ------
TOTAL 5,093,608 100.0%
---------- ------
---------- ------
</TABLE>
_______________________
(1) Excludes 570 Lexington Avenue. In addition, the Company will own
partial interests in Eleven Penn Plaza, Two Park Avenue and 330
Madison Avenue. Information on this table is presented without
regard to the effect of such partial interests.
(2) Annual Escalated Rent Per Leased Square Foot of Expiring Leases, as
used throughout this Prospectus, represents annualized monthly base
rent in effect (after giving effect to any contractual increases in
monthly base rent that have occurred up to September 30, 1996)
including monthly tenant pass-throughs for monthly and other
expenses, (but excluding tenant electricity costs) under each lease
executed as of September 30, 1996, or, if such monthly rent has been
reduced by a temporary rent concession, the monthly rent that would
have been in effect at such date in the absence of such concession.
(3) Annual Escalated Rent Per Leased Square Foot of Expiring Leases With
Future Step-Ups represents Annual Escalated Rent Per Leased Square
Foot of Expiring Leases as described in footnote (2) above, but
also reflects contractual increases in monthly base rent that occur
after September 30, 1996.
(4) Gives effect to the expiration of the lease for approximately 430,000
square feet with Equitable at Two Penn Plaza that expired on October
31, 1996.
(5) The Direct Weighted Average Rental Rate for the direct Class A
midtown Manhattan office market, according to Cushman & Wakefield
(as adjusted by the Company to weight the representation of the
Properties in each submarket), was $30.97 as of September 30, 1996.
Direct Weighted Average Rental Rate represents the weighted average
of asking rental rates for direct Class A space. Asking rental rates
generally are higher than actual rental rates (which generally are
not publicly available). In addition, the Direct Weighted Average
Rental Rate represents a large number of Class A properties in
various locations within the midtown Manhattan office market, and,
therefore, may not be representative of asking or actual rental rates
at the Properties.
(6) Includes an underground parking garage at 866 United Nations Plaza
comprising 42,674 square feet. As of September 30, 1996, the Annual
Escalated Rent Per Leased Square Foot for the underground parking
garage space was $16.29.
58
<PAGE>
TENANT DIVERSIFICATION. The Properties currently are leased to
over 330 tenants which are engaged in a variety of businesses, including
financial services, investment banking, publishing, computer technology,
health care services, accounting and law. The following table sets forth
information regarding the leases with respect to the 20 largest tenants at the
Properties (excluding 570 Lexington Avenue), based on the amount of square
footage leased by such tenants as of September 30, 1996:
<TABLE>
<CAPTION>
REMAINING PERCENTAGE
LEASE TERM TOTAL OF AGGREGATE
IN RENTABLE LEASED
PROPERTY MONTHS SQUARE FEET SQUARE FEET (1)
------------ ---------- ----------- ---------------
<S> <C> <C> <C> <C>
100% OWNED PROPERTIES (2)
Mutual of New York ("MONY") 1740 Broadway 202 263,948 5.9%
Ogden Services Co. Two Penn Plaza 136 132,023 2.9
Digital Equipment Two Penn Plaza 16 103,908 2.3
UHC Management Two Penn Plaza 52 69,137 1.5
Madison Square Garden Two Penn Plaza 103 67,023 1.5
Bear Stearns 866 United Nations Plaza 13 64,710 1.4
William Douglas McAdams 1740 Broadway 134 62,774 1.4
Forest Electric Two Penn Plaza 112 57,217 1.3
George Buck Consulting Two Penn Plaza 21 55,344 1.2
<CAPTION>
PARTIAL INTEREST PROPERTIES (3)
Times Mirror Two Park Avenue/
Eleven Penn Plaza 167/57 507,053 11.2
R.H. Macy & Co. Eleven Penn Plaza 75 153,588 3.4
BDO Seidman 330 Madison Avenue 168 114,122 2.5
Smith Barney Two Park Avenue 20 99,839 2.2
Bank Julius Baer 330 Madison Avenue 105 67,322 1.5
Crowthers McCall Eleven Penn Plaza 161 62,239 1.4
Herrick Feinstein Two Park Avenue 168 61,337 1.4
Nortel Communications 330 Madison Avenue 21 58,026 1.3
Schiefeflin & Somerset Two Park Avenue 112 55,685 1.2
Executive Office Network Eleven Penn Plaza 186 51,886 1.2
Donald Fager & Associates Two Park Avenue 36 49,232 1.1
TOTAL 111 2,156,413 47.8%
------- --------- ------
------- --------- ------
</TABLE>
___________________
(1) Based on the total rentable square footage at the Properties
(excluding 570 Lexington Avenue), without adjustment to reflect the
Company's partial interest in the Property, if applicable.
(2) Excludes a 430,000 square foot lease with Equitable that expired on
October 31, 1996. See "--Two Penn Plaza" below.
(3) The Company will own partial interests in Eleven Penn Plaza, Two
Park Avenue, 330 Madison Avenue and 570 Lexington Avenue.
Information with respect to Total Rentable Square Feet for each
significant tenant listed for these Properties represents the entire
space leased (without adjustment to reflect the Company's partial
interest in the Property).
LEASE DISTRIBUTION. The following table sets forth information
relating to the distribution of the Company's leases (excluding leases with
respect to 570 Lexington Avenue), based on rentable square feet under lease,
as of September 30, 1996:
59
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
OF AGGREGATE OF AGGREGATE
PORTFOLIO PORTFOLIO
NUMBER PERCENT LEASED ANNUAL ANNUAL
SQUARE FEET OF OF ALL TOTAL LEASED SQUARE ESCALATED ESCALATED
UNDER LEASE LEASES (1) LEASES (1) SQUARE FEET (1) FEET RENT (1) RENT
- ------------ ---------- ---------- --------------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
2,500 or less 133 39.1% 138,246 3.1% $3,648,199 2.8%
2,501-5,000 62 18.2 219,906 4.9 5,819,799 4.5
5,001-7,500 31 9.1 190,944 4.2 5,844,136 4.5
7,501-10,000 21 6.2 183,768 4.1 5,498,484 4.2
10,001-20,000 38 11.2 557,809 12.4 15,783,471 12.1
20,001-40,000 25 7.3 713,393 15.9 21,731,607 16.7
40,000+ (2) 30 8.9 2,490,198 55.4 71,654,132 55.1
---- ------ --------- ----- ------------ ------
TOTAL 340 100.0% 4,494,264 100.0% $129,979,828 100.0%
---- ------ --------- ------ ------------ ------
---- ------ --------- ------ ------------ ------
</TABLE>
____________________
(1) Excludes 570 Lexington Avenue. In addition, the Company will own
partial interests in Eleven Penn Plaza, Two Park Avenue and 330
Madison Avenue. Information on this table is presented without
regard to the effect of such partial interests.
(2) Excludes a 430,000 square foot lease that expired on October 31,
1996. See "--Two Penn Plaza" below.
TENANT RETENTION AND EXPANSIONS. The Company believes that the
Mendik Group's commitment to and reputation for providing a high-quality
office environment in terms of building systems, public spaces and tenant
services have encouraged tenants to renew their leases, attracted new tenants
to its properties and supported competitive rent levels. The Company will
continue the Mendik Group's approach to identifying and responding quickly to
tenant requirements. The Company will establish personal contacts with its
tenants and maintain a program of regular tenant visits. In addition, the
Company will continue the Mendik Group's approach of rotating its building
managers through each of its properties in order to encourage a critical
review of each property and tenant services. The Company also will continue
the Mendik Group's approach of encouraging each of its employees to make
suggestions relating to the enhancement of a building's appearance or
efficiency.
The Company's success in this area is demonstrated in part by the
number of existing tenants which have re-leased space, leased additional
space to support their expansion needs or moved to other space within the
Company's portfolio. For example, in 1995 the Mendik Group was able to
facilitate The Times Mirror Company's consolidation of its operations by
permitting it to relocate to Two Park Avenue the operations it conducted at
Eleven Penn Plaza. See "-- Eleven Penn Plaza."
HISTORICAL LEASE RENEWALS. The following table sets forth certain
historical information regarding tenants at the Properties who renewed an
existing lease at or prior to the expiration of such lease:
<TABLE>
<CAPTION>
TOTAL/
JANUARY 1 TO WEIGHTED
SEPTEMBER 30, AVERAGE
1993 1994 1995 1996 1993-1996
---- ---- ---- ---- ----------
<S> <C> <C> <C> <C> <C>
Number of leases expired during
calendar year 83 84 82 49 298
Number of leases renewed 39 53 51 33 176
Percentage of leases renewed 47.0% 63.1% 62.2% 67.4% 59.1%
Aggregate rentable square footage
of expiring leases 658,122 485,331 687,704 427,792 2,258,949
Aggregate rentable square footage
of lease renewals 366,939 200,983 493,096 338,712 1,399,730
Percentage of expiring rentable
square footage renewed 55.8% 41.4% 71.7% 79.2% 62.0%
</TABLE>
60
<PAGE>
HISTORICAL TENANT IMPROVEMENTS AND LEASING COMMISSIONS. Taking into
account leases renewed prior to expiration as well as other leasing
transactions, the Mendik Group has re-leased approximately 50% of the space
at the Properties since 1993 with an average lease term of approximately 11
years. The following table sets forth certain historical information
regarding tenant improvement and leasing commission costs for tenants at the
Properties during this period (excluding 570 Lexington Avenue):
<TABLE>
<CAPTION>
TOTAL/
JANUARY 1 TO WEIGHTED
SEPTEMBER 30, AVERAGE
1993 1994 1995 1996 1993-1996
---- ---- ---- ------------- ---------
<S> <C> <C> <C> <C> <C>
RENEWALS
Number of leases 39 53 51 33 176
Square feet (1) 366,939 200,983 493,096 338,712 1,399,730
Tenant improvement costs per square foot (2) $ 0.71 $ 12.84 $ 6.61 $ 11.12 $ 6.25
Leasing commission costs per square foot (2) $ 2.04 $ 4.66 $ 4.25 $ 9.52 $ 5.02
------- ------- ------- ------- ---------
Total tenant improvement and leasing
commission costs per square foot (2) $ 2.75 17.50 $ 10.86 $ 20.64 $ 11.27
------- ------- ------- ------- ---------
------- ------- ------- ------- ---------
NEW LEASES
Number of leases 46 36 31 20 133
Square feet (1) 222,969 386,989 220,219 149,645 979,822
Tenant improvement costs per square foot (2) $ 23.24 $ 35.75 $ 30.11 $ 29.09 $ 30.14
Leasing commission costs per square foot (2) $ 6.85 $ 6.26 $ 5.51 $ 6.05 $ 6.23
------- ------- ------- ------- ---------
Total tenant improvement and leasing
commission costs per square foot (2) $ 30.09 $ 42.01 $ 35.62 $ 35.14 $ 36.37
------- ------- ------- ------- ---------
------- ------- ------- ------- ---------
TOTAL
Number of leases 85 89 82 53 309
Square feet (1) 589,908 587,972 713,315 488,357 2,379,552
Tenant improvement costs per square foot (2) $ 8.22 $ 25.13 $ 14.46 $ 19.90 $ 15.97
Leasing commission costs per square foot (2) $ 3.72 $ 5.54 $ 4.64 $ 8.25 $ 5.49
------- ------- ------- ------- ---------
Total tenant improvement and leasing
commission costs per square foot (2) $ 11.94 $ 30.67 $ 19.10 $ 28.15 $ 21.46
------- ------- ------- ------- ---------
------- ------- ------- ------- ---------
</TABLE>
____________________
(1) Represents 100% of the leases signed during the period.
(2) Represents the Company's share of expenditures (including 47.7% of
expenditures at Eleven Penn Plaza, 40% of expenditures at Two Park
Avenue and 24.8% of the expenditures at 330 Madison Avenue),
divided by the Company's pro rata share of square footage at the
Properties.
HISTORICAL CAPITAL EXPENDITURES. Since 1988, approximately $79
million has been expended at the Properties (excluding 570 Lexington Avenue)
for building improvements and equipment upgrades (excluding the costs of
tenant improvements), including installation of state-of-the-art steam
absorbers to provide air conditioning, elevator computerization and
refurbishment, lobby and facade renovation, security systems upgrades,
sprinkler system installation, asbestos removal, window replacement and
mechanical and electrical systems upgrades. As a result of this recently
completed renovation program, relatively few capital projects remain to be
undertaken over the next several years. For each of 1997 and 1998, the
projected cost of building improvements and equipment upgrades (excluding the
costs of tenant improvements) at the Properties is approximately $690,000 (or
$0.20 per square foot, based on the Company's pro rata share of the
total rentable square footage at the Properties), which cost is expected to be
paid from operating cash flows or cash reserves.
The following table sets forth information regarding historical
capital expenditures at the Properties (excluding 570 Lexington Avenue) since
1988:
61
<PAGE>
<TABLE>
<CAPTION>
1988 1989 1990 1991 1992 1993 1994 1995 1996 TOTAL
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Two Penn Plaza . . . . . . . $ 722 $ 1,734 $ 529 $ 4,656 $ 930 $ 857 $ 2,103 $ 3,249 $ 1,943 $16,723
1740 Broadway. . . . . . . . -- -- -- 291 1,081 64 32 871 702 3,041
866 United Nations Plaza . . 349 609 999 50 100 726 42 533 345 3,753
Eleven Penn Plaza. . . . . . 462 4,501 4,425 3,264 2,772 76 146 50 2,159 17,857
Two Park Avenue. . . . . . . 7,835 3,571 3,010 433 837 126 1,176 1,205 375 18,569
330 Madison Avenue . . . . . 2,859 894 6,094 2,710 669 1,500 1,593 2,166 1,054 19,539
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total . . . . . . . . . . $12,227 $11,309 $15,058 $11,404 $ 6,389 $ 3,349 $ 5,093 $ 8,074 $ 6,579 $79,482
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
</TABLE>
62
<PAGE>
UNCONSOLIDATED PROPERTIES. The following table sets forth certain
information related to the four Properties in which the Company will own a
partial interest (which interests will be accounted for under the equity
method of accounting):
SELECTED OPERATING STATEMENT INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FUNDS FROM
RENTAL & DEPRECIATION NET OPERATIONS
COMPANY'S OTHER INTEREST AND OTHER INCOME CONTRIBUTION TO
OWNERSHIP REVENUE EXPENSE AMORTIZATION EXPENSES (LOSS) THE COMPANY (1)
--------- -------- -------- ------------ -------- ------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Eleven Penn Plaza.............. 47.73% $ 31,952 $7,223 $ 4,655 $ 12,575 $ 7,499 $ 5,636
Two Park Avenue................ 40.00 23,896 7,534 7,549 11,519 (2,706) 1,865
330 Madison Avenue............. 24.75 26,913 7,337 5,042 12,802 1,732 3,183
570 Lexington Avenue........... 5.58 4,428 3,584 431 5,419 (5,006) (51)
</TABLE>
_______________________
(1) Represents the Funds from Operations Contribution to the Company from
each Property included in Funds from Operations, before minority interest
of holders of Units, as set forth in "Selected Financial Information."
SELECTED BALANCE SHEET INFORMATION
AS OF SEPTEMBER 30, 1996
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
CASH AND
COMPANY'S RENTAL SHORT TERM TOTAL MORTGAGE INTEREST MATURITY
OWNERSHIP PROPERTY, NET INVESTMENTS(1) ASSETS PAYABLE RATE DATE
--------- ------------- -------------- -------- -------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Eleven Penn Plaza............. 47.73% $ 34,859 $ 5,701 $ 69,318 $75,713 9.25 1/31/99
Two Park Avenue............... 40.00 150,257 4,141 173,008 65,000 8.93 12/19/98
330 Madison Avenue............ 24.75 49,995 5,413 77,681 90,204(3) 9.17(3) 10/30/99
570 Lexington Avenue.......... 5.58 35,800 174 47,703 -- -- --
</TABLE>
_______________________
(1) Does not necessarily reflect the cash expected to be outstanding as of
the completion of the Offering.
(2) Effective rate for 1996.
(3) The amount of mortgage payable outstanding and interest rate with respect
to this loan currently is in dispute. See "The Properties--330 Madison
Avenue."
TWO PENN PLAZA
Two Penn Plaza is a 32-story office building that sits
directly atop Penn Station and occupies the entire block front on the west
side of Seventh Avenue between 31st and 33rd Streets (adjacent to Madison
Square Garden). Built in 1968, Two Penn Plaza features approximately
1,479,000 rentable square feet (including approximately 30,200 square feet of
retail space and approximately 27,800 square feet of storage space) and a
large floor plate of approximately 55,000 square feet, which floor plate the
Company believes makes the building well-suited for large corporate tenants.
The Mendik Group acquired the leasehold interest in the Property in 1978 and
the fee interest in 1980.
As of September 30, 1996, approximately 67.1% of the rentable square
footage in Two Penn Plaza was leased (including space for leases that were
executed as of September 30, 1996 and excluding a lease for approximately
430,000 square feet which expired on October 31, 1996). The office space was
66.7% leased and the retail space was 86.4% leased. The following table sets
forth the percent leased and the Annual Escalated Rent Per Leased Square Foot
at the Property as of September 30, 1996 and at the end of each of the past
five years.
63
<PAGE>
ANNUAL ESCALATED
PERCENT LEASED RENT PER LEASED
DATE AT PERIOD END (1) SQUARE FOOT (1)
---- ----------------- ----------------
September 30, 1996 67.2% (2) $28.02 (2)
December 31, 1995 93.7% $28.62
December 31, 1994 94.2% $27.75
December 31, 1993 96.0% $26.23
December 31, 1992 94.7% $28.77
December 31, 1991 95.4% $28.38
__________________
(1) Includes space for leases that were executed at the end of the relevant
period.
(2) Excludes a lease for approximately 430,000 square feet which expired on
October 31, 1996.
As of September 30, 1996, two tenants leased space representing 10% or
more of the Property's rentable square feet. Equitable, a large life and
health insurance company, leased approximately 430,000 square feet
(approximately one-third of the building) under a lease which expired on
October 31, 1996. Equitable advised the Mendik Group that it did not renew
its lease in order to relocate the operations that it conducted at Two Penn
Plaza to a building closer to its Manhattan headquarters. The Mendik Group
currently is marketing this space and is engaged in preliminary discussions
with prospective tenants with respect to all or a portion of the vacant
space.
In addition, as of September 30, 1996, Digital Equipment Corporation, a
large computer systems company ("Digital"), leased approximately 178,000
square feet in the building under leases that expire on January 31, 1998, of
which space approximately 74,000 square feet have been subleased to UHC
Management Company, Inc., a health care company ("UHC"), and Apertus
Technology, a technology company. (Digital, however, remains liable to the
Property-owning entity under the leases.) In addition, UHC has executed a
lease for the space that it currently is subleasing from Digital, which lease
will take effect upon the expiration of its sublease with Digital and will
expire on January 1, 2001. (As of September 30, 1996, UHC leased an
additional approximate 16,000 square feet in the building.)
64
<PAGE>
The following table sets out a schedule of the annual lease expirations
at Two Penn Plaza for leases executed as of September 30, 1996 for each of
the next ten years and thereafter, assuming that no tenants exercise renewal
or cancellation options and that there are no tenant bankruptcies or other
tenant defaults:
<TABLE>
<CAPTION>
ANNUAL
ESCALATED
RENT PER
ANNUAL LEASED
ANNUAL ESCALATED RENT SQUARE FOOT
SQUARE PERCENTAGE ESCALATED PER LEASED OF EXPIRING
YEAR OF NUMBER OF FOOTAGE OF RENT OF SQUARE FOOT LEASES
LEASE EXPIRING OF EXPIRING TOTAL LEASED EXPIRING OF EXPIRING WITH FUTURE
EXPIRATION LEASES LEASES SQUARE FEET LEASES LEASES STEP-UPS
- ---------- --------- ----------- ------------ ----------- ------------- --------------
<S> <C> <C> <C> <C> <C>
1996 (1) 13 19,280 1.3% $ 377,271 $19.57 (2) $ 19.57 (2)
1997 7 44,649 3.0 1,343,752 30.10 30.10
1998 10 206,708 14.0 6,518,422 31.53 31.53
1999 14 105,111 7.1 2,981,905 28.37 28.42
2000 9 54,531 3.7 1,429,534 26.22 26.46
2001 4 80,504 5.4 2,544,267 31.60 24.51
2002 2 15,437 1.0 380,825 24.67 28.40
2003 5 67,651 4.6 1,643,099 24.29 26.81
2004 3 39,991 2.7 1,061,153 26.53 30.03
2005 3 80,671 5.5 2,952,342 36.60 41.62
2006 and thereafter 8 277,938 18.8 6,596,042 23.73 29.83
-- ------- ---- ----------- ------ -------
SUBTOTAL/WEIGHTED AVERAGE 78 992,471 67.1 $27,828,612 $28.02 $ 29.97
-- ----------- ------ -------
Unleased at 9/30/96 486,121 32.9
--------- ----
TOTAL 1,478,592 100.0%
--------- ------
</TABLE>
_________________________
(1) Excludes the lease with Equitable for approximately 430,000 square feet
(approximately one-third of the building) which expired on
October 31, 1996.
(2) According to Cushman & Wakefield, the Direct Weighted Average Rental Rate
for the direct Class A Penn Station submarket (which, according to
Cushman & Wakefield, is the area bounded by 30th Street on the south,
35th Street on the north, the Hudson River on the west and Seventh Avenue
on the east) was $31.36 as of September 30, 1996. Direct Weighted
Average Rental Rate represents the weighted average of asking rental
rates for direct Class A space. Asking rental rates generally are higher
than actual rental rates (which generally are not publicly available).
In addition, the Direct Weighted Average Rental Rate represents a large
number of Class A properties in various locations within the Penn Station
submarket, and, therefore, may not be representative of asking or actual
rental rates at the Properties.
Since 1988, approximately $16 million has been spent on various capital
improvements to Two Penn Plaza, which improvements the Mendik Group believes
have enhanced the building's competitiveness. In 1990, the building's main
entrance (on Seventh Avenue) was renovated and made more prominent by
resetting the stairs leading up to the entrance at a 45DEG. angle to the
street. At the same time, the plaza area surrounding the building was
renovated to create an enhanced sense of security and control for tenants by
encircling the north and south sides with a decorative wrought iron fence
(bordered by approximately 75 new trees). In 1991, the building's security
systems were upgraded with the addition of a message center for incoming
package deliveries (to restrict access to the building by outside
messengers). In 1992, the entire sidewalk surrounding the plaza area was
replaced. In 1995, installation of a sprinkler system throughout the entire
building was completed. Also in 1995-96, the building's air conditioning
equipment was replaced with new high pressure steam absorbers, which have
improved operating efficiency, reduced operating costs and enabled the
building to operate without the use of certain chlorofluorocarbons, the
production of which is prohibited by Federal law because of suspected links
to the depletion of the atmosphere's ozone layer. (Chlorofluorocarbons
continue to be used by a majority of the commercial office buildings in the
United States.) Madison Square Garden paid approximately 30% of the cost of
the project pursuant to an air cooling operating agreement under which Two
Penn Plaza provides air conditioning and refrigeration to Madison Square
Garden in exchange for reimbursement. In 1995-96, the building's elevators
were refurbished and were computerized to improve operating efficiency.
65
<PAGE>
The Penn Plaza area has been enhanced in recent years through the
efforts of the 34th Street Business Improvement District Partnership (the
"34th Street BID"), a public-private partnership which provides street
cleaning services, security personnel and other community services to
businesses in the area. In addition, the 34th Street BID has considered
undertaking certain capital projects in the Penn Plaza area. The 34th Street
BID is funded through special assessments collected by New York City from
property owners which are similar to real estate taxes. (These charges then
may be passed on to tenants to the extent permitted under their leases.) In
addition, the 34th Street BID has considered undertaking certain capital
projects in the district. The 34th Street BID is governed by an independent
board of directors comprised of public officials and private citizens. Mr.
Mendik was involved in the establishment of the 34th Street BID.
The Penn Plaza area also has been enhanced in recent years by the
redevelopment efforts completed by certain of the Property's neighbors.
Several years ago, Madison Square Garden completed a redevelopment which
included the installation of skyboxes and the construction of new "V.I.P."
entrances on 31st and 33rd Streets, at a cost of approximately $200 million.
Long Island Railroad recently completed a renovation of its portion of Penn
Station, including a new main entrance on 34th Street, at a cost of
approximately $70 million. In addition, AMTRAK currently is considering
converting the General Post Office, located on 8th Avenue between 31st and
33rd Streets, into a new AMTRAK train station, a project for which Congress
has allocated $25 million to date.
The Company currently is exploring the possibility of developing
additional retail space at Two Penn Plaza (on the building's plaza). The
Company believes that the development of this retail space may, depending
upon the amount of space developed, provide the Company with a source of
increased cash flow. There can be no assurance, however, that any such
additional retail space will be developed. In addition, New Jersey Transit
currently is considering building a new entrance to Penn Station near the
corner of Seventh Avenue and 31st Street, which would utilize a portion of
the plaza area surrounding the Two Penn Plaza building in exchange for
consideration to be negotiated.
The aggregate undepreciated tax basis of depreciable real property of
Two Penn Plaza for Federal income tax purposes was $110,261,639 as of
December 31, 1995. Depreciation and amortization are computed for Federal
income tax purposes on the declining balance or straight-line methods over
lives which range from 15 to 39 years. As of December 31, 1995, the aggregate
undepreciated tax basis of depreciable personal property associated with Two
Penn Plaza for Federal income tax purposes was $1,240,756. Depreciation and
amortization are computed on the double declining balance method or
straight-line method over lives which range from 5 to 7 years.
The current real estate tax rate for all Manhattan office properties
is $10.252 per $100 of assessed value. The total annual tax for Two Penn
Plaza at this rate for the 1996-97 tax year, including the 34th Street BID
tax of $330,309, is $8,121,829 (at a taxable assessed value of $76,000,000).
1740 BROADWAY (THE MONY BUILDING)
1740 Broadway (The MONY Building) is a 27-story office building which
occupies the entire block front on the east side of Broadway between 55th and
56th Streets. Built in 1950, 1740 Broadway features approximately 551,000
rentable square feet (including approximately 15,000 square feet of retail
space and approximately 10,800 square feet of basement and storage space) and
floor plates that range from approximately 7,000 to 31,000 square feet, which
floor plates the Company believes make the building well-suited for large
corporate tenants. The Mendik Group acquired the Property in 1990.
66
<PAGE>
As of September 30, 1996, 100% of the rentable square footage in 1740
Broadway was leased (including space for leases that were executed as of
September 30, 1996). The following table sets forth the percent leased and
the Annual Escalated Rent Per Leased Square Foot at the Property as of
September 30, 1996 and at the end of the past five years:
ANNUAL ESCALATED
PERCENT LEASED RENT PER LEASED
DATE AT PERIOD END (1) SQUARE FOOT (1)
------------------- ----------------- ------------------
September 30, 1996 100.0% $32.74
December 31, 1995 100.0% $34.50
December 31, 1994 100.0% $33.57
December 31, 1993 100.0% $33.32
December 31, 1992 98.0% $30.79
December 31, 1991 88.6% $31.83
__________________
(1) Includes space for leases that were executed at the end of the relevant
period.
As of September 30, 1996, two tenants leased 10% or more of the
Property's rentable square feet. Mutual of New York ("MONY"), a large life
insurance company, leased approximately 264,000 square feet (approximately
48% of the building) under three leases, one for approximately 16,000 square
feet (which expires in February 1998), one for approximately 29,500 square
feet (which expires in December 2000), and one for approximately 218,500
square feet (which expires in May 2016). MONY also has options to lease
additional space at the Property.
In addition, as of September 30, 1996, William Douglas McAdams, Inc., a
pharmaceutical advertising company, leased approximately 63,000 square feet
under a lease that expires in December 2007.
The following table sets out a schedule of the annual lease expirations
at 1740 Broadway for leases executed as of September 30, 1996 for each of the
next ten years and thereafter, assuming that no tenants exercise renewal or
cancellation options and that there are no tenant bankruptcies or other
tenant defaults:
<TABLE>
<CAPTION>
ANNUAL
ESCALATED
RENT PER
ANNUAL LEASED
ANNUAL ESCALATED RENT SQUARE FOOT
SQUARE PERCENTAGE ESCALATED PER LEASED OF EXPIRING
YEAR OF NUMBER OF FOOTAGE OF RENT OF SQUARE FOOT LEASES
LEASE EXPIRING OF EXPIRING TOTAL LEASED EXPIRING OF EXPIRING WITH FUTURE
EXPIRATION LEASES LEASES SQUARE FEET LEASES LEASES STEP-UPS
- ---------- --------- ----------- ------------ ----------- ------------- --------------
<S> <C> <C> <C> <C> <C>
1996 4 885 0.2% $ 17,953 $20.29 (1) $ 20.29 (1)
1997 2 14,653 2.6 613,572 41.87 41.87
1998 2 23,171 4.2 962,799 41.55 41.55
1999 3 47,180 8.6 1,913,375 40.55 42.18
2000 1 29,567 5.4 1,114,131 37.68 37.68
2001 0 0 0.0 0 0.00 0.00
2002 0 0 0.0 0 0.00 0.00
2003 2 44,431 8.1 1,846,870 41.57 46.94
2004 2 55,904 10.1 1,626,396 29.09 36.39
2005 0 0 0 0 0.00 0.00
2006 and thereafter 5 335,510 60.8 9,955,024 29.67 40.41
-- ------- ----- ----------- ------ ------
SUBTOTAL/WEIGHTED AVERAGE 21 551,301 100.0 $18,050,120 $32.74 $40.59
-- ----------- ------ ------
Unleased at 9/30/96 0 0
------- ------
TOTAL 551,301 100.0%
------- ------
</TABLE>
__________________
67
<PAGE>
(1) According to Cushman & Wakefield, the Direct Weighted Average Rental
Rate for the direct Class A West Side submarket (which, according to
Cushman & Wakefield, is the area bounded by 42nd Street on the south,
57th Street on the north, the Hudson River on the west and Seventh Avenue
on the east) was $31.36 as of September 30, 1996. Direct Weighted
Average Rental Rate represents the weighted average of asking rental
rates for direct Class A space. Asking rental rates generally are higher
than actual rental rates (which generally are not publicly available).
In addition, the Direct Weighted Average Rental Rate represents a large
number of Class A properties in various locations within the West Side
submarket, and, therefore, may not be representative of asking or actual
rental rates at the Properties.
In addition to an estimated $40 million renovation completed by MONY
when it owned the building in the 1980s, approximately $3 million has been
spent since 1990 on various capital improvements to 1740 Broadway. In 1991,
the building's security systems were upgraded with the addition of closed
circuit television cameras and a message center for incoming package
deliveries (to restrict access to the building by outside messengers). In
1993, a computerized energy management system was installed to reduce energy
consumption and costs. In addition, in 1996, the building's air conditioning
equipment was replaced with new high pressure steam absorbers that are
expected to improve operating efficiency and reduce operating costs. This
upgrade will allow the building to operate without the use of certain
chlorofluorocarbons, the production of which, as of 1996, is prohibited by
Federal law. The building is fully sprinklered.
The aggregate undepreciated tax basis of depreciable real property of
1740 Broadway for Federal income tax purposes was $68,855,672 as of December
31, 1995. Depreciation and amortization are computed on the declining
balance or straight-line methods over 39 years. The aggregate undepreciated
tax basis of depreciable personal property associated with 1740 Broadway for
Federal income tax purposes was $9,694 as of December 31, 1995. Depreciation
and amortization are computed on the double declining balance method or
straight-line method over lives which range from 5 to 7 years.
The current real estate tax rate for all Manhattan office properties is
$10.252 per $100 of assessed value. The total annual tax for 1740 Broadway
at this rate for the 1996-97 tax year is $3,871,104 (at an assessed value of
$37,759,500).
866 UNITED NATIONS PLAZA
866 United Nations Plaza is a 6-story office building which occupies the
entire block front on the east side of First Avenue between 48th and 49th
Streets. Built in 1966, 866 United Nations Plaza features approximately
385,000 rentable square feet (including an underground parking garage
comprising approximately 42,700 square feet and approximately 28,500 square
feet of retail space) and floor plates that range from approximately 28,000
to 65,000 square feet. 866 United Nations Plaza also features views of the
East River and United Nations Park. Two residential co-operative towers sit
atop 866 United Nations Plaza (the "Residential Towers") and share the use
and cost of a common mechanical plant pursuant to the terms of a reciprocal
easement agreement (the "866 U.N. Reciprocal Easement Agreement"). Neither
the Company nor the Mendik Group (nor any of its affiliates) own any interest
in the Residential Towers. The Mendik Group acquired the leasehold interest
in the Property in 1978 and the fee interest in the Property in 1985.
The building received the Building Owners and Managers Association (New
York) Operating Office Building of the Year Award for 1994-95
(100,000-500,000 Square Feet Category) (which award is "[p]resented to an
office building in recognition of physical attractiveness, efficiency of
operation and the impact it has had on the metropolitan business community").
As of September 30, 1996, approximately 97.5% of the rentable square
footage in 866 United Nations Plaza was leased. The office space was 98.7%
leased, the parking garage was 100% leased (to an independent garage
operator) and the retail space was 80.6% leased. The following table sets
forth the percent leased and the Annual Escalated Rent Per Leased Square Foot
at the Property as of September 30, 1996 and at the end of each of the last
five years for the past five years:
68
<PAGE>
<TABLE>
<CAPTION>
ANNUAL ESCALATED
PERCENT LEASED RENT PER LEASED
DATE AT PERIOD END (1) SQUARE FOOT (1)
- ------------------ ------------------ ----------------
<S> <C> <C>
September 30, 1996 97.5% $31.35
December 31, 1995 95.6% $30.78
December 31, 1994 96.2% $30.88
December 31, 1993 94.9% $32.29
December 31, 1992 98.6% $34.50
December 31, 1991 99.9% $33.46
</TABLE>
__________________
(1) Includes space for leases that were executed at the end of the
relevant period.
As of September 30, 1996, two tenants leased 10% or more of the Property's
rentable square feet. Bear Stearns & Co., Inc., a large investment bank ("Bear
Stearns"), leased approximately 64,700 square feet under a lease that expires in
October 1997, which space was subleased to the United Nations. Bear Stearns has
advised the Mendik Group that it does not plan to renew its lease. In addition,
Classic Parking Corporation, a large, independent parking garage operator,
operated the building's underground parking garage containing approximately
42,700 square feet (which is used by the general public, including tenants of
the Residential Towers and visitors to the United Nations) under a lease that
expires in December 2001.
Because of its proximity to the United Nations, 866 United Nations Plaza
counted 32 foreign consulates and missions among its tenants as of September 30,
1996, including the Missions of Japan, Finland, Saudi Arabia and Kazakhstan.
The following table sets out a schedule of the annual lease expirations at
866 United Nations Plaza for leases executed as of September 30, 1996 for each
of the next ten years and thereafter, assuming that no tenants exercise renewal
or cancellation options and that there are no tenant bankruptcies or other
tenant defaults:
<TABLE>
<CAPTION>
ANNUAL
ESCALATED
RENT PER
ANNUAL LEASED
ANNUAL ESCALATED RENT SQUARE FOOT
SQUARE PERCENTAGE ESCALATED PER LEASED OF EXPIRING
YEAR OF NUMBER OF FOOTAGE OF RENT OF SQUARE FOOT LEASES
LEASE EXPIRING OF EXPIRING TOTAL LEASED EXPIRING OF EXPIRING WITH FUTURE
EXPIRATION LEASES LEASES SQUARE FEET LEASES LEASES STEP-UPS
- ---------- --------- ------------ ------------ ----------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
1996 8 9,108 2.4% $ 339,526 $37.28 (1) $37.28 (1)
1997 14 78,591 20.4 2,820,393 35.89 35.89
1998 19 49,409 12.9 1,574,154 31.86 31.86
1999 9 29,897 7.8 945,634 31.63 31.63
2000 10 21,878 5.7 658,710 30.11 30.11
2001 5 58,856 (2) 15.3 1,434,274 (2) 24.37 26.07
2002 4 17,870 4.6 594,055 33.24 34.49
2003 4 16,676 4.3 561,195 33.65 33.88
2004 2 4,676 1.2 136,177 29.12 31.00
2005 3 13,447 3.5 389,196 28.94 31.36
2006 and thereafter 4 74,756 19.4 2,307,125 30.86 36.00
-- ------- ----- ----------- ------ ------
SUBTOTAL/WEIGHTED AVERAGE 82 375,164 97.5 $11,760,439 $31.35 $32.82
-- ----------- ------ ------
-- ----------- ------ ------
Unleased at 9/30/96 9,651 2.5
------- -----
TOTAL 384,815 100.0%
------- -----
------- -----
</TABLE>
__________________
(1) According to Cushman & Wakefield, the Direct Weighted Average Rental
Rate for the direct Class A United Nations submarket (which, according to
Cushman & Wakefield, is the area bounded by 39th Street on the south and
49th Street on the north and between Second Avenue on the west and the East
River on the east) was $30.88 as of September 30, 1996. Direct Weighted
Average Rental Rate represents the weighted average of asking rental
rates for direct Class A space. Asking rental rates generally are higher
than actual rental rates (which generally are not publicly available).
In addition, the Direct Weighted Average Rental Rate represents a large
number of Class A properties in various
69
<PAGE>
locations within the United Nations submarket, and, therefore, may not be
representative of asking or actual rental rates at the Properties.
(2) Includes an underground parking garage comprising 42,674 square feet. As
of September 30, 1996, the Annual Escalated Rent Per Leased Square Foot for
the underground parking garage space was $16.29.
Since 1988, approximately $4 million has been spent on various capital
improvements to 866 United Nations Plaza. In 1996, the building's air
conditioning equipment was replaced with new high pressure steam absorbers that
are expected to improve operating efficiency and reduce operating costs, and
will allow the building to operate without the use of certain
chlorofluorocarbons, the production of which, as of 1996, is prohibited by
Federal law. In conjunction with the installation of the new steam absorbers,
the building's computerized energy management system currently is scheduled to
be replaced in late 1996. Pursuant to the terms of the 866 U.N. Reciprocal
Easement Agreement, the Residential Towers paid approximately two-thirds of the
cost of the installation of the new steam absorbers and will pay approximately
two-thirds of the cost of the installation of the energy management system. In
addition, in 1996, the building's security systems were upgraded with the
addition of an electronic card access system, closed circuit television cameras
and a message center for incoming package deliveries (to restrict access to the
building by outside messengers). As of September 30, 1996, approximately 80% of
the building was sprinklered).
The aggregate undepreciated tax basis of depreciable real property of 866
United Nations Plaza for Federal income tax purposes was $24,135,840 as of
December 31, 1995. Depreciation and amortization are computed on the declining
balance or straight-line methods over lives which range from 15 to 39 years.
The aggregate undepreciated tax basis of depreciable personal property
associated with 866 United Nations Plaza for Federal income tax purposes was
$449,468 as of December 31, 1995. Depreciation and amortization are computed on
the double declining balance method or straight-line method over lives which
range from 5 to 10 years.
The current real estate tax rate for all Manhattan office properties is
$10.252 per $100 of assessed value. The total annual tax for 866 United Nations
Plaza at this rate for the 1996-97 tax year is $2,629,638 (at an assessed value
of $25,650,000).
ELEVEN PENN PLAZA (47.7% INTEREST)
Eleven Penn Plaza is a 26-story office building which occupies the entire
block front on the east side of Seventh Avenue between 31st and 32nd Streets
(across Seventh Avenue from Two Penn Plaza and Penn Station). Built in 1923,
Eleven Penn Plaza features approximately 961,000 rentable square feet (including
approximately 25,700 square feet of retail space and approximately 62,900 square
feet of basement and storage space) and floor plates that range from
approximately 16,000 to 52,000 square feet, which floor plates the Company
believes make the building well-suited for large corporate tenants. The Mendik
Group acquired 50% of the Property in 1980 and the remaining 50% in 1981.
Following the closing of the Offering and the Formation Transactions, the
Company will own approximately 47.7% of the economic interests in Eleven Penn
Plaza. As described below, by reason of the ownership interests of the
Company in Eleven Penn Plaza, no decisions with respect to any proposed sale
or refinancing of Eleven Penn Plaza may be made without the consent of the
Company, except for a refinancing of the indebtedness secured by Eleven Penn
Plaza within six months of its scheduled maturity as well as the repayment of
the second mortgage. The Company, however, will not act as the managing
general partner, directly or indirectly, of the Property and thus will not
have control over the day-to-day operation and management of Eleven Penn
Plaza. Rather, Mr. Mendik personally will act as the managing general
partner of the entity which owns Eleven Penn Plaza and will direct the
operation and management of Eleven Penn Plaza. Mr. Mendik will also retain
an interest in Eleven Penn
70
<PAGE>
Plaza following the Offering, and the Company will have an option right and a
right of first refusal with respect to such interest for a period of up to
ten years following the Offering. See "-- Assets Not Being Transferred to
the Company" below.
The building has been awarded the Building Owners and Managers Association
(New York) Historic Office Building of the Year Award for 1996-97 (which award
is "[p]resented to an office building of at least 50 years, which has
demonstrated a commitment to preserving its historical integrity while
modernizing to accommodate the latest advances in real estate technology").
As of September 30, 1996, approximately 95.1% of the rentable square
footage in Eleven Penn Plaza was leased (including space for leases that were
executed as of September 30, 1996). The office space was 95.0% leased and the
retail space was 98.0% leased. The following table sets forth the percent
leased and the Annual Escalated Rent Per Leased Square Foot at the Property as
of September 30 1996 and at the end of each of the past five years.
<TABLE>
<CAPTION>
ANNUAL ESCALATED
PERCENT LEASED RENT PER LEASED
DATE AT YEAR END (1) SQUARE FOOT (1)
------------------ --------------- ----------------
<S> <C> <C>
September 30, 1996 95.1% $27.53
December 31, 1995 95.9% $24.59
December 31, 1994 94.1% $24.42
December 31, 1993 88.2% $24.39
December 31, 1992 88.6% $29.76
December 31, 1991 91.0% $30.04
</TABLE>
__________________
(1) Includes space for leases that were executed at the end of the relevant
period.
Two tenants at Eleven Penn Plaza leased over 10% of the rentable square
footage as of September 30, 1996. Times Mirror Company, a publishing company
("Times Mirror"), leased approximately 226,000 square feet. In 1995, Matthew
Bender & Company, Incorporated ("Matthew Bender"), a publisher of law-related
textbooks and a wholly owned subsidiary of Times Mirror, entered into an
agreement with the Mendik Group with respect to its lease for approximately
226,000 square feet (which expires in June 2001). As a part of its downsizing
and restructuring, Times Mirror desired to consolidate its New York operations
by relocating the operations conducted by Matthew Bender at Eleven Penn Plaza to
Two Park Avenue, where an affiliate of Matthew Bender conducted operations.
Accordingly, Times Mirror assumed all the obligations of Matthew Bender under
the lease as modified, and Times Mirror subleased approximately 185,000 square
feet of the premises to the Mendik Group. The Mendik Group currently is
marketing this space at a rental in excess of the sublease rental.
In addition, as of September 30, 1996, R.H. Macy & Co., Inc., a large
retailing company ("R.H. Macy"), occupied approximately 153,500 square feet
under a lease originally between the Mendik Group and General Mills, Inc.
("General Mills") that expires in December 2002, which lease General Mills
assigned to R.H. Macy in 1985. (General Mills remains liable to the Mendik
Group under the lease.)
The following table sets out a schedule of the annual lease expirations at
Eleven Penn Plaza for leases executed as of September 30, 1996 for each of the
next ten years and thereafter, assuming that no tenants exercise renewal or
cancellation options and that there are no tenant bankruptcies or other tenant
defaults:
71
<PAGE>
<TABLE>
<CAPTION>
ANNUAL
ESCALATED
RENT PER
ANNUAL LEASED
ANNUAL ESCALATED RENT SQUARE FOOT
SQUARE PERCENTAGE ESCALATED PER LEASED OF EXPIRING
YEAR OF NUMBER OF FOOTAGE OF RENT OF SQUARE FOOT LEASES
LEASE EXPIRING OF EXPIRING TOTAL LEASED EXPIRING OF EXPIRING WITH FUTURE
EXPIRATION LEASES LEASES SQUARE FEET LEASES LEASES STEP-UPS
- ---------- --------- ----------- ------------ ------------ -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
1996 12 8,826 0.9% $ 165,317 $18.73 (1) $18.73 (1)
1997 8 13,413 1.4 158,942 11.85 11.85
1998 8 11,383 1.2 214,531 18.85 19.60
1999 14 94,917 9.9 2,256,473 23.77 24.01
2000 1 1,958 0.2 48,705 24.87 24.87
2001 5 247,931 25.8 9,157,494 36.94 36.94
2002 2 157,256 16.4 5,231,660 33.27 34.22
2003 3 52,973 5.5 1,072,155 20.24 23.78
2004 0 0 0.0 0 0.00 0.00
2005 6 51,846 5.4 1,484,338 28.63 31.76
2006 and thereafter 12 273,549 28.4 5,375,649 19.65 26.41
-- ------- ----- ----------- ------ ------
SUBTOTAL/WEIGHTED AVERAGE 71 914,052 95.1 $25,165,264 $27.53 $30.13
-- ----------- ------ ------
-- ----------- ------ ------
Unleased at 9/30/96 47,323 4.9
------- -----
TOTAL 961,375 100.0%
------- -----
------- -----
</TABLE>
__________________
(1) According to Cushman & Wakefield, the Direct Weighted Average Rental Rate
for the direct Class A West Side (which, according to Cushman & Wakefield,
is the area bounded by 42nd Street on the south, 57th Street on the north,
the Hudson River on the west and Seventh Avenue on the east) submarket was
$31.36 as of September 30, 1996. Direct Weighted Average Rental Rate
represents the weighted average of asking rental rates for direct Class A
space. Asking rental rates generally are higher than actual rental rates
(which generally are not publicly available). In addition, the Direct
Weighted Average Rental Rate represents a large number of Class A
properties in various locations within the West Side submarket, and,
therefore, may not be representative of asking or actual rental rates at
the Properties.
Since 1988, approximately $18 million has been spent on various capital
improvements to Eleven Penn Plaza. In 1989, the main entrance to the building
(on Seventh Avenue) was renovated and reclad with rose-colored granite, and the
building's limestone facade was cleaned and framed with decorative,
architectural bronze panels. Also in 1989, the building's electrical system was
upgraded. The building's security systems were upgraded with the addition in
1989 of closed circuit television cameras and in 1990 of a message center for
incoming package deliveries (to restrict access to the building by outside
messengers). In 1991, windows throughout the building were replaced and the
building's elevators were computerized to improve operating efficiency. In
1992, the building's security systems were upgraded with the installation of an
electronic card access system, which enhanced control of perimeter entry points
into the building. In addition, the building's air conditioning equipment is in
the process of being replaced with new high pressure steam absorbers at a cost
of approximately $2 million, which replacement has been planned since 1994.
These new steam absorbers are expected to improve operating efficiency and
reduce operating costs, and will allow the building to operate without the use
of certain chlorofluorocarbons, the production of which, as of 1996, is
prohibited by Federal law. As of September 30, 1996, approximately 70% of the
building was sprinklered.
The Penn Plaza area has been enhanced in recent years through the efforts
of the 34th Street BID and the redevelopment efforts completed by certain of the
Property's neighbors. See "-- Two Penn Plaza" above.
Pursuant to the partnership agreements governing Eleven Penn Plaza
Company (the Property-owning entity) and the direct and indirect partners
hereof, the consent of a majority of the interests of the partners who made
cash investments in the Property, together with the consent of the managing
general partner, is required in order to sell the Property. In addition,
such consents are required in order to finance the Property, other than in
the six-month period immediately preceding the maturity of any financing,
during which period the managing general partner has the right to cause
Eleven Penn Plaza Company to enter into a refinancing in an amount not greater
72
<PAGE>
than the outstanding balance of the loan being refinanced. The Company will
be subject to the partnership agreements as they presently exist.
Accordingly, since the Company will not be the managing general partner of
Eleven Penn Plaza Company, the Company will not have control over the sale or
refinancing of the Property and will be unable to initiate a sale or
financing of the Property. However, because the Company is the holder of the
majority of the interests of the partners who made cash investments in the
Property, no sale or financing of the Property (other than the six month
period referred to above) may be entered into without the consent of the
Company.
In addition, the partnership agreements governing Eleven Penn Plaza Company
provides that if a sale of the Property is consented to as set forth above, any
partner which did not consent to the proposed sale has a right of first refusal
to purchase the interests of the consenting partners for a purchase price based
on an offer to purchase the Property which the managing general partner is
prepared to accept. As a result, if the Company consents to the sale of
Property, and the other direct and indirect partners in Eleven Penn Plaza
Company do not consent, the Company may be required to sell its interests in
Eleven Penn Plaza Company to such other partners.
TWO PARK AVENUE (40% INTEREST)
Two Park Avenue is a 29-story, vintage Art Deco office building which
occupies the entire block front on Park Avenue between 32nd and 33rd Streets.
Built in 1928, Two Park Avenue features approximately 947,000 rentable square
feet (including approximately 32,000 square feet of retail space and
approximately 11,500 square feet of basement and storage space) and floor plates
that range from approximately 25,000 to 44,000 square feet, which floor plates
the Company believes make the building well-suited for large corporate tenants.
Designed by renowned architect Ely Jacques Kahn, the building features an ornate
lobby, with decorative arches, vaulted ceilings, elegant chandeliers and marble
floors. Two Park Avenue is four blocks east of Penn Station and nine blocks
south of Grand Central Terminal, and has in-building access to a main subway
line (the IRT line). The Mendik Group acquired the Property in 1986.
Following the closing of the Offering and the Formation Transactions, the
Company will own approximately 40% of the economic interests in Two Park
Avenue. Unless both partners comprising the partnership which owns Two Park
Avenue agree to the contrary, the Company will be the co-managing general
partner of Two Park Avenue and decisions with respect to the day-to-day
management and operations of Two Park Avenue will require the consent of both
partners. In addition, by reason of the ownership interests of the Company
in Two Park Avenue, no decisions with respect to any proposed sale or
refinancing of Two Park Avenue may be made without the consent of the
Company.
The Mendik Group will retain certain general partner and limited partner
interests in the partnership that owns a 60% interest in Two Park Avenue
following the Offering, and the Company will have an option right and a right
of first refusal with respect to such general partner interest for a period
of up to ten years following the Offering. The Company will have no such
rights with respect to the Mendik Group's limited partner interests in Two
Park Avenue. See "-- Assets Not Being Transferred to the Company" below.
As of September 30, 1996, approximately 97.1% of the rentable square
footage in Two Park Avenue was leased (including space for leases that were
executed as of September 30, 1996). The office space was 97.5% leased and the
retail space was 83.8% leased. The following table sets forth the percent
leased and the Annual Escalated Rent Per Leased Square Foot at the Property as
of September 30, 1996 and the past five years:
73
<PAGE>
<TABLE>
<CAPTION>
ANNUAL ESCALATED
PERCENT LEASED RENT PER LEASED
DATE AT PERIOD END (1) SQUARE FOOT (1)
------------------ ----------------- ----------------
<S> <C> <C>
September 30, 1996 97.1% $23.53
December 31, 1995 97.3% $22.94
December 31, 1994 92.1% $24.01
December 31, 1993 89.2% $23.86
December 31, 1992 92.1% $24.46
December 31, 1991 92.4% $24.29
</TABLE>
__________________
(1) Includes space for leases that were executed at the end of the relevant
period.
As of September 30, 1996, two tenants leased 10% or more of the Property's
rentable square feet. Times Mirror leases approximately 277,000 square feet in
Two Park Avenue under two leases that expire in September 2010. In addition,
Smith Barney, Inc., a large investment bank/brokerage house, leases
approximately 99,800 square feet in the building under a lease that expires in
May 1998.
The following table sets out a schedule of the annual lease expirations at
Two Park Avenue for leases executed as of September 30, 1996 for each of the
next ten years and thereafter, assuming that no tenants exercise renewal or
cancellation options and that there are no tenant bankruptcies or other tenant
defaults.
<TABLE>
<CAPTION>
ANNUAL
ESCALATED
RENT PER
ANNUAL LEASED
ANNUAL ESCALATED RENT SQUARE FOOT
SQUARE PERCENTAGE ESCALATED PER LEASED OF EXPIRING
YEAR OF NUMBER OF FOOTAGE OF RENT OF SQUARE FOOT LEASES
LEASE EXPIRING OF EXPIRING TOTAL LEASED EXPIRING OF EXPIRING WITH FUTURE
EXPIRATION LEASES LEASES SQUARE FEET LEASES LEASES STEP-UPS
- ---------- --------- ----------- ------------ ------------ -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
1996 0 0 0.0 $ 0 $ 0.00 (1) $ 0.00 (1)
1997 2 43,885 4.7 1,460,801 33.29 33.29
1998 4 116,466 12.3 3,355,766 28.81 28.81
1999 6 99,746 10.6 2,789,120 27.96 28.15
2000 1 75 0.0 1,530 20.40 20.40
2001 4 23,912 2.5 574,038 24.01 24.52
2002 1 2,150 0.2 71,795 33.39 39.34
2003 1 4,818 0.5 102,872 21.35 24.35
2004 5 42,632 4.5 1,170,653 27.46 29.16
2005 3 42,757 4.5 896,170 20.96 24.89
2006 and thereafter 14 542,464 57.3 11,195,927 20.64 28.79
-- ------- ----- ----------- ------ ------
SUBTOTAL/WEIGHTED AVERAGE 41 918,905 97.1% $21,618,672 $23.53 $28.66
-- ----------- ------ ------
-- ----------- ------ ------
Unleased at 9/30/96 27,792 2.9
------- -----
TOTAL 946,697 100.0%
------- -----
------- -----
</TABLE>
__________________
(1) According to Cushman & Wakefield, the Direct Weighted Average Rental Rate
for the direct Class A Murray Hill submarket (which, according to Cushman &
Wakefield, generally runs from 32nd Street on the south to 39th Street on
the north and from Fifth Avenue on the west to the East River on the east)
was $27.95 as of September 30, 1996. Direct Weighted Average Rental Rate
represents the weighted average of asking rental rates for direct Class A
space. Asking rental rates generally are higher than actual rental rates
(which generally are not publicly available). In addition, the Direct
Weighted Average Rental Rate represents a large number of Class A properties
in various locations within the Murray Hill submarket, and, therefore, may
not be representative of asking or actual rental rates at the Properties.
Since 1988, approximately $18 million has been spent on various capital
improvements to the Property. In 1989, the building's elevators were
computerized to improve operating efficiency. The building's security
systems were upgraded in 1989 with the installation of an electronic card
access system, which enhanced control of perimeter entry points into the
building, and in 1991 with
74
<PAGE>
the installation of a message center for incoming package deliveries (to
restrict access to the building by outside messengers). The building's
electrical, plumbing and heating systems were upgraded in 1989-90. In 1990,
new tenant storefronts were added. The building's air conditioning units
generally have been replaced with individual air-conditioning package units
as new leases have been signed in the building. The building is fully
sprinklered.
The area surrounding Grand Central Terminal has been enhanced in recent
years through the efforts of the Grand Central Business Improvement District
Partnership (the "Grand Central BID"), a public-private partnership which
provides street cleaning services, security personnel and other community
services to businesses in the area. The Grand Central BID is funded through
special real estate assessments collected by New York City similar to real
estate taxes collected from property owners. These charges then may be
passed on to tenants to the extent permitted under their leases. In
addition, the Grand Central BID has undertaken certain capital projects in
the district, including a program for improved street illumination and
sidewalk beautification. The Grand Central BID is governed by an independent
board of directors comprised of public officials and private citizens. Mr.
Mendik participated in the organization of the Grand Central BID, and an
executive officer of Mendik Realty (Michael M. Downey) currently serves on
its board of directors.
Pursuant to the partnership agreement of Two Park Company (the
Property-owning entity), each partner has the right to implement "buy-sell"
provisions. The Company, as the holder of a non-controlling interest in Two
Park Company, will be subject to the partnership agreement as it presently
exists. Accordingly, if the other partner in Two Park Company (which other
partner is a publicly held real estate limited partnership) exercises its
buy-sell rights, the Company could be compelled either to sell its interest
in the applicable partnership to such other partner, for the purchase price
set forth in such other partner's notice exercising its buy-sell rights, or
to purchase the interests of the other partners in such partnership for an
amount based on such price. In addition, under the partnership agreement of
Two Park Company, if either partner receives a bona fide offer to purchase
its interest in Two Park Company (which such partner is willing to accept),
such partner must give the other partner a right of first refusal to purchase
the partnership interest on the same terms and conditions as the bona fide
offer.
330 MADISON AVENUE (24.8% INTEREST)
330 Madison Avenue is a 41-story office building which occupies the entire
block front on the west side of Madison Avenue between 42nd and 43rd Streets,
one block from Grand Central Terminal. Built in 1963, 330 Madison Avenue
features approximately 771,000 rentable square feet (including approximately
18,900 square feet of retail space and approximately 28,000 square feet of
basement and storage space) and floor plates that range from approximately 8,600
to 37,000 square feet, which floor plates the Company believes makes the
building well-suited for large corporate tenants. In addition, the tower floors
of the building offer 360DEG. views of the Manhattan skyline. The Mendik Group
acquired the Property in 1979.
Following the closing of the Offering and the Formation Transactions,
the Company will own approximately 24.8% of the economic interests in 330
Madison Avenue. The Company will not act as the managing general partner of
the Property and thus will not have control over the day-to-day operation and
management of 330 Madison Avenue. Rather, Mr. Mendik will be the managing
general partner, directly or indirectly, of the entity which owns 330 Madison
Avenue and will direct the management and operations of 330 Madison Avenue.
However, by reason of the ownership interests of the Company in 330 Madison
Avenue, no decisions with respect to any proposed sale or refinancing of 330
Madison Avenue may be made without the consent of the Company.
As of September 30, 1996, approximately 96.3% of the rentable square
footage in 330 Madison Avenue was leased (including space for leases executed
as of September 30, 1996). The
75
<PAGE>
office space was 96.2% leased and the retail
space was 100.0% leased. The following table sets forth the percent leased
and the Annual Escalated Rent Per Leased Square Foot at the Property as of
September 30, 1996 and at the end of the past five years:
<TABLE>
<CAPTION>
ANNUAL ESCALATED
PERCENT LEASED RENT PER LEASED
DATE AT PERIOD END (1) SQUARE FOOT (1)
---- ----------------- ----------------
<S> <C> <C>
September 30, 1996 96.3% $34.43
December 31, 1995 93.2% $30.87
December 31, 1994 97.3% $30.20
December 31, 1993 91.9% $36.40
December 31, 1992 98.9% $36.16
December 31, 1991 86.0% $35.33
</TABLE>
________________
(1) Includes space for leases that were executed at the end of the relevant
period.
As of September 30, 1996, one tenant leased 10% or more of the
Property's rentable square feet. B.D.O. Seidman, an accounting and
consulting firm, leased approximately 114,000 square feet at 330 Madison
Avenue under a lease that expires in September 2010. The Company's
headquarters also are located at this Property.
The following table sets out a schedule of the annual lease expirations
at 330 Madison Avenue for leases executed as of September 30, 1996 for each
of the next ten years and thereafter, assuming that no tenants exercise
renewal or cancellation options and that there are no tenant bankruptcies or
other tenant defaults:
<TABLE>
<CAPTION>
ANNUAL
ESCALATED
RENT PER
ANNUAL LEASED
ANNUAL ESCALATED RENT SQUARE FOOT
SQUARE PERCENTAGE ESCALATED PER LEASED OF EXPIRING
YEAR OF NUMBER OF FOOTAGE OF RENT OF SQUARE FOOT LEASES
LEASE EXPIRING OF EXPIRING TOTAL LEASED EXPIRING OF EXPIRING WITH FUTURE
EXPIRATION LEASES LEASES SQUARE FEET LEASES LEASES STEP-UPS
- ---------- ---------- ----------- ------------- --------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
1996 1 70 0.0% $1,050 $15.00 (1) $15.00 (1)
1997 5 105,246 13.7 3,990,844 37.92 37.92
1998 3 74,736 9.7 2,774,376 37.12 37.12
1999 8 43,344 5.6 1,484,022 34.24 34.38
2000 1 36,954 4.8 1,345,197 36.40 36.40
2001 3 29,358 3.8 1,060,567 36.13 36.13
2002 4 32,261 4.2 1,087,930 33.72 38.32
2003 4 70,756 9.2 2,118,277 29.94 33.66
2004 3 21,343 2.8 829,681 38.87 47.40
2005 5 102,106 13.2 3,710,613 36.34 41.00
2006 and thereafter 10 226,197 29.3 7,154,164 31.63 39.21
--- -------- ------ ----------- ------ ------
SUBTOTAL/WEIGHTED AVERAGE 47 742,371 96.3% $25,556,721 $34.43 $38.19
--- ----------- ------ ------
--- ----------- ------ ------
Unleased at 9/30/96 28,457 3.7
-------- ------
TOTAL 770,828 100%
-------- ------
-------- ------
</TABLE>
1) According to Cushman & Wakefield, the Direct Weighted Average
Rental Rate for the direct Class A Grand Central submarket (which,
according to Cushman & Wakefield, is the area bounded by 39th
Street on the south, 47th Street on the north, Fifth Avenue on the
west and Second Avenue on the east, excluding Park Avenue north of
44th Street) was $33.21 as of September 30, 1996. Direct Weighted
Average Rental Rate represents the weighted average of asking
rental rates for direct Class A space. Asking rental rates generally are
higher than actual rental rates (which generally are not publicly
available). In addition, the Direct Weighted Average Rental Rate
represents a large number of Class A properties in various locations
within the Grand Central submarket, and, therefore, may not be
representative of asking or actual rental rates at the Properties.
76
<PAGE>
Since 1988, approximately $20 million has been spent on various capital
improvements to 330 Madison Avenue. In 1989, a new main roof was installed.
In 1990, the cooling tower was retrofitted and refurbished and all of the
building's exterior signage was replaced and standardized. In 1991, the
building's marble lobby was renovated. Also, in 1991, the building's
security systems were upgraded with the addition of an electronic card access
system, closed circuit television cameras and a message center for incoming
package deliveries (to restrict access to the building by outside
messengers). In 1993-1994, the building's elevators were computerized to
improve operating efficiency. In 1996, the building's air conditioning
equipment was replaced with new high pressure steam absorbers that are
expected to improve operating efficiency and reduce operating costs, and will
allow the building to operate without the use of certain chlorofluorocarbons,
the production of which, as of 1996, is prohibited by Federal law. A central
sprinkler system was installed and tenant spaces are being sprinklered as
leases expire and new leases are signed (as of September 30, 1996,
approximately 84% of the building was sprinklered). As of September 30,
1996, accessible asbestos had been removed from approximately 85% of the
building. The remaining accessible asbestos in the building, including
"spray-on" asbestos on the deck of certain floors, currently is scheduled to
be removed as space on such floors becomes vacant, at an estimated cost,
based on current market conditions, of $3.5 million (of which cost the
Company will be responsible for 24.8%).
The Grand Central submarket has been enhanced in recent years through
the efforts of the Grand Central BID. See "-- Two Park Avenue" above.
Pursuant to the partnership agreement for 330 Madison Company (the
Property-owning entity), each partner has the right to implement "buy-sell"
provisions. The Company, as the holder of a non-controlling interest in 330
Madison Company, will be subject to the partnership agreement as it presently
exists. Accordingly, if the other partner in 330 Madison Company exercises
its buy-sell rights, the Company could be compelled either to sell its
interest in the applicable partnership to such other partner, for the
purchase price set forth in such other partner's notice exercising its
buy-sell rights, or to purchase the interests of the other partners in such
partnership for an amount based upon such price.
330 Madison Company (the entity that owns 330 Madison Avenue) is
currently disputing the principal balance of the loan secured by an
unrecorded first mortgage on 330 Madison Avenue. Under the loan agreement,
330 Madison Company has exercised its right to capitalize interest payments
due to the lender; however, 330 Madison Company and the lender disagree as to
the rate at which interest has been capitalized and, accordingly, as to the
outstanding principal balance. As of September 30, 1996, 330 Madison Company
believes that the outstanding principal balance of the loan was approximately
$79 million, whereas the lender believes such amount was approximately $94
million. If, in connection with the resolution of this dispute, the lender
and 330 Madison Company agree that the principal amount of the loan may be
satisfied by payment of an amount less than the amount the lender believes is
then due under the loan, the amount of such discount, if any, will be
allocated among the partners in 330 Madison Company, including M 330
Associates, which owns a 25% interest in 330 Madison Company. With respect
to the amount allocated to M 330 Associates (in which the Company will have an
approximate 99% interest), a portion will be allocated to the current
partners in M 330 Associates (including the managing general partner of M 330
Associates, which is an affiliate of the Mendik Group) and a portion will be
allocated to the Company (as the successor to the partners in M 330
Associates).
570 LEXINGTON AVENUE (5.6% INTEREST)
570 Lexington Avenue is a 49-story vintage Art Deco office building
located between 50th and 51st Streets, four blocks from the proposed northern
entrance to Grand Central Station. Built in 1930, 570 Lexington Avenue
features approximately 433,000 rentable square feet (including approximately
8,300 square feet of retail space and approximately 10,500 square feet of
basement
77
<PAGE>
and storage space) and floor plates that range from approximately 3,500 to
17,250 square feet, which floor plates the Company believes make the building
well-suited for tenants seeking full floor identity, particularly in the
tower floors of the building. In addition, the tower floors of the building
offer 360DEG. views of the Manhattan skyline. Formerly the headquarters of
the General Electric Company, the exterior of 570 Lexington Avenue was
designated a New York City landmark in 1985.
Following the closing of the Offering and the Formation Transactions,
the Company will own approximately 5.6% of the economic interests in 570
Lexington Avenue. The Company, as a general partner, directly or indirectly,
of the entity which owns the Property will have significant influence over the
day-to-day management and operations of 570 Lexington Avenue. As described
below, the Company will also have certain rights with respect to sales,
financings or other dispositions of the Property or of interests in the
Property.
In November 1994, the Mendik Group acquired this substantially
unoccupied property and a $40 million redevelopment of the building
(including tenant improvements) is now being undertaken, pursuant to which
approximately $13.7 million (including tenant improvements) has been invested
to date to upgrade building systems and refurbish public spaces. The
remaining redevelopment costs will be incurred primarily to refurbish tenant
space. (As a result of its 5.6% interest in the Property, the Company is
contractually committed to invest an additional amount of up to $2.2 million
which represents its pro rata portion of the redevelopment costs.) The
redevelopment of the building is being conducted in cooperation with the New
York City Landmarks Preservation Commission. The building's exterior,
vestibule, lobby and elevator cabs have been restored to their original
grandeur and the elevators have been computerized to improve operating
efficiency. In addition, certain features that were contemplated by the
building's original architect but were never installed, such as chandeliers
and the lobby's ornate gate, have been crafted and installed. The building
is being modernized with the refurbishment of existing or installation of new
air conditioning units on substantially all floors and the renovation of
bathrooms on numerous floors in anticipation of leasing activity. In
addition, the building's security systems were upgraded with the installation
of closed circuit television cameras and an electronic card access system
which enhanced control of perimeter entry points into the building. It is
anticipated that a message center for incoming package deliveries (to
restrict access to the building by outside messengers) will be installed when
the building is more fully leased up. As of September 30, 1996,
approximately 20% of the building was sprinklered.
As a result of this redevelopment, the building has received the
following awards: (i) The National Trust for Historic Preservation Honor
Award for 1996; (ii) 1996 New York Landmarks Preservation Commission
Preservation Achievement Award; (iii) 1995-96 Building Owners and Managers
Association (New York) Award for Excellence for Historic Building of the
Year; and (iv) 1995 New York Landmarks Conservancy Lucy G. Moses Preservation
Award. In October 1995, following completion of a substantial portion of the
building's capital projects, the Mendik Group commenced efforts to market and
lease space in the building to prospective tenants and, as of September 30,
1996, approximately 33.5% of the rentable square footage in the building was
leased. No tenant currently leases 10% or more of the rentable square feet
of the building. Substantially all of the leases relating to the Property
expire in 2006 and beyond, although certain of the leases permit tenants to
cancel their leases on the fifth anniversary of the date that the tenant
first paid rent (upon payment of a cancellation fee).
Subject to certain restrictions contained in the partnership agreements
of 570 Lexington Company (the entity that owns 570 Lexington Avenue) as well
as 570 Lexington Associates (which owns an approximate 50% interest in and is
a general partner of 570 Lexington Company), in which the Company will own an
approximate 11% interest, the Company may propose a financing of either 570
Lexington Associates or 570 Lexington Company. Upon such proposal, the other
partner in 570 Lexington Company or 570 Lexington Associates, as the case may
be, not making such proposal must either propose alternative financing or
participate in the originally proposed financing.
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In addition, pursuant to the partnership agreement for 570 Lexington
Company, if after April 1, 1998 some but not all of the partners wish to sell
all or any part of 570 Lexington, any general partner may require the Property
to be offered for sale on an all-cash basis. In such event, any partner or its
affiliate may elect to present an all-cash offer for the Property and, if such
offer is the highest all-cash offer received by 570 Lexington Company, such
partner will have the right to purchase the interests of the other partners for
a purchase price based upon such all-cash offer. Pursuant to the partnership
agreement for 570 Lexington Associates, either general partner may elect to
compel the sale of the 570 Lexington Property pursuant to the rights described
above. If a general partner (or affiliate thereof) of 570 Lexington Associates
presents the highest all-cash offer to 570 Lexington Company, then such partner
will be required to purchase the interests of the other partners in 570
Lexington Associates as well as the interests of the other partners in 570
Lexington Company.
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MORTGAGE INDEBTEDNESS
Upon completion of the Offering, the Company expects to have outstanding
approximately $113 million of indebtedness secured by two of the three
Properties that will be consolidated in the financial statements of the
Company. In addition, the four Properties in which the Company will own an
interest but which will not be consolidated in the financial statements of
the Company are expected to secure approximately $231 million of additional
indebtedness.
The Company currently is negotiating with each of its lenders (and the
Property-owning entities are negotiating with each of their lenders)
regarding the terms of the indebtedness that will be outstanding after the
Offering. The following table sets forth the mortgage debt of the Company
expected to be outstanding after completion of the Offering and the Formation
Transactions and the Company's best estimate of the expected terms of such
indebtedness. The table also shows the Company's percentage of debt expected
to be secured by Properties that will not be consolidated in the financial
statements of the Company, based on the Company's expected ownership interest
in the Property.
MORTGAGE INDEBTEDNESS TO BE OUTSTANDING AFTER THE OFFERING
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMPANY'S COMPANY'S COMPANY'S
SHARE OF SHARE OF SHARE OF
ESTIMATED COMPANY EXPECTED ESTIMATED ESTIMATED
INTEREST PERCENTAGE PRINCIPAL ANNUAL ESTIMATED BALANCE AT
PROPERTY RATE OWNERSHIP BALANCE DEBT SERVICE MATURITY DATE MATURITY
- -------- --------- ---------- ---------- ------------ ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
100% OWNED PROPERTIES:
Two Penn Plaza .............. 7.00% (1) 100.0% $80,000 $5,600 (1) May 2005 $80,000
866 U.N. Plaza .............. 7.00% (1) 100.0% 33,000 2,310 (1) December 2004 33,000
------- ----- -------
Total 100% Owned Properties: 113,000 7,910 113,000
------- ----- -------
PARTIAL INTEREST PROPERTIES:
Eleven Penn Plaza ........... 7.50% (1) 47.7% 26,264 2,326 February 2007 23,301
9.25% 47.7% 9,874 913 February 1999 9,874
Two Park Avenue ............. 7.00% (1) 40.0% 26,000 1,820 (1) February 2000 26,000
330 Madison Avenue (2) ...... 9.85% 24.8% 13,612 1,341 October 1999 13,612
LIBOR + .625% 24.8% 8,713 580 October 1999 11,138
------ --- ------
Total Partial Interest Properties 84,463 6,981 83,925
-------- --------- ------
Total $197,463 $14,890 $196,926
-------- --------- --------
-------- --------- --------
</TABLE>
_______________
(1) Estimated based upon current market interest rates.
(2) The amount of the principal balance and interest rate with respect to this
loan currently is in dispute. See "The Properties--330 Madison Avenue."
LINE OF CREDIT
The Company currently is engaged in discussions with various lenders
regarding the establishment of a revolving credit facility that will be used
to facilitate acquisitions and for working capital purposes. Although the
Company expects that the Line of Credit will be established by the time of
the closing of the Offering, there can be no assurance at this time as to
whether the Company will be successful in obtaining the Line of Credit, or,
if the Line of Credit is established, the terms governing the Line of Credit.
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PROPERTY MANAGEMENT AND LEASING
The Company (through the Management Corporation and the Management
Partnership) will conduct its management and leasing business largely in the
same manner as it currently is conducted by the Mendik Group. The Mendik
Group currently provides management and leasing services for 16 properties
(including the Properties) in the New York metropolitan area. The Mendik
Group currently has an ownership interest in 14 of these 16 office properties.
The Mendik Group's management and leasing business is an established
office property management and leasing business with extensive experience.
The Mendik Group has been managing and leasing Manhattan office properties
since 1978.
The Company will continue the Mendik Group's approach of identifying and
responding quickly to tenant requirements. The Company will establish
personal contacts with its tenants and maintain a program of regular tenant
visits. In addition, the Company will continue the Mendik Group's approach
of rotating its building managers through each of its properties in order to
encourage a critical review of each property's facilities and tenant
services. The Company also will continue the Mendik Group's approach of
encouraging each of its employees to make suggestions relating to the
enhancement of a building's appearance or efficiency.
The Mendik Group has established various committees to address issues
facing real estate owners and operators, including recycling,
telecommunications, electricity and similar topics. Each committee is
comprised of building management personnel who report to the head of
operations. The committee system will enhance the Company's ability to
remain up to date with respect to developments in the industry.
The Mendik Group believes that its commitment to providing first class,
cost-effective property services, combined with the continual enhancement of
the appearance and efficiency of its office properties, encourages tenants to
renew their leases and attracts new tenants. The Company will continue to
rely on this experienced management and leasing team to provide
cost-efficient, superior services at the Properties.
After the completion of the Offering and the Formation Transactions, the
Company (through the Management Partnership) will provide management and
leasing services for properties in which the Company owns a 100% interest.
In addition, it is anticipated that the Company (through the Management
Corporation) will provide management and leasing services for properties in
which the Company owns a partial interest (including Eleven Penn Plaza, Two
Park Avenue, 330 Madison Avenue and 570 Lexington Avenue) and will provide
management and leasing services for properties in which the Company owns no
interest, including properties owned by entities in which the Mendik Group
serves as managing partner or managing member which are not being included in
the Formation Transactions. See "Certain Relationships and Transactions."
EMPLOYEES
The Company initially intends to employ approximately 50 persons. Of
such 50 employees, approximately 40 will be "home office" executive and
administrative personnel and approximately 10 will be on-site management and
administrative personnel. Following the completion of the Offering and the
Formation Transactions, the Company currently expects that none of its
employees will be represented by a labor union.
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ASSETS NOT BEING TRANSFERRED TO THE COMPANY
PROPERTY INTERESTS. In addition to the interests of the Mendik Group in
the Properties which are being acquired by the Company, the Mendik Group also
owns interests in several other properties in Manhattan and in other parts of
the New York metropolitan area as well as an indirect interest in three of
the Properties (Eleven Penn Plaza, Two Park Avenue and 330 Madison Avenue)
which the Company will not acquire at the time of the completion of the
Offering and the Formation Transactions. These interests will not be
acquired at the time of the completion of the Offering and the Formation
Transactions because, in the case of one or more of these interests, (i) the
required consent to transfer such interests was not obtained, (ii) the value
of such interests cannot be determined adequately and will depend on the
outcome of certain discussions with major tenants and/or lenders at the
properties, (iii) the properties in which the Mendik Group holds such
interests are currently the subject of negotiations for sale or other
disposition with a third party unaffiliated with the Mendik Group, (iv) the
properties are not of the same type as the Properties initially to be
included in the Company's portfolio, or (v) the interests of the Mendik Group
are passive investments in properties in which the Mendik Group does not have
a controlling interest and does not act as the managing general partner.
Except for passive investment interests and interests in properties that
are not of the same type as the Properties (E.G., retail property), the
Company will have an option to acquire each of these interests from the
Mendik Group for up to ten years after the Closing of the Offering at a price
determined by a formula specified in the applicable option agreement. The
Company also will have a right of first refusal during such ten-year period
to match any bona fide third party offer acceptable to the Mendik Group, in
its sole discretion, for the interests of the Mendik Group in these
properties as well as certain of the passive investment interests of the
Mendik Group in other office properties. Any such option rights or rights of
first refusal will be subject to fiduciary duties and contractual obligations
owed or owing in the future by the Mendik Group, including any consent rights
or any limitations imposed by applicable partnership agreement or financing
or other agreements, and the Company will not have any such options or rights
of first refusal with respect to any property-level transactions involving
any of these properties. In addition, any exercise by the Company of its
rights with respect to these interests will require the approval of a
majority of the disinterested directors of the Company.
SERVICE BUSINESS INTERESTS. The Company will not acquire at the time of
the completion of the Offering any interest in certain office property
service businesses currently conducted by the Mendik Group. These services
include office cleaning (and related) services and security services with
respect to the Properties and properties in which the Company will not own
any interest, as well as facilities management services with respect to third
parties. After the completion of the Offering, it is expected that an
affiliate of RMB Realty also will have an interest in such businesses.
Subsequent to the Offering, the cost to the Company with respect to the
cleaning (and related) services will be a direct pass-through of the cost of
payroll and supplies. In addition, the Mendik Group will be able to provide
cleaning (and related) services to tenants on a separately negotiated basis.
The interests in these service businesses are not being transferred to the
Company at the time of the completion of the Offering in order to maintain
the Company's qualification as a REIT for Federal income tax purposes and
because the Company does not believe such services are directly related or
material to the Company's business strategy.
After the completion of the Offering, certain employees of the
Management Corporation will supervise the provision of cleaning (and related)
services and security services by the Mendik Group with respect to the
Company's properties. With respect to the three Properties in which the
Company will own a 100% interest, the Company expects these services to be
provided under contracts with the Mendik Group that will have an initial
five-year term, but will be terminable by either party upon 30 days' notice.
With respect to the four Properties in which the Company will
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own less than a 100% interest, the Company expects these services to be
provided under the existing contracts with the Mendik Group. Any actions
with respect to the contracts to provide these services that may be taken by
the Company in the future will need to be approved by a vote of the
disinterested members of the Board of Directors of the Company.
COMPETITION
All of the Properties are located in highly developed areas of midtown
Manhattan that include a large number of other office properties. (Manhattan
is by far the largest office market in the United States.) The number of
competitive office properties in Manhattan could have a material adverse
effect on the Company's ability to lease office space at its properties, and
on the effective rents the Company is able to charge. These competing
properties may be newer or better located. In addition, the Company may
compete with other property owners that have greater resources than the
Company. In particular, although currently no other publicly traded REITs
have been formed primarily to own, operate and acquire Manhattan office
properties, the Company may in the future compete with other such REITs. In
addition, the Company may face competition from other real estate companies
(including other REITs that invest in markets other than Manhattan) that have
greater financial resources than the Company or that are willing to acquire
properties in transactions which are more highly leveraged than the Company
is willing to undertake. The Company also will face competition from other
real estate companies that provide management, leasing and other services
similar to those to be provided by the Management Corporation.
REGULATION
GENERAL. Office properties in Manhattan are subject to various laws,
ordinances and regulations, including regulations relating to common areas.
The Company believes that each Property has the necessary permits and
approvals to operate its business.
AMERICANS WITH DISABILITIES ACT. The Company's properties must comply
with Title III of the ADA to the extent that such properties are "public
accommodations" as defined by the ADA. The ADA may require removal of
structural barriers to access by persons with disabilities in certain public
areas of the Company's properties where such removal is readily achievable.
The Company believes that the Properties are in substantial compliance with
the ADA and that it will not be required to make substantial capital
expenditures with respect to the Properties to address the requirements of
the ADA. However, noncompliance with the ADA could result in imposition of
fines or an award of damages to private litigants. The obligation to make
readily achievable accommodations is an ongoing one, and the Company will
continue to assess its properties and to make alterations as appropriate in
this respect.
ENVIRONMENTAL MATTERS. Under various Federal, state and local laws,
ordinances and regulations, an owner or operator of real property may become
liable for the costs of removal or remediation of certain hazardous
substances released on or in its property. Such laws often impose such
liability without regard to whether the owner or operator knew of, or was
responsible for, the release of such hazardous substances. The presence of
such substances when released, or the failure to remediate such substances
properly, may adversely affect the owner's ability to sell such real estate
or to borrow using such real estate as collateral. In addition to clean-up
actions brought by Federal, state and local agencies, the presence of
hazardous substances on a property could result in personal injury or similar
claims by private plaintiffs. See "Risk Factors; Conflicts of Interest --
Risks of Operation -- Possible Environmental Liabilities."
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LEGAL PROCEEDINGS
The Company currently is not a party to any legal proceedings. The
Property-owning entities and the Mendik Group are parties to a variety of
legal proceedings relating to their ownership of Properties and management
and leasing businesses, respectively, arising in the ordinary course of
business. Because the Company is acquiring the Properties subject to
associated liabilities, it may therefore become a successor party-in-interest
to certain of these proceedings as a result of the Formation Transactions.
The Company believes that substantially all of this liability is covered by
insurance. All of these matters, taken together, are not expected to have a
material adverse impact on the Company.
Two affiliated entities which are partners in certain partnerships in
which the Mendik Group serves as managing general partner (including the
partnership which currently owns Eleven Penn Plaza) and the individual
principal in such affiliated entities filed a lawsuit against Mr. Mendik and
Mendik Realty on November 21, 1994 in the U.S. District Court (S.D.N.Y.).
Following the Offering, the Company will be a partner with such affiliated
entities in the partnership which owns Eleven Penn Plaza, and these
affiliated entities will have a right of first refusal in certain
circumstances with respect to a proposed sale of Eleven Penn Plaza. See "--
Eleven Penn Plaza" above.
The lawsuit alleges, among other things, fraud, breach of fiduciary duty
and breach of contract by Mr. Mendik and Mendik Realty in connection with, in
part, an agreement executed by Mr. Mendik and one of such partners, pursuant
to which such partner has a right to a portion of the distributions received
by Mr. Mendik with respect to certain partnerships (in which the Mendik Group
serves as managing general partner) and businesses. The lawsuit originally
included claims regarding distributions with respect to the partnership which
currently owns Eleven Penn Plaza, but the claims with respect such
partnership were dismissed because, under the terms of the partnership
agreement of such partnership, such claims are required to be submitted to
arbitration. To date, no arbitration proceeding has been commenced asserting
such claims with respect to the partnership which currently owns Eleven Penn
Plaza. The disputes which remain relate, in part, to which distributions
fall within the ambit of the agreement between Mr. Mendik and such partner
and whether the calculations of the portions of such distributions which are
payable to the partner are accurate. Mr. Mendik and Mendik Realty do not
believe that such lawsuit reasonably would be expected to have a material
adverse effect on Mr. Mendik or Mendik Realty. Mr. Mendik and Mendik Realty
have agreed to indemnify and hold harmless the Company against any expenses
or liabilities that may be incurred by the Company in connection with any
such litigation.
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MANAGEMENT
Directors, Director Nominees and Executive Officers
The Board of Directors of the Company will be expanded immediately
following the completion of the Offering to include the director nominees
named below, each of whom has been nominated for election and has consented
to serve. Upon election of the director nominees, there will be a majority
of directors who are not employees or affiliates of the Company or the Mendik
Group. Pursuant to the Charter, the Board of Directors is divided into three
classes of directors. The initial terms of the first, second and third
classes will expire in 1997, 1998 and 1999, respectively. Beginning in 1997,
directors of each class will be chosen for three-year terms upon the
expiration of their current terms and each year one class of directors will
be elected by the stockholders. The Company believes that classification of
the Board of Directors will help to assure the continuity and stability of
the Company's business strategies and policies as determined by the Board of
Directors. Holders of shares of Common Stock will have no right to
cumulative voting in the election of directors. Consequently, at each annual
meeting of stockholders, the holders of a majority of the shares of Common
Stock will be able to elect all of the successors of the class of directors
whose terms expire at that meeting.
The following table sets forth certain information with respect to the
directors, director nominees and executive officers of the Company
immediately following the completion of the Offering:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- ---------
<C> <C> <S>
Bernard H. Mendik 67 Chairman of the Board and Chief Executive
Officer (term will expire 1999)
David R. Greenbaum 45 President, Chief Operating Officer and
Director (term will expire 1997)
Thomas R. Delatour, Jr. 42 Director (term will expire 1999)
William S. Janes 43 Director (term will expire 1998)
David B. Cornstein 58 Director Nominee (term will expire 1999)
Lawrence S. Huntington 61 Director Nominee (term will expire 1998)
Morris W. Offit 59 Director Nominee (term will expire 1997)
Spencer M. Partrich 56 Director Nominee (term will expire 1997)
Leonard N. Stern 58 Director Nominee (term will expire 1998)
Christopher G. Bonk 42 Senior Vice President and Chief Financial
Officer
Michael M. Downey 55 Senior Vice President -- Operations
John J. Silberstein 36 Senior Vice President -- Acquisitions
David L. Sims 50 Senior Vice President -- Leasing
Kevin R. Wang 39 Senior Vice President -- Leasing
</TABLE>
BERNARD H. MENDIK has been the Chairman of the Board of Directors and
Chief Executive Officer of the Company since its formation. Mr. Mendik has
been an owner, manager and developer of office and commercial properties in
the New York metropolitan and surrounding areas since 1957. He has been
Chairman of the Board of Directors of Mendik Realty since 1990. He was
President and sole shareholder of Mendik Realty from its founding in 1978
until 1990. Mr. Mendik is involved with various charitable, philanthropic
and civic organizations. He is the current Chairman of the Board of
Governors of the Real Estate Board of New York. Mr. Mendik serves as a
Trustee of the New York Law School (of which he is former Chairman), the
Jewish Guild's Nursing Home for the Aged Blind, the Montefiore Medical
Center, The Bronx High School of Science Foundation and The City College Fund
and the Real Estate Advisory Board of Baruch College. He
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is the Director of the Gracie Mansion Conservancy, a member of the Board of
Regents of the Cathedral Church of Saint John the Divine, former Chairman of
the Jewish Guild for the Blind, a member emeritus of the Character and
Fitness Committee for Admission to the New York Bar Association and past
adjunct professor at New York University's Real Estate Institute. Mr. Mendik
is Mayor Giuliani's designee Board Member of the New York Hall of Science, a
member of the Mayor's Business Advisory Council and a member of the Mayor's
Commission on Youth Empowerment Services. He also is a 1993 recipient of the
Ellis Island Medal of Honor. He is a member of the New York Bar and holds
honorary Doctor of Laws degrees from the New York Law School and the City
College of the City University of New York. Mr. Mendik also is involved with
numerous organizations which focus on issues facing both New York City and
the New York real estate community. He is a Trustee of the Realty Advisory
Board, the Realty Foundation of New York and the Fifth Avenue Association.
He also is a Director of the Downtown-Lower Manhattan Association, Inc., a
partner of the New York City Partnership and a member of the Speaker's
Legislative Advisory Commission on the Homeless. In May of 1996, Mayor
Giuliani conferred upon Mr. Mendik The City of New York's Fiorello H.
LaGuardia Award for civic achievement. Mr. Mendik received a B.B.A. degree
from the City College of New York and a J.D. degree from the New York Law
School.
DAVID R. GREENBAUM has been the President, Chief Operating
Officer and a Director of the Company since its formation. Mr. Greenbaum is
responsible for acquisitions and the overall management, financing and
leasing activities of the property portfolio of the Company. He has been
President of Mendik Realty since 1990. He was Executive Vice President of
Mendik Realty from 1982 until 1990. Prior to joining Mendik Realty, Mr.
Greenbaum was a tax attorney with the New York law firm of Weil, Gotshal &
Manges. Mr. Greenbaum is a member of the Board of Directors of the Real
Estate Board of New York and Co-Chairman of its Economic Development
Committee. In addition, he is a member of the Board of Trustees and is the
Treasurer of the Citizens Budget Commission and Chairman of its Economic
Development Committee. Mr. Greenbaum has been appointed by Mayor Giuliani to
the Board of the New York City Industrial Development Authority. He is a
past Treasurer of the Grand Central BID and the 34th Street BID and was
selected by the New York City Partnership to participate in the 1994-95 David
Rockefeller Fellows Program. Mr. Greenbaum is a member of the Board of
Trustees of the Jewish Guild for the Blind and the Jewish Guild's Nursing
Home for the Aged Blind. He is a member of the New York University Real
Estate Institute's Advisory Board. Mr. Greenbaum received a B.A. degree from
the University of Rochester and a J.D. degree from the University of Chicago.
THOMAS R. DELATOUR, JR. has over 19 years of experience providing
financial advice to participants in the real estate industry. Mr. Delatour
joined RMB Realty in 1988 and presently serves as an executive officer and
director. He also serves as an executive officer and director of FWM Genpar,
Inc., the general partner of FWM, L.P. In addition, Mr. Delatour serves as a
director of Paragon Group, Inc., a publicly traded REIT headquartered in
Dallas, Texas. Mr. Delatour served as the Vice President -- Finance,
Southeast Region for Lincoln Property Company from 1981 to 1987. He also
served from 1993 to 1996 as a director of Carr Realty Corporation (now known
as CarrAmerica Realty Corporation), a publicly traded REIT headquartered in
Washington, D.C. In addition, he is Chairman -- Urban Development/Mixed Use
Council for The Urban Land Institute. Mr. Delatour earned a B.B.A. degree
from the University of Texas.
WILLIAM S. JANES has over 19 years of experience providing
financial advice to participants in the real estate industry. Mr. Janes
joined RMB Realty in 1991 and presently serves as an executive officer and
director. He also serves as an executive officer of FWM Genpar, Inc., the
general partner of FWM, L.P. In addition, Mr. Janes serves as a director of
Paragon Group, Inc., a publicly traded REIT headquartered in Dallas, Texas,
as well as a director of CapStar Hotel Company, a publicly traded corporation
headquartered in Washington, D.C. Prior to joining RMB Realty, Mr. Janes was
with Lincoln Property Company from 1984 to 1989, serving as Regional
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<PAGE>
General Partner and overseeing development operations in the mid-Atlantic
region. Mr. Janes maintains professional affiliations as a member of NAREIT,
SIOR, the Urban Land Institute and the Washington Board of Realtors. He also
is on the Development Committee of the Washington National Cathedral. Mr.
Janes earned a B.A. degree from Bowdoin College.
DAVID B. CORNSTEIN has been Chairman of the Board of Directors of
Finlay Enterprises, Inc., a publicly traded company which is the largest
operator of licensed fine jewelry departments in the United States and
France, since May 1993 and a director of that company and its wholly-owned
subsidiary since December 1988. Mr. Cornstein also is Chairman and Chief
Executive Officer of Finlay International. In addition, Mr. Cornstein is
Chairman of What A World!, Inc., a publicly traded company specializing in
the retail sale of nature related products. Mr. Cornstein is involved with
various charitable, philanthropic and civic organizations, and currently is
the chairman of the New York City Off-Track Betting Commission and the New
York State Senate Advisory Commission on the Future of New York City. Mr.
Cornstein is the Vice Chairman of the Economic Development Corporation of New
York City, a member of the New York State Advisory Council on State
Productivity, and a member of the Mayor's Business Advisory Council. Mr.
Cornstein received a B.A. degree from Lafayette University and an M.B.A.
degree from New York University Business School.
LAWRENCE S. HUNTINGTON has been Chairman of the Board of Fiduciary
Trust Co. International since 1983 and Chief Executive Officer since 1973.
He became President in 1970 and has been affiliated with the company since
1961 when he joined the investment department. Mr. Huntington is active in
numerous civic and business organizations and currently serves as Chairman of
the St. Luke's-Roosevelt Hospital Center. He also serves as Chairman of The
New York Law School and has served a term as Chairman of the New York City
Citizen's Budget Commission, a fiscal watchdog agency. Mr. Huntington also
is a former Chairman of the World Wildlife Fund. He is a member of the NASD
International Markets Advisory Board and served for ten years as a member of
the New York State Common Retirement Fund Investment Committee. He is a
Director of Princeton Packet, Inc., the publisher of a local weekly
newspaper. Mr. Huntington received a B.A. degree from Harvard College and a
L.L.B. degree from The New York Law School.
MORRIS W. OFFIT has been Chief Executive Officer of OFFITBANK, a
limited purpose trust company whose core business is investment management
services, since 1990. Prior to the formation of OFFITBANK's predecessor in
1983, Mr. Offit was associated with the Julius Baer Group in Zurich, where as
a Director of Baer Holding Ltd., he was responsible for its U.S. investment
operations. Mr. Offit began his career at Mercantile Safe Deposit and Trust
Company in Baltimore in 1960. In 1968 he joined Salomon Brothers, where he
was a General Partner for 10 years. Mr. Offit is a trustee of The Johns
Hopkins University, where he served as Chairman from 1990 to 1996, and is a
trustee of the Jewish Museum, where he served as Chairman from 1987 to 1991.
In 1983, Mr. Offit served as Adjunct Professor of Finance at the Columbia
Graduate School of Business, where he lectured on the secondary capital
markets. He has lectured widely at investment seminars and graduate schools
of business and international affairs. Mr. Offit received a B.A. degree and
an Honorary Doctor of Humane Letters degree from The Johns Hopkins University
and an M.B.A. degree from the Wharton School of the University of
Pennsylvania.
SPENCER M. PARTRICH has over 30 years of experience in the
acquisition, development and management of real estate. He is the Co-owner
and a Director of Lautrec, Ltd., a property management company founded in
1976 which is the largest privately held owner/operator of manufactured
housing communities in the United States. He was President and Chief
Operating Officer of that company from 1976 to 1986. Lautrec currently has
over 20,000 manufactured home sites and 6,000 apartment units under
management in addition to over 1,000 acres of land under various stages of
development for residential, commercial and manufactured housing use. Mr.
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Partrich also has served on the Board of Directors of Arbor Drugs, Inc., a
publicly traded drug store chain, since 1988. He is a member of the Michigan
Bar Association. Mr. Partrich received B.A. and J.D. degrees from Wayne
State University.
LEONARD N. STERN is the Chairman, Chief Executive Officer and sole
stockholder of The Hartz Group, Inc., a company that manufactures and
distributes pet supplies and owns over 30 million square feet of commercial
space, primarily in the New Jersey Meadowlands, as well as a variety of other
major real estate developments, including the construction of 667 Madison
Avenue and the Soho Grand Hotel in Manhattan. In addition, the Hartz Group
owns THE VILLAGE VOICE, New York's leading alternative weekly publication,
and L.A. WEEKLY, Los Angeles' leading free weekly newspaper. Mr. Stern
currently is a member of the Board of Trustees of the Rite Aid Corporation, a
publicly traded company. He has been a member of the Board of Trustees of
New York University, as well as a member of New York City Partnership, Inc.,
Chemical Bank's Lower Manhattan Advisory Board and the Regional Banking
Advisory Board. Mr. Stern received B.S. and M.B.A. degrees from New York
University.
CHRISTOPHER G. BONK has been Senior Vice President and Chief Financial
Officer of the Company since its formation. Mr. Bonk is responsible for all
financing and accounting matters for the Company. He has been Senior Vice
President of Mendik Realty since 1981 and Chief Financial Officer of Mendik
Realty since 1994. Prior to joining Mendik Realty, Mr. Bonk was a Financial
Manager in the real estate group of The Equitable Life Assurance Society of
the United States. Mr. Bonk received a B.S. degree in Business
Administration from the University of Akron.
MICHAEL M. DOWNEY has been Senior Vice President of the Company since
its formation. Mr. Downey is responsible for operations, management and
construction for the Company. He has been Senior Vice President of
Operations for Mendik Realty since 1984. Mr. Downey joined Mendik Realty in
1978 as Chief Engineer and also has served as Building Manager and Vice
President. Prior to joining Mendik Realty, Mr. Downey worked in the real
estate field for several other companies, including Alcoa Aluminum and
Citibank. Mr. Downey has served as President and Assistant Secretary to the
Chairman of both the Finance and Waste Management Committees of BOMA (the
Building Owners' and Managers' Association of New York). Mr. Downey also has
served as Chair of the Management Division of the Real Estate Board of New
York and presently serves as Chair of the Codes and Regulations Committee.
The Realty Advisory Board also has appointed him as a permanent Member of the
Union Labor Negotiating Committee. In addition, Mr. Downey serves on the New
York City Council's Legislative Advisory Commission on the Homeless and
belongs to the Association of Energy Engineers.
JOHN J. SILBERSTEIN has been Senior Vice President -- Acquisitions of
the Company since its formation. Mr. Silberstein assists Mr. Greenbaum in
the overall management, finance and leasing of the property portfolio of the
Company, and also is responsible for acquisitions. He has been Senior Vice
President and General Counsel of Mendik Realty since 1990 and was Vice
President and General Counsel from 1989 until 1990. Prior to joining Mendik
Realty, Mr. Silberstein was a real estate attorney with the New York law firm
of Skadden, Arps, Slate, Meagher & Flom. Mr. Silberstein received a B.A.
degree from Brown University and a J.D. degree from New York University
School of Law.
DAVID L. SIMS has been Senior Vice President -- Leasing of the Company
since its formation. Mr. Sims is responsible for overseeing and directing
leasing in various of the Company's properties. He has been Senior Vice
President of Leasing for Mendik Realty since 1984. Prior to joining Mendik
Realty, Mr. Sims served as Assistant Vice President (Leasing) for Olympia and
York and as a mortgage/sales broker for Omni Funding Corporation. Mr. Sims
is a lecturer at New York University's Real Estate Institute. Mr. Sims
received a B.A. degree from Syracuse University.
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KEVIN R. WANG has been Senior Vice President -- Leasing of the Company
since its formation. Mr. Wang is responsible for overseeing and directing
leasing in various of the Company's properties. He has been Senior Vice
President of Leasing for Mendik Realty since 1985. Prior to joining Mendik
Realty, Mr. Wang served as Vice President of Cross & Brown, a commercial real
estate brokerage firm in New York City. Mr. Wang is currently Chairman of
the General Meetings Committee and a past Co-Chairman of the Seminar
Committee of the Real Estate Board of New York. He also is a past president
of the New York Chapter of the National Association of Industrial and Office
Parks and a past chairman of The Young Men's/Women's Real Estate Association
of New York and the recipient of the latter organization's Young Man of the
Year Award for 1980. Mr. Wang is a lecturer at New York University's Real
Estate Institute, a member of the New York University Real Estate Round Table
and a member of the Cornell University Real Estate Council. Mr. Wang
received a B.S. degree from Cornell University.
COMMITTEES OF THE BOARD OF DIRECTORS
EXECUTIVE COMMITTEE. Promptly following the completion of the
Offering, the Board of Directors will establish an Executive Committee.
Subject to the Company's conflict of interest policies, the Executive
Committee will be granted the authority to acquire and dispose of real
property and the power to authorize, on behalf of the full Board of
Directors, the execution of certain contracts and agreements, including those
related to the borrowing of money by the Company (and, consistent with the
Partnership Agreement of the Operating Partnership, to cause the Operating
Partnership to take such actions). The Executive Committee initially will
consist of Messrs. Mendik and Greenbaum and at least two additional
directors.
AUDIT COMMITTEE. Promptly following the completion of the
Offering, the Board of Directors will establish an Audit Committee. The
Audit Committee will make recommendations concerning the engagement of
independent public accountants, review with the independent public
accountants the scope and results of the audit engagement, approve
professional services provided by the independent public accountants, review
the independence of the independent public accountants, consider the range of
audit and non-audit fees and review the adequacy of the Company's internal
accounting controls. The Audit Committee initially will consist of two or
more independent directors.
COMPENSATION COMMITTEE. Promptly following the completion of the
Offering, the Board of Directors will establish a Compensation Committee
consisting of at least two independent directors to establish remuneration
levels for executive officers of the Company and to implement and administer
the Company's stock option plans and any other incentive programs. The
Compensation Committee initially will consist of two or more independent
directors.
The Board of Directors may from time to time establish certain other
committees to facilitation the management of the Company.
COMPENSATION OF DIRECTORS
The Company intends to pay its non-employee directors annual
compensation of $12,000 for their services. In addition, non-employee
directors will receive a fee of $1,000 for each Board of Directors meeting
attended (in person or by telephone). Non-employee directors will receive an
additional fee of $500 for each committee meeting attended (in person or by
telephone), unless the committee meeting is held on the day of a meeting of
the Board of Directors. Non-employee directors also will be reimbursed for
reasonable expenses incurred to attend director and committee meetings.
Compensation and fees may be paid to non-employee directors in the form of
cash or Common Stock, at the election of each such director. Officers of the
Company who are directors will
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not be paid any director's compensation or fees. Pursuant to the Company's
Non-employee Director Stock Option Plan, non-employee directors will receive,
upon initial election to the Board of Directors, an option to purchase 5,000
shares of Common Stock at the initial public offering price (or, if elected
following the completion of the Offering, at the prevailing market price)
which will vest over 12 months. The plan also will provide for automatic
grants of options to non-employee directors at certain other times.
EXECUTIVE COMPENSATION
The following table below sets forth the annual base salary rates and
other compensation expected to be paid in 1997 to the Company's Chief
Executive Officer and each of the Company's other executive officers (the
"Named Executive Officers").
<TABLE>
<CAPTION>
1997 BASE OPTIONS
NAME TITLE SALARY RATE (1) ALLOCATED (2)
- ----- ---------- --------------- -------------
<S> <C> <C> <C>
Bernard H. Mendik Chairman of the Board and $200,000 225,000
Chief Executive Officer
David R. Greenbaum President and Chief Operating Officer 300,000 225,000
Christopher G. Bonk Senior Vice President and
Chief Financial Officer 200,000 50,000
Michael M. Downey Senior Vice President -- Operations 200,000 50,000
John J. Silberstein Senior Vice President -- Acquisitions 200,000 50,000
David L. Sims Senior Vice President -- Leasing 200,000 50,000
Kevin R. Wang Senior Vice President -- Leasing 200,000 50,000
</TABLE>
_________________
(1) Does not include bonuses that may be paid to the above
individuals. See "-- Incentive Compensation" below.
(2) Upon the effective date of the Offering options to purchase a
total of 900,000 shares of Common Stock will be granted to
officers and other employees of the Company under the
Company's stock option plan at a price equal to the initial
public offering price. See "-- Stock Option Plan" below."
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OPTION GRANTS IN FISCAL YEAR 1997
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
PERCENT OF TOTAL ANNUAL RATES OF SHARE
OPTIONS TO PRICE APPRECIATION FOR
BE GRANTED OPTION TERM
OPTIONS TO TO EMPLOYEES IN EXERCISE PRICE EXPIRATION --------------------------
NAME BE GRANTED(1) FISCAL YEAR PER SHARE (2) DATE 5% 10%
- ---------------- ------------- ----------------- --------------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Bernard H. Mendik.... 225,000 25.0% $22.00 __________, 2007 $3,113,028 $7,889,025
David R. Greenbaum... 225,000 25.0% 22.00 __________, 2007 3,113,028 7,889,025
Christopher G. Bonk.. 50,000 5.6% 22.00 __________, 2007 691,784 1,753,116
David L. Sims........ 50,000 5.6% 22.00 __________, 2007 691,784 1,753,116
Michael M. Downey.... 50,000 5.6% 22.00 __________, 2007 691,784 1,753,116
John J. Silberstein.. 50,000 5.6% 22.00 __________, 2007 691,784 1,753,116
Kevin R. Wang........ 50,000 5.6% 22.00 __________, 2007 691,784 1,753,116
</TABLE>
__________________
(1) The options will become exercisable for one-third of the
covered shares on the first and second anniversaries of
the date of grant, and for the balance of the covered
shares on the third anniversary of the date of such grant.
(2) Based on the estimated initial public offering price.
EMPLOYMENT AGREEMENTS
Each of Messrs. Mendik and Greenbaum will enter into an
employment agreement with the Company which will be effective as of the
completion of the Offering. The employment agreements of Messrs. Mendik and
Greenbaum will have an initial term of three years and will provide for
automatic one-year extensions following the expiration of the initial term.
For the first year of the term, the employment agreements of Messrs. Mendik
and Greenbaum provide for an initial annual base compensation in the amounts
set forth in the Executive Compensation table, with the amount of any initial
bonus to be determined by the Compensation Committee. For subsequent years,
both the amount of the base compensation and the amount of any bonus will be
determined by the Compensation Committee (but the base compensation will not
be less than the base compensation paid in the first year).
The employment agreements of Messrs. Mendik and Greenbaum
entitle the executives to participate in the Company's stock option plan
(each executive initially will be allocated the number of stock options set
forth in the Executive Compensation table) and to receive certain other
insurance and pension benefits. In addition, in the event of a termination
by the Company without "cause," a termination by the executive for "good
reason," or a termination pursuant to a "change in control" of the Company
(as such terms are defined in the respective employment agreements), the
terminated executive will be entitled to (i) a single severance payment, and
(ii) continued receipt of certain benefits, including medical insurance, life
and disability insurance and participation in all pension, 401(k) and other
employee plans and benefits established by the Company for its executive
officers for a specified period of time following the date of termination.
NONCOMPETITION AGREEMENTS
Messrs. Mendik and Greenbaum will enter into
noncompetition agreements with the Company which will be effective as of the
completion of the Offering. The noncompetition agreements of Messrs. Mendik
and Greenbaum will prohibit them, under certain circumstances, from competing
with the Company during the initial term of their employment agreement and
for a one-year period after termination of employment.
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STOCK OPTION AND RESTRICTED STOCK PLANS
Prior to the completion of the Offering, the Company
intends to adopt the 1997 Employee Stock Option and Restricted Stock Plan
(the "Employee Plan") for the purpose of attracting and retaining highly
qualified executive officers, directors and employees.
The Employee Plan will be qualified under Rule 16b-3
under the Securities Exchange Act of 1934, as amended (the "Exchange Act").
The Employee Plan will be administered by the Compensation Committee and
provide for the granting of stock options, stock appreciation rights or
restricted stock with respect to up to 1,600,000 shares of Common Stock to
executive or other key employees of the Company. Stock options may be
granted in the form of "incentive stock options" as defined in Section 422 of
the Code, or non-statutory stock options, and are exercisable for up to 10
years following the date of the grant. The exercise price of each option
will be set by the Compensation Committee; provided, however, that the price
per share must be equal to or greater than the fair market value of the
Common Stock on the grant date.
The Plan also provides for the issuance of stock
appreciation rights which will generally entitle a holder to receive cash or
stock, as determined by the Compensation Committee at the time of exercise,
equal to the difference between the exercise price and the fair market value
of the Common Stock. In addition, the Plan permits the Company to issue
shares of restricted stock to executive or other key employees upon such
terms and conditions as shall be determined by the Compensation Committee in
its sole discretion.
INCENTIVE COMPENSATION PLAN
Prior to the completion of the Offering, the Company
intends to establish an incentive compensation plan for key officers of the
Company and the Company's subsidiaries and affiliates. This plan will
provide for payment of cash bonuses to participating officers after an
evaluation of the officer's performance and the overall performance of the
Company has been completed. The Chief Executive Officer will make
recommendations to the Compensation Committee of the Board of Directors,
which will make the final determination for the award of bonuses in its sole
discretion. The Compensation Committee will determine the amount of such
bonuses, if any, for the Chief Executive Officer in its sole discretion.
401(k) PLAN
Effective upon the completion of the Offering, the
Company intends to establish The Mendik Company Section 401(k)
Savings/Retirement Plan (the "401(k) Plan") to cover eligible employees of
the Company and any designated affiliate.
The 401(k) Plan will permit eligible employees of the
Company to defer up to 15% of their annual compensation, subject to certain
limitations imposed by the Code. The employees' elective deferrals are
immediately vested and non-forfeitable upon contribution to the 401(k) Plan.
The Company currently intends to continue the Mendik Group's policy of
matching employee contributions up to 5% of salary.
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 and its stockholders for money damages except for liability
resulting from (i) actual receipt of an improper benefit or profit in money
property or services, or (ii) active and deliberate dishonesty established by
a final judgment as being
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material to the cause of action. The Charter contains such a provision which
eliminates such liability to the maximum extent permitted by the MGCL.
The Charter authorizes the Company, to the maximum extent
permitted by Maryland law, to obligate itself to indemnify and to pay or
reimburse reasonable expenses in advance of final disposition of a proceeding
to (i) any present or former director or officer, or (ii) any individual who,
while a director of the Company and at the request of the Company serves or
has served another corporation, limited liability company, partnership, joint
venture, trust, employee benefit plan or any other enterprise as a director,
officer, member, partner or trustee of such corporation, limited liability
company, partnership, joint venture, trust, employee benefit plan or other
enterprise from and against any claim or liability which such persons may
incur by reason of his status as a present or former stockholder, director or
officer of the Company. The Bylaws obligate the Company, to the maximum
extent permitted by Maryland law, to indemnify and to pay or reimburse
reasonable expenses in advance of final disposition of a proceeding to
(i) any present or former director or officer who is made a party to the
proceeding by reason of his service in that capacity, or (ii) any individual
who while a director of the Company and at the request of the Company serves
or has served another corporation, limited liability company, partnership,
joint venture, trust, employee benefit plan or any other enterprise as a
director, officer, member, partner or trustee of such corporation, limited
liability company, partnership, joint venture, trust, employee benefit plan
or other enterprise and who is made a party to the proceeding by reason of
his service in that capacity against any claim or liability to which he may
become subject by reason of such service. The Charter and the Bylaws also
permit the Company to indemnify and advance expenses to any person who served
a predecessor of the Company in any of the capacities described above and to
any employee or agent of the Company or a predecessor of the Company.
The MGCL requires a corporation (unless its charter
provides otherwise, which the Company's Charter does not) to indemnify a
director or officer who has been successful, on the merits or otherwise, in
the defense of any proceeding to which he is made a party by reason of his
service in that capacity. The MGCL permits a corporation to indemnify its
present and former directors and officers, among others, 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 in those or other capacities unless it is established
that (i) the act or omission of the director or officer was material to the
matter giving rise to the proceeding and (A) was committed in bad faith, or
(B) was the result of active and deliberate dishonesty, (ii) the director or
officer actually received an improper personal benefit in money, property or
services, or (iii) in the case of any criminal proceeding, the director or
officer had reasonable cause to believe that the act or omission was
unlawful. However, a Maryland corporation may not indemnify for an adverse
judgment in a suit by or in the right of the corporation. In addition, the
MGCL requires the Company, as a condition to advancing expenses, to obtain
(i) a written affirmation by the director or officer of his good faith belief
that he has met the standard of conduct necessary for indemnification by the
Company as authorized by the Bylaws, and (ii) a written statement by or on
his behalf to repay the amount paid or reimbursed by the Company if it shall
ultimately be determined that the standard of conduct was not met.
The Partnership Agreement also provides for
indemnification and advance of expenses of the Company and its officers and
directors to the same extent indemnification and advance of expenses is
provided to officers and directors of the Company in the Charter and Bylaws,
and limits the liability of the Company and its officers and directors to the
Operating Partnership and its partners to the same extent liability of
officers and directors of the Company to the Company and its stockholders is
limited under the Charter. See "Partnership Agreement -- Indemnification."
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STRUCTURE AND FORMATION OF THE COMPANY
THE OPERATING ENTITIES OF THE COMPANY
Following the completion of the Offering and the
Formation Transactions, the operations of the Company will be carried on
through the Operating Partnership. The Formation Transactions were designed
to (i) enable the Company to raise the necessary capital to acquire the
Properties, repay certain mortgage indebtedness secured by certain of the
Properties and establish a working capital reserve, (ii) provide a vehicle
for future acquisitions, (iii) enable the Company to comply with certain
requirements under the Code (and the regulations thereto) relating to REITs,
and (iv) preserve certain tax advantages for certain participants in the
Formation Transactions.
THE OPERATING PARTNERSHIP. Following the closing of the
Offering and the Formation Transactions, substantially all of the Company's
assets will be held by, and its operations conducted through, the Operating
Partnership and its subsidiaries and affiliates. The Company is the sole
general partner of the Operating Partnership and will have the exclusive
power under the Partnership Agreement to manage and conduct the business of
the Operating Partnership. Except with respect to the Lock-out Provisions,
limited partners generally will have only limited consent rights. See
"Partnership Agreement." The Board of Directors of the Company will manage
the affairs of the Company by directing the affairs of the Operating
Partnership. The Operating Partnership will continue until December 31,
2095, unless sooner dissolved or terminated. The Operating Partnership
cannot be dissolved for a period of 50 years without the consent of the
limited partners, except in connection with a sale of all or substantially
all of its assets, which also requires the consent of the limited partners.
See "Partnership Agreement." The Company's limited and general partner
interests in the Operating Partnership will entitle it to share in cash
distributions from, and in the profits and losses of, the Operating
Partnership in proportion to the Company's percentage interest therein and
will entitle the Company to vote on substantially all matters requiring a
vote of the limited partners.
Following the completion of the Offering and the
Formation Transactions, the Company initially will own an approximate 64%
interest in the Operating Partnership. Certain participants in the Formation
Transactions, including the Mendik Group and Mendik/FW LLC, will own the
remaining Units. In addition, the Operating Partnership anticipates that it
will acquire additional properties in exchange for Units in the future, in
which case partners in the partnerships that own such properties will become
limited partners of the Operating Partnership.
After the completion of the Offering and the Formation
Transactions, the Operating Partnership expects to make regular quarterly
cash distributions to its partners (including the Company) in proportion to
their percentage interests in the Operating Partnership. The Company, in
turn, will pay cash dividends to its stockholders in an amount per share of
Common Stock equal to the amount distributed by the Operating Partnership per
Unit. In addition, after a holding period of up to two years following the
consummation of the Offering, and at any time thereafter (for as long as the
Operating Partnership is in existence and subject to compliance with the
securities laws and the ownership limits of the Company's organizational
documents), limited partners in the Operating Partnership will be able to
have their Units redeemed by the Operating Partnership. In the event that
the Company elects to acquire Units in exchange for shares of Common Stock
upon the exercise of a redemption right by a limited partner, each such
acquisition will increase the Company's percentage ownership interest in the
Operating Partnership and will decrease the percentage ownership interests of
the remaining limited partners in the Operating Partnership.
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THE MANAGEMENT CORPORATION. In order to maintain the
Company's qualification as a REIT while realizing income from management
contracts with third parties, all of the management and leasing operations
with respect to properties in which the Company will own less than a 100%
interest (initially, Eleven Penn Plaza, Two Park Avenue, 330 Madison Avenue
and 570 Lexington Avenue), and properties in which the Company will not own
any interest will be conducted through the Management Corporation. The
Company, through the Operating Partnership, will own its percentage interest
in 100% of the non-voting common stock (representing 95% of the total equity)
of the Management Corporation, and a note issued by the Management
Corporation. Through dividends on its equity interest and debt service
payments on the note, the Operating Partnership expects to receive cash flow
from the Management Corporation's operations. All of the voting common stock
of the Management Corporation (representing 5% of the total equity) will be
held by the Mendik Group. This controlling interest will give the Mendik
Group the power to elect all directors of the Management Corporation.
THE MANAGEMENT PARTNERSHIP. All of the management and
leasing operations with respect to properties in which the Company will own a
100% interest (initially, Two Penn Plaza, 866 United Nations Plaza and 1740
Broadway) will be conducted through the Management Partnership. The
Operating Partnership will own a 1% general partner interest and a 98%
limited partner interest in the Management Partnership. The Management
Corporation will own the remaining 1% limited partner interest.
FORMATION TRANSACTIONS
Concurrent with the completion of the Offering, the
Company, the Operating Partnership and the participants in the Formation
Transactions will participate in the following Formation Transactions.
- Certain participants in the Formation Transactions (including
the Mendik Group) will contribute direct or indirect interests
in certain of the Properties, and the Mendik Group will
contribute certain of its assets, including its management and
leasing business, to the Company.
- Certain participants who own interests in 330 Madison Avenue
prior to the completion of the Formation Transactions will
have the right to receive Units from the Operating
Partnerships with respect to the amount of the discount, if
any, agreed to by the current lender with respect to that
Property in connection with the repayment of its loan.
- The Company will acquire for cash from certain participants in
the Formation Transactions the remaining direct or indirect
interests being acquired by the Company in certain of the
Properties.
- The Mendik Group will transfer (i) its management and leasing
business, with respect to Properties in which the Company has
a 100% interest to the Management Partnership, in which the
Company will own substantially all of the economic interest,
and (ii) its management and leasing business with respect to
properties in which the Company has a partial interest or no
interest to the Management Corporation, in which the Company
will own substantially all of the economic interest.
- FWM II, L.P. will purchase 954,545 shares of Common Stock in the
Concurrent Placement at the initial public offering price.
- The Company will use approximately $91 million of the net
proceeds of the Offering to repay certain mortgage
indebtedness secured by two of the Properties.
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- The Company will refinance approximately $113 million of
indebtedness secured by two of the Properties.
- The Company expects to obtain the Line of Credit which will be
used to facilitate acquisitions of properties and for working
capital purposes.
CONSEQUENCES OF THE OFFERING AND THE FORMATION TRANSACTIONS
The Offering and the Formation Transactions will have the following
consequences:
- The Operating Partnership directly or indirectly will own
substantially all of the interests in the Properties currently
owned by the Mendik Group and its affiliates.
- The purchasers of the Common Stock offered in the Offering
will own approximately 89% of the outstanding Common Stock.
- The Company will be the general partner of, and own
approximately 64% of the ownership interests in, the Operating
Partnership.
If all limited partners in the Operating Partnership were to
exchange their Units for Common Stock immediately after completion of the
Offering (notwithstanding the provision of the Partnership Agreement which
prohibits such exchange for up to two years following the completion of the
Offering), but subject to the Ownership Limit, then the participants in the
Formation Transactions would beneficially own approximately 36% of the
outstanding shares of Common Stock.
See "Risk Factors -- Conflicts of Interests in the Formation
Transactions and the Business of the Company Substantial Benefits to Related
Parties" and "Principal Stockholders."
BENEFITS OF THE FORMATION TRANSACTIONS AND THE OFFERING TO AFFILIATES OF THE
COMPANY
The Mendik Group and Mendik/FW LLC will realize certain material
benefits in connection with the Formation Transactions and the Offering,
including the following:
- Members of the Mendik Group will receive Units and shares of
Common Stock in consideration for their interests in the
Properties and the Mendik Group's management and leasing
business with a total value of approximately $_____ million
based on the estimated initial public offering price.
- Mendik/FW LLC has received an interest in the Operating
Partnership that will initially have a value of approximately
$_______ million based on the estimated initial public
offering price.
- Messrs. Mendik and Greenbaum will enter into employment
agreements with the Company. See "Management -- Employment
Agreements." In addition, the Company will grant to Messrs.
Mendik and Greenbaum and other executive officers of the
Company options to purchase an aggregate of 700,000 shares of
Common Stock at the initial public offering price under the
Company's stock option plan, subject to certain vesting
requirements. See "Management."
- Pursuant to the Lock-out Provisions, the Company will be
restricted in its ability to sell, or reduce the amount of
mortgage indebtedness on, three of the Properties (Two
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Penn Plaza, 866 United Nations Plaza and Eleven Penn Plaza) for
up to 15 years following the completion of the Offering, which
could enable certain participants in the Formation
Transactions (including the Mendik Group) to defer certain tax
consequences associated with the Formation Transactions.
See "Risk Factors -- Conflicts of Interests in the Formation
Transactions and the Business of the Company," "Management" and "Certain
Relationships and Transactions."
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POLICIES WITH RESPECT TO CERTAIN ACTIVITIES
The following is a discussion of certain investment, financing and
other policies of the Company. These policies have been determined by the
Company's Board of Directors and may be amended or revised from time to time
by the Board of Directors without a vote of the stockholders, except that (i)
the Company cannot change its policy of holding its assets and conducting its
business only through the Operating Partnership and its affiliates without
the consent of the holders of Units as provided in the Partnership Agreement,
(ii) changes in certain policies with respect to conflicts of interest must
be consistent with legal requirements, and (iii) the Company cannot take any
action intended to terminate its qualification as a REIT without the approval
of the holders of a majority of the outstanding shares of Common Stock.
INVESTMENT POLICIES
INVESTMENT IN REAL ESTATE OR INTERESTS IN REAL ESTATE. The Company will
conduct all of its investment activities through the Operating Partnership
and its affiliates. The Company's primary business objective is to maximize
stockholder value by growing the Company's asset base, enhancing the value of
its assets and maximizing cash flow from operations. More specifically, the
Company intends to (i) acquire interests in additional office properties,
primarily in midtown Manhattan, at attractive equity returns, thereby taking
advantage of the favorable supply/demand fundamentals that currently exist in
the Manhattan office market, and (ii) continue to provide tenants at its
properties with a high quality office environment in terms of building
systems, public spaces and tenant services and, in so doing, to retain
existing tenants, attract new tenants and obtain rent increases while
achieving operating cost efficiencies attributable to the size and geographic
concentration of its portfolio. For a discussion of the Properties and the
Company's acquisition strategy and operating strategy, see "The Properties"
and "Business and Growth Strategies."
The Company expects to pursue its investment objectives primarily
through the direct or indirect ownership by the Operating Partnership of the
Properties and other acquired office properties. The Company currently
intends to invest primarily in existing improved properties but may, if
market conditions warrant, invest in development projects as well.
Furthermore, the Company currently intends to invest in or develop commercial
office properties, primarily in midtown Manhattan. However, future
investment or development activities will not be limited to any geographic
area or product type or to a specified percentage of the Company's assets.
The Company does not have any limit on the amount or percentage of its assets
that may be invested in any one property or any one geographic area. The
Company intends to engage in such future investment or development activities
in a manner which is consistent with the maintenance of its status as a REIT
for Federal income tax purposes. In addition, the Company may purchase or
lease income-producing commercial and other types of properties for long-term
investment, expand and improve the real estate presently owned or other
properties purchased, or sell such real estate properties, in whole or in
part, if and when circumstances warrant.
The Company also may participate with third parties in property
ownership, through joint ventures or other types of co-ownership. Such
investments may permit the Company to own interests in larger assets without
unduly restricting diversification and, therefore, add flexibility in
structuring its portfolio. While the Company currently does not have any
plans to invest in joint ventures or partnerships with affiliates of the
Company, Messrs. Mendik and Greenbaum own interests in several office
properties in Manhattan and in other parts of the New York metropolitan area
that the Company may consider acquiring in the future. In addition, the
Company may in the future consider acquiring additional interests in those
Properties in which the Company owns less than a 100% interest (Eleven Penn
Plaza, Two Park Avenue, 330 Madison Avenue and 570
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Lexington Avenue). The Company will not, however, enter into a joint venture
or partnership to make an investment that would not otherwise meet its
investment policies.
Equity investments may be subject to existing mortgage financing and
other indebtedness or such financing or indebtedness as may be incurred in
connection with acquiring or refinancing these investments. Debt service on
such financing or indebtedness will have a priority over any distributions
with respect to the Common Stock. Investments are also subject to the
Company's policy not to be treated as an investment company under the
Investment Company Act of 1940, as amended (the "1940 Act").
INVESTMENTS IN REAL ESTATE MORTGAGES. While the Company's current
portfolio consists of, and the Company's business objectives emphasize,
equity investments in commercial real estate, the Company may, in the
discretion of the Board of Directors, invest in mortgages and other types of
equity real estate interests consistent with the Company's qualification as a
REIT. The Company does not presently intend to invest in mortgages or deeds
of trust, but may invest in participating or convertible mortgages if the
Company concludes that it would be in the Company's interest to do so. The
Company also may acquire mortgages in connection with the acquisition by the
Company of economic interests in properties. Investments in real estate
mortgages are subject to the risk that one or more borrowers may default
under such mortgages and that the collateral securing such mortgages may not
be sufficient to enable an investor to recoup its full investment.
SECURITIES OR INTERESTS IN PERSONS PRIMARILY ENGAGED IN REAL ESTATE
ACTIVITIES AND OTHER ISSUERS. Subject to the percentage of ownership
limitations and gross income tests necessary for REIT qualification, the
Company also may invest in securities of other REITs, securities of other
entities engaged in real estate activities or securities of other issuers,
including for the purpose of exercising control over such entities. See
"Federal Income Tax Considerations -- Taxation of the Company." No such
investment will be made, however, unless the Board of Directors determines
that the proposed investment would not cause the Company or the Operating
Partnership to be an "investment company" within the meaning of the 1940 Act.
The Company may acquire all or substantially all of the securities or assets
of other REITs or similar entities if such investments would be consistent
with the Company's investment policies.
DISPOSITION POLICIES
The Company does not currently intend to dispose of any of the
Properties, although it reserves the right to do so if, based upon
management's periodic review of the Company's portfolio, the Board of
Directors determines that such action would be in the best interests of the
Company. The tax consequences of the disposition of the Properties may,
however, influence the decision of certain directors and executive officers
of the Company who hold Units as to the desirability of a proposed
disposition. See "Risk Factors -- Conflicts of Interests in the Formation
Transactions and the Business of the Company."
Any decision to dispose of a Property must be approved by a majority of
the Board of Directors (and in accordance with the applicable partnership
agreement). In addition, under the Lock-out Provisions contained in the
Partnership Agreement, the Company may not sell (except in certain events,
including certain transactions that would not result in the recognition of
any gain for tax purposes) Two Penn Plaza, 866 United Nations Plaza and
Eleven Penn Plaza during the Lock-out Period without, in the case of each
such Property, the consent of holders of 75% of the Units originally issued
to limited partners in the Operating Partnership who immediately prior to
completion of the Formation Transactions owned direct or indirect interests
in such Property that remain outstanding at the time of such vote (other than
Units held by the Company). The Lock-out Provisions apply even if it would
otherwise be in the best interest of the stockholders for the Company to sell
one or more of these three Properties.
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FINANCING POLICIES
As a general policy, the Company intends to limit its total consolidated
indebtedness incurred, and its pro rata share of unconsolidated indebtedness
incurred, so that at the time any debt is incurred, the Company's
debt-to-total market capitalization ratio does not exceed 50%. Upon
completion of the Offering and the Formation Transactions, the debt-to-total
market capitalization ratio of the Company will be approximately 34%. The
Charter and Bylaws do not, however, limit the amount or percentage of
indebtedness that the Company may incur. In addition, the Company may from
time to time modify its debt policy in light of current economic conditions,
relative costs of debt and equity capital, market values of its Properties,
general conditions in the market for debt and equity securities, fluctuations
in the market price of its Common Stock, growth and acquisition opportunities
and other factors. Accordingly, the Company may increase its debt-to-total
market capitalization ratio beyond the limits described above. If this
policy were changed, the Company could become more highly leveraged,
resulting in an increased risk of default on its obligations and a related
increase in debt service requirements that could adversely affect the
financial condition and results of operations of the Company and the
Company's ability to make distributions to stockholders.
The Company has established its debt policy relative to the total market
capitalization of the Company computed at the time the debt is incurred,
rather than relative to the book value of its assets, a ratio that is
frequently employed, because it believes the book value of its assets (which
to a large extent is the depreciated value of real property, the Company's
primary tangible asset) does not accurately reflect its ability to borrow and
to meet debt service requirements. Total market capitalization, however, is
subject to greater fluctuation than book value, and does not necessarily
reflect the fair market value of the underlying assets of the Company at all
times. Moreover, due to fluctuations in the value of the Company's portfolio
of properties over time, and since any measurement of the Company's total
consolidated indebtedness, and its pro rata share of unconsolidated
indebtedness incurred, to total market capitalization is made only at the
time debt is incurred, the debt to total market capitalization ratio could
exceed the 50% level.
The Company has not established any limit on the number or amount of
mortgages that may be placed on any single property or on its portfolio as a
whole.
Although the Company will consider factors other than total market
capitalization in making decisions regarding the incurrence of debt (such as
the purchase price of properties to be acquired with debt financing, the
estimated market value of properties upon refinancing, and the ability of
particular properties and the Company as a whole to generate sufficient cash
flow to cover expected debt service), there can be no assurance that the
debt-to-total market capitalization ratio, or any other measure of asset
value, at the time the debt is incurred or at any other time will be
consistent with any particular level of distributions to stockholders.
CONFLICT OF INTEREST POLICIES
The Company has adopted certain policies and entered into noncompetition
agreements with Messrs. Mendik and Greenbaum designed to eliminate or
minimize certain potential conflicts of interest. In addition, the Company's
Board of Directors is subject to certain provisions of Maryland law, which
are designed to eliminate or minimize certain potential conflicts of
interest. There can be no assurance, however, that these policies and
provisions or these agreements always will be successful in eliminating the
influence of such conflicts, and if they are not successful, decisions could
be made that may fail to reflect fully the interests of all stockholders.
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INTERESTED DIRECTOR AND OFFICER TRANSACTIONS
Under Maryland law, a contract or other transaction between the Company
and a director or between the Company and any other corporation or other
entity in which a director is a director or has a material financial interest
is not void or voidable solely on the grounds of such common directorship or
interest, the presence of the director at the meeting at which the contract
or transaction is authorized, approved or ratified or the counting of the
director's vote in favor thereof if (i) the transaction or contract is
authorized, approved or ratified by the board of directors or a committee of
the board, after disclosure of the common directorship or interest, by the
affirmative vote of a majority of disinterested directors, even if the
disinterested directors constitute less than a quorum, or by a majority of
the votes cast by disinterested stockholders, or (ii) the transaction or
contract is fair and reasonable to the Company.
Under Delaware law (where the Operating Partnership is formed), the
Company, as general partner, has a fiduciary duty to the Operating
Partnership and, consequently, such transactions also are subject to the
duties of care and loyalty that the Company, as general partner, owes to
limited partners in the Operating Partnership (to the extent such duties have
not been eliminated pursuant to the terms of the Partnership Agreement).
Such transactions include, but are not limited to, the provision of office
property management and leasing and other fee-based services by the
Management Corporation to properties in which the Mendik Group or its
affiliates have an interest but which are not owned by the Company, the
acquisition of properties or interests in properties by the Company from the
Company's directors or executive officers or entities in which they have an
interest or the provision of cleaning (and related) services and security
services to the Properties by the Mendik Group. The Company will adopt a
policy which requires that all contracts and transactions between the
Company, the Operating Partnership or any of its subsidiaries, on the one
hand, and a director or executive officer of the Company or any entity in
which such director or executive officer is a director or has a material
financial interest, on the other hand, must be approved by the affirmative
vote of a majority of the disinterested directors. Where appropriate in the
judgment of the disinterested directors, the Board of Directors may obtain a
fairness opinion or engage independent counsel to represent the interests of
nonaffiliated security holders, although the Board of Directors will have no
obligation to do so.
BUSINESS OPPORTUNITIES; NONCOMPETITION ARRANGEMENTS
Pursuant to Maryland law, each director is obligated to offer to the
Company any business opportunity (with certain limited exceptions) that comes
to him or her and that the Company reasonably could be expected to have an
interest in pursuing. After the Formation Transactions, the Mendik Group
will continue to own interests in a number of office properties as well as
entities that will provide cleaning (and related) services to office properties
(and certain tenants thereof) and security services to office properties,
including the Properties. See "The Company -- Assets Not Being Transferred to
the Company." The Company will not have any interest in these properties or
businesses. Messrs. Mendik and Greenbaum will enter into agreements with the
Company that require them, as long as they are directors or executive officers
of the Company, not to acquire (other than as passive investors) any office
properties within a specified geographical area except through the Company and
to present to the Company all opportunities which are presented to them
relating to such businesses regardless of the capacity in which they learn of
such opportunities. Messrs. Mendik and Greenbaum also generally will agree,
subject to any preexisting, contractual or fiduciary obligations Messrs. Mendik
or Greenbaum may owe to existing partnerships or other entities, to grant a
right of first refusal to the Company in connection with any proposed sale of
any interests in office properties that they now own (other than their
interests in the Company and certain passive investments).
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POLICIES WITH RESPECT TO OTHER ACTIVITIES
The Company and the Operating Partnership have authority to offer Common
Stock, Preferred Stock, Units, preferred Units or options to purchase capital
stock or Units in exchange for property and to repurchase or otherwise
acquire its Common Stock or Units or other securities in the open market or
otherwise and may engage in such activities in the future. Except in
connection with the Formation Transactions, the Company has not issued
Common Stock, Units or for any other securities in exchange for property or
any other purpose, and the Board of Directors has no present intention of
causing the Company to repurchase any Common Stock. The Company may issue
Preferred Stock from time to time, in one or more series, as authorized by
the Board of Directors without the need for stockholder approval. See
"Capital Stock -- Preferred Stock." The Company has not engaged in trading,
underwriter or agency distribution or sale of securities of other issuers
other than the Operating Partnership, nor has the Company invested in the
securities of other issuers other than the Operating Partnership for the
purposes of exercising control, and does not intend to do so. At all times,
the Company intends to make investments in such a manner as to qualify as a
REIT, unless because of circumstances or changes in the Code (or the
regulations promulgated by the IRS thereunder (the "Treasury Regulations")),
the Board of Directors determines that it is no longer in the best interest
of the Company to qualify as a REIT and such determination is approved by a
majority vote of the Company's stockholders, as required by the Charter. The
Company has not made any loans to third parties, although it may in the
future make loans to third parties, including, without limitation, to joint
ventures in which it participates. The Company intends to make investments
in such a way that it will not be treated as an investment company under the
1940 Act. The Company's policies with respect to such activities may be
reviewed and modified or amended from time to time by the Company's Board of
Directors without a vote of the stockholders.
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CERTAIN RELATIONSHIPS AND TRANSACTIONS
FORMATION TRANSACTIONS
The terms of the acquisitions of interests in the Properties and the
acquisition of the Mendik Management Business by the Operating Partnership
are described in "Structure and Formation of the Company -- The Formation
Transactions."
MANAGEMENT AND LEASING SERVICES
The Mendik Group provides management and leasing services with respect
to the Properties. The aggregate amount of fees paid to the Mendik Group for
such services was approximately $3.5 million in 1993, $2.9 million in 1994
and $3.1 million in 1995. After the completion of the Offering, the Company
(through subsidiaries) will continue to provide management and leasing
services for the Properties.
The Mendik Group has provided management and leasing services with
respect to certain properties in which the Mendik Group has interests but in
which the Company will not acquire an interest in the Formation Transactions.
The aggregate amount of fees paid by the owners of such properties to the
Mendik Group was approximately $3.0 million in 1993, $4.7 million in 1994 and
$3.6 million in 1995. After the completion of the Offering, the Company
(through the Management Corporation) expects to continue to provide
management and leasing services to such properties.
The cost of management services generally is passed through to tenants
as part of the operating expense escalation clause under leases.
CLEANING SERVICES
The Mendik Group provides cleaning (and related) services with respect
to the Properties. The Mendik Group was reimbursed for the direct cost of
such services plus an amount to cover a portion of overhead costs. The cost
of cleaning (and related) services generally is passed through to tenants as
part of the operating expense escalation clause under leases. The Mendik
Group also provides additional services directly to tenants on a separately
negotiated basis. The aggregate amount of reimbursement to the Mendik Group
for services provided (excluding services provided directly to tenants) was
approximately $12.3 million in 1993, $13.1 million in 1994 and $14.6 million
in 1995. After the completion of the Offering, the Company expects to
continue to retain an entity owned by the Mendik Group and an affiliate of
RMB Realty to provide cleaning (and related) services for the Company's
properties. With respect to properties in which the Company will have a 100%
interest, the cost to the Company with respect to the cleaning (and related)
services will be a direct pass-through of the cost of payroll and supplies.
With respect to properties in which the Company will have less than a 100%
interest, cleaning (and related) services will be provided on the same terms
as they are currently provided. In addition, the Mendik Group will continue
to be able to provide cleaning (and related) services to tenants at the
Company's properties on a separately negotiated basis.
ENGINEERING AND PREVENTIVE MAINTENANCE SERVICES
As part of its cleaning (and related) services business, the Mendik
Group provides engineering and preventive maintenance services with respect
to the Properties. The Mendik Group was reimbursed for the direct cost of
such services in the aggregate amount of approximately $3.7 million in 1993,
$3.8 million in 1994 and $4.7 million in 1995. These amounts generally are
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billed to tenants as part of the operating expense, escalations and a
portion of such costs are recouped by the Property-owning entity from the
tenants. After the completion of the Offering, the Mendik Group expects to
provide engineering and preventive maintenance services for the Properties
and will be reimbursed for the direct payroll cost of such services.
SECURITY SERVICES
The Mendik Group provides security services with respect to the
Properties. The Mendik Group was reimbursed for the direct cost of such
services plus an amount to cover a portion of overhead costs. The aggregate
amount of reimbursements for such services was approximately $2.0 million in
1993, $2.4 million in 1994 and $2.5 million in 1995. After the completion of
the Offering, the Mendik Group will continue to provide security services for
the Company's properties and will be reimbursed for the direct cost of such
services plus an amount to cover a portion of overhead costs. With respect
to properties in which the Company will have less than a 100% interest,
security services will be provided on the same terms as they are currently
provided.
The cost of security services is generally passed through to tenants as
part of the operating expense clause under leases.
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PARTNERSHIP AGREEMENT
THE FOLLOWING SUMMARY OF THE FIRST AMENDED AND RESTATED AGREEMENT OF
LIMITED PARTNERSHIP OF THE OPERATING PARTNERSHIP (THE "PARTNERSHIP
AGREEMENT"), INCLUDING THE DESCRIPTIONS OF CERTAIN PROVISIONS SET FORTH
ELSEWHERE IN THIS PROSPECTUS, IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
THE PARTNERSHIP AGREEMENT, WHICH IS FILED AS AN EXHIBIT TO THE REGISTRATION
STATEMENT OF WHICH THIS PROSPECTUS IS A PART.
OPERATIONAL MATTERS
GENERAL. Holders of Units (other than the Company in its capacity as
general partner) will hold a limited partnership interest in the Operating
Partnership, and all holders of Units (including the Company in its capacity
as general partner) will be entitled to share in cash distributions from, and
in the profits and losses of, the Operating Partnership. Each Unit generally
will receive distributions in the same amount paid on each share of Common
Stock. See "Distributions."
Holders of Units will have the rights to which limited partners are
entitled under the Partnership Agreement and, to the extent not limited by
the Partnership Agreement, the Delaware Revised Uniform Limited Partnership
Act (the "Act"). The Units have not been and are not expected to be
registered pursuant to any Federal or state securities laws or listed on any
exchange or quoted on any national market system. The Partnership Agreement
imposes certain restrictions on the transfer of Units, as described below.
PURPOSES, BUSINESS AND MANAGEMENT. The purpose of the Operating
Partnership includes the conduct of any business that may be lawfully
conducted by a limited partnership formed under the Act, except that the
Partnership Agreement requires the business of the Operating Partnership to
be conducted in such a manner that will permit the Company to be classified
as a REIT under Section 856 of the Code, unless the Company ceases to qualify
as a REIT for reasons other than the conduct of the business of the Operating
Partnership. Subject to the foregoing limitation, the Operating Partnership
may enter into partnerships, joint ventures or similar arrangements and may
own interests directly or indirectly in any other entity.
The Company, as the general partner of the Operating Partnership, has
the exclusive power and authority to conduct the business of the Operating
Partnership, subject to the consent of the limited partners in certain
limited circumstances discussed below. No limited partner may take part in
the operation, management or control of the business of the Operating
Partnership by virtue of being a holder of Units.
The Company may not conduct any business other than the business of the
Operating Partnership without the consent of the holders of a majority of the
limited partnership interests (not including the limited partnership
interests held by the Company in its capacity as a limited partner in the
Operating Partnership).
DISTRIBUTIONS. The Partnership Agreement provides for the quarterly
distribution of Available Cash (as defined below), as determined in the
manner provided in the Partnership Agreement, to the Company and the limited
partners in proportion to their percentage interests in the Operating
Partnership. "Available Cash" is generally defined as net income plus any
reduction in reserves and minus interest and principal payments on debt,
capital expenditures, any additions to reserves and other adjustments.
Neither the Company nor the limited partners are entitled to any preferential
or disproportionate distributions of Available Cash.
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BORROWING BY THE OPERATING PARTNERSHIP. The Company is authorized to
cause the Operating Partnership to borrow money and to issue and guarantee
debt as it deems necessary for the conduct of the activities of the Operating
Partnership. Such debt may be secured by mortgages, deeds of trust, liens or
encumbrances on properties of the Operating Partnership. The Company also
may cause the Operating Partnership to borrow money to enable the Operating
Partnership to make distributions, including distributions in an amount
sufficient to permit the Company, as long as it qualifies as a REIT, to avoid
the payment of any Federal income tax. See "Policies with Respect to Certain
Activities -- Financing Policies." Pursuant to the Lock-out Provisions, the
Operating Partnership may not, earlier than one year prior to its maturity,
repay the mortgage indebtedness on Two Penn Plaza and 866 United Nations
Plaza and may not consent to any such prepayment of mortagors indebtedness on
Eleven Penn Plaza (except for the indebtedness secured by the second mortgage
on Eleven Penn Plaza which may be repaid in whole or in part at anytime) and
866 United Nations Plaza during the Lock-out Period without, in the case of
each such Property, the consent of holders of 75% of the Units originally
issued to Partners of such property partnership that remain outstanding at
the time of such vote (whether held by the original recipient of such Units
or by a successor or transferee of the original recipient, but excluding
Units held by the Company) unless the repayment is in connection with either
a refinancing of the outstanding debt (on a basis that is nonrecourse to the
Partnership and the General Partner and with the least amount of principal
amortization as is available on commercially reasonable terms) or an
involuntary sale pursuant to foreclosure of a mortgage securing the debt (or
other similar event). In addition, during the Lock-out Period, the Operating
Partnership is obligated to use commercially reasonable efforts, commencing
one year prior to the stated maturity, to refinance at maturity (on a basis
that is nonrecourse to the Partnership and the General Partner and with the
least amount of principal amortization as is available on commercially
reasonable terms) the mortgage indebtedness secured by each of these three
Properties at not less than the principal amount outstanding on the maturity
date. Finally, during the Lock-out Period, the Operating Partnership cannot
incur debt secured by any of these three Properties if the amount of the new
debt would exceed the greater of 75% of the value of the Property securing
the debt or the amount of existing debt being refinanced (plus the costs
associated therewith).
REIMBURSEMENT OF THE COMPANY; TRANSACTIONS WITH THE COMPANY AND ITS
AFFILIATES. The Company will not receive any compensation for its services
as general partner of the Operating Partnership. The Company, however, as a
partner in the Operating Partnership, has the same right to allocations and
distributions as other partners in the Operating Partnership. In addition,
the Operating Partnership will reimburse the Company for all expenses it
incurs relating to the ongoing operation of the Company and offerings of
Units or shares of Common Stock (or rights, options, warrants or convertible
or exchangeable securities).
Except as expressly permitted by the Partnership Agreement, affiliates
of the Company will not engage in any transactions with the Operating
Partnership except on terms that are fair and reasonable and no less
favorable to the Operating Partnership than would be obtained from an
unaffiliated third party.
SALES OF ASSETS. Under the Partnership Agreement, the Company generally
has the exclusive authority to determine whether, when and on what terms the
assets of the Operating Partnership (including the Properties) will be sold,
subject to the Lock-out Provisions. A sale of all or substantially all of
the assets of the Operating Partnership (or a merger of the Operating
Partnership with another entity) generally requires an affirmative vote of
the holders of a majority of the outstanding Units (including Units held by
the Company), but also is subject to the Lock-out Provisions.
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Under the Lock-out Provisions, the Operating Partnership may not sell or
otherwise dispose of the Two Penn Plaza, Eleven Penn Plaza or 866 United
Nations Plaza Properties (or any direct or indirect interest therein) during
the Lock-out Period (except pursuant to a sale or other disposition of all or
substantially all of the Operating Partnership's assets approved as described
below, an involuntary sale pursuant to foreclosure of a mortgage secured by
one of these Properties or a bankruptcy proceeding, and certain transactions,
including a "Section 1031 like-kind exchange," that would not result in the
recognition of any gain for tax purposes by the holders of Units issued in
the Formation Transactions with respect to these Properties) without, in the
case of each such Property, the consent of holders of 75% of the Units
originally issued to Partners of such Property Partnership that remain
outstanding at the time of such vote (whether held by the original recipient
of such Units or by a successor or transferee of the original recipient, but
excluding Units held by the Company). Under the Lock-out Provisions, a sale
or other disposition of all or substantially all of the assets of the
Operating Partnership during the Lock-out Period generally would require the
approval of the holders, as a group, of 75% of the aggregate Units originally
issued with respect to Two Penn Plaza, Eleven Penn Plaza and 866 United
Nations Plaza that remain outstanding (whether held by the original recipient
of such Units or by a successor or transferee of the original recipient, but
excluding Units held by the Company). The consent requirement under the
Lock-out Provisions, however, would not apply in the event of a merger or
consolidation involving the Operating Partnership and substantially all of
its assets if (i) the transaction would not result in the recognition of any
gain with respect to the Units originally issued with respect to Two Penn
Plaza, Eleven Penn Plaza and 866 United Nations Plaza, (ii) the Lock-out
Provisions would continue to apply with respect to each of these three
Properties, and (iii) the surviving entity agrees to a number of restrictions
and conditions for the benefit of the holders of such Units designed to
preserve the benefit of certain provisions and restrictions in the
Partnership Agreement for the holders of such Units.
NO REMOVAL OF THE GENERAL PARTNER. The Partnership Agreement provides
that the limited partners may not remove the Company as general partner of
the Operating Partnership with or without cause (unless neither the General
Partner nor its parent entity is a "public company," in which case the
General Partner may be removed for cause).
ISSUANCE OF LIMITED PARTNERSHIP INTERESTS. The Company is authorized,
without the consent of the limited partners, to cause the Operating
Partnership to issue Units to the Company, to the limited partners or to
other persons for such consideration and upon on such terms and conditions as
the Company deems appropriate. The Operating Partnership also may issue
partnership interests in different series or classes, which may be senior to
the Units. If Units are issued to the Company, then the Company must issue
shares of Common Stock and must contribute to the Operating Partnership the
proceeds received by the Company from such issuance. In addition, the
Company may cause the Operating Partnership to issue to the Company
partnership interests in different series or classes of equity securities,
which may be senior to the Units, in connection with an offering of
securities of the Company having substantially similar rights upon the
contribution of the proceeds therefrom to the Operating Partnership.
Consideration for partnership interests may be cash or any property or other
assets permitted by the Act. No limited partner has preemptive, preferential
or similar rights with respect to capital contributions to the Operating
Partnership or the issuance or sale of any partnership interests therein.
AMENDMENT OF THE PARTNERSHIP AGREEMENT. Generally, the Partnership
Agreement may be amended with the approval of the Company, as general
partner, and limited partners (including the Company) holding a majority of
the Units. Certain provisions regarding, among other things, the rights and
duties of the Company as general partner or the dissolution of the Operating
Partnership, may not be amended without the approval of a majority of the
Units not held by the Company. Notwithstanding the foregoing, the Company,
as general partner, has the power, without the consent of the limited
partners, to amend the Partnership Agreement in certain
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circumstances. Certain amendments that would affect the fundamental rights
of a limited partner must be approved by the Company and each limited partner
that would be adversely affected by such amendment. In addition, any
amendment that would affect the Lock-out Provisions with respect to Two Penn
Plaza, Eleven Penn Plaza or 866 United Nations Plaza during the Lock-out
Period would require, in the case of each such Property affected by the
Amendment, the consent of holders of 75% of the Units originally issued to
Partners of such Property Partnership that remain outstanding at the time of
such vote (whether held by the original recipient of such Units or by a
successor or transferee of the original recipient, but excluding Units held
by the Company).
DISSOLUTION, WINDING UP AND TERMINATION. The Operating Partnership will
continue until December 31, 2095, unless sooner dissolved and terminated.
The Operating Partnership will be dissolved prior to the expiration of its
term, and its affairs wound up upon the occurrence of the earliest of: (i)
the withdrawal of the Company as general partner without the permitted
transfer of the Company's interest to a successor general partner (except in
certain limited circumstances); (ii) the sale of all or substantially all of
the Operating Partnership's assets and properties (subject to the Lock-out
Provisions during the Lock-out Period); (iii) the entry of a decree of
judicial dissolution of the Operating Partnership pursuant to the provisions
of the Act; (iv) the entry of a final non-appealable order for relief in a
bankruptcy proceeding of the general partner, or the entry of a final
non-appealable judgment ruling that the general partner is bankrupt or
insolvent (except that, in either such case, in certain circumstances the
limited partners (other than the Company) may vote to continue the Operating
Partnership and substitute a new general partner in place of the Company);
and (v) on or after January 1, 2046, at the option of the Company, in its
sole and absolute discretion. Upon dissolution, the Company, as general
partner, or any liquidator will proceed to liquidate the assets of the
Operating Partnership and apply the proceeds therefrom in the order of
priority set forth in the Partnership Agreement.
LIABILITY AND INDEMNIFICATION
LIABILITY OF THE COMPANY AND LIMITED PARTNERS. The Company, as general
partner of the Operating Partnership, is liable for all general recourse
obligations of the Operating Partnership to the extent not paid by the
Operating Partnership. The Company is not liable for the nonrecourse
obligations of the Operating Partnership. Assuming that a limited partner
does not take part in the control of the business of the Operating
Partnership and otherwise acts in conformity with the provisions of the
Partnership Agreement and the Act, the liability of a limited partner for
obligations of the Operating Partnership under the Partnership Agreement and
the Act will be limited, subject to certain exceptions, generally to the loss
of such limited partner's investment in the Operating Partnership represented
by his or her Units. The Operating Partnership will operate in a manner that
the Company deems reasonable, necessary or appropriate to preserve the
limited liability of the limited partners.
EXCULPATION AND INDEMNIFICATION OF THE COMPANy. The Partnership
Agreement generally provides that the Company, as general partner of the
Operating Partnership, will incur no liability to the Operating Partnership
or any limited partner for losses sustained, liabilities incurred or benefits
not derived as a result of errors in judgment or mistakes of fact or law or
of any act or omission, if the Company carried out its duties in good faith.
In addition, the Company is not responsible for any misconduct or negligence
on the part of its agents, provided the Company appointed such agents in good
faith.
The Partnership Agreement also provides for indemnification (including,
in certain circumstances, the advancement of expenses) of the Company, the
directors and officers of the Company and such other persons as the Company
may from time to time designate against any judgments, penalties, fines,
settlements and reasonable expenses that are actually (or will be)
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incurred by such person in connection with a proceeding in which any such
person is involved, or is threatened to be involved, as a party or otherwise,
unless it is established that: (i) the act or omission of the indemnified
person was material to the matter giving rise to the proceeding and either
was committed in bad faith or was the result of active and deliberate
dishonesty; (ii) the indemnified person actually received an improper
personal benefit in money, property or services; or (iii) in the case of any
criminal proceeding, the indemnified person had reasonable cause to believe
that the act or omission was unlawful.
TRANSFERS OF INTERESTS
RESTRICTIONS ON TRANSFER OF THE COMPANY'S INTEREST. The Company may not
transfer any of its interests as general or limited partner in the Operating
Partnership, except in connection with a merger or sale of all or
substantially all of its assets, in which (i) the limited partners in the
Operating Partnership either will receive, or will have the right to receive,
substantially the same consideration as holders of shares of Common Stock,
and (ii) such transaction has been approved by the holders of a majority of
the interests in the Operating Partnership (including interests held by the
Company). (The Company initially will hold a majority of the Units and thus
would control the outcome of this vote.) The Lock-out Provisions do not
apply to a sale or other transfer by the Company of its interests as a
partner in the Partnership, but they would apply to transfers of assets of
the Operating Partnership undertaken during the Lock-out Period in connection
with or as part of any such transaction by the Company. See "-- Sales of
Assets."
RESTRICTIONS ON TRANSFERS OF UNITS BY LIMITED PARTNERS. For up to two
years after the Closing, a limited partner may not transfer any of his or her
rights as a limited partner without the consent of the Company, which consent
the Company may withhold in its sole discretion. Any attempted transfer in
violation of this restriction will be void AB INITIO and without any force or
effect. Beginning two years after the Closing, limited partners (other than
the Company) will be permitted to transfer all or any portion of their Units
without restriction as long as they satisfy certain requirements set forth in
the Partnership Agreement. In addition, limited partners will be permitted
to dispose of their Units following the expiration of up to a two-year period
following consummation of the Consolidation by exercising their Unit
Redemption Right. See "-- Redemption of Units" below.
The right of any permitted transferee of Units to become a substituted
limited partner is subject to the consent of the Company, which consent the
Company may withhold in its sole and absolute discretion. If the Company
does not consent to the admission of a transferee of Units as a substituted
limited partner, then the transferee will succeed to all economic rights and
benefits attributable to such Units (including the redemption right described
below), but will not become a limited partner or possess any other rights of
limited partners (including the right to vote).
REDEMPTION OF UNITS. Subject to certain limitations, holders of Units
(other than the Company) have the right to have each of their Units redeemed
by the Operating Partnership at any time beginning two years after the
completion of the Formation Transactions. Unless the Company elects to
assume and perform the Operating Partnership's obligation with respect to the
redemption right, as described below, the limited partner will receive cash
from the Operating Partnership in an amount equal to the market value of the
Units to be redeemed. The market value of a Unit for this purpose will be
equal to the average of the closing trading price of a share of Common Stock
on the NYSE for the ten trading days before the day on which the redemption
notice was given. In lieu of the Operating Partnership's acquiring the Units
for cash, the Company will have the right (except as described below, if the
Common Stock is not publicly traded) to elect to acquire the Units directly
from a limited partner exercising the redemption right, in exchange for
either cash or shares of Common Stock, and, upon such acquisition, the
Company will become the owner of such
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Units. The redemption generally will occur on the tenth business day after
the notice to the Operating Partnership, except that no redemption or
exchange can occur if delivery of shares of Common Stock would be prohibited
either under the provisions of the Company's Charter designed primarily to
protect the Company's qualification as a REIT or under applicable Federal or
state securities laws as long as the shares of Common Stock are publicly
traded. In this regard, Mendik/FW LLC and entities that it controls are
prohibited from exercising the redemption right with respect to Units that
they hold if the issuance by the Company to them of shares of Common Stock in
satisfaction of the redemption right would be prohibited under the special
restrictions contained in the Charter that are applicable to their
acquisition and ownership of shares of Common Stock. See "Description of
Capital Stock -- Restrictions on Transfer -- Ownership Limits."
In the event that the Common Stock is not publicly traded but another
entity whose stock is publicly traded owns more than 50% of the capital stock
of the Company (referred to as the "Parent Entity"), the redemption right
will be determined by reference to the publicly-traded stock of the Parent
Entity and the Company will have the right to elect to acquire the Units to
be redeemed for publicly traded stock of the Parent Entity. In the event
that the Common Stock is not publicly traded and there is no Parent Entity
with publicly traded stock, the redemption right will be based upon the fair
market value of the Operating Partnership's assets at the time the redemption
right is exercised (as determined in good faith by the Company based upon a
commercially reasonable estimate of the amount that would be realized by the
Operating Partnership if each asset of the Operating Partnership were sold to
an unrelated purchaser in an arm's length transaction where neither the
purchaser nor the seller were under economic compulsion to enter into the
transaction), and the Company and the Operating Partnership will be obligated
to satisfy the redemption right in cash (unless the redeeming partner, in
such partner's sole and absolute discretion, consents to the receipt of
Common Stock), payable on the thirtieth business day after notice to the
Operating Partnership of exercise of the redemption right.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of Common Stock (or Common Stock for which Units are
exchangeable) by (i) each director (and director nominee) of the Company,
(ii) each executive officer of the Company, (iii) all directors (including
director nominees) and officers of the Company as a group, and (iv) each
person or entity which is expected to be the beneficial owner of 5% or more
of the outstanding shares of Common Stock immediately following the Offering.
Except as indicated below, all of such Common Stock is owned directly, and
the indicated person or entity has sole voting and investment power. The
extent to which a person will hold shares of Common Stock as opposed to Units
is set forth in the footnotes below.
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
NAME OF SHARES AND UNITS PERCENT OF ALL SHARES
BENEFICIAL OWNER BENEFICIALLY OWNED ALL SHARES (1) AND UNITS (2)
- ---------------- ------------------- -------------- -------------
<S> <C> <C> <C>
FW/Mendik REIT, L.L.C. (3)............. 5,123,164 31.2% 28.9%
Mendik Holdings LLC (4)................ 5,123,164 31.2 28.9
FWM, L.P. (4).......................... 5,123,164 31.2 28.9
FWM II, L.P. (5)....................... 954,545 8.5 5.4
Bernard H. Mendik (6).................. 5,460,664 33.3 30.9
David R. Greenbaum (7)................. 5,460,664 33.3 30.9
Thomas R. Delatour, Jr. (8)............ 6,077,709 37.0 34.3
William S. Janes (9)................... 0 * *
David B. Cornstein..................... 0 * *
Lawrence S. Huntington................. 0 * *
Morris W. Offit........................ 0 * *
Spencer M. Partrich.................... 0 * *
Leonard N. Stern....................... 0 * *
Christopher G. Bonk (10)............... 5,123,164 31.2 28.9
Michael M. Downey (10)................. 5,123,164 31.2 28.9
John J. Silberstein (10)............... 5,123,164 31.2 28.9
David L. Sims (10)..................... 5,123,164 31.2 28.9
Kevin R. Wang (10)..................... 5,123,164 31.2 28.9
All directors, director nominees
and executive officers as a
group (14 persons)................... 6,415,209 39.1 36.2
</TABLE>
______________________
* Less than 1%.
(1) Assumes 11,294,318 shares of Common Stock outstanding immediately
following the Offering. Assumes that all Units held by the person are
redeemed for shares of Common Stock. The total number of shares of
Common Stock outstanding used in calculating this percentage assumes that
none of the Units held by other persons are redeemed for shares of
Common Stock.
(2) Assumes a total of 17,700,000 shares of Common Stock and Units
outstanding immediately following the Offering (11,294,318 shares of
Common Stock and 6,405,682 Units, which may be redeemed for cash or
shares of Common Stock under certain circumstances). Assumes that all
Units held by the person are redeemed for shares of Common Stock. The
total number of shares of Common Stock outstanding used in calculating
this percentage assumes that all of the Units held by other persons are
redeemed for shares of Common Stock.
(3) FW/Mendik REIT, L.L.C. is a Delaware limited liability company comprised
of two members, Mendik Holdings LLC, which is indirectly controlled by
Messrs. Mendik and Greenbaum, and FWM, L.P., which is controlled by
Mr. Delatour.
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(4) Represents 5,123,164 Units which will be held by Mendik/FW LLC.
(5) Represents the shares of Common Stock to be purchased from the Company
pursuant to the Concurrent Placement.
(6) Includes 5,123,164 Units which will be held by Mendik/FW LLC. Also
includes 337,500 shares of Common Stock in which Mr. Mendik will have a
beneficial interest.
(7) Includes 5,123,164 Units which will be held by Mendik/FW LLC. Also
includes 337,500 shares of Common Stock in which Mr. Greenbaum will have
a beneficial interest.
(8) Includes 5,123,164 Units which will be held by Mendik/FW LLC. Also
includes 954,545 shares of Common Stock to be purchased from the Company
pursuant to the Concurrent Placement, all of which will be held by
FWM II, L.P.
(9) Mr. Janes owns an economic interest in FWM, L.P., but he disclaims
beneficial ownership of any Units or shares of Common Stock which will
be held by Mendik/FW LLC or FWM II, L.P.
(10) Represents 5,123,164 Units which will be held by Mendik/FW LLC, in
which the individual will have a beneficial interest.
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CAPITAL STOCK
GENERAL
The authorized capital stock of the Company consists of 100,000,000
shares of capital stock, $.01 par value, of which 90,000,000 shares initially
are designated as shares of Common Stock. Under the Company's Charter, the
Board of Directors has authority to issue, without any further action by the
stockholders, shares of capital stock in one or more series having such
preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications and terms and conditions of
redemption as the Board of Directors may determine and as may be evidenced by
Articles Supplementary to the Charter adopted by the Board of Directors. The
following description of the terms and provisions of the shares of capital
stock of the Company and certain other matters is not and does not purport to
be complete and is subject to, and qualified in its entirety by reference to,
the applicable provisions of Maryland law and the Company's Charter.
COMMON STOCK
Each holder of shares of Common Stock is entitled to one vote at
stockholders meetings for each share of Common Stock held. Neither the
Charter nor the By-Laws provides for cumulative voting for the election of
directors. Subject to the prior rights of any series of preferred stock that
may be classified and issued, holders of shares of Common Stock are entitled
to receive, pro-rata, such dividends as may be declared by the Board of
Directors out of funds legally available therefor, and are entitled to share,
pro-rata, in any other distributions to the stockholders. The Company
intends to pay quarterly dividends on the shares of Common Stock following
the Offering. The Company will depend upon distributions from the Operating
Partnership to fund its dividends to stockholders. See "Distribution and
Other Policies."
There will be no redemption or sinking fund provisions and no direct
limitations in any indenture or agreement on the payment of dividends.
Holders of shares of Common Stock will not have any preemptive rights
or other rights to subscribe for additional shares of any capital stock (or
convertible, exchangeable or similar securities) of the Company.
PREFERRED STOCK
The Board of Directors is empowered by the Company's Charter to
designate and issue from time to time one or more classes or series of
Preferred Stock without stockholder approval. The Board of Directors may
determine the relative rights, preferences and privileges of each class or
series of Preferred Stock so issued. Because the Board of Directors has the
power to establish the preferences and rights of each class of series of
Preferred Stock, it may afford the holders in any series or class of
Preferred Stock preferences, powers and rights, voting or otherwise, senior
to the rights of holders of Common Stock. The issuance of Preferred Stock
could have the effect of delaying or preventing a change in control of the
Company. The Board of Directors has no present plans to issue any shares of
Preferred Stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is ________________.
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RESTRICTIONS ON TRANSFER
OWNERSHIP LIMITS. The Company's Charter contains certain restrictions
on the number of shares of capital stock that individual stockholders may
own. For the Company to qualify as a REIT under the Code, no more than 50%
in number or value of its outstanding shares of capital stock may be owned,
directly or indirectly, by five or fewer individuals (as defined in the Code
to include certain entities) during the last half of a taxable year (other
than the first taxable year) or during a proportionate part of a shorter
taxable year. In addition, the capital stock must be beneficially owned by
100 or more persons during at least 335 days of a taxable year or during a
proportionate part of a shorter taxable year. Because the Company expects to
qualify as a REIT, the Company's Charter contains restrictions on the
acquisition of shares of capital stock, including shares of Common Stock,
which restrictions are intended primarily to ensure compliance with the Code.
Subject to certain exceptions to be specified in the Charter, no holder
is permitted to own, or to be deemed to own by virtue of the attribution
provisions of the Code, more than (i) 8.5% in number or value of the issued
and outstanding shares of Common Stock or (ii) 9.8% in number or value of the
issued and outstanding shares of any series of Preferred Stock (collectively,
the "Ownership Limit"). Although each of Bernard H. Mendik and FWM, L.P. may
exceed the Ownership Limit immediately after the Offering through the
ownership of shares of Common Stock that they receive in connection with the
Formation Transactions ("Excluded Holders"), they are permitted to continue
to hold the number of shares of Common Stock (plus the number of shares of
Common Stock they may acquire upon redemption of Units, the exercise of stock
options pursuant to a stock option plan or upon foreclosure on a pledge of
shares of Common Stock or Units) they so receive provided that such holdings
do not exceed 15% in number or value of the issued and outstanding shares of
Common Stock (such amount being the "Excluded Holder Limit"). However, in the
case of FWM, L.P., if, through FWM, L.P.'s ownership of Common Stock, any
individual (as defined in the Code to include certain entities) is deemed to
own beneficially shares of Common Stock in excess of the Ownership Limit,
then the Excluded Holder Limit with respect to FWM, L.P. will be reduced to a
percentage of outstanding shares of Common Stock of the Company as would
result in such individual not being considered to own beneficially shares of
Common Stock in excess of the Ownership Limit.
In addition, certain stockholders who acquire legal or beneficial
interests in shares of Common Stock through the Concurrent Placement ("Special
Shareholders") are permitted to continue to hold the number of shares of
Common Stock they held as of the first business day following the Offering
(such amount being the "Special Shareholder Limit"). However, if any Special
Shareholder is deemed to own beneficially shares of Common Stock in excess of
the Ownership Limit, then the Special Shareholder Limit will be reduced to a
percentage of outstanding shares of Common Stock of the Company as would
result in such Special Shareholder not being considered to own beneficially
shares of Common Stock in excess of the Ownership Limit.
The Board of Directors of the Company will have the authority to
increase the Ownership Limit, the Excluded Holder Limit and the Special
Shareholder Limit from time to time, but will not have the authority to do so
to the extent that, after giving effect to such increase, five beneficial
owners of shares of Common Stock could beneficially own in the aggregate more
than 49.5% of the outstanding shares of Common Stock. With a ruling from the
IRS or an opinion of counsel satisfactory to the Board of Directors (or such
other information as it determines to be necessary), the Board of Directors
could, in its sole and absolute discretion, waive the Ownership Limit or the
Excluded Holder Limit with respect to a holder if such holder's ownership
would not then or in the future jeopardize the Company's status as a REIT.
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If any stockholder attempts to transfer shares of Common Stock to a
person and either the transfer would result in the Company's failing to
qualify as a REIT, or the transfer would cause the transferee to hold more
than the applicable Ownership Limit, Excluded Holder Limit or Special
Shareholder Limit, the shares of Common Stock purported to be transferred
will be automatically transferred to a charitable trust for the benefit of a
charitable organization named by a trustee (the "Trustee"). The Trustee will
be appointed by the Company but will not be affiliated with the Company. In
addition, if any person were to hold shares of Common Stock in excess of the
applicable Ownership Limit, Excluded Holder Limit or Special Shareholder
Limit, the shares of Common Stock that exceed the Ownership Limit, Excluded
Holder Limit or Special Shareholder Limit, as the case may be, would be
automatically transferred to a charitable trust for the benefit of a
charitable organization in the same manner as described above. Such person
would not receive dividends or distributions with respect to the shares of
Common Stock that exceed the Ownership Limit, Excluded Holder Limit or
Special Shareholder Limit, as applicable, and would not be entitled to vote
such shares. In addition, the Trustee would be required to sell such shares
of Common Stock within 20 days of receiving notice from the Company that such
shares of Common Stock had been transferred to the trust. Upon such sale,
the interest of the trust in the shares of Common Stock would terminate, and
the purported transferee of such shares of Common Stock would receive the
lesser of (1)(x) the price per share of Common Stock paid by such transferee
for such shares of Common Stock in the purported transfer that resulted in
the transfer of the shares of Common Stock to the trust or, (y) if the
purported transferee acquired such shares of Common Stock for less than
market value at the time of the purported transfer, a price per share of
Common Stock equal to the price per share of Common Stock of the Company on
the NYSE on the day of the purported transfer, or (2) the price per share
received by the Trustee in the sale. The Company would be permitted to
repurchase such shares of Common Stock on such terms and conditions as the
Trustee deemed appropriate. If the Company repurchased the shares of Common
Stock, it would be permitted to pay for the shares with Units.
All certificates representing shares of Common Stock will bear a legend
referring to the restrictions described above.
Every owner (or deemed owner) of more than 5% (or such lower percentage
as required by the Code or regulations thereunder) in number or value of the
issued and outstanding shares of capital stock, including shares of Common
Stock, must file a written notice with the Company containing the information
specified in the Charter no later than January 30 of each year. In addition,
each stockholder will be required upon demand to disclose to the Company in
writing such information as the Company may request in order to determine the
effect on the Company's status as a REIT of such stockholder's direct,
indirect and constructive ownership of shares of Common Stock.
The foregoing ownership limitations may have the effect of preventing or
hindering any attempt to acquire control of the Company without the consent
of the Board of Directors by preventing the acquisition of shares of Common
Stock by a person or entity or a group of persons or entities acting in
concert in excess of the Ownership Limit, the Excluded Holder Limit or the
Special Shareholder Limit, as applicable, regardless of whether such
acquisition by a particular person, entity or group would jeopardize the
Company's status as a REIT and regardless of whether such a change of control
might be in the best interest of the Company's stockholders.
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CERTAIN PROVISIONS OF MARYLAND LAW AND THE COMPANY'S CHARTER AND BYLAWS
THE FOLLOWING SUMMARY OF CERTAIN PROVISIONS OF MARYLAND LAW AND OF THE
CHARTER AND BYLAWS OF THE COMPANY 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 OF THE COMPANY, COPIES OF WHICH ARE EXHIBITS TO THE
REGISTRATION STATEMENT OF WHICH THIS PROSPECTUS IS A PART.
The Charter and the Bylaws of the Company contain certain provisions
that could make more difficult the acquisition of the Company by means of a
tender offer, a proxy contest or otherwise. These provisions are expected to
discourage certain types of coercive takeover practices and inadequate
takeover bids and to encourage persons seeking to acquire control of the
Company to negotiate first with the Board of Directors. The Company believes
that the benefits of these provisions outweigh the potential disadvantages of
discouraging such proposals because, among other things, negotiation of such
proposals might result in an improvement of their terms. The description set
forth below is intended as a summary only and is qualified in its entirety by
reference to the Charter and the Bylaws, which have been filed as exhibits to
the Registration Statement of which this Prospectus is a part. See also
"Capital Stock -- Restrictions on Transfer."
CLASSIFICATION AND REMOVAL OF BOARD OF DIRECTORS; OTHER PROVISIONS
The Company's Charter provides for the Board of Directors to be divided
into three classes of directors, with each class to consist as nearly as
possible of an equal number of directors. The term of office of the first
class of directors will expire at the 1998 annual meeting of stockholders;
the term of the second class of directors will expire at the 1999 annual
meeting of stockholders; and the term of the third class will expire at the
2000 annual meeting of stockholders. At each annual meeting of stockholders,
the class of directors to be elected at such meeting will be elected for a
three-year term, and the directors in the other two classes will continue in
office. Because stockholders will have no right to cumulative voting for the
election of directors, at each annual meeting of stockholders the holders of
a majority of the shares of Common Stock will be able to elect all of the
successors to the class of directors whose term expires at that meeting.
The Company's Charter also provides that, except for any directors who
may be elected by holders of a class or series of capital stock other than
the Common Stock, directors may be removed only for cause and only by the
affirmative vote of stockholders holding at least two-thirds of all the votes
entitled to be cast for the election of directors. Vacancies on the Board of
Directors may be filled by the affirmative vote of the remaining directors
and, in the case of a vacancy resulting from the removal of a director, by
the stockholders by a majority of the votes entitled to be cast for the
election of directors. A vote of stockholders holding at least two-thirds of
all the votes entitled to be cast thereon is required to amend, alter,
change, repeal or adopt any provisions inconsistent with the foregoing
classified board and director removal provisions. Under the Charter, the
power to amend the By-Laws of the Company is vested exclusively in the Board
of Directors, and the stockholders do not have any power to adopt, alter or
repeal the By-Laws absent amendment to the Charter to confer such power.
These provisions may make it more difficult and time-consuming to change
majority control of the Board of Directors of the Company and, thus, may
reduce the vulnerability of the Company to an unsolicited proposal for the
takeover of the Company or the removal of incumbent management.
Because the Board of Directors will have the power to establish the
preferences and rights of additional series of capital stock without
stockholder vote, the Board of Directors may afford the holders of any series
of senior capital stock preferences, powers and rights, voting or otherwise,
senior to the rights of holders of shares of Common Stock. The issuance of
any such senior capital stock could have the effect of delaying or preventing
a change in control of the Company. The
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Board of Directors, however, currently does not contemplate the issuance of
any series of capital stock other than shares of Common Stock.
See "Management -- Directors, Director Nominees and Executive Officers"
for a description of the limitations on liability of directors of the Company
and the provisions for indemnification of directors and officers provided for
under applicable Maryland law and the Charter.
BUSINESS COMBINATION STATUTE
The MGCL establishes special requirements with respect to "business
combinations" between Maryland corporations and "interested stockholders"
unless exemptions are applicable. Among other things, the law prohibits for
a period of five years a merger and other specified or similar transactions
between a Company and an interested stockholder and requires a supermajority
vote for such transactions after the end of the five-year period.
For this purpose, "interested stockholders" are all persons owning
beneficially, directly or indirectly, 10% or more of the outstanding voting
stock of a Maryland corporation, and affiliates and associates of the
Maryland corporation (which are, generally, any entities controlling,
controlled by, or under common control with, the Maryland corporation) which
owned beneficially, directly or indirectly, 10% or more of the outstanding
voting stock of such Maryland corporation. "Business combinations" include
any merger or similar transaction subject to a statutory vote and additional
transactions involving transfers of assets or securities in specified amounts
to interested stockholders or their affiliates. Unless an exemption is
available, transactions of these types may not be consummated between a
Maryland corporation and an interested stockholder or its affiliates for a
period of five years after the date on which the stockholder first became an
interested stockholder. Thereafter, the transaction may not be consummated
unless recommended by the board of directors and approved by the affirmative
vote of at least 80% of the votes entitled to be cast by all holders of
outstanding shares of voting stock and 66 2/3% of the votes entitled to be
cast by all holders of outstanding shares of voting stock other than the
interested stockholder. A business combination with an interested
stockholder that is approved by the board of directors of a Maryland
corporation at any time before an interested stockholder first becomes an
interested stockholder is not subject to the special voting requirements. An
amendment to a Maryland corporation's charter electing not to be subject to
the foregoing requirements must be approved by the affirmative vote of at
least 80% of the votes entitled to be cast by all holders of outstanding
shares of voting stock and 66 2/3% of the votes entitled to be cast by
holders of outstanding shares of voting stock who are not interested
stockholders. Any such amendment is not effective until 18 months after the
vote of stockholders and does not apply to any business combination of a
corporation with a stockholder who was an interested stockholder on the date
of the stockholder vote. The Company has opted out of the business
combination provisions of the MGCL, but the Board of Directors may elect to
adopt these provisions of the MGCL in the future.
CONTROL SHARE ACQUISITION STATUTE
Maryland law imposes certain limitations on the voting rights in a
"control share acquisition." The MGCL considers a "control share
acquisition" to occur at each of the 20%, 33 1/3% and 50% acquisition levels,
and requires a 2/3 stockholder vote (excluding shares owned by the acquiring
person and certain members of management) to accord voting rights to capital
stock acquired in a control share acquisition. The statute also requires
Maryland corporations to hold a special meeting at the request of an actual
or proposed control share acquirer generally within 50 days after a request
is made by means of the submission of an "acquiring person statement," but
only if the acquiring person (i) posts a bond for the cost of a meeting (not
including the expenses of opposing approval of the voting rights) and (ii)
submits a definitive financing agreement with
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respect to the proposed control share acquisition to the extent that
financing is not provided by the acquiring person. In addition, unless its
charter or by-laws provide otherwise, the statute gives a Maryland
corporation, within certain time limitations, various redemption rights if
there is a stockholder vote on the issue and the grant of voting rights is
not approved, or if an acquiring person statement is not delivered to the
corporation within 10 days following an actual control share acquisition.
Moreover, unless the charter or by-laws provide otherwise, the statute
provides that if, before a control share acquisition occurs, voting rights
are accorded to control shares that result in the acquiring persons having
majority voting power, then minority stockholders have certain appraisal
rights. An acquisition of shares may be exempted from the control share
statute, provided that a charter or by-law provision is adopted for such
purpose prior to the control share acquisition. The Company has opted out of
the control share provisions of the MGCL, but the Board of Directors may
elect to adopt these provisions of the MGCL in the future.
AMENDMENTS TO THE CHARTER
The Charter, including its provisions on classification of the Board of
Directors, restrictions on transferability of shares of Common Stock and
removal of directors, may be amended only by the affirmative vote of the
holders of not less than two thirds of all of the votes entitled to be cast
on the matter. However, the provisions of the Charter relating to authorized
shares of stock and the classification and reclassification of shares of
Common Stock and preferred stock may be amended by the affirmative vote of
the holders of not less than a majority of the votes entitled to be cast on
the matter.
ADVANCE NOTICE OF DIRECTOR NOMINATIONS AND NEW BUSINESS
The Bylaws of the Company provide that (a) with respect to an annual
meeting of stockholders, nominations of persons for election to the Board of
Directors and the proposal of business to be considered by stockholders may
be made only (i) pursuant to the Company's notice of the meeting, (ii) by the
Board of Directors or (iii) by a stockholder who is entitled to vote at the
meeting and has complied with the advance notice procedures set forth in the
Bylaws and (b) with respect to special meetings of the stockholders, only the
business specified in the Company's notice of meeting may be brought before
the meeting of stockholders and nominations of persons for election to the
Board of Directors may be made only (i) pursuant to the Company's notice of
the meeting, (ii) by the Board of Directors or (iii) provided that the Board
of Directors has determined that directors shall be elected at such meeting,
by a stockholder who is entitled to vote at the meeting and has complied with
the advance notice provisions set forth in the Bylaws.
ANTI-TAKEOVER EFFECT OF CERTAIN PROVISIONS OF MARYLAND LAW AND OF THE
CHARTER AND BYLAWS
The business combination provisions and the control share acquisition
provisions of the MGCL, in each case if they ever became applicable to the
Company, the provisions of the Charter on classification of the Board of
Directors and removal of directors and the advance notice provisions of the
Bylaws could delay, defer or prevent a transaction or a change in control of
the Company that might involve a premium price for holders of Common Stock or
otherwise be in their best interest.
RIGHTS TO PURCHASE SECURITIES AND OTHER PROPERTY
The Charter authorizes the Board of Directors to create and issue rights
entitling the holders thereof to purchase from the Company shares of capital
stock or other securities or property. The times at which and terms upon
which such rights are to be issued would be
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determined by the Board of Directors and set forth in the contracts or
instruments that evidence such rights. This provision is intended to confirm
the Board of Directors' authority to issue share purchase rights, which might
have terms that could impede a merger, tender offer or other takeover
attempt, or other rights to purchase shares or securities of the Company or
any other corporation.
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SHARES AVAILABLE FOR FUTURE SALE
General
Upon the completion of the Offering, the Company will have outstanding
11,294,318 shares of Common Stock (12,794,318 shares if the Underwriters'
overallotment option is exercised in full). In addition, 6,405,682 shares of
Common Stock are reserved for issuance upon exchange of Units. The shares of
Common Stock issued in the Offering will be freely tradeable by persons other
than "affiliates" of the Company without restriction under the Securities
Act, subject to the limitations on ownership set forth in the Charter. See
"Capital Stock -- Restrictions on Transfer." The shares of Common Stock
received by the participants in the Formation Transactions or acquired by any
participant in redemption of Units (the "Restricted Shares") will be
"restricted" securities under the meaning of Rule 144 promulgated under the
Securities Act ("Rule 144") and may not be sold in the absence of
registration under the Securities Act unless an exemption from registration
is available, including exemptions contained in Rule 144. As described below
under "-- Registration Rights," the Company has granted certain holders
registration rights with respect to their shares of Common Stock.
In general, under Rule 144 as currently in effect, if two years have
elapsed since the later of the date of acquisition of Restricted Shares from
the Company or any "affiliate" of the Company, as that term is defined under
the Securities Act, the acquiror or subsequent holder thereof is entitled to
sell within any three-month period a number of shares that does not exceed
the greater of 1% of the then outstanding shares of Common Stock or the
average weekly trading volume of the Common Stock during the four calendar
weeks immediately preceding the date on which notice of the sale is filed
with the Commission. Sales under Rule 144 are also subject to certain manner
of sales provisions, notice requirements and the availability of current
public information about the Company. If three years have elapsed since the
date of acquisition of Restricted Shares from the Company or from any
"affiliate" of the Company, and the acquiror or subsequent holder thereof is
deemed not to have been an affiliate of the Company at any time during the 90
days immediately preceding a sale, such person is entitled to sell such
shares in the public market under Rule 144(k) without regard to the volume
limitations, manner of sale provisions, public information requirements or
notice requirements.
The Commission has proposed to amend the holding period required by Rule
144 to permit sales of "restricted securities" after one year rather than two
years (and two years rather than three years for "non-affiliates" who desire
to sell such shares under Rule 144(k)). If such proposed amendment were
enacted, the "restricted securities" would become freely tradeable (subject
to any applicable contractual restrictions) at these earlier dates.
In connection with the Offering, the Mendik Group has agreed, subject to
certain exceptions, not to sell any shares of Common Stock acquired by them
upon redemption of Units for a period of two years after the date hereof
without the consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated.
In addition, FWM, L.P., FWM II, L.P. and certain other affiliates of RMB
Realty have agreed not to sell any shares of Common Stock acquired in the
Concurrent Placement for a period of one year from the date of this
Prospectus, or to sell any shares of Common Stock received upon redemption of
Units for a period of two years from the date of this Prospectus, without the
consent of Merrill Lynch. Such restriction will not apply to any Units or
other shares of Common Stock purchased or otherwise acquired by the Mendik
Group or any affiliate of RMB Realty following the completion of the
Offering. See "Underwriting."
The Company has established various stock option plans for the purpose
of attracting and retaining highly qualified directors, executive officers
and other key employees. See "Management -- Stock Option Plan" and
"--Compensation of Directors." The Company intends to issue options to
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purchase approximately 935,000 shares of Common Stock to directors, executive
officers and certain key employees prior to the completion of the Offering
and has reserved 815,000 additional shares for future issuance under these
plans. Prior to the expiration of the initial 12-month period following
consummation of the Offering, the Company expects to file a registration
statement on Form S-8 with the Securities and Exchange Commission with
respect to the shares of Common Stock issuable under these plans, which
shares may be resold without restriction, unless held by affiliates.
Prior to the Offering, there has been no public market for the Common
Stock. Trading of the Common Stock on the New York Stock Exchange is
expected to commence immediately following the completion of the Offering.
No prediction can be made as to the effect, if any, that future sales of
shares, or the availability of shares for future sale, will have on the
market price prevailing from time to time. Sales of substantial amounts of
Common Stock (including shares issued upon the exercise of options), or the
perception that such sales could occur, could adversely affect prevailing
market prices of the Common Stock. See "Risk Factors -- Other Risks of
Ownership of Common Stock" and "Partnership Agreement -- Transferability of
Interests."
REGISTRATION RIGHTS
The Company has granted the participants in the Formation Transactions
who received Units in the Formation Transactions certain registration rights
with respect to the shares of Common Stock owned by them or acquired by them
in connection with the exercise of the Unit Redemption Right under the
Partnership Agreement. These registration rights require the Company to
register all such shares of Common Stock upon request. The Company will bear
expenses incident to its registration requirements under the registration
rights, except that such expenses shall not include any underwriting
discounts or commissions or transfer taxes, if any, relating to such shares.
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FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following discussion summarizes certain material Federal income tax
considerations to stockholders. This discussion is intended to address only
Federal income tax considerations that are generally applicable to all
stockholders. The specific tax consequences of owning Common Stock will vary
for stockholders because of the different circumstances of stockholders.
Therefore, it is imperative that a stockholder review the following
discussion and consult with his own tax advisors to determine the interaction
of his individual tax situation with the anticipated tax consequences of
owning Common Stock.
The information in this section and the opinions of Roberts & Holland
LLP are based on the Code, existing and proposed Treasury Regulations
thereunder, current administrative interpretations and court decisions. No
assurance can be given that future legislation, Treasury Regulations,
administrative interpretations and court decisions will not significantly
change the current law or affect existing interpretations of current law in a
manner which is adverse to stockholders. Any such change could apply
retroactively to transactions preceding the date of change. The Operating
Partnership and the Company do not plan to obtain any rulings from the IRS
concerning any tax issue with respect to the Company, with a few exceptions
relating to the Company's qualification as a REIT. Thus, no assurance can be
provided that the opinions and statements set forth herein (which do not bind
the IRS or the courts) will not be challenged by the IRS or will be sustained
by a court if so challenged. This description does not constitute tax advice.
The following description is not exhaustive of all possible tax
considerations. For example, this summary does not give a detailed
discussion of state, local, or foreign tax considerations, nor does it
discuss all of the aspects of Federal income taxation that may be relevant to
specific stockholders in light of their particular circumstances. Except
where indicated, the discussion below describes general Federal income tax
considerations applicable to individuals who are citizens or residents of the
United States. Accordingly, the following discussion has limited application
to domestic corporations and persons subject to specialized Federal income
tax treatment, such as foreign persons, trusts, estates, tax-exempt entities,
regulated investment companies and insurance companies.
The following description and the opinions of Roberts & Holland LLP
described below specifically do not address the income tax consequences of
owning Common Stock for (i) Messrs. Mendik and Greenbaum, (ii) any present or
former employee of the Mendik Group, or (iii) the Mendik/FW LLC or any
affiliate thereof.
As used in this section, the term "Company" refers solely to The Mendik
Company, Inc. and the term "Operating Partnership" refers solely to The
Mendik Company, L.P.
STOCKHOLDERS ARE STRONGLY URGED TO CONSULT WITH THEIR OWN TAX ADVISORS
WITH REGARD TO THE APPLICATION OF THE FEDERAL INCOME TAX LAWS TO SUCH
STOCKHOLDERS' RESPECTIVE PERSONAL TAX SITUATIONS, AS WELL AS ANY TAX
CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE, LOCAL, OR FOREIGN TAXING
JURISDICTION.
TAXATION OF THE COMPANY
GENERAL. The Company will make an election to be taxed as a REIT under
Sections 856 through 860 of the Code effective for its taxable year ending
December 31, 1997. The Company
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believes that, commencing with such taxable year, it will be organized and
will operate in such a manner as to qualify for taxation as a REIT under the
Code and the Company intends to continue to operate in such a manner.
Although the Company has been structured to be treated as a REIT and a ruling
has been requested from the Internal Revenue Service relating to certain
limited REIT qualification issues, no assurance can be given that the Company
will operate in a manner so as to qualify or remain qualified as a REIT.
Roberts & Holland LLP expects to provide the Company an opinion letter
in connection with the Offering to the effect that, commencing with the
Company's taxable year ending December 31, 1997, and assuming that the
actions contemplated herein are completed in a timely fashion, the Company
will be organized in conformity with the requirements for qualification as a
REIT and its proposed method of operation will enable it to meet the
requirements for qualification and taxation as a REIT under the Code. This
opinion will be based on various assumptions relating to the organization and
operation of the Company, the Operating Partnership, the Property-owning
entities, and the Management Partnership and the Management Corporation (the
"Management Entities") and will be conditioned upon certain representations
made by the Company, the Operating Partnership and the Management Entities as
to certain relevant factual matters, including matters related to the
organization and expected manner of operation of the Company, the Operating
Partnership, the Property-owning entities and the Management Entities.
Moreover, such qualification and taxation as a REIT will depend upon the
Company's ability to meet on a continuing basis, through actual annual
operating results, distribution levels, and diversity of stock ownership, the
various qualification tests imposed under the Code (discussed below).
Roberts & Holland LLP will not review compliance with these tests on a
continuing basis. No assurance can be given that the Company will satisfy
such tests on a continuing basis. See "-- Failure to Qualify," below.
The following is a general summary of the Code provisions that govern
the Federal income tax treatment of a REIT and its stockholders. These
provisions of the Code are highly technical and complex. This summary is
qualified in its entirety by the applicable Code provisions, Treasury
Regulations and administrative and judicial interpretations thereof.
If the Company qualifies for taxation as a REIT, it generally will not
be subject to Federal corporate income taxes on net income that it
distributes currently to stockholders. This treatment substantially
eliminates the "double taxation" (taxation at both the corporate and
stockholder levels) that generally results from investment in a corporation.
However, the Company will be subject to Federal income and excise tax in
certain circumstances, including the following: First, the Company will be
taxed at regular corporate rates on any undistributed REIT taxable income,
including undistributed net capital gains. Second, under certain
circumstances, the Company may be subject to the "alternative minimum tax" on
its items of tax preference. Third, if the Company has (i) net income from
the sale or other disposition of "foreclosure property" (which is, in
general, property held primarily for sale to customers in the ordinary course
of business acquired by foreclosure or otherwise on default of a loan secured
by the property) or (ii) other nonqualifying income from foreclosure
property, it will be subject to tax at the highest corporate rate on such
income. Fourth, if the Company has net income from prohibited transactions
(which are, in general, certain sales or other dispositions of property
(other than foreclosure property) held primarily for sale to customers in the
ordinary course of business), such income will be subject to a 100% tax.
Fifth, if the Company should fail to satisfy the 75% gross income test or the
95% gross income test (discussed below), but has nonetheless maintained its
qualification as a REIT because certain other requirements have been met, it
will be subject to a 100% tax on the greater of the amount by which the
Company fails the 75% or 95% test, multiplied by a fraction intended to
reflect the Company's profitability. Sixth, if the Company should fail to
distribute during each calendar year at least the sum of (i) 85% of its REIT
ordinary income for such year, (ii) 95% of its REIT capital gain net income
for such year and (iii) any undistributed taxable income from prior years,
the Company would be subject to a 4% excise tax on the excess of such
required distribution over (in
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general terms) the sum of (i) the amounts actually distributed and (ii)
amounts on which the Company was subject to tax for such calendar year.
Seventh, if the Company acquires any asset from a C corporation (I.E., a
corporation generally subject to full corporate level tax) in a transaction
in which the basis of the asset in the Company's hands is determined by
reference to the basis of the asset (or any other property) in the hands of
the C corporation and the Company recognizes gain on the disposition of such
asset during the ten-year period beginning on the date on which such asset
was acquired by the Company, then, to the extent of such property's
"built-in" gain (the excess of the fair market value of such property at the
time of acquisition by the Company over the adjusted basis in such property
at such time), such gain will be subject to tax at the highest regular
corporate rate applicable.
REQUIREMENTS FOR QUALIFICATION. The Code defines a "REIT" as a
corporation, trust, or association (1) that is managed by one or more
trustees or directors; (2) the beneficial ownership of which is evidenced by
transferable shares, or by transferable certificates of beneficial interest;
(3) that would be taxable as a domestic corporation, but for Section 856
through 859 of the Code; (4) that is neither a financial institution nor an
insurance company subject to certain provisions of the Code; (5) the
beneficial ownership of which is held by 100 or more persons; (6) during the
last half of each taxable year not more than 50% in value of the outstanding
stock of which is owned, directly or indirectly, by five or fewer individuals
(as defined in the Code to include certain entities); and (7) that meets
certain other tests, described below, regarding the nature of its income and
assets. The Code provides that conditions (1) through (4), inclusive, must
be met during the entire taxable year and that condition (5) must be met
during at least 335 days of a taxable year of 12 months, or during a
proportionate part of a taxable year of less than 12 months. Conditions (5)
and (6), however, will not apply until after the first taxable year for which
an election is made to be taxed as a REIT. The Company anticipates issuing
sufficient shares of Common Stock in the Offering with sufficient diversity
of ownership to allow the Company to satisfy requirements (5) and (6)
immediately following the Offering. In addition, the Company's Charter will
include restrictions regarding the transfer of its shares that are intended
to assist the Company in continuing to satisfy the share ownership
requirements described in (5) and (6), above. See "Description of Capital
Stock -- Restrictions on Transfer."
In addition, a corporation may not elect to become a REIT unless its
taxable year is the calendar year. The Company's taxable year will be the
calendar year.
If a REIT owns a corporate subsidiary that is a "qualified REIT
subsidiary," that subsidiary is disregarded for Federal income tax purposes
and all assets, liabilities and items of income, deduction and credit of the
subsidiary are treated as assets, liabilities and items of the REIT itself.
A qualified REIT subsidiary is a corporation all of the capital stock of
which has been owned by the REIT from the commencement of such corporate
existence. It is anticipated that a corporation will be formed to own 0.25%
of the entities which will own Two Penn Plaza, 866 United Nations Plaza and
1740 Broadway. This corporation will be a qualified REIT subsidiary, and
thus all of its assets (I.E., the interests in the Property-owning entities),
liabilities and items of income, deduction and credit will be treated as
assets, liabilities and items of income, deduction and credit of the Company.
However, the Management Corporation will not be a qualified REIT subsidiary.
In the case of a REIT that is a partner in a partnership, Treasury
Regulations provide that for purposes of the gross income and assets tests
the REIT will be deemed to be entitled to the income of the partnership
attributable to the REIT's capital interest in the partnership. In addition,
the assets and gross income of the partnership will retain the same character
in the hands of the REIT for purposes of Section 856 of the Code, including
satisfying the gross income tests and asset tests. Thus, the Company's
proportionate share of the assets, liabilities and items of gross income of
the Operating Partnership (including assets, liabilities and gross income of
the Property-owning entities and any other partnerships in which the
Operating Partnership has a direct or
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indirect interest) will be treated as assets, liabilities and items of gross
income of the Company for purposes of applying the requirements described
herein.
INCOME TESTS. In order to maintain qualification as a REIT, three gross
income requirements must be satisfied annually. First, at least 75% of the
REIT's gross income (excluding gross income from "prohibited transactions")
for each taxable year must be derived directly or indirectly from investments
relating to real property or mortgages on real property (including "rents
from real property" and, in certain circumstances, interest) or from certain
types of temporary investments. Second, at least 95% of the REIT's gross
income (excluding gross income from prohibited transactions) for each taxable
year must be derived from such real property investments described above and
from dividends, interest and gain from the sale or disposition of stock or
securities, or from any combination of the foregoing. Third, short-term gain
from the sale or other disposition of stock or securities (held for less than
one year), gain from prohibited transactions and gain on the sale or other
disposition of real property held for less than four years (apart from
involuntary conversions and sales of foreclosure property) must represent
less than 30% of the REIT's gross income (including gross income from
prohibited transactions) for each taxable year. For purposes of applying the
30% gross income test, the holding period of Properties and other assets
acquired in the Formation Transaction will be deemed to have commenced on the
date of the Formation Transaction.
Rents received by the Company will qualify as "rents from real property"
in satisfying the gross income requirements for a REIT described above only
if several conditions are met. First, the amount of rent must not be based
in whole or in part on the income or profits of any person. However, an
amount received or accrued generally will not be excluded from the term
"rents from real property" solely by reason of being based on a fixed
percentage or percentages of receipts or sales. Second, rents received from
a tenant will not qualify as "rents from real property" in satisfying the
gross income tests if the Company, or an owner of 10% or more of the Company,
directly or constructively owns 10% or more of such tenant (a "Related Party
Tenant"). Third, if rent attributable to personal property, leased in
connection with a lease of real property, is greater than 15% of the total
rent received under the lease, then the portion of rent attributable to such
personal property will not qualify as "rents from real property".
The Company anticipates that no more than a DE MINIMIS amount of its
gross annual income will be considered attributable to the rental of personal
property and that none of its gross annual income will be considered
attributable to rents that are based in whole or in part on the income of any
person (excluding rents based on a percentage of receipts or sales, which, as
described above, are permitted). Whether the Company derives significant
income from Related Party Tenants depends upon the application of certain
very complex ownership attribution rules. The Company intends to take steps
to determine whether it receives rent from Related Party Tenants; the Company
does not anticipate that more than 2-1/2% of its gross annual income will be
from Related Party Tenants.
Finally, in order for rents received to qualify as "rents from real
property," the Company generally must not operate or manage the property or
furnish or render services to tenants, other than through an "independent
contractor" (as defined in Section 856 of the Code) from whom the Company
derives no income. The "independent contractor" requirement, however, does
not apply to the extent the services provided by the Company are "usually or
customarily rendered" in connection with the rental of space for occupancy
only and are not otherwise considered "rendered to the occupant." The
Operating Partnership itself and the Management Entities will not initially
provide any services with respect to the Properties (other than
management-type services).
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The Company believes that the aggregate amount of nonqualifying income
in any taxable year will not cause the Company to exceed the limits on
nonqualifying income under the 75% and 95% gross income tests.
If the Company fails to satisfy one or both of the 75% or the 95% gross
income tests for any taxable year, it nevertheless may qualify as a REIT for
such year if it is entitled to relief under certain provisions of the Code.
These relief provisions generally will be available if the Company's failure
to meet any such tests was due to reasonable cause and not due to willful
neglect, the Company attaches a schedule of the sources of its income to its
return and any incorrect information on the schedule was not due to fraud
with intent to evade tax. It is not possible, however, to state whether in
all circumstances the Company would be entitled to the benefit of these
relief provisions. As discussed above in "General," even if these relief
provisions were to apply, a tax would be imposed with respect to the excess
net income. Moreover, these relief provisions are unavailable with regard to
the 30% gross income test.
ASSET TESTS. The Company must also satisfy three tests relating to the
nature of its assets. First, at least 75% of the value of the Company's
total assets must be represented by real estate assets (including (i) its
allocable share of real estate assets held by the Operating Partnership, any
partnerships in which the Operating Partnership owns an interest, or
"qualified REIT subsidiaries" of the Company and (ii) stock or debt
instruments held for not more than one year purchased with the proceeds of a
stock offering or long-term (at least five-year) public debt offering of the
Company), cash, cash items and government securities. Second, of the
investments not included in the 75% asset class, the value of any one
issuer's securities owned by the Company may not exceed 5% of the value of
the Company's total assets. Third, of the investments not included in the
75% asset class, the Company may not own more than 10% of any one issuer's
outstanding voting securities. These asset tests must generally be met at or
within 30 days after the end of any quarter in which the Company acquires
(directly or indirectly) assets not included in the 75% asset class
(including securities of the Management Corporation); this will take place
each time the Company increases its interest in the Operating Partnership.
As described above, the Operating Partnership will own all of the
nonvoting stock of the Management Corporation which represents 95% of the
equity thereof. See "Structure and Formation of the Company -- The Operating
Entities of the Company --The Management Corporation." In addition, the
Operating Partnership will hold a note from the Management Corporation. By
virtue of its ownership of Units, the Company will be considered to own its
pro rata share of the assets of the Operating Partnership, including the
securities of the Management Corporation described above. The Operating
Partnership will not own more than 10% of the voting securities of the
Management Corporation and, therefore, the Company will not own more than 10%
of the voting securities of the Management Corporation. In addition, the
Company and the Management Corporation believe that the Company's pro rata
share of the value of the securities of the Management Corporation will not
exceed, at the closing of the Offering, 5% of the total value of the
Company's assets. The Company's belief is based in part upon its analysis of
the anticipated operating cash flows of the Management Corporation. There
can be no assurance, however, that the IRS will not contend that the value of
the securities of the Management Corporation exceeds the 5% value limitation.
Roberts & Holland LLP, in rendering its opinion regarding the qualification
of the Company as a REIT, will rely on the conclusions of the Company and its
senior management as to the value of the securities of the Management
Corporation.
As noted above, the 5% value requirement must be satisfied at or within
30 days after the end of each quarter during which the Company increases its
(direct or indirect) ownership of securities of the Management Corporation
(including as a result of increasing its interest in the Operating
Partnership). Although the Company plans to take steps to ensure that it
satisfies the 5% value test for any quarter with respect to which retesting
is to occur, there can be no assurance
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that such steps always will be successful or will not require a reduction in
the Operating Partnership's overall interest in the Management Corporation.
Although currently the IRS will not rule regarding compliance with the
10% voting securities test, in the opinion of Roberts & Holland LLP the
Company's proposed structure will meet the current statutory requirements.
SPECIAL DISTRIBUTION REQUIREMENT. Because the Company was incorporated
in 1995 but will not elect to be taxed as a REIT until its taxable year
beginning January 1, 1997, it will not have been a REIT for all its taxable
years. The Code provides that, in the case of a corporation which was not
taxed as a REIT for all of its taxable years beginning after February 28,
1986, such corporation may be taxed as a REIT for a taxable year only if, as
of the close of such taxable year, it has no earnings and profits accumulated
in any non-REIT year. The Company believes that it will have no earnings and
profits for its taxable year ending December 31, 1996. However, the Company
will request its accountants to review its earnings and profits for such
taxable year and also for its taxable year ending December 31, 1997.
Appropriate distributions of any earnings and profits will be made by the
Company to comply with this requirement.
ANNUAL DISTRIBUTION REQUIREMENTS. The Company, in order to qualify as a
REIT, is required to distribute dividends (other than capital gain dividends)
to its stockholders in an amount at least equal to (A) the sum of (i) 95% of
the Company's "REIT taxable income" (computed without regard to the dividends
paid deduction and the REIT's net capital gain) and (ii) 95% of the net
income (after tax), if any, from foreclosure property, minus (B) the sum of
certain items of noncash income. Such distributions must be paid during the
taxable year to which they relate (or during the following taxable year, if
declared before the Company timely files its tax return for the preceding
year and paid on or before the first regular dividend payment after such
declaration). To the extent that the Company does not distribute all of its
net capital gain or distributes at least 95%, but less than 100%, of its
"REIT taxable income," as adjusted, it will be subject to tax on the
undistributed amount at regular corporate capital gains and ordinary income
tax rates. Furthermore, if the Company should fail to distribute during each
calendar year at least the sum of (i) 85% of its REIT ordinary income of such
year, (ii) 95% of its REIT capital gain income for such year and (iii) any
undistributed taxable income from prior periods, the Company would be subject
to a 4% excise tax on the excess of such amounts over (in general terms) the
sum of (i) the amounts actually distributed and (ii) amounts on which the
Company was taxed for such calendar year.
The Company intends to make timely distributions sufficient to satisfy
the annual distribution requirements. In this regard, it is expected that
the Company's REIT taxable income will be less than its cash flow due to the
allowance of depreciation and other noncash charges in the computing of REIT
taxable income. Moreover, the Operating Partnership Agreement authorizes the
Company, as general partner, to take such steps as may be necessary to cause
the Operating Partnership to make distributions to its partners of amounts
sufficient to permit the Company to meet these distribution requirements. It
is possible, however, that the Company, from time to time, may not have
sufficient cash or other liquid assets to meet the 95% distribution
requirement due to timing differences between the actual receipt of income
and actual payment of deductible expenses and the inclusion of such income
and deduction of such expenses in arriving at REIT taxable income of the
Company, or due to an excess of nondeductible expenses such as principal
amortization or capital expenditures over noncash deductions such as
depreciation. In the event that such circumstances do occur, then in order
to meet the 95% distribution requirement, the Company may cause the Operating
Partnership to arrange for short-term, or possibly long-term, borrowings to
permit the payment of required dividends.
Under certain circumstances, the Company may be able to rectify a
failure to meet the distribution requirement for a year by paying "deficiency
dividends" to stockholders in a later year
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that may be included in the Company's deduction for dividends paid for the
earlier year. Thus, the Company may be able to avoid being taxed on amounts
distributed as deficiency dividends. However, the Company would be required
to pay to the IRS interest based upon the amount of any deduction taken for
deficiency dividends and any applicable penalties would be computed with
respect to this amount.
FAILURE TO QUALIFY. If the Company fails to qualify for taxation as a
REIT in any taxable year and certain relief provisions do not apply, the
Company will be subject to tax (including any applicable alternative minimum
tax) on its taxable income at regular corporate rates. Unless entitled to
relief under specific statutory provisions, the Company also will be
disqualified from taxation as a REIT for the four taxable years following the
year during which qualification was lost. It is not possible to state
whether in all circumstances the Company would be entitled to such statutory
relief.
Distributions to stockholders in any year in which the Company fails to
qualify will not be deductible by the Company, nor will they be required to
be made. If distributions are made, they will be taxable as ordinary income
to the extent of the Company's current and accumulated earnings and profits.
Subject to certain limitations in the Code, corporate distributees may be
eligible for the dividends received deduction.
TAXATION OF STOCKHOLDERS
TAXATION OF DOMESTIC STOCKHOLDERS. As long as the Company qualifies as
a REIT, distributions made to the Company's taxable domestic stockholders out
of current or accumulated earnings and profits (and not designated as capital
gain dividends) will be taken into account by them as ordinary income and
corporate stockholders will not be eligible for the dividends received
deduction as to such amounts. Distributions that are designated as capital
gain dividends will be taxed as long-term capital gains (to the extent they
do not exceed the Company's actual net capital gain for the taxable year)
without regard to the period for which the stockholder has held its stock.
However, corporate stockholders may be required to treat up to 20% of certain
capital gain dividends as ordinary income. Distributions in excess of
current and accumulated earnings and profits will not be taxable to a
stockholder to the extent that they do not exceed the adjusted basis of the
stockholder's shares of Common Stock, but rather will reduce the adjusted
basis of a stockholder's shares of Common Stock. To the extent that such
distributions exceed the stockholder's adjusted basis in its shares of Common
Stock, they will be included in income as long-term capital gain (or
short-term capital gain if the shares have been held for one year or less),
assuming the shares of Common Stock are a capital asset in the hands of the
stockholder.
Any dividend declared by the Company in October, November, or December
of any year payable to a stockholder of record on a specific date in any such
month shall be treated as both paid by the Company and received by the
stockholder on December 31 of such year, if the dividend is actually paid by
the Company during January of the following calendar year.
Stockholders may not include in their individual income tax returns net
operating losses or capital losses of the Company. In addition,
distributions from the Company and gain from the disposition of shares of
Common Stock will not be treated as "passive activity" income and, therefore,
stockholders will not be able to use passive losses to offset such income.
In general, any loss upon a sale or exchange of shares of Common Stock
by a stockholder which has held such shares of Common Stock for six months or
less (after applying certain holding period rules) will be treated as a
long-term capital loss to the extent of distributions from the Company
required to be treated by such stockholder as long-term capital gains.
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BACKUP WITHHOLDING. The Company will report to its domestic
stockholders and the IRS the amount of dividends paid during each calendar
year and the amount of tax withheld, if any, with respect thereto. Under the
backup withholding rules, a stockholder may be subject to backup withholding
at the rate of 31% with respect to dividends paid unless such holder (a) is a
corporation or comes within certain other exempt categories and, when
required, demonstrates this fact, or (b) provides a taxpayer identification
number and certifies as to no loss of exemption. Any amount paid as backup
withholding will be creditable against the stockholder's income tax
liability. The United States Treasury has recently issued proposed
regulations regarding the withholding and information reporting rules
discussed above. In general, the proposed regulations do not alter the
substantive withholding and information reporting requirements but unify
current certification procedures and forms and clarify and modify reliance
standards. If finalized in their current form, the proposed regulations
would generally be effective for payments made after December 31, 1997,
subject to certain transition rules.
In addition, the Company may be required to withhold a portion of
capital gain distributions made to any stockholders which fail to certify
their nonforeign status to the Company. See "-- Taxation of Foreign
Stockholders," below.
TAXATION OF TAX-EXEMPT STOCKHOLDERS. The IRS has ruled that amounts
distributed as dividends by a qualified REIT generally do not constitute
unrelated business taxable income ("UBTI") when received by a tax-exempt
entity. Based on that ruling, provided that a tax-exempt stockholder (except
certain tax-exempt stockholders described below) has not held its shares of
Common Stock as "debt financed property" within the meaning of the Code and
such shares are not otherwise used in a trade or business, the dividend
income from the Company Stock will not be UBTI to a tax-exempt stockholder.
Similarly, income from the sale of Common Stock will not constitute UBTI
unless such tax-exempt stockholder has held such shares as "debt financed
property" within the meaning of the Code or has used the shares in a trade or
business.
For tax-exempt stockholders that are social clubs, voluntary employee
benefit associations, supplemental unemployment benefit trusts, and qualified
group legal services plans exempt from federal income taxation under Code
Sections 501 (c)(7), (c)(9), (c)(17) and (c)(20), respectively, income from
an investment in the Company will constitute UBTI unless the organization is
able to properly deduct amounts set aside or placed in reserve for certain
purposes so as to offset the income generated by its investment in the
Company. Such prospective investors should consult their own tax advisors
concerning these "set aside" and reserve requirements.
Notwithstanding the above, however, a portion of the dividends paid by a
"pension held REIT" will be treated as UBTI as to any trust which (i) is
described in Section 401(a) of the Code, (ii) is tax-exempt under Section
501(a) of the Code, and (iii) holds more than 10% (by value) of the interests
in the REIT. Tax-exempt pension, profit-sharing, and stock bonus funds that
are described in Section 401(a) of the Code are referred to below as
"qualified trusts."
A REIT is a "pension held REIT" if (i) it would not have qualified as a
REIT but for the fact that Section 856(h)(3) of the Code provides that stock
owned by qualified trusts shall be treated, for purposes of the "not closely
held" requirement, as owned by the beneficiaries of the trust (rather than by
the trust itself), AND (ii) EITHER (a) at least one such qualified trust
holds more than 25% (by value) of the interests in the REIT, OR (b) one or
more such qualified trusts, each of which owns more than 10% (by value) of
the interests in the REIT, hold in the aggregate more than 50% (by value) of
the interests in the REIT. The percentage of any REIT dividend treated as
UBTI is equal to the ratio of (i) the gross income (less direct expenses
related thereto) of the REIT from unrelated trades or businesses (determined
as if the REIT were a qualified trust) to (ii) the total gross income (less
direct expenses related thereto) of the REIT. A DE MINIMIS exception applies
where this percentage is less than 5% for any year. The provisions requiring
qualified trusts to treat a portion
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of REIT distributions as UBTI will not apply if the REIT is able to satisfy
the "not closely held" requirement without relying upon the "look-through"
exception with respect to qualified trusts. As a result of certain
limitations on transfer and ownership of Common Stock contained in the
Charter, the Company does not expect to be classified as a "pension held
REIT."
TAXATION OF FOREIGN STOCKHOLDERS. The rules governing U.S. Federal
income taxation of nonresident alien individuals, foreign corporations,
foreign partnerships and other foreign stockholders (collectively, "Non-U.S.
Stockholders") are complex and no attempt will be made herein to provide more
than a limited summary of such rules. Prospective Non-U.S. Stockholders
should consult with their own tax advisors to determine the impact of U.S.
Federal, state and local income tax laws with regard to an investment in
shares of Common Stock, including any reporting requirements.
ORDINARY DIVIDENDS. Distributions, other than distributions that
are treated as attributable to gain from sales or exchanges by the Company of
U.S. real property interests (discussed below) and other than distributions
designated by the Company as capital gain dividends, will be treated as
ordinary income to the extent that they are made out of current or
accumulated earnings and profits of the Company. Such distributions to
foreign stockholders will ordinarily be subject to a withholding tax equal to
30% of the gross amount of the distribution, unless an applicable tax treaty
reduces that tax. However, if income from the investment in the shares of
Common Stock is treated as effectively connected with the Non-U.S.
Stockholder's conduct of a U.S. trade or business, the Non-U.S. Stockholder
generally will be subject to a tax at graduated rates in the same manner as
U.S. stockholders are taxed with respect to such dividends (and may also be
subject to the 30% branch profits tax if the stockholder is a foreign
corporation). The Company expects to withhold U.S. income tax at the rate of
30% on the gross amount of any dividends, other than dividends treated as
attributable to gain from sales or exchanges of U.S. real property interests
and capital gain dividends, paid to a Non-U.S. Stockholder, unless (i) a
lower treaty rate applies and the required form evidencing eligibility for
that reduced rate is filed with the Company or (ii) the Non-U.S. Stockholder
files an IRS Form 4224 (or its future equivalent) with the Company claiming
that the distributions are "effectively connected" income.
Distributions to a Non-U.S. Stockholder that are designated by the
Company at the time of distribution as capital gain dividends which are not
attributable to or treated as attributable to the disposition by the Company
of a U.S. real property interest generally will not be subject to U.S.
Federal income taxation, except as described below.
RETURN OF CAPITAL. Distributions in excess of current and
accumulated earnings and profits of the Company, which are not treated as
attributable to the gain from disposition by the Company of a U.S. real
property interest, will not be taxable to a Non-U.S. Stockholder to the
extent that they do not exceed the adjusted basis of the Non-U.S.
Stockholder's shares of Common Stock, but rather will reduce the adjusted
basis of such shares of Common Stock. To the extent that such distributions
exceed the adjusted basis of a Non-U.S. Stockholder's shares of Common Stock,
they will give rise to tax liability if the Non-U.S. Stockholder otherwise
would be subject to tax on any gain from the sale or disposition of its
shares of Common Stock as described below. If it cannot be determined at the
time a distribution is made whether such distribution will be in excess of
current and accumulated earnings and profits, the distribution will be
subject to withholding at the rate applicable to dividends. However, the
Non-U.S. Stockholder may seek a refund of such amounts from the IRS if it is
subsequently determined that such distribution was, in fact, in excess of
current and accumulated earnings and profits of the Company.
CAPITAL GAIN DIVIDENDS. For any year in which the Company
qualifies as a REIT, distributions that are attributable to gain from sales
or exchanges by the Company of U.S. real property interests will be taxed to
a Non-U.S. Stockholder under the provisions of the Foreign
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Investment in Real Property Tax Act of 1980, as amended ("FIRPTA"). Under
FIRPTA, these distributions are taxed to a Non-U.S. Stockholder as if such
gain were effectively connected with a U.S. business. Thus, Non-U.S.
Stockholders will be taxed on such distributions at the normal capital gain
rates applicable to U.S. stockholders (subject to any applicable alternative
minimum tax and special alternative minimum tax in the case of nonresident
alien individuals). Also, distributions subject to FIRPTA may be subject to
a 30% branch profits tax in the hands of a corporate Non-U.S. Stockholder not
entitled to treaty relief or exemption. The Company is required by
applicable Treasury Regulations under FIRPTA to withhold 35% of any
distribution that could be designated by the Company as a capital gain
dividend. However, if the Company designates as a capital gain dividend a
distribution made prior to the day the Company actually effects such
designation, then (although such distribution may be taxable to a Non-U.S.
Stockholder) such distribution is not subject to withholding under FIRPTA;
rather, the Company must effect the 35% FIRPTA withholding from distributions
made on and after the date of such designation, until the distributions so
withheld from equal the amount of the prior distribution designated as a
capital gain dividend. The amount withheld is creditable against the
Non-U.S. Stockholder's U.S. tax liability.
COMMON STOCK SALES. Gain recognized by a Non-U.S. Stockholder upon
a sale or exchange of shares of Common Stock generally will not be taxed
under FIRPTA if the Company is a "domestically controlled REIT," defined
generally as a REIT in which at all times during a specified testing period
less than 50% in value of the stock was held directly or indirectly by
foreign persons. It is currently anticipated that the Company will be a
"domestically controlled REIT," and, therefore, the sale of shares of Common
Stock will not be subject to taxation under FIRPTA. However, gain not subject
to FIRPTA will be taxable to a Non-U.S. Stockholder if (i) investment in the
shares of Common Stock is treated as "effectively connected" with the
Non-U.S. Stockholder's U.S. trade or business, in which case the Non-U.S.
Stockholder will be subject to the same treatment as U.S. stockholders with
respect to such gain, or (ii) the Non-U.S. Stockholder is a nonresident alien
individual who was present in the United States for 183 days or more during
the taxable year and has a "tax home" in the United States, or maintains an
office or a fixed place of business in the United States to which the gain is
attributable, in which case the nonresident alien individual will be subject
to a 30% tax on the individual's capital gains. A similar rule will apply
to capital gain dividends not subject to FIRPTA.
If the Company were not a domestically-controlled REIT, whether a
Non-U.S. Stockholder's sale of shares of Common Stock would be subject to tax
under FIRPTA would depend on whether the shares of Common Stock were
regularly traded on an established securities market (such as the NYSE, on
which the shares of Common Stock will be listed) and on the size of the
selling Non-U.S. Stockholder's interest in the Company. If the gain on the
sale of shares of Common Stock were to be subject to tax under FIRPTA, the
Non-U.S. Stockholder would be subject to the same treatment as U.S.
stockholders with respect to such gain (subject to any applicable alternative
minimum tax and a special alternative minimum tax in the case of nonresident
alien individuals) and the purchaser of such shares of Common Stock may be
required to withhold 10% of the gross purchase price.
PROPOSED REGULATIONS. Pursuant to current Treasury Regulations,
dividends paid to an address in a country outside the United States are
generally presumed to be paid to a resident of such country for purposes of
determining the applicability of withholding discussed above and the
applicability of a tax treaty rate. Under proposed Treasury Regulations, not
currently in effect, however, a Non-U.S. Stockholder who wishes to claim the
benefit of an applicable treaty rate would be required to satisfy certain
certification and other requirements.
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OTHER TAX CONSIDERATIONS
EFFECT OF TAX STATUS OF OPERATING PARTNERSHIP AND PROPERTY-OWNING
ENTITIES ON REIT QUALIFICATION. All of the Company's significant investments
are held through the Operating Partnership and the Operating Partnership
holds interests in the Properties through the Property-owning entities. The
Operating Partnership and Property-owning entities involve special tax
considerations. These tax considerations include (a) allocations of income
and expense items of the Operating Partnership and Property-owning entities,
which could affect the computation of taxable income of the Company, (b) the
status of the Operating Partnership and Property-owning entities as
partnerships (as opposed to associations taxable as corporations) for income
tax purposes and (c) the taking of actions by the Operating Partnership or
any of the Property-owning entities that could adversely affect the Company's
qualification as REIT.
Roberts & Holland LLP will render an opinion, based on certain
representations of the Company and the Operating Partnership, that the
Operating Partnership and each of the Property-owning entities will be
treated for tax purposes as a partnership (and not as an association taxable
as a corporation). If, however, the Operating Partnership or any of the
Property-owning entities were treated as an association taxable as a
corporation, the Company would fail to qualify as a REIT for a number of
reasons.
The Operating Partnership Agreement requires that the Operating
Partnership be operated in a manner that will enable the Company to satisfy
the requirements for classification as a REIT. In this regard, the Company
will control the operation of the Operating Partnership through its rights as
the sole general partner of the Operating Partnership.
TAX ALLOCATIONS WITH RESPECT TO THE PROPERTIES. When property is
contributed to a partnership in exchange for an interest in the partnership,
the partnership generally takes a carryover basis in that property for tax
purposes (I.E., the partnership's basis is equal to the adjusted basis of the
contributing partner in the property), rather than a basis equal to the fair
market value of the property at the time of contribution. Pursuant to
Section 704(c) of the Code, income, gain, loss and deductions attributable to
such contributed property must be allocated in a manner such that the
contributing partner is charged with, or benefits from, respectively, the
unrealized gain or unrealized loss associated with the property at the time
of the contribution. The amount of such unrealized gain or unrealized loss
is generally equal to the difference between the fair market value of the
contributed property at the time of contribution and the adjusted tax basis
of such property at the time of contribution (a "Book-Tax Difference"). Such
allocations are solely for Federal income tax purposes and do not affect the
book capital accounts or other economic or legal arrangements among the
partners. The Operating Partnership will be formed by way of contributions
of appreciated property to the Operating Partnership in the Formation
Transactions. Consequently, the Operating Partnership Agreement will require
such allocations to be made in a manner consistent with Section 704(c) of the
Code and the regulations thereunder (the "Section 704(c) Regulations").
As a result of these special rules, the contributing partners will be
allocated lower amounts of depreciation deductions for tax purposes with
respect to Properties contributed to the Operating Partnership with a
Book-Tax Difference than the amount of such deductions that would be
allocated to them if such Properties had a tax basis equal to their fair
market value at the time of contribution. In the event of the disposition of
any of the contributed Properties which have a Book-Tax Difference, all
income attributable to such Book-Tax Difference generally will be allocated
to the contributing partners, and the Company generally will be allocated
only its share of capital gains attributable to appreciation as well as gains
attributable to recapture of depreciation actually claimed by the Company, if
any, occurring after the closing of the Offering. These allocations will
tend to eliminate the Book-Tax Differences with respect to the contributed
Properties over the life of
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the Operating Partnership. However, because of certain technical
limitations, the special allocation rules of Section 704(c) may not always
entirely eliminate the Book-Tax Difference on an annual basis or with respect
to a specific taxable transaction such as a sale. The Section 704(c)
Regulations require partnerships to use a "reasonable method" for allocation
of items affected by Section 704(c) of the Code and outline three methods
which may be considered reasonable for these purposes. Because the Operating
Partnership intends to use the "traditional method" (one of the three methods
described in the Section 704(c) Regulations), the carryover basis of the
contributed Properties in the hands of the Operating Partnership could cause
the Company to be allocated lower amounts of depreciation and other
deductions for tax purposes than would be allocated to the Company if all
Properties were to have a tax basis equal to their fair market value at the
time of the Formation Transactions. These allocations possibly could cause
the Company to recognize taxable income in excess of cash proceeds, which
might adversely affect the Company's ability to comply with the REIT
distribution requirements. See "--Taxation of the Company -- Annual
Distribution Requirements," above. These allocations could also result in a
higher portion of distributions being taxed as dividends than would have
occurred if all Properties were to have had a tax basis equal to their fair
market value at the time of the Formation Transactions.
MANAGEMENT CORPORATION. A portion of the amounts to be used by the
Operating Partnership to fund distributions to partners is expected to come
from the Management Corporation, through payments on the note issued by the
Management Corporation and dividends on nonvoting stock of the Management
Corporation to be held by the Operating Partnership. The Management
Corporation will not qualify as a REIT and thus will pay Federal, state and
local income taxes on its net income at normal corporate rates. To the
extent that the Management Corporation is required to pay Federal, state and
local income taxes, the cash available for distribution to the stockholders
will be reduced accordingly.
As described above, the value of the securities of the Management
Corporation held by the Operating Partnership cannot exceed 5% of the value
of the Operating Partnership's assets at a time when the Company is
considered to acquire additional securities of the Management Corporation.
See "-- Taxation of the Company --Asset Tests." This limitation may restrict
the ability of the Management Corporation to increase the size of its
business unless the value of the assets of the Operating Partnership is
increasing at a commensurate rate.
IMPORTANCE OF OBTAINING PROFESSIONAL TAX ASSISTANCE
This discussion is intended only as a summary of certain tax
consequences of the Offering and is not a substitute for careful
tax planning with a tax professional. The tax consequences are in many cases
uncertain and may vary depending on an investor's individual circumstances.
Accordingly, investors are urged to consult with their tax advisors about the
Federal, state, local and foreign tax consequences of the Offering.
ERISA CONSIDERATIONS
THE FOLLOWING IS A SUMMARY OF MATERIAL CONSIDERATIONS ARISING UNDER THE
EMPLOYEES' RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA"), AND
THE PROHIBITED TRANSACTIONS PROVISIONS OF SECTION 4975 OF THE CODE THAT MAY
BE RELEVANT TO A PROSPECTIVE PURCHASER (INCLUDING WITH RESPECT TO THE
DISCUSSION CONTAINED IN "--STATUS OF THE COMPANY AND THE OPERATING
PARTNERSHIP UNDER ERISA," TO A PROSPECTIVE PURCHASER THAT IS NOT AN EMPLOYEE
BENEFIT PLAN SUBJECT TO ERISA, ANOTHER TAX-QUALIFIED PENSION, PROFIT SHARING
OR STOCK BONUS PLAN, OR AN INDIVIDUAL RETIREMENT ACCOUNT OR ANNUITY ("IRA")).
THE DISCUSSION DOES NOT PURPORT TO DEAL WITH ALL ASPECTS OF ERISA OR SECTION
4975 OF THE CODE THAT MAY BE RELEVANT TO PARTICULAR PROSPECTIVE PURCHASERS
(INCLUDING
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EMPLOYEE BENEFIT PLANS SUBJECT TO ERISA, OTHER TAX QUALIFIED PLANS AND IRAS)
OR MATERIAL CONSIDERATIONS RELATING TO PROSPECTIVE PURCHASERS THAT ARE
GOVERNMENTAL PLANS, CHURCH PLANS OR OTHER EMPLOYEE BENEFIT PLANS THAT ARE
EXEMPT FROM ERISA OR SECTION 4975 OF THE CODE BUT THAT MAY BE SUBJECT TO
STATE LAW REQUIREMENTS IN LIGHT OF THEIR PARTICULAR CIRCUMSTANCES.
A FIDUCIARY MAKING THE DECISION TO INVEST IN SHARES OF THE COMMON STOCK
ON BEHALF OF A PROSPECTIVE PURCHASER WHICH IS AN EMPLOYEE BENEFIT PLAN
SUBJECT TO ERISA, A TAX-QUALIFIED PENSION, PROFIT SHARING OR STOCK BONUS
PLAN, AN IRA, A CHURCH PLAN OR A GOVERNMENTAL PLAN IS ADVISED TO CONSULT ITS
OWN LEGAL ADVISOR REGARDING THE SPECIFIC CONSIDERATIONS ARISING UNDER ERISA,
SECTION 4975 OF THE CODE, AND STATE LAW WITH RESPECT TO THE PURCHASE,
OWNERSHIP, OR SALE OF SHARES OF THE COMMON STOCK BY SUCH PLAN OR IRA.
EMPLOYMENT BENEFIT PLANS, TAX-QUALIFIED PENSION, PROFIT SHARING OR STOCK
BONUS PLANS AND IRAS
Each fiduciary of an employee benefit plan subject to ERISA (an "ERISA
Plan") should carefully consider whether an investment in the Common Stock is
consistent with its fiduciary responsibilities under ERISA. In particular,
the fiduciary requirements of Part 4 of Title I of ERISA require an ERISA
Plan's investments to be (i) prudent and in the interests of the participants
and beneficiaries of the ERISA Plan, (ii) diversified in order to minimize
the risk of large losses, unless it is clearly prudent not to do so and (ii)
authorized under the terms of the governing documents of the ERISA Plan. In
addition, a fiduciary of an ERISA Plan should not cause or permit the Plan to
enter into transactions prohibited under Section 406 of ERISA or Section 4975
of the Code. In determining whether an investment in the Common Stock is
prudent for purposes of ERISA, the appropriate fiduciary of an ERISA Plan
should consider all of the facts and circumstances, including whether the
investment is reasonably designed, as a part of the ERISA Plan's investment
portfolio for which the fiduciary has responsibility, to meet the objectives
of the ERISA Plan, taking into consideration the risk of loss and opportunity
for gain (or other return) from the investment, the diversification, cash
flow and funding requirements of the ERISA Plan, and the liquidity and
current return of the ERISA Plan's investment portfolio. A fiduciary should
also take into account the nature of the Company's business, the length of
the Company's operating history, the terms of the Management Agreements, the
fact that certain investment properties may not have been identified yet,
other matters described under "Risk Factors" and the possibility of UBTI.
See "Federal Income Tax Consequences -- Taxation of Stockholders."
The fiduciary of an ERISA Plan, an IRA or a qualified pension, profit
sharing or stock bonus plan which is not subject to ERISA (a "Non-ERISA
Plan") but is subject to Section 4975 of the Code ("Other Plans") should
ensure that the purchase of Common Stock will not constitute a prohibited
transaction under ERISA or the Code.
STATUS OF THE COMPANY AND THE OPERATING PARTNERSHIP UNDER ERISA
THE FOLLOWING SECTION DISCUSSES CERTAIN PRINCIPLES THAT APPLY IN
DETERMINING WHETHER THE FIDUCIARY REQUIREMENTS OF ERISA AND THE PROHIBITED
TRANSACTION PROVISIONS OF ERISA AND THE CODE APPLY TO AN ENTITY BECAUSE ONE
OR MORE INVESTORS IN THE ENTITY'S EQUITY INTERESTS IS AN ERISA PLAN OR OTHER
PLAN. AN ERISA PLAN FIDUCIARY SHOULD ALSO CONSIDER THE RELEVANCE OF THESE
PRINCIPLES TO ERISA'S PROHIBITION ON IMPROPER DELEGATION OF CONTROL OVER OR
RESPONSIBILITY FOR "PLAN ASSETS" AND ERISA'S IMPOSITION OF CO-FIDUCIARY
LIABILITY ON A FIDUCIARY WHO PARTICIPATES IN, PERMITS (BY ACTION OR INACTION)
THE OCCURRENCE OF, OR FAILS TO REMEDY A KNOWN BREACH BY ANOTHER FIDUCIARY.
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If the assets of the Company are deemed to be assets of an ERISA Plan
("plan assets"), (i) the prudence standards and other provisions of Part 4 of
Title I of ERISA and the prohibited transaction provisions of ERISA and the
Code would be applicable to any transactions involving the Company's assets
and (ii) persons who exercise any authority or control over the Company's
assets, or who provide investment advice to the Company, would be (for
purposes of ERISA and the Code) fiduciaries of ERISA Plans and Other Plans
that acquire Common Stock. The Department of Labor (the "DOL"), which has
certain administrative responsibility over ERISA Plans and Other Plans, has
issued a regulation defining plan assets for certain purposes (the "DOL
Regulation"). The DOL Regulation generally provides that when an ERISA Plan
or Other Plan acquires a security that is an equity interest in an entity and
that security is neither a "publicly-offered security" nor a security issued
by an investment company registered under the 1940 Act, the assets of the
ERISA Plan or Other Plan include both the equity interest and an undivided
interest in each of the underlying assets of the entity, unless it is
established either that the entity is an "operating company" (as defined in
the DOL Regulation) or that equity participation in the entity by "benefit
plan investors" is not significant.
The DOL Regulation defines a "publicly-offered security" as a security
that is "widely held," "freely transferable" and either part of a class of
securities registered under the Exchange Act, or sold pursuant to an
effective registration statement under the Securities Act (provided the
securities are registered under the Exchange Act within 120 days, or such
later time as may be allowed by the SEC (the "registration period"), after
the end of the fiscal year of the issuer during which the offering occurred).
The Common Stock is being sold in an offering registered under the
Securities Act and the Company intends to register the Common Stock under the
Exchange Act within the registration period.
The DOL Regulation provides that a security is "widely-held" only if it
is part of a class of securities that is owned by 100 or more investors
independent of the issuer and of one another. A security will not fail to be
"widely held" because the number of independent investors falls below 100
subsequent to the initial public offering as a result of events beyond the
issuer's control.
The DOL Regulation provides that whether a security is "freely
transferable" is a factual question to be determined on the basis of all
relevant facts and circumstances. The DOL Regulation further provides that
where a security is part of an offering in which the minimum investment is
$10,000 or less, certain restrictions ordinarily will not, alone or in
combination, affect a finding that such securities are "freely transferable."
The Offering will not impose a minimum investment requirement. The
restrictions on transfer enumerated in the DOL Regulation as ordinarily not
affecting a finding that the securities are "freely transferable" include:
(i) any restriction on or prohibition against any transfer or assignment that
would result in a termination or reclassification of the Company for federal
or state tax purposes, or that would otherwise violate any state or federal
law or court order, (ii) any requirement that advance notice of a transfer or
assignment be given to the Company, (iii) any requirement that either the
transferor or transferee, or both, execute documentation setting forth
representations as to compliance with any restrictions on transfer that are
among those enumerated in the DOL Regulation as not affecting free
transferability, (iv) any administrative procedure that established an
effective date, or an event (such as completion of the Offering) prior to
which a transfer or assignment will not be effective, (v) any prohibition
against transfer or assignment to an ineligible or unsuitable investor, and
(vi) any limitation or restriction on transfer or assignment that is not
imposed by the issuer or a person acting on behalf of the issuer. The
Company believes that the restrictions imposed under the Charter on the
transfer of Common Stock are of the type of restrictions on transfer
generally permitted under the DOL Regulation or are not otherwise material
and should not result in the failure of the Common Stock to be "freely
transferable" within the meaning of the DOL Regulation. See "Capital Stock
- -- Restrictions on Transfer." The Company also believes that certain
restrictions on transfer that derive from the securities laws, from
contractual arrangements with the Underwriters in connection with the
Offering and from certain provisions should not result in
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the failure of the Common Stock to be "freely transferable. See
"Underwriting" and "Certain Provisions of Maryland Law and the Company's
Charter and Bylaws." Furthermore, the Company is not aware of any other
facts or circumstances limiting the transferability of the Common Stock that
are not included among those enumerated as not affecting their free
transferability under the DOL Regulation, and the Company does not expect to
impose in the future (or to permit any person to impose on its behalf) any
other limitations or restrictions on transfer that would not be among the
enumerated permissible limitations or restrictions.
Assuming (i) that the Common Stock is "widely held" within the meaning
of the DOL Regulation and (ii) that no facts and circumstances other than
those referred to in the preceding paragraph exist that restrict
transferability of the Common Stock, the Company believes that, under the DOL
Regulation, the Common Stock should be considered "publicly-offered
securities" and, therefore, that the assets of the Company should not be
deemed to be plan assets of any ERISA Plan or Other Plan that invests in the
Common Stock.
The DOL Regulation will also apply in determining whether the assets of
the Operating Partnership will be deemed to be plan assets. The partnership
interests in the Operating Partnership will not be publicly offered
securities. Nevertheless, if the Common Stock constitutes publicly offered
securities, the Company believes that the indirect investment in the
Operating Partnership by ERISA Plans or Other Plans through their ownership
of the Common Stock will not cause the assets of the Operating Partnership to
be treated as plan assets.
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UNDERWRITING
Subject to the terms and conditions in the United States purchase
agreement (the "U.S. Purchase Agreement"), among the Company and each of the
underwriters named below (the "U.S. Underwriters"), and concurrently with the
sale of 1,500,000 shares to the International Managers (as defined below),
the Company has agreed to sell to each of the U.S. Underwriters, for whom
Merrill Lynch, Pierce, Fenner & Smith Incorporated, Bear, Stearns & Co. Inc.,
Dean Witter Reynolds Inc., Lehman Brothers Inc., PaineWebber Incorporated, Legg
Mason Wood Walker, Incorporated, and UBS Securities LLC are acting as
representatives (the "U.S. Representatives"), and each of the U.S. Underwriters
has severally agreed to purchase from the Company, the respective number of
shares of Common Stock set forth below opposite their respective names.
NUMBER
UNDERWRITER OF SHARES
----------- ---------
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Bear, Stearns & Co. Inc.
Dean Witter Reynolds Inc.
Lehman Brothers Inc.
PaineWebber Incorporated
Legg Mason Wood Walker, Incorporated
UBS Securities LLC
_________
Total
8,500,000
_________
_________
The Company has also entered into a purchase agreement (the
"International Purchase Agreement," and together with the U.S. Purchase
Agreement, the "Purchase Agreements") with certain underwriters outside the
United States and Canada (the "International Managers" and, together with the
U.S. Underwriters, the "Underwriters") for whom Merrill Lynch International
Limited, Bear, Stearns International Limited, Dean Witter International
Limited, Lehman Brothers International, PaineWebber International (U.K.)
Ltd., Legg Mason Wood Walker, Incorporated, and UBS Limited are acting as lead
managers. Subject to the terms and conditions set forth in the International
Purchase Agreement and concurrently with the sale of 8,500,000 shares of Common
Stock to the U.S. Underwriters pursuant to the U.S. Purchase Agreement, the
Company has agreed to sell to the International Managers, and the International
Managers have severally agreed to purchase from the Company, an aggregate of
1,500,000 shares of Common Stock. The initial public offering price per
share and the total underwriting discount per share are identical under the
U.S. Purchase Agreement and the International Purchase Agreement.
In each Purchase Agreement, the several U.S. Underwriters and the
several International Managers have agreed, respectively, subject to the
terms and conditions set forth in such Purchase Agreement, to purchase all of
the shares of Common Stock being sold pursuant to such Purchase Agreement if
any of such shares of Common Stock are purchased. Under certain
circumstances, the commitments of non-defaulting U.S. Underwriters or
International Managers (as the case may be) may be increased. The sale of
shares of Common Stock pursuant to the U.S. Purchase Agreement and the
International Purchase Agreement are conditioned upon each other.
The U.S. Representatives have advised the Company that the U.S.
Underwriters propose to offer the Common Stock to the public at the initial
public offering price set forth on the cover page of this Prospectus and to
certain dealers at such price less a concession not in excess of $_____ per
share. The U.S. Underwriters may allow, and such dealers may re-allow, a
discount not in excess of
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<PAGE>
$_____ per share on sales to certain other brokers
and dealers. After the initial public offering, the public offering price,
concession and discount may be changed.
The Company has been informed that the U.S. Underwriters and the
International Managers have entered into an agreement (the "Intersyndicate
Agreement") providing for the coordination of their activities. Under the
terms of the Intersyndicate Agreement, the U.S. Underwriters and the
International Managers are permitted to sell shares of Common Stock to each
other for purposes of resale at the initial public offering price, less an
amount not greater than the selling concession. Under the terms of the
Intersyndicate Agreement, the International Managers and any dealer to whom
they sell shares of Common Stock will not offer to sell or sell shares of
Common Stock to persons who are United States persons or Canadian persons or
to persons they believe intend to resell to persons who are United States
persons or Canadian persons, and the U.S. Underwriters and any dealer to whom
they sell shares of Common Stock will not offer to sell or sell shares of
Common Stock to persons who are non-United States and non-Canadian persons or
to persons they believe intend to resell to non-United States and
non-Canadian persons, except in each case for transactions pursuant to such
agreement.
The Company has granted to the U.S. Underwriters an option, exercisable
for 30 days after the date of this Prospectus, to purchase up to 1,275,000
additional shares of Common Stock to cover over-allotments, if any, at the
initial public offering price, less the underwriting discount set forth on
the cover page of this Prospectus. If the U.S. Underwriters exercise this
option, each U.S. Underwriter will have a firm commitment, subject to certain
conditions, to purchase approximately the same percentage thereof which the
number of shares of Common Stock to be purchased by it shown in the foregoing
table bears to such U.S. Underwriters' initial amount reflected in the
foregoing table. The Company also has granted an option to the International
Managers, exercisable during the 30-day period after the date of this
Prospectus, to purchase up to 225,000 additional shares of Common Stock to
cover over-allotments, if any, on terms similar to those granted to the U.S.
Underwriters.
At the request of the Company, the U.S. Underwriters have reserved up to
_____ shares of Common Stock for sale at the public offering price to certain
employees of the Company, their business affiliates and related parties who
have expressed an interest in purchasing shares. The number of shares
available to the general public will be reduced to the extent these persons
purchase the reserved shares. Any reserved shares that are not so purchased
by such persons at the closing of the Offering will be offered by the U.S.
Underwriters to the general public on the same terms as the other shares
offered by this Prospectus.
In the Purchase Agreements, the Company has agreed to indemnify the
several Underwriters against certain liabilities, including liabilities under
the Securities Act. Insofar as indemnification of the Underwriters for
liabilities arising under the Securities Act may be permitted pursuant to the
foregoing provision, the Company has been informed that in the opinion of the
Securities and Exchange Commission (the "Commission") such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable.
The Company and the Operating Partnership have agreed, subject to
certain exceptions, not to sell, offer or contract to sell, grant any option
for the sale of, or otherwise dispose of any shares of Common Stock or Units
or any securities convertible into or exchangeable for Common Stock or Units
for a period of one year from the date of the Prospectus, without the prior
written consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated.
In connection with the Offering, the Mendik Group and certain affiliates
thereof have agreed, subject to certain exceptions, not to sell, offer or
contract to sell, grant any option for the sale of, or otherwise dispose of
any shares of Common Stock or Units or any securities convertible into or
exchangeable for Common Stock or Units for a period of two years from the
date of this
138
<PAGE>
Prospectus, without the prior written consent of Merrill Lynch,
Pierce, Fenner & Smith Incorporated. In addition, FWM, L.P., FWM II, L.P.
and certain other affiliates of RMB Realty have agreed to a similar
restriction with respect to any shares of Common Stock acquired in the
Concurrent Placement, for a period of one year from the date of this
Prospectus, and, with respect to any shares of Common Stock received in
exchange for Units, for a period of two years from the date of this
Prospectus. The Company has granted certain registration rights pursuant to
which purchasers of shares in the Concurrent Placement may require the
Company to file a registration statement with the Commission with respect to
sales of such shares.
The Underwriters do not intend to confirm sales to any account over
which they exercise discretionary authority.
Prior to the Offering, there has been no public market for the Common
Stock of the Company. The initial public offering price will be determined
through negotiations between the Company and the U.S. Representatives. Among
the factors to be considered in such negotiations, in addition to prevailing
market conditions, will be dividend yields and financial characteristics of
publicly traded REITs that the Company and the U.S. Representatives believe
to be comparable to the Company, the expected results of operations of the
Company (which will be based on the results of operations of the Properties
and the management and leasing businesses in recent periods), estimates of
the future business potential and earnings prospects of the Company as a
whole and the current state of the real estate market in the Company's
primary markets and the economy as a whole.
An application to list the Common Stock on the New York Stock Exchange
will be made.
An affiliate of UBS Securities LLC represents an investor in one of the
Properties whose interest will not be acquired by the Company. Affiliates of
Lehman Brothers Inc. own a general partner interest in the RELP and through
the RELP an approximate 0.45% interest in the entity which owns Two Park
Avenue.
The Company will pay to Merrill Lynch, Pierce, Fenner & Smith
Incorporated an advisory fee equal to 0.75% of the gross proceeds received
from the sale of Common Stock to public investors in the Offering for
financial advisory services rendered in connection with the Company's
formation as a REIT.
EXPERTS
The balance sheet of The Mendik Company, Inc. as of September 30, 1996
and the combined financial statements of the Mendik Predecessors as of
December 31, 1995 and 1994 and for each of the three years in the period
ended December 31, 1995, all appearing in this Prospectus and Registration
Statement, have been audited by Ernst & Young LLP, independent auditors, as
set forth in their reports thereon appearing elsewhere herein, and are
included in reliance upon such reports given upon the authority of such firm
as experts in accounting and auditing.
The Rosen Market Study was prepared for the Company by Rosen Consulting
Group, which is a real estate consulting firm with significant expertise
relating to the New York metropolitan area economy and midtown Manhattan
office market and the various submarkets therein. Information relating to
the New York economy and the Manhattan office market set forth in "New York
Economy and Manhattan Office Market" is derived from the Rosen Market Study
and is included in reliance upon the Rosen Consulting Group's authority as
experts on such matters.
139
<PAGE>
LEGAL MATTERS
The validity of the shares of Common Stock will be passed upon for the
Company by Hogan & Hartson L.L.P., Washington, D.C. Certain tax matters will
be passed upon for the Company by Roberts & Holland LLP, New York, New York.
In addition, the description of Federal income tax consequences under the
heading "Federal Income Tax Consequences" is based upon the opinion of
Roberts & Holland LLP. Certain legal matters will be passed upon for the
Underwriters by Brown & Wood LLP, New York, New York.
140
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on
Form S-11 (of which this Prospectus is a part) under the Securities Act with
respect to the securities offered hereby. This Prospectus does not contain
all information set forth in the Registration Statement, certain portions of
which have been omitted as permitted by the rules and regulations of the SEC.
Statements contained in this Prospectus as to the content of any contract or
other document are not necessarily complete, and in each instance reference
is made to the copy of such contract or other document filed as an exhibit to
the Registration Statement, each such statement being qualified in all
respects by such reference and the exhibits and schedules hereto. For
further information regarding the Company and the Common Stock offered
hereby, reference is hereby made to the Registration Statement and such
exhibits and schedules, which may be obtained from the SEC as its principal
office at 450 Fifth Street, N.W., Washington, D.C. 20549, upon payment of the
fees prescribed by the SEC. The SEC maintains a website at
http://www.sec.gov containing reports, proxy and information statements and
other information regarding registrants, including the Company, that file
electronically with the SEC. In addition, the Company intends to file an
application to list the Common Stock on the New York Stock Exchange and, if
the Common Stock is listed on the New York Stock Exchange, similar
information concerning the Company can be inspected and copied at the offices
of the NYSE, 20 Broad Street, New York, New York 10005.
The Company intends to furnish its stockholders with annual reports
containing audited combined financial statements and a report thereon by
independent certified public accountants.
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<PAGE>
GLOSSARY
Unless the context otherwise requires, the following capitalized terms
shall have the meanings set forth below for the purposes of this Prospectus:
"ACMS" means asbestos containing materials.
"ACT" means the Delaware Revised Uniform Limited Partnership Act.
"ADA" means the Americans with Disabilities Act, as amended.
"ANNUAL ESCALATED RENT PER LEASED SQUARE FOOT" means the annualized
monthly base rent in effect (after giving effect to any contractual increases
in monthly base rent that have occurred up to September 30, 1996) including
monthly tenant pass-through expenses (but excluding tenant electricity costs)
under each lease executed as of September 30, 1996, or, if such rent has been
reduced by a temporary rent concession, the monthly rent that would have been
in effect at such date in the absence of such concession.
"ANNUAL ESCALATED RENT PER LEASED SQUARE FOOT OF EXPIRING LEASES
WITH FUTURE STEP-UPS" means Annualized Escalated Rent Per Leased Square Foot,
but also reflects contractual increases in monthly base rent that occur after
the applicable date.
"BIDS" means Business Improvement Districts (public/private ventures
that provide security, sanitation and other services within their
boundaries).
"BOOK-TAX DIFFERENCE" means the difference between the
fair market value of a contributed property at the time of contribution and
the adjusted tax basis of such property at the time of contribution.
"CHARTER" means the Company's articles of incorporation, as
supplemented or amended.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMISSION" means the Securities and Exchange Commission.
"COMMON STOCK" means shares of the Company's Common Stock, $.01 par
value per share.
"COMPANY" means The Mendik Company, Inc., a Maryland corporation,
and one or more of its subsidiaries (including the Operating Partnership),
and the predecessors thereof or, as the context may require, The Mendik
Company, Inc. only or the Operating Partnership only.
"CONCURRENT PLACEMENT" means the sale of 954,545 shares of
restricted Common Stock to FWM II, L.P., a Texas limited partnership and an
affiliate of RMB Realty.
"CUSHMAN & WAKEFIELD" means Cushman & Wakefield
Research Services.
"DIRECT WEIGHTED AVERAGE RENTAL RATE" means the weighted average of
asking rental rates for a particular market or submarket.
"DOL" means the United States Department of Labor.
"DOL REGULATION" means the regulation issued by the DOL
defining Plan Assets for certain purposes.
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"866 U.N. RECIPROCAL EASEMENT AGREEMENT" means the reciprocal
easement agreement whereby 866 United Nations Plaza and the Residential
Towers share the use and cost of a common mechanical plant.
"EMPLOYEE PLAN" means the Company's 1997 Employee Stock Option and
Restricted Stock Plan.
"EQUITABLE" means The Equitable Life Assurance Society of the United
States.
"ERISA" means the Employees' Retirement Income Security Act of 1974,
as amended.
"ERISA PLAN" means an employee benefit plan subject to
ERISA.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXCLUDED HOLDER LIMIT" means the Existing Holders' limit not
exceeding 15% in number or value of the issued and outstanding shares of
Common Stock.
"EXCLUDED HOLDERS" means Bernard H. Mendik and FWM, L.P., a Texas
limited partnership, with respect to the ownership of shares of Common Stock
or the ownership of Units that either receives in connection with the
Formation Transactions and which may exceed the Ownership Limit immediately
after the Offering.
"FIRPTA" means the Foreign Investment in Real Property Tax Act of
1980, as amended.
"FORMATION TRANSACTIONS" means certain transactions completed
concurrently with the completion of the Offering.
"401(K) PLAN" means The Mendik Company Section 401(k)
Savings/Retirement Plan.
"FUNDS FROM OPERATIONS" means net income (computed in accordance
with GAAP) excluding gains (or losses) from debt restructuring and sales of
property, plus depreciation and amortization on real estate assets, and after
adjustments for unconsolidated partnerships and joint ventures.
"GAAP" means generally accepted accounting principals.
"GENERAL MILLS" means General Mills, Inc.
"GRAND CENTRAL BID" means the Grand Central Business Improvement
District Partnership.
"INTERESTED STOCKHOLDER" means any person who beneficially owns 10%
or more of the voting power of a corporation's shares.
"INTERNATIONAL MANAGERS" means Merrill Lynch International Limited,
Bear, Stearns International Limited, Dean Witter International Ltd., Lehman
Brothers International, PaineWebber International (U.K.) Ltd., Legg Mason
Wood Walker, Incorporated and UBS Limited.
"INTERNATIONAL OFFERING" means the concurrent offering outside the
United States and Canada of an aggregate of 1,500,000 shares of Common Stock
of the Company.
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<PAGE>
"INTERNATIONAL PURCHASE AGREEMENT" means the agreement among the
Company and the International Managers.
"INTERSYNDICATE AGREEMENT" means the agreement entered into by the
U.S. Underwriters and the International Managers providing for the
coordination of their activities.
"IRA" means an individual retirement account or annuity.
"IRS" means the United States Internal Revenue Service.
"LAW ENGINEERING" means Law Engineering and Environmental Services,
P.C.
"LINE OF CREDIT" means the line of credit which will be used
by the Company to facilitate acquisitions of properties and for working
capital purposes.
"LOCK-OUT PERIOD" means the period, up to 15 years following the
completion of the Offering, during which the Lock-out Provisions will be in
effect.
"LOCK-OUT PROVISIONS" means the limitations on the ability of the
Company to sell, or reduce the amount of mortgage indebtedness on three of
the Properties (Two Penn Plaza, Eleven Penn Plaza and 866 United Nations
Plaza) for up to 15 years following the completion of the Offering, except in
certain circumstances.
"MANAGEMENT CORPORATION" means the corporation to which the Mendik
Group will transfer its management and leasing business with respect to
Properties in which the Company has a partial ownership interest or no
ownership interest and in which the Company will own substantially all of the
economic interest.
"MANAGEMENT ENTITIES" means the Management Corporation and the
Management Partnership.
"MANAGEMENT PARTNERSHIP" means the Partnership to which the Mendik
Group will transfer its management and leasing business with respect to
Properties in which the Company has a 100% interest and in which the Company
will own substantially all of the economic interest.
"MENDIK GROUP" means Mendik Realty, the entities affiliated with the
Mendik Group and the Mendik Principals, including the Property owning
entities but excluding Mendik/FW LLC.
"MENDIK/FW LLC" means FW/Mendik REIT, L.L.C., a Delaware limited
liability company in which Messrs. Mendik and Greenbaum and two additional
members of the Company's Board of Directors have an indirect financial
interest.
"MENDIK PREDECESSORS" consists of 100% of the net assets and results
of operations of three Properties (Two Penn Plaza, 1740 Broadway and 866
United Nations Plaza), equity interests in four other Properties (Eleven Penn
Plaza, Two Park Avenue, 330 Madison Avenue and 570 Lexington Avenue) and 100%
of the net assets and results of operations of the affiliated entities which
conduct the management and leasing business of the Mendik Group.
"MENDIK REALTY" means Mendik Realty Company, Inc., a New York
corporation.
"MGCL" means the Maryland General Corporation Law.
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<PAGE>
"NAMED EXECUTIVE OFFICERS" means the Company's Chief Executive
Officer and each of the Company's five other most highly compensated
executive officers.
"NAREIT" means the National Association of Real Estate Investment
Trusts.
"1940 ACT" means the Investment Company Act of 1940, as amended.
"NON-ERISA PLAN" means a qualified pension, profit sharing or stock
bonus plan not subject to ERISA.
"NON-U.S. STOCKHOLDERS" means nonresident alien
individuals, foreign corporations, foreign partnerships and other foreign
stockholders.
"OFFERING" means this offering of shares of Common Stock of the
Company pursuant to and as described in this Prospectus.
"OPERATING PARTNERSHIP" means The Mendik Company, L.P., a Delaware
limited partnership.
"OTHER PLANS" means an IRA and a Non-ERISA Plan.
"OWNERSHIP LIMIT" means the ownership limit of no more than (i) 8.5%
in number or value of the outstanding shares of Common Stock or (ii) 9.8% in
number or value of outstanding shares of any series of Preferred Stock.
"PARENT ENTITY" means an entity whose stock is publicly traded and
which owns more than 50% of the capital stock of the Company.
"PARTNERSHIP AGREEMENT" means the First Amended and Restated
Agreement of Limited Partnership of the Operating Partnership.
"PCBS" means polychlorinated biphenyls.
"PLAN ASSETS" means the assets of the Company deemed to be assets of
an ERISA Plan.
"PREFERRED STOCK" means one or more classes of Preferred Stock of
the Company as designated and issued by the Board of Directors from time to
time.
"PROPERTIES" means the seven Class A properties located in midtown
Manhattan in which the Company will own interests upon completion of the
Offering.
"PURCHASE AGREEMENTS" means the U.S. Purchase Agreement and the
International Purchase Agreement.
"REIT" means a real estate investment trust as defined by Sections
856 through 860 of the Code and applicable Treasury Regulations.
"RESTRICTED SHARES" means the shares of Common Stock
received by the participants in the Formation Transactions or acquired by any
participant in redemption of Units.
"RMB REALTY" means RMB Realty, Inc., a Texas corporation.
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<PAGE>
"ROSEN MARKET REPORT" means a report commissioned by the Company and
prepared by the Rosen Consulting Group, a nationally known real estate
consulting company.
"SECTION 704(C) REGULATIONS" means the regulations promulgated by
the IRS under Section 704(c) of the Code.
"SPECIAL SHAREHOLDER LIMIT" means the number of shares of Common
Stock permitted to be held by the Special Shareholders.
"SPECIAL SHAREHOLDERS" means certain stockholders who acquire legal
or beneficial interests in shares of Common Stock through a Concurrent
Placement.
"34TH STREET BID" means the 34th Street Business Improvement
District Partnership.
"TREASURY REGULATIONS" means the regulations promulgated by the IRS
under the Code.
"TRUSTEE" means the trustee appointed by the Company, but not
affiliated with the Company, who will name a charitable trust for the
benefit of a charitable organization to receive any shares of Common Stock
purportedly transferred to a stockholder in violation of the applicable
Ownership Limit, Existing Holder Limit or Special Shareholder Limit.
"UBTI" means unrelated business taxable income.
"UNDERWRITERS" means the underwriters of the Offering for whom the
International Managers and the U.S. Underwriters are acting as
representatives.
"UNITS" means units of partnership interest in the Operating
Partnership.
"UPREIT" means a REIT conducting business through a partnership.
"U.S. OFFERING" means the public offering in the United States and
Canada of an aggregate of 8,500,000 shares of Common Stock of the Company.
"U.S. PURCHASE AGREEMENT" means the agreement among the Company and
the U.S. Underwriters.
"U.S. REPRESENTATIVES" means Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Bear, Stearns & Co. Inc., Dean Witter Reynolds Inc., Lehman
Brothers Inc., PaineWebber Incorporated, Legg Mason Wood Walker, Incorporated
and UBS Securities LLC.
"U.S. UNDERWRITERS" means the underwriters in the United States and
Canada.
146
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
THE MENDIK COMPANY, INC.
Pro Forma Combined Financial Statements (unaudited).................................. F-2
Pro Forma Combined Balance Sheet as of September 30, 1996.......................... F-3
Pro Forma Combined Statement of Income for the Nine Months Ended September 30,
1996............................................................................. F-4
Pro Forma Combined Statement of Income for the Year Ended December 31, 1995........ F-5
Notes to Pro Forma Combined Financial Statements................................... F-6
Historical
Report of Independent Auditors..................................................... F-10
Balance Sheet as of September 30, 1996............................................. F-11
Notes to Balance Sheet............................................................. F-12
THE MENDIK PREDECESSORS
Combined Financial Statements:
Report of Independent Auditors..................................................... F-14
Combined Balance Sheets as of September 30, 1996 (unaudited) and
December 31, 1995 and 1994....................................................... F-15
Combined Statements of Income for the Nine Months Ended September 30, 1996 and 1995
(unaudited) and the Years Ended December 31, 1995, 1994 and 1993................. F-16
Combined Statements of Owners' Equity for the Nine Months Ended September 30, 1996
(unaudited) and the Years Ended December 31, 1995, 1994 and 1993................. F-17
Combined Statements of Cash Flows for the Nine Months Ended September 30, 1996 and
1995 (unaudited) and the Years Ended December 31, 1995, 1994 and 1993............ F-18
Notes to the Combined Financial Statements......................................... F-19
Schedule III:
Real Estate and Accumulated Depreciation as of December 31, 1995................... F-30
</TABLE>
F-1
<PAGE>
THE MENDIK COMPANY, INC.
PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
The unaudited pro forma financial and operating information as of September
30, 1996 and for the nine months ended September 30, 1996 and the year ended
December 31, 1995 is presented as if the Offering and the Formation Transactions
consisting of three Office Property Entities (1740 Broadway, 866 U.N. Plaza and
Two Penn Plaza), the Management Corporation and interests in four partnerships
all had occurred on September 30, 1996 with respect to the combined balance
sheet and at the beginning of each of the periods presented for the combined
statements of income. The pro forma September 30, 1996 balance sheet information
also gives effect to the recording of minority interests for Operating
Partnership Units, as if these transactions occurred on September 30, 1996.
The pro forma financial statements do not purport to represent what the
Company's financial position or results of operations would have been assuming
the completion of the Formation Transactions and the Offering on such date or at
the beginning of the period indicated, nor do they purport to project the
Company's financial position or results of operations at any future date or for
any future period.
F-2
<PAGE>
THE MENDIK COMPANY, INC.
PRO FORMA COMBINED BALANCE SHEET
SEPTEMBER 30, 1996
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
ELIMINATION OF
HISTORICAL MANAGEMENT
MENDIK COMPANIES PRO FORMA COMPANY
PREDECESSORS (A) ADJUSTMENTS PRO FORMA
------------ -------------- ------------- ---------
<S> <C> <C> <C> <C>
ASSETS
Properties and improvements, at cost
Land................................................ $ 30,814 $-- $ (6,958) $ 23,856
Building and improvements........................... 234,629 -- (31,896) 202,733
Equipment, automobiles, furniture and
fixtures.......................................... 6,245 (4,502) (41) 1,702
------------ ------- ------------- ---------
271,688 (4,502) (38,895) 228,291
Less--Accumulated depreciation.................... 119,719 (3,711) (17,171) 98,837
------------ ------- ------------- ---------
151,969 (791) (21,724)(B) 129,454
Cash and available-for-sale securities................ 46,855 (1,640) (6,525)(C) 38,690
Receivables........................................... 6,122 (2,016) -- 4,106
Related party receivable.............................. 2,336 -- -- 2,336
Deferred rents receivable............................. 26,097 -- (8,408)(D) 17,689
Prepaid expenses...................................... 5,725 (62) -- 5,663
Investment in partnerships............................ 19,081 -- (1,644)(E) 17,437
Tenant acquisition costs.............................. 7,191 -- (7,139)(F) 52
Deferred lease fees and loan costs.................... 13,848 (677) (6,157)(G) 7,014
Security deposits..................................... 1,570 -- -- 1,570
Investment in management corporation.................. -- -- 791(H) 791
Note receivable from management
corporation......................................... -- -- --(H) --
------------ ------- ------------- ---------
$280,794 $(5,186) $(50,806) $224,802
------------ ------- ------------- ---------
------------ ------- ------------- ---------
LIABILITIES AND EQUITY
Liabilities
Mortgage loans payable.............................. $208,879 $-- $(95,879)(I) $113,000
Tenant acquisition costs payable.................... 5,249 -- (537)(J) 4,712
Accrued expenses and accounts payable............... 8,800 (145) -- 8,655
Accounts payable to related parties................. 250 -- -- 250
Excess of distributions and share of losses
over amounts invested in partnership.............. 10,633 -- -- 10,633
Deferred rents payable.............................. 289 -- -- 289
Security deposits................................... 1,663 -- -- 1,663
------------ ------- ------------- ---------
235,763 (145) (96,416) 139,202
Minority interest in operating partnership............ -- -- 30,979(K) 30,979
Equity................................................ 45,031 (5,041) 14,631(L) 54,621
------------ ------- ------------- ---------
$280,794 $(5,186) $(50,806) $224,802
------------ ------- ------------- ---------
------------ ------- ------------- ---------
</TABLE>
F-3
<PAGE>
THE MENDIK COMPANY, INC.
PRO FORMA COMBINED STATEMENT OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ELIMINATION
HISTORICAL OF
MENDIK MANAGEMENT PRO FORMA COMPANY
PREDECESSORS COMPANIES (S) ADJUSTMENTS PRO FORMA
------------ ------------- ------------- ------------
<S> <C> <C> <C> <C>
Revenues
Rental revenue.................................... $51,706 $ (32) $ 1,146(T) $ 52,820
Escalation and reimbursement revenues............. 8,252 -- -- 8,252
Construction revenues from affiliates............. 45 (45) -- --
Management revenues............................... 3,013 (3,013) -- --
Leasing commissions............................... 958 (958) -- --
Investment income................................. 1,282 (9) 495(M) 1,768
Equity in net income of management corporation.... -- -- 617(O) 617
Equity in net income of investees................. 1,562 -- 1,101(R) 2,663
------------ ------------- ------------- ------------
Total revenues................................ 66,818 (4,057) 3,359 66,120
------------ ------------- ------------- ------------
Expenses
Operating expenses................................ 15,958 (38) 105(N) 16,025
Real estate taxes................................. 10,975 -- -- 10,975
Rent expense to an affiliate...................... 519 -- -- 519
Interest.......................................... 11,782 -- (5,849)( P ) 5,933
Depreciation and amortization..................... 8,356 (146) (2,291)(Q) 5,919
Marketing, general and administrative............. 4,209 (3,170) 113(V) 1,152
------------ ------------- ------------- ------------
Total expenses................................ 51,799 (3,354) (7,922) 40,523
------------ ------------- ------------- ------------
Income before minority interest............... $15,019 $ (703) 11,281 25,597
------------ -------------
------------ -------------
Minority interest in operating partnership.......... (9,264)(U) (9,264)
------------- ------------
Net income.................................... $ 2,017 $ 16,333
------------- ------------
------------- ------------
Pro forma common shares outstanding before
conversion of operating partnership units......... 11,295,000
------------
------------
Income per share.................................... $ 1.45
------------
------------
</TABLE>
F-4
<PAGE>
THE MENDIK COMPANY, INC.
PRO FORMA COMBINED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ELIMINATION
HISTORICAL OF
MENDIK MANAGEMENT PRO FORMA COMPANY
PREDECESSORS COMPANIES (S) ADJUSTMENTS PRO FORMA
------------ ------------- ----------- ------------
<S> <C> <C> <C> <C>
Revenues
Rental revenue.................................... $65,050 $ (40) $ 994(T) $ 66,004
Escalation and reimbursement revenue.............. 11,668 -- -- 11,668
Construction revenues from affiliates............. 204 (204) -- --
Management revenues............................... 5,671 (5,671) -- --
Leasing commissions............................... 754 (754) -- --
Investment income................................. 2,096 (58) 660(M) 2,698
Equity in net income of management
corporation..................................... -- -- 790(O) 790
Equity in net income of investees................. 3,975 -- 2,115(R) 6,090
------------ ------------- ----------- ------------
Total revenues................................ 89,418 (6,727) 4,559 87,250
------------ ------------- ----------- ------------
Expenses
Operating expenses................................ 20,524 (48) 149(N) 20,625
Real estate taxes................................. 15,281 -- -- 15,281
Rent expense to an affiliate...................... 657 -- -- 657
Interest.......................................... 16,247 -- (8,337)( P ) 7,910
Depreciation and amortization..................... 11,305 (247) (3,066)(Q) 7,992
Marketing, general and administrative............. 6,485 (4,542) 150(V) 2,093
------------ ------------- ----------- ------------
Total expenses................................ 70,499 (4,837) (11,104) 54,558
------------ ------------- ----------- ------------
Income before minority interest............... $18,919 $(1,890) 15,663 32,692
------------ -------------
------------ -------------
Minority interest in operating partnership.......... (11,831)(U) (11,831)
----------- ------------
Net income.................................... $ 3,832 $ 20,861
----------- ------------
----------- ------------
Pro forma common shares outstanding before
conversion of operating partnership units......... 11,295,000
------------
------------
Income per share.................................... $ 1.85
------------
------------
</TABLE>
F-5
<PAGE>
THE MENDIK COMPANY, INC.
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
(IN THOUSANDS)
1--ADJUSTMENTS TO THE PRO FORMA COMBINED BALANCE SHEET
The adjustments to the Pro Forma Combined Balance Sheet as of September 30,
1996 are as follows:
<TABLE>
<S> <C> <C>
(A) To reflect adjustments required to record the Company's investments in the
Management Corporation under the equity method of accounting as a result of
non- controlling interests held after the formation transactions.
(B) Decrease in properties and equipment, at cost--net
Basis adjustment for purchase of partners' interests relating to 1740
Broadway property.......................................................... $ (21,724)
---------
---------
(C) Decrease in cash and available-for-sale securities
Net offering proceeds
Proceeds from the offering................................................. $ 241,000
Costs associated with the offering......................................... (26,180)
Costs associated with new debt origination................................. (1,130)
Interest rate swap breakage fees........................................... (5,500)
---------
Net offering proceeds.................................................. 208,190
---------
Use of offering proceeds
Payment of mortgage loans.................................................. (90,879)
Purchase of partners' interests relating to 2 Park Avenue, 570 Lexington
Avenue and 1740 Broadway properties...................................... (93,072)
---------
Use of proceeds........................................................ (183,951)
---------
Increase in cash and available-for-sale securities from offering
proceeds............................................................. 24,239
Preformation distributions of excess working capital......................... (30,764)
---------
Decrease in cash and available-for-sale securities........................... $ (6,525)
---------
---------
(D) Decrease in deferred rents receivable
Reduction in straight-line rents receivable due to the purchase of partners'
interests relating to 1740 Broadway property............................... $ (8,408)
---------
---------
(E) Decrease in investment in partnerships
Book value in excess of purchase price of partners' interest relating to 2
Park Avenue
property................................................................... $ (2,579)
Purchase price in excess of book value of partners' interest relating to 570
Lexington
Avenue property............................................................ 935
---------
---------
$ (1,644)
---------
---------
(F) Decrease in tenant acquisition costs due to the purchase of partners'
interests relating to 1740 Broadway property............................... $ (7,139)
---------
---------
(G) Decrease in deferred lease fees and loan costs, net
Decrease in deferred lease fees due to the purchase of partners' interests
relating to
1740 Broadway property..................................................... $ (5,052)
Write-off of deferred loan costs relating to mortgages to be repaid.......... (2,235)
New financing costs.......................................................... 1,130
---------
$ (6,157)
---------
---------
</TABLE>
F-6
<PAGE>
THE MENDIK COMPANY, INC.
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(IN THOUSANDS)
1--ADJUSTMENTS TO THE PRO FORMA COMBINED BALANCE SHEET (CONTINUED)
<TABLE>
<S> <C> <C>
(H) Investment in stock of Management Corporation and Note Receivable ($0 basis)
from Management Corporation
To reflect adjustments required to record the Company's investments in the
Management Corporation under the equity method of accounting as a result of
non-controlling interests held after the formation transaction
Investment in nonvoting common stock representing the book value of equipment
transferred................................................................ $ 791
---------
---------
(I) Decrease in mortgage loans payable
Repayment of old debt........................................................ $ (90,879)
Debt forgiveness............................................................. (5,000)
---------
$ (95,879)
---------
---------
(J) Decrease in tenant acquisition costs payable due to the purchase of partners'
interests
relating to 1740 Broadway property........................................... $ (537)
---------
---------
(K) To establish minority interests based on approximately 6,405,000 units issued
to the continuing partners in operating partnership representing a 36.19%
ownership interest......................................................... $ 30,979
---------
---------
(L) Increase in additional paid-in capital
Cash proceeds from the offering.............................................. $ 241,000
Investment in stock of Management Corporation................................ 791
Debt forgiveness............................................................. 5,000
Write-off of unamortized mortgage costs...................................... (2,235)
Interest rate swap breakage fees............................................. (5,500)
Reimbursement to partners for deferred costs associated with offering........ (26,180)
Preformation distributions of excess working capital......................... (30,764)
Minority interest in operating partnership................................... (30,979)
Purchase of partners' interests relating to 2 Park Avenue, 570 Lexington
Avenue and 1740 Broadway properties........................................ (92,535)
Basis adjustment arising from the excess of carrying amount of assets over
purchase price of partners' interests...................................... (43,967)
---------
---------
$ 14,631
---------
---------
</TABLE>
F-7
<PAGE>
THE MENDIK COMPANY, INC.
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(IN THOUSANDS)
2-- ADJUSTMENTS TO THE PRO FORMA COMBINED STATEMENTS OF
OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
<S> <C> <C> <C>
(M) Investment income
Interest income from notes receivable from Management Corporation.............. $ 495 $ 660
------------- ------------
------------- ------------
(N) Increase in operating expenses
Net increase in cleaning expense due to contract changes....................... $ 105 $ 149
------------- ------------
------------- ------------
(O) Equity in net income of Management Corporation................................. $ 617 $ 790
------------- ------------
------------- ------------
(P) Decrease in interest expense
Decrease in interest expense due to repayments of mortgage loans............... $ (11,782) $ (16,247)
Increase in interest expense related to the newly originated debt.............. 5,933 7,910
------------- ------------
Net decrease in interest expense............................................... $ (5,849) $ (8,337)
------------- ------------
------------- ------------
(Q) Decrease in depreciation and amortization
Decrease in depreciation and amortization due to the book value in excess of
purchase price of partners' interests relating to 1740 Broadway property..... $ (1,742) $ (2,410)
Net decrease for loan fee amortization related to original debt................ (670) (817)
Increase for amortization of new loan costs.................................... 121 161
------------- ------------
------------- ------------
$ (2,291) $ (3,066)
------------- ------------
------------- ------------
(R) Increase in equity in net income of investees
Reduction of financing costs--Two Park Avenue property......................... $ 84 $ 196
Decrease in interest expense due to refinancing of Two Park Avenue property
debt......................................................................... 1,956 3,009
Increase in interest expense due to newly originated Two Park Avenue property
debt......................................................................... (1,365) (1,820)
Decrease in depreciation--Two Park Avenue property............................. 43 58
Increase in depreciation--570 Lexington Avenue property........................ (13) (18)
Decrease in interest expense due to refinancing of Eleven Penn Plaza property
debt......................................................................... 2,543 3,448
Increase in interest expense due to newly originated Eleven Penn Plaza property
debt......................................................................... (2,207) (2,940)
Reduction of financing costs--Eleven Penn Plaza property....................... 60 182
------------- ------------
$ 1,101 $ 2,115
------------- ------------
------------- ------------
(S) To reflect adjustments required to record the Company's investments in the
Management Corporation under the equity method of accounting as a result of
non-controlling interest held after the formation transactions.
</TABLE>
F-8
<PAGE>
THE MENDIK COMPANY, INC.
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(IN THOUSANDS)
2-- ADJUSTMENTS TO THE PRO FORMA COMBINED STATEMENTS OF
OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
<S> <C> <C> <C>
(T) Rental revenue
Adjustment of straight-line income due to purchase of partners' interests
relating to 1740 Broadway property........................................... $ 1,146 $ 994
(U) Minority interest in operating partnership
Net income before minority interest............................................ $ 25,597 $ 32,692
Continuing investors' minority interest in the Company......................... 36.190% 36.190%
------------- ------------
$ 9,264 $ 11,831
------------- ------------
------------- ------------
(V) Marketing, general and administrative expenses
Net increase in REIT marketing, general and administrative expenses............ $ 113 $ 150
------------- ------------
------------- ------------
</TABLE>
F-9
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors of
The Mendik Company, Inc.
We have audited the accompanying balance sheet of The Mendik Company Inc.,
as of September 30, 1996. This balance sheet is the responsibility of the
management of The Mendik Company, Inc. Our responsibility is to express an
opinion on the 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 balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the balance sheet presents fairly, in all material respects,
the financial position of The Mendik Company, Inc. as of September 30, 1996 in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
New York, New York
November 6, 1996
F-10
<PAGE>
THE MENDIK COMPANY, INC.
BALANCE SHEET
(NOTE 1)
<TABLE>
<CAPTION>
SEPTEMBER 30,
1996
-------------
<S> <C>
ASSETS
Cash (NOTE 2)...................................................................................... $ 510,000
-------------
Total assets....................................................................................... $ 510,000
-------------
-------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Commitments and contingencies (NOTE 4)............................................................. $ --
Common stock, $.01 par value, 90,000,000 shares authorized, 10,000 shares issued and outstanding
(NOTE 3)......................................................................................... --
Paid in capital.................................................................................... 500,000
Retained earnings (NOTE 3)......................................................................... 10,000
-------------
Total liabilities and stockholders' equity......................................................... $ 510,000
-------------
-------------
</TABLE>
See accompanying notes.
F-11
<PAGE>
THE MENDIK COMPANY, INC.
NOTES TO BALANCE SHEET
SEPTEMBER 30, 1996
1. ORGANIZATION AND FORMATION TRANSACTIONS
The Mendik Company, Inc. (the "Company") is a Maryland corporation whose
predecessor was incorporated in December 1995 to continue, through The Mendik
Company, L.P. (the "Operating Partnership") and other companies (the "Subsidiary
Companies"), the ownership, development, acquisition, leasing and management
operations of certain office property entities and affiliated real estate
management and leasing entities under common control ("The Mendik Company").
Subject to approval by the owners of The Mendik Predecessors, pursuant to a
certain Confidential Solicitation of Consents and Private Placement Memorandum,
the Company intends to file a Registration Statement on Form S-11 with the
Securities and Exchange Commission with respect to an initial public offering of
common stock (the "Offering"). In addition, the Company may enter into: (i) one
or more concurrent private placements, (ii) various refinancing transactions and
(iii) a line of credit agreement to facilitate future acquisitions and to
finance leasing and capital improvement expenditures. The Company intends to
qualify and will elect to be taxed as a real estate investment trust ("REIT")
for federal income tax purposes for the period ending December 31, 1997. To
maintain qualification as a REIT the Company must, among other things,
distribute to its stockholders at least 95% of its REIT taxable income. The
Company will be self-administered and self-managed and will conduct all of its
business activities through the Operating Partnership and the Subsidiary
Companies. The Company, which will be the sole general partner of the Operating
Partnership, will have control over the management of the Operating Partnership.
In addition, the Operating Partnership will own substantially all of the
economic interests in the Subsidiary Companies.
If the requisite consents are obtained pursuant to the Confidential
Solicitation of Consents, and the Offering is consummated, the following related
transactions will occur:
- The owners of the Mendik Predecessors will contribute their ownership
interests in three properties to the Operating Partnership in exchange
for Units in the Operating Partnership.
- The Company will contribute the net proceeds from the Offering to the
Operating Partnership in exchange for Units in the Operating Partnership.
- The Operating Partnership will acquire interests in four other
partnerships that own interests in four additional properties that are
currently managed by The Mendik Predecessors in exchange for cash. The
Mendik Predecessors currently own interests in these properties and the
owners of the Mendik Predecessors will receive additional Units for their
respective ownership interests in these properties.
- The Operating Partnership will acquire substantially all of the economic
interests in the Subsidiary Companies which currently conduct The Mendik
Predecessors' office management and leasing businesses.
- The Operating Partnership will repay or refinance, in full or part,
certain indebtedness secured by the properties and will enter into a line
of credit agreement.
- The remaining cash from the Offering will be used to establish an initial
reserve for leasing costs and capital expenditures and general working
capital needs.
F-12
<PAGE>
THE MENDIK COMPANY, INC.
NOTES TO BALANCE SHEET (CONTINUED)
SEPTEMBER 30, 1996
1. ORGANIZATION AND FORMATION TRANSACTIONS (CONTINUED)
The actual amount of net proceeds, the per share selling price of the common
stock and the number of shares of common stock that may be sold in the Offering
will not be determined until the consummation of the Offering. As a result, the
number of Units the Company would own of the Operating Partnership or the
Company's ownership percentage of the Operating Partnership cannot be determined
until such Offering is completed.
2. CASH
All of the Company's cash is deposited in an interest bearing checking
account at one bank which is insured by the Federal Deposit Insurance
Corporation up to $100,000.
3. STOCKHOLDERS' EQUITY
COMMON STOCK
The authorized capital stock of the Company will consist of 100,000,000
shares of capital stock, $.01 par value, of which 90,000,000 shares initially
will be designated as shares of Common Stock. Under the Company's Charter, the
Board of Directors will have authority to issue, without any further action by
the stockholders, shares of capital stock in one or more series having such
preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications and terms and conditions of
redemption as the Board of Directors may determine.
RETAINED EARNINGS
The Company has not engaged in any operations from inception in 1995 through
September 30, 1996. Retained earnings on the accompanying balance sheet at
September 30, 1996 represents interest earned from inception (December 1995) to
September 30, 1996 on cash on deposit at a bank (see Note 2).
4. COMMITMENTS AND CONTINGENCIES
STOCK OPTION AND RESTRICTED STOCK PLANS
The Company intends to adopt stock option and restricted stock plans
designed to attract, retain and motivate executive officers of the Company and
other key employees. The plans will authorize the issuance of shares of Common
Stock pursuant to options granted under the plans. In addition, the plans will
authorize issuance of restricted shares of Common Stock at no cost to employees,
with such vesting requirements as the Compensation Committee of the Board of
Directors determines to be advisable.
INCENTIVE COMPENSATION PLAN
The Company intends to establish an incentive compensation plan for key
officers of the Company and its subsidiaries and affiliates. This plan will
provide for payment of cash bonuses to participating officers after evaluating
the officer's performance and the overall performance of the Company. The
Compensation Committee of the Board of Directors will make the determination for
the award of bonuses.
F-13
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Partners, Members and Stockholders of
The Mendik Predecessors
We have audited the accompanying combined balance sheets of The Mendik
Predecessors as of December 31, 1995 and 1994, and the related combined
statements of income, owners' equity and cash flows for each of the three years
in the period ended December 31, 1995. We have also audited the financial
statement schedule listed on the Index to Financial Statements included in the
Prospectus. These financial statements and financial statement schedule are the
responsibility of The Mendik Predecessors' management. Our responsibility is to
express an opinion on these financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of The Mendik
Predecessors at December 31, 1995 and 1994, and the combined results of their
operations and cash flows for each of the three years in the period ended
December 31, 1995 in conformity with generally accepted accounting principles.
Also, in our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be set
forth therein.
Ernst & Young LLP
New York, New York
June 14, 1996
F-14
<PAGE>
THE MENDIK PREDECESSORS
COMBINED BALANCE SHEETS
(NOTE 1)
<TABLE>
<CAPTION>
(UNAUDITED) DECEMBER 31,
SEPTEMBER 30, ----------------------
1996 1995 1994
------------- ---------- ----------
<S> <C> <C> <C>
(IN THOUSANDS)
ASSETS
Commercial real estate properties, at cost (NOTE 4)
Land.................................................................... $ 30,814 $ 30,814 $ 30,814
Buildings and improvements.............................................. 234,629 230,701 222,864
Equipment, autos, furniture and fixtures................................ 6,245 6,235 6,301
------------- ---------- ----------
271,688 267,750 259,979
Less accumulated depreciation........................................... 119,719 113,668 105,350
------------- ---------- ----------
151,969 154,082 154,629
Cash and cash equivalents............................................... 14,181 11,899 14,320
Restricted cash......................................................... 5,943 -- --
Available-for-sale securities (NOTE 1).................................. 26,731 19,863 18,114
Receivables............................................................. 6,122 5,057 4,336
Related party receivables (NOTE 7)...................................... 2,336 3,817 4,136
Deferred rents receivable (NOTE 6)...................................... 26,097 26,176 26,069
Prepaid expenses........................................................ 5,725 283 4,223
Investment in partnerships (NOTE 2)..................................... 19,081 22,280 21,962
Tenant acquisition costs (NOTE 3)....................................... 7,191 7,670 8,309
Deferred lease fees and loan costs, less accumulated
amortization of $16,717 (1996), $14,659 (1995) and $12,564
(1994) (NOTE 7)....................................................... 13,848 10,903 8,466
Security deposits....................................................... 1,570 1,678 1,588
------------- ---------- ----------
Total assets.............................................................. $ 280,794 $ 263,708 $ 266,152
------------- ---------- ----------
------------- ---------- ----------
LIABILITIES AND OWNERS' EQUITY
Mortgage notes payable (NOTE 4)......................................... $ 208,879 $ 208,829 $ 208,891
Tenant acquisition costs payable (NOTE 3)............................... 5,249 6,290 7,284
Accounts payable and accrued expenses................................... 8,800 4,580 4,813
Accounts payable to related parties (NOTE 7)............................ 250 595 442
Excess of distributions and share of losses over investments in
partnership (NOTE 2).................................................. 10,633 6,848 10,444
Deferred rents.......................................................... 289 178 233
Security deposits....................................................... 1,663 1,771 1,681
------------- ---------- ----------
Total liabilities......................................................... 235,763 229,091 233,788
Owners' equity............................................................ 45,031 34,617 32,364
------------- ---------- ----------
Commitments and other comments (NOTES 5, 6 AND 8)
Total liabilities and owners' equity...................................... $ 280,794 $ 263,708 $ 266,152
------------- ---------- ----------
------------- ---------- ----------
</TABLE>
See accompanying notes.
F-15
<PAGE>
THE MENDIK PREDECESSORS
COMBINED STATEMENTS OF INCOME
(NOTE 1)
<TABLE>
<CAPTION>
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
-------------------- -------------------------------
1996 1995 1995 1994 1993
--------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues
Rental revenue (NOTE 6)...................... $ 51,706 $ 48,859 $ 65,050 $ 65,176 $ 63,826
Escalation and reimbursement revenues (NOTE
6)......................................... 8,252 8,688 11,668 11,331 13,385
Construction revenues from affiliates........ 45 134 204 130 107
Management revenues, including $2,722 and
$3,575 (nine months ended September 30,
1996 and 1995, respectively), $5,173
(1995), $4,641 (1994) and $3,671 (1993)
from affiliates (NOTE 7)................... 3,013 3,968 5,671 5,061 4,160
Leasing commissions, including $524 and $406
(nine months ended September 30, 1996 and
1995, respectively), $555 (1995), $1,929
(1994) and $979 (1993) from affiliates
(NOTE 7)................................... 958 588 754 1,995 1,219
Investment income............................ 1,282 1,346 2,096 1,357 1,263
Equity in net income of investees (NOTE 2)... 1,562 1,690 3,975 1,277 750
--------- --------- --------- --------- ---------
Total revenues................................. 66,818 65,273 89,418 86,327 84,710
--------- --------- --------- --------- ---------
Expenses
Operating expenses........................... 15,958 15,581 20,524 20,382 20,512
Real estate taxes............................ 10,975 11,538 15,281 15,276 15,598
Rent expense (NOTE 7)........................ 519 490 657 622 633
Interest (NOTE 4)............................ 11,782 12,167 16,247 16,121 16,749
Depreciation and amortization................ 8,356 8,418 11,305 10,788 11,290
Marketing, general and administrative........ 4,209 4,665 6,485 6,350 5,689
--------- --------- --------- --------- ---------
Total expenses................................. 51,799 52,859 70,499 69,539 70,471
--------- --------- --------- --------- ---------
Net income..................................... $ 15,019 $ 12,414 $ 18,919 $ 16,788 $ 14,239
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
See accompanying notes.
F-16
<PAGE>
THE MENDIK PREDECESSORS
COMBINED STATEMENTS OF OWNERS' EQUITY
(NOTE 1)
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
BALANCE AT JANUARY 1, 1993 (MARCH 31, 1993 AS TO TWO PENN PLAZA ASSOCIATES L.P. AND 1740 BROADWAY
ASSOCIATES, L.P.)............................................................................... $ 23,023
Owners' (distributions)....................................................................... (9,880)
Owners' contributions......................................................................... 38
Net income for the year ended December 31, 1993............................................... 14,239
-------
BALANCE AT DECEMBER 31, 1993 (MARCH 31, 1994 AS TO TWO PENN PLAZA ASSOCIATES L.P. AND 1740
BROADWAY ASSOCIATES, L.P.)...................................................................... 27,420
Adjustment for change in fiscal year (NOTE 1)................................................. (3,655)
-------
Balance at December 31, 1993.................................................................. 23,765
Owners' (distributions)....................................................................... (8,698)
Owners' contributions......................................................................... 920
Unrealized loss on available-for-sale securities.............................................. (411)
Net income for the year ended December 31, 1994............................................... 16,788
-------
BALANCE AT DECEMBER 31, 1994.................................................................... 32,364
Owners' (distributions)......................................................................... (18,190)
Owners' contributions........................................................................... 893
Adjustment to unrealized loss on available-for-sale securities.................................. 632
Net income for the year ended December 31, 1995................................................. 18,919
-------
BALANCE AT DECEMBER 31, 1995...................................................................... 34,618
Owners' (distributions) (Unaudited)............................................................. (4,539)
Owners' contributions (Unaudited)............................................................... 163
Adjustment to unrealized gain on available-for-sale securities (Unaudited)...................... (230)
Net income for the nine months ended September 30, 1996 (Unaudited)............................. 15,019
-------
BALANCE AT SEPTEMBER 30, 1996 (UNAUDITED)......................................................... $ 45,031
-------
-------
</TABLE>
See accompanying notes.
F-17
<PAGE>
THE MENDIK PREDECESSORS
COMBINED STATEMENTS OF CASH FLOWS
(NOTE 1)
<TABLE>
<CAPTION>
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
-------------------- -------------------------------
1996 1995 1995 1994 1993
--------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net Income.............................................. $ 15,019 $ 12,414 $ 18,919 $ 16,788 $ 14,239
Adjustments:
Depreciation and amortization......................... 8,356 8,418 11,305 10,788 11,290
Equity in net income of investees..................... (1,562) (1,690) (3,975) (1,277) (750)
Deferred rents receivable............................. (213) (5) 304 (782) (3,453)
Changes in operating assets and liabilities:
Restricted cash....................................... (5,943) -- -- -- --
Receivables........................................... (983) 410 (803) 97 (2,546)
Related party receivables............................. 1,362 1,239 319 (2,454) (401)
Tenant acquisition costs.............................. -- -- -- (160) (1,707)
Prepaid expenses...................................... (5,442) (1,852) 340 5,509 (144)
Deferred lease fees................................... (3,609) (881) (1,179) (1,827) (1,089)
Accrued interest receivable........................... (187) (335) 13 (157) (11)
Tenant acquisition costs payable...................... (1,041) (517) (994) (757) 16
Accounts payable and accrued expenses................. 3,478 3,007 (51) (1,877) (215)
Accounts payable to related parties................... (432) (57) 153 350 70
Deferred rents........................................ 111 120 (55) (641) 527
Security deposits..................................... 108 (1) (90) (72) (209)
Security deposits payable............................. (108) 1 90 72 169
--------- --------- --------- --------- ---------
Net cash provided by operating activities............... 8,914 20,271 24,296 23,600 15,786
--------- --------- --------- --------- ---------
INVESTING ACTIVITIES
Additions to land, buildings and improvements........... (3,838) (3,411) (7,886) (8,142) (3,632)
Purchases of equipment, autos, furniture and fixtures... (124) (43) (60) (144) (424)
Contributions to partnership investments................ (864) (327) (587) (339) --
Distributions from partnership investments.............. 1,340 646 646 646 646
Net proceeds from sales of (purchases of) securities.... 1,249 (15,683) (1,130) 198 (1,539)
--------- --------- --------- --------- ---------
Net cash used in investing activities................... (2,237) (18,818) (9,017) (7,781) (4,949)
--------- --------- --------- --------- ---------
FINANCING ACTIVITIES
Proceeds from mortgage notes payable.................... 50 -- -- -- 4,000
Payments of mortgage notes payable...................... -- (50) (62) (67) (3,899)
Cash distributions to owners............................ (4,539) (6,353) (18,190) (8,698) (9,880)
Cash contributions from owners.......................... 163 -- 893 920 38
Adjustment for change in fiscal year.................... -- -- -- (3,655) --
Deferred loan costs..................................... (69) (3,928) (3,941) (61) (64)
Deferred loan costs--escrow............................. -- -- 3,600 (3,600) --
--------- --------- --------- --------- ---------
Net cash used in financing activities................... (4,395) (10,331) (17,700) (15,161) (9,805)
--------- --------- --------- --------- ---------
Net increase (decrease) in cash and cash equivalents.... 2,282 (8,878) (2,421) 658 1,032
Cash and cash equivalents at beginning of period........ 11,899 14,320 14,320 13,662 12,630
--------- --------- --------- --------- ---------
Cash and cash equivalents at end of period.............. $ 14,181 $ 5,442 $ 11,899 $ 14,320 $ 13,662
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Supplemental cash flow disclosures
Interest paid......................................... $ 8,944 $ 9,147 $ 16,131 $ 16,221 $ 16,619
Income taxes paid..................................... 68 295 345 23 157
Supplemental disclosure of noncash transactions
Receipt of available-for-sale securities from equity
investee.............................................. $ 8,160 $ -- $ -- $ -- $ --
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
See accompanying notes.
F-18
<PAGE>
THE MENDIK PREDECESSORS
NOTES TO COMBINED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
The Mendik Predecessors are engaged in the ownership, management, operation,
leasing and development of real estate office properties (collectively, the
"Properties") located in the borough of Manhattan in New York City.
PRINCIPLES OF COMBINATION
The Mendik Predecessors are not legal entities but rather a combination of
real estate properties and interests in entities (see Note 2) that are organized
as partnerships and a limited liability company and affiliated real estate
management and leasing entities. All significant intercompany transactions and
balances have been eliminated in combination.
The accompanying combined financial statements include partnerships, a
limited liability company and S corporations which are under common control as
follows:
<TABLE>
<CAPTION>
ENTITY PROPERTY/SERVICE
- ---------------------------------------------- ----------------------------------------------
<S> <C>
Office Property Entities
Two Penn Plaza Associates L.P. Two Penn Plaza
1740 Broadway Associates, L.P. 1740 Broadway
866 U.N. Plaza Associates LLC 866 United Nations Plaza
Management Entities
Mendik Realty Company, Inc. Management and leasing
Mendik Management Company, Inc. Management
</TABLE>
Results of operations for the year ended December 31, 1993 include
operations of Two Penn Plaza Associates L.P. and 1740 Broadway Associates, L.P.
for their fiscal years ended March 31, 1994. Results of operations for the year
ended December 31, 1994 include results of operations of such partnerships for
the calendar year ended December 31, 1994. Accordingly, results of operations
for the period from January 1, 1994 to March 31, 1994 are included in the
results of operations for both of the years ended December 31, 1994 and 1993.
The effect of the change in fiscal year is shown as an adjustment in the
combined statements of owners' equity.
Additionally, four property-owning partnerships in which The Mendik
Predecessors owns less than a majority interest are accounted for under the
equity method. Under the equity method, The Mendik Predecessors record such
investments at cost and adjusts the investment account for its share of the
entities' income or loss and for cash distributions and contributions.
PROPOSED TRANSACTIONS
Concurrently with the consummation of an initial public offering of The
Mendik Company, Inc.'s (the "REIT") Common Stock (the "Offering"), which is
expected to be completed in 1997, the REIT and a newly formed limited
partnership, The Mendik Company, L.P. (the "Operating Partnership"), together
with the partners and members of The Mendik Predecessors and other parties which
hold ownership interests in the properties (collectively, the "Participants"),
will engage in certain formation transactions (the "Formation Transactions").
The Formation Transactions are designed to (i) enable the REIT to raise the
necessary capital to acquire interests in the properties and repay certain
mortgage debt relating thereto, (ii) to establish reserves for leasing costs,
capital expenditures, and working capital, (iii) provide a vehicle for future
acquisitions, (iv) enable the REIT to comply with certain requirements under the
Federal income tax laws and regulations relating to real estate investment
trusts, and (v) preserve certain tax advantages for certain Participants.
F-19
<PAGE>
THE MENDIK PREDECESSORS
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The operations of the REIT will be carried on primarily through the
Operating Partnership in order to assist the REIT and the Participants in
forming the REIT under the Internal Revenue Code of 1986. The REIT will be the
sole general partner in the Operating Partnership and the Participants will
transfer their property and operating interests in The Mendik Predecessors in
exchange for units of limited partnership interests in the Operating Partnership
and/or cash. In addition to interests in the Properties, the REIT, through the
Operating Partnership, will own substantially all of the economic interest in
the office management and leasing businesses, which are currently conducted by
the management entities.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
DEPRECIATION OF REAL ESTATE PROPERTIES
Depreciation is computed by the straight-line method over the estimated
useful lives which range from ten to thirty-nine years for buildings and
improvements and four to seven years for equipment, autos, furniture and
fixtures. Tenant improvements, which are included in buildings and improvements
on the accompanying combined balance sheets, are amortized over the life of the
respective leases, using the straight-line method.
CASH AND CASH EQUIVALENTS
The Mendik Predecessors consider highly liquid investments with a maturity
of three months or less when purchased to be cash equivalents. Cash equivalents
consist primarily of U.S. Treasury Bills and certificates of deposit.
Most of the cash balances are in excess of federally insured limits.
RESTRICTED CASH
Restricted cash consists of escrows for collateral deposits for payment of
mortgage interest.
REVENUE RECOGNITION
Rental revenue is recognized on a straight-line basis over the term of the
lease. The excess of rents so recognized over amounts contractually due pursuant
to the underlying leases are included in deferred rents receivable on the
accompanying combined balance sheets. Contractually due but unpaid rents are
included in tenant receivables on the accompanying combined balance sheets.
Certain lease agreements provide for reimbursement of real estate taxes,
insurance and certain common area maintenance costs and rental increases tied to
increases.
DEFERRED COSTS
Leasing costs and loan costs are capitalized and amortized over the life of
the related lease or loan. Affiliates of The Mendik Predecessors have incurred
costs related to its proposed Offering. Such deferred offering costs will be
reimbursed to such affiliates upon successful completion of the Offering and
will be charged to the equity of the REIT at such time.
F-20
<PAGE>
THE MENDIK PREDECESSORS
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
AVAILABLE-FOR-SALE SECURITIES
In May 1993 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," effective for fiscal years beginning after December
15, 1993. Under these rules, debt securities that The Mendik Predecessors have
both the positive intent and ability to hold to maturity are carried at
amortized cost. Debt securities that The Mendik Predecessors do not have the
positive intent and ability to hold to maturity and all marketable equity
securities are classified as available-for-sale and are carried at fair value.
Unrealized holding gains and losses on securities classified as
available-for-sale are carried as a separate component of owners' equity.
Through December 31, 1993, The Mendik Predcessors classified debt securities
as held-for-investment and carried them at amortized cost. Securities
held-for-sale were reported at the lower of aggregate cost or market. The Mendik
Predecessors adopted the new rules in the first quarter of 1994. The aggregate
difference between cost and fair value at the date of adoption was not material
and, accordingly, no adjustment to record the fair value was made.
At September 30, 1996 and December 31, 1995 and 1994, available-for-sale
securities, consisting principally of U.S. Treasury Obligations, had an
aggregate cost of $26,740,316 (unaudited), $19,641,348 and $18,524,353,
respectively, and an aggregate market value of $26,731,424 (unaudited),
$19,862,923 and $18,113,603, respectively. Gross unrealized gains (losses) at
September 30, 1996 and December 31, 1995 and 1994 were approximately $(8,892)
(unaudited), $221,575 and $(410,750), respectively. The cost of marketable
securities sold is determined using the specific identification method. At
September 30, 1996 and December 31, 1995 and 1994, the investment in marketable
debt securities includes accrued interest of $433,822 (unaudited), $250,422 and
$245,754, respectively.
Contractual maturities (including accrued interest) of the securities at
December 31, 1995 are as follows:
<TABLE>
<S> <C>
Within 1 year.................................................. $5,487,683
1-4 years...................................................... 14,058,223
----------
$19,545,906
----------
----------
</TABLE>
Available-for-sale securities at December 31, 1995 include a mutual fund
carried at its cost of $317,017, which approximates fair value.
INCOME TAXES
The entities in The Mendik Predecessors are not taxpaying entities for
Federal income tax purposes, and, accordingly, no provision or credit has been
made in the accompanying financial statements for Federal income taxes. Owners'
allocable shares of taxable income or loss are reportable on their income tax
returns. Where applicable, state and local income taxes were provided.
F-21
<PAGE>
THE MENDIK PREDECESSORS
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTERIM UNAUDITED FINANCIAL INFORMATION
The combined financial statements as of and for the nine months ended
September 30, 1996 and 1995 are unaudited; however, in the opinion of
management, all adjustments (consisting solely of normal recurring adjustments)
necessary for a fair presentation of the combined financial statements for these
interim periods have been included. The results of interim periods are not
necessarily indicative of the results to be obtained for a full fiscal year.
CAPITAL CONTRIBUTIONS, DISTRIBUTIONS AND PROFITS AND LOSSES
Capital contributions, distributions and profits and losses are allocated in
accordance with the terms of the applicable agreements.
INTEREST RATE EXCHANGE AGREEMENTS
One of the office property entities has entered into interest rate exchange
agreements to reduce the impact of certain changes in interest rates on its
variable rate debt. Payments under these agreements are recognized as
adjustments to interest expense when incurred. Unamortized amounts paid under
interest rate exchange agreements are written off when the related debt is paid
prior to maturity. There is exposure to credit loss in the event of
nonperformance by the other party to the agreement. However, nonperformance by
the counterparty is not anticipated.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 121, ACCOUNTING FOR THE IMPAIRMENT
OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF, which requires
impairment losses to be recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets' carrying amount. SFAS
No. 121 also addresses the accounting for long-lived assets that are expected to
be disposed of. The Mendik Predecessors adopted SFAS No. 121 in the first
quarter of 1996. The adoption had no effect on the financial statements.
2. INVESTMENT IN PARTNERSHIPS
The Mendik Predecessors' investments in the four partnerships which have
been accounted for under the equity method are as follows:
<TABLE>
<CAPTION>
THE MENDIK
COMPANY'S
PARTNERSHIP PROPERTY PERCENTAGE OWNERSHIP
- --------------------------------------------- --------------------------------------------- --------------------
<S> <C> <C>
330 Madison Company 330 Madison Avenue 24.75%
Two Park Company 2 Park Avenue 40%
Eleven Penn Plaza Company 11 Penn Plaza 47.73%
570 Lexington Company, L.P. 570 Lexington Avenue 5.576205%
</TABLE>
These investments are recorded initially at cost and subsequently adjusted
for equity in the net income or loss of investees and cash contributions and
distributions.
F-22
<PAGE>
THE MENDIK PREDECESSORS
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
2. INVESTMENT IN PARTNERSHIPS (CONTINUED)
Condensed financial statements of the partnerships, which have been derived
from the September 30, 1996 unaudited financial statements and the 1995 and 1994
audited financial statements, are as follows:
<TABLE>
<CAPTION>
(UNAUDITED)
SEPTEMBER DECEMBER 31,
30, --------------------
1996 1995 1994
----------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
CONDENSED BALANCE SHEETS
Commercial real estate property, net........................ $ 270,912 $ 269,709 $ 269,982
Receivables................................................. 56,682 63,506 67,626
Cash and short-term investments............................. 15,429 44,647 36,665
Prepaid expenses and other assets........................... 24,687 20,255 19,481
----------- --------- ---------
Total assets................................................ $ 367,710 $ 398,117 $ 393,754
----------- --------- ---------
----------- --------- ---------
Mortgages................................................... $ 230,917 $ 228,372 $ 233,304
Accounts payable and other liabilities...................... 64,181 58,254 49,543
Partners' capital........................................... 72,612 111,491 110,907
----------- --------- ---------
Total liabilities and partners' capital..................... $ 367,710 $ 398,117 $ 393,754
----------- --------- ---------
----------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
-------------------- -------------------------------
1996 1995 1995 1994 1993
--------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONDENSED STATEMENTS OF OPERATIONS
Rental revenue and escalations................. $ 56,220 $ 57,147 $ 82,602 $ 71,313 $ 75,735
Other revenue.................................. 5,474 4,471 4,587 4,429 2,653
--------- --------- --------- --------- ---------
Total revenues................................. 61,694 61,618 87,189 75,742 78,388
--------- --------- --------- --------- ---------
Interest....................................... 18,475 19,276 25,678 21,763 20,448
Depreciation and amortization.................. 13,326 12,483 17,677 15,205 14,801
Operating and other expenses................... 32,071 31,909 42,315 37,759 42,519
--------- --------- --------- --------- ---------
Total expenses................................. 63,872 63,668 85,670 74,727 77,768
--------- --------- --------- --------- ---------
Net income (loss).............................. $ (2,178) $ (2,050) $ 1,519 $ 1,015 $ 620
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
F-23
<PAGE>
THE MENDIK PREDECESSORS
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
2. INVESTMENT IN PARTNERSHIPS (CONTINUED)
There are several business relationships with related parties which involve
management, leasing and construction fee revenues, rental income and expense,
maintenance and security expenses and the advancing of money in the ordinary
course of business. Transactions relative to the aforementioned condensed
statements of operations and balance sheets for the equity investees include the
following:
<TABLE>
<CAPTION>
(UNAUDITED)
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
-------------------- -------------------------------
1996 1995 1995 1994 1993
--------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Management revenues..................... $ 1,304 $ 1,341 $ 1,983 $ 1,547 $ 1,536
Leasing commission revenues............. 370 69 136 346 618
Capital expenditures.................... 2 75 256 1,265 51
Rental income........................... 559 468 700 880 895
Rental expense.......................... -- -- -- -- --
Maintenance expense..................... 7,468 7,066 9,672 7,918 8,052
Security expense........................ 945 820 876 822 783
</TABLE>
The Mendik Predecessors' share of the net income (loss), including
preference allocations, and depreciation and amortization from each of the
investments included in the combined statement of operations is as follows:
<TABLE>
<CAPTION>
(UNAUDITED)
NINE MONTHS ENDED
YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
-------------------- -------------------------------
1996 1995 1995 1994 1993
--------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net income (loss)
330 Madison Company............................... $ 1,006 $ 619 $ 816 $ 1,310 $ 1,619
Two Park Company.................................. 165 (253) (349) (690) (882)
570 Lexington Company, L.P........................ (116) (68) (89) (12) --
Eleven Penn Plaza Company......................... 507 1,392 3,597 669 13
--------- --------- --------- --------- ---------
$ 1,562 $ 1,690 $ 3,975 $ 1,277 $ 750
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Depreciation and amortization
330 Madison Company............................... $ 1,299 $ 1,861 $ 2,452 $ 1,583 $ 1,438
Two Park Company.................................. 2,003 1,710 2,293 2,089 2,106
570 Lexington Company, L.P........................ 28 18 24 4 --
Eleven Penn Plaza Company......................... 1,382 1,373 2,222 1,784 1,645
--------- --------- --------- --------- ---------
$ 4,712 $ 4,962 $ 6,991 $ 5,460 $ 5,189
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
Included in Mortgages at September 30, 1996 and December 31, 1995 is
$65,000,000 ($75,000,000 at December 31, 1994) which is held by a partner of an
entity in which The Mendik Predecessors hold an interest. Additionally, at
September 30, 1996 and December 31, 1995 and 1994, included in Mortgages was
approximately $90,200,000 (unaudited), $86,400,000 and $79,100,000,
respectively, relating to 330 Madison Company. Such amounts are collateralized
by the respective properties and also a pledge of the partnership interest of
all the partners of 330 Madison Company. The mortgage is payable to an entity
which since 1991 has been under the control of liquidators. Since 1991, there
has been uncertainty as to the applicable
F-24
<PAGE>
THE MENDIK PREDECESSORS
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
2. INVESTMENT IN PARTNERSHIPS (CONTINUED)
interest rate. Included in the mortgage balance at September 30, 1996 and
December 31, 1995 and 1994 is approximately $32,200,000 (unaudited), $28,400,000
and $21,100,000, respectively, of accrued interest. Such amount exceeds the
interest which the partnership believes should be accrued by approximately
$14,000,000 (unaudited), $11,600,000 and $8,300,000 at September 30, 1996 and
December 31, 1995 and 1994, respectively. The equity in earnings of the investee
for the periods ended September 30, 1996, December 31, 1995, 1994 and 1993, had
330 Madison Company's position been applied, would have been greater by
approximately $366,000 (unaudited), $428,000, $633,000, and $810,000,
respectively.
On October 1, 1995, a tenant in 11 Penn Plaza subleased its space to a
partner in such entity. Under the sublease agreement (the "sublease"), which
covers the remainder of the lease term through June 2001, such tenant vacated
part of the space in November 1995 with the remainder to be vacated in January
1997. Additionally, the sublease required the tenant to expend approximately
$3,700,000 for tenant alterations for such space. For financial reporting
purposes, the transaction is treated as a lease termination. Net payments to be
received from the tenant for the entire term of the sublease were present valued
using an 8% interest rate. The present value of amounts to be received,
allocable to the space vacated in 1995, approximate $6,528,000. Income
recognized in 1995, net of an adjustment of approximately $1,409,000 for rent
income previously recognized on the straight-line basis, was approximately
$5,119,000. In addition, related prepaid leasing costs and unamortized tenant
improvements of approximately $181,000 and $669,000, respectively, were written
off in 1995. The present value of amounts to be received, allocable to the space
to be vacated in 1997, approximate $17,938,000. Income to be recognized in 1997,
net of an adjustment of approximately $3,691,000 for rent income previously
recognized on the straight-line basis, will be approximately $14,247,000. In
addition, related prepaid leasing costs and unamortized tenant improvements of
approximately $762,000 and $2,900,000, respectively, will be written off in
1997.
Additionally, pursuant to the partnership agreements of 330 Madison Company
and Two Park Company, each partner has the right to implement "buy-sell"
provisions. The Mendik Predecessors could be compelled either to sell its
partnership interest to such other partners, for the purchase price set forth in
such other partners' notice exercising its "buy-sell" rights, or to purchase the
interests of the other partners in the respective partnership. The Mendik
Predecessors have determined that prior to 1993 the investment in Two Park
Company declined in value and deemed such decline to be other than temporary.
Accordingly, the investment was written down by $25,000,000 prior to 1993. The
difference between The Mendik Predecessors' carrying amount of the investment
and the underlying equity in such investee is being amortized over the life of
the property.
3. TENANT ACQUISITION COSTS
Under the provisions of a leasing arrangement which commenced in December
1992, one of the property partnerships has assumed a tenant's obligation under a
pre-existing lease in a building previously occupied by such tenant expiring in
November 2000. The space was subleased on April 28, 1993 for the full lease
term. The estimated obligation (including costs incurred in connection with the
sublease), net of sublease income, is $9,733,000 and is being amortized on a
straight-line basis over the term of the tenant's lease with the partnership,
which expires December 2007.
F-25
<PAGE>
THE MENDIK PREDECESSORS
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
4. MORTGAGE NOTES PAYABLE
The mortgage notes payable collateralized by the respective properties and
assignment of leases at September 30, 1996 and December 31, 1995 and 1994 are as
follows:
<TABLE>
<CAPTION>
(UNAUDITED)
SEPTEMBER DECEMBER 31,
30, --------------------
PROPERTY MORTGAGE NOTES WITH FIXED INTEREST: 1996 1995 1994
- ------------------------- --------------------------------------- ----------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
(A) Two Penn Plaza Mortgage notes with fixed interest
rates ranging from 6.7475% to 9.3625%,
due May 10, 2000....................... $ 155,000 $ 155,000 $ 155,000
(B) 866 United Mortgage note with fixed interest rates
Nations Plaza payable at 11.125%..................... -- 9,729 9,791
(B) 866 United Mortgage notes with fixed interest
Nations Plaza rates ranging from 6.72% to 9.87%, due
December 14, 1998...................... 49,779 40,000 40,000
----------- --------- ---------
Total Fixed Rate Notes................. 204,779 204,729 204,791
<CAPTION>
MORTGAGE NOTE WITH VARIABLE INTEREST:
---------------------------------------
<S> <C> <C> <C> <C> <C>
(A) Two Penn Plaza Mortgage note with variable interest
rates based on LIBOR plus 0.5625%
(average of 6.4% (unaudited), 6.75% and
6.50% at September 30, 1996 and
December 31, 1995 and 1994,
respectively), due May 10, 2000........ 4,100 4,100 4,100
----------- --------- ---------
Total Mortgage Notes Payable........... $ 208,879 $ 208,829 $ 208,891
----------- --------- ---------
----------- --------- ---------
</TABLE>
(A) TWO PENN PLAZA
The loan agreement is for $225,000,000 and requires payment of interest at a
floating rate. No additional borrowing in excess of the outstanding principal
balance may be made under the agreement. Two interest rate exchange agreements,
which mature within seven months of the loan maturity, have fixed the rate on
$155,000,000 of the loan at an average of approximately 7.4%. The effective rate
paid on the remaining balance of $4,100,000 was approximately 6.4% (unaudited),
6.9% (unaudited), 6.75% and 6.5% for the nine months ended September 30, 1996
and 1995 and for the years ended December 31, 1995 and 1994, respectively.
In 1994, the office property entity voluntarily paid approximately
$3,600,000 into a mortgage escrow deposit account. In 1995, the lender recorded
mortgages of $131,000,000, requiring a total payment of $3,941,591 for the
mortgage recording taxes, title insurance, and other costs. The office property
entity paid the amount due in excess of the balance in the escrow account.
(B) 866 UNITED NATIONS PLAZA
The first mortgage, with a balance of $9,729,004, matured on January 1, 1996
and required monthly payments of $96,180, including interest at 11-1/8%. The
mortgage was acquired by the second mortgage lender on January 2, 1996 at which
time an additional $50,000 was advanced by the lender.
The mortgage, which matures on December 14, 1998, may be extended by the
borrower to December 14, 2000. Interest is payable monthly at either the LIBOR
rate or a fixed rate option. The fixed rate option has been chosen for the
entire debt, through maturity, in six separate agreements with rates ranging
from 6.1% to 9.87%. The effective rate was approximately 8% for the years ended
December 31, 1995 and 1994. The effective rate beginning January 2, 1996 is
approximately 7.6%.
F-26
<PAGE>
THE MENDIK PREDECESSORS
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
4. MORTGAGE NOTES PAYABLE (CONTINUED)
(C) PRINCIPAL MATURITIES
Combined aggregate principal maturities of mortgages and notes payable as of
December 31, 1995 are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
1996.......................................................................... $ --
1997.......................................................................... --
1998.......................................................................... 49,729
1999.......................................................................... --
2000.......................................................................... 159,100
--------------
$ 208,829
--------------
--------------
</TABLE>
5. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosures of estimated fair value were determined by
management, using available market information and appropriate valuation
methodologies. Considerable judgment is necessary to interpret market data and
develop estimated fair value. Accordingly, the estimates presented herein are
not necessarily indicative of the amounts The Mendik Predecessors could realize
on disposition of financial instruments. The use of different market assumptions
and/or estimation methodologies may have a material effect on the estimated fair
value amounts.
Cash equivalents and variable rate mortgages are carried at amounts which
reasonably approximate their fair values.
At December 31, 1995, total mortgages and notes payable with an aggregate
carrying value of $208,829,000 have an estimated aggregate fair value of
approximately $206,000,000. Estimated fair value is based on interest rates
currently available to The Mendik Predecessors for issuance of debt with similar
terms and remaining maturities. The estimated fair value of the interest rate
exchange agreements is $(2,700,000) based upon the estimated amount that the
Company would have to pay to terminate the agreements at December 31, 1995.
Disclosure about fair value of financial instruments is based on pertinent
information available to management as of December 31, 1995. Although management
is not aware of any factors that would significantly affect the reasonable fair
value amounts, such amounts have not been comprehensively revalued for purposes
of these financial statements since that date and current estimates of fair
value may differ significantly from the amounts presented herein.
6. RENTAL INCOME
The Mendik Predecessors' Properties are being leased to tenants under
operating leases. The minimum rental amounts due under the leases are generally
either subject to scheduled fixed increases or adjustments. The leases generally
also require that the tenants reimburse The Mendik Predecessors for increases in
certain operating costs and real estate taxes above their base year costs.
Approximate future minimum rents to be received over the next five years and
thereafter for leases in effect at December 31, 1995 are as follows:
F-27
<PAGE>
THE MENDIK PREDECESSORS
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
6. RENTAL INCOME (CONTINUED)
<TABLE>
<CAPTION>
(IN THOUSAND)
-------------
<S> <C>
1996........................................................................... $ 64,143
1997........................................................................... 52,398
1998........................................................................... 39,154
1999........................................................................... 34,602
2000........................................................................... 30,048
Thereafter..................................................................... 139,081
-------------
$ 359,426
-------------
-------------
</TABLE>
Approximately 17.9% of rental revenue for 1995 is derived from one tenant
whose leases expire October 31, 1996 and has notified The Mendik Predecessors
that it does not intend to renew such leases. The leases provide for annual base
rents of approximately $11,840,000 and additional rents based on increases in
certain expenses over base period amounts.
7. RELATED PARTY TRANSACTIONS
There are several business relationships with related parties which involve
management, leasing, and construction fee revenues, rental income and rental
expense, maintenance and security expenses and the advancing of money in the
ordinary course of business. Transactions include the following:
<TABLE>
<CAPTION>
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
-------------------- -------------------------------
1996 1995 1995 1994 1993
--------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Management revenues................................. $ 1,418 $ 2,234 $ 3,190 $ 3,094 $ 2,135
Leasing commission revenues......................... 154 337 374 1,583 361
Capital expenditures................................ 183 1,763 1,828 2,054 429
Rental income....................................... 6 (34) (32) 214 206
Rental expense...................................... 498 474 625 887 903
Maintenance expense................................. 4,090 3,741 9,332 9,131 8,867
Security expense.................................... 1,061 1,061 1,451 1,305 1,387
</TABLE>
8. COMMITMENTS AND CONTINGENCIES
DEFINED CONTRIBUTION PLAN
The Mendik Predecessors has a defined contribution plan (the "Plan") which
qualifies under Section 401(k) of the Internal Revenue Code and provides
coverage for all nonunion employees of The Mendik Predecessors. The maximum
percentage of annual compensation that participants may contribute to the Plan
is not to exceed the maximum allowed under the Internal Revenue Code. Matching
contributions are made by management for each participant with at least 1,000
hours of service, up to a maximum of the greater of $1,000 or 5% of
compensation. Additional amounts may be contributed as determined by management.
Pension plan expense for the nine months ended September 30, 1996 and 1995 and
the years ended December 31, 1995, 1994 and 1993 was $71,582 (unaudited),
$73,881 (unaudited), $98,612, $90,759 and $73,230, respectively.
F-28
<PAGE>
THE MENDIK PREDECESSORS
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
OTHER COMMITMENTS AND CONTINGENCIES
The Mendik Predecessors is subject to various legal proceedings and claims
that arise in the ordinary course of business. These matters are generally
covered by insurance. Management believes that the final outcome of such matters
will not have a material adverse effect on the financial position, results of
operations or liquidity of The Mendik Predecessors.
In 1994, two affiliated entities, including a partner in the Eleven Penn
Plaza Company, filed a lawsuit against the indirect managing general partner and
one of the management entities included in the combined financial statements.
The lawsuit alleges, among other things, fraud, breach of fiduciary duty and
breach of contract in connection with, in part, an agreement executed by the
indirect managing general partner and one of the affiliate entities, pursuant to
which the affiliated entities claim to have the right to a portion of
distributions received by such partner with respect to certain entities,
including the office property entities included in the combined financial
statements. The Mendik Predecessors do not believe that such litigation would
have a material adverse effect on the financial position, results of operations
or liquidity of The Mendik Predecessors.
As of September 30, 1996 and December 31, 1995, in accordance with tenant
leases, the office property entities have agreed to reimburse tenants up to a
maximum of approximately $3,080,000 (unaudited) and $4,200,000, respectively,
for initial tenant charges, as defined. As of September 30, 1996 and December
31, 1995, the office property entities paid approximately $1,767,000 (unaudited)
and $2,700,000, respectively, of such charges.
The Mendik Predecessors are in the process of installing new
state-of-the-art air conditioning equipment for several properties. The total
cost of the project will be approximately $11,000,000, of which approximately
$1,850,000 will be funded by a Con Edison rebate program and approximately
$435,000 will be funded by a carrier rebate. In addition, adjacent property
owners will fund approximately $3,800,000. At September 30, 1996 and December
31, 1995, approximately $10,700,000 (unaudited) and $4,900,000, respectively, of
the total cost of the project has been incurred, of which $4,360,000 (unaudited)
and $2,400,000, respectively, has been billed to tenants.
The Mendik Predecessors are contractually committed to make an additional
investment in 570 Lexington, L.P., representing its 5.5% pro rata portion of the
redevelopment costs of the building owned by such entity. Such additional
investment is estimated to approximate $1,500,000 (unaudited) and $1,900,000 at
September 30, 1996 and December 31, 1995, respectively.
F-29
<PAGE>
THE MENDIK PREDECESSORS
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN D COLUMN E
------------------------ -----------------------------------
COLUMN C COST CAPITALIZED
------------------------ GROSS AMOUNT AT WHICH CARRIED
SUBSEQUENT TO
INITIAL COST ACQUISITION AT CLOSE OF PERIOD
COLUMN A COLUMN B ------------------------ ------------------------ -----------------------------------
- ---------------------- ------------- BUILDING AND BUILDING AND BUILDING AND
DESCRIPTION ENCUMBRANCE LAND IMPROVEMENTS LAND IMPROVEMENTS LAND IMPROVEMENTS TOTAL
- ---------------------- ------------- --------- ------------- --------- ------------- --------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Two Penn Plaza,....... $ 159,100 $ -- $ 53,707 $ 6,015 $ 59,451 $ 6,015 $ 113,158 $ 119,173
New York, NY (3 mortgages )
1740 Broadway,........ -- 20,520 86,723 -- 6,691 20,520 93,414 113,934
New York, NY
866 United Nations 49,729 4,280 12,210 -- 11,918 4,280 24,128 28,408
Plaza,.............. (6 mortgages )
New York, NY
------------- --------- ------------- --------- ------------- --------- ------------- ---------
$208,829 $ 24,800 $ 152,640 $ 6,015 $ 78,060 $ 30,815 $ 230,700 $ 261,515
------------- --------- ------------- --------- ------------- --------- ------------- ---------
------------- --------- ------------- --------- ------------- --------- ------------- ---------
<CAPTION>
COLUMN I
COLUMN F COLUMN G --------------
COLUMN A ------------ --------------- COLUMN H LIFE ON WHICH
- ---------------------- ACCUMULATED DATE OF ------------- DEPRECIATION
DESCRIPTION DEPRECIATION CONSTRUCTION DATE ACQUIRED IS COMPUTED
- ---------------------- ------------ --------------- ------------- --------------
<S> <C> <C> <C> <C>
Two Penn Plaza,....... $ 78,962 1968 1978 31 1/2--39
New York, NY years
1740 Broadway,........ 14,920 1950 1990 15--39 years
New York, NY
866 United Nations 14,607 1966 1978 10--39 years
Plaza,..............
New York, NY
------------
$ 108,489
------------
------------
</TABLE>
F-30
<PAGE>
THE MENDIK PREDECESSORS
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
The changes in real estate for the three years ended December 31, 1995 are
as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
(IN THOUSANDS)
Balance at beginning of period............................................... $ 253,678 $ 248,778 $ 245,027
Improvements................................................................. 7,837 4,900 3,751
---------- ---------- ----------
Balance at end of period..................................................... $ 261,515 $ 253,678 $ 248,778
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The aggregate cost of land, buildings and improvements for Federal income
tax purposes at December 31, 1995 was approximately $230,000,000.
The changes in accumulated depreciation, exclusive of amounts relating to
equipment, autos, and furniture and fixtures, for the three years ended December
31, 1995 are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
Balance at beginning of period................................................. $ 100,377 $ 94,159 $ 85,746
Depreciation for period........................................................ 8,112 6,218 8,413
---------- ---------- ---------
Balance at end of period....................................................... $ 108,489 $ 100,377 $ 94,159
---------- ---------- ---------
---------- ---------- ---------
</TABLE>
F-31
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING MADE BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE COMMON STOCK IN ANY
JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS
OF THE COMPANY OR THE OPERATING PARTNERSHIP SINCE THE DATE HEREOF.
--------------------------
SUMMARY TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 1
Risk Factors.............................................................. 12
The Company............................................................... 26
Business and Growth Strategies............................................ 28
Use of Proceeds........................................................... 32
Distributions............................................................. 33
Capitalization............................................................ 38
Dilution.................................................................. 39
Selected Financial Information............................................ 41
Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 44
New York Economy and Manhattan Office Market.............................. 50
The Properties............................................................ 56
Management................................................................ 85
Structure and Formation of the Company.................................... 94
Policies with Respect to Certain Activities............................... 98
Certain Relationships and Transactions.................................... 103
Partnership Agreement..................................................... 105
Principal Stockholders.................................................... 111
Capital Stock............................................................. 113
Certain Provisions of Maryland Law and the Company's Charter and Bylaws... 116
Shares Available for Future Sale.......................................... 120
Federal Income Tax Considerations......................................... 122
ERISA Considerations...................................................... 133
Underwriting.............................................................. 137
Experts................................................................... 139
Legal Matters............................................................. 140
Additional Information.................................................... 141
Glossary.................................................................. 142
Index to Financial Statements............................................. F-1
</TABLE>
--------------------------
UNTIL , 1997 (25 DAYS AFTER THE COMMENCEMENT OF THIS OFFERING),
ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
10,000,000 SHARES
THE MENDIK COMPANY, INC.
COMMON STOCK
---------------------
PROSPECTUS
---------------------
MERRILL LYNCH & CO.
BEAR, STEARNS & CO. INC.
DEAN WITTER REYNOLDS INC.
LEHMAN BROTHERS
PAINEWEBBER INCORPORATED
LEGG MASON WOOD WALKER,
INCORPORATED
UBS SECURITIES
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED DECEMBER 18, 1996
PROSPECTUS
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
10,000,000 SHARES
THE MENDIK COMPANY, INC.
COMMON STOCK
------------------
The Mendik Company, Inc. (together with its subsidiaries, the "Company") has
been formed to continue and expand the operations of Mendik Realty Company, Inc.
and its affiliates, which for 40 years have been engaged in acquiring, owning,
managing, leasing, renovating and redeveloping office properties in New York
City. Upon completion of this offering (the "Offering"), the Company will own
interests in seven office properties located in midtown Manhattan which contain
approximately 5.5 million rentable square feet. The Company will operate as a
fully integrated, self-administered and self-managed real estate company and
expects to qualify as a real estate investment trust (a "REIT") for Federal
income tax purposes. Upon completion of the Offering, the Company will be one of
the largest owners and operators of Manhattan office properties and expects to
be the first publicly traded REIT formed primarily to own, operate and acquire
Manhattan office properties.
All of the shares of Common Stock, par value $.01 per share, of the Company
("Common Stock") offered hereby are being sold by the Company. Of the 10,000,000
shares of Common Stock offered hereby, 1,500,000 shares are being offered
initially outside the United States and Canada and 8,500,000 shares are being
offered initially in the United States and Canada. In addition, 954,545 shares
of restricted Common Stock (representing an investment of approximately $21
million) will be sold concurrently by the Company at the initial public offering
price to an entity with which two directors of the Company are affiliated. Upon
completion of the Offering, approximately 36% of the equity in the Company will
be beneficially owned by officers and directors of the Company and certain other
affiliated parties.
Prior to the Offering, there has been no public market for the Common Stock.
It is currently anticipated that the initial public offering price per share
will be $22.00. See "Underwriting" for a discussion of the factors to be
considered in determining the initial public offering price. An application to
list the Common Stock on the New York Stock Exchange will be made.
SEE "RISK FACTORS" BEGINNING ON PAGE 12 FOR CERTAIN FACTORS RELEVANT TO AN
INVESTMENT IN THE COMMON STOCK, INCLUDING:
- Concentration of all of the Company's properties in midtown Manhattan, and
the dependence of such properties on the conditions of the New York
economy and the Manhattan office market.
- Risks associated with non-controlling interests that the Company will own
in four of the Company's properties.
- Absence of arm's length negotiations with respect to the properties and
other assets contributed to the Company in connection with its formation,
resulting in the risk that the consideration given by the Company for such
assets may exceed the fair market value of such assets and other potential
conflicts of interest.
- Limitations on the Company's ability to sell, or reduce the amount of
mortgage indebtedness on, certain of the Properties.
- Limitations on the stockholders' ability to change control of the Company,
including restrictions on ownership of more than 8.5% of the outstanding
shares of Common Stock.
------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
<S> <C> <C> <C>
Per Share................................................ $ $ $
Total(3)................................................. $ $ $
</TABLE>
(1) The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting estimated expenses of $ payable by the Company.
(3) The Company has granted the International Managers a 30-day option to
purchase up to an additional 225,000 shares of Common Stock, and has granted
the U.S. Underwriters a 30-day option to purchase up to an additional
1,275,000 shares of Common Stock on the same terms and conditions as set
forth above, solely to cover over-allotments, if any. If such option is
exercised in full, the total Price to Public, Underwriting Discount and
Proceeds to Company will be $ , $ and $ ,
respectively. See "Underwriting."
------------------------------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if issued to and accepted by them, subject to
approval of certain legal matters by counsel to the Underwriters. The
Underwriters reserve the right to withdraw, cancel or modify such offer and to
reject orders in whole or in part. It is expected that delivery of the shares of
Common Stock offered hereby will be made in New York, New York, on or about
, 1997.
------------------------------
MERRILL LYNCH INTERNATIONAL LIMITED
BEAR, STEARNS INTERNATIONAL LIMITED
DEAN WITTER INTERNATIONAL LTD.
LEHMAN BROTHERS INTERNATIONAL
PAINEWEBBER INTERNATIONAL (U.K.) LTD.
LEGG MASON WOOD WALKER,
INCORPORATED
UBS LIMITED
------------------------------
The date of this Prospectus is , 1997.
<PAGE>
UNDERWRITING
Subject to the terms and conditions in the international
purchase agreement (the "International Purchase Agreement"), among the
Company and each of the underwriters named below (the "International
Managers"), and concurrently with the sale of 8,500,000 shares to the U.S.
Underwriters (as defined below), the Company has agreed to sell to each of
the International Managers, for whom Merrill Lynch International Limited,
Bear, Stearns International Limited, Dean Witter International Ltd., Lehman
Brothers International, PaineWebber International (U.K.) Ltd., Legg Mason
Wood Walker, Incorporated and UBS Limited are acting as lead managers(the
"Lead Managers"), and each of the International Managers has severally agreed
to purchase from the Company, the respective number of shares of Common Stock
set forth below opposite their respective names.
Number
Underwriter of Shares
----------- ---------
Merrill Lynch International Limited . . . . .
Bear, Stearns International Limited . . . . .
Dean Witter International Limited . . . . . .
Lehman Brothers International.. . . . . . . .
PaineWebber International (U.K.) Ltd. . . . .
Legg Mason Wood Walker, Incorporated. . . . .
UBS Limited . . . . . . . . . . . . . . . . .
---------
Total. . . . . . . . . . . . 1,500,000
---------
---------
The Company has also entered into a purchase agreement (the
"U.S. Purchase Agreement," and together with the International Purchase
Agreement, the "Purchase Agreements") with certain underwriters in the United
States and Canada (the "U.S. Underwriters" and, together with the
International Managers, the "Underwriters") for whom Merrill Lynch, Pierce,
Fenner & Smith Incorporated, Bear, Stearns & Co. Inc., Dean Witter Reynolds
Inc., Lehman Brothers Inc., PaineWebber Incorporated, Legg Mason Wood Walker,
Incorporated and UBS Securities LLP are acting as representatives. Subject to
the terms and conditions set forth in the U.S. Purchase Agreement and
concurrently with the sale of 1,500,000 shares of Common Stock to the
International Managers pursuant to the International Purchase Agreement, the
Company has agreed to sell to the U.S. Underwriters, and the U.S.
Underwriters have severally agreed to purchase from the Company, an aggregate
of 8,500,000 shares of Common Stock. The initial public offering price per
share and the total underwriting discount per share are identical under the
U.S. Purchase Agreement and the International Purchase Agreement.
In each Purchase Agreement, the several U.S. Underwriters and
the several International Managers have agreed, respectively, subject to the
terms and conditions set forth in such Purchase Agreement, to purchase all of
the shares of Common Stock being sold pursuant to such Purchase Agreement if
any of such shares of Common Stock are purchased. Under certain
circumstances, the commitments of non-defaulting U.S. Underwriters or
International Managers (as the case may be) may be increased. The sale of
shares of Common Stock pursuant to the U.S. Purchase Agreement and the
International Purchase Agreement are conditioned upon each other.
The International Managers have advised the Company that the
International Managers propose initially to offer the Common Stock to the
public at the public offering price per share set forth on the cover page of
this Prospectus, and to certain banks, brokers and dealers (the "Selling
Group") at such price less a concession not in excess of $_____ per share.
The International Managers may allow, and such dealers may re-allow with the
consent of Merrill Lynch International Limited, a discount not in excess of
$_____ per share on sales to other International Managers and members of the
Selling Group. After the date of this Prospectus, the public offering price,
concession and discount may be changed.
The Company has been informed that the U.S. Underwriters and
the International Managers have entered into an agreement (the
"Intersyndicate Agreement") providing for the coordination of their
activities. Under the terms of the Intersyndicate Agreement, the U.S.
Underwriters and the International Managers are permitted to sell shares of
Common Stock to each other for purposes of resale at the initial public
offering price, less an amount not greater than the selling concession.
Under the terms of the Intersyndicate Agreement, the International Managers
and any dealer to whom they sell shares of Common Stock will not offer to
sell or sell shares of Common Stock to persons who are United States persons
or Canadian persons or to persons they believe intend to resell to persons
who are United States persons or Canadian persons, and the U.S. Underwriters
and any dealer to whom they sell shares of Common Stock will not offer to
sell or sell shares of Common Stock to persons who are non-United States and
non-Canadian persons or to persons they believe intend to resell to
non-United States and non-Canadian persons, except in each case for
transactions pursuant to such agreement.
The Company has granted to the International Managers an
option, exercisable for 30 days after the date of this Prospectus, to
purchase up to 225,000 additional shares of Common Stock to cover
over-allotments, if any, at the initial public offering price, less the
underwriting discount set forth on the cover page of this Prospectus. If the
International Managers exercise this option, each International Manager will
have a firm commitment, subject to certain conditions, to purchase
approximately the same percentage thereof which the number of shares of
Common Stock to be purchased by it shown in the foregoing table bears to such
International Managers' initial amount reflected in the foregoing table. The
Company also has granted an option to the U.S. Underwriters, exercisable
during the 30-day period after the date of this Prospectus, to purchase up to
1,275,000 additional shares of Common Stock to cover over-allotments, if any,
on terms similar to those granted to the International Managers.
At the request of the Company, the U.S. Underwriters have
reserved up to _____ shares of Common Stock for sale at the public offering
price to certain employees of the Company, their business affiliates and
related parties who have expressed an interest in purchasing shares. The
number of shares available to the general public will be reduced to the
extent these persons purchase the reserved shares. Any reserved shares that
are not so purchased by such persons at the closing of the Offering will be
offered by the U.S. Underwriters to the general public on the same terms as
the other shares offered by this Prospectus.
In the Purchase Agreements, the Company has agreed to
indemnify the several Underwriters against certain liabilities, including
liabilities under the Securities Act. Insofar as indemnification of the
Underwriters for liabilities arising under the Securities Act may be
permitted pursuant to the foregoing provision, the Company has been informed
that in the opinion of the Securities and Exchange Commission (the
"Commission") such indemnification is against public policy as expressed in
the Securities Act and is therefore unenforceable.
The Company and the Operating Partnership have agreed, subject
to certain exceptions, not to sell, offer or contract to sell, grant any
option for the sale of, or otherwise dispose of any shares of Common Stock or
Units or any securities convertible into or exchangeable for Common Stock or
Units for a period of one year from the date of this Prospectus, without the
prior written consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated.
In connection with the Offering, the Mendik Group and certain
affiliates thereof have agreed, subject to certain exceptions, not to sell,
offer or contract to sell, grant any option for the sale of, or otherwise
dispose of any shares of Common Stock or Units or any securities convertible
into or exchangeable for Common Stock or Units for a period of two years from
the date of this Prospectus, without the prior written consent of Merrill
Lynch, Pierce, Fenner & Smith Incorporated. In addition, FWM, L.P., FWM II,
L.P. and certain other affiliates of RMB Realty have agreed to a similar
restriction with respect to any shares of Common Stock acquired in the
Concurrent Placement, for a period of one year from the date of this
Prospectus, and, with respect to the shares of Common Stock received in
exchange for Units, for a period of two years from the date of this
Prospectus. The Company has granted certain registration rights pursuant to
which purchasers of shares in the Concurrent Placement may require the
Company to file a registration statement with the Commission with respect to
sales of such shares.
The Underwriters do not intend to confirm sales to any account
over which they exercise discretionary authority.
Prior to the Offerings, there has been no public market for
the Common Stock of the Company. The initial public offering price will be
determined through negotiations between the Company and the U.S.
Representatives. Among the factors to be considered in such negotiations, in
addition to prevailing market conditions, will be dividend yields and
financial characteristics of publicly traded REITs that the Company and the
U.S. Representatives believe to be comparable to the Company, the expected
results of operations of the Company (which will be based on the results of
operations of the Properties and the management and leasing businesses in
recent periods), estimates of the future business potential and earnings
prospects of the Company as a whole and the current state of the real estate
market in the Company's primary markets and the economy as a whole.
An application to list the Common Stock on the New York Stock
Exchange will be made.
A foreign affiliate of UBS Limited represents an investor in
one of the Properties whose interest will not be acquired by the Company.
Affiliates of Lehman Brothers International own a general partner interest in
the RELP and through the RELP an approximate 0.45% interest in the entity
which owns Two Park Avenue.
The Company will pay to Merrill Lynch, Pierce, Fenner & Smith
Incorporated an advisory fee equal to 0.75% of the gross proceeds received
from the sale of Common Stock to public investors in the Offering for
financial advisory services rendered in connection with the Company's
formation as a REIT.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING MADE BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE COMMON STOCK IN ANY
JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS
OF THE COMPANY OR THE OPERATING PARTNERSHIP SINCE THE DATE HEREOF.
--------------------------
SUMMARY TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 1
Risk Factors.............................................................. 12
The Company............................................................... 26
Business and Growth Strategies............................................ 28
Use of Proceeds........................................................... 32
Distributions............................................................. 33
Capitalization............................................................ 38
Dilution.................................................................. 39
Selected Financial Information............................................ 41
Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 44
New York Economy and Manhattan Office Market.............................. 50
The Properties............................................................ 56
Management................................................................ 85
Structure and Formation of the Company.................................... 94
Policies with Respect to Certain Activities............................... 98
Certain Relationships and Transactions.................................... 103
Partnership Agreement..................................................... 105
Principal Stockholders.................................................... 111
Capital Stock............................................................. 113
Certain Provisions of Maryland Law and the Company's Charter and Bylaws... 116
Shares Available for Future Sale.......................................... 120
Federal Income Tax Considerations......................................... 122
ERISA Considerations...................................................... 132
Underwriting.............................................................. 137
Experts................................................................... 139
Legal Matters............................................................. 140
Additional Information.................................................... 141
Glossary.................................................................. 142
Index to Financial Statements............................................. F-1
</TABLE>
--------------------------
UNTIL , 1997 (25 DAYS AFTER THE COMMENCEMENT OF THIS OFFERING),
ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
10,000,000 SHARES
THE MENDIK COMPANY, INC.
COMMON STOCK
---------------------
PROSPECTUS
---------------------
MERRILL LYNCH INTERNATIONAL LIMITED
BEAR, STEARNS INTERNATIONAL LIMITED
DEAN WITTER INTERNATIONAL LTD.
LEHMAN BROTHERS INTERNATIONAL
PAINEWEBBER INTERNATIONAL (U.K.) LTD.
LEGG MASON WOOD WALKER,
INCORPORATED
UBS LIMITED
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 30. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table itemizes the expenses incurred by the Company with the
Offering. All amounts are estimated except for the Registration Fee and the NASD
Fee.
<TABLE>
<S> <C> <C>
Registration Fee................................................................ $ 76,667
NASD Fee........................................................................ 25,800
New York Stock Exchange Listing Fee............................................. *
Printing and Engraving Expenses................................................. *
Legal Fees and Expenses......................................................... *
Accounting Fees and Expenses.................................................... *
Blue Sky Fees and Expenses...................................................... *
Financial Advisory Fee.......................................................... *
Environmental and Engineering Expenses.......................................... *
Miscellaneous................................................................... *
-
---------
TOTAL....................................................................... $ *
-
---------
Indemnification Insurance Costs (see Item 33)................................... *
-
---------
</TABLE>
- ------------------------
* To be completed by amendment.
ITEM 31. SALES TO SPECIAL PARTIES
See Item 32.
ITEM 32. RECENT SALES OF UNREGISTERED SECURITIES
In connection with the formation of the Registrant, Mendik/FW LLC has been
issued a total of 1,100 shares of Common Stock for total consideration of
$505,000 in cash.
Prior to the filing of the Registration Statement, FWM II, L.P. agreed to
purchase 954,545 shares of Common Stock at the initial public offering price.
The closing of this purchase will occur concurrently with the closing of the
offering.
Prior to the filing of the Registration Statement, Mendik/FW LLC agreed to
contribute the rights under certain management and leasing contracts with
respect to certain commercial properties to the Management Corporation in
exchange for voting common stock and non-voting common stock of the Management
Corporation and a promissory note from the Management Corporation. Mendik/FW LLC
will contribute the note and the non-voting common stock of the Management
Corporation to the Company in exchange for shares of Common Stock of the Company
with a value of approximately $7.425 million, and all voting common stock
ultimately will be held by the Mendik Group. The Company in turn will contribute
these assets to the Operating Partnership in exchange for Units.
Prior to the filing of the Registration Statement, Mendik/FW LLC reached an
agreement to acquire the approximately two-thirds interest in Two Penn Plaza
Associates held by two partners. Prior to the Closing, Mendik/FW LLC will assign
its interest in that agreement to the Company. The Company, in turn, through the
Operating Partnership, will acquire the third-party interest in exchange for
Units or Common Stock, or a combination of Units and Common Stock, having an
aggregate value of approximately $50,000.
All of the issuances of securities described in this Item 32 were made or
will be made in reliance upon the exemption from registration provided by
Section 4(2) of the Securities Act of 1933.
II-1
<PAGE>
ITEM 33. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's officers and directors are and will be indemnified under
Maryland and Delaware law, the Charter and bylaws of the Company and the
Partnership Agreement of the Operating Partnership against certain liabilities.
The Charter of the Company requires it to indemnify its directors and officers
to the fullest extent permitted from time to time under Maryland law.
The bylaws of the Company requires it to indemnify (a) any present or former
director or officer who has been successful, on the merits or otherwise, in the
defense of a proceeding to which he was made a party by reason of his service in
that capacity, against reasonable expenses incurred by him in connection with
the proceeding and (b) any present or former director or officer against any
claim or liability unless it is established that (i) his act or omission was
committed in bad faith or was the result of active or deliberate dishonesty,
(ii) he actually received an improper personal benefit in money, property or
services or (iii) in the case of a criminal proceeding, he had reasonable cause
to believe that his act or omission was unlawful. In addition, the Company's
bylaws require it to pay or reimburse, in advance of final disposition of a
proceeding, reasonable expenses incurred by a present or former director or
officer made a party to a proceeding by reason of his service as a director or
officer provided that the Company shall have received (i) a written affirmation
by the director or officer of his good faith belief that he has met the standard
of conduct necessary for indemnification by the Company as authorized by the
bylaws and (ii) a written understanding by or on his behalf to repay the amount
paid or reimbursed by the Company if it shall ultimately be determined that the
standard of conduct was not met. The Company's bylaws also (i) permit the
Company to provide indemnification and advance expenses to a present or former
director or officer who served a predecessor of the Company in such capacity,
and to any employee or agent of the Company or a predecessor of the Company,
(ii) provide that any indemnification or payment or reimbursement of the
expenses permitted or reimbursement of expenses under Section 2-418 of the
Maryland General Corporation Law ("MGCL") for directors of Maryland corporations
and (iii) permit the Company to provide such other and further indemnification
or payment or reimbursement of expenses as may be permitted by Section 2-418 of
the MGCL for directors of Maryland corporations.
Under Maryland law, a corporation formed in Maryland is permitted to limit,
by provision in its charter, the liability of directors and officers so that no
director of officer of the Company shall be liable to the Company or to any
shareholder for money damages except to the extent that (i) the director or
officer actually received an improper benefit in money, property or services,
for the amount of the benefit or profit in money, property or services actually
received, or (ii) a judgment or other final adjudication adverse to the director
or officer is entered in a proceeding based on a finding in a proceeding that
the director's or officer's action was the result of active and deliberate
dishonesty and was material to the cause of action adjudicated in the
proceeding. The Charter of the Company has incorporated the provisions of such
law limiting the liability of directors and officers.
The Partnership Agreement also provides for indemnification of the Company
and their officers and directors to the same extent indemnification is provided
to officers and directors of the Company in their organizational documents, and
limits the liability of the Company and their officers and directors to the
Operating Partnership and its partners to the same extent liability of officers
and directors of the Company to the Company and their stockholders is limited
under their organizational documents.
ITEM 34. TREATMENT OF PROCEEDS FROM STOCK BEING REGISTERED
Not Applicable.
ITEM 35. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements, all of which are included in the Prospectus:
II-2
<PAGE>
THE MENDIK COMPANY, INC.
<TABLE>
<S> <C>
Pro Forma Combined Financial Statements (unaudited):
Pro Forma Combined Balance Sheet as of September 30, 1996
Pro Forma Combined Statement of Income for the Nine Months Ended September 30,
1996
Pro Forma Combined Statement of Income for the Year Ended December 31, 1995
Notes to the Pro Forma Combined Financial Statements
Historical:
Report of Independent Auditors
Balance Sheet as of September 30, 1996
Notes to Balance Sheet
</TABLE>
THE MENDIK PREDECESSORS
<TABLE>
<S> <C>
Combined Financial Statements:
Report of Independent Auditors
Combined Balance Sheets as of September 30, 1996 (unaudited) and December 31, 1995
and 1994
Combined Statements of Income for the Nine Months Ended September 30, 1996 and
1995 (unaudited) and the Years Ended December 31, 1995, 1994 and 1993
Combined Statements of Owners' Equity for the Nine Months Ended September 30, 1996
(unaudited) and the Years Ended December 31, 1995, 1994 and 1993
Combined Statements of Cash Flows for the Nine Months Ended September 30, 1996 and
1995 (unaudited) and the Years Ended December 31, 1995, 1994 and 1993
Notes to the Combined Financial Statements
Schedule III:
Real Estate and Accumulated Depreciation as of December 31, 1995
</TABLE>
(b) Exhibits
<TABLE>
<C> <S>
*1.1 Form of U.S. Purchase Agreement among Merrill Lynch & Co., Bear, Stearns & Co., Inc.,
Dean Witter Reynolds Inc., Lehman Brothers, PaineWebber Incorporated,
Legg Mason Wood Walker, Incorporated and UBS Securities LLC as
representatives of the several Underwriters, the Company and the
Operating Partnership
*1.2 Form of International Purchase Agreement among Merrill Lynch International Limited,
Bear, Stearns International Limited, Dean Witter International Ltd., Lehman Brothers
International, PaineWebber International (U.K.) Ltd., Legg Mason
Wood Walker, Incorporated and UBS Limited as representatives of the
several Underwriters, the Company and the Operating Partnership
3.1 Form of Articles of Incorporation of the Company
3.2 Form of Bylaws of the Company
*5.1 Opinion of Hogan & Hartson L.L.P. regarding the validity of the securities being
registered
*8.1 Opinion of Roberts & Holland LLP regarding tax matters
*10.1 Form of First Amended and Restated Agreement of Limited Partnership of the Operating
Partnership
*10.2 Form of Articles of Incorporation and Bylaws of the Management Corporation
*10.3 Employment Agreement among Bernard H. Mendik, the Company and the Operating
Partnership.
*10.4 Employment Agreement among David R. Greenbaum, the Company and the Operating
Partnership.
10.5 Form of Registration Rights Agreement between the Company and the persons named
therein
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <S>
*10.6 1997 Employee Stock Option and Restricted Stock Plan
*10.7 Non-Employee Director Stock Option Plan
*10.8 Supplemental Representations and Warranties Agreement among the Company, the
Operating Partnership, and Mendik/FW LLC
10.9 Forms of Agreement for Contribution of Interests
*21.1 List of Subsidiaries
*23.1 Consent of Hogan & Hartson L.L.P. (included as part of Exhibit 5.1)
23.2 Consent of Ernst & Young LLP
23.3 Consent of Law Engineering and Environmental Services, P.C.
23.4 Consent of Rosen Consulting Group
24.1 Power of Attorney (included in the Signature Page at page II-5)
27.1 Financial Data Schedule
99.1 Consent of Leonard N. Stern to be named as a proposed director
99.2 Consent of Spencer M. Partrich to be named as a proposed director
99.3 Consent of Morris W. Offit to be named as a proposed director
99.4 Consent of Lawrence S. Huntington to be named as a proposed director
99.5 Consent of David B. Cornstein to be named as a proposed director
</TABLE>
- ------------------------
* To be filed by amendment.
ITEM 36. UNDERTAKINGS
The Registrant hereby undertakes:
(1) For purposes of determining any liability under the Securities Act
of 1933, as amended (the "Act"), the information omitted from the form of
Prospectus filed as part of the Registration Statement in reliance upon rule
430A and contained in the form of Prospectus filed by the Registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Act shall be deemed to
be part of the Registration Statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial BONA FIDE offering thereof.
(3) The undersigned registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting agreements
certificates in such denominations and registered in such names as required
by the underwriter to permit prompt delivery of each purchaser.
(4) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable ground to believe that it meets all of the
requirements for filing on Form S-11 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in New York, New York on this 17th day of December, 1996
THE MENDIK COMPANY, INC.
BY: /S/ DAVID R. GREENBAUM
-----------------------------------------
David R. Greenbaum
PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated as of the 17th day of December, 1996.
Each person whose signature appears below hereby constitutes and appoints
each of David R. Greenbaum and John J. Silberstein as his attorney-in-fact and
agent, with full power of substitution and resubstitution for him in any and all
capacities, to sign any or all amendments or post-effective amendments to this
Registration Statement, or any Registration Statement for the same offering that
is to be effective upon filing pursuant to Rule 462(b) under the Securities Act
of 1933, and to file the same, with exhibits thereto and other documents in
connection therewith or in connection with the registration of the Common Stock
under the Securities Act of 1934, as amended, with the Securities and Exchange
Commission, granting unto such attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary
in connection with such matters and hereby ratifying and confirming all that
such attorney-in-fact and agent or his substitutes may do or cause to be done by
virtue hereof.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------------------------------ ------------------------------------------------------
<C> <S>
/s/ BERNARD H. MENDIK Chief Executive Officer and Chairman of the Board of
------------------------------------------- Directors
Bernard H. Mendik
/s/ DAVID R. GREENBAUM President, Chief Operating Officer and Director
------------------------------------------- (principal executive officer)
David R. Greenbaum
/s/ CHRISTOPHER G. BONK Senior Vice President and Chief Financial Officer
------------------------------------------- (principal financial officer and principal
Christopher G. Bonk accounting officer)
/s/ THOMAS R. DELATOUR, JR. Director
-------------------------------------------
Thomas R. Delatour, Jr.
/s/ WILLIAM S. JANES Director
-------------------------------------------
William S. Janes
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. PAGE NO.
- ------------- -----------
<C> <S> <C>
*1.1 Form of U.S. Purchase Agreement among Merrill Lynch & Co., Bear, Stearns & Co., Inc., Dean
Witter Reynolds Inc., Lehman Brothers, PaineWebber Incorporated,
Legg Mason Wood Walker, Incorporated and UBS Securities LLC as
representatives of the several Underwriters, the Company and the Operating Partnership.....
*1.1 Form of International Purchase Agreement among Merrill Lynch International Limited, Bear,
Stearns International Limited, Dean Witter International Ltd., Lehman Brothers
International, PaineWebber International (U.K.) Ltd., Legg
Mason Wood Walker, Incorporated and UBS Limited as
representatives of the several Underwriters, the Company and the
Operating Partnership......................................................................
3.1 Form of Articles of Incorporation of the Company...........................................
3.2 Form of Bylaws of the Company..............................................................
*5.1 Opinion of Hogan & Hartson L.L.P. regarding the validity of the securities being
registered.................................................................................
*8.1 Opinion of Roberts & Holland LLP regarding tax matters.....................................
*10.1 Form of First Amended and Restated Agreement of Limited Partnership of the Operating
Partnership................................................................................
*10.2 Form of Articles of Incorporation and Bylaws of the Management Corporation.................
*10.3 Employment Agreement among Bernard H. Mendik, the Company and the Operating Partnership....
*10.4 Employment Agreement among David R. Greenbaum, the Company and the Operating
Partnership................................................................................
10.5 Form of Registration Rights Agreement between the Company and the persons named therein....
*10.6 1997 Employee Stock Option and Restricted Stock Plan.......................................
*10.7 Non-Employee Director Stock Option.........................................................
*10.8 Supplemental Representations and Warranties Agreement among the Company, the Operating
Partnership, and Mendik/FW LLC.............................................................
10.9 Forms of Agreement for Contribution of Interests...........................................
*21.1 List of Subsidiaries.......................................................................
*23.1 Consent of Hogan & Hartson L.L.P. (included as part of Exhibit 5.1)........................
23.2 Consent of Ernst & Young LLP...............................................................
23.3 Consent of Law Engineering and Environmental Services, P.C. ...............................
23.4 Consent of Rosen Consulting Group..........................................................
24.1 Power of Attorney (included in the Signature Page at page II-5)............................
27.1 Financial Data Schedule....................................................................
99.1 Consent of Leonard N. Stern to be named as a proposed director.............................
99.2 Consent of Spencer M. Partrich to be named as a proposed director..........................
99.3 Consent of Morris W. Offit to be named as a proposed director..............................
99.4 Consent of Lawrence S. Huntington to be named as a proposed director.......................
99.5 Consent of David B. Cornstein to be named as a proposed director. .........................
</TABLE>
- ------------------------
* To be filed by amendment.
<PAGE>
EXHIBIT 3.1
ARTICLES OF INCORPORATION
OF
THE MENDIK COMPANY, INC.
ARTICLE I
Incorporator
------------
I, David W. Bonser, whose address is 555 Thirteenth St. N.W., Washington,
D.C. 20004, being at least 18 years of age, am hereby serving as the
incorporator of and forming a corporation under and by virtue of the general
laws of the State of Maryland.
ARTICLE II
Name
----
The name of the corporation (which is hereinafter called the "Corporation")
is The Mendik Company, Inc.
ARTICLE III
Purposes
--------
The purposes for which the Corporation is formed are to engage in any lawful
act or activity for which corporations may be organized under the general
laws of the State of Maryland as now or hereafter are in force, including,
but not limited to the following:
(a) to engage in the business of acquiring, developing and managing
income-producing real estate directly or through one or more subsidiaries or
affiliates; and
(b) to engage in any one or more businesses or transactions, or to
acquire all or any portion of any entity engaged in any one or more
businesses or transactions, which the Board of Directors may from time to
time authorize or approve, whether or not related to the business described
elsewhere in this Article or to any other business at the time or theretofore
engaged in by the Corporation.
The foregoing enumerated purposes and objects shall be in no way limited
or restricted by reference to, or inference from, the terms of any other
clause of this or any other article of these Articles of Incorporation, or of
any amendment thereto (collectively, the "Charter"), and each shall be
regarded as independent; and they are intended to be and shall be construed
as powers as well as purposes and objects of the Corporation and shall be in
addition to and not in limitation of the general powers of corporations under
the General Laws of the State of Maryland.
<PAGE>
ARTICLE IV
Principal Office
----------------
The present address of the principal office of the Corporation in the State
of Maryland is 32 South Street, Baltimore, Maryland 21202.
ARTICLE V
Registered Agent
----------------
The name and address of the resident agent of the Corporation in the State of
Maryland is The Corporation Trust Incorporated, 32 South Street, Baltimore,
Maryland 21202. Said resident agent is a Maryland corporation.
ARTICLE VI
Capitalization
--------------
Section 6(a) Shares and Par Value. The total number of shares of stock of
--------------------
all classes ("Capital Stock") which the Corporation has authority to issue is
100,000,000 shares, 90,000,000 of which initially are classified as common
stock, par value of $.01 per share ("Common Stock"), and 10,000,000 of which
initially are classified as preferred stock, par value $.01 per share
("Preferred Stock"). The aggregate par value of all classes of stock that
the Corporation shall have authority to issue is $1,000,000. The Board of
Directors may classify and reclassify any unissued shares of Capital Stock by
setting or changing in any one or more respects the preferences, conversion
or other rights, voting powers, restrictions, limitations as to dividends,
qualifications or terms or conditions of redemption of such shares of stock.
Section 6(b) Common Stock. The following is a description of the
------------
preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications and terms and conditions of
redemption of the Common Stock of the Corporation:
(1) Voting Rights. Each share of Common Stock shall have one vote on
-------------
all actions to be taken by the stockholders of the Corporation, and, except
as otherwise provided in respect of any class of stock hereafter classified
or reclassified, the exclusive voting power for all purposes shall be vested
in the holders of the Common Stock.
(2) Dividends. Subject to the provisions of law and any preferences
---------
of any class of stock hereafter classified or reclassified, dividends,
including dividends payable in shares of another class of the Corporation's
stock, may be paid on the Common Stock of the Corporation at such time and in
such amounts as the Board of Directors may deem advisable and the holders of
the Common Stock shall share ratably in any such dividends, in proportion to
the number of shares of Common Stock held by them respectively, on a share
for share basis.
-2-
<PAGE>
(3) Liquidation Rights. In the event of any liquidation, dissolution
------------------
or winding up of the Corporation, whether voluntary or involuntary, the
holders of the Common Stock shall be entitled, after payment or provision for
payment of the debts and other liabilities of the Corporation and the amount
to which the holders of any class of Capital Stock hereafter classified or
reclassified having a preference on distributions in the liquidation,
dissolution or winding up of the Corporation are entitled, together with the
holders of any other class of Capital Stock hereafter classified or
reclassified not having a preference on distributions in the liquidation,
dissolution or winding up of the Corporation, to share ratably in the
remaining net assets of the Corporation.
Section 6(c) Reclassification and Additional Classes and Series of
-----------------------------------------------------
Capital Stock. Subject to the foregoing, the power of the Board of Directors
- -------------
under Section 6(a) to classify and reclassify any of the shares of Capital
Stock shall include, without limitation, subject to the provisions of these
Articles of Incorporation, or of any amendment thereto, authority to classify
or reclassify any unissued shares of such stock (including shares designated
as Common Stock or Preferred Stock pursuant to Section 6(a) above) into a
class or classes of preferred stock, preference stock, special stock or other
stock, and to divide and classify shares of any class into one or more series
of such class, by determining, fixing, or altering one or more of the
following:
(1) The distinctive designation of such class or series and the
number of shares to constitute such class or series; provided that, unless
otherwise prohibited by the terms of such or any other class or series, the
number of shares of any class or series may be decreased by the Board of
Directors in connection with any classification or reclassification of
unissued shares and the number of shares of such class or series may be
increased by the Board of Directors in connection with any such
classification or reclassification, and any shares of any class or series
which have been redeemed, purchased, otherwise acquired or converted into
shares of Common Stock or any other class or series shall become part of the
authorized Capital Stock and be subject to classification and
reclassification as provided in this Section 6(c).
(2) Whether or not and, if so, the rates, amounts and times at which,
and the conditions under which, dividends shall be payable on shares of such
class or series, whether any such dividends shall rank senior or junior to or
on a parity with the dividends payable on any other class or series of stock,
and the status of any such dividends as cumulative, cumulative to a limited
extent or non-cumulative and as participating or non-participating.
(3) Whether or not shares of such class or series shall have voting
rights, in addition to any voting rights provided by law and, if so, the
terms of such voting rights.
-3-
<PAGE>
(4) Whether or not shares of such class or series shall have
conversion or exchange privileges and, if so, the terms and conditions
thereof, including provision for adjustment of the conversion or exchange
rate in such events or at such times as the Board of Directors shall
determine.
(5) Whether or not shares of such class or series shall be subject to
redemption and, if so, the terms and conditions of such redemption, including
the date or dates upon or after which they shall be redeemable and the amount
per share payable in case of redemption, which amount may vary under
different conditions and at different redemption dates; and whether or not
there shall be any sinking fund or purchase account in respect thereof, and
if so, the terms thereof.
(6) The rights of the holders of shares of such class or series upon
the liquidation, dissolution or winding up of the affairs of, or upon any
distribution of the assets of, the Corporation, which rights may vary
depending upon whether such liquidation, dissolution or winding up is
voluntary or involuntary and, if voluntary, may vary at different dates, and
whether such rights shall rank senior or junior to or on a parity with such
rights of any other class or series of stock.
(7) Whether or not there shall be any limitations applicable, while
shares of such class or series are outstanding, upon the payment of dividends
or making of distributions on, or the acquisition of, or the use of moneys
for purchase or redemption of, any stock of the Corporation, or upon any
other action of the Corporation, including action under this Section 6(c),
and, if so, the terms and conditions thereof.
(8) Any other preferences, rights, restrictions, including restrictions
on transferability, and qualifications of shares of such class or series, not
inconsistent with law and the charter of the Corporation.
Section 6(d) Ranking of Classes of Capital Stock. For the purposes
-----------------------------------
hereof and of any articles supplementary to the charter providing for the
classification or reclassification of any shares of Capital Stock or of any
other charter document of the Corporation (unless otherwise provided in any
such articles or document), any class or series of stock of the Corporation
shall be deemed to rank:
(1) prior to another class or series either as to dividends or upon
liquidation, if the holders of such class or series shall be entitled to the
receipt of dividends or of amounts distributable on liquidation, dissolution
or winding up, as the case may be, in preference or priority to holders of
such other class or series;
(2) on a parity with another class or series either as to dividends or
upon liquidation, whether or not the dividend rates, dividend payment dates
or redemption or liquidation price per share thereof be different from those
of such others, if the holders of such class or series of stock shall be
-4-
<PAGE>
entitled to receipt of dividends or amounts distributable upon liquidation,
dissolution or winding up, as the case may be, in proportion to their
respective dividend rates or redemption or liquidation prices, without
preference or priority over the holders of such other class or series; and
(3) junior to another class or series either as to dividends or upon
liquidation, if the rights of the holders of such class or series shall be
subject or subordinate to the rights of the holders of such other class or
series in respect of the receipt of dividends or the amounts distributable
upon liquidation, dissolution or winding up, as the case may be.
ARTICLE VII
Board of Directors
------------------
Section 7(a) Number of Directors; Initial Directors. The number of
--------------------------------------
directors of the Corporation initially shall be four (4) and may thereafter
be increased or decreased pursuant to the bylaws of the Corporation (the
"Bylaws"), but shall never be less than the minimum number permitted by the
General Laws of the State of Maryland now or hereafter in force.
Section 7(b) Election of Directors; Classification.
-------------------------------------
The name and address of each initial director of the Corporation, who
shall serve until the first annual meeting of stockholders and until their
successors are duly elected and qualify, are as follows:
Name Address
Bernard H. Mendik The Mendik Company, Inc.
330 Madison Avenue
New York, NY 10017
David R. Greenbaum The Mendik Company, Inc.
330 Madison Avenue
New York, NY 10017
Thomas R. Delatour, Jr. c/o RMB Realty, Inc.
3100 Texas Commerce Bank Tower
201 Main Street
Fort Worth, TX 76102
-5-
<PAGE>
William S. Janes c/o RMB Realty, Inc.
1133 Connecticut Avenue, N.W.
Suite 800
Washington, D.C. 20036
These directors may increase the number of directors and may fill any
vacancy, whether resulting from an increase in the number of directors or
otherwise, on the Board of Directors prior to the first annual meeting of
stockholders in the manner provided in the Bylaws.
At any meeting of stockholders, the directors may be classified, with
respect to the terms for which they severally hold office, into three
classes, one class to hold office for a term expiring at the next succeeding
annual meeting of stockholders, another class to hold office initially for a
term expiring at the second succeeding annual meeting of stockholders and
another class to hold office initially for a term expiring at the third
succeeding annual meeting of stockholders, with the member of each class to
hold office until their successors are duly elected and qualify. At each
annual meeting of the stockholders, the successors to the class of directors
whose term expires at such meeting shall be elected to hold office for a term
expiring at the annual meeting of stockholders held in the third year
following the year of their election.
Section 7(c) Removal of Directors. Any director may be removed only for
--------------------
cause and only by the affirmative vote of stockholders holding at least 66
2/3% of all the votes entitled to be cast for the election of directors;
provided, however, that in the case of any directors elected by holders of a
class or series of Capital Stock other than Common Stock, such directors may
be removed without cause, but solely by the affirmative vote of all of the
votes of that class or series.
Section 7(d) Vacancies. Any vacancy on the Board of Directors may be
---------
filled solely by the affirmative vote of the remaining directors, and in the
case of a vacancy resulting from the removal of a director, by the
stockholders authorized to elect such director by a majority of the votes
entitled to be cast for the election of directors.
Section 7(e) Amendments. Notwithstanding any other provisions of the
----------
Charter or the Bylaws (and in addition to any other vote that may be required
by law, the Charter or the Bylaws), the affirmative vote of stockholders
holding at least 66 2/3% of all of the votes entitled to be cast thereon
shall be required to amend, alter, change, repeal, or adopt any provisions
inconsistent with, the provisions of this ARTICLE VII.
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<PAGE>
ARTICLE VIII
[INTENTIONALLY OMITTED]
ARTICLE IX
Miscellaneous Provisions
------------------------
Section 9(a) Additional Provisions. The following provisions are hereby
---------------------
adopted for the purpose of defining, limiting, and regulating the powers of
the Corporation and of the directors and stockholders of the Corporation:
(1) Authority to Issue Stock. The Board of Directors is hereby
------------------------
empowered to authorize the issuance from time to time of shares of stock of
the Corporation of any class, whether now or hereafter authorized, or
securities convertible into shares of its stock of any class or classes,
whether now or hereafter authorized, for such consideration as may be deemed
advisable by the Board of Directors and without any action by the
stockholders.
(2) Preemptive Rights. No holder of any stock or any other securities
-----------------
of the Corporation, whether now or hereafter authorized, shall have any
preemptive right to subscribe for or purchase any stock or any other
securities of the Corporation other than such, if any, as the Board of
Directors, in its sole discretion, may determine and at such price or prices
and upon such other terms as the Board of Directors, in its sole discretion,
may fix; and any stock or other securities which the Board of Directors may
determine to offer for subscription may, as the Board of Directors in its
sole discretion shall determine, be offered to the holders of any class,
series or type of stock or other securities at the time outstanding to the
exclusion of the holders of any or all other classes, series or types of
stock or other securities at the time outstanding.
(3) Determination of Dividends, Etc. The Board of Directors of the
-------------------------------
Corporation shall, consistent with applicable law, have power in its sole
discretion to determine from time to time in accordance with sound accounting
practice or other reasonable valuation methods what constitutes annual or
other net profits, earnings, surplus, or net assets in excess of capital; to
fix and vary from time to time the amount to be reserved as working capital,
or determine that retained earnings or surplus shall remain in the hands of
the Corporation; to set apart out of any funds of the Corporation such
reserve or reserves in such amount or amounts and for such proper purpose or
purposes as it shall determine and to abolish any such reserve or any part
thereof; to distribute and pay distributions or dividends in stock, cash or
other securities or property, out of surplus or any other funds or amounts
legally available therefor, at such times and to the stockholders of record
on such dates as it may, from time to time, determine; and to determine
whether and to what extent and at what times and places and under what
conditions and regulations the books, accounts and documents of the
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<PAGE>
Corporation, or any of them, shall be open to the inspection of stockholders,
except as otherwise provided by statute or by the Bylaws, and, except as so
provided, no stockholder shall have any right to inspect any book, account or
document of the Corporation unless authorized so to do by resolution of the
Board of Directors.
(4) Indemnification. The Corporation shall indemnify (A) its directors
---------------
and officers, whether serving the Corporation or at its request any other
entity, to the full extent required or permitted by the Maryland General
Corporation Law (the "MGCL") now or hereafter in force, including the advance
of expenses under the procedures and to the full extent permitted by law and
(B) other employees and agents to such extent as shall be authorized by the
Board of Directors or the Bylaws and be permitted by law. The foregoing
rights of indemnification shall not be exclusive of any other rights to which
those seeking indemnification may be entitled. The Board of Directors may
take such action as is necessary to carry out these indemnification
provisions and is expressly empowered to adopt, approve and amend from time
to time such by-laws, resolutions or contracts implementing such provisions
or such further indemnification arrangements as may be permitted by law. No
amendment of the Charter shall limit or eliminate the right to
indemnification provided hereunder with respect to acts or omissions
occurring prior to such amendment or repeal.
(5) Liability of Directors and Officers. To the fullest extent
-----------------------------------
permitted by Maryland statutory or decisional law, as amended or interpreted,
no director or officer of this Corporation shall be personally liable to the
Corporation or its stockholders for money damages. No amendment of the
Charter or repeal of any of its provisions shall limit or eliminate the
benefits provided to directors and officers under this provision with respect
to any act or omission which occurred prior to such amendment or repeal.
(6) Amendments. The Corporation reserves the right from time to time to
----------
make any amendments to the Charter which may now or hereafter be authorized
by law, including without limitation any amendments changing the terms or
contract rights, as expressly set forth in the Charter, of any of its
outstanding stock by classification, reclassification or otherwise. Any
amendment to the Charter shall be valid only if approved by the affirmative
vote of stockholders of the Corporation of not less than a majority of all
the votes entitled to be cast on the matter.
Section 9(b) No Limitation of Powers. The enumeration and definition of
-----------------------
particular powers of the Board of Directors included in the foregoing shall
in no way be limited or restricted by reference to or inference from the
terms of any other clause of this or any other Article of the Charter, or
construed as or deemed by inference or otherwise in any manner to exclude or
limit conferred upon the Board of Directors under the MGCL now or hereinafter
in force.
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<PAGE>
ARTICLE X
Duration
--------
The duration of the Corporation shall be perpetual.
IN WITNESS WHEREOF, the undersigned incorporator of The Mendik Company,
Inc., who executed the foregoing Articles of Incorporation, hereby
acknowledges the same to be his act and further acknowledges that, to the
best of his knowledge, information, and belief, the matters and facts set
forth therein are true in all material respects under penalties of perjury.
Dated the 11th day of December 1996.
/s/ David W. Bonser
-------------------
David W. Bonser
Incorporator
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<PAGE>
EXHIBIT 3.2
THE MENDIK COMPANY, INC.
BYLAWS
The Mendik Company, Inc., a Maryland corporation (the "Corporation")
having The Corporation Trust Incorporated as its resident agent for service
located at 32 South Street, Baltimore, Maryland 21202, hereby states the
Bylaws of the Corporation adopted as of December 11th, 1996, as follows:
ARTICLE I
STOCKHOLDERS
SECTION 1.01. ANNUAL MEETING. The Corporation shall hold an annual
meeting of its stockholders, commencing with the year 1997, to elect
directors and transact any other business within its powers on such day
between May 1 and May 31 as shall be set by the Board of Directors.
Nominations of persons for election to the Board of Directors and the
proposal of business to be considered by the stockholders may be made only
(i) by or at the direction of the Board of Directors or (ii) by any
stockholder of the Corporation who was a stockholder of record at the time of
giving of notice of such nomination, who is entitled to vote at the meeting
and who complied with the notice procedures set forth in Section 1.02.
Failure to hold an annual meeting does not invalidate the Corporation's
existence or affect any otherwise valid corporate acts.
Section 1.02. NOMINATIONS AND STOCKHOLDER BUSINESS.
(a) For nominations or other business to be properly brought before an
annual meeting by a stockholder pursuant to clause (ii) Section 1.01, the
stockholder must have given timely notice thereof in writing to the Secretary
of the Corporation. To be timely, a stockholder's notice shall be delivered
to the Secretary at the principal executive offices of the Corporation not
less than 60 days nor more than 90 days prior to the first anniversary of the
preceding year's annual meeting; PROVIDED, HOWEVER, that in the event that
the date of the annual meeting is advanced by more than 30 days or delayed by
more than 60 days from such anniversary date, notice by the stockholder to be
timely must be so delivered not earlier than the 90th day prior to such
annual meeting and not later than the close of business on the later of the
60th day prior to such annual meeting or the tenth day following the day on
which public announcement of the date of such meeting is first made. Such
stockholder's notice shall set forth: (i) as to each person whom the
stockholder proposes to nominate for election or reelection as a director all
<PAGE>
information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors, or is otherwise required,
in each case pursuant to Regulation 14A under the Securities Exchange Act of
1934, as amended (including such person's written consent to being named in
the proxy statement as a nominee and to serving as a director if elected);
(ii) as to any other business that the stockholder proposes to bring before
the meeting, a brief description of the business desired to be brought before
the meeting, the reasons for conducting such business at the meeting and any
material interest in such business of such stockholder and of the beneficial
owner, if any, on whose behalf the proposal is made; and (iii) as to the
stockholder giving the notice and the beneficial owner, if any, on whose
behalf the nomination or proposal is made, the name and address of such
stockholder, as they appear on the Corporation's books, and of such
beneficial owner and the class and number of shares of the Corporation which
are owned beneficially and of record by such stockholder and such beneficial
owner.
(b) Notwithstanding anything in the second sentence of Section 1.02(a)
to the contrary, in the event that the number of directors to be elected to
the Board of Directors is increased and there is no public announcement
naming all of the nominees for director or specifying the size of the
increased Board of Directors made by the Corporation at least 70 days prior
to the first anniversary of the preceding year's annual meeting, a
stockholder's notice required by this Section 1.02(a) shall also be
considered timely, but only with respect to nominees for any new positions
created by such increase, if it shall be delivered to the Secretary at the
principal executive offices of the Corporation not later than the close of
business on the tenth day following the day on which such public announcement
is first made by the Corporation.
SECTION 1.03. SPECIAL MEETING. At any time in the interval between
annual meetings, a special meeting of the stockholders may be called by the
Chairman of the Board or the President or by a majority of the Board of
Directors by vote at a meeting or in writing (addressed to the Secretary of
the Corporation) with or without a meeting, or by the written request of
stockholders entitled to cast at least 25% of all the votes entitled to be
cast at the meeting. Only such business shall be conducted at a special
meeting of stockholders as shall have been brought before the meeting
pursuant to the Corporation's notice of meeting. Nominations of persons for
election to the Board of Directors may be made at a special meeting of
stockholders at which directors are to be elected pursuant to the
Corporation's notice of meeting (i) by or at the direction of the Board of
Directors or (ii) provided that the Board of Directors has determined that
directors shall be elected at such special meeting, by any stockholder of the
Corporation who is a stockholder of record at the time of giving of notice
provided for in this Section 1.03, who is entitled to vote at the meeting and
who complied with the notice procedures set forth in this Section 1.03. In
the event the Corporation calls a special meeting of stockholders for the
purpose of electing one or more directors to the Board of Directors, any such
stockholder may nominate a person or persons (as the case may
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<PAGE>
be) for election to such position as specified in the Corporation's notice of
meeting, if the stockholder's notice complies with the requirements of
Section 1.02 and is delivered to the Secretary at the principal executive
offices of the Corporation not earlier than the 90th day prior to such
special meeting and not later than the close of business on the later of the
60th day prior to such special meeting or the tenth day following the day on
which public announcement is first made of the date of the special meeting
and of the nominees proposed by the directors to be elected at such meeting.
SECTION 1.04. GENERAL.
(a) Only such persons who are nominated in accordance with the
procedures set forth in Article I shall be eligible to serve as directors,
notwithstanding the procedure set forth in Section 2.03, and only such
business shall be conducted at a meeting of stockholders as shall have been
brought before the meeting in accordance with the procedures set forth in
this Article I. The presiding officer of the meeting shall have the power
and duty to determine whether a nomination or any business proposed to be
brought before the meeting was made in accordance with the procedures set
forth in this Article I and, if any proposed nomination or business is not in
compliance with this Article I, to declare that such defective nomination or
proposal be disregarded.
(b) For purposes of this Article I, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable news service or in a document publicly filed
by the Corporation with the Securities and Exchange Commission pursuant to
Section 13, 14 or 15(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act").
(c) Notwithstanding the foregoing provisions of this Article I, a
stockholder shall also comply with all applicable requirements of state law
and of the Exchange Act and the rules and regulations thereunder with respect
to the matters set forth in this Article I. Nothing in this Article I shall
be deemed to affect any rights of stockholders to request inclusion of
proposals in the Corporation's proxy statement pursuant to Rule 14a-8 under
the Exchange Act."
SECTION 1.05. PLACE OF MEETINGS. Meetings of stockholders shall be
held at such place in the United States as is set from time to time by the
Board of Directors.
SECTION 1.06. NOTICE OF MEETINGS; WAIVER OF NOTICE. Not less than ten
nor more than 90 days before each stockholders' meeting, the Secretary shall
give written notice of the meeting to each stockholder entitled to vote at
the meeting and each other stockholder entitled to notice of the meeting.
The notice shall state the time and place of the meeting and, if the meeting
is a special
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<PAGE>
meeting or notice of the purpose is required by statute, the purpose of the
meeting. Notice is given to a stockholder when it is personally delivered to
him, left at his residence or usual place of business, or mailed to him at
his address as it appears on the records of the Corporation. Notwithstanding
the foregoing provisions, each person who is entitled to notice waives notice
if, before or after the meeting, he signs a waiver of the notice which is
filed with the records of stockholders' meetings, or is present at the
meeting in person or by proxy.
SECTION 1.07. QUORUM; VOTING. Unless the statute or the Charter
provides otherwise, at a meeting of stockholders, the presence in person or
by proxy of stockholders entitled to cast a majority of all the votes
entitled to be cast at the meeting constitutes a quorum, and a majority of
all the votes cast at a meeting at which a quorum is present is sufficient to
approve any matter which properly comes before the meeting, except that a
plurality of all the votes cast at a meeting at which a quorum is present is
sufficient to elect a director.
SECTION 1.08. ADJOURNMENTS. Whether or not a quorum is present, a
meeting of stockholders convened on the date for which it was called may be
adjourned from time to time by the stockholders present in person or by proxy
by a majority vote. Any business which might have been transacted at the
meeting as originally notified may be deferred and transacted at any such
adjourned meeting at which a quorum shall be present. No further notice of
an adjourned meeting other than by announcement shall be necessary if held on
a date not more than 120 days after the original record date.
SECTION 1.09. GENERAL RIGHT TO VOTE; PROXIES. Unless the Charter
provides for a greater or lesser number of votes per share or limits or
denies voting rights, each outstanding share of stock, regardless of class,
is entitled to one vote on each matter submitted to a vote at a meeting of
stockholders. In all elections for directors, each share of stock may be
voted for as many individuals as there are directors to be elected and for
whose election the share is entitled to be voted. A stockholder may vote the
stock he owns of record either in person or by written proxy signed by the
stockholder or by his duly authorized attorney in fact. Unless a proxy
provides otherwise, it is not valid more than 11 months after its date.
SECTION 1.10. LIST OF STOCKHOLDERS. At each meeting of stockholders, a
full, true and complete list of all stockholders entitled to vote at such
meeting, showing the number and class of shares held by each and certified by
the transfer agent for such class or by the Secretary, shall be furnished by
the Secretary.
SECTION 1.11. CONDUCT OF VOTING. At all meetings of stockholders,
unless the voting is conducted by inspectors, the proxies and ballots shall
be received, and all questions touching the qualification of voters and the
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<PAGE>
validity of proxies and the acceptance or rejection of votes shall be
decided, by the chairman of the meeting. If demanded by stockholders,
present in person or by proxy, entitled to cast 10% in number of votes
entitled to be cast, or if ordered by the chairman, the vote upon any
election or question shall be taken by ballot and, upon like demand or order,
the voting shall be conducted by two inspectors, in which event the proxies
and ballots shall be received, and all questions touching the qualification
of voters and the validity of proxies and the acceptance or rejection of
votes shall be decided, by such inspectors. Unless so demanded or ordered,
no vote need be by ballot and voting need not be conducted by inspectors.
The stockholders at any meeting may choose an inspector or inspectors to act
at such meeting, and in default of such election the chairman of the meeting
may appoint an inspector or inspectors. No candidate for election as a
director at a meeting shall serve as an inspector thereat.
SECTION 1.12. REPORTS TO STOCKHOLDERS.
(a) Not later than 90 days after the close of each fiscal year of
the Corporation, the Board of Directors shall deliver or cause to be
delivered a report of the business and operations of the Corporation during
such fiscal year to the stockholders, containing a balance sheet and a
statement of income and surplus of the Corporation, accompanied by the
certification of an independent certified public accountant, and such further
information as the Board of Directors may determine is required pursuant to
any law or regulation to which the Corporation is subject.
(b) Not later than 45 days after the end of each of the first three
quarterly periods of each fiscal year and upon written request by a
stockholder, the Board of Directors shall deliver or cause to be delivered an
interim report to such requesting stockholder containing unaudited financial
statements for such quarter and for the period from the beginning of the
fiscal year to the end of such quarter, and such further information as the
Board of Directors may determine is required pursuant to any law or
regulation to which the Corporation is subject.
ARTICLE II
BOARD OF DIRECTORS
SECTION 2.01. FUNCTION OF DIRECTORS. The business and affairs of the
Corporation shall be managed under the direction of its Board of Directors.
All powers of the Corporation may be exercised by or under authority of the
Board of Directors, except as conferred on or reserved to the stockholders by
statute or by the Charter or Bylaws.
SECTION 2.02. NUMBER OF DIRECTORS. The Corporation shall have at least
three directors; provided that, if there is no stock outstanding, the number
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<PAGE>
of Directors may be less than three but not less than one, and, if there is
stock outstanding and so long as there are less than three stockholders, the
number of Directors may be less than three but not less than the number of
stockholders. The Corporation shall have the number of directors provided in
the Charter until changed as herein provided. A majority of the entire Board
of Directors may alter the number of directors set by the Charter to not
exceed 15 nor be less than the minimum number then permitted herein, but the
action may not affect the tenure of office of any director. Directors shall
be elected at the annual meeting of stockholders and shall hold office until
the next annual meeting of stockholders and until their respective successors
are elected and qualify.
SECTION 2.03. VACANCY ON BOARD.
(a) Except in the case of a vacancy on the Board of Directors among
the directors elected by a class or series of Capital Stock other than Common
Stock, the stockholders may elect a successor to fill a vacancy on the Board
of Directors which results from the removal of a director. A vacancy
occurring on the Board of Directors other than by reason of an increase in
the number of directors may be filled by the affirmative vote of a majority
of the remaining directors, although less than a quorum. Any directorship to
be filled by reason of an increase in the number of directors may be filled
by a majority of the entire Board of Directors. A director elected by the
stockholders to fill a vacancy which results from the removal of a director
serves for the balance of the term of the removed director. A director
elected by the Board of Directors to fill a vacancy serves until the next
annual meeting of stockholders and until his successor is elected and
qualifies.
(b) Any vacancy on the Board of Directors among the directors elected
by a class or series of Capital Stock (other than Common Stock) may be filled
by a majority of the remaining directors elected by that class or series or
the sole remaining director elected by that class or series, or by the
stockholders of that class or series.
SECTION 2.04. REGULAR MEETINGS. The regular annual meeting of the
Board of Directors shall be held without notice immediately after and at the
same place as the annual meeting of stockholders. Any other regular meeting
of the Board of Directors shall be held on such date and at any place as may
be designated from time to time by the Board of Directors.
SECTION 2.05. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called at any time by the Chairman of the Board or the
President or by a majority of the Board of Directors by vote at a meeting, or
in writing with or without a meeting. A special meeting of the Board of
Directors shall be held on such date and at any place as may be designated
from time to time by the Board of Directors. In the absence of designation
such meeting shall be held at such place as may be designated in the call.
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SECTION 2.06. NOTICE OF MEETING. Except as provided in Section 2.05,
the Secretary shall give notice to each director of each regular and special
meeting of the Board of Directors. The notice shall state the time and place
of the meeting. Notice is given to a director when it is delivered
personally to him, left at his residence or usual place of business, or sent
by telegraph or telephone, at least 24 hours before the time of the meeting
or, in the alternative by mail to his address as it shall appear on the
records of the Corporation, at least 72 hours before the time of the meeting.
Unless the Bylaws or a resolution of the Board of Directors provides
otherwise, the notice need not state the business to be transacted at or the
purposes of any regular or special meeting of the Board of Directors. No
notice of any meeting of the Board of Directors need be given to any director
who attends, or to any director who, in writing executed and filed with the
records of the meeting either before or after the holding thereof, waives
such notice. Any meeting of the Board of Directors, regular or special, may
adjourn from time to time to reconvene at the same or some other place, and
no notice need be given of any such adjourned meeting other than by
announcement.
SECTION 2.07. ACTION BY DIRECTORS. Unless the Charter or statute
requires a greater proportion, the action of a majority of the directors
present at a meeting at which a quorum is present is action of the Board of
Directors. A majority of the entire Board of Directors shall constitute a
quorum for the transaction of business. In the absence of a quorum, the
directors present by majority vote and without notice other than by
announcement may adjourn the meeting from time to time until a quorum shall
attend. At any such adjourned meeting at which a quorum shall be present,
any business may be transacted which might have been transacted at the
meeting as originally notified. Any action required or permitted to be taken
at a meeting of the Board of Directors may be taken without a meeting, if a
unanimous written consent which sets forth the action is signed by each
member of the Board and filed with the minutes of proceedings of the Board.
SECTION 2.08. MEETING BY CONFERENCE TELEPHONE. Members of the Board of
Directors may participate in a meeting by means of a conference telephone or
similar communications equipment if all persons participating in the meeting
can hear each other at the same time. Participation in a meeting by these
means constitutes presence in person at a meeting.
SECTION 2.09. COMPENSATION. By resolution of the Board of Directors a
fixed sum and expenses, if any, for attendance at each regular or special
meeting of the Board of Directors or of committees thereof, and other
compensation for their services as such or on committees of the Board of
Directors, may be paid to directors. A director who serves the Corporation
in any other capacity also may receive compensation for such other services,
pursuant to a resolution of the Board of Directors.
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<PAGE>
ARTICLE III
COMMITTEES
SECTION 3.01. COMMITTEES. The Board of Directors may appoint from
among its members an Executive Committee, an Audit Committee, an Executive
Compensation Committee and such other committees as the Board of Directors
determines to be advisable, all of which shall be composed of two or more
directors to serve at the pleasure of the Board of Directors.
SECTION 3.02. POWERS. The Board of Directors may delegate to the
committees appointed under Section 1 of this Article III any of the powers of
the Board of Directors, except the power to declare dividends or other
distributions, elect directors, issue Common Stock (as such term is defined
in the Corporation's Charter), recommend to the stockholders any action which
requires stockholder approval, amend these Bylaws, or approve any merger or
stock exchange which does not require stockholder approval. If the Board of
Directors has given general authorization for the issuance of stock, a
committee of the Board, in accordance with a general formula or method
specified by the Board by resolution or by adoption of a stock option or
other plan, may fix the terms of stock subject to classification or
reclassification and the terms on which any stock may be issued, including
all terms and conditions required or permitted to be established or
authorized by the Board of Directors.
SECTION 3.03. COMMITTEE PROCEDURE. Each committee may fix rules of
procedure for its business. A majority of the members of a committee shall
constitute a quorum for the transaction of business and the act of a majority
of those present at a meeting at which a quorum is present shall be the act
of the committee. The members of a committee present at any meeting, whether
or not they constitute a quorum, may appoint a director to act in the place
of an absent member. Any action required or permitted to be taken at a
meeting of a committee may be taken without a meeting, if an unanimous
written consent which sets forth the action is signed by each member of the
committee and filed with the minutes of the committee. The members of a
committee may conduct any meeting thereof by conference telephone in
accordance with the provisions of Section 2.08.
SECTION 3.04. EMERGENCY. In the event of a state of disaster of
sufficient severity to prevent the conduct and management of the affairs and
business of the Corporation by its directors and officers as contemplated by
the Charter and these Bylaws, any two or more available members of the then
incumbent Executive Committee shall constitute a quorum of that Committee for
the full conduct and management of the affairs and business of the
Corporation in accordance with the provisions of Section 3.01. In the event
of the unavailability, at
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such time, of a minimum of two members of the then incumbent Executive
Committee, the available directors shall elect an Executive Committee
consisting of any two members of the Board of Directors, whether or not they
be officers of the Corporation, which two members shall constitute the
Executive Committee for the full conduct and management of the affairs of the
Corporation in accordance with the foregoing provisions of this Section.
This Section shall be subject to implementation by resolution of the Board of
Directors passed from time to time for that purpose, and any provisions of
these Bylaws (other than this Section) and any resolutions which are contrary
to the provisions of this Section or to the provisions of any such
implementary resolutions shall be suspended until it shall be determined by
any interim Executive Committee acting under this Section that it shall be to
the advantage of the Corporation to resume the conduct and management of its
affairs and business under all the other provisions of these Bylaws.
ARTICLE IV
OFFICERS
SECTION 4.01. EXECUTIVE AND OTHER OFFICERS. The Corporation shall have
a President, a Secretary, and a Treasurer who shall be officers of the
Corporation. It may also have a Chairman of the Board; the Chairman of the
Board shall be an executive officer if he is designated as the chief
executive officer of the Corporation. The Board of Directors may designate
who shall serve as chief executive officer, having general supervision of the
business and affairs of the Corporation, or as chief operating officer,
having supervision of the operations of the Corporation; in the absence of
designation, the President shall serve as chief executive officer and chief
operating officer. The Board of Directors also may designate who shall serve
as chief financial officer, having supervision of the financial affairs of
the Corporation, or as chief accounting officer, having supervision of the
accounting operations of the Company; in the absence of designation, the
Treasurer shall serve as chief financial officer and chief accounting
officer. It may also have one or more Managing Directors, Vice Presidents
(Executive, Senior or other designation or without specific designation),
assistant officers, and subordinate officers as may be established by the
Board of Directors. A person may hold more than one office in the
Corporation but may not serve concurrently as both President and Vice
President of the Corporation. The Chairman of the Board shall be a director;
the other officers may be directors.
SECTION 4.02. CHAIRMAN OF THE BOARD. The Chairman of the Board, if one
be elected, shall preside at all meetings of the Board of Directors and of
the stockholders at which he shall be present; and, in general, he shall
perform all such duties as are from time to time assigned to him by the Board
of Directors.
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<PAGE>
SECTION 4.03. PRESIDENT. The President, in the absence of the Chairman
of the Board, shall preside at all meetings of the Board of Directors and of
the stockholders at which he shall be present; he may sign and execute, in
the name of the Corporation, all authorized deeds, mortgages, bonds,
contracts or other instruments, except in cases in which the signing and
execution thereof shall have been expressly delegated to some other officer
or agent of the Corporation; and, in general, he shall perform all duties
usually performed by a president of a corporation and such other duties as
are from time to time assigned to him by the Board of Directors or the chief
executive officer of the Corporation.
SECTION 4.04. VICE PRESIDENTS. The Vice President or Vice Presidents
shall have such power or powers and perform such duties and/or exercise any
of such functions as may be assigned to them by the Board of Directors, the
President or the Managing Directors.
SECTION 4.05. SECRETARY. The Secretary shall keep the minutes of the
meetings of the stockholders, of the Board of Directors and of any
committees, in books provided for the purpose; he shall see that all notices
are duly given in accordance with the provisions of these Bylaws or as
required by law; he shall be custodian of the records of the Corporation; he
may witness any document on behalf of the Corporation, the execution of which
is duly authorized, see that the corporate seal is affixed where such
document is required or desired to be under its seal, and, when so affixed,
may attest the same; and, in general, he shall perform all duties incident to
the office of a secretary of a corporation, and such other duties as are from
time to time assigned to him by the Board of Directors, the chief executive
officer, or the President.
SECTION 4.06. TREASURER. The Treasurer shall have charge of and be
responsible for all funds, securities, receipts and disbursements of the
Corporation, and shall deposit, or cause to be deposited, in the name of the
Corporation, all moneys or other valuable effects in such banks, trust
companies or other depositories as shall, from time to time, be selected by
the Board of Directors; he shall render to the President and to the Board of
Directors, whenever requested, an account of the financial condition of the
Corporation; and, in general, he shall perform all the duties incident to the
office of a treasurer of a corporation, and such other duties as are from
time to time assigned to him by the Board of Directors, the chief executive
officer, or the President.
SECTION 4.07. ASSISTANT AND SUBORDINATE OFFICERS. The assistant and
subordinate officers of the Corporation are all officers below the office of
Vice President, Secretary, or Treasurer. The assistant or subordinate
officers shall have such duties as are from time to time assigned to them by
the Board of Directors, the chief executive officer, or the President.
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SECTION 4.08. ELECTION, TENURE AND REMOVAL OF OFFICERS. The officers
of the Corporation shall be elected at the regular annual meeting of the
Board of Directors, or as soon thereafter as possible, or at such other time
as the Board of Directors determines to be appropriate, to hold office until
the next regular annual meeting of the Board and until their respective
successors are elected and qualified, or until their earlier death,
resignation or removal. The Board of Directors may from time to time
authorize any committee or officer to appoint assistant and subordinate
officers. The Board of Directors (or, as to any assistant or subordinate
officer, any committee or officer authorized by the Board) may remove an
officer at any time. The removal of an officer does not prejudice any of his
contract rights. The Board of Directors (or, as to any assistant or
subordinate officer, any committee or officer authorized by the Board) may
fill a vacancy which occurs in any office for the unexpired portion of the
term.
SECTION 4.09. COMPENSATION. The Board of Directors shall have power to
fix the salaries and other compensation and remuneration, of whatever kind,
of all officers of the Corporation. It may authorize any committee or
officer, upon whom the power of appointing assistant and subordinate officers
may have been conferred, to fix the salaries, compensation and remuneration
of such assistant and subordinate officers.
ARTICLE V
STOCK
SECTION 5.01. CERTIFICATES FOR STOCK. Each stockholder is entitled to
certificates which represent and certify the shares of stock he holds in the
Corporation. Each stock certificate shall include on its face the name of
the corporation that issues it, the name of the stockholder or other person
to whom it is issued, and the class of stock and number of shares it
represents. It shall be in such form, not inconsistent with law or with the
Charter, as shall be approved by the Board of Directors or any officer or
officers designated for such purpose by resolution of the Board of Directors.
Each stock certificate shall be signed by the Chairman of the Board, the
President, or a Vice President, and countersigned by the Secretary, an
Assistant Secretary, the Treasurer, or an Assistant Treasurer. Each
certificate may be sealed with the actual corporate seal or a facsimile of it
or in any other form and the signatures may be either manual or facsimile
signatures. A certificate is valid and may be issued whether or not an
officer who signed it is still an officer when it is issued.
SECTION 5.02. TRANSFERS. The Board of Directors shall have power and
authority to make such rules and regulations as it may deem expedient
concerning the issue, transfer and registration of certificates of stock; and
may
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appoint transfer agents and registrars thereof. The duties of transfer agent
and registrar may be combined.
SECTION 5.03. RECORD DATE AND CLOSING OF TRANSFER BOOKS. The Board of
Directors may set a record date or direct that the stock transfer books be
closed for a stated period for the purpose of making any proper determination
with respect to stockholders, including which stockholders are entitled to
notice of a meeting, vote at a meeting, receive a dividend, or be allotted
other rights. The record date may not be more than 90 days before the date
on which the action requiring the determination will be taken; the transfer
books may not be closed for a period longer than 20 days; and, in the case of
a meeting of stockholders, the record date or the closing of the transfer
books shall be at least ten days before the date of the meeting.
SECTION 5.04. STOCK LEDGER. The Corporation shall maintain a stock
ledger which contains the name and address of each stockholder and the number
of shares of stock of each class which the stockholder holds. The stock
ledger may be in written form or in any other form which can be converted
within a reasonable time into written form for visual inspection. The
original or a duplicate of the stock ledger shall be kept at the offices of a
transfer agent for the particular class of stock, or, if none, at the
principal office in the State of Maryland or the principal executive offices
of the Corporation.
SECTION 5.05. CERTIFICATION OF BENEFICIAL OWNERS. The Board of
Directors may adopt by resolution a procedure by which a stockholder of the
Corporation may certify in writing to the Corporation that any shares of
stock registered in the name of the stockholder are held for the account of a
specified person other than the stockholder. The resolution shall set forth
the class of stockholders who may certify; the purpose for which the
certification may be made; the form of certification and the information to
be contained in it; if the certification is with respect to a record date or
closing of the stock transfer books, the time after the record date or
closing of the stock transfer books within which the certification must be
received by the Corporation; and any other provisions with respect to the
procedure which the Board considers necessary or desirable. On receipt of a
certification which complies with the procedure adopted by the Board in
accordance with this Section, the person specified in the certification is,
for the purpose set forth in the certification, the holder of record of the
specified stock in place of the stockholder who makes the certification.
SECTION 5.06. LOST STOCK CERTIFICATES. The Board of Directors of the
Corporation may determine the conditions for issuing a new stock certificate
in place of one which is alleged to have been lost, stolen, or destroyed, or
the Board of Directors may delegate such power to any officer or officers of
the Corporation. In their discretion, the Board of Directors or such officer
or officers may refuse to issue
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such new certificate save upon the order of some court having jurisdiction in
the premises.
ARTICLE VI
FINANCE
SECTION 6.01. CHECKS, DRAFTS, ETC. All checks, drafts and orders for
the payment of money, notes and other evidences of indebtedness, issued in
the name of the Corporation, shall, unless otherwise provided by resolution
of the Board of Directors, be signed by the President, the Treasurer, or the
Secretary.
SECTION 6.02. ANNUAL STATEMENT OF AFFAIRS. The President shall prepare
annually a full and correct statement of the affairs of the Corporation, to
include a balance sheet and a financial statement of operations for the
preceding fiscal year. The statement of affairs shall be submitted at the
annual meeting of the stockholders and, within 20 days after the meeting,
placed on file at the Corporation's principal office.
SECTION 6.03. FISCAL YEAR. The fiscal year of the Corporation shall be
the twelve calendar months period ending December 31 in each year, unless
otherwise provided by the Board of Directors.
SECTION 6.04. DIVIDENDS. If declared by the Board of Directors at any
meeting thereof, the Corporation may pay dividends on its shares in cash,
property, or in shares of the capital stock of the Corporation, unless such
dividend is contrary to law or to a restriction contained in the Charter.
ARTICLE VII
SUNDRY PROVISIONS
SECTION 7.01. BOOKS AND RECORDS. The Corporation shall keep correct
and complete books and records of its accounts and transactions and minutes
of the proceedings of its stockholders and Board of Directors and of any
executive or other committee when exercising any of the powers of the Board
of Directors. The books and records of a Corporation may be in written form
or in any other form which can be converted within a reasonable time into
written form for visual inspection. Minutes shall be recorded in written
form but may be maintained in the form of a reproduction. The original or a
certified copy of these Bylaws shall be kept at the principal office of the
Corporation.
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SECTION 7.02. CORPORATE SEAL. The Board of Directors shall provide a
suitable seal, bearing the name of the Corporation, which shall be in the
charge of the Secretary. The Board of Directors may authorize one or more
duplicate seals and provide for the custody thereof. If the Corporation is
required to place its corporate seal to a document, it is sufficient to meet
the requirement of any law, rule, or regulation relating to a corporate seal
to place the word "Seal" adjacent to the signature of the person authorized
to sign the document on behalf of the Corporation.
SECTION 7.03. BONDS. The Board of Directors may require any officer,
agent or employee of the Corporation to give a bond to the Corporation,
conditioned upon the faithful discharge of his duties, with one or more
sureties and in such amount as may be satisfactory to the Board of Directors.
SECTION 7.04. VOTING UPON SHARES IN OTHER CORPORATIONS. Stock of other
corporations or associations, registered in the name of the Corporation, may
be voted by the President, a Vice President, or a proxy appointed by either
of them. The Board of Directors, however, may by resolution appoint some
other person to vote such shares, in which case such person shall be entitled
to vote such shares upon the production of a certified copy of such
resolution.
SECTION 7.05. MAIL. Any notice or other document which is required by
these Bylaws to be mailed shall be deposited in the United States mails,
postage prepaid.
SECTION 7.06. EXECUTION OF DOCUMENTS. A person who holds more than one
office in the Corporation may not act in more than one capacity to execute,
acknowledge, or verify an instrument required by law to be executed,
acknowledged, or verified by more than one officer.
ARTICLE VIII
INDEMNIFICATION
To the maximum extent permitted by Maryland law in effect from time to
time, the Corporation shall indemnify (a) any present or former Director or
officer who has been successful, on the merits or otherwise, in the defense
of a proceeding to which he was made a party by reason of his service in that
capacity against reasonable expenses incurred by him in connection with the
proceeding, and (b) any present or former Director or officer against any
claim or liability unless it is established that (i) his act or omission was
committed in bad faith or was the result of active and deliberate dishonesty,
(ii) he actually received an improper personal benefit in money, property or
services or (iii) in the case of a criminal proceeding, he
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had reasonable cause to believe that his act or omission was unlawful. In
addition, the Corporation shall pay or reimburse, in advance of final
disposition of a proceeding, reasonable expenses incurred by a present or
former Director or officer made a party to a proceeding by reason of his
service as a Director or officer; PROVIDED, that the Corporation shall have
received (i) a written affirmation by the Director or officer of his good
faith belief that he has met the applicable standard of conduct necessary for
indemnification by the Corporation as authorized by these Bylaws and (ii) a
written understanding by or on his behalf to repay the amount paid or
reimbursed by the Corporation if it shall ultimately be determined that the
applicable standard of conduct was not met.
The Corporation may, with the approval of its Directors, provide such
indemnification and payment and advance expenses to a present or former
Director or officer who served a predecessor of the Corporation and to any
employee or agent of the Corporation or a predecessor of the Corporation.
Neither the amendment nor repeal of this Article VIII, nor the adoption or
amendment of any other provision of the Corporation's Charter or these Bylaws
inconsistent with this Article VIII, shall apply to or affect in any respect
the applicability of this paragraph with respect to any act or failure to act
which occurred prior to such amendment, repeal or adoption. Any
indemnification or payment or reimbursement of the expenses permitted by
these Bylaws shall be furnished in accordance with the procedures provided
for indemnification and payment or reimbursement of expenses under Section
2-418 of the Maryland General Corporation Law (the "MGCL") for directors of
Maryland corporations. The Corporation may provide to Directors, officers
and shareholders such other and further indemnification or payment or
reimbursement of expenses as may be permitted by the MGCL, as in effect from
time to time, for directors of Maryland corporations.
ARTICLE IX
WAIVER OF NOTICE
When any notice is required to be given pursuant to the Corporation's
Charter or these Bylaws or pursuant to applicable law, a waiver thereof in
writing, signed by the person or persons entitled to such notice, whether
before or after the time stated therein, shall be deemed equivalent to the
giving of such notice. Neither the business to be transacted at nor the
purpose of any meeting need be set forth in the waiver of notice, unless
specifically required by statute. The attendance of any person at any
meeting shall constitute a waiver of notice of such meeting, except where
such person attends a meeting for the express purpose of objecting to the
transaction of any business on the ground that the meeting is not lawfully
called or convened.
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ARTICLE X
AMENDMENT OF BYLAWS
Unless otherwise provided by statute and subject to the special
provisions of Section 2.02, the Board of Directors shall have the exclusive
power, at any regular or special meeting thereof, to make and adopt new
Bylaws, or to amend, alter or repeal any of the Bylaws of the Corporation.
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REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and
entered into as of ________________, 1997 by and between THE MENDIK COMPANY,
INC., a Maryland corporation (the "Company"), and the holders of Units listed
on SCHEDULE A hereto (individually, a "Holder"), attached hereto.
WHEREAS, on the date hereof, the Holders are receiving on the date
hereof Class A units of limited partnership interest ("Units") in the Mendik
Company, L.P. (the "Partnership");
WHEREAS, in connection therewith, the Company has agreed to grant
to Holders the Registration Rights (as defined in Section 1 hereof);
NOW, THEREFORE, the parties hereto, in consideration of the
foregoing, the mutual covenants and agreements hereinafter set forth, and
other good and valuable consideration, the receipt and sufficiency of which
hereby are acknowledged, hereby agree as follows:
SECTION 1. REGISTRATION RIGHTS
If Holder receives shares of common stock ("Common Stock") of the
Company upon redemption of Units (the "Redemption Shares") pursuant to the
terms of the agreement of limited partnership of the Partnership, as amended
(the "Partnership Agreement"), Holder shall be entitled to offer for sale
pursuant to a shelf registration statement the Redemption Shares, subject to
the terms and conditions set forth herein (the "Registration Rights").
1.1 DEMAND REGISTRATION RIGHTS.
1.1(a) REGISTRATION PROCEDURE. Subject to Sections 1.1(c) and 1.2
hereof, if Holder desires to exercise its Registration Rights with respect to
the Redemption Shares, Holder shall deliver to the Company a written notice
(a "Registration Notice") informing the Company of such exercise and
specifying the number of shares to be offered by Holder (such shares to be
offered being referred to herein as the "Registrable Securities"). Such
notice may be given at any time on or after the date a notice of redemption
is delivered by Holder to the Partnership pursuant to the Partnership
Agreement, but must be given at least ten (10) business days prior to the
consummation of the sale of Registrable Securities. Upon receipt of the
Registration Notice, the Company, if it has not already caused the
Registrable Securities to be included as part of an existing shelf
registration statement and related prospectus (the "Shelf Registration
Statement") that the Company then has on file with the Securities and
Exchange Commission (in which event the Company shall be deemed to have
satisfied its registration obligation under this Section 1.1), will cause to
be filed with the Securities and Exchange Commission (the "SEC") as soon as
reasonably practicable after receiving the Registration Notice a new
registration statement and related prospectus (a "New Registration
Statement") that complies as to form in all material respects with applicable
SEC rules providing for the
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sale by Holder of the Registrable Securities, and agrees (subject to Section
1.2 hereof) to use its best efforts to cause such New Registration Statement
to be declared effective by the SEC as soon as practicable. (As used herein,
"Registration Statement" and "Prospectus" refer to the Shelf Registration
Statement and related prospectus (including any preliminary prospectus) or
the New Registration Statement and related prospectus (including any
preliminary prospectus), whichever is utilized by the Company to satisfy
Holder's Registration Rights pursuant to this Section 1, including in each
case any documents incorporated therein by reference. Holder agrees to
provide in a timely manner information regarding the proposed distribution by
Holder of the Registrable Securities and such other information reasonably
requested by the Company in connection with the preparation of and for
inclusion in the Registration Statement. The Company agrees (subject to
Section 1.2 hereof) to use its best efforts to keep the Registration
Statement effective (including the preparation and filing of any amendments
and supplements necessary for that purpose) until the earlier of (i) the date
on which Holder consummates the sale of all of the Registrable Securities
registered under the Registration Statement, or (ii) the date on which all of
the Registrable Securities are eligible for sale pursuant to Rule 144(k) (or
any successor provision) or in a single transaction pursuant to Rule 144(e)
(or any successor provision) under the Securities Act of 1933, as amended
(the "Act"). The Company agrees to provide to Holder a reasonable number of
copies of the final Prospectus and any amendments or supplements
thereto.
1.1(b) OFFERS AND SALES. All offers and sales by Holder under the
Registration Statement referred to in this Section 1.1 shall be completed
within the period during which the Registration Statement is required to
remain effective pursuant to Section 1.1(a), and upon expiration of period
Holder will not offer or sell any Registrable Securities under the
Registration Statement. If directed by the Company, Holder will return all
undistributed copies of the Prospectus in its possession upon the expiration
of such period.
1.1 (c) LIMITATIONS ON REGISTRATION RIGHTS. Each exercise of a
Registration Right shall be with respect to a minimum of the lesser of (i)
Fifty Thousand (50,000) shares of Common Stock or (ii) the total number of
Redemption Shares held by Holder at such time plus the number of Redemption
Shares that may be issued upon redemption of Units by Holder. The right of
Holder to deliver a Registration Notice commences upon the date a Holder is
permitted to redeem Units pursuant to the Partnership Agreement. The right of
Holder to deliver a Registration Notice shall expire on the date on which all
of the Redemption Shares held by Holder or issuable upon redemption of Units
held by Holder are eligible for sale pursuant to Rule 144(k) (or any
successor provision) or in a single transaction pursuant to Rule 144(e) (or
any successor provision) under the Securities Act of 1933, as amended (the
"Securities Act"). The Registration Rights granted pursuant to this Section
1.1 may not be exercised in connection with any underwritten public offering
by the Company or by Holder without the prior written consent of the Company.
1.2 SUSPENSION OF OFFERING. Upon any notice by the Company, either
before or after a Holder has delivered a Registration Notice, that a
negotiation or consummation of a transaction by the Company or its
subsidiaries is pending or an event has occurred, which negotiation,
consummation or event would require additional
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disclosure by the Company in the Registration Statement of material
information which the Company has a BONA FIDE business purpose for keeping
confidential and the nondisclosure of which in the Registration Statement
might cause the Registration Statement to fail to comply with applicable
disclosure requirements (a "Materiality Notice"), Holder agrees that it will
immediately discontinue offers and sales of the Registrable Securities under
the Registration Statement until Holder receives copies of a supplemented or
amended Prospectus that corrects the misstatement(s) or omission(s) referred
to above and receives notice that any post-effective amendment has become
effective; PROVIDED, that the Company may delay, suspend or withdraw the
Registration Statement for such reason for no more than sixty (60) days after
delivery of the Materiality Notice at any one time. If so directed by the
Company, Holder will deliver to the Company all copies of the Prospectus
covering the Registrable Securities current at the time of receipt of such
notice.
1.3 EXPENSES. The Company shall pay all expenses incident to the
performance by it of its registration obligations under this Section 1,
including (i) all stock exchange, SEC and state securities registration,
listing and filing fees, (ii) all expenses incurred in connection with the
preparation, printing and distributing of the Registration Statement and
Prospectus, and (iii) fees and disbursements of counsel for the Company and
of the independent public accountants of the Company. Holder shall be
responsible for the payment of any brokerage and sales commissions, fees and
disbursements of Holder's counsel, and any transfer taxes relating to the
sale or disposition of the Registrable Securities by Holder.
1.4 QUALIFICATION. The Company agrees to use its best efforts to
register or qualify the Registrable Securities by the time the applicable
Registration Statement is declared effective by the SEC under all applicable
state securities or "blue sky" laws of such jurisdictions as Holder shall
reasonably request in writing, to keep each such registration or
qualification effective during the period such Registration Statement is
required to be kept effective or during the period offers or sales are being
made by Holder after delivery of a Registration Notice to the Company,
whichever is shorter, and to do any and all other acts and things which may
be reasonably necessary or advisable to enable Holder to consummate the
disposition in each such jurisdiction of the Registrable Securities owned by
Holder; PROVIDED, HOWEVER, that the Company shall not be required to (x)
qualify generally to do business in any jurisdiction or to register as a
broker or dealer in such jurisdiction where it would not otherwise be
required to qualify but for this Section 1.1, (y) subject itself to taxation
in any such jurisdiction, or (z) submit to the general service of process in
any such jurisdiction.
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SECTION 2. INDEMNIFICATION; PARTNERSHIP
2.1 INDEMNIFICATION BY THE COMPANY. The Company agrees to
indemnify and hold harmless each Holder and each person, if any, who controls
any Holder within the meaning of Section 15 of the Securities Act or Section
20 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
as follows:
(a) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of or based upon any untrue
statement or alleged untrue statement of a material fact contained in
any Registration Statement (or any amendment thereto) pursuant to which
the Registrable Securities were registered under the Securities Act,
including all documents incorporated therein by reference, or the
omission or alleged omission therefrom of a material fact required to be
stated therein or necessary to make the statements therein not
misleading or arising out of or based upon any untrue statement or
alleged untrue statement of a material fact contained in any Prospectus
(or any amendment or supplement thereto), including all documents
incorporated therein by reference, or the omission or alleged omission
therefrom of a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made,
not misleading;
(b) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount
paid in settlement of any litigation, or investigation or proceeding by
any governmental agency or body, commenced or threatened, or of any
claim whatsoever based upon any such untrue statement or omission, or
any such alleged untrue statement or omission, if such settlement is
effected with the written consent of the Company; and
(c) against any and all expense whatsoever, as incurred
(including reasonable fees and disbursements of counsel), reasonably
incurred in investigating, preparing or defending against any
litigation, or investigation or proceeding by any governmental agency or
body, commenced or threatened, in each case whether or not a party, or
any claim whatsoever based upon any such untrue statement or omission,
or any such alleged untrue statement or omission, to the extent that any
such expense is not paid under subparagraph (a) or (b) above;
PROVIDED, HOWEVER, that the indemnity provided pursuant to this Section 2.1
does not apply to any Holder with respect to any loss, liability, claim,
damage or expense to the extent arising out of (i) any untrue statement or
omission or alleged untrue statement or omission made in reliance upon and in
conformity with written information furnished to the Company by such Holder
expressly for use in the Registration Statement (or any amendment thereto) or
the Prospectus (or any amendment or supplement thereto), or
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(ii) such Holder's failure to deliver an amended or supplemental Prospectus
if such loss, liability, claim, damage or expense would not have arisen had
such delivery occurred.
2.2 INDEMNIFICATION BY HOLDER. Holder (and each permitted assignee
of Holder, on a several basis) agrees to indemnify and hold harmless the
Company, and each of its directors and officers (including each director and
officer of the Company who signed a Registration Statement), and each person,
if any, who controls the Company within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act, as follows:
(a) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of or based upon any untrue
statement or alleged untrue statement of a material fact contained in
any Registration Statement (or any amendment thereto) pursuant to which
the Registrable Securities were registered under the Securities Act,
including all documents incorporated therein by reference, or the
omission or alleged omission therefrom of a material fact required to be
stated therein or necessary to make the statements therein not
misleading or arising out of or based upon any untrue statement or
alleged untrue statement of a material fact contained in any Prospectus
(or any amendment or supplement thereto), including all documents
incorporated therein by reference, or the omission or alleged omission
therefrom of a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made,
not misleading;
(b) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount
paid in settlement of any litigation, or investigation or proceeding by
any governmental agency or body, commenced or threatened, or of any
claim whatsoever based upon any such untrue statement or omission, or
any such alleged untrue statement or omission, if such settlement is
effected with the written consent of Holder; and
(c) against any and all expense whatsoever, as incurred
(including reasonable fees and disbursements of counsel), reasonably
incurred in investigating, preparing or defending against any
litigation, or investigation or proceeding by any governmental agency or
body, commenced or threatened, in each case whether or not a party, or
any claim whatsoever based upon any such untrue statement or omission,
or any such alleged untrue statement or omission, to the extent that any
such expense is not paid under subparagraph (a) or (b) above;
PROVIDED, HOWEVER, that the indemnity provided pursuant to this Section 2.1
shall only apply with respect to any loss, liability, claim, damage or
expense to the extent arising out of (i) any untrue statement or omission or
alleged untrue statement or omission made in reliance upon and in conformity
with written information furnished to the Company by Holder expressly for use
in the Registration Statement (or any amendment thereto) or the Prospectus
(or any amendment or supplement thereto), or (ii) Holder's failure to deliver
an amended or supplemental Prospectus if such loss, liability, claim, damage
or expense would not have arisen had such delivery occurred. Notwithstanding
the provisions of this
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Section 2.2, Holder and any permitted assignee shall not be required to
indemnify the Company, its officers, directors or control persons with
respect to any amount in excess of the amount of the total proceeds to Holder
or such permitted assignee, as the case may be, from sales of the Registrable
Securities of Holder under the Registration Statement, and no Holder shall be
liable under this Section 2.2 for any statements or omissions of any other
Holder.
2.3 CONDUCT OF INDEMNIFICATION PROCEEDINGS. The indemnified party
shall give reasonably prompt notice to the indemnifying party of any action
or proceeding commenced against it in respect of which indemnity may be
sought hereunder, but failure to so notify the indemnifying party (i) shall
not relieve it from any liability which it may have under the indemnity
agreement provided in Section 2.1 or 2.2 above, unless and to the extent it
did not otherwise learn of such action and the lack of notice by the
indemnified party results in the forfeiture by the indemnifying party of
substantial rights and defenses, and (ii) shall not, in any event, relieve
the indemnifying party from any obligations to the indemnified party other
than the indemnification obligation provided under Section 2.1 or 2.2 above.
If the indemnifying party so elects within a reasonable time after receipt of
such notice, the indemnifying party may assume the defense of such action or
proceeding at such indemnifying party's own expense with counsel chosen by
the indemnifying party and approved by the indemnified party, which approval
shall not be unreasonably withheld; PROVIDED, HOWEVER, that the indemnifying
party will not settle any such action or proceeding without the written
consent of the indemnified party unless, as a condition to such settlement,
the indemnifying party secures the unconditional release of the indemnified
party; and PROVIDED FURTHER, that if the indemnified party reasonably
determines that a conflict of interest exists where it is advisable for the
indemnified party to be represented by separate counsel or that, upon advice
of counsel, there may be legal defenses available to it which are different
from or in addition to those available to the indemnifying party, then the
indemnifying party shall not be entitled to assume such defense and the
indemnified party shall be entitled to separate counsel at the indemnifying
party's expense. If the indemnifying party is not entitled to assume the
defense of such action or proceeding as a result of the proviso to the
preceding sentence, the indemnifying party's counsel shall be entitled to
conduct the indemnifying party's defense and counsel for the indemnified
party shall be entitled to conduct the defense of the indemnified party, it
being understood that both such counsel will cooperate with each other to
conduct the defense of such action or proceeding as efficiently as possible.
If the indemnifying party is not so entitled to assume the defense of such
action or does not assume such defense, after having received the notice
referred to in the first sentence of this paragraph, the indemnifying party
will pay the reasonable fees and expenses of counsel for the indemnified
party. In such event, however, the indemnifying party will not be liable for
any settlement effected without the written consent of the indemnifying
party. If an indemnifying party is entitled to assume, and assumes, the
defense of such action or proceeding in accordance with this paragraph, the
indemnifying party shall not be liable for any fees and expenses of counsel
for the indemnified party incurred thereafter in connection with such action
or proceeding.
2.4 CONTRIBUTION. In order to provide for just and equitable
contribution in circumstances in which the indemnity agreement provided for
in this Section 2 is for any reason held to be unenforceable by the
indemnified party although applicable in accordance
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with its terms, the Company and Holder shall contribute to the aggregate
losses, liabilities, claims, damages and expenses of the nature contemplated
by such indemnity agreement incurred by the Company and Holder, (i) in such
proportion as is appropriate to reflect the relative fault of the Company on
the one hand and Holder on the other, in connection with the statements or
omissions which resulted in such losses, claims, damages, liabilities or
expenses, or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect
not only the relative fault of but also the relative benefits to the Company
on the one hand and Holder on the other, in connection with the statements or
omissions which resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations. The
relative benefits to the indemnifying party and indemnified party shall be
determined by reference to, among other things, the total proceeds received
by the indemnifying party and indemnified party in connection with the
offering to which such losses, claims, damages, liabilities or expenses
relate. The relative fault of the indemnifying party and indemnified party
shall be determined by reference to, among other things, whether the action
in question, including any untrue or alleged untrue statement of a material
fact or omission or alleged omission to state a material fact, has been made
by, or relates to information supplied by, the indemnifying party or the
indemnified party, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action.
The parties hereto agree that it would not be just or equitable if
contribution pursuant to this Section 2.4 were determined by pro rata
allocation or by any other method of allocation which does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. Notwithstanding the provisions of this Section 2.4, Holder shall
not be required to contribute any amount in excess of the amount of the total
proceeds to Holder from sales of the Registrable Securities of Holder under
the Registration Statement.
Notwithstanding the foregoing, no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section 2.4, each person,
if any, who controls Holder within the meaning of Section 15 of the
Securities Act shall have the same rights to contribution as Holder, and each
director of the Company, each officer of the Company who signed a
Registration Statement and each person, if any, who controls the Company
within the meaning of Section 15 of the Securities Act shall have the same
rights to contribution as the Company.
SECTION 3. RULE 144 COMPLIANCE
The Company covenants that it will use its best efforts to timely
file the reports required to be filed by the Company under the Securities Act
and the Securities Exchange Act of 1934, as amended, so as to enable each
Holder to sell Registrable Securities pursuant to Rule 144 under the
Securities Act. In connection with any sale, transfer or other disposition
by Holder of any Registrable Securities pursuant to Rule 144 under the
Securities Act, the Company shall cooperate with Holder to facilitate the
timely preparation and delivery of certificates representing Registrable
Securities to be sold and not bearing any Securities Act legend, and enable
certificates for such Registrable Securities to be for such number of shares
and registered in such names as Holder may
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reasonably request at least ten (10) business days prior to any sale of
Registrable Securities hereunder.
SECTION 4. MISCELLANEOUS
4.1 INTEGRATION; AMENDMENT. This Agreement constitutes the entire
agreement among the parties hereto with respect to the matters set forth
herein and supersedes and renders of no force and effect all prior oral or
written agreements, commitments and understandings among the parties with
respect to the matters set forth herein. Except as otherwise expressly
provided in this Agreement, no amendment, modification or discharge of this
Agreement shall be valid or binding unless set forth in writing and duly
executed by the Company and Holder.
4.2 WAIVERS. No waiver by a party hereto shall be effective unless
made in a written instrument duly executed by the party against whom such
waiver is sought to be enforced, and only to the extent set forth in such
instrument. Neither the waiver by any of the parties hereto of a breach or a
default under any of the provisions of this Agreement, nor the failure of any
of the parties, on one or more occasions, to enforce any of the provisions of
this Agreement or to exercise any right or privilege hereunder shall
thereafter be construed as a waiver of any subsequent breach or default of a
similar nature, or as a waiver of any such provisions, rights or privileges
hereunder.
4.3 ASSIGNMENT; SUCCESSORS AND ASSIGNS. This Agreement and the
rights granted hereunder may not be assigned by Holder without the written
consent of the Company; PROVIDED, HOWEVER, that Holder may assign its rights
and obligations hereunder, following at least ten (10) days prior written
notice to the Company, (i) to Holder's partners or beneficiaries in
connection a distribution of the Units to its partners or beneficiaries, (ii)
to a permitted transferee in connection with a transfer of the Units in
accordance with the terms of the Partnership Agreement, and (iii) to a third
party in connection with a transfer of Units as security for or in
satisfaction of obligations of any partner of Holder, if in the case of (i),
(ii) and (iii) above, such persons or such third party agree in writing to be
bound by all of the provisions hereof. This Agreement shall inure to the
benefit of and be binding upon the successors and permitted assigns of all of
the parties hereto.
4.4 BURDEN AND BENEFIT. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective heirs,
executors, personal and legal representatives, successors and, subject to
Section 4.3 above, assigns.
4.5 NOTICES. All notices called for under this Agreement shall be
in writing and shall be deemed given upon receipt if delivered personally or
by facsimile transmission and followed promptly by mail, or mailed by
registered or certified mail (return receipt requested), postage prepaid, to
the parties at the addresses set forth opposite their names in SCHEDULE A
hereto, or to any other address or addressee as any party entitled to receive
notice under this Agreement shall designate, from time to time, to others in
the manner provided in this Section 4.5 for the service of notices; PROVIDED,
HOWEVER, that notices of a change of address shall be effective only upon
receipt thereof. Any notice delivered to the party hereto to whom it is
addressed shall be deemed to have been given and received on the
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day it was received; PROVIDED, HOWEVER, that if such day is not a business
day then the notice shall be deemed to have been given and received on the
business day next following such day. Any notice sent by facsimile
transmission shall be deemed to have been given and received on the business
day next following the transmission.
4.6 SPECIFIC PERFORMANCE. The parties hereto acknowledge that the
obligations undertaken by them hereunder are unique and that there would be
no adequate remedy at law if any party fails to perform any of its
obligations hereunder, and accordingly agree that each party, in addition to
any other remedy to which it may be entitled at law or in equity, shall be
entitled to (i) compel specific performance of the obligations, covenants and
agreements of any other party under this Agreement in accordance with the
terms and conditions of this Agreement and (ii) obtain preliminary injunctive
relief to secure specific performance and to prevent a breach or contemplated
breach of this Agreement in any court of the United States or any State
thereof having jurisdiction.
4.7 GOVERNING LAW. This Agreement, the rights and obligations of
the parties hereto, and any claims or disputes relating thereto, shall be
governed by and construed in accordance with the laws of the State of
Maryland, but not including the choice of law rules thereof.
4.8 HEADINGS. Section and subsection headings contained in this
Agreement are inserted for convenience of reference only, shall not be deemed
to be a part of this Agreement for any purpose, and shall not in any way
define or affect the meaning, construction or scope of any of the provisions
hereof.
4.9 PRONOUNS. All pronouns and any variations thereof shall be
deemed to refer to the masculine, feminine, neuter, singular or plural, as
the identity of the person or entity may require.
4.10 EXECUTION IN COUNTERPARTS. To facilitate execution, this
Agreement may be executed in as many counterparts as may be required. It
shall not be necessary that the signature of or on behalf of each party
appears on each counterpart, but it shall be sufficient that the signature of
or on behalf of each party appears on one or more of the counterparts. All
counterparts shall collectively constitute a single agreement. It shall not
be necessary in any proof of this Agreement to produce or account for more
than a number of counterparts containing the respective signatures of or on
behalf of all of the parties.
4.11 SEVERABILITY. If fulfillment of any provision of this
Agreement, at the time such fulfillment shall be due, shall transcend the
limit of validity prescribed by law, then the obligation to be fulfilled
shall be reduced to the limit of such validity; and if any clause or
provision contained in this Agreement operates or would operate to invalidate
this Agreement, in whole or in part, then such clause or provision only shall
be held ineffective, as though not herein contained, and the remainder of
this Agreement shall remain operative and in full force and effect.
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IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be duly executed on its behalf as of the date first hereinabove
set forth.
COMPANY:
Address: The Mendik Company, Inc.
330 Madison Avenue
New York, New York 10017
By: __________________________
Name: ________________________
Title: _______________________
HOLDERS:
By: __________________________
Name: ________________________
Title: Attorney-in-Fact
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FORMS OF AGREEMENT FOR
CONTRIBUTION OF INTERESTS
<PAGE>
AGREEMENT FOR CONTRIBUTION OF INTERESTS
[TWO PENN PLAZA]
THIS AGREEMENT for the Contribution of Interests (this "Agreement")
is made and entered into as of ___________, 1996, by and among The Mendik
Company, L.P. ("Operating Partnership"), a Delaware limited partnership,
whose managing general partner is the Mendik Group, Inc. (the "REIT"), a
Delaware corporation, each of the parties listed on Exhibit A annexed hereto
who executes a Partner Consent (hereinafter defined) agreeing to become a
party to this Agreement (collectively referred to herein as "Contributors")
and Bernard H. Mendik (in his capacity as a general partner of the
Partnership (hereinafter defined), the "General Partner").
WHEREAS, it is desired to consolidate (the "Consolidation")
interests in up to seven general or limited partnerships or limited liability
companies of which the General Partner or an affiliate is a general partner,
together with the assets of Mendik Realty Company, Inc. and Mendik Management
Company, Inc., each a New York corporation and affiliate of the General
Partner, with and into Operating Partnership and to effect the initial public
offering (the "Offering") of shares of common stock of the REIT ("Common
Stock").
WHEREAS, prior to the Consolidation, the REIT shall merge into The
Mendik Company, Inc., a Maryland corporation, and from and after such merger,
all references herein to the REIT shall refer to The Mendik Company, Inc.
WHEREAS, Contributors are owners of interests (the "Contributed
Interests") in Two Penn Plaza Associates L.P., a New York limited partnership
(the "Partnership"), which Partnership owns land and improvements (the
"Property") known as Two Penn Plaza, New York, New York;
WHEREAS, in connection with the consummation of the Consolidation
and the Offering, the parties hereto desire that Operating Partnership and,
if designated by Operating Partnership, one or more special purpose
subsidiary partnerships or limited liability companies of Operating
Partnership or one or more other entities controlled by Operating Partnership
(each a "Designated Subsidiary") acquire all of the interests in the
Partnership through the contribution of such interests to Operating
Partnership and/or one or more Designated Subsidiaries upon the terms and
conditions provided herein and simultaneously acquire all of the interests in
the Partnership owned by a major partner and its affiliates (collectively,
the "Major Partner") pursuant to an Agreement (the "Major Partner Agreement")
expected to be entered into between the Major Partner and FW Mendik REIT LLC,
which Major Partner Agreement shall be assigned to Operating Partnership
and/or a Designated Subsidiary prior to the Closing (hereinafter defined);
and
WHEREAS, if the holders of all of the interests in the Partnership
(other than the Major Partner) do not execute the Partner Consent annexed to
and made a part of the Memorandum (the "Partner Consent") or the Major
Partner does not execute, or close under, the Major Partner Agreement, it is
contemplated that Operating Partnership may attempt to effect the
Consolidation in another manner, through a transfer of the Property to
Operating Partnership (or a Designated Subsidiary) or merger of the
Partnership with Operating Partnership (or a Designated Subsidiary) or other
means.
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises and covenants set forth herein, Operating Partnership, Contributors
and the General Partner hereby agree as follows:
<PAGE>
1. CONTRIBUTIONS. Upon the Closing, and subject to the
satisfaction or waiver by Operating Partnership of the conditions set forth
in Section 7 of this Agreement, Contributors shall contribute, convey and
assign to Operating Partnership (and/or Designated Subsidiary) and Operating
Partnership (and/or Designated Subsidiary) shall acquire from Contributors
all of Contributors' right, title and interest in the Contributed Interests
(the "Contributions"), including, without limitation, all of Contributors'
interest in the profits, losses, property and capital of the Partnership
allocable to the Contributed Interests, upon the terms and conditions set
forth in this Agreement.
2. CONSIDERATION; DISTRIBUTIONS PRIOR TO CLOSING.
(a) In full consideration for the contribution of the
Contributed Interests, Operating Partnership shall deliver to Contributors at
the Closing, units of limited partnership interests ("Units") in Operating
Partnership determined in accordance with the methodology described in the
Confidential Solicitation of Consents and Private Placement Memorandum (the
"Memorandum") dated November 11, 1996.
(b) On the date of the Closing (the "Closing Date"), the
General Partner shall cause the Partnership to distribute approximately
$1,600,000 to the Major Partner and to distribute approximately $800,000 to
the General Partner, as agent for the Contributors, to pay the Conveyance
Taxes payable by them pursuant to Section 9(b) hereof.
3. ACCEPTANCE OF CONTRIBUTIONS. Operating Partnership hereby
agrees that at the Closing it shall accept the Contributions and shall assume
any and all rights, obligations and responsibilities of Contributors as
owners of the Contributed Interests that arise from and after the Closing
Date.
4. CLOSING TIME AND PLACE. Unless another date or place is
agreed to by the parties, the closing of the Contributions (the "Closing")
shall take place contemporaneously with the closing of the Consolidation and
the Offering at the offices of Proskauer Rose Goetz & Mendelsohn LLP, 1585
Broadway, New York, New York 10036, or such other place and time as Operating
Partnership and the General Partner shall agree upon, upon the satisfaction
or waiver of all conditions to the Closing set forth in Section 7 hereof.
5. REPRESENTATIONS AND WARRANTIES OF OPERATING PARTNERSHIP.
Operating Partnership hereby represents and warrants to Contributors as
follows, which representations and warranties shall be true and correct on
the Closing Date:
5.1 ORGANIZATION, POWER AND AUTHORITY, AND QUALIFICATION.
Operating Partnership is a limited partnership duly organized, validly
existing and in good standing under the laws of the State of Delaware. The
REIT is a corporation duly organized, validly existing and in good standing
under the laws of its state of incorporation. Each of Operating Partnership
and the REIT has the requisite power and authority to carry on its respective
business as it is now being conducted. Each of Operating Partnership and the
REIT is qualified to do business and is in good standing in each jurisdiction
in which the character of its property owned or leased or the nature of its
activities makes such qualification necessary, except where the failure to be
so qualified and in good standing would not have a material adverse effect on
the business or financial condition of Operating Partnership or the REIT, as
the case may be.
5.2 AUTHORITY RELATIVE TO THIS AGREEMENT. Operating Partnership
has taken all action necessary to authorize the execution, delivery and
performance of this Agreement by Operating Partnership and no other
proceedings on the part of Operating Partnership are
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necessary to authorize the execution and delivery of this Agreement and the
consummation of the Contributions.
None of the execution and delivery of this Agreement by Operating
Partnership, the consummation by Operating Partnership of the Contributions
or compliance by Operating Partnership with any of the provisions hereof
shall (i) conflict with or result in any breach of any provisions of the
Partnership Agreement of Operating Partnership; (ii) result in a violation or
breach of, or constitute (with or without due notice or lapse of time or
both) a default (or give rise to any right of termination, cancellation or
acceleration) under any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, lease, license, contract, agreement or other
instrument or obligation to which Operating Partnership is a party or by
which it or any of its properties or assets may be bound; or (iii) violate
any order, writ, injunction, decree, statute, rule or regulation applicable
to Operating Partnership; except in the case of (ii) or (iii) for violations,
breaches, or defaults (A) that would not in the aggregate have a material
adverse effect on the business or financial condition of Operating
Partnership or the REIT, and that shall not impair the effectiveness of the
Contributions contemplated hereby, or (B) for which waivers or consents have
been or shall be obtained prior to the Closing Date.
5.3 BINDING OBLIGATION. This Agreement has been duly and validly
executed and delivered by Operating Partnership and constitutes a valid and
binding agreement of Operating Partnership, enforceable against Operating
Partnership in accordance with its terms, except that such enforcement may be
subject to bankruptcy, conservatorship, receivership, insolvency, moratorium,
or similar laws affecting creditors' rights generally or the rights of
creditors of limited partnerships and to general principles of equity.
5.4 INSOLVENCY. There are no attachments, executions or
assignments for the benefit of creditors, or voluntary or involuntary
proceedings in bankruptcy, or under any other debtor relief laws,
contemplated by or pending or threatened against Operating Partnership.
5.5 BROKERS. Neither Operating Partnership nor the REIT has
employed or dealt with any broker or finder, or incurred any liability
therefor, in connection with the Contributions.
5.6 VALID CONSIDERATION. The Units, when issued in accordance
with this Agreement and the Operating Agreement of Operating Partnership,
shall be duly and validly issued, fully paid and nonassessable, and the
issuance thereof shall not be subject to preemptive or other similar rights.
6. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF CONTRIBUTORS.
Each Contributor, in his, her or its capacity as a partner of the
Partnership, hereby represents and warrants to and agrees with Operating
Partnership with respect to his, her or its Contributed Interests as follows,
which representations and warranties shall be true and correct on the Closing
Date:
6.1 TITLE; AUTHORITY TO ASSIGN. Contributor (i) owns good and
marketable, legal and beneficial title in and to his, her or its Contributed
Interests which are held or by the Closing Date shall be held free of liens,
encumbrances, judgments, adverse interests, pledges and security interests,
other than any such interests in the Contributed Interests granted pursuant
to the Partnership Agreement of the Partnership, (ii) holds the entire right,
title and interest in and to his, her or its Contributed Interests, and (iii)
has the full right, power, capacity and authority to validly contribute and
convey his, her or its Contributed Interests pursuant to this Agreement.
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<PAGE>
6.2 NO BREACH OF PARTNERSHIP AGREEMENT. None of the execution and
delivery of this Agreement by Contributor, the consummation by Contributor of
the Contribution or compliance by Contributor with any of the provisions
hereof shall as of the Closing Date conflict with or result in any breach of
any provisions of the Partnership Agreement of the Partnership or any other
agreement to which Contributor is a party.
6.3 INSOLVENCY. There are no attachments, executions or
assignments for the benefit of creditors, or voluntary or involuntary
proceedings in bankruptcy, or under any other debtor relief laws,
contemplated by or pending or, to the knowledge of Contributor, threatened
against Contributor.
6.4 LITIGATION. Contributor has no knowledge of any actual or
pending litigation or proceeding by any organization, person, individual or
governmental agency against Contributor with respect to or against or
potentially affecting his, her or its Contributed Interests.
6.5 BINDING OBLIGATION, ETC. This Agreement has been duly and
validly executed and delivered by Contributor to Operating Partnership and
constitutes a legal, valid and binding agreement of Contributor, enforceable
against Contributor in accordance with its terms, except as such enforcement
may be limited by bankruptcy, conservatorship, receivership, insolvency,
moratorium or similar laws affecting creditors' rights generally and to
general principles of equity. Contributor further represents and warrants
that if Contributor is a corporation, partnership, trust or other entity, it
has the power to, and is duly authorized and otherwise duly qualified to,
purchase and hold securities such as Units and shares of Common Stock and
such entity has its principal place of business as set forth on Exhibit A.
6.6 BROKERS. Contributor has not employed or dealt with any
broker or finder, or incurred any liability therefor, in connection with the
Contribution.
6.7 SECURITIES ACT AND OTHER REPRESENTATIONS AND AGREEMENTS.
(a) (i) Upon the issuance of Units to Contributor,
Contributor shall become subject to, and shall be bound by, the terms and
provisions of the Partnership Agreement of Operating Partnership, including
the terms of the power of attorney contained in Section 15.11 thereof, as the
Partnership Agreement may be amended and restated from time to time in
accordance with its terms.
(ii) Contributor or his, her or its advisor(s) have had a
reasonable opportunity to ask questions of and receive information and
answers from a person or persons acting on behalf of the Partnership
concerning the Consolidation, and, as Contributor may deem necessary, to
verify the information contained in the Memorandum, receipt of which is
acknowledged, and any other information provided to Contributor by the
Partnership or Operating Partnership and all such questions have been
answered and all such information has been provided to the full satisfaction
of Contributor.
(iii) Contributor is acquiring Units for his, her or its
own account as principal, for investment and not with a view to resale or
distribution, that the shares of Common Stock of the REIT which may be
obtained upon redemption of the Units may not be transferred or otherwise
disposed of by Contributor otherwise than in transactions pursuant to the
registration statement required to be filed by the Company with respect to
such shares of Common Stock or that are exempt from the registration
requirements of the Securities Act of 1933 (the "Securities Act") and all
applicable state and foreign securities laws, and that the REIT may refuse to
transfer any
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shares of Common Stock as to which evidence of such registration or
exemptions from such registration satisfactory to the REIT is not provided to
it.
(iv) Contributor has sufficient knowledge and experience
in financial, tax and business matters to enable him, her or it to evaluate
the merits and risks of an investment in the Units. Contributor has the
ability to bear the economic risk of acquiring the Units. Contributor
acknowledges that (1) the transactions contemplated by this Agreement and the
Memorandum involve complex tax consequences for each Contributor and each
Contributor is relying solely on the advice of his, her or its own tax
advisors in evaluating such consequences, and (2) neither Operating
Partnership nor the General Partner has made (or shall be deemed to have
made) any representations or warranties as to the tax consequences of such
transaction to any Contributor. Each Contributor remains solely responsible
for all tax matters relating to each Contributor.
(v) If needed, Contributor has discussed with his, her or
its professional, legal, tax or financial advisors the suitability of an
investment in Units or shares of Common Stock for his, her or its particular
tax and financial situation. Nothing contained herein or in the Memorandum
shall be deemed to imply any representation by Operating Partnership or the
General Partner as to a particular tax effect that may be obtained by any
Contributor. All information that Contributor has provided to Operating
Partnership concerning himself or herself or itself and his, her or its
financial position is correct and complete as of the date hereof, and if
there should be any material change in such information prior to issuance of
Units to the partners, he, she or it shall immediately provide such changed
information to Operating Partnership.
(vi) Contributor has not disclosed any information
contained in the Memorandum to anyone other than his or her spouse or his,
her or its professional, legal, tax or financial advisors advising him, her
or it in connection with this investment and has not reproduced the
Memorandum other than for the use of such advisors.
(b) STATUS AS A UNITED STATES PERSON. (i) Unless otherwise
indicated on the Partner Consent, Contributor certifies that Contributor is
not a foreign person within the meaning of Section 1445 of the Internal
Revenue Code ("Section 1445"). To the extent that Contributor is not a
foreign person within the meaning of Section 1445, (1) Contributor's U.S.
taxpayer identification number that has previously been provided to the
Partnership is accurate, (2) Contributor's home address (in the case of an
individual) or office address (in the case of an entity) is that address
indicated on Exhibit A of this Agreement and (3) if Contributor subsequently
becomes a foreign person within the meaning of Section 1445, Contributor
shall notify Operating Partnership within sixty (60) days of doing so.
(ii) If Contributor is a foreign person within the
meaning of Section 1445, Operating Partnership shall withhold ten percent
(10%) of the amount realized (as such term is defined in Section 1001 of the
Internal Revenue Code) by Contributor in connection with the Contribution,
unless Operating Partnership shall receives from Contributor a notice of
nonrecognition transfer with respect to the Contribution by Contributor (in a
form to be provided by Operating Partnership).
(c) INDEMNIFICATION. Contributor hereby agrees to indemnify
and hold harmless the Partnership, the REIT, Operating Partnership and the
General Partner and any of the employees, agents, officers, directors and
affiliated persons of the foregoing from any and all damages, losses, costs
and expenses (including reasonable attorneys' fees) which they, or any of
them, may incur by reason of a failure by Contributor to fulfill any of the
terms and conditions of
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this Agreement or by reason of the breach by Contributor of any of the
representations and warranties contained herein.
(d) WAIVER AND CONTRIBUTION. Contributor understands that (i)
the Units to be issued pursuant to the Consolidation have not been registered
under the Securities Act and (ii) the failure to register such Units could
result in Contributor being granted certain rights under the Federal
securities laws, including a right to rescind Contributor's consent to the
Consolidation. For the benefit of Operating Partnership, and in
consideration of Operating Partnership's consummating the Consolidation,
Contributor (x) hereby waives any and all rights he or she now has or may
hereafter be granted to rescind his or her consent to the Consolidation on
the basis that the Units issued in connection with the Consolidation were not
registered (the "Waiver") and (y) agrees that if the Waiver is deemed void or
unenforceable for any reason, including, without limitation, under Section 14
of the Securities Act, the entire beneficial interest in all property and
amounts received by Contributor in any action to rescind the Consolidation
(regardless of whether such action was initiated by Contributor) or otherwise
received by Contributor as damages for failure to register the Units under
the Securities Act, shall be promptly paid over and contributed by
Contributor to Operating Partnership, for no additional consideration from
Operating Partnership, other than the Units originally issued pursuant to the
Consolidation.
Whenever the context shall require, all words in the male, female or
neuter gender shall be deemed to include the other genders, all singular
words shall include the plural, and all plural words shall include the
singular. All representations, covenants and agreements of Contributor set
forth in this Agreement shall survive the consummation of the Consolidation
contemplated by the Memorandum.
7. CONDITIONS TO COMPLETION. In addition to the conditions to
completion of the Consolidation set forth in the Memorandum, the obligations
of Operating Partnership to consummate the transactions contemplated by this
Agreement shall be subject to fulfillment (or waiver by Operating
Partnership) at or prior to the Closing of the following conditions:
7.1 REPRESENTATIONS, WARRANTIES AND COVENANTS. The
representations, warranties and covenants made by Contributors in this
Agreement or in any document delivered by any of them pursuant to this
Agreement shall be true and correct in all material respects when made and on
and as of the Closing as though such representations, warranties and
covenants were made on and as of such date.
7.2 ACTIONS AFFECTING CONTRIBUTED INTERESTS. Contributors shall
not have sold, assigned, leased, pledged, transferred or encumbered any of
the Contributed Interests, or entered into any other consent, commitment,
understanding or other agreement, or have incurred any material obligation or
liability (contingent or absolute) with respect to the Contributed Interests.
7.3 NO MATERIAL ADVERSE CHANGE. There shall have been no material
adverse change in the value or condition of the Partnership or the Property
since the date hereof, except for changes resulting from the operation of the
Partnership in the ordinary course of business consistent with past practice
or as otherwise contemplated by the Memorandum, in each case that do not have
a material adverse effect on the business or financial condition of the
Partnership.
7.4 CONSENTS. Any and all consents required by the Partnership
Agreement of the Partnership, and any certificates, agreements, contribution
and assumption instruments and other documents necessary or advisable to
evidence the conveyance of the Contributed Interests and
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the admission of Operating Partnership (or Designated Subsidiary) into the
Partnership by virtue of the contribution of the Contributed Interests, shall
have been obtained.
7.5 NO ORDER OR INJUNCTION. The consummation of the Contributions
shall not have been restrained, enjoined or prohibited by any order or
injunction of any court or governmental authority of competent jurisdiction.
7.6 CONSOLIDATION. In addition to the consents set forth in
Section 7.4 above, all conditions to the closing of the Consolidation set
forth in the underwriting agreement with respect to the Offering shall have
been satisfied on terms satisfactory to Operating Partnership and the General
Partner.
8. THE CLOSING.
8.1 CONTRIBUTORS' CLOSING DOCUMENTS. At Closing, each Contributor
shall deliver (or cause to be delivered pursuant to the Power of Attorney
referred to in Section 11.9) or the General Partner shall deliver the
following (all of which shall be duly executed and acknowledged where
required):
(a) A written document of conveyance contributing to Operating
Partnership (and/or any Designated Subsidiary) title to Contributor's
Contributed Interests, free and clear of any adverse claim or interest;
(b) Such documents and certificates as Operating Partnership
reasonably may require to establish the authority of the parties executing
any documents in connection with the Contributions;
(c) Such consents and instruments of admission as contemplated
by Section 7.4 hereof; and
(d) Such other documents, instruments and certificates as
Operating Partnership and the General Partner, as agent for the Contributors,
reasonably agree are necessary or appropriate, including without limitation
recording and transfer forms and affidavits.
8.2 OPERATING PARTNERSHIP'S CLOSING DOCUMENTS. At Closing,
Operating Partnership shall deliver or cause to be delivered to the General
Partner, as agent for the Contributors, the following:
(a) The Units; and
(b) Such other documents and instruments as the General
Partner, as agent for the Contributors, and Operating Partnership agree are
necessary or appropriate, including without limitation recording and transfer
forms and affidavits.
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9. TRANSFER TAXES AND CLOSING COSTS.
(a) The General Partner and Operating Partnership shall join
on the Closing Date in completing, executing, delivering and verifying the
returns, affidavits and other documents required in connection with the
documentary stamps in accordance with the New York State Real Estate Transfer
Tax imposed by Article 31 of the Tax Law, the New York City Real Property
Transfer Tax imposed by Title II of Chapter 46 of the Administrative Code of
the City of New York, and any other tax payable by reason of the contribution
of the Contributed Interests (collectively, the "Conveyance Taxes").
(b) The Contributors hereby agree to pay and shall be solely
responsible for the Conveyance Taxes due on the conveyance of the Contributed
Interests. Using the amount distributed to the General Partner pursuant to
Section 2(b) hereof, the General Partner, as agent for the Contributors,
shall timely pay to the appropriate tax collecting agency or official the
amount of all Conveyance Taxes payable by reason of the Contributors'
agreement to pay the Conveyance Taxes. The Contributors shall indemnify,
defend and hold harmless Operating Partnership and the Partnership from and
against all claims, liabilities, costs and expenses (including reasonable
attorney's fees), incurred by Operating Partnership or the Partnership by
reason of the failure of the Contributors to pay any Conveyance Taxes
assessed or alleged to be due at any time with respect to the transfer of the
Interests to Operating Partnership, including, without limitation, all
interest and penalties thereon.
(c) Operating Partnership shall also pay or provide for the
payment of all other costs associated with the closing of the acquisition of
the Contributed Interests pursuant to this Agreement, as described in the
Memorandum.
10. OPERATION IN THE ORDINARY COURSE. The General Partner shall
use reasonable efforts to operate the Partnership and the Property in the
ordinary course of business between the date hereof and the closing of the
Consolidation, including making any necessary capital expenditures and
leasing expenditures consistent with past practices to maintain the quality
and value of the Property.
11. GENERAL PROVISIONS.
11.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. It is the express
intention and agreement of the parties hereto that the representations and
warranties of the parties set forth in this Agreement shall survive the
consummation of the Contributions and the Closing.
11.2 NOTICES. All notices, demands, requests or other
communications that may be or are required to be given or made by any party
to the other parties pursuant to this Agreement shall be in writing and shall
be hand delivered or transmitted by certified mail, express overnight mail or
delivery service, telegram, telex or facsimile transmission to the parties at
the addresses specified in Exhibit A or such other address as the addressee
may indicate by written notice to the other party.
Each notice, demand, request or communication that is given or made
in the manner described above shall be deemed sufficiently given or made for
all purposes at such time as it is delivered to the addressee (with the
delivery receipt, the affidavit of messenger or (with respect to a telex) the
answer back being deemed conclusive but not exclusive evidence of such
delivery) or at such time as delivery is refused by the addressee upon
presentation.
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11.3 GOVERNING LAW. This Agreement, the rights and obligations of
the parties hereto and any claims or disputes relating to such rights and
obligations shall be governed by and construed under the laws of the State of
New York.
11.4 HEADINGS. Section and subsection headings contained in this
Agreement are inserted for convenience of reference only, shall not be deemed
to be a part of this Agreement for any purpose, and shall not in any way
define or affect the meaning, construction or scope of any of the provisions
hereof.
11.5 BENEFIT AND ASSIGNMENT. No Contributor shall assign this
Agreement, in whole or in part, whether by operation of law or otherwise,
without the prior written consent of Operating Partnership. Any purported
assignment contrary to the terms hereof shall be null, void and of no force
and effect.
This Agreement shall be binding upon and shall inure to the benefit
of the parties hereto and their respective successors and assigns as
permitted hereunder. No person or entity other than the parties hereto is or
shall be entitled to bring any action to enforce any provision of this
Agreement against any of the parties hereto, and the covenants and agreements
set forth in this Agreement shall be solely for the benefit of, and shall be
enforceable only by, the parties hereto or their respective successors and
assigns as permitted hereunder.
The Operating Partnership may designate one or more Designated
Subsidiaries to acquire all or any part of the Contributed Interests (in
which case the Designated Subsidiary shall execute a certificate at closing
making the same representations and warranties as are made by Operating
Partnership and references to Operating Partnership shall include the
Designated Subsidiaries except where the context clearly indicates otherwise).
11.6 SEVERABILITY. If any part of any provision of this Agreement
or any other agreement, document or writing given pursuant to or in
connection with this Agreement shall be invalid or unenforceable under
applicable law, such part shall be ineffective to the extent of such
invalidity or unenforceability only, without in any way affecting the
remaining parts of such provisions or the remaining provisions of said
agreement so long as the economic and legal substance of the Contributions is
not affected in any manner materially adverse to either party.
11.7 ENTIRE AGREEMENT; AMENDMENT. The Schedules and the Exhibits
attached hereto are hereby incorporated into the Agreement as if fully set
forth herein. This Agreement, and the Schedules and Exhibits attached hereto
(each of which shall be deemed incorporated herein and made a part hereof),
together with the Memorandum, contain the final and entire agreement between
the parties hereto with respect to the Contributions, supersede all prior
oral and written memoranda and agreements with respect to the matters
contemplated herein, and are intended to be an integration of all prior
negotiations and understandings. Contributors and Operating Partnership
shall not be bound by any terms, conditions, statements, warranties or
representations, oral or written, not contained or referred to herein or
therein. No change or modification of this Agreement shall be valid unless
the same is in writing and signed by the parties hereto.
11.8 NO WAIVER. No delay or failure on the part of any party hereto
in exercising any right, power or privilege under this Agreement or under any
other instrument or document given in connection with or pursuant to this
Agreement shall impair any such right, power or privilege or be construed as
a waiver of any default or any acquiescence therein. No single or partial
exercise of any such right, power or privilege shall preclude the further
exercise of such right, power or privilege. No waiver shall be valid against
any party hereto unless made in writing
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and signed by the party against whom enforcement of such waiver is sought and
then only to the extent expressly specified therein.
11.9 CONSENT AND POWER OF ATTORNEY. The General Partner hereby
consents to the contribution of the Contributed Interests pursuant hereto by
each of the Contributors. Each Contributor is executing a Partner Consent
pursuant to which such Contributor (a) is executing this Agreement and (b) is
consenting to each matter set forth therein. In addition, by executing this
Agreement pursuant to the Consent, each Contributor is constituting and
appointing each of David R. Greenbaum, John J. Silberstein and Christopher G.
Bonk, individually, with full power of substitution, the true and lawful
attorney-in-fact (the "Attorney") of such Contributor, with full power and
authority in the name of and for and on behalf of such Contributor, to
execute an instrument of conveyance contributing his, her or its Contributed
Interests to Operating Partnership pursuant to the Consolidation on the terms
set forth in the Memorandum, to execute the Partnership Agreement of
Operating Partnership and the Registration Rights Agreement (as such term is
defined in the Memorandum) and to execute any instruments required to be
filed in connection with the Conveyance Taxes, and to execute any other
instruments that the General Partner reasonably determines necessary or
appropriate in connection with the contribution of the Interests pursuant to
this Agreement.
Each Contributor shall promptly notify the General Partner if any of
the representations and warranties by that partner were not true and correct
when made or become untrue at any time prior to the Closing.
IN WITNESS WHEREOF, each of the Contributors has executed a separate
Partner Consent agreeing to be bound by the terms of the Agreement and each
of Operating Partnership, and the General Partner has caused this Agreement
to be duly executed and delivered on its or his behalf as of the date first
above written.
THE MENDIK COMPANY, L.P.
By: Mendik Group, Inc.
By:
--------------------------------
Name:
Title:
--------------------------
Bernard H. Mendik
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AGREEMENT FOR CONTRIBUTION OF INTERESTS
[866 U.N. PLAZA]
THIS AGREEMENT for the Contribution of Interests (this "Agreement")
is made and entered into as of _____________, 1996, by and among The Mendik
Company, L.P. ("Operating Partnership"), a Delaware limited partnership,
whose managing general partner is Mendik Group, Inc. (the "REIT"), a Delaware
corporation, each of the parties listed on Exhibit A annexed hereto who
executes a Partner Consent (hereinafter defined) agreeing to become a party
to this Agreement (collectively referred to herein as "Contributors") and
Bernard H. Mendik (in his capacity as a managing member of the Company
(hereinafter defined), the "Managing Member").
WHEREAS, it is desired to consolidate (the "Consolidation")
interests in up to seven general or limited partnerships or limited liability
companies of which the Managing Member or an affiliate is a general partner,
together with the assets of Mendik Realty Company, Inc. and Mendik Management
Company, Inc., each a New York corporation and affiliate of the Managing
Member, with and into Operating Partnership and to effect the initial public
offering (the "Offering") of shares of common stock of the REIT ("Common
Stock").
WHEREAS, prior to the Consolidation, the REIT shall merge into The
Mendik Company, Inc., a Maryland corporation, and from and after such merger,
all references herein to the REIT shall refer to The Mendik Company, Inc.
WHEREAS, Contributors are owners of interests (the "Contributed
Interests") in 866 U.N. Plaza Associates LLC, a New York limited liability
company (the "Company"), which Company owns land and improvements (the
"Property") known as 866 U.N. Plaza, New York, New York;
WHEREAS, in connection with the consummation of the Consolidation
and the Offering, the parties hereto desire that Operating Partnership and,
if designated by Operating Partnership, one or more special purpose
subsidiary partnerships or limited liability companies of Operating
Partnership or one or more other entities controlled by Operating Partnership
(each a "Designated Subsidiary") acquire all of the interests in the Company
through the contribution of such interests to Operating Partnership and/or
one or more Designated Subsidiaries upon the terms and conditions provided
herein; and
WHEREAS, if the holders of all of the interests in the Company do
not execute the Partner Consent annexed to and made a part of the Memorandum
(the "Partner Consent"), it is contemplated that Operating Partnership may
attempt to effect the Consolidation in another manner, through a transfer of
the Property to Operating Partnership (or a Designated Subsidiary) or merger
of the Company with Operating Partnership (or a Designated Subsidiary) or
other means.
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises and covenants set forth herein, Operating Partnership, Contributors
and the Managing Member hereby agree as follows:
1. CONTRIBUTIONS. Upon the Closing (hereinafter defined), and
subject to the satisfaction or waiver by Operating Partnership of the
conditions set forth in Section 7 of this Agreement, Contributors shall
contribute, convey and assign to Operating Partnership (and/or Designated
Subsidiary) and Operating Partnership (and/or Designated Subsidiary) shall
acquire from Contributors all of Contributors' right, title and interest in
the Contributed Interests (the "Contributions"), including, without
limitation, all of Contributors' interest in the profits, losses, property
and capital of the Company allocable to the Contributed Interests, and for
each
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Contributor who receives additional Units pursuant to Section 2(f) hereof,
the cash distribution to that Contributor pursuant to the first sentence of
Section 2(e) hereof, upon the terms and conditions set forth in this
Agreement.
2. CONSIDERATION; DISTRIBUTIONS PRIOR TO CLOSING.
(a) In full consideration for the contribution of the
Contributed Interests, Operating Partnership shall deliver to Contributors at
the Closing, (i) with respect to the Property Value (as such term is defined
in the Memorandum), units of limited partnership interests ("Units") in
Operating Partnership determined in accordance with the methodology described
in the Confidential Solicitation of Consents and Private Placement Memorandum
(the "Memorandum") dated November 11, 1996, and (ii) additional Units as
determined in accordance with Section 2(b) hereof.
(b) If the sum of (i) the aggregate amount of the Net Other
Assets (hereinafter defined) of the Company as of the close of business on
the day preceding the date of the Closing (the "Closing Date"), plus (ii) the
amount distributed pursuant to the first sentence of Section 2(e) hereof,
plus (iii) 7% of the Cash Amount (as defined in Section 2(e) hereof) exceeds
$9,250,000, Operating Partnership may elect to include all or any portion of
such excess Net Other Assets (the "Included Excess Net Other Assets") in the
transaction and issue Units (valued at the Final Offering Price (as such term
is defined in the Memorandum) of the shares of Common Stock in the Offering)
with a value equal to the amount of the Included Excess Net Other Assets; on
the Closing Date, immediately prior to the Closing, the Managing Member shall
cause the Company to distribute to its members an amount equal to any Net
Other Assets which are in excess of $9,250,000 plus the Included Excess Net
Other Assets.
If the sum of (i) the aggregate amount of the Net Other
Assets of the Company as of the close of business on the day preceding the
Closing Date, plus (ii) the amount distributed pursuant to the first sentence
of Section 2(e) hereof, plus (iii) 7% of the Cash Amount (as defined in
Section 2(e) hereof) is less than $9,250,000, Operating Partnership may
terminate this Agreement by notice to Contributors.
As used in this Agreement, the following terms have the
following meanings:
(i) "Net Other Assets" means the excess of Certain Other
Assets over Certain Other Liabilities (as such terms are hereinafter defined).
(ii) "Certain Other Assets" means cash and cash
equivalents (excluding 7% of the Cash Amount (as defined in Section 2(e)
hereof)), marketable securities, accounts receivable (including any rent
escalations payable with respect to the period through the Closing Date, but
excluding any receivables with respect to any period after the month in which
the Closing occurs, as well as any amount payable after the month in which
the Closing occurs to the extent such amount has been recognized as income
prior to the Closing), prepaid expenses (excluding any prepaid leasing costs
relating to leases entered into prior to October 1, 1996), escrow deposits
made by the Company, capital expenditures (other than tenant improvements or
building improvements required by the terms of any lease and other than those
committed capital expenditures listed on Exhibit B annexed hereto) made on or
after October 1, 1996, amounts paid for leasing costs, tenant and building
improvements or tenant acquisition costs relating to (1) leases entered into
on or after October 1, 1996 and (2) leases entered into prior to October 1,
1996, but only to the extent of any leasing expenditures with respect to such
leases entered into prior to October 1, 1996 which are set forth on Exhibit C
annexed hereto. For the purpose of calculating Certain Other
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Assets, the accounts receivable of the Company shall be valued at the face
amount of the accounts receivable, net of a reserve for doubtful accounts
determined in accordance with generally accepted accounting principles
consistently applied (but without giving effect to the straight line
requirement of FASB 13).
(iii) "Certain Other Liabilities" means accounts payable,
accrued interest payable and other accrued liabilities (including any
liability or obligation for leasing costs, tenant or building improvements or
tenant acquisition costs payable relating to leases entered into prior to
October 1, 1996 but excluding any liability or obligation for leasing costs,
tenant or building improvements or tenant acquisition costs payable relating
to (1) leases entered into on or after October 1, 1996 and (2) leases entered
into prior to October 1, 1996, but only to the extent of any leasing
expenditures with respect to such leases entered into prior to October 1,
1996 which are set forth on Exhibit C annexed hereto), the unpaid remaining
cost of any committed capital expenditures listed on Exhibit B annexed hereto
and prepaid rent received from tenants.
For purposes of this Section 2, the exercise of an option
to renew a lease or to rent additional space pursuant to a lease shall be
deemed a new lease entered into on the date the renewal option is exercised
or the additional space is leased.
(c) The Managing Member shall prepare and submit to Operating
Partnership, not later than five days prior to the Closing Date, its best,
good faith estimate of the Net Other Assets as of the close of business on
the day preceding the Closing Date; such estimate shall be determined based
upon the books and records of the Company. The estimate submitted to
Operating Partnership shall be accompanied by (i) a statement setting forth
in reasonable detail the calculation of the estimated Net Other Assets as of
the close of business on the day preceding the Closing Date, and (ii) a
certificate signed by the Managing Member confirming that the estimate was
calculated in accordance with the terms of this Section 2. The estimate
shall be final and binding on the parties unless, at least two days prior to
the Closing, Operating Partnership gives written notice to the Managing
Member that it objects to any item. The Operating Partnership and the
Managing Member shall immediately consult with respect to any item objected
to and their joint determination with respect to any items in dispute shall
be final and binding on the parties. The number of additional Units to be
delivered at Closing shall be based on the statement of Net Other Assets
delivered by the Managing Member (or the undisputed amount of Net Other
Assets) and the amount of Included Excess Net Other Assets based thereon. If
Operating Partnership and the Managing Member are unable to reach agreement
on the amount of Net Other Assets prior to Closing, within ten days after the
Closing, the dispute shall be referred to and resolved by a "Big 6" firm of
independent certified public accountants proposed by Operating Partnership
and reasonably acceptable to the Managing Member, and the determination by
that accounting firm shall be final and binding on the parties. Promptly
after that determination, Operating Partnership shall deliver to the Managing
Member, as agent for the Contributors, any additional Units payable as a
result of the determination. The fees and expenses of the accounting firm
shall be borne by Operating Partnership.
(d) Any amounts collected by Operating Partnership after the
Closing Date relating to the period through the Closing Date with respect to
refunds of real estate taxes (less any costs incurred by Operating
Partnership in obtaining such refunds and less any portion of such refunds
required to be paid to tenants) shall be promptly paid to the Managing
Member, as agent for the Contributors, not later than 10 days after the end
of the month in which such amounts are collected.
(e) As of the close of business on the day preceding the
Closing, the Managing Member shall cause the Company to distribute to its
members 93% of the Cash Amount
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(as defined below), up to a maximum distribution of $7,440,000, provided that
no such distribution shall reduce the Net Other Assets at Closing below
$1,250,000. On the Closing Date, the Managing Member shall cause the Company
to distribute to the Managing Member, as agent for the members, approximately
$750,000 to pay the Conveyance Taxes (hereinafter defined) payable by them
pursuant to Section 9(b) hereof, but such amount shall be deducted prior to
the calculation of Net Other Assets. "Cash Amount" means the amount of cash
of the Company as of the close of business on the day preceding the Closing
(in excess of the $750,000 referred to in the preceding sentence), up to a
maximum amount of $8,000,000, but excluding any cash that cannot be
distributed pursuant to the proviso to the first sentence of this Section
2(e).
(f) At the Closing, each Contributor who does not elect on the
Partner Consent to retain the cash distribution to be made pursuant to the
first sentence of Section 2(e) hereof shall exchange all or any portion of
the cash so distributed to the Contributor for additional Units (valued at
93% of the Final Offering Price of the shares of Common Stock in the
Offering).
3. ACCEPTANCE OF CONTRIBUTIONS. Operating Partnership hereby
agrees that at the Closing it shall accept the Contributions and shall assume
any and all rights, obligations and responsibilities of Contributors as
owners of the Contributed Interests that arise from and after the Closing
Date.
4. CLOSING TIME AND PLACE. Unless another date or place is agreed
to by the parties, the closing of the Contributions (the "Closing") shall
take place contemporaneously with the closing of the Consolidation and the
Offering at the offices of Proskauer Rose Goetz & Mendelsohn LLP, 1585
Broadway, New York, New York 10036, or such other place and time as Operating
Partnership and the Managing Member shall agree upon, upon the satisfaction
or waiver of all conditions to the Closing set forth in Section 7 hereof.
5. REPRESENTATIONS AND WARRANTIES OF OPERATING PARTNERSHIP.
Operating Partnership hereby represents and warrants to Contributors as
follows, which representations and warranties shall be true and correct on
the Closing Date:
5.1 ORGANIZATION, POWER AND AUTHORITY, AND QUALIFICATION. Operating
Partnership is a limited partnership duly organized, validly existing and in
good standing under the laws of the State of Delaware. The REIT is a
corporation duly organized, validly existing and in good standing under the
laws of its state of incorporation. Each of Operating Partnership and the
REIT has the requisite power and authority to carry on its respective
business as it is now being conducted. Each of Operating Partnership and the
REIT is qualified to do business and is in good standing in each jurisdiction
in which the character of its property owned or leased or the nature of its
activities makes such qualification necessary, except where the failure to be
so qualified and in good standing would not have a material adverse effect on
the business or financial condition of Operating Partnership or the REIT, as
the case may be.
5.2 AUTHORITY RELATIVE TO THIS AGREEMENT. Operating Partnership
has taken all action necessary to authorize the execution, delivery and
performance of this Agreement by Operating Partnership and no other
proceedings on the part of Operating Partnership are necessary to authorize
the execution and delivery of this Agreement and the consummation of the
Contributions.
None of the execution and delivery of this Agreement by Operating
Partnership, the consummation by Operating Partnership of the Contributions
or compliance by Operating Partnership with any of the provisions hereof
shall (i) conflict with or result in any breach of any provisions of the
Partnership Agreement of Operating Partnership; (ii) result in a violation or
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breach of, or constitute (with or without due notice or lapse of time or
both) a default (or give rise to any right of termination, cancellation or
acceleration) under any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, lease, license, contract, agreement or other
instrument or obligation to which Operating Partnership is a party or by
which it or any of its properties or assets may be bound; or (iii) violate
any order, writ, injunction, decree, statute, rule or regulation applicable
to Operating Partnership; except in the case of (ii) or (iii) for violations,
breaches, or defaults (A) that would not in the aggregate have a material
adverse effect on the business or financial condition of Operating
Partnership or the REIT, and that shall not impair the effectiveness of the
Contributions contemplated hereby, or (B) for which waivers or consents have
been or shall be obtained prior to the Closing Date.
5.3 BINDING OBLIGATION. This Agreement has been duly and validly
executed and delivered by Operating Partnership and constitutes a valid and
binding agreement of Operating Partnership, enforceable against Operating
Partnership in accordance with its terms, except that such enforcement may be
subject to bankruptcy, conservatorship, receivership, insolvency, moratorium,
or similar laws affecting creditors' rights generally or the rights of
creditors of limited partnerships and to general principles of equity.
5.4 INSOLVENCY. There are no attachments, executions or
assignments for the benefit of creditors, or voluntary or involuntary
proceedings in bankruptcy, or under any other debtor relief laws,
contemplated by or pending or threatened against Operating Partnership.
5.5 BROKERS. Neither Operating Partnership nor the REIT has
employed or dealt with any broker or finder, or incurred any liability
therefor, in connection with the Contributions.
5.6 VALID CONSIDERATION. The Units, when issued in accordance with
this Agreement and the Operating Agreement of Operating Partnership, shall be
duly and validly issued, fully paid and nonassessable, and the issuance
thereof shall not be subject to preemptive or other similar rights.
6. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF CONTRIBUTORS.
Each Contributor, in his, her or its capacity as a partner of the Company,
hereby represents and warrants to and agrees with Operating Partnership with
respect to his, her or its Contributed Interests as follows, which
representations and warranties shall be true and correct on the Closing Date:
6.1 TITLE; AUTHORITY TO ASSIGN. Contributor (i) owns good and
marketable, legal and beneficial title in and to his, her or its Contributed
Interests which are held or by the Closing Date shall be held free of liens,
encumbrances, judgments, adverse interests, pledges and security interests,
other than any such interests in the Contributed Interests granted pursuant
to the Operating Agreement of the Company, (ii) holds the entire right, title
and interest in and to his, her or its Contributed Interests, and (iii) has
the full right, power, capacity and authority to validly contribute and
convey his, her or its Contributed Interests pursuant to this Agreement.
6.2 NO BREACH OF OPERATING AGREEMENT. None of the execution and
delivery of this Agreement by Contributor, the consummation by Contributor of
the Contribution or compliance by Contributor with any of the provisions
hereof shall as of the Closing Date conflict with or result in any breach of
any provisions of the Operating Agreement of the Company or any other
agreement to which Contributor is a party.
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6.3 INSOLVENCY. There are no attachments, executions or
assignments for the benefit of creditors, or voluntary or involuntary
proceedings in bankruptcy, or under any other debtor relief laws,
contemplated by or pending or, to the knowledge of Contributor, threatened
against Contributor.
6.4 LITIGATION. Contributor has no knowledge of any actual or
pending litigation or proceeding by any organization, person, individual or
governmental agency against Contributor with respect to or against or
potentially affecting his, her or its Contributed Interests.
6.5 BINDING OBLIGATION, ETC. This Agreement has been duly and
validly executed and delivered by Contributor to Operating Partnership and
constitutes a legal, valid and binding agreement of Contributor, enforceable
against Contributor in accordance with its terms, except as such enforcement
may be limited by bankruptcy, conservatorship, receivership, insolvency,
moratorium or similar laws affecting creditors' rights generally and to
general principles of equity. Contributor further represents and warrants
that if Contributor is a corporation, partnership, trust or other entity, it
has the power to, and is duly authorized and otherwise duly qualified to,
purchase and hold securities such as Units and shares of Common Stock and
such entity has its principal place of business as set forth on Exhibit A.
6.6 BROKERS. Contributor has not employed or dealt with any broker
or finder, or incurred any liability therefor, in connection with the
Contribution.
6.7 SECURITIES ACT AND OTHER REPRESENTATIONS AND AGREEMENTS.
(a) (i) Upon the issuance of Units to Contributor,
Contributor shall become subject to, and shall be bound by, the terms and
provisions of the Partnership Agreement of Operating Partnership, including
the terms of the power of attorney contained in Section 15.11 thereof, as the
Partnership Agreement may be amended and restated from time to time in
accordance with its terms.
(ii) Contributor or his, her or its advisor(s) have had a
reasonable opportunity to ask questions of and receive information and
answers from a person or persons acting on behalf of the Company concerning
the Consolidation, and, as Contributor may deem necessary, to verify the
information contained in the Memorandum, receipt of which is acknowledged,
and any other information provided to Contributor by the Company or Operating
Partnership and all such questions have been answered and all such
information has been provided to the full satisfaction of Contributor.
(iii) Contributor is acquiring Units for his, her or its
own account as principal, for investment and not with a view to resale or
distribution, that the shares of Common Stock of the REIT which may be
obtained upon redemption of the Units may not be transferred or otherwise
disposed of by Contributor otherwise than in transactions pursuant to the
registration statement required to be filed by the Company with respect to
such shares of Common Stock or that are exempt from the registration
requirements of the Securities Act of 1933 (the "Securities Act") and all
applicable state and foreign securities laws, and that the REIT may refuse to
transfer any shares of Common Stock as to which evidence of such registration
or exemptions from such registration satisfactory to the REIT is not provided
to it.
(iv) Contributor has sufficient knowledge and experience
in financial, tax and business matters to enable him, her or it to evaluate
the merits and risks of an investment in the Units. Contributor has the
ability to bear the economic risk of acquiring the Units. Contributor
acknowledges that (1) the transactions contemplated by this Agreement and the
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Memorandum involve complex tax consequences for each Contributor and each
Contributor is relying solely on the advice of his, her or its own tax
advisors in evaluating such consequences, and (2) neither Operating
Partnership nor the Managing Member has made (or shall be deemed to have
made) any representations or warranties as to the tax consequences of such
transaction to any Contributor. Each Contributor remains solely responsible
for all tax matters relating to each Contributor.
(v) If needed, Contributor has discussed with his, her or
its professional, legal, tax or financial advisors the suitability of an
investment in Units or shares of Common Stock for his, her or its particular
tax and financial situation. Nothing contained herein or in the Memorandum
shall be deemed to imply any representation by Operating Partnership or the
Managing Member as to a particular tax effect that may be obtained by any
Contributor. All information that Contributor has provided to Operating
Partnership concerning himself or herself or itself and his, her or its
financial position is correct and complete as of the date hereof, and if
there should be any material change in such information prior to issuance of
Units to the partners, he, she or it shall immediately provide such changed
information to Operating Partnership.
(vi) Contributor has not disclosed any information
contained in the Memorandum to anyone other than his or her spouse or his,
her or its professional, legal, tax or financial advisors advising him, her
or it in connection with this investment and has not reproduced the
Memorandum other than for the use of such advisors.
(b) STATUS AS A UNITED STATES PERSON. (i) Unless otherwise
indicated on the Partner Consent, Contributor certifies that Contributor is
not a foreign person within the meaning of Section 1445 of the Internal
Revenue Code ("Section 1445"). To the extent that Contributor is not a
foreign person within the meaning of Section 1445, (1) Contributor's U.S.
taxpayer identification number that has previously been provided to the
Partnership is accurate, (2) Contributor's home address (in the case of an
individual) or office address (in the case of an entity) is that address
indicated on Exhibit A of this Agreement and (3) if Contributor subsequently
becomes a foreign person within the meaning of Section 1445, Contributor
shall notify Operating Partnership within sixty (60) days of doing so.
(ii) If Contributor is a foreign person within the
meaning of Section 1445, Operating Partnership shall withhold ten percent
(10%) of the amount realized (as such term is defined in Section 1001 of the
Internal Revenue Code) by Contributor in connection with the Contributions,
unless Operating Partnership shall receives from Contributor a notice of
nonrecognition transfer with respect to the Contributions by Contributor (in
a form to be provided by Operating Partnership).
(c) INDEMNIFICATION. Contributor hereby agrees to indemnify
and hold harmless the Company, the REIT, Operating Partnership and the
Managing Member and any of the employees, agents, officers, directors and
affiliated persons of the foregoing from any and all damages, losses, costs
and expenses (including reasonable attorneys' fees) which they, or any of
them, may incur by reason of a failure by Contributor to fulfill any of the
terms and conditions of this Agreement or by reason of the breach by
Contributor of any of the representations and warranties contained herein.
(d) WAIVER AND CONTRIBUTION. Contributor understands that (i)
the Units to be issued pursuant to the Consolidation have not been registered
under the Securities Act and (ii) the failure to register such Units could
result in Contributor being granted certain rights under the Federal
securities laws, including a right to rescind Contributor's consent to the
Consolidation. For the benefit of Operating Partnership, and in
consideration of Operating Partnership's
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consummating the Consolidation, Contributor (x) hereby waives any and all
rights he or she now has or may hereafter be granted to rescind his or her
consent to the Consolidation on the basis that the Units issued in connection
with the Consolidation were not registered (the "Waiver") and (y) agrees that
if the Waiver is deemed void or unenforceable for any reason, including,
without limitation, under Section 14 of the Securities Act, the entire
beneficial interest in all property and amounts received by Contributor in
any action to rescind the Consolidation (regardless of whether such action
was initiated by Contributor) or otherwise received by Contributor as damages
for failure to register the Units under the Securities Act, shall be promptly
paid over and contributed by Contributor to Operating Partnership, for no
additional consideration from Operating Partnership, other than the Units
originally issued pursuant to the Consolidation.
Whenever the context shall require, all words in the male, female or
neuter gender shall be deemed to include the other genders, all singular
words shall include the plural, and all plural words shall include the
singular. All representations, covenants and agreements of Contributor set
forth in this Agreement shall survive the consummation of the Consolidation
contemplated by the Memorandum.
7. CONDITIONS TO COMPLETION. In addition to the conditions to
completion of the Consolidation set forth in the Memorandum, the obligations
of Operating Partnership to consummate the transactions contemplated by this
Agreement shall be subject to fulfillment (or waiver by Operating
Partnership) at or prior to the Closing of the following conditions:
7.1 REPRESENTATIONS, WARRANTIES AND COVENANTS. The
representations, warranties and covenants made by Contributors in this
Agreement or in any document delivered by any of them pursuant to this
Agreement shall be true and correct in all material respects when made and on
and as of the Closing as though such representations, warranties and
covenants were made on and as of such date.
7.2 ACTIONS AFFECTING CONTRIBUTED INTERESTS. Contributors shall
not have sold, assigned, leased, pledged, transferred or encumbered any of
the Contributed Interests, or entered into any other consent, commitment,
understanding or other agreement, or have incurred any material obligation or
liability (contingent or absolute) with respect to the Contributed Interests.
7.3 NO MATERIAL ADVERSE CHANGE. There shall have been no material
adverse change in the value or condition of the Company or the Property since
the date hereof, except for changes resulting from the operation of the
Company in the ordinary course of business consistent with past practice or
as otherwise contemplated by the Memorandum, in each case that do not have a
material adverse effect on the business or financial condition of the Company.
7.4 CONSENTS. Any and all consents required by the Operating
Agreement of the Company, and any certificates, agreements, contribution and
assumption instruments and other documents necessary or advisable to evidence
the conveyance of the Contributed Interests and the admission of Operating
Partnership (or Designated Subsidiary) into the Company by virtue of the
contribution of the Contributed Interests, shall have been obtained.
7.5 NO ORDER OR INJUNCTION. The consummation of the Contributions
shall not have been restrained, enjoined or prohibited by any order or
injunction of any court or governmental authority of competent jurisdiction.
7.6 CONSOLIDATION. In addition to the consents set forth in
Section 7.4 above, all conditions to the closing of the Consolidation set
forth in the underwriting agreement with
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respect to the Offering shall have been satisfied on terms satisfactory to
Operating Partnership and the Managing Member.
8. THE CLOSING.
8.1 CONTRIBUTORS' CLOSING DOCUMENTS. At Closing, each Contributor
shall deliver (or cause to be delivered pursuant to the Power of Attorney
referred to in Section 11.9) or the Managing Member shall deliver the
following (all of which shall be duly executed and acknowledged where
required):
(a) A written document of conveyance contributing to Operating
Partnership (and/or any Designated Subsidiary) title to Contributor's
Contributed Interests, free and clear of any adverse claim or interest;
(b) Such documents and certificates as Operating Partnership
reasonably may require to establish the authority of the parties executing
any documents in connection with the Contributions;
(c) Such consents and instruments of admission as contemplated
by Section 7.4 hereof; and
(d) Such other documents, instruments and certificates as
Operating Partnership and the Managing Member, as agent for the Contributors,
reasonably agree are necessary or appropriate, including without limitation
recording and transfer forms and affidavits.
8.2 OPERATING PARTNERSHIP'S CLOSING DOCUMENTS. At Closing,
Operating Partnership shall deliver or cause to be delivered to the Managing
Member, as agent for the Contributors, the following:
(a) The Units; and
(b) Such other documents and instruments as the Managing
Member, as agent for the Contributors, and Operating Partnership agree are
necessary or appropriate, including without limitation recording and transfer
forms and affidavits.
9. TRANSFER TAXES AND CLOSING COSTS.
(a) The Managing Member and Operating Partnership shall join
on the Closing Date in completing, executing, delivering and verifying the
returns, affidavits and other documents required in connection with the
documentary stamps in accordance with the New York State Real Estate Transfer
Tax imposed by Article 31 of the Tax Law, the New York City Real Property
Transfer Tax imposed by Title II of Chapter 46 of the Administrative Code of
the City of New York, and any other tax payable by reason of the contribution
of the Contributed Interests (collectively, the "Conveyance Taxes").
(b) The Contributors hereby agree to pay and shall be solely
responsible for the Conveyance Taxes due on the conveyance of the Contributed
Interests. Using the amount distributed to the Managing Member pursuant to
Section 2(b) hereof, the Managing Member, as agent for the Contributors,
shall timely pay to the appropriate tax collecting agency or official the
amount of all Conveyance Taxes payable by reason of the Contributors'
agreement to pay the Conveyance Taxes. The Contributors shall indemnify,
defend and hold harmless Operating Partnership and the Company from and
against all claims, liabilities, costs and expenses (including
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reasonable attorney's fees), incurred by Operating Partnership or the Company
by reason of the failure of the Contributors to pay any Conveyance Taxes
assessed or alleged to be due at any time with respect to the transfer of the
Interests to Operating Partnership, including, without limitation, all
interest and penalties thereon.
(c) Operating Partnership shall also pay or provide for the
payment of all other costs associated with the closing of the acquisition of
the Contributed Interests pursuant to this Agreement, as described in the
Memorandum.
10. OPERATION IN THE ORDINARY COURSE. The Managing Member shall
use reasonable efforts to operate the Company and the Property in the
ordinary course of business between the date hereof and the closing of the
Consolidation, including making any necessary capital expenditures and
leasing expenditures consistent with past practices to maintain the quality
and value of the Property.
11. GENERAL PROVISIONS.
11.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. It is the express
intention and agreement of the parties hereto that the representations and
warranties of the parties set forth in this Agreement shall survive the
consummation of the Contributions and the Closing.
11.2 NOTICES. All notices, demands, requests or other
communications that may be or are required to be given or made by any party
to the other parties pursuant to this Agreement shall be in writing and shall
be hand delivered or transmitted by certified mail, express overnight mail or
delivery service, telegram, telex or facsimile transmission to the parties at
the addresses specified in Exhibit A or such other address as the addressee
may indicate by written notice to the other party.
Each notice, demand, request or communication that is given or made
in the manner described above shall be deemed sufficiently given or made for
all purposes at such time as it is delivered to the addressee (with the
delivery receipt, the affidavit of messenger or (with respect to a telex) the
answer back being deemed conclusive but not exclusive evidence of such
delivery) or at such time as delivery is refused by the addressee upon
presentation.
11.3 GOVERNING LAW. This Agreement, the rights and obligations of
the parties hereto and any claims or disputes relating to such rights and
obligations shall be governed by and construed under the laws of the State of
New York.
11.4 HEADINGS. Section and subsection headings contained in this
Agreement are inserted for convenience of reference only, shall not be deemed
to be a part of this Agreement for any purpose, and shall not in any way
define or affect the meaning, construction or scope of any of the provisions
hereof.
11.5 BENEFIT AND ASSIGNMENT. No Contributor shall assign this
Agreement, in whole or in part, whether by operation of law or otherwise,
without the prior written consent of Operating Partnership. Any purported
assignment contrary to the terms hereof shall be null, void and of no force
and effect.
This Agreement shall be binding upon and shall inure to the benefit
of the parties hereto and their respective successors and assigns as
permitted hereunder. No person or entity other than the parties hereto is or
shall be entitled to bring any action to enforce any provision of this
Agreement against any of the parties hereto, and the covenants and agreements
set forth in
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this Agreement shall be solely for the benefit of, and shall be enforceable
only by, the parties hereto or their respective successors and assigns as
permitted hereunder.
The Operating Partnership may designate one or more Designated
Subsidiaries to acquire all or any part of the Contributed Interests (in
which case the Designated Subsidiary shall execute a certificate at closing
making the same representations and warranties as are made by Operating
Partnership and references to Operating Partnership shall include the
Designated Subsidiaries except where the context clearly indicates otherwise).
11.6 SEVERABILITY. If any part of any provision of this Agreement
or any other agreement, document or writing given pursuant to or in
connection with this Agreement shall be invalid or unenforceable under
applicable law, such part shall be ineffective to the extent of such
invalidity or unenforceability only, without in any way affecting the
remaining parts of such provisions or the remaining provisions of said
agreement so long as the economic and legal substance of the Contributions is
not affected in any manner materially adverse to either party.
11.7 ENTIRE AGREEMENT; AMENDMENT. The Schedules and the Exhibits
attached hereto are hereby incorporated into the Agreement as if fully set
forth herein. This Agreement, and the Schedules and Exhibits attached hereto
(each of which shall be deemed incorporated herein and made a part hereof),
together with the Memorandum, contain the final and entire agreement between
the parties hereto with respect to the Contributions, supersede all prior
oral and written memoranda and agreements with respect to the matters
contemplated herein, and are intended to be an integration of all prior
negotiations and understandings. Contributors and Operating Partnership
shall not be bound by any terms, conditions, statements, warranties or
representations, oral or written, not contained or referred to herein or
therein. No change or modification of this Agreement shall be valid unless
the same is in writing and signed by the parties hereto.
11.8 NO WAIVER. No delay or failure on the part of any party hereto
in exercising any right, power or privilege under this Agreement or under any
other instrument or document given in connection with or pursuant to this
Agreement shall impair any such right, power or privilege or be construed as
a waiver of any default or any acquiescence therein. No single or partial
exercise of any such right, power or privilege shall preclude the further
exercise of such right, power or privilege. No waiver shall be valid against
any party hereto unless made in writing and signed by the party against whom
enforcement of such waiver is sought and then only to the extent expressly
specified therein.
11.9 CONSENT AND POWER OF ATTORNEY. The Managing Member hereby
consents to the contribution of the Contributed Interests pursuant hereto by
each of the Contributors. Each Contributor is executing a Partner Consent
pursuant to which such Contributor (a) is executing this Agreement, and (b)
is consenting to each matter set forth therein. In addition, by executing
this Agreement pursuant to the Consent, each Contributor is constituting and
appointing each of David R. Greenbaum, John J. Silberstein and Christopher G.
Bonk, individually, with full power of substitution, the true and lawful
attorney-in-fact (the "Attorney") of such Contributor, with full power and
authority in the name of and for and on behalf of such Contributor, to
execute an instrument of conveyance contributing his, her or its Contributed
Interests to Operating Partnership pursuant to the Consolidation on the terms
set forth in the Memorandum, to execute the Partnership Agreement of
Operating Partnership and the Registration Rights Agreement (as such term is
defined in the Memorandum) and to execute any instruments required to be
filed in connection with the Conveyance Taxes, and to execute any other
instruments that the Managing Member reasonably determines necessary or
appropriate in connection with the contribution of the Interests pursuant to
this Agreement.
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Each Contributor shall promptly notify the Managing Member if any of
the representations and warranties by that partner were not true and correct
when made or become untrue at any time prior to the Closing.
IN WITNESS WHEREOF, each of the Contributors has executed a separate
Partner Consent agreeing to be bound by the terms of the Agreement and each
of Operating Partnership, and the Managing Member has caused this Agreement
to be duly executed and delivered on its or his behalf as of the date first
above written.
THE MENDIK COMPANY, L.P.
By: Mendik Group, Inc.
By
---------------------------------
Name:
Title:
-----------------------------
Bernard H. Mendik
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AGREEMENT FOR CONTRIBUTION OF INTERESTS
[ELEVEN PENN PLAZA]
THIS AGREEMENT for the Contribution of Interests (this
"Agreement") is made and entered into as of ___________, 1996, by and among
The Mendik Company, L.P. ("Operating Partnership"), a Delaware limited
partnership, whose managing general partner is the Mendik Group, Inc. (the
"REIT"), a Delaware corporation, each of the parties listed on Exhibit A
annexed hereto who executes a Partner Consent (hereinafter defined) agreeing to
become a party to this Agreement (collectively referred to herein as
"Contributors") and Bernard H. Mendik (in his capacity as a general partner of
the Partnerships (hereinafter defined), the "General Partner").
WHEREAS, it is desired to consolidate (the "Consolidation")
interests in up to seven general or limited partnerships or limited liability
companies of which the General Partner or an affiliate is a general partner,
together with the assets of Mendik Realty Company, Inc. and Mendik Management
Company, Inc., each a New York corporation and affiliate of the General
Partner, with and into Operating Partnership and to effect the initial public
offering (the "Offering") of shares of common stock of the REIT ("Common
Stock").
WHEREAS, prior to the Consolidation, the REIT shall merge into
The Mendik Company, Inc., a Maryland corporation, and from and after such
merger, all references herein to the REIT shall refer to The Mendik Company,
Inc.
WHEREAS, Contributors are owners of interests (the "Contributed
Interests") in M/F Associates, a New York limited partnership, MS Associates,
a New York limited partnership, M/F Eleven Associates, a New York limited
Partnership and M/S Eleven Associates, a New York limited partnership
(collectively, the "Partnerships"), which together own all of the partnership
interests in M393 Associates, a New York general partnership, and M Eleven
Associates, a new York general partnership (collectively, the "Middle
Partnerships"), which together own all of the interests in Eleven Penn Plaza
Company, a New York joint venture ("Eleven Penn"), which owns land and
improvements (the "Property") known as Eleven Penn Plaza, New York, New York;
WHEREAS, in connection with the consummation of the Consolidation
and the Offering, the parties hereto desire that Operating Partnership and,
if designated by Operating Partnership, one or more special purpose
subsidiary partnerships or limited liability companies of Operating
Partnership or one or more other entities controlled by Operating Partnership
(each a "Designated Subsidiary") acquire all of the interests in the
Partnerships through the contribution of such interests to Operating
Partnership and/or one or more Designated Subsidiaries upon the terms and
conditions provided herein; and
WHEREAS, if the holders of all of the interests in the
Partnerships do not execute the Partner Consent annexed to and forming a part
of the Memorandum (the "Partner Consent"), it is contemplated that Operating
Partnership may purchase only those interests in the Partnerships owned by
the Contributors, or Operating Partnership and the Partnerships, the Middle
Partnerships and/or Eleven Penn may attempt to effect the Consolidation in
another manner.
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises and covenants set forth herein, Operating Partnership, Contributors
and the General Partner hereby agree as follows:
<PAGE>
1. CONTRIBUTIONS. Upon the Closing (hereinafter defined), and
subject to the satisfaction or waiver by Operating Partnership of the
conditions set forth in Section 7 of this Agreement, Contributors shall
contribute, convey and assign to Operating Partnership (and/or Designated
Subsidiary) and Operating Partnership (and/or Designated Subsidiary) shall
acquire from Contributors all of Contributors' right, title and interest in
the Contributed Interests (the "Contributions"), including, without
limitation, all of Contributors' interest in the profits, losses, property
and capital of the Partnership allocable to the Contributed Interests, upon
the terms and conditions set forth in this Agreement.
2. CONSIDERATION; DISTRIBUTIONS PRIOR TO CLOSING.
(a) In full consideration for the contribution of the
Contributed Interests, Operating Partnership shall deliver to Contributors at
the Closing, (i) with respect to the Property Value (as such term is defined
in the Memorandum) for the Property, units of limited partnership interests
("Units") in Operating Partnership, determined in accordance with the
methodology described in the Confidential Solicitation of Consents and
Private Placement Memorandum (the "Memorandum") dated November 11, 1996, and
(ii) additional Units as determined in accordance with Section 2(b) hereof.
(b) If the aggregate amount of the Net Other Assets
(hereinafter defined) of Eleven Penn as of the close of business on the day
preceding the date of the Closing (the "Closing Date") exceeds $0, Operating
Partnership may elect to include all or any portion of such excess Net Other
Assets (the "Included Excess Net Other Assets") in the transaction and issue
Units (valued at the Final Offering Price (as such term is defined in the
Memorandum) of the shares of Common Stock in the Offering) with a value equal
to the amount of the Included Excess Net Other Assets; on the Closing Date,
immediately prior to the Closing, the General Partner shall cause Eleven Penn
to distribute to the Middle Partnerships and the Middle Partnerships to
distribute to the Partnerships and the Partnerships to distribute their
partners an amount equal to any Net Other Assets which are in excess of the
Included Excess Net Other Assets; provided however, if less than all of the
partners of M/F Associates, M/F Eleven Associates, M/S Associates and M/S
Eleven Associates are Contributors, Operating Partnership shall issue Units
with respect to the Included Excess Net Other Assets allocable only to the
Contributors.
If the aggregate amount of the Net Other Assets of Eleven
Penn as of the close of business on the day preceding the Closing Date is
less than $0, then, Operating Partnership may terminate this Agreement by
notice to the Contributors.
As used in this Agreement, the following terms have the
following meanings:
(i) "Net Other Assets" means the excess of Certain Other
Assets over Certain Other Liabilities (as such terms are hereinafter
defined).
(ii) "Certain Other Assets" means cash and cash
equivalents, marketable securities, accounts receivable (including any rent
escalations payable with respect to the period through the Closing Date, but
excluding any receivable with respect to any period after the month in which
the Closing occurs, as well as any amount payable after the month in which
the Closing occurs to the extent such amount has been recognized as income
prior to the Closing), prepaid expenses (excluding any prepaid leasing costs
relating to leases entered into prior to October 1, 1996), escrow deposits
made by Eleven Penn, capital expenditures (other than tenant improvements or
building improvements required by the terms of any lease and other than those
committed capital expenditures listed on Exhibit B annexed hereto) made on or
after October 1,
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1996, amounts paid for leasing costs, tenant and building improvements or
tenant acquisition costs relating to (1) leases entered into on or after
October 1, 1996 and (2) leases entered into prior to October 1, 1996 but only
to the extent of any leasing expenditures with respect to such leases entered
into prior to October 1, 1996 which are set forth on Exhibit C annexed
hereto. For the purpose of calculating Certain Other Assets, the accounts
receivable of Eleven Penn shall be valued at the face amount of the accounts
receivable, net of a reserve for doubtful accounts determined in accordance
with generally accepted accounting principles consistently applied (but
without giving effect to the straight line requirement of FASB 13).
(iii) "Certain Other Liabilities" means accounts
payable, accrued interest payable and other accrued liabilities (including
any liability or obligation for leasing costs, tenant or building
improvements or tenant acquisition costs payable relating to leases entered
into prior to October 1, 1996, but excluding any liability or obligation for
leasing costs, tenant or building improvements or tenant acquisition costs
payable relating to (1) leases entered into on or after October 1, 1996 and
(2) leases entered into prior to October 1, 1996, but only to the extent of
any leasing expenditures with respect to such leases entered into prior to
October 1, 1996 which are set forth on Exhibit C annexed hereto), the unpaid
remaining cost of any committed capital expenditures listed on Exhibit B
annexed hereto and prepaid rent received from tenants.
For purposes of this Section 2, the exercise of an option
to renew a lease or to rent additional space pursuant to a lease shall be
deemed a new lease entered into on the date the renewal option is exercised
or the additional space is leased.
(c) The General Partner shall prepare and submit to Operating
Partnership, not later than five days prior to the Closing Date, its best,
good faith estimate of the Net Other Assets as of the close of business on
the day preceding the Closing Date; such estimate shall be determined based
upon the books and records of Eleven Penn. The estimate submitted to
Operating Partnership shall be accompanied by (i) a statement setting forth
in reasonable detail the calculation of the estimated Net Other Assets as of
the close of business on the day preceding the Closing Date, and (ii) a
certificate signed by the General Partner confirming that the estimate was
calculated in accordance with the terms of this Section 2. The estimate
shall be final and binding on the parties unless, at least two days prior to
the Closing, Operating Partnership gives written notice to the General
Partner that it objects to any item. The Operating Partnership and the
General Partner shall immediately consult with respect to any item objected
to and their joint determination with respect to any items in dispute shall
be final and binding on the parties. The number of additional Units to be
delivered at Closing shall be based on the statement of Net Other Assets
delivered by the General Partner (or the undisputed amount of Net Other
Assets) and the amount of Included Excess Net Other Assets based thereon. If
Operating Partnership and the General Partner are unable to reach agreement
on the amount of Net Other Assets prior to Closing, within ten days after the
Closing, the dispute shall be referred to and resolved by a "Big 6" firm of
independent certified public accountants proposed by Operating Partnership
and reasonably acceptable to the General Partner, and the determination by
that accounting firm shall be final and binding on the parties. Promptly
after that determination, Operating Partnership shall deliver to the General
Partner, as agent for the Contributors, any additional Units payable as a
result of the determination. The fees and expenses of the accounting firm
shall be borne by Operating Partnership.
(d) Any amounts collected by Operating Partnership after the
Closing Date relating to the period through the Closing Date with respect to
refunds of real estate taxes paid by Eleven Penn (less any costs incurred by
Operating Partnership in obtaining such refunds and less any portion of such
refunds required to be paid to tenants) shall be promptly paid to the General
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Partner, as agent for the Contributors, not later than 10 days after the end
of the month in which such amounts are collected.
(e) Prior to the close of business on the day preceding the
Closing, the General Partner shall cause each of the Middle Partnerships and
each of the Partnerships to satisfy any outstanding liabilities and, on the
Closing Date, the General Partner shall cause Eleven Penn to distribute to
the Partnerships and the Partnerships to distribute to the General Partners,
as agent for the Contributors, approximately $1,900,000 to pay the Conveyance
Taxes (hereinafter defined) payable by them pursuant to Section 9(b) hereof
(any amount so distributed by Eleven Penn to be deducted prior to the
calculation of Net Other Assets).
3. ACCEPTANCE OF CONTRIBUTIONS. Operating Partnership hereby
agrees that at the Closing it shall accept the Contributions and shall assume
any and all rights, obligations and responsibilities of Contributors as
owners of the Contributed Interests that arise from and after the Closing
Date.
4. CLOSING TIME AND PLACE. Unless another date or place is
agreed to by the parties, the closing of the Contributions (the "Closing")
shall take place contemporaneously with the closing of the Consolidation and
the Offering at the offices of Proskauer Rose Goetz & Mendelsohn LLP, 1585
Broadway, New York, New York 10036, or such other place and time as Operating
Partnership and the General Partner shall agree upon, upon the satisfaction
or waiver of all conditions to the Closing set forth in Section 7 hereof.
5. REPRESENTATIONS AND WARRANTIES OF OPERATING PARTNERSHIP.
Operating Partnership hereby represents and warrants to Contributors as
follows, which representations and warranties shall be true and correct on
the Closing Date:
5.1 ORGANIZATION, POWER AND AUTHORITY, AND QUALIFICATION.
Operating Partnership is a limited partnership duly organized, validly
existing and in good standing under the laws of the State of Delaware. The
REIT is a corporation duly organized, validly existing and in good standing
under the laws of its state of incorporation. Each of Operating Partnership
and the REIT has the requisite power and authority to carry on its respective
business as it is now being conducted. Each of Operating Partnership and the
REIT is qualified to do business and is in good standing in each jurisdiction
in which the character of its property owned or leased or the nature of its
activities makes such qualification necessary, except where the failure to be
so qualified and in good standing would not have a material adverse effect on
the business or financial condition of Operating Partnership or the REIT, as
the case may be.
5.2 AUTHORITY RELATIVE TO THIS AGREEMENT. Operating Partnership
has taken all action necessary to authorize the execution, delivery and
performance of this Agreement by Operating Partnership and no other
proceedings on the part of Operating Partnership are necessary to authorize
the execution and delivery of this Agreement and the consummation of the
Contributions.
None of the execution and delivery of this Agreement by Operating
Partnership, the consummation by Operating Partnership of the Contributions
or compliance by Operating Partnership with any of the provisions hereof
shall (i) conflict with or result in any breach of any provisions of the
Partnership Agreement of Operating Partnership; (ii) result in a violation or
breach of, or constitute (with or without due notice or lapse of time or
both) a default (or give rise to any right of termination, cancellation or
acceleration) under any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, lease, license, contract, agreement or other
instrument or obligation to which Operating Partnership is a party or by
which it or any of its
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properties or assets may be bound; or (iii) violate any order, writ, injunction,
decree, statute, rule or regulation applicable to Operating Partnership; except
in the case of (ii) or (iii) for violations, breaches, or defaults (A) that
would not in the aggregate have a material adverse effect on the business or
financial condition of Operating Partnership or the REIT, and that shall not
impair the effectiveness of the Contributions contemplated hereby, or (B) for
which waivers or consents have been or shall be obtained prior to the Closing
Date.
5.3 BINDING OBLIGATION. This Agreement has been duly and validly
executed and delivered by Operating Partnership and constitutes a valid and
binding agreement of Operating Partnership, enforceable against Operating
Partnership in accordance with its terms, except that such enforcement may be
subject to bankruptcy, conservatorship, receivership, insolvency, moratorium,
or similar laws affecting creditors' rights generally or the rights of
creditors of limited partnerships and to general principles of equity.
5.4 INSOLVENCY. There are no attachments, executions or
assignments for the benefit of creditors, or voluntary or involuntary
proceedings in bankruptcy, or under any other debtor relief laws,
contemplated by or pending or threatened against Operating Partnership.
5.5 BROKERS. Neither Operating Partnership nor the REIT has
employed or dealt with any broker or finder, or incurred any liability
therefor, in connection with the Contributions.
5.6 VALID CONSIDERATION. The Units, when issued in accordance
with this Agreement and the Operating Agreement of Operating Partnership,
shall be duly and validly issued, fully paid and nonassessable, and the
issuance thereof shall not be subject to preemptive or other similar rights.
6. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF CONTRIBUTORS.
Each Contributor, in his, her or its capacity as a partner of the
Partnership, hereby represents and warrants to and agrees with Operating
Partnership with respect to his, her or its Contributed Interests as follows,
which representations and warranties shall be true and correct on the Closing
Date:
6.1 TITLE; AUTHORITY TO ASSIGN. Contributor (i) owns good and
marketable, legal and beneficial title in and to his, her or its Contributed
Interests which are held or by the Closing Date shall be held free of liens,
encumbrances, judgments, adverse interests, pledges and security interests,
other than any such interests in the Contributed Interests granted pursuant
to the Operating Agreement of the Partnership, (ii) holds the entire right,
title and interest in and to his, her or its Contributed Interests, and (iii)
has the full right, power, capacity and authority to validly contribute and
convey his, her or its Contributed Interests pursuant to this Agreement.
6.2 NO BREACH OF OPERATING AGREEMENT. None of the execution and
delivery of this Agreement by Contributor, the consummation by Contributor of
the Contributions or compliance by Contributor with any of the provisions
hereof shall as of the Closing Date conflict with or result in any breach of
any provisions of the Operating Agreement of the Partnership or any other
agreement to which Contributor is a party.
6.3 INSOLVENCY. There are no attachments, executions or
assignments for the benefit of creditors, or voluntary or involuntary
proceedings in bankruptcy, or under any other debtor relief laws,
contemplated by or pending or, to the knowledge of Contributor, threatened
against Contributor.
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6.4 LITIGATION. Contributor has no knowledge of any actual or
pending litigation or proceeding by any organization, person, individual or
governmental agency against Contributor with respect to or against or
potentially affecting his, her or its Contributed Interests.
6.5 BINDING OBLIGATION, ETC. This Agreement has been duly and
validly executed and delivered by Contributor to Operating Partnership and
constitutes a legal, valid and binding agreement of Contributor, enforceable
against Contributor in accordance with its terms, except as such enforcement
may be limited by bankruptcy, conservatorship, receivership, insolvency,
moratorium or similar laws affecting creditors' rights generally and to
general principles of equity. Contributor further represents and warrants
that if Contributor is a corporation, partnership, trust or other entity, it
has the power to, and is duly authorized and otherwise duly qualified to,
purchase and hold securities such as Units and shares of Common Stock and
such entity has its principal place of business as set forth on Exhibit A.
6.6 BROKERS. Contributor has not employed or dealt with any
broker or finder, or incurred any liability therefor, in connection with the
Contributions.
6.7 SECURITIES ACT AND OTHER REPRESENTATIONS AND AGREEMENTS.
(a) (i) Upon the issuance of Units to Contributor,
Contributor shall become subject to, and shall be bound by, the terms and
provisions of the Partnership Agreement of Operating Partnership, including
the terms of the power of attorney contained in Section 15.11 thereof, as the
Partnership Agreement may be amended and restated from time to time in
accordance with its terms.
(ii) Contributor or his, her or its advisor(s) have had
a reasonable opportunity to ask questions of and receive information and
answers from a person or persons acting on behalf of the Partnership
concerning the Consolidation, and, as Contributor may deem necessary, to
verify the information contained in the Memorandum, receipt of which is
acknowledged, and any other information provided to Contributor by the
Partnership or Operating Partnership and all such questions have been
answered and all such information has been provided to the full satisfaction
of Contributor.
(iii) Contributor is acquiring Units for his, her or its
own account as principal, for investment and not with a view to resale or
distribution, that the shares of Common Stock of the REIT which may be
obtained upon redemption of the Units may not be transferred or otherwise
disposed of by Contributor otherwise than in transactions pursuant to the
registration statement required to be filed by the Partnership with respect
to such shares of Common Stock or that are exempt from the registration
requirements of the Securities Act of 1933 (the "Securities Act") and all
applicable state and foreign securities laws, and that the REIT may refuse to
transfer any shares of Common Stock as to which evidence of such registration
or exemptions from such registration satisfactory to the REIT is not provided
to it.
(iv) Contributor has sufficient knowledge and experience
in financial, tax and business matters to enable him, her or it to evaluate
the merits and risks of an investment in the Units. Contributor has the
ability to bear the economic risk of acquiring the Units. Contributor
acknowledges that (1) the transactions contemplated by this Agreement and the
Memorandum involve complex tax consequences for each Contributor and each
Contributor is relying solely on the advice of his, her or its own tax
advisors in evaluating such consequences, and (2) neither Operating
Partnership nor the General Partner has made (or shall be deemed to have
made) any representations or warranties as to the tax consequences of such
transaction to any
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Contributor. Each Contributor remains solely responsible for all tax matters
relating to each Contributor.
(v) If needed, Contributor has discussed with his, her
or its professional, legal, tax or financial advisors the suitability of an
investment in Units or shares of Common Stock for his, her or its particular
tax and financial situation. Nothing contained herein or in the Memorandum
shall be deemed to imply any representation by Operating Partnership or the
General Partner as to a particular tax effect that may be obtained by any
Contributor. All information that Contributor has provided to Operating
Partnership concerning himself or herself or itself and his, her or its
financial position is correct and complete as of the date hereof, and if
there should be any material change in such information prior to issuance of
Units to the partners, he, she or it shall immediately provide such changed
information to Operating Partnership.
(vi) Contributor has not disclosed any information
contained in the Memorandum to anyone other than his or her spouse or his,
her or its professional, legal, tax or financial advisors advising him, her
or it in connection with this investment and has not reproduced the
Memorandum other than for the use of such advisors.
(b) STATUS AS A UNITED STATES PERSON. (i) Unless otherwise
indicated on the Partner Consent, Contributor certifies that Contributor is
not a foreign person within the meaning of Section 1445 of the Internal
Revenue Code ("Section 1445"). To the extent that Contributor is not a
foreign person within the meaning of Section 1445, (1) Contributor's U.S.
taxpayer identification number that has previously been provided to the
Partnership is accurate, (2) Contributor's home address (in the case of an
individual) or office address (in the case of an entity) is that address
indicated on Exhibit A of this Agreement and (3) if Contributor subsequently
becomes a foreign person within the meaning of Section 1445, Contributor
shall notify Operating Partnership within sixty (60) days of doing so.
(ii) If Contributor is a foreign person within the
meaning of Section 1445, Operating Partnership shall withhold ten percent
(10%) of the amount realized (as such term is defined in Section 1001 of the
Internal Revenue Code) by Contributor in connection with the Contributions,
unless Operating Partnership shall receives from Contributor a notice of
nonrecognition transfer with respect to the Contributions by Contributor (in
a form to be provided by Operating Partnership).
(c) INDEMNIFICATION. Contributor hereby agrees to indemnify
and hold harmless the Partnership, the REIT, Operating Partnership and the
General Partner and any of the employees, agents, officers, directors and
affiliated persons of the foregoing from any and all damages, losses, costs
and expenses (including reasonable attorneys' fees) which they, or any of
them, may incur by reason of a failure by Contributor to fulfill any of the
terms and conditions of this Agreement or by reason of the breach by
Contributor of any of the representations and warranties contained herein.
(d) WAIVER AND CONTRIBUTIONS. Contributor understands that
(i) the Units to be issued pursuant to the Consolidation have not been
registered under the Securities Act and (ii) the failure to register such
Units could result in Contributor being granted certain rights under the
Federal securities laws, including a right to rescind Contributor's consent
to the Consolidation. For the benefit of Operating Partnership, and in
consideration of Operating Partnership's consummating the Consolidation,
Contributor (x) hereby waives any and all rights he or she now has or may
hereafter be granted to rescind his or her consent to the Consolidation on
the basis that the Units issued in connection with the Consolidation were not
registered (the "Waiver") and (y) agrees that if the Waiver is deemed void or
unenforceable for any reason, including, without
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limitation, under Section 14 of the Securities Act, the entire beneficial
interest in all property and amounts received by Contributor in any action to
rescind the Consolidation (regardless of whether such action was initiated by
Contributor) or otherwise received by Contributor as damages for failure to
register the Units under the Securities Act, shall be promptly paid over and
contributed by Contributor to Operating Partnership, for no additional
consideration from Operating Partnership, other than the Units originally issued
pursuant to the Consolidation.
Whenever the context shall require, all words in the male, female
or neuter gender shall be deemed to include the other genders, all singular
words shall include the plural, and all plural words shall include the
singular. All representations, covenants and agreements of Contributor set
forth in this Agreement shall survive the consummation of the Consolidation
contemplated by the Memorandum.
7. CONDITIONS TO COMPLETION. In addition to the conditions to
completion of the Consolidation set forth in the Memorandum, the obligations
of Operating Partnership to consummate the transactions contemplated by this
Agreement shall be subject to fulfillment (or waiver by Operating
Partnership) at or prior to the Closing of the following conditions:
7.1 REPRESENTATIONS, WARRANTIES AND COVENANTS. The
representations, warranties and covenants made by Contributors in this
Agreement or in any document delivered by any of them pursuant to this
Agreement shall be true and correct in all material respects when made and on
and as of the Closing as though such representations, warranties and
covenants were made on and as of such date.
7.2 ACTIONS AFFECTING CONTRIBUTED INTERESTS. Contributors shall
not have sold, assigned, leased, pledged, transferred or encumbered any of
the Contributed Interests, or entered into any other consent, commitment,
understanding or other agreement, or have incurred any material obligation or
liability (contingent or absolute) with respect to the Contributed Interests.
7.3 NO MATERIAL ADVERSE CHANGE. There shall have been no
material adverse change in the value or condition of the Partnership or the
Property since the date hereof, except for changes resulting from the operation
of the Partnership in the ordinary course of business consistent with past
practice or as otherwise contemplated by the Memorandum, in each case that do
not have a material adverse effect on the business or financial condition of the
Partnership.
7.4 CONSENTS. Any and all consents required by the Operating
Agreement of the Partnership, and any certificates, agreements, contribution
and assumption instruments and other documents necessary or advisable to
evidence the conveyance of the Contributed Interests and the admission of
Operating Partnership (or Designated Subsidiary) into the Partnership by
virtue of the contribution of the Contributed Interests, shall have been
obtained.
7.5 NO ORDER OR INJUNCTION. The consummation of the
Contributions shall not have been restrained, enjoined or prohibited by any
order or injunction of any court or governmental authority of competent
jurisdiction.
7.6 CONSOLIDATION. In addition to the consents set forth in
Section 7.4 above, all conditions to the closing of the Consolidation set
forth in the underwriting agreement with respect to the Offering shall have
been satisfied on terms satisfactory to Operating Partnership and the General
Partner.
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8. THE CLOSING.
8.1 CONTRIBUTORS' CLOSING DOCUMENTS. At Closing, each Contributor
shall deliver (or cause to be delivered pursuant to the Power of Attorney
referred to in Section 11.9) or the General Partner shall deliver the
following (all of which shall be duly executed and acknowledged where
required):
(a) A written document of conveyance contributing to
Operating Partnership (and/or any Designated Subsidiary) title to
Contributor's Contributed Interests, free and clear of any adverse claim or
interest;
(b) Such documents and certificates as Operating Partnership
reasonably may require to establish the authority of the parties executing
any documents in connection with the Contributions;
(c) Such consents and instruments of admission as
contemplated by Section 7.4 hereof; and
(d) Such other documents, instruments and certificates as
Operating Partnership and the General Partner, as agent for the Contributors,
reasonably agree are necessary or appropriate, including without limitation
recording and transfer forms and affidavits.
8.2 OPERATING PARTNERSHIP'S CLOSING DOCUMENTS. At Closing,
Operating Partnership shall deliver or cause to be delivered to the General
Partner, as agent for the Contributors, the following:
(a) The Units; and
(b) Such other documents and instruments as the General
Partner, as agent for the Contributors, and Operating Partnership agree are
necessary or appropriate, including without limitation recording and transfer
forms and affidavits.
9. TRANSFER TAXES AND CLOSING COSTS.
(a) The General Partner and Operating Partnership shall join
on the Closing Date in completing, executing, delivering and verifying the
returns, affidavits and other documents required in connection with the
documentary stamps in accordance with the New York State Real Estate Transfer
Tax imposed by Article 31 of the Tax Law, the New York City Real Property
Transfer Tax imposed by Title II of Chapter 46 of the Administrative Code of
the City of New York, and any other tax payable by reason of the contribution
of the Contributed Interests (collectively, the "Conveyance Taxes").
(b) The Contributors hereby agree to pay and shall be solely
responsible for the Conveyance Taxes due on the conveyance of the Contributed
Interests. Using the amount distributed to the General Partner pursuant to
Section 2(b) hereof, the General Partner, as agent for the Contributors,
shall timely pay to the appropriate tax collecting agency or official the
amount of all Conveyance Taxes payable by reason of the Contributors'
agreement to pay the Conveyance Taxes. The Contributors shall indemnify,
defend and hold harmless Operating Partnership and the Partnership from and
against all claims, liabilities, costs and expenses (including reasonable
attorney's fees), incurred by Operating Partnership or the Partnership by
reason of the failure of the Contributors to pay any Conveyance Taxes
assessed or alleged to be due at any time with
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respect to the transfer of the Interests to Operating Partnership, including,
without limitation, all interest and penalties thereon.
(c) Operating Partnership shall also pay or provide for the
payment of all other costs associated with the closing of the acquisition of
the Contributed Interests pursuant to this Agreement, as described in the
Memorandum.
10. OPERATION IN THE ORDINARY COURSE. The General Partner shall
use reasonable efforts to operate the Partnership and the Property in the
ordinary course of business between the date hereof and the closing of the
Consolidation, including making any necessary capital expenditures and
leasing expenditures consistent with past practices to maintain the quality
and value of the Property.
11. GENERAL PROVISIONS.
11.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. It is the
express intention and agreement of the parties hereto that the
representations and warranties of the parties set forth in this Agreement
shall survive the consummation of the Contributions and the Closing.
11.2 NOTICES. All notices, demands, requests or other
communications that may be or are required to be given or made by any party
to the other parties pursuant to this Agreement shall be in writing and shall
be hand delivered or transmitted by certified mail, express overnight mail or
delivery service, telegram, telex or facsimile transmission to the parties at
the addresses specified in Exhibit A or such other address as the addressee
may indicate by written notice to the other party.
Each notice, demand, request or communication that is given or
made in the manner described above shall be deemed sufficiently given or made
for all purposes at such time as it is delivered to the addressee (with the
delivery receipt, the affidavit of messenger or (with respect to a telex) the
answer back being deemed conclusive but not exclusive evidence of such
delivery) or at such time as delivery is refused by the addressee upon
presentation.
11.3 GOVERNING LAW. This Agreement, the rights and obligations
of the parties hereto and any claims or disputes relating to such rights and
obligations shall be governed by and construed under the laws of the State of
New York.
11.4 HEADINGS. Section and subsection headings contained in this
Agreement are inserted for convenience of reference only, shall not be deemed
to be a part of this Agreement for any purpose, and shall not in any way
define or affect the meaning, construction or scope of any of the provisions
hereof.
11.5 BENEFIT AND ASSIGNMENT. No Contributor shall assign this
Agreement, in whole or in part, whether by operation of law or otherwise,
without the prior written consent of Operating Partnership. Any purported
assignment contrary to the terms hereof shall be null, void and of no force
and effect.
This Agreement shall be binding upon and shall inure to the benefit
of the parties hereto and their respective successors and assigns as
permitted hereunder. No person or entity other than the parties hereto is or
shall be entitled to bring any action to enforce any provision of this
Agreement against any of the parties hereto, and the covenants and agreements
set forth in this Agreement shall be solely for the benefit of, and shall be
enforceable only by, the parties hereto or their respective successors and
assigns as permitted hereunder.
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The Operating Partnership may designate one or more Designated
Subsidiaries to acquire all or any part of the Contributed Interests (in
which case the Designated Subsidiary shall execute a certificate at closing
making the same representations and warranties as are made by Operating
Partnership and references to Operating Partnership shall include the
Designated Subsidiaries except where the context clearly indicates
otherwise).
11.6 SEVERABILITY. If any part of any provision of this Agreement
or any other agreement, document or writing given pursuant to or in
connection with this Agreement shall be invalid or unenforceable under
applicable law, such part shall be ineffective to the extent of such
invalidity or unenforceability only, without in any way affecting the
remaining parts of such provisions or the remaining provisions of said
agreement so long as the economic and legal substance of the Contributions is
not affected in any manner materially adverse to either party.
11.7 ENTIRE AGREEMENT; AMENDMENT. The Schedules and the Exhibits
attached hereto are hereby incorporated into the Agreement as if fully set
forth herein. This Agreement, and the Schedules and Exhibits attached hereto
(each of which shall be deemed incorporated herein and made a part hereof),
together with the Memorandum, contain the final and entire agreement between
the parties hereto with respect to the Contributions, supersede all prior
oral and written memoranda and agreements with respect to the matters
contemplated herein, and are intended to be an integration of all prior
negotiations and understandings. Contributors and Operating Partnership
shall not be bound by any terms, conditions, statements, warranties or
representations, oral or written, not contained or referred to herein or
therein. No change or modification of this Agreement shall be valid unless
the same is in writing and signed by the parties hereto.
11.8 NO WAIVER. No delay or failure on the part of any party
hereto in exercising any right, power or privilege under this Agreement or
under any other instrument or document given in connection with or pursuant
to this Agreement shall impair any such right, power or privilege or be
construed as a waiver of any default or any acquiescence therein. No single
or partial exercise of any such right, power or privilege shall preclude the
further exercise of such right, power or privilege. No waiver shall be valid
against any party hereto unless made in writing and signed by the party
against whom enforcement of such waiver is sought and then only to the extent
expressly specified therein.
11.9 CONSENT AND POWER OF ATTORNEY. The General Partner hereby
consents to the contribution of the Contributed Interests pursuant hereto by
each of the Contributors. Each Contributor is executing a Partner Consent
pursuant to which such Contributor (a) is executing this Agreement, and (b)
is consenting to each matter set forth therein. In addition, by executing
this Agreement pursuant to the Consent, each Contributor is constituting and
appointing each of David R. Greenbaum, John J. Silberstein and Christopher G.
Bonk, individually, with full power of substitution, the true and lawful
attorney-in-fact (the "Attorney") of such Contributor, with full power and
authority in the name of and for and on behalf of such Contributor, to
execute an instrument of conveyance contributing his, her or its Contributed
Interests to Operating Partnership pursuant to the Consolidation on the terms
set forth in the Memorandum, to execute the Partnership Agreement of
Operating Partnership and the Registration Rights Agreement (as such term is
defined in the Memorandum) and to execute any instruments required to be
filed in connection with the Conveyance Taxes, and to execute any other
instruments that the General Partner reasonably determines necessary or
appropriate in connection with the contribution of the Interests pursuant to
this Agreement.
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Each Contributor shall promptly notify the General Partner if any
of the representations and warranties by that partner were not true and
correct when made or become untrue at any time prior to the Closing.
IN WITNESS WHEREOF, each of the Contributors has executed a
separate Partner Consent agreeing to be bound by the terms of the Agreement
and each of Operating Partnership, and the General Partner has caused this
Agreement to be duly executed and delivered on its or his behalf as of the
date first above written.
THE MENDIK COMPANY, L.P.
By: Mendik Group, Inc.
By: ________________________________
Name:
Title:
THE MENDIK PARTNERSHIP, L.P.
By: ________________________________
Bernard H. Mendik, general
partner
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AGREEMENT FOR CONTRIBUTION OF INTERESTS
[330 MADISON AVENUE]
THIS AGREEMENT for the Contribution of Interests (this "Agreement") is
made and entered into as of ___________, 1996, by and among The Mendik
Company, L.P. ("Operating Partnership"), a Delaware limited partnership,
whose managing general partner is Mendik Group, Inc. (the "REIT"), a Delaware
corporation, each of the parties listed on Exhibit A annexed hereto who
executes a Partner Consent (hereinafter defined) agreeing to become a party
to this Agreement (collectively referred to herein as "Contributors") and The
Mendik Partnership, L.P. (formerly known as The Mendik Company, L.P.) (in its
capacity as a general partner of the Partnership (hereinafter defined), the
"General Partner").
WHEREAS, it is desired to consolidate (the "Consolidation") interests in
up to seven general or limited partnerships or limited liability companies of
which the General Partner or an affiliate is a general partner, together with
the assets of Mendik Realty Company, Inc and Mendik Management Company, Inc.,
each a New York corporation and affiliate of the General Partner, with and
into Operating Partnership and to effect the initial public offering (the
"Offering") of shares of common stock of the REIT ("Common Stock").
WHEREAS, prior to the Consolidation, the REIT shall merge into The
Mendik Company, Inc., a Maryland corporation, and from and after such merger,
all references herein to the REIT shall refer to The Mendik Company, Inc.
WHEREAS, Contributors are owners of interests in M330 Associates, a New
York limited partnership (the "Partnership"), which is a general partner in
330 Madison Company, a New York general partnership ("330 Madison"), which
owns land and improvements (the "Property") known as 330 Madison Avenue, New
York, New York;
WHEREAS, Contributors wish to transfer all of their interests in the
Partnership (excluding the transfer by the General Partner of a portion of
its interest as general partner of the Partnership equal to a 1% interest in
330 Madison and the obligations as managing general partner of the
Partnership, but including the General Partner's preference right to
distributions); provided, however, that unless all of the partners consent,
the General Partner's interest shall not be assigned (the interests to be
assigned by Contributors being hereinafter collectively referred to as the
"Contributed Interests");
WHEREAS, in connection with the consummation of the Consolidation and
the Offering, the parties hereto desire that Operating Partnership and, if
designated by Operating Partnership, one or more special purpose subsidiary
partnerships or limited liability companies of Operating Partnership or one
or more other entities controlled by Operating Partnership (each a
"Designated Subsidiary") acquire all of the interests in the Partnership
through the contribution of such interests to Operating Partnership and/or
one or more Designated Subsidiaries upon the terms and conditions provided
herein; and
WHEREAS, if the holders of all of the interests in the Partnership do
not execute the Partner Consent annexed to and forming a part of the
Memorandum (the "Partner Consent"), it is contemplated that Operating
Partnership shall purchase only those interests in the Partnership owned by
the Contributors.
<PAGE>
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises and covenants set forth herein, Operating Partnership, Contributors
and the General Partner hereby agree as follows:
1. CONTRIBUTIONS. Upon the Closing (as defined below), and subject to
the satisfaction or waiver by Operating Partnership of the conditions set
forth in Section 7 of this Agreement, Contributors shall contribute, convey
and assign to Operating Partnership (and/or Designated Subsidiary) and
Operating Partnership (and/or Designated Subsidiary) shall acquire from
Contributors all of Contributors' right, title and interest in the
Contributed Interests (the "Contributions"), including, without limitation,
all of Contributors' interest in the profits, losses, property and capital of
the Partnership allocable to the Contributed Interests, upon the terms and
conditions set forth in this Agreement.
2. CONSIDERATION; DISTRIBUTIONS PRIOR TO CLOSING.
(a) In full consideration for the contribution of the Contributed
Interests, Operating Partnership shall deliver to Contributors at the
Closing, (i) with respect to the Property Value (as such term is defined in
the Memorandum) for the Property, units of limited partnership interests
("Units") in Operating Partnership, determined in accordance with the
methodology described in the Confidential Solicitation of Consents and
Private Placement Memorandum (the "Memorandum") dated November 11, 1996, and
(ii) additional Units as determined in accordance with Section 2(b) hereof.
(b) If the aggregate amount of the Net Other Assets (hereinafter
defined) of 330 Madison as of the close of business on the day preceding the
date of the Closing (the "Closing Date") exceeds $6,040,000, Operating
Partnership may elect to include all or any portion of the Specified
Percentage (hereinafter defined) of such excess Net Other Assets (the
"Included Excess Net Other Assets") in the transaction and issue Units
(valued at the Final Offering Price (as such term is defined in the
Memorandum) of the shares of Common Stock in the Offering) with a value equal
to the amount of the Included Excess Net Other Assets; on the Closing Date,
immediately prior to the Closing, the General Partner shall cause 330 Madison
to distribute to the Partnership and the Partnership to distribute to its
partners an amount equal to the Specified Percentage of any Net Other Assets
which are in excess of the sum of (i) 6,040,000 plus (ii) (1) the Included
Excess Net Other Assets divided by (2) the Specified Percentage.
If the aggregate amount of the Net Other Assets of 330 Madison as of the
close of business on the day preceding the Closing Date is less than
$6,040,000, then, notwithstanding the provisions of Section 2(e) hereof, the
Contributors shall cause the Partnership to have cash at Closing in an amount
equal to 24.75% of the amount by which the Net Other Assets are less than
$6,040,000. If the Partnership shall not have such cash at Closing, then
Operating Partnership may terminate this Agreement by notice to the
Contributors.
As used in this Agreement, the following terms have the following
meanings:
(i) "Net Other Assets" means the excess of Certain Other Assets over
Certain Other Liabilities (as such terms are hereinafter defined).
(ii) "Certain Other Assets" means cash and cash equivalents,
marketable securities, accounts receivable (including any rent escalations
payable with respect to the period through the Closing Date, but excluding
any receivable with respect to any period after the month in which the
Closing occurs, as well as any amount payable after the month in which the
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Closing occurs to the extent such amount has been recognized as income prior
to the Closing), prepaid expenses (excluding any prepaid leasing costs
relating to leases entered into prior to October 1, 1996), escrow deposits
made by 330 Madison, capital expenditures (other than tenant improvements or
building improvements required by the terms of any lease and other than those
committed capital expenditures listed on Exhibit B annexed hereto) made on or
after October 1, 1996, amounts paid for leasing costs, tenant and building
improvements or tenant acquisition costs relating to (1) leases entered into
on or after October 1, 1996 and (2) leases entered into prior to October 1,
1996, but only to the extent of any leasing expenditures with respect to such
leases entered into prior to October 1, 1996 which are set forth on Exhibit C
annexed hereto. For the purpose of calculating Certain Other Assets, the
accounts receivable of 330 Madison shall be valued at the face amount of the
accounts receivable, net of a reserve for doubtful accounts determined in
accordance with generally accepted accounting principles consistently applied
(but without giving effect to the straight line requirement of FASB 13).
(iii) "Certain Other Liabilities" means accounts payable, accrued
interest payable and other accrued liabilities (including any liability or
obligation for leasing costs, tenant or building improvements or tenant
acquisition costs payable relating to leases entered into prior to October 1,
1996 but excluding any liability or obligation for leasing costs, tenant or
building improvements or tenant acquisition costs payable relating to (1)
leases entered into on or after October 1, 1996 and (2) leases entered into
prior to October 1, 1996, but only to the extent of any leasing expenditures
with respect to such leases entered into prior to October 1, 1996 which are
set forth on Exhibit C annexed hereto), the unpaid remaining cost of any
committed capital expenditures listed on Exhibit B annexed hereto and prepaid
rent received from tenants.
(iv) "Specified Percentage" means the quotient, expressed as a
percentage, of (1) the product of 25 and a fraction, the numerator of which
is the percentage interest in the Partnership represented by the Contributed
Interests and the denominator of which is 100, and (2) 100.
For purposes of this Section 2, the exercise of an option to renew a
lease or to rent additional space pursuant to a lease shall be deemed a new
lease entered into on the date the renewal option is exercised or the
additional space is leased.
(c) The General Partner shall prepare and submit to Operating
Partnership, not later than five days prior to the Closing Date, its best,
good faith estimate of the Net Other Assets as of the close of business on
the day preceding the Closing Date; such estimate shall be determined based
upon the books and records of 330 Madison. The estimate submitted to
Operating Partnership shall be accompanied by (i) a statement setting forth
in reasonable detail the calculation of the estimated Net Other Assets as of
the close of business on the day preceding the Closing Date, and (ii) a
certificate signed by the General Partner confirming that the estimate was
calculated in accordance with the terms of this Section 2. The estimate
shall be final and binding on the parties unless, at least two days prior to
the Closing, Operating Partnership gives written notice to the General
Partner that it objects to any item. The Operating Partnership and the
General Partner shall immediately consult with respect to any item objected
to and their joint determination with respect to any items in dispute shall
be final and
3
<PAGE>
binding on the parties. The number of additional Units to be delivered at
Closing shall be based on the statement of Net Other Assets delivered by the
General Partner (or the undisputed amount of Net Other Assets) and the amount
of Included Excess Net Other Assets based thereon. If Operating Partnership
and the General Partner are unable to reach agreement on the amount of Net
Other Assets prior to Closing, within ten days after the Closing, the dispute
shall be referred to and resolved by a "Big 6" firm of independent certified
public accountants proposed by Operating Partnership and reasonably
acceptable to the General Partner, and the determination by that accounting
firm shall be final and binding on the parties. Promptly after that
determination, Operating Partnership shall deliver to the General Partner, as
agent for the Contributors, any additional Units payable as a result of the
determination. The fees and expenses of the accounting firm shall be borne
by Operating Partnership.
(d) An amount equal to the Specified Percentage of any amounts
collected by Operating Partnership after the Closing Date relating to the
period through the Closing Date with respect to refunds of real estate taxes
paid by 330 Madison (less any costs incurred by Operating Partnership in
obtaining such refunds and less any portion of such refunds required to be
paid to tenant) shall be promptly paid to the General Partner, as agent for
the Contributors, not later than 10 days after the end of the month in which
such amounts are collected.
(e) Prior to the close of business on the day preceding the Closing,
the General Partner shall cause the Partnership to satisfy any outstanding
liabilities and, subject to Section 2(b) hereof, to distribute all remaining
cash to its partners.
(f) A dispute currently exists between 330 Madison and BCCI (as such
term is defined in the Memorandum) as to the outstanding principal amount of
330 Madison's indebtedness to BCCI (the "BCCI Indebtedness"). Within 10 days
after the BCCI Indebtedness is repaid, Operating Partnership shall pay to the
General Partner, as agent for the Contributors, the amount to which the
Contributors are entitled, as set forth in the Memorandum, with respect to
the resolution of the dispute with respect to the amount of the BCCI
Indebtedness.
3. ACCEPTANCE OF CONTRIBUTIONS. Operating Partnership hereby agrees that
at the Closing it shall accept the Contributions and shall assume any and all
rights, obligations and responsibilities of Contributors as owners of the
Contributed Interests that arise from and after the Closing Date.
4. CLOSING TIME AND PLACE. Unless another date or place is agreed to by
the parties, the closing of the Contributions (the "Closing") shall take
place contemporaneously with the closing of the Consolidation and the
Offering at the offices of Proskauer Rose Goetz & Mendelsohn LLP, 1585
Broadway, New York, New York 10036, or such other place and time as Operating
Partnership and the General Partner shall agree upon, upon the satisfaction
or waiver of all conditions to the Closing set forth in Section 7 hereof.
5. REPRESENTATIONS AND WARRANTIES OF OPERATING PARTNERSHIP. Operating
Partnership hereby represents and warrants to Contributors as follows, which
representations and warranties shall be true and correct on the Closing Date:
5.1 ORGANIZATION, POWER AND AUTHORITY, AND QUALIFICATION. Operating
Partnership is a limited partnership duly organized, validly existing and in
good standing under the laws of the State of Delaware. The REIT is a
corporation duly organized, validly existing and in good standing under the
laws of its state of incorporation. Each of Operating Partnership and the
REIT has the requisite power and authority to carry on its respective
business as it is now being conducted. Each of Operating Partnership and the
REIT is qualified to do business and is in good standing in each jurisdiction
in which the character of its property owned or leased or the nature of its
activities makes such qualification necessary, except where the failure to be
so qualified and in good standing would not have a material adverse effect on
the business or financial condition of Operating Partnership or the REIT, as
the case may be.
5.2 AUTHORITY RELATIVE TO THIS AGREEMENT. Operating Partnership has
taken all action necessary to authorize the execution, delivery and
performance of this Agreement by
4
<PAGE>
Operating Partnership and no other proceedings on the part of Operating
Partnership are necessary to authorize the execution and delivery of this
Agreement and the consummation of the Contributions.
None of the execution and delivery of this Agreement by Operating
Partnership, the consummation by Operating Partnership of the Contributions
or compliance by Operating Partnership with any of the provisions hereof
shall (i) conflict with or result in any breach of any provisions of the
Partnership Agreement of Operating Partnership; (ii) result in a violation or
breach of, or constitute (with or without due notice or lapse of time or
both) a default (or give rise to any right of termination, cancellation or
acceleration) under any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, lease, license, contract, agreement or other
instrument or obligation to which Operating Partnership is a party or by
which it or any of its properties or assets may be bound; or (iii) violate
any order, writ, injunction, decree, statute, rule or regulation applicable
to Operating Partnership; except in the case of (ii) or (iii) for violations,
breaches, or defaults (A) that would not in the aggregate have a material
adverse effect on the business or financial condition of Operating
Partnership or the REIT, and that shall not impair the effectiveness of the
Contributions contemplated hereby, or (B) for which waivers or consents have
been or shall be obtained prior to the Closing Date.
5.3 BINDING OBLIGATION. This Agreement has been duly and validly
executed and delivered by Operating Partnership and constitutes a valid and
binding agreement of Operating Partnership, enforceable against Operating
Partnership in accordance with its terms, except that such enforcement may be
subject to bankruptcy, conservatorship, receivership, insolvency, moratorium,
or similar laws affecting creditors' rights generally or the rights of
creditors of limited partnerships and to general principles of equity.
5.4 INSOLVENCY. There are no attachments, executions or assignments for
the benefit of creditors, or voluntary or involuntary proceedings in
bankruptcy, or under any other debtor relief laws, contemplated by or pending
or threatened against Operating Partnership.
5.5 BROKERS. Neither Operating Partnership nor the REIT has employed or
dealt with any broker or finder, or incurred any liability therefor, in
connection with the Contributions.
5.6 VALID CONSIDERATION. The Units, when issued in accordance with this
Agreement and the Operating Agreement of Operating Partnership, shall be duly
and validly issued, fully paid and nonassessable, and the issuance thereof
shall not be subject to preemptive or other similar rights.
6. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF CONTRIBUTORS. Each
Contributor, in his, her or its capacity as a partner of the Partnership,
hereby represents and warrants to and agrees with Operating Partnership with
respect to his, her or its Contributed Interests as follows, which
representations and warranties shall be true and correct on the Closing Date:
6.1 TITLE; AUTHORITY TO ASSIGN. Contributor (i) owns good and
marketable, legal and beneficial title in and to his, her or its Contributed
Interests which are held or by the Closing Date shall be held free of liens,
encumbrances, judgments, adverse interests, pledges and security interests,
other than any such interests in the Contributed Interests granted pursuant
to the Operating Agreement of the Partnership, (ii) holds the entire right,
title and interest in and to his, her or its Contributed Interests, and (iii)
has the full right, power, capacity and authority to validly contribute and
convey his, her or its Contributed Interests pursuant to this Agreement.
5
<PAGE>
6.2 NO BREACH OF OPERATING AGREEMENT. None of the execution and delivery
of this Agreement by Contributor, the consummation by Contributor of the
Contributions or compliance by Contributor with any of the provisions hereof
shall as of the Closing Date conflict with or result in any breach of any
provisions of the Operating Agreement of the Partnership or any other
agreement to which Contributor is a party.
6.3 INSOLVENCY. There are no attachments, executions or assignments for
the benefit of creditors, or voluntary or involuntary proceedings in
bankruptcy, or under any other debtor relief laws, contemplated by or pending
or, to the knowledge of Contributor, threatened against Contributor.
6.4 LITIGATION. Contributor has no knowledge of any actual or pending
litigation or proceeding by any organization, person, individual or
governmental agency against Contributor with respect to or against or
potentially affecting his, her or its Contributed Interests.
6.5 BINDING OBLIGATION, ETC. This Agreement has been duly and validly
executed and delivered by Contributor to Operating Partnership and
constitutes a legal, valid and binding agreement of Contributor, enforceable
against Contributor in accordance with its terms, except as such enforcement
may be limited by bankruptcy, conservatorship, receivership, insolvency,
moratorium or similar laws affecting creditors' rights generally and to
general principles of equity. Contributor further represents and warrants
that if Contributor is a corporation, partnership, trust or other entity, it
has the power to, and is duly authorized and otherwise duly qualified to,
purchase and hold securities such as Units and shares of Common Stock and
such entity has its principal place of business as set forth on Exhibit A.
6.6 BROKERS. Contributor has not employed or dealt with any broker or
finder, or incurred any liability therefor, in connection with the
Contributions.
6.7 SECURITIES ACT AND OTHER REPRESENTATIONS AND AGREEMENTS.
(a)(i) Upon the issuance of Units to Contributor, Contributor shall
become subject to, and shall be bound by, the terms and provisions of the
Partnership Agreement of Operating Partnership, including the terms of the
power of attorney contained in Section 15.11 thereof, as the Partnership
Agreement may be amended and restated from time to time in accordance with
its terms.
(ii) Contributor or his, her or its advisor(s) have had a
reasonable opportunity to ask questions of and receive information and
answers from a person or persons acting on behalf of the Partnership
concerning the Consolidation, and, as Contributor may deem necessary, to
verify the information contained in the Memorandum, receipt of which is
acknowledged, and any other information provided to Contributor by the
Partnership or Operating Partnership and all such questions have been
answered and all such information has been provided to the full satisfaction
of Contributor.
(iii) Contributor is acquiring Units for his, her or its own
account as principal, for investment and not with a view to resale or
distribution, that the shares of Common Stock of the REIT which may be
obtained upon redemption of the Units may not be transferred or otherwise
disposed of by Contributor otherwise than in transactions pursuant to the
registration statement required to be filed by the Partnership with respect
to such shares of Common Stock or that are exempt from the registration
requirements of the Securities Act of 1933 (the "Securities Act") and all
applicable state and foreign securities laws, and that the REIT may refuse to
transfer
6
<PAGE>
any shares of Common Stock as to which evidence of such registration or
exemptions from such registration satisfactory to the REIT is not provided to
it.
(iv) Contributor has sufficient knowledge and experience in
financial, tax and business matters to enable them to evaluate the merits and
risks of an investment in the Units. Contributor has the ability to bear the
economic risk of acquiring the Units. Contributor acknowledges that (1) the
transactions contemplated by this Agreement and the Memorandum involve
complex tax consequences for each Contributor and each Contributor is relying
solely on the advice of their own tax advisors in evaluating such
consequences, and (2) neither Operating Partnership nor the General Partner
has made (or shall be deemed to have made) any representations or warranties
as to the tax consequences of such transaction to any Contributor. Each
Contributor remains solely responsible for all tax matters relating to each
Contributor.
(v) If needed, Contributor has discussed with his, her or its
professional, legal, tax or financial advisors the suitability of an
investment in Units or shares of Common Stock for his, her or its particular
tax and financial situation. Nothing contained herein or in the Memorandum
shall be deemed to imply any representation by Operating Partnership or the
General Partner as to a particular tax effect that may be obtained by any
Contributor. All information that Contributor has provided to Operating
Partnership concerning himself or herself or itself and his, her or its
financial position is correct and complete as of the date hereof, and if
there should be any material change in such information prior to issuance of
Units to the partners, he, she or it shall immediately provide such changed
information to Operating Partnership.
(vi) Contributor has not disclosed any information contained in the
Memorandum to anyone other than his or her spouse or his, her or its
professional, legal, tax or financial advisors advising him, her or it in
connection with this investment and has not reproduced the Memorandum other
than for the use of such advisors.
(b) STATUS AS A UNITED STATES PERSON. (i) Unless otherwise
indicated on the Partner Consent, Contributor certifies that Contributor is
not a foreign person within the meaning of Section 1445 of the Internal
Revenue Code ("Section 1445"). To the extent that Contributor is not a
foreign person within the meaning of Section 1445, (1) Contributor's U.S.
taxpayer identification number that has previously been provided to the
Partnership is accurate, (2) Contributor's home address (in the case of an
individual) or office address (in the case of an entity) is that address
indicated on Exhibit A of this Agreement and (3) if Contributor subsequently
becomes a foreign person within the meaning of Section 1445, Contributor
shall notify Operating Partnership within sixty (60) days of doing so.
(ii) If Contributor is a foreign person within the meaning of
Section 1445, Operating Partnership shall withhold ten percent (10%) of the
amount realized (as such term is defined in Section 1001 of the Internal
Revenue Code) by Contributor in connection with the Contributions, unless
Operating Partnership shall receives from Contributor a notice of
nonrecognition transfer with respect to the Contributions by Contributor (in
a form to be provided by Operating Partnership).
(c) INDEMNIFICATION. Contributor hereby agrees to indemnify and
hold harmless the Partnership, the REIT, Operating Partnership and the
General Partner and any of the employees, agents, officers, directors and
affiliated persons of the foregoing from any and all damages, losses, costs
and expenses (including reasonable attorneys' fees) which they, or any of
them, may incur by reason of a failure by Contributor to fulfill any of the
terms and conditions of
7
<PAGE>
this Agreement or by reason of the breach by Contributor of any of the
representations and warranties contained herein.
(d) WAIVER AND CONTRIBUTION. Contributor understands that (i) the Units
to be issued pursuant to the Consolidation have not been registered under the
Securities Act and (ii) the failure to register such Units could result in
Contributor being granted certain rights under the Federal securities laws,
including a right to rescind Contributor's consent to the Consolidation. For
the benefit of Operating Partnership, and in consideration of Operating
Partnership's consummating the Consolidation, Contributor (x) hereby waives
any and all rights he or she now has or may hereafter be granted to rescind
his or her consent to the Consolidation on the basis that the Units issued in
connection with the Consolidation were not registered (the "Waiver") and (y)
agrees that if the Waiver is deemed void or unenforceable for any reason,
including, without limitation, under Section 14 of the Securities Act, the
entire beneficial interest in all property and amounts received by
Contributor in any action to rescind the Consolidation (regardless of whether
such action was initiated by Contributor) or otherwise received by
Contributor as damages for failure to register the Units under the Securities
Act, shall be promptly paid over and contributed by Contributor to Operating
Partnership, for no additional consideration from Operating Partnership,
other than the Units originally issued pursuant to the Consolidation.
Whenever the context shall require, all words in the male, female or
neuter gender shall be deemed to include the other genders, all singular
words shall include the plural, and all plural words shall include the
singular. All representations, covenants and agreements of Contributor set
forth in this Agreement shall survive the consummation of the Consolidation
contemplated by the Memorandum.
7. CONDITIONS TO COMPLETION. In addition to the conditions to
completion of the Consolidation set forth in the Memorandum, the obligations
of Operating Partnership to consummate the transactions contemplated by this
Agreement shall be subject to fulfillment (or waiver by Operating
Partnership) at or prior to the Closing of the following conditions:
7.1 REPRESENTATIONS, WARRANTIES AND COVENANTS. The representations,
warranties and covenants made by Contributors in this Agreement or in any
document delivered by any of them pursuant to this Agreement shall be true
and correct in all material respects when made and on and as of the Closing
as though such representations, warranties and covenants were made on and as
of such date.
7.2 ACTIONS AFFECTING CONTRIBUTED INTERESTS. Contributors shall not
have sold, assigned, leased, pledged, transferred or encumbered any of the
Contributed Interests, or entered into any other consent, commitment,
understanding or other agreement, or have incurred any material obligation or
liability (contingent or absolute) with respect to the Contributed Interests.
7.3 NO MATERIAL ADVERSE CHANGE. There shall have been no material
adverse change in the value or condition of the Partnership or the Property
since the date hereof, except for changes resulting from the operation of the
Partnership in the ordinary course of business consistent with past practice
or as otherwise contemplated by the Memorandum, in each case that do not have
a material adverse effect on the business or financial condition of the
Partnership.
7.4 CONSENTS. Any and all consents required by the Operating Agreement
of the Partnership, and any certificates, agreements, contribution and
assumption instruments and other documents necessary or advisable to evidence
the conveyance of the Contributed Interests and
8
<PAGE>
the admission of Operating Partnership (or Designated Subsidiary) into the
Partnership by virtue of the contribution of the Contributed Interests, shall
have been obtained.
7.5 NO ORDER OR INJUNCTION. The consummation of the Contributions shall
not have been restrained, enjoined or prohibited by any order or injunction
of any court or governmental authority of competent jurisdiction.
7.6 CONSOLIDATION. In addition to the consents set forth in Section 7.4
above, all conditions to the closing of the Consolidation set forth in the
underwriting agreement with respect to the Offering shall have been satisfied
on terms satisfactory to Operating Partnership and the General Partner.
8. THE CLOSING.
8.1 CONTRIBUTORS' CLOSING DOCUMENTS. At Closing, each Contributor shall
deliver (or cause to be delivered pursuant to the Power of Attorney referred
to in Section 11.9) or the General Partner shall deliver the following (all
of which shall be duly executed and acknowledged where required):
(a) A written document of conveyance contributing to Operating
Partnership (and/or any Designated Subsidiary) title to Contributor's
Contributed Interests, free and clear of any adverse claim or interest;
(b) Such documents and certificates as Operating Partnership
reasonably may require to establish the authority of the parties executing
any documents in connection with the Contributions;
(c) Such consents and instruments of admission as contemplated by
Section 7.4 hereof; and
(d) Such other documents, instruments and certificates as Operating
Partnership and the General Partner, as agent for the Contributors,
reasonably agree are necessary or appropriate, including without limitation
recording and transfer forms and affidavits.
8.2 OPERATING PARTNERSHIP'S CLOSING DOCUMENTS. At Closing, Operating
Partnership shall deliver or cause to be delivered to the General Partner, as
agent for the Contributors, the following:
(a) The Units; and
(b) Such other documents and instruments as the General Partner, as
agent for the Contributors, and Operating Partnership agree are necessary or
appropriate, including without limitation recording and transfer forms and
affidavits.
9. CLOSING COSTS. Operating Partnership shall pay or provide for the
payment of all other costs associated with the closing of the Contributions
of the Contributed Interests pursuant to this Agreement, as described in the
Memorandum.
10. OPERATION IN THE ORDINARY COURSE. The General Partner shall use
reasonable efforts to operate the Partnership and the Property in the
ordinary course of business between the date hereof and the closing of the
Consolidation, including making any necessary
9
<PAGE>
capital expenditures and leasing expenditures consistent with past practices
to maintain the quality and value of the Property.
11. GENERAL PROVISIONS.
11.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. It is the express
intention and agreement of the parties hereto that the representations and
warranties of the parties set forth in this Agreement shall survive the
consummation of the Contributions and the Closing.
11.2 NOTICES. All notices, demands, requests or other communications
that may be or are required to be given or made by any party to the other
parties pursuant to this Agreement shall be in writing and shall be hand
delivered or transmitted by certified mail, express overnight mail or
delivery service, telegram, telex or facsimile transmission to the parties at
the addresses specified in Exhibit A or such other address as the addressee
may indicate by written notice to the other party.
Each notice, demand, request or communication that is given or made in
the manner described above shall be deemed sufficiently given or made for all
purposes at such time as it is delivered to the addressee (with the delivery
receipt, the affidavit of messenger or (with respect to a telex) the answer
back being deemed conclusive but not exclusive evidence of such delivery) or
at such time as delivery is refused by the addressee upon presentation.
11.3 GOVERNING LAW. This Agreement, the rights and obligations of the
parties hereto and any claims or disputes relating to such rights and
obligations shall be governed by and construed under the laws of the State of
New York.
11.4 HEADINGS. Section and subsection headings contained in this
Agreement are inserted for convenience of reference only, shall not be deemed
to be a part of this Agreement for any purpose, and shall not in any way
define or affect the meaning, construction or scope of any of the provisions
hereof.
11.5 BENEFIT AND ASSIGNMENT. No Contributor shall assign this Agreement,
in whole or in part, whether by operation of law or otherwise, without the
prior written consent of Operating Partnership. Any purported assignment
contrary to the terms hereof shall be null, void and of no force and effect.
This Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors and assigns as permitted
hereunder. No person or entity other than the parties hereto is or shall be
entitled to bring any action to enforce any provision of this Agreement
against any of the parties hereto, and the covenants and agreements set forth
in this Agreement shall be solely for the benefit of, and shall be
enforceable only by, the parties hereto or their respective successors and
assigns as permitted hereunder.
The Operating Partnership may designate one or more Designated
Subsidiaries to acquire all or any part of the Contributed Interests (in
which case the Designated Subsidiary shall execute a certificate at closing
making the same representations and warranties as are made by Operating
Partnership and references to Operating Partnership shall include the
Designated Subsidiaries except where the context clearly indicates otherwise).
11.6 SEVERABILITY. If any part of any provision of this Agreement or any
other agreement, document or writing given pursuant to or in connection with
this Agreement shall be invalid or unenforceable under applicable law, such
part shall be ineffective to the extent of such
10
<PAGE>
invalidity or unenforceability only, without in any way affecting the
remaining parts of such provisions or the remaining provisions of said
agreement so long as the economic and legal substance of the Contributions is
not affected in any manner materially adverse to either party.
11.7 ENTIRE AGREEMENT; AMENDMENT. The Schedules and the Exhibits attached
hereto are hereby incorporated into the Agreement as if fully set forth
herein. This Agreement, and the Schedules and Exhibits attached hereto (each
of which shall be deemed incorporated herein and made a part hereof),
together with the Memorandum, contain the final and entire agreement between
the parties hereto with respect to the Contributions, supersede all prior
oral and written memoranda and agreements with respect to the matters
contemplated herein, and are intended to be an integration of all prior
negotiations and understandings. Contributors and Operating Partnership
shall not be bound by any terms, conditions, statements, warranties or
representations, oral or written, not contained or referred to herein or
therein. No change or modification of this Agreement shall be valid unless
the same is in writing and signed by the parties hereto.
11.8 NO WAIVER. No delay or failure on the part of any party hereto in
exercising any right, power or privilege under this Agreement or under any
other instrument or document given in connection with or pursuant to this
Agreement shall impair any such right, power or privilege or be construed as
a waiver of any default or any acquiescence therein. No single or partial
exercise of any such right, power or privilege shall preclude the further
exercise of such right, power or privilege. No waiver shall be valid against
any party hereto unless made in writing and signed by the party against whom
enforcement of such waiver is sought and then only to the extent expressly
specified therein.
11.9 CONSENT AND POWER OF ATTORNEY. The General Partner hereby consents
to the contribution of the Contributed Interests pursuant hereto by each of
the Contributors. Each Contributor is executing a Partner Consent pursuant
to which such Contributor (a) is executing this Agreement, and (b) is
consenting to each matter set forth therein. In addition, by executing this
Agreement pursuant to the Consent, each Contributor is constituting and
appointing each of David R. Greenbaum, John J. Silberstein and Christopher G.
Bonk, individually, with full power of substitution, the true and lawful
attorney-in-fact (the "Attorney") of such Contributor, with full power and
authority in the name of and for and on behalf of such Contributor, to
execute an instrument of conveyance contributing his, her or its Contributed
Interests to Operating Partnership pursuant to the Consolidation on the terms
set forth in the Memorandum, to execute the Partnership Agreement of
Operating Partnership and the Registration Rights Agreement (as such term is
defined in the Memorandum) and to execute any other instruments that the
General Partner reasonably determines necessary or appropriate in connection
with the contribution of the Contributed Interests pursuant to this Agreement.
Each Contributor shall promptly notify the General Partner if any of the
representations and warranties by that partner were not true and correct when
made or become untrue at any time prior to the Closing.
11
<PAGE>
IN WITNESS WHEREOF, each of the Contributors has executed a separate
Partner Consent agreeing to be bound by the terms of the Agreement and each
of Operating Partnership, and the General Partner has caused this Agreement
to be duly executed and delivered on its or his behalf as of the date first
above written.
THE MENDIK COMPANY, L.P.
By: Mendik Group, Inc.
By: ________________________________
Name:
Title:
THE MENDIK PARTNERSHIP, L.P.
By: ________________________________
Bernard H. Mendik, general partner
12
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our reports dated June 14, 1996 for the Mendik Predecessors and
November 6, 1996 for The Mendik Company, Inc. in the Registration Statement
(Form S-11) and related Prospectus of The Mendik Company, Inc. dated
December 18, 1996.
ERNST & YOUNG LLP
New York, New York
December 18, 1996
<PAGE>
EXHIBIT 23.3
CONSENT
Law Engineering and Environmental Services, P.C. hereby consents to
the disclosure of its Phase 1 Environmental Site Assessment and Limited
Asbestos, Lead and Drinking Water, and Lead Based Paint Survey reports with
respect to the Two Penn Plaza, 866 U.N. Plaza, 1740 Broadway, Eleven Penn
Plaza, Two Park Avenue and 330 Madison Avenue office properties, and to the
references to the firm and such reports under the captions "Risk
Factors--Possible Environmental Liabilities," "The Properties--The
Portfolio--Historical Capital Expenditures" and "Experts" in the Registration
Statement on Form S-11 of The Mendik Company, Inc.
Law Engineering and Environmental Services, P.C.
By: /s/ John L. Cusack
------------------
Name: John L. Cusack
Title: Principal/shareholder
Date: December 13, 1996
<PAGE>
EXHIBIT 23.4
CONSENT
Rosen Consulting Group hereby consents to the use of its report
regarding the New York economy and midtown Manhattan office market and the
references to the firm and such report under the caption "New York Economy
and Manhattan Office Market" in the Registration Statement on Form S-11 of
The Mendik Company, Inc.
Rosen Consulting Group
By: /s/ Kenneth T. Rosen
----------------------
Name: Kenneth T. Rosen
Title: President, RCG
Date: December 17, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains financial information extracted from the Company's
Balance Sheet and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 510,000
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 510,000
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 510,000
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 510,000
<TOTAL-LIABILITY-AND-EQUITY> 510,000
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<PAGE>
Exhibit 99.1
CONSENT OF DIRECTOR NOMINEE
To The Mendik Company, Inc.:
Pursuant to Rule 438 promulgated under the Securities Act of
1933, as amended, I hereby consent to the references in the Registration
Statement of The Mendik Company, Inc. (the "Company") on Form S-11, and
amendments thereto, which indicate that I have accepted a nomination to
become a director of the Company subsequent to the closing of the Company's
initial public offering.
/s/ Leonard N. Stern
-------------------------------
Leonard N. Stern
Dated: December 9, 1996
<PAGE>
Exhibit 99.2
CONSENT OF DIRECTOR NOMINEE
To The Mendik Company, Inc.:
Pursuant to Rule 438 promulgated under the Securities Act of
1933, as amended, I hereby consent to the references in the Registration
Statement of The Mendik Company, Inc. (the "Company") on Form S-11, and
amendments thereto, which indicate that I have accepted a nomination to
become a director of the Company subsequent to the closing of the Company's
initial public offering.
/s/ Spencer M. Partrich
-------------------------------
Spencer M. Partrich
Dated: December 10, 1996
<PAGE>
Exhibit 99.3
CONSENT OF DIRECTOR NOMINEE
To The Mendik Company, Inc.:
Pursuant to Rule 438 promulgated under the Securities Act of
1933, as amended, I hereby consent to the references in the Registration
Statement of The Mendik Company, Inc. (the "Company") on Form S-11, and
amendments thereto, which indicate that I have accepted a nomination to
become a director of the Company subsequent to the closing of the Company's
initial public offering.
/s/ Morris W. Offit
-------------------------------
Morris W. Offit
Dated: December 12, 1996
<PAGE>
Exhibit 99.4
CONSENT OF DIRECTOR NOMINEE
To The Mendik Company, Inc.:
Pursuant to Rule 438 promulgated under the Securities Act of
1933, as amended, I hereby consent to the references in the Registration
Statement of The Mendik Company, Inc. (the "Company") on Form S-11, and
amendments thereto, which indicate that I have accepted a nomination to
become a director of the Company subsequent to the closing of the Company's
initial public offering.
/s/ Lawrence S. Huntington
-------------------------------
Lawrence S. Huntington
Dated: December 10, 1996
<PAGE>
Exhibit 99.5
CONSENT OF DIRECTOR NOMINEE
To The Mendik Company, Inc.:
Pursuant to Rule 438 promulgated under the Securities Act of
1933, as amended, I hereby consent to the references in the Registration
Statement of The Mendik Company, Inc. (the "Company") on Form S-11, and
amendments thereto, which indicate that I have accepted a nomination to
become a director of the Company subsequent to the closing of the Company's
initial public offering.
/s/ David B. Cornstein
-------------------------------
David B. Cornstein
Dated: December 9, 1996
