FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission File Number: 1-13375
TOWER REALTY TRUST, INC.
(Exact name of registrant as specified in its charter)
Maryland 13-3938558
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
120 West 45th Street, 24th Floor, New York, New York 10036
(Address of Principal Executive Offices)
(Zip Code)
(212) 768-9010
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes No X
---- ----
The registrant became subject to the filing requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, as amended, on October 9, 1997.
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
The number of shares of common stock, par value $0.01 per share,
outstanding on November 21, 1997 was 16,920,455.
1
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<TABLE>
<CAPTION>
INDEX
PART I FINANCIAL INFORMATION Page
<S> <C>
Item 1. Financial Statements.
TOWER REALTY TRUST, INC.
Condensed Consolidated Balance Sheet -- September 30, 1997 (unaudited)...........4
Condensed Consolidated Statements of Operations for the Three
Months Ended September 30, 1997 and for the period from March 27,
1997 (date of inception) through September 30, 1997 (unaudited)..................5
Condensed Consolidated Statement of Cash Flows for the period from
March 27, 1997 (date of inception) through September 30, 1997....................6
Notes to Condensed Consolidated Financial Statements.............................7
TOWER PREDECESSOR
Condensed Combined Balance Sheets -- September 30, 1997 (unaudited)
and December 31, 1996...........................................................14
Condensed Combined Statements of Operations for the Three and Nine Months
Ended September 30, 1997 and 1996 (unaudited)...................................15
Condensed Combined Statements of Cash Flows for the Nine Months
Ended September 30, 1997 and 1996 (unaudited)...................................16
Notes to Condensed Combined Financial Statements................................17
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations...........................................................25
PART II OTHER INFORMATION
Item 1. Legal Proceedings...............................................................31
Item 2. Changes in Securities and Use of Proceeds.......................................31
2
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Item 6. Exhibits and Reports on Form 8-K................................................31
SIGNATURES....................................................................................32
3
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PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements.
TOWER REALTY TRUST, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
September 30, 1997
(Unaudited)
(dollars in thousands, except per share amounts)
ASSETS
Investment in Tower Equities Management, Inc.................................................. $ 187
Cash.......................................................................................... 66
Accounts receivable........................................................................... 190
Amounts due from affiliates................................................................... 750
Deferred charges.............................................................................. 11,200
---- ---------------
Total assets................................................................ $ 12,393
==== ===============
LIABILITIES AND SHAREHOLDERS' DEFICIT
Debt.......................................................................................... $ 12,299
Accounts payable and accrued expenses......................................................... 487
---- ---------------
Total liabilities........................................................... 12,786
---- ---------------
Commitments and contingencies
Shareholders' deficit:
Preferred shares, 50,000,000 shares authorized, none
issued and outstanding...............................................................
Common shares, $.01 par value, 150,000,000 shares
authorized; 1,000 shares issued and outstanding ..................................... 1
Accumulated deficit..................................................................... (394)
---- ---------------
Total shareholders' deficit................................................. (393)
---- ---------------
Total liabilities and shareholders' deficit................................. $ 12,393
==== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
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<TABLE>
<CAPTION>
TOWER REALTY TRUST, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(dollars in thousands, except per share amounts)
For the Period
from March 27,
1997 (Date of
Three Months Inception)
Ended September through
30, September 30,
1997 1997
----------------------- ---------------------
<S> <C> <C>
Revenues:
Management and other fees........................................ $ 1,147 $ 1,147
Interest income.................................................. -- 33
----------------------- ---------------------
Total revenues....................................... 1,147 1,180
----------------------- ---------------------
Expenses:
General and administrative expenses.............................. 1,532 1,532
Interest expense................................................. 53 229
----------------------- ---------------------
Total expenses....................................... 1,585 1,761
----------------------- ---------------------
Equity in income of Tower Equities Management, Inc..................... 127 187
----------------------- ---------------------
Net loss............................................................... $ (311) $ (394)
======================= =====================
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
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<TABLE>
<CAPTION>
TOWER REALTY TRUST, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
for the period from March 27, 1997 (date of inception) through September 30, 1997
(Unaudited)
(dollars in thousands)
<S> <C>
Cash flow from operating activities:
Net loss............................................................................... $ (394)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Equity in income of Tower Equities Management, Inc............................. (187)
Change in accounts receivable ................................................. (190)
Change in accounts payable and accrued expenses................................ 487
-------------------
Net cash flow provided by operating activities............................. (284)
-------------------
Cash flow from investing activities:.........................................................
Increase in deferred charges........................................................... (11,200)
Increase in due from affiliates........................................................ (750)
-------------------
Net cash flow used in investing activities................................. (11,950)
-------------------
Cash flow from financing activities:.........................................................
Proceeds from issuance of debt............................................................... 12,299
Proceeds from issuance of common stock....................................................... 1
------------------
Net cash flow provided by investing activities............................. 12,300
------------------
Net increase in cash......................................................................... 66
Cash, at inception.......................................................................... --
------------------
Cash, end of period......................................................................... $ 66
==================
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
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TOWER REALTY TRUST, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
1. Organization:
Tower Realty Trust, Inc. (collectively with its subsidiaries, the
"Company") was organized in the state of Maryland on March 27, 1997. The
Company intends to operate so as to qualify as a real estate investment
trust ("REIT") for federal income tax purposes, commencing with its taxable
year ending December 31, 1997. Upon consummation of the Company's initial
public offering on October 16, 1997 (the "Offering") (see Note 4), the
Company acquired a sole 1% general partner interest in Tower Realty
Operating Partnership, L.P., a Delaware limited partnership (the "Operating
Partnership"), and a 90.4% limited partner interest in the Operating
Partnership.
The Company has been formed to continue and expand the commercial real
estate business of Tower Equities & Real Estate Corp. and its affiliates
(collectively with its predecessor entities and affiliates, "Tower
Equities"), including developing, acquiring, owning, renovating, managing,
and leasing office properties in midtown Manhattan, Phoenix, Tucson, and
Orlando markets.
On March 31, 1997 interests in certain partnerships, properties and limited
liability companies were contributed to the Operating Partnership in exchange
for units of limited partnership interest in the Operating Partnership ("OP
Units"). Certain of these interests were owned by the Operating Partnership
after consummation of the Offering. Simultaneously with such contribution of
interests, the Company issued $4.0 million of notes to certain investors advised
by Morgan Stanley Asset Management, Inc. ("MSAM") which are collateralized by
the Properties (as defined in Note 4 below). At September 30, 1997, the balance
on borrowings under the notes has been increased to approximately $12.3 million.
The notes bear interest at a rate of 15% per annum and are payable quarterly, in
arrears. Upon completion of the Offering, all notes were converted into shares
of common stock, par value $0.01 per share, of the Company ("Common Stock"). All
interests contributed in the previously described transactions were recorded at
zero as the historical carry-over basis of these interests were negative. Under
the original partnership agreements with respect to the contributed interests,
these partners are not required to fund any partners' deficit balances to the
Operating Partnership.
2. Summary of Significant Accounting Policies:
Cash
Cash consists of funds held at a major financial institution which balance
at times exceeds insurable limits.
Due from (to) Affiliates
Due from (to) affiliates represents amounts paid in connection with the
Offering and formation transactions by or on behalf of affiliates. All of
these amounts will be settled as of October 16, 1997.
Deferred Charges
Deferred charges consists of expenses incurred in connection with the
Offering which were charged to additional paid-in capital upon completion
of the Offering.
Revenue Recognition
Management fee income from properties which will be owned by the Operating
Partnership upon consummation of the Offering is recognized as earned under
the terms of agreements in effect upon completion of the Offering.
Construction fees are recognized ratably over each project's construction
period and leasing fees are generally recognized upon tenant occupancy of
the leased premises unless such fees are irrevocably due and payable upon
lease execution, in which case recognition occurs on the lease execution
date. Upon consummation of the Offering, such fees will be eliminated.
7
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TOWER REALTY TRUST, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(dollars in thousands, except per share amounts)
Use of Estimates in the Preparation of the Financial Statements
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
3. Recently Issued Accounting Standards:
During 1997, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 128 "Earnings Per Share" ("SFAS 128"),
No. 129 "Disclosure of Information About Capital Structure" ("SFAS 129"),
No. 130 "Reporting Comprehensive Income" ("SFAS 130"), and No. 131
"Disclosures About Segments of an Enterprise and Related Information"
("SFAS 131"). All of these statements are effective for fiscal years
beginning after December 15, 1997.
SFAS 128 specifies the computation, representation and disclosure
requirements for earnings per share. SFAS 129 establishes standards for
disclosing information about an entity's capital structure such as
information about securities, liquidation preference of preferred stock and
redeemable stock. SFAS 130 specifies the presentation and disclosure
requirement for reporting comprehensive income which includes those items
which have been formerly reported as a component of shareholders' equity.
SFAS 131 establishes the disclosure requirements for reporting segment
information.
Management believes that, when adopted, SFAS 128, 129, 130 and 131 will not
have a significant impact on the Company's results of operations or
financial position.
4. Formation Transactions:
The Offering
As of October 16, 1997, the Company consummated an initial public offering
of 13,817,250 shares of Common Stock (including the exercise of the
underwriters' overallotment option) and effected concurrent private
placements (the "Concurrent Private Placements") of 1,153,845 shares of
Common Stock at a price of $26.00 per share and realized gross proceeds
therefrom of $389.25 million. The Representatives of the several
Underwriters for the Offering in the United States and Canada were Merrill
Lynch & Co., Legg Mason Wood Walker, Incorporated, Morgan Stanley Dean
Witter, Prudential Securities Incorporated, Smith Barney Inc., and
NationsBanc Montgomery Securities, Inc. The Lead Managers of the several
International Managers for the Offering outside of the United States and
Canada were Merrill Lynch International, Legg Mason Wood Walker,
Incorporated, Morgan Stanley Dean Witter, Prudential-Bache Securities.,
Smith Barney Inc., and NationsBanc Montgomery Securities, Inc. The net cash
proceeds to the Company from the Offering and the Concurrent Private
Placements, after deducting the estimated underwriting discount of $23.4
million and estimated expenses of the Offering of $12.5 million, were
approximately $353.35 million. Such net cash proceeds were contributed to
the Operating Partnership in exchange, in part, for the Company's
approximate 91.4% interest therein (which includes an 90.4% limited partner
interest and a 1% general partner interest). The Operating Partnership used
the proceeds received from the Company, the $54 million net cash proceeds
from the Company's term loan facility (the "Term Loan") borrowed concurrent
with the Offering and approximately $12.3 million of proceeds received in
exchange from the MSAM Notes as follows: (i) approximately $247.5 million
for repayment of certain indebtedness (including associated prepayment
penalties) relating to the Properties and the partnerships that own the
Properties (the "Property Partnerships"); (ii) approximately $114.5 million
to acquire certain equity, debt and fee interests in the Properties; (iii)
approximately $2.4 million to pay for commitment fees and expenses relating
to the Term Loan and the Company's unsecured line of credit (the "Line of
Credit"); (iv) approximately $3.0 million to pay transfer taxes and other
expenses associated with the acquisitions of the Properties; and (v) the
remaining approximately $52.2 million for working capital and future
property acquisitions. Pending application of cash proceeds, the Company
<PAGE>
has invested 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.
8
TOWER REALTY TRUST, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(dollars in thousands, except per share amounts)
The Tower Equities management and leasing companies and Properties Atlantic
Inc. management and leasing company (which, prior to the Offering, was
controlled and operated by Clifford Stein, Managing Director, Southeast
Region of the Company) contributed an undivided 95% interest in the assets
of such companies to the Operating Partnership which, in turn,
recontributed such assets to Tower Equities Management, Inc. (the
"Management Company") in exchange for 100% of the non-voting stock and 5%
of the voting stock in the Management Company (which collectively is
entitled to receive 95% of the dividends).
The Management Company and each of the members of Tower Equities that hold
interests in seven retail properties that continue to be owned by Tower
Equities after the consummation of the Offering and certain related
transactions (the "Excluded Properties") entered into management agreements
with respect to each of the Excluded Properties. In consideration for the
services to be provided under the management agreements, the Management
Company will receive a property management fee and applicable leasing
commissions which will be determined by reference to existing market rates
for similar transactions.
The Properties
Upon consummation of the Offering and certain related transactions
(collectively, the "Formation Transactions"), the Operating Partnership
owns 21 office properties (the "Properties"). The Company also owns or has
an option to acquire four parcels of land adjacent to four of the
Properties (the "Development Parcels"), which can support 2.2 million of
rentable square feet of development.
Term Loan
The Operating Partnership has entered into a $107.0 million seven year Term
Loan with Merrill Lynch Credit Corporation and borrowed approximately $54
million under such facility at the closing of the Offering. Interest in the
Term Loan was fixed at a rate equal to .9% in excess of seven-year United
States Treasury Notes at the closing of the Offering.
Line of Credit
The Company has entered into the $200 million unsecured Line of Credit with
(Merrill Lynch Capital Corporation. The Line of Credit may be used, among
other things, to finance its acquisition of additional office properties,
to refinance existing indebtedness and for general working capital
requirements.
Interim Financial Information
The Company's financial statements as of September 30, 1997, present the
Company's financial position, the results of its operations and its cash
flows before the Offering and the Formation Transactions. Included in this
Quarterly Report on Form 10-Q is financial information for Tower
Predecessor which includes the accounts of Tower Equities, an equity
interest in the properties owned by the DRA Joint Ventures, and an equity
interest in a partnership controlling the 2800 North Central Property. See
Note 1 of Notes to Condensed Combined Financial Statements of Tower
Predecessor for a description of the interests comprising the DRA Joint
Ventures. The accounts are presented on a combined basis as the above
properties were under the control of common ownership and management and
were subject to the formation of the Company.
9
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TOWER REALTY TRUST, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(dollars in thousands, except per share amounts)
The Company's unaudited financial statements have been prepared pursuant to
the rules and regulations promulgated by the Securities and Exchange
Commission (the "SEC") and should be read in conjunction with the financial
statements and notes thereto of the Company, Tower Predecessor, DRA Joint
Ventures and 100 Wall Street included in the Company's final prospectus,
dated October 9, 1997 (the "Prospectus"). These notes to the financial
statements highlight significant changes to the notes included in the
Prospectus and present interim disclosures required by the SEC. The
accompanying financial statements reflect, in the opinion of management,
all adjustments necessary for a fair presentation of the interim financial
statements. All such adjustments are of a normal and recurring nature.
5. Investment in Tower Equities Management, Inc.:
The Company records its investment in the Management Company using the
equity method of accounting and, therefore, reports its share of income and
expenses based on its 95% ownership interest in the economics of the
Management Company. The Management Company, a non-qualified REIT
subsidiary, provides property management, brokerage and construction
services for the Properties, to third parties and for joint venture
properties. Presented below is condensed financial information of the
Management Company:
Balance Sheet
September 30, 1997
(unaudited)
ASSETS:
Cash................................................... $ 75
Accounts receivable.................................... 78
Due from affiliates.................................... 380
Equipment.............................................. 113
------------------
Total assets................................. $ 646
==================
LIABILITIES AND OWNERS' EQUITY:
Accounts payable and accrued expenses.................. $ 449
Owners' equity......................................... 197
------------------
Total liabilities and owners' equity........ $ 646
==================
10
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TOWER REALTY TRUST, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(dollars in thousands, except per share amounts)
Statement of Operations
Period from inception (March 27, 1997) through September 30, 1997
(Unaudited)
Revenues:
Management fees......................................... $ 361
Construction, leasing and other fees.................... 283
--------------
Total revenues.................................. 644
--------------
Expenses:
General office and administration....................... 332
Depreciation and amortization........................... 9
--------------
Total expenses.................................. 341
--------------
Income before taxes............................. 303
Income tax expense...................................... 106
--------------
Net income...................................... $ 197
==============
6. Pro Forma Information:
The following unaudited pro forma condensed consolidated balance sheet and
statements of operations of the Company are presented as if the
consummation of the Formation Transactions and the application of the net
proceeds of the Offering had occurred on September 30, 1997 and January 1,
1996, respectively. Such pro forma and estimated information is based in
part upon the combined statements of operations of the Tower Predecessor
included elsewhere in this Quarterly Report on Form 10-Q. Such information
should be read in conjunction with the Financial Statements listed in the
index of this Quarterly Report on Form 10-Q and in the Prospectus. In
management's opinion, all adjustments necessary to reflect the effects of
the Formation Transactions and the Offering have been made. The pro forma
information is not necessarily indicative of what the actual financial
position would have been at September 30, 1997, or what the actual results
of operations would have been for the nine months ended September 30, 1997
and September 30, 1996, respectively, had the Formation Transactions been
consummated on September 30, 1997 or January 1, 1996, respectively, and
carried forward through the interim period presented, nor do they purport
to present the future financial position or results of operations of the
Company.
11
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TOWER REALTY TRUST, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Pro Forma Condensed Consolidated Balance Sheet
September 30, 1997
(unaudited)
Pro Forma Adjustments
-------------------------------------------------------
The Offering
and
The Concurrent
Company Predecessor Acquisition Private Other Pro
Historical Historical Properties Placement Adjustments Forma
------------- ------------- ------------- -------------- ------------- ----------
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ASSETS
------------- ------------- ------------- -------------- ------------- ----------
Real estate, net $ 128,077 $ 326,595 $ 454,672
Deferred charges, net $ 11,200 11,779 $ 11,200 $ 1,274 13,053
Receivables, net 190 3,643 (1,333) 2,500
Unbilled rent receivable 14,230 (14,230)
Escrowed funds 765 (765)
Cash and cash equivalents 66 4,947 (398,179) 364,598 79,742 51,174
Investments in joint ventures 188 4,725 2,098 (4,725) 2,286
Other assets 2,648 3,120 (2,648) 3,120
------------- ------------- ------------- -------------- ------------- ----------
Total assets $ 11,644 $ 170,814 $ (66,366) $ 353,398 $ 57,315 $ 526,805
============= ============= ============= ============== ============= ==========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Debt on real estate $ 12,299 $ 194,638 $ (150,354) $ 54,417 $ 11,000
Accounts payable and other
liabilities 487 26,384 (13,919) 12,952
Amounts due to (from) affiliates (749) 10,723 (9,974)
------------- ------------- ------------- ------------- ----------
Total liabilities 12,037 231,745 (150,354) 30,524 123,952
------------- ------------- ------------- ------------- ----------
Minority interest in Operating
Partnership 8,580 26,066 34,646
------------- ------------- ----------
Shareholders' equity:
Preferred shares, 50,000,000
shares authorized, none
issued and outstanding
Common shares, $.01 par value,
150,000,000 shares
authorized; 1,000 shares
issued and outstanding
(historical) and 16,920,455
shares issued and
outstanding (pro forma) 1 10 $ 150 8 169
Additional paid-in capital 29,318 353,248 (14,134) 368,432
Owners' equity (deficit) (394) (60,931) 46,080 14,851 (394)
----------- ------------- ------------- -------------- ------------- ----------
Total shareholders' equity
deficit) (393) (60,931) 75,408 353,398 725 368,207
----------- ------------- ------------- ------------- ------------- ----------
Total liabilities and $ 11,644 $ 170,814 $ (66,366) $ 353,398 $ 57,315 $ 526,805
shareholders' equity
(deficit)
=========== ============= ============= ============== ============= ==========
</TABLE>
12
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TOWER REALTY TRUST, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(dollars in thousands, except per share amounts)
Pro Forma Condensed Consolidated Statements of Operations
(unaudited)
Nine Months Ended
September 30,
------------------------------
1997 1996
------------ -------------
Revenues:
Rental income.............................. $ 55,586 $ 52,943
Other revenues............................. 322 271
------------ ------------
Total revenues.................... 55,908 53,214
------------ ------------
Expenses:
Property operating and maintenance......... 14,428 14,287
Real estate taxes.......................... 8,268 8,008
General office and administration.......... 2,956 2,574
Interest expense........................... 6,029 6,029
Depreciation and amortization.............. 10,282 9,269
Ground rent and air rights expense......... 449 449
------------ ------------
Total expenses.................... 42,412 40,616
------------ ------------
Equity in income of joint ventures............ 288 245
------------ ------------
Income before minority interest............... 13,784 12,843
Minority interest in Operating Partnership.... 1,185 1,105
------------ ------------
Net income $ 12,599 $ 11,738
============ ============
Net income per share $ 0.74 $ 0.69
============ ============
Weighted average number of common shares
outstanding 16,920 16,920
============= ============
13
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TOWER PREDECESSOR
CONDENSED COMBINED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
--------------------- ------------------
(unaudited)
ASSETS
<S> <C> <C>
Real estate........................................................ $ 172,969 $ 169,619
Less: accumulated depreciation................................. (44,892) (40,555)
------------------- ------------------
128,077 129,064
Deferred charges, net.............................................. 11,779 11,636
Receivables, net of allowance for doubtful accounts of
approximately $2,500 for all periods............................ 3,643 2,776
Unbilled rent receivable........................................... 14,230 15,242
Escrowed funds..................................................... 765 413
Cash and cash equivalents.......................................... 4,947 4,985
Investments in joint ventures...................................... 4,725 5,316
Other assets....................................................... 2,648 3,555
------------------- ------------------
Total assets $ 170,814 $ 172,987
=================== ==================
LIABILITIES AND OWNERS' DEFICIT
Real estate debt................................................... $ 194,638 $ 202,892
Deferred real estate taxes......................................... 12,951 12,951
Accounts payable and other liabilities............................. 13,433 12,867
Amounts due to affiliates.......................................... 10,723 6,147
------------------- ------------------
Total liabilities............................... 231,745 234,857
Commitments and contingencies
Owners' deficit.................................................... (60,931) (61,870)
------------------- ------------------
Total liabilities and owners' deficit $ 170,814 $ 172,987
=================== ===================
</TABLE>
The accompanying notes are an integral part of these financial statements
.
14
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TOWER PREDECESSOR
CONDENSED COMBINED STATEMENTS OF OPERATIONS
(unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------ ------------------------------
1997 1996 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Rental income................................... $ 6,292 $ 5,637 $ 19,813 $ 19,103
Management fees................................. 73 304 318 930
Construction, leasing and other fees........... 88 347 562 890
------------- ------------- ------------- -------------
Total revenues.................. 6,453 6,288 20,693 20,923
------------- ------------- ------------- -------------
Expenses:
Property operating and maintenance.............. 1,506 1,417 4,209 4,198
Real estate taxes............................... 1,162 1,168 3,493 3,528
General office and administration............... 384 872 2,130 2639
Interest expense................................ 3,744 3,516 10,772 10,688
Depreciation and amortization................... 1,761 1,612 5,255 4,996
Ground rent and air rights expense.............. 150 150 449 449
------------- ------------- ------------- -------------
Total expenses.................. 8,707 8,735 26,308 26,498
------------- ------------- ------------- -------------
Equity in income of joint ventures................. 17 97 85 295
------------- ------------- ------------- -------------
Loss before extraordinary gain on
early extinguishment of debt.................... (2,237) (2,350) (5,530) (5,280)
Extraordinary gain on early extinguishment
of debt......................................... 6,475
------------- ------------- ------------- -------------
Net (loss) income.................................. $ (2,237) $ (2,350) $ 945 $ (5,280)
============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
15
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TOWER PREDECESSOR
CONDENSED COMBINED STATEMENTS OF CASH FLOWS
(unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------------------------
1997 1996
-------------- ---------------
<S> <C> <C>
Cash flow from operating activities:
Net income (loss)............................................................ $ 945 $ (5,280)
Adjustments to reconcile net loss to net cash (used in) provided by operating
activities:..................................................................
Depreciation and amortization............................................. 4,349 4,137
Amortization of deferred financing costs.................................. 906 859
Equity in income of joint ventures, net of distributions.................. (2)
Extraordinary gain on early extinguishment of debt........................ (6,475)
Change in:................................................................
Deferred charges........................................................ (1,049) (406)
Receivables............................................................. (867) 2,163
Unbilled rent receivable................................................ 1,012 603
Escrowed funds (352) (867)
Other assets............................................................ 907 840
Deferred real estate taxes..............................................
Accounts payable and other liabilities.................................. 566 (384)
--------------- --------------
Net cash flow (used in) provided by operating activities............ (58) 1,663
--------------- --------------
Cash flow from investing activities:............................................
Improvements to real estate.................................................. (3,362) (1,768)
Distribution from joint ventures in excess of equity in income............... 591
Proceeds from disposal of assets.............................................
--------------- --------------
Net cash flow used in investing activities.......................... (2,771) (1,768)
--------------- --------------
Cash flow from financing activities:............................................
Partners' distributions, net................................................. (6) (788)
Proceeds from real estate debt............................................... 15,581 2,094
Repayment of real estate debt................................................ (17,360) (2,700)
Amounts due to affiliates.................................................... 4,576 558
-------------- ---------------
Net cash flow provided by (used in) financing activities............ 2,791 (836)
-------------- ---------------
Net decrease in cash and cash equivalents....................................... (38) (941)
Cash and cash equivalents, beginning of periods................................... 4,985 5,208
--------------- --------------
Cash and cash equivalents, end of periods $ 4,947 $ 4,267
=============== ==============
Supplemental cash flow information:
Cash paid for interest....................................................... $ 9,753 $ 9,977
=============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
16
<PAGE>
TOWER PREDECESSOR
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
1. Organization and Basis of Presentation:
The accompanying combined statement of operations of Tower Predecessor has
been presented on a combined historical cost basis because of common
ownership and management, and because the assets and liabilities were the
subject of a business combination with Tower Realty Trust, Inc. (the
"Company") and Tower Realty Operating Partnership, L.P. (the "Operating
Partnership"), both newly formed entities. Upon consummation of the
Company's initial public offering on October 16, 1997 (the "Offering"), the
Company owns a sole 1% general partner interest and a 90.4% limited partner
interest in the Operating Partnership.
The following entities comprising the Tower Predecessor were controlled and
managed by Tower Equities and Real Estate Corp. and its affiliates
(collectively with its predecessor entities and affiliates, "Tower
Equities") (which is controlled by Lawrence H. Feldman, Chairman of the
Board, Chief Executive Officer and President of the Company):
<TABLE>
<CAPTION>
Lawrence H.
Feldman's
Ownership Interest Location
----------------------- ------------------------
<S> <C> <C>
Tower 45 6% New York City
120 Mineola Boulevard 5% Long Island, NY
Maitland Forum 15% Maitland, FL
Maitland Center Parkway (3 properties) 90% Maitland, FL
5750 Major Boulevard (purchased in October 1996) 6% Orlando, FL
Management Companies 90% New York City and
Maitland, FL
</TABLE>
Lawrence H. Feldman owned a majority general partner interest in the
partnerships owning these properties. The accompanying combined financial
statements include 100% of the assets, liabilities and operations of these
properties.
Lawrence H. Feldman held a non-controlling interest in the partnerships
that own the following properties listed in the following table. Lawrence
H. Feldman was a general partner and an affiliate of DRA Advisors, Inc.
("DRA") which was the managing general partner in each partnership. The
accompanying combined financial statements include these investments in the
DRA Joint Ventures using the equity method of accounting (see Note 4). Upon
consummation of the Offering, the Company purchased all of the partnership
interests in the DRA Joint Ventures.
17
<PAGE>
TOWER PREDECESSOR
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS - (Continued)
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Lawrence H.
Feldman's
Ownership Interest Location
------------------------ --------------------------
<S> <C> <C>
286 Madison Avenue 3% New York City
290 Madison Avenue 3% New York City
292 Madison Avenue 3% New York City
Corporate Center Building (6 properties) 20% Phoenix, AZ
5151 East Broadway 3% Tucson, AZ
One Orlando Center 3% Orlando, FL
</TABLE>
Prior to consummation of the Offering, Lawrence H. Feldman also held a 3.8%
non-controlling interest in a partnership controlling the 2800 North
Central Avenue Property. The accompanying combined financial statements
include this investment using the equity method of accounting (see Note 4).
The Company, upon consummation of the Offering, acquired this interest and
the interests of other members of Tower Equities (10% aggregate interest).
The Company was formed with the intent of qualifying as a Real Estate
Investment Trust ("REIT") under the Internal Revenue Code of 1986, as
amended. The Company raised equity through the Offering and concurrent
private placements (the "Concurrent Private Placements"). The proceeds from
the Offering and the Concurrent Private Placements were used to purchase a
sole 1% general partnership interest and 90.4% limited partnership interest
in the Operating Partnership which, directly or indirectly, holds the
operating assets and liabilities of the Company.
All significant intercompany transactions and balances have been eliminated
in the combined financial statements.
2. Summary of Significant Accounting Policies:
Real Estate
Real estate and leasehold improvements are stated at cost. In accordance
with Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed of," Tower Predecessor records impairment writedowns on
long-lived assets, when events and circumstances indicate that the assets
might be impaired and the estimated undiscounted cash flows to be
generated by those assets are less than the carrying amounts of those
assets. No such impairment losses have been recognized in these financial
statements.
18
<PAGE>
TOWER PREDECESSOR
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS - (Continued)
(dollars in thousands, except per share amounts)
Depreciation on buildings and improvements is provided under the
straight-line method over an estimated useful life of thirty to forty
years. Depreciation on furniture and fixtures is provided under the
straight-line method over an estimated useful life of five to seven years.
When assets are sold or retired, their costs and related accumulated
depreciation are removed from the accounts with the resulting gains or
losses reflected in net income or loss. Expenditures for maintenance and
repairs are charged to operations as incurred.
Deferred Charges
Deferred financing costs are recorded at cost and are being amortized on
the straight-line method, which approximates the interest method over the
life of the related debt. Leasing commissions and leasehold improvements
are deferred and amortized over the lesser of useful life or terms of the
related leases. Other deferred charges are amortized over terms applicable
to the expenditure.
Escrowed Funds
Escrowed funds are comprised of funds held for the payment of real estate
taxes and mortgage interest.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand and investments with
maturities of three months or less when purchased. The majority of Tower
Predecessor's cash and cash equivalents are held at major financial
institutions which balances at times exceed insurance limits. For purposes
of the statement of cash flows, all transactions between Tower Predecessor
and other affiliated entities have been accounted for as settled in cash at
the time the transaction was recorded.
Receivables and Deferred Real Estate Taxes
Deferred real estate taxes represent a portion of real estate taxes accrued
from 1988 through 1995 for the Tower 45 property which are payable to the
taxing authority commencing on July 1, 1998 in payments of approximately
$1.3 million per year. A portion of these deferred real estate taxes are
expected to be recovered from tenants (approximately $2.5 million) and is
recorded as a receivable in the accompanying financial statements.
Income Taxes
Tower Predecessor is not a legal entity subject to federal, state or local
income taxes. No provision for income taxes is necessary in the financial
statements of Tower Predecessor since the Tower Predecessor's statements
combine the operations and balances of partnerships which are not subject
to income tax. The tax effect of its activities accrues to the individual
partners of the respective entity.
19
<PAGE>
TOWER PREDECESSOR
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS - (Continued)
(dollars in thousands, except per share amounts)
Revenue Recognition
Tower Predecessor, as a lessor, has retained substantially all of the risks
and benefits of ownership of the rental properties and accounts for its
leases as operating leases. Space is leased to tenants under leases ranging
from three to 10 years. Rental income is recognized over the terms of the
leases as it is earned. Unbilled rental revenue represents rental income
earned on a straight-line basis in excess of rent payments received
pursuant to terms of the individual lease agreements.
Management fee income from third parties and joint venture properties
through March 27, 1997 is recognized as earned under the terms of the
related agreements. Construction fees are recognized ratably over each
project's construction period and leasing fees are generally recognized
upon tenant occupancy of the leased premises unless such fees are
irrevocably due and payable upon lease execution, in which case recognition
occurs on the lease execution date.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. The most significant estimates relate to the
recoverability of real estate, unbilled rent receivable and investment in
joint ventures. Actual results could differ from those estimates.
3. Interim Financial Information:
The Company's unaudited interim condensed combined financial statements as of
September 30, 1997 and for the three and nine months ended September 30, 1997
and 1996 have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission ("SEC"). The notes to the interim financial
statements included herein are intended to highlight significant changes to the
notes to the December 31, 1996 audited financial statements and present interim
disclosures required by the SEC. Such information should be read in conjunction
with the Financial Statements listed in the index of this Quarterly Report on
Form 10-Q and in the Company's final prospectus, dated October 9, 1997, relating
to the Offering (the "Prospectus"). The accompanying interim financial
statements reflect, in the opinion of management, all adjustments necessary for
a fair presentation of the interim financial statements. All such adjustments
are of a normal and recurring nature. The results of operations for the nine
months ended September 30, 1997 and 1996 are not necessarily indicative of Tower
Predecessor's future results of operations for the full year ended December 31,
1997.
20
<PAGE>
TOWER PREDECESSOR
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS - (Continued)
(dollars in thousands, except per share amounts)
4. Investments in Joint Ventures:
Tower Predecessor accounts for its investments in joint ventures using the
equity method of accounting and therefore reports its share of income and
losses based on the Lawrence Feldman's ownership interests in the
respective entities as described in Note 1.
Presented below is condensed combined financial information of the DRA
Joint Ventures:
DRA JOINT VENTURE
Combined Balance Sheets
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------------- -----------------
(unaudited)
ASSETS:
<S> <C> <C>
Real estate, net of accumulated depreciation................... $ 139,693 $ 140,759
Other assets................................................... 22,144 19,249
-------------------- ------------------
Total assets....................................... $ 161,837 $ 160,008
====--============== ==================
LIABILITIES and OWNERS' EQUITY:
Debt on real estate............................................ $ 131,301 $ 126,517
Accounts payable and other liabilities......................... 4,285 3,956
-------------------- ------------------
Total liabilities.................................. 135,586 130,473
Owners' equity................................................. 26,251 29,535
-------------------- ------------------
Total liabilities and owners' equity............... $ 161,837 $ 160,008
==================== ======-===========
</TABLE>
21
<PAGE>
TOWER PREDECESSOR
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS - (Continued)
(dollars in thousands, except per share amounts)
DRA JOINT VENTURE
Combined Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
Three Month Ended Nine Months Ended
September 30, September 30,
-------------------------------- ----------------------------------
1997 1996 1997 1996
----------- --------------- ------------- ---------------
<S> <C> <C> <C> <C>
Revenues:
Rental income.............................. $ 7,639 $ 7,509 $ 22,142 $ 21,840
Management fees and other.................. 60 42 143 140
------------- --------------- ------------- ----------------
Total revenues.................... 7,699 7,551 22,285 21,980
------------- --------------- ------------- ----------------
Expenses:
Property operating expenses, real estate taxes and
management fees............................ 3,451 3,329 9,657 9,894
Interest expense.............................. 2,925 2,571 8,617 7,387
Depreciation and amortization................. 1,230 1,107 3,537 3,056
------------- --------------- -------------- ---------------
Total expenses.................... 7,606 7,007 21,811 20,337
------------- --------------- -------------- ---------------
Net income........................ $ 93 $ 544 $ 474 $ 1,643
============= =============== ============== ===============
2800 NORTH CENTRAL PROPERTY
Balance Sheets
September 30, December 31,
1997 1996
------------------- -----------------
(unaudited)
ASSETS:
Real estate, net of accumulated depreciation................... $ 31,076 $ 30,638
Other assets................................................... 2,660 2,244
-------------------- -----------------
Total assets................................ $ 33,736 $ 32,882
==================== =================
LIABILITIES and OWNERS' EQUITY:
Debt on real estate............................................ $ 26,489 $ 25,021
Accounts payable and other liabilities......................... 1,395 1,285
--------------------- -----------------
Total liabilities........................... 27,884 26,306
Owners' equity................................................. 5,852 6,576
-------------------- -----------------
Total liabilities and owners' equity........ $ 33,736 $ 32,882
==================== =================
</TABLE>
22
<PAGE>
TOWER PREDECESSOR
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS - (Continued)
(dollars in thousands, except per share amounts)
2800 NORTH CENTRAL PROPERTY
Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
Period from May
Nine Months 1996 through
Three Month Ended Ended September 30,
September 30, September 30,
----------------------------------- ----------------- ------------------
1997 1996 1997 1996
--------------- --------------- ----------------- ------------------
<S> <C> <C> <C> <C>
Revenues:
Rental income........................ $ 1,370 $ 1,368 $ 4,149 $ 2,243
Management fees and other............ 3 9 12 12
--------------- --------------- ----------------- ------------------
Total revenues............... 1,373 1,377 4,161 2,255
--------------- --------------- ----------------- ------------------
Expenses:
Property operating expenses, real estate taxes
and management fees..................
752 731 2,112 1,206
Interest expense........................ 665 851 1,930 962
Depreciation and amortization........... 290 190 844 295
--------------- --------------- ----------------- -----------------
Total expenses............... 1,707 1,772 4,886 2,463
--------------- --------------- ----------------- ------------------
Net loss $ (334) $ (395) $ (725) $ (208)
=============== =============== ================= ==================
5. Real Estate Debt:
Real estate debt consists of the following (in thousands):
September 30, December 31,
1997 1996
--------------------- ---------------------
(unaudited)
Tower 45.................................................. $ 145,305 $ 147,616
120 Mineola Boulevard..................................... 11,260 18,892
Maitland Forum............................................ 24,698 29,409
Maitland Center Parkway (3 properties).................... 7,523 4,437
5750 Major Boulevard...................................... 4,650 2,538
--------------------- ---------------------
$ 193,436 $ 202,892
===================== =====================
The interest rate on the mortgage loans referred to above (with the
exception of Tower 45) are calculated based on the GECC Commercial Paper
Rate, plus an additional rate ranging from 3.25% to 4.50%. These mortgages
</TABLE>
23
<PAGE>
TOWER PREDECESSOR
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS - (Continued)
(dollars in thousands, except per share amounts)
are collateralized by the land, building and improvements, furniture and
fixtures, machinery and equipment and tenant leases and sub leases. The
Tower 45 rate is based on the 30-day LIBOR, plus and additional rate
ranging from 1.75% to 2.50%. This loan is collateralized by the Company's
rights in a lease on the air and corresponding development rights adjacent
to the property.
Scheduled Principal repayments of debt on real estate at December 31, 1996,
are as follows:
Years Ending
December 31, Amounts
--------------------
(in thousands)
1997 $ 1,138
1998 170,945
2001 28,271
Thereafter 2,538
--------------------
$ 202,892
====================
During the nine months ended September 30, 1997, the debt on 120 Mineola
Boulevard was extinguished with proceeds from another lender of $11,260.
Gain on the early extinguishment of debt totalled $6,475.
6. Related Party Transactions
Under the terms of various management agreements, Tower Predecessor
receives cost reimbursements and property management, leasing and tenant
service fees from certain affiliates in which Tower Equities have ownership
interests. Cost reimbursements are comprised primarily of salary and
employee benefit recoveries and reimbursements of certain administrative
costs. For the nine months ended September 30, 1997 and 1996, fees and cost
derived from these agreements totalled $0.2 million and $1.6 million,
respectively.
Amounts due to affiliates at September 30, 1997 and 1996, consisted
primarily of loans payable to affiliates of Tower Predecessor.
7. Commitments and Contingencies:
Tower Predecessor is subject to various legal proceedings and claims that arise
in the ordinary course of the 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 Tower Predecessor.
24
<PAGE>
This Quarterly Report on Form 10-Q contains forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995,
which involve certain risks and uncertainties. The Company's actual results
in future periods may be materially different from any future performance
anticipated herein. Each forward-looking statement that the Company
believes is material is accompanied by a cautionary statement or statements
identifying important factors that could cause actual results to differ
materially from those described in the forward-looking statement. In the
context of forward-looking information provided in this Quarterly Report on
Form 10-Q and in other reports, please refer to the discussion of risk
factors detailed in, as well as the other information contained in, the
Company's filings with the Securities and Exchange Commission during the
past 12 months.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Overview
The Company has been formed to continue and expand the commercial real estate
business of Tower Equities, including developing, acquiring, owning, renovating,
managing, and leasing office properties in midtown Manhattan, Phoenix, Tucson,
and Orlando markets. The Company's operations will be carried out through
subsidiaries which consist primarily of the Operating Partnership, the
Management Company and other subsidiary partnerships, joint ventures, general
partnerships and limited companies through which the Operating Partnership owns
certain of the properties. The Company will form additional subsidiaries or
affiliates in cases where the Company determines that the use of a separate
entity is advisable.
As a result of the Offering and the related Formation Transactions, the
Operating Partnership owns and operates 21 office properties (the "Properties").
The Company also owns or has an option to acquire four parcels of land adjacent
to four of the Properties (the "Development Parcels"), which can support
approximately 2.2 million of rentable square feet of development.
The following discussion is based primarily on the combined financial statements
of Tower Predecessor for periods prior to the completion of the Offering and
related Formation Transactions. The pro forma condensed consolidated balance
sheet is presented as if the Offering and the Formation Transactions had
occurred on September 30, 1997. The pro forma results of operations are
presented as if the Offering and the Formation Transactions had occurred on
January 1, 1996. The combined financial statements include the assets,
liabilities and operations of the properties and predecessor management
companies to be acquired by the Company in the Formation Transactions from
entities controlled and managed by Tower Equities as follows: Tower 45, 120
Mineola Boulevard, Maitland Forum, the three Maitland Center Parkway Properties,
5750 Major Boulevard and the predecessor management companies, including Tower
Equities and Realty Corp., CXX Mineola Management Corp., Forum Realty and
Management Corp., and Tower Equities of Arizona L.L.C.
Results of Operations
Comparison of the Three Months Ended September 30, 1997 to the Three Months
Ended September 30, 1996
Total revenues for the three months ended September 30, 1997 increased by $0.2
million, or 3%, to $6.5 million as compared to $6.3 million for three months
ended September 30, 1996. Rental income for the three months ended September 30,
1997 increased by $0.7 million, or 12%, to $6.3 million as compared to $5.6
million for the three months ended September 30, 1996 due to (i) the purchase of
5750 Major Boulevard in October 1996 which increased rental
25
<PAGE>
income by $0.1 million and (ii) increased rental rates from new leases at the
Tower 45, Maitland Forum and Maitland Center Parkway Properties.
Management fee income decreased $0.2 million to $0.1 million for the three
months ended September 30, 1997 as compared to $0.3 million for the three months
ended September 30, 1996 due to the fact that management fee income for the
period from July 1, 1997 through September 30, 1997 is recorded by the
Management Company. Construction, leasing, and other fees relating to one office
and seven retail properties as well as the DRA Joint Ventures and 2800 North
Central Property for the three months ended September 30, 1997 decreased by $0.3
million as compared to the three months ended September 30, 1996 for the same
reason.
Total expenses remained constant for three months ended September 30, 1997 and
1996 at $8.7 million. Expenses excluding interest and depreciation and
amortization decreased by $0.4 million or 13%, from $3.6 million for the three
months ended September 30, 1996 to $3.2 million for the three months ended
September 30, 1997. Expenses, excluding interest and depreciation and
amortization, as a percentage of total revenues, decreased from 57.4% for the
three months ended September 30, 1996 to 49.6% for the three months ended
September 30, 1997 due to decreases in general and administrative costs.
Management believes that expenses as a percentage of revenues will decrease for
the remainder of 1997. Each component of expenses excluding interest and
depreciation and amortization changed as a percentage of total revenues as
follows:
Three Months Ended
September 30,
--------------------------------
1997 1996
------------- -------------
Property operating and maintenance......... 23.3% 22.5%
Real estate taxes.......................... 18.0 18.6
General office and administration.......... 6.0 13.9
Ground rent and air rights................. 2.3 2.4
------------- -----------
49.6% 57.4%
Interest expense increased by $0.2 million, or 6.5% to $3.7 million for the
three months ended September 30, 1997 as compared to $3.5 million for the three
months ended September 30, 1996 due to an increase in average outstanding debt
balances.
Equity in joint ventures decreased slightly by $0.1 million for the three months
ended September 30, 1997 due primarily to higher interest expense as a result of
higher interest rates on the debt of the DRA Joint Venture properties, offset by
increased rental income of the DRA Joint Venture properties.
Net loss decreased by $0.2 million to net loss of $2.2 million for the three
months ended September 30, 1997 as compared to net loss of $2.4 million
primarily due to the effect of the above explanations.
Comparison of the Nine Months Ended September 30, 1997 to the Nine Months Ended
September 30, 1996
Total revenues for the nine months ended September 30, 1997 decreased by $0.2
million, or 1.1%, to $20.7 million as compared to $20.9 million for nine months
ended September 30, 1996. Rental income increased by $0.7 million, or 3.7%, to
$19.8 million as compared to $19.1 million for the nine months ended September
30, 1996 due to (i) the
26
<PAGE>
purchase of 5750 Major Boulevard in October 1996 which increased rental income
by $0.3 million and (ii) increased rental rates from new leases at the Tower 45,
Maitland Forum and Maitland Center Parkway Properties.
Management fee income decreased $0.6 million to $0.3 million for the nine months
ended September 30, 1997 as compared to $0.9 million for the nine months ended
September 30, 1996 due to the fact that management fee income for the period
from January 1, 1997 through September 30, 1997 is recorded by the Management
Company. Construction, leasing, and other fees relating to one office and seven
retail properties as well as the DRA Joint Ventures and 2800 North Central
Property for the nine months ended September 30, 1997 decreased by $0.3 million
as compared to the nine months ended September 30, 1996, for the same reason.
Total expenses for the nine months ended September 30, 1997 decreased by $0.2
million, or 0.7%, to $26.3 million as compared to $26.5 million for the nine
months ended September 30, 1996. Expenses excluding interest and depreciation
and amortization decreased by $0.5 million, or 5%, from $10.8 million for the
nine months ended September 30, 1996 to $10.3 million for the nine months ended
September 30, 1997. Expenses excluding interest and depreciation and
amortization, as a percentage of total revenues, decreased from 51.7% for the
nine months ended September 30, 1996 to 49.7% for the nine months ended
September 30, 1997 due to decreases in general and administrative costs.
Management believes that expenses as a percentage of revenues will decrease for
the remainder of 1997. Each component of expenses excluding interest and
depreciation and amortization changed as a percentage of total revenues as
follows:
<TABLE>
<CAPTION>
Nine Months
Ended
September 30,
-----------------------------
1997 1996
---------- -----------
<S> <C> <C>
Property operating and maintenance............................................ 20.3% 20.1%
Real estate taxes............................................................. 16.9 16.9
General office and administration............................................. 10.3 12.6
Ground rent and air rights.................................................... 2.2 2.1
------------ -----------
49.7% 51.7%
</TABLE>
Interest expense increased by $0.1 million, or 0.9%, to $10.8 million for the
nine months ended September 30, 1997 as compared to $10.7 million for the nine
months ended September 30, 1996 due to a increase in average outstanding debt
balances.
Equity in joint ventures decreased slightly by $0.2 million to $0.1 million for
the nine months ended September 30, 1997 as compared to $0.3 million for the
nine months ended September 30, 1996 due primarily to higher interest expense
due to higher interest rates on the debt of the DRA Joint Venture properties,
offset by increased rental income of the DRA Joint Venture property.
Net loss decreased by $6.2 million, to net income of $0.9 million for the nine
months ended September 30, 1997 as compared to net loss of $5.3 million
primarily due to extraordinary gain on extinguishment of debt for one of the
properties.
27
<PAGE>
Pro Forma Operating Results
Nine Months Ended September 30, 1997
For the nine months ended September 30, 1997, pro forma net income would have
been $12.6 million compared to a historical net loss before extraordinary item
(gain on extinguishment of debt) of $5.3 million for the same period. The pro
forma operating results for the nine months ended September 30, 1997 include
rental revenues and property expenses (operating, maintenance, real estate taxes
and depreciation) on a gross basis from the DRA Joint Ventures whereas the
historical financial statements of Tower Predecessor include the equity in
earnings of the DRA Joint Ventures. Likewise, pro forma operating results
include the acquisition of the Century Plaza and 100 Wall Street properties, the
results of which are not included in the historical statement of operations.
<PAGE>
The decrease in the pro forma management, construction, leasing and other fees
by $1.7 million primarily results from the Company's transfer of certain
management contracts and predecessor management companies and personnel to the
Management Company for the pro forma statement of operations. General and
administrative expenses remained consistent as compared to the combined Company
and Tower Predecessor.
Interest expense decreased $5.0 million, or 45%, in the pro forma statement of
operations due to mortgage loans repaid concurrent with the Offering and lower
interest rates on the $89.0 million Term Loan (including $35.0 million which has
been assumed will be utilized to repay mortgage indebtedness relating to the
Tower 45 Property). The Term Loan is expected to bear interest at a fixed rate
equal to .9% in excess of seven-year United States Treasury Notes at the closing
of the Offering. The seven-year Treasury note rate of 6.06% as of October 9,
1997 was used for the calculation of the interest rate in the pro forma results.
Liquidity and Capital Resources
Historically, property operations, long-term mortgage financing and partner
equity contributions were the principal sources of capital used by the Tower
Predecessor to acquire, renovate and develop office properties. In connection
with the Formation Transactions, the Company issued notes to fund certain costs
relating to the Offering and the formation of the Company. Upon consummation of
the Offering and Formation Transactions, (i) holders of the notes converted the
notes (the "MSAM Notes") into approximately 886,200 shares of restricted common
stock, and purchased an additional $20.0 million of shares of restricted common
stock in the Concurrent Private Placements and (ii) certain private investment
funds sponsored by the Carlyle Group purchased $10.0 million of shares of
restricted common stock in the Concurrent Private Placements. Proceeds from
these transactions and the Offering were used to repay and modify the terms of
certain indebtedness, to acquire debt, equity and fee interests in the
Properties, reduce its total indebtedness to approximately $113.7 million
(including its pro rata of joint venture debt), to acquire additional properties
and establish working capital cash reserves. In the future, the Company intends
to rely upon Funds from Operations and debt and equity financing as its sources
of funding for developing, acquiring, and renovating properties. The Company
expects that, after the Offering and related Formation Transactions, Funds from
Operations will be significantly greater than it has been historically because
of the repayment and modification of certain debt in connection with the
Offering and the acquisitions of additional properties.
Mortgage Financing. Upon completion of the Offering, the Concurrent Private
Placements, and the Formation Transactions and the application of the net
proceeds therefrom, the Company reduced total consolidated indebtedness to
approximately $113.7 million (including its pro rata share of joint venture
debt), which will initially be collateralized by 10 of the Properties, with a
weighted average interest rate of 7.14% (see the mortgage indebtedness table
below). There will be a total of approximately $0.2 million of scheduled loan
principal payments due during the year ending December 31, 1998. The mortgage
indebtedness will represent approximately 19.1% of the Company's total market
capitalization.
Mortgage Indebtedness. As of the consummation of the Offering, the Company had
outstanding approximately $111.0 million of total consolidated mortgage
indebtedness, and approximately $2.7 million of unconsolidated investment
indebtedness, as follows:
<TABLE>
<CAPTION>
Estimated
Principal Interest Annual Debt Maturity Balance at
Property(ies) Amount Rate Service Date Maturity
--------------- --------- ---------------- ------------------- --------------
(in thousands) (in thousands) (in thousands)
<S> <C> <C> <C> <C> <C>
Corporate Center Properties 21,000 7.55% $ 1,586 January 1, 2006 $ 17,926
Corporate Center Properties 1,000 8.37% 84 January 1, 2006 843
2800 North Central 2,658 9.41% 250 May 31, 1999 (2) 2,658
Property (1)............
Term Loan 89,000 (3) 6.96% (4) 6,194 (4) (4) 83,741
--------------- --------- ---------------- --------------
Total Weighted Average.... $ 113,658 7.14% $ 8,114 $ 105,168
=============== ========= ================ ==============
</TABLE>
- ---------------------
(1) Represents the Company's share of joint venture debt relating to this
Property, in which the Company holds a 10% unconsolidated equity
interest. The lender holds a right to certain participation payments
upon the occurrence of certain events, including sales, maturity,
refinancing or other disposition of the underlying property.
(2) Subject to certain conditions, the borrower under this loan may extend
the maturity date to May 31, 2000.
28
<PAGE>
(3) At the consummation of the Offering, the principal balance of the Term
Loan will be $54.0 million and will be secured by the One Orlando
Center, 286 Madison Avenue, 290 Madison Avenue, and 292 Madison Avenue
Properties. Separately, $35.0 million of mortgage indebtedness, that
will not be repaid concurrent with the Offering, will be secured by the
Tower 45 Property. It has been assumed for pro forma purposes that the
indebtedness encumbering the Tower 45 Property will be repaid with an
additional $35.0 million borrowing under the Term Loan, at which time
the Tower 45 Property will secure the Term Loan and the three Madison
Avenue Properties will become unencumbered.
(4) The Term Loan is expected to bear interest at a fixed rate equal to .9%
in excess of seven-year United States Treasury Notes at the closing of
the Offering. The seven-year Treasury note rate of 6.06% as of October
9, 1997 was used for the calculation of the interest rate in the table
above. The Term Loan will mature seven years after the consummation of
the Offering.
In addition, the Company has assumed a liability for deferred real estate taxes
of $12.9 million which accrued from 1988 through 1995 relating to the Tower 45
Property. This deferred real estate tax liability is to be repaid commencing on
July 1, 1998 in payments of approximately $1.3 million per year. Approximately
$2.5 million is expected to be recovered from tenants and accordingly is
recorded as a receivable which is also assumed by the Company.
The Line of Credit. The Company has entered into the $200 million Line of
Credit, which will be used primarily to finance the acquisition of, and
investment in, office properties, to refinance existing indebtedness, and for
general working capital needs. The Line of Credit is unsecured and has a three
year term.
The Company believes that the Offering, the Concurrent Private Placements, and
the Formation Transactions will improve its financial performance through
changes in its capital structure, principally the substantial reduction in its
overall debt and its debt to equity ratio. The Company anticipates that
distributions will be paid from cash available for distribution, which is
expected to exceed cash historically available for distribution as a result of
the reduction in debt service resulting from the repayment of indebtedness.
The Company believes that its principal short-term liquidity needs are to fund
normal recurring expenses, debt service requirements, deferred real estate
taxes, and the distribution requirements to maintain the Company's REIT
qualification under the Internal Revenue Code. The Properties require periodic
investment of capital for tenant-related capital expenditures and for general
capital improvements. For the year ending December 31, 1995 through December 31,
1996 and the nine months ended September 30, 1997, the Company's recurring
tenant improvements and leasing commissions averaged $12.42 per square foot of
leased space per year. The Company expects that the average annual costs of
recurring tenant improvements and leasing commissions will be approximately $3.1
million based upon average annual square footage of leases which expire during
the years ending December 31, 1997 through December 31, 2000 of 199,620 square
feet. The Company expects the cost of general capital improvements to the
Properties to average approximately $0.5 million annual based upon an estimate
of $0.15 per square foot.
Funds from Operations and EBITDA
The Company calculates Funds from Operations based upon guidance from
the National Association of Real Estate Investment Trusts ("NAREIT").
Funds from Operations is defined as 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, and
after adjustments for unconsolidated partnerships and joint ventures.
The Company believes that Funds from Operations is helpful to investors
as a measure of the performance of an equity REIT because, along with
cash flow from operating activities, financing activities and investing
activities, it provides investors with an indication of the ability of
the Company to incur and service debt, to make capital expenditures and
to fund other cash needs. The Company computes Funds from Operations in
accordance with standards established by NAREIT which may not be
comparable to Funds from Operations reported by other REITs that do not
define the term in accordance with the current NAREIT definition or
that interpret the current NAREIT definition differently than the
Company. Funds from Operations does not represent cash generated from
operating activities determined in accordance with GAAP and should not
be considered as an alternative to net income (determined in accordance
with GAAP) as an indication of the Company's financial performance or
to cash flow from operating activities (determined in accordance with
GAAP) as a measure of the Company's liquidity, nor is it indicative of
funds available to fund the Company's cash needs, including its ability
to make cash distributions.
EBITDA is defined as operating income before mortgage and other
interest, income taxes, depreciation and amortization. The Company
believes EBITDA is also useful to investors as an indicator of the
Company's ability to service debt or pay cash distributions. EBITDA, as
calculated by the Company, may not be comparable to EBITDA reported by
other REITs that do not define EBITDA exactly as the Company defines
that term. EBITDA does not represent cash generated from operating
activities in accordance with GAAP and should not be considered as an
alternative to operating income or net income as an indicator of
performance or as an alternative to cash flows from operating
activities as an indicator of liquidity.
The Company's share (pro forma) and Tower Predecessor's (historical)
Funds from Operations and EBITDA are as follows (in millions):
29
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, September 30,
----------------------------------------- ---------------------------------------
<S> <C> <C> <C> <C>
Pro Forma Historical Pro Forma Historical
1997 1997 1996 1996
----------------- --------------- ---------------- ------------------
Funds from Operations............... $ 22.1 $ .4 $ 20.3 $ 0.3
EBITDA.............................. $ 27.5 $ 17.5 $ 25.7 $ 10.8
</TABLE>
Funds from Operations and EBITDA for the nine months ended September 30, 1997
(pro forma) increased over Funds from Operations and EBITDA (historical) for the
same time period by $15.3 million and $10.0 million, respectively. The increases
are primarily attributable to the acquisition of the DRA Joint Ventures and the
Century Plaza and 100 Wall Street Properties in connection with the Formation
Transactions.
Funds from Operations and EBITDA (pro forma) for the nine months ended September
30, 1996 increased over Funds from Operations and EBITDA (historical) for the
same period by $20.0 million and $14.9 million, respectively. The increases are
primarily attributable to the acquisition of the DRA Joint Ventures and the
Century Plaza and 100 Wall Street Properties in connection with the Formation
Transactions.
Inflation
The Company's leases with the majority of its tenants require the tenants to pay
most operating expenses, including real estate taxes and insurance, and
increases in common area maintenance expenditures, which partially offsets the
Company's exposure to increases in costs and operating expenses resulting from
inflation.
Recently Issued Accounting Standards
During 1997, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 128 "Earnings Per Share" ("SFAS 128"), No.
129 "Disclosure of Information About Capital Structure" ("SFAS 129"), No. 130
"Reporting Comprehensive Income" ("SFAS 130"), and No. 131 "Disclosures About
Segments of an Enterprise and Related Information" ("SFAS 131"). All of these
statements are effective for fiscal years beginning after December 15, 1997.
SFAS 128 specifies the computation, representation and disclosure requirements
for earnings per share. SFAS 129 establishes standards for disclosing
information about an entity's capital structure such as information about
securities, liquidation preference of preferred stock and redeemable stock. SFAS
130 specifies the presentation and disclosure requirement for reporting
comprehensive income which includes those items which have been formerly
reported as a component of shareholders' equity. SFAS 131 establishes the
disclosure requirements for reporting segment information.
Management believes that, when adopted, SFAS 128, 129, 130 and 131 will not have
a significant impact on the Company's results of operations or financial
position.
30
<PAGE>
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings
As a result of its acquisition of the Properties, the Company will become a
successor party-in-interest to certain legal proceedings arising in the ordinary
course of the business of Tower Equities. The Company does not expect that these
proceeding, in the aggregate, will have a material adverse effect on the
Company.
Item 2. Changes in Securities and Use of Proceeds
On October 9, 1996, the Company's registration statement on Form S-11
(Registration No. 333-33011) relating to the Offering was declared effective by
the SEC. On October 16, 1997, the Company consummated an initial public offering
of 13,817,250 shares of Common Stock (including the exercise of the
underwriters' overallotment option) and effected concurrent private placements
(the "Concurrent Private Placements") of 1,153,845 shares of Common Stock at a
price of $26.00 per share and realized gross proceeds therefrom of $389.25
million. Concurrent with the consummation of the Offering, pursuant to the
Concurrent Private Placements (i) certain private investment funds and separate
accounts advised by Morgan Stanley Asset Management, Inc. (the "Morgan Stanley
Investors") purchased $20 million in Common Stock and (ii) certain private
investment funds sponsored by the Carlyle Group purchased $10 million in Common
Stock, in each case, at the initial public offering price of $26.00 per share.
In addition, in connection with the Formation Transactions, the Company canceled
the outstanding balance under the MSAM Notes and issued to the Morgan Stanley
Investors approximately 886,200 shares of restricted Common Stock in complete
satisfaction of the MSAM Notes. These transactions were effected by the Company
in reliance on exemptions from registration under Section 4(2)of the Securities
Act of 1933, as amended.
The Representatives of the several Underwriters for the Offering in the United
States and Canada were Merrill Lynch & Co., Legg Mason Wood Walker,
Incorporated, Morgan Stanley Dean Witter, Prudential Securities Incorporated,
Smith Barney Inc., and NationsBanc Montgomery Securities, Inc. The Lead Managers
of the several International Managers for the Offering outside of the United
States and Canada were Merrill Lynch International, Legg Mason Wood Walker,
Incorporated, Morgan Stanley Dean Witter, Prudential-Bache Securities., Smith
Barney Inc., and NationsBanc Montgomery Securities, Inc. The net cash proceeds
to the Company from the Offering and the Concurrent Private Placements, after
deducting the estimated underwriting discount of $23.4 million and estimated
expenses of the Offering of approximately $12.5 million, were approximately
$353.35 million. Such net cash proceeds were contributed to the Operating
Partnership in exchange, in part, for the Company's approximate 91.4% interest
therein (which includes an 90.4% limited partner interest and a 1% general
partner interest). The Operating Partnership used the proceeds received from the
Company, the $54 million net cash proceeds from the Company's term loan facility
(the "Term Loan") borrowed concurrent with the Offering and approximately $12.3
million of proceeds received in exchange from the MSAM Notes as follows: (i)
approximately $247.5 million for repayment of certain indebtedness (including
associated prepayment penalties) relating to the Properties and the partnerships
that own the Properties (the "Property Partnerships"); (ii) approximately $114.5
million to acquire certain equity, debt and fee interests in the Properties;
(iii) approximately $2.4 million to pay for commitment fees and expenses
relating to the Term Loan and the Company's unsecured Line of Credit; (iv)
approximately $3.0 million to pay transfer taxes and other expenses associated
with the acquisitions of the Properties; and (v) the remaining approximately
$52.2 million for working capital and future property acquisitions. Pending
application of cash proceeds, the Company has invested 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. Pursuant to the Company's Line of Credit, the Company is
prohibited from declaring or paying dividends in any fiscal quarter in excess of
95% of its Funds From Operations, except to the extent necessary to maintain its
status as a REIT.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
The exhibits listed in the Exhibit Index immediately preceding the
exhibits are filed as part of this Quarterly Report on Form 10-Q.
b) Reports on Form 8-K: None
31
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TOWER REALTY TRUST, INC.
(Registrant)
Date: November 24, 1997 By: /s/ Lawrence H. Feldman
---------------------------
Name: Lawrence H. Feldman
Title: Chairman of the Board, Chief
Executive Officer and President
Date: November 24, 1997 By: /s/ Thomas Woodward
--------------------------
Name: Thomas Woodward
Title: Controller
(Chief Accounting Officer)
32
<PAGE>
<PAGE>
Exhibit Index
The following exhibits are filed as part of this Quarterly Report on Form 10-Q.
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
3.1 Amended and Restated Articles of Incorporation of the Company
3.2 Amended and Restated By-Laws of the Company
4.1* Form of Common Stock Certificate for the Company
10.1* Form of Amendment and Restatement of Agreement of Limited
Partnership of Tower Realty Operating Partnership, L.P.,
by and among Tower Realty Trust, Inc., as general partner,
Lawrence H. Feldman, as initial Limited Partner, and the
Persons set forth in Exhibit A thereto
10.2* Form of Exchange Rights Agreement
10.3* Form of Registration Rights Amendment
10.4* Form of Lock-up Agreement
10.5* Form of Tower Realty Trust, Inc. 1997 Incentive Plan
10.6* Form of Tower Realty Trust, Inc. Non-Employee Directors' Incentive Plan
10.7* Form of Employment Agreement between the Company and Lawrence H.
Feldman
10.8* Form of Employment Agreement between the Company and Robert L. Cox
10.9* Form of Employment Agreement between the Company and Joseph D.
Kasman
10.10* Form of Indemnification Agreement between the Company and its executive
officers and directors
10.11* Purchase Agreement, dated as of March 31, 1997, among
Tower Realty Trust, Inc., Tower Realty Operating
Partnership, L.P. and each of the investors signatory
thereto, as amended by the Purchase Agreement Supplement
dated as of May 15, 1997, Purchase Agreement Supplement
No. 2, dated as of May 29, 1997, Purchase Agreement
Supplement No. 3, dated as of May 29, 1997, Purchase
Agreement Supplement No. 4, dated as of July 9, 1997,
Purchase Agreement Supplement No. 5, dated as of July 31,
1997
10.12* Contribution Agreement (OP Units-CXX Mineola Limited Partnership) by
and among Tower Realty Operating Partnership, L.P. and Jeffrey Feldman
10.13* Amendment to Contribution Agreement by and among Tower Realty
Operating Partnership, L.P. and Jeffrey Feldman
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
10.14* Second Amendment to Contribution Agreement by and between Tower
Realty Operating Partnership, L.P. and Jeffrey Feldman
10.15* Contribution Agreement (Cash-Stellar Associates) by and among Tower
Realty Operating Partnership, L.P. and Laurie Jacoby
10.16* First Amendment to Contribution Agreement by and between Tower Realty
Operating Partnership, L.P. and Laurie Jacoby
10.17* Contribution Agreement (OP Units) by and among Tower Realty Operating
Partnership, L.P. and Bama Equities, Inc.
10.18* Amendment to Contribution Agreement by and among Tower Realty
Operating Partnership, L.P. and Bama Equities, Inc.
10.19* Second Amendment to Contribution Agreement by and between Tower
Realty Operating Partnership, L.P. and Bama Equities, Inc.
10.20* Contribution Agreement (Cash-Stellar Associates) by and among Tower
Realty Operating Partnership, L.P. and Valerie Herts Kalnitzky
10.21* First Amendment to Contribution Agreement by and between Tower Realty
Operating Partnership, L.P. and Valerie Hertz Kalnitzky
10.22* Assignment Agreement by Charles M. Kotick, as nominee (CXX)
10.23* Contribution Agreement by and between Tower Realty Operating
Partnership, L.P. and Allan B. Mendelsohn, as Chapter 7 Trustee of Edward
Feldman
10.24* Option Agreement, dated as of July 28, 1997, by and between Tower Realty
Operating Partnership, L.P. and Dana II Associates Limited Partnership
10.25* Option Agreement, dated July 28, 1997, by and between Tower Realty
Operating Partnership, L.P. and Tower 45 Ventures Limited Partnership
10.26* Option Agreement, dated July 31, 1997, by and between Tower Realty
Operating Partnership, L.P. and Feldman Tower 45, Inc.
10.27* Contribution Agreement between Maitland Property Investors, Limited and
Tower Realty Operating Partnership, L.P., dated as of August 4, 1997
10.28* Non-Competition Agreement, dated as of August 4, 1997 among Tower
Realty Operating Partnership L.P., Properties Atlantic, Inc., Clifford Stein
and Reid Berman
34
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
10.29* Assets Contribution Agreement, dated as of August 4, 1996, between Tower
Realty Operating Partnership, L.P., and Properties Atlantic, Inc., Clifford
Stein, and Reid Berman
10.30* Option Agreement, dated as of July 28, 1997, by and between Tower Realty
Operating Partnership, L.P. and Stellar Associates
10.31* Option Agreement, dated as of July 28, 1997, by and between Tower Realty
Operating Partnership, L.P. and Carlyle Industries, Inc.
10.32* Option Agreement, dated as of July 31, 1997, by and between Tower Realty
Operating Partnership, L.P. and 120 West 45th Street Associates
10.33* Option Agreement, dated as of July 29, 1997, by and between Tower Realty
Operating Partnership, L.P. and Richard Cooke, Craig Cooke and Brian
Cooke
10.34* Option Agreement, dated as of July 28, 1997, by and between Tower Realty
Operating Partnership, L.P. and Charles B. Hickcox
10.35* Option Agreement, dated as of July 31, 1997, by and between Tower Realty
Operating Partnership, L.P. and Hazama T-45
10.36* Option Agreement, dated as of July 25, 1997, by and between Tower Realty
Operating Partnership, L.P. and Leo V. Berger
10.37* Omnibus Option Agreement, dated as of July 31, 1997, by and between
Tower Realty Operating Partnership, L.P. and Shoen U.S.A. Inc.
10.38* Option Agreement, dated as of July 28, 1997, by and among
Tower Realty Operating Partnership, L.P., Tower Equities
Management, Inc. and Tower Equities and Realty Corp., CXX
Mineola Management Corp., Forum Management and Realty
Corp., Madison 40/41 Management Corp., Tower 45 Asset
Management Corp. and SJP Realty Corp.
10.39* Contribution Agreement by and between Reid Berman and Tower Realty
Operating Partnership, L.P. dated as of July 31, 1997
10.40* Purchase Agreement by and among Tower Realty Operating Partnership,
L.P. and Anthony DiLeonardo dated as of July 31, 1997, as amended by
Amendment No. 1 to Anthony DiLeonardo Purchase Agreement, dated as of
September 18, 1997
10.41* Purchase Agreement by and among Tower Realty Operating Partnership,
L.P. and Carmela Carrano dated as of July 31, 1997, as amended by
Amendment No. 1 to Carmela Carrano Purchase Agreement, dated as of
September 18, 1997
10.42* Contribution Agreement by and between Richard Wisely and Tower Realty
Operating Partnership, L.P. dated as of July 31, 1997
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
10.43* Contribution Agreement by and between Lawrence Stein and Tower Realty
Operating Partnership, L.P. dated as of July 31, 1997
10.44* Contribution Agreement by and between Lawrence H. Feldman and Tower
Realty Operating Partnership, L.P. dated as of July 31, 1997
10.45* Contribution Agreement by and between Clifford L. Stein and Tower Realty
Operating Partnership, L.P. dated as of July 31, 1997
10.46* Contribution Agreement by and between Robert Adams and Tower Realty
Operating Partnership, L.P. dated as of July 31, 1997
10.47* Contribution Agreement by and between Eric Reimer and Tower Realty
Operating Partnership, L.P. dated as of July 31, 1997
10.48* Contribution Agreement by and between Reuben Friedberg and Tower
Realty Operating Partnership, L.P. dated as of July 31, 1997
10.49* Contribution Agreement by and between Joseph Kasman and Tower Realty
Operating Partnership, L.P. dated as of July 31, 1997
10.50* Contribution Agreement by and between Robert Cox and Tower Realty
Operating Partnership, L.P. dated as of July 31, 1997
10.51* Contribution Agreement, dated as of July 31, 1997, by and among Tower
Realty Operating Partnership, L.P. and Joseph Kasman
10.52* Option Agreement, dated as of May 8, 1997, by and among Tower Realty
Operating Partnership, L.P. and Stanley B. Grey
10.53* Option Agreement, dated as of May 8, 1997, by and among Tower Realty
Operating Partnership, L.P. and Michael C. Zerner
10.54* Letter Agreement, dated as of July 28, 1997, between Tower
Realty Trust, Inc., Tower Realty Operating Partnership,
L.P., General Electric Capital Corporation, General
Electric Real Estate Equities, Inc., GENEL Company, Inc.
and GEBAM, Inc.
10.55* Contribution Agreement by and among Tower Realty Trust, Inc., Tower
Realty Operating Partnership, L.P. and DRA Opportunity Fund
10.56* Contribution Agreement by and among Tower Realty Trust, Inc., Tower
Realty Operating Partnership, L.P. and Office Invest Sub LLC
10.57* Supplement and Amendment, dated as of September 11, 1997, to the
Contribution Agreement by and among Tower Realty Trust, Inc., Tower
Realty Operating Partnership, L.P. and Office Invest Sub LLC, as parties to
the original Contribution Agreement, and Feldman MOT Portfolio Corp.,
Feldman FSA Corp., FSA Associates, L.P. and Lawrence H. Feldman
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
10.58* Purchase and Sale Agreement, dated as of March 31, 1997, by and between
Tower Equities and Realty Corp. and Tower Realty Operating Partnership,
L.P.
10.59* Purchase and Sale Agreement, dated as of September 11,
1997, by and between 100 Wall LLC and Tower Realty
Operating Partnership, L.P.
10.60* Mortgage Loan Commitment, dated as of October 4, 1997, by and between
Merrill Lynch Credit Corporation and one or more subsidiaries of Tower
Realty Operating Partnership, L.P.
10.61* Form of Financial Advisory Fee Agreement by and between Merrill Lynch,
Pierce, Fenner & Smith Incorporated, Tower Realty Trust, Inc. and Tower
Realty Operating Partnership, L.P.
10.62* Form of Supplemental Representations, Warranties and Indemnity
Agreement by and among Lawrence H. Feldman, Robert L. Cox, Joseph D.
Kasman, Eric S. Reimer, Reuben Friedberg and Tower Realty Operating
Partnership, L.P. and Tower Realty Trust, Inc.
10.63* Line of Credit Commitment, dated as of October 4, 1997, by and between
Merrill Lynch Capital Corporation and Tower Realty Operating Partnership,
L.P. and Tower Realty Trust, Inc.
10.64* Purchase and Sale Agreement, dated as of July 25, 1997, by and between
RSH Associates, Joel Wiener, and Lawrence H. Feldman
10.65* Option Agreement, dated as of July 31, 1997, by and
between Tower Realty Operating Partnership, L.P. and
Carmela Carrano, as amended by Amendment No. 1 to Option
Agreement, dated as of September 18, 1997
10.66* Option Agreement, dated as of July 31, 1997, by and
between Tower Realty Operating Partnership, L.P. and
Anthony DiLeonardo, as amended by Amendment No. 1 to
Option Agreement, dated as of September 18, 1997
10.67* Option Agreement, dated as of September 27, 1997, by and between Orlando
Option Holding, L.L.C. and Tower Realty Operating Partnership. L.P.
10.68* Assignment of Real Estate Agreement, dated as of September 24, 1997, by
and between Tower Equities and Realty Corp. and Tower Realty Operating
Partnership, L.P.
10.69* Third Amendment to Escrow Instructions and Addendum thereto and
Option Agreement, dated as of July 23, 1997, by and between Beardsley and
I-17, L.L.C and Deer Valley Towne Center L.L.C and Crystal, Inc.
10.70* Phoenix Land Parcel Option Contract, dated as of September 12, 1997, by
and between Crystal, Inc. and Tower Realty Operating Partnership, L.P.
10.71* Form of Acquisition Advisory Fee Agreement
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
10.72* Stock Purchase Agreement, dated as of September 19, 1997, by and among
Tower Realty Trust, Inc. and Carlyle Realty Partners, L.P. Carlyle Realty
Qualified Partners, L.P., Carlyle Realty Partners Sunrise, L.P. and Carlyle
Realty Coinvestment, L.P.
27.1 Financial Data Schedule
- --------------------------------
* Incorporated herein by reference to the Company's Registration Statement on Form S-11, as amended
(File No. 333-33011).
</TABLE>
38
<PAGE>
TOWER REALTY TRUST, INC.
ARTICLES OF AMENDMENT AND RESTATEMENT
TOWER REALTY TRUST, INC., a Maryland corporation, having its
principal office in the State of Maryland c/o Ballard Spahr Andrews & Ingersoll,
300 East Lombard Street, Baltimore, Maryland 21202, Attention: James J. Hanks,
Jr. (hereafter referred to as the "Corporation"), hereby certifies to the State
Department of Assessments and Taxation of Maryland (the "Department") that:
FIRST: The Corporation desires to and does hereby amend and
restate its charter as currently in effect and as hereinafter provided. The
provisions set forth in these Articles of Amendment and Restatement are all of
the provisions of the charter of the Corporation as currently in effect.
SECOND: The following provisions are all the provisions of the
charter currently in effect and as hereinafter amended:
ARTICLE I
INCORPORATOR
The undersigned, James J. Hanks, Jr., whose address is c/o
Ballard Spahr Andrews & Ingersoll, 300 East Lombard Street, Baltimore, Maryland
21202, being at least 18 years of age, does hereby form a corporation under the
general laws of the State of Maryland.
ARTICLE II
NAME
The name of the corporation (the "Corporation") is:
Tower Realty Trust, Inc.
ARTICLE III
PURPOSE
The purposes for which the Corporation is formed are to engage
in any lawful act or activity (including, without limitation or obligation,
engaging in business as a real estate investment trust under the Internal
Revenue Code of 1986, as amended, or any successor statute (the "Code")) for
which corporations may be organized under the general laws of the State of
Maryland as now or hereafter in force. For purposes of these Articles, "REIT"
means a real estate investment trust under Sections 856 through 860 of the Code.
<PAGE>
ARTICLE IV
PRINCIPAL OFFICE IN STATE AND RESIDENT AGENT
The address of the principal office of the Corporation in the
State of Maryland is c/o Ballard Spahr Andrews & Ingersoll, 300 East Lombard
Street, Baltimore, Maryland 21202, Attention: James J. Hanks, Jr. The name of
the resident agent of the Corporation in the State of Maryland is James J.
Hanks, Jr., c/o Ballard Spahr Andrews & Ingersoll, 300 East Lombard Street,
Baltimore, Maryland 21202. The resident agent is a citizen of and resides in the
State of Maryland.
ARTICLE V
PROVISIONS FOR DEFINING, LIMITING
AND REGULATING CERTAIN POWERS OF THE
CORPORATION AND OF THE STOCKHOLDERS AND DIRECTORS
Section 5.1 Number of Directors. The business and affairs of
the Corporation shall be managed under the direction of the Board of Directors.
The authorized number of directors of the Corporation initially shall consist of
not less than three, the minimum number required by the Maryland General
Corporation Law (the "MGCL"), and not more than 15 persons, which number may be
increased or decreased pursuant to the Bylaws. The names of the directors who
shall serve until the first annual meeting of stockholders and until their
successors are duly elected and qualify are:
Lawrence H. Feldman
Lester S. Garfinkel
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 occurring before the first annual meeting of stockholders
in the manner provided in the Bylaws.
Section 5.2 Classified Board. The directors of the Corporation
(other than any directors who may be elected by holders of preferred stock as
may be provided from time to time by the board of directors) shall be and are
hereby divided into three Classes, designated "Class I," "Class II" and "Class
III," respectively. The number of directors in each such class shall be as
nearly equal as possible. Each director shall serve for a term ending on the
date of the third Annual Meeting of Stockholders following the Annual Meeting at
which such director was elected, provided, however, that each initial director
in Class I shall serve for a term ending on the date of the Annual Meeting held
in 1998; each initial director in Class II shall serve for a term ending on the
date of the Annual Meeting held in 1999; and each initial director in Class III
shall serve for a term ending on the date of the Annual Meeting held in 2000.
Section 5.3 Extraordinary Actions. Except as otherwise
specifically provided herein, notwithstanding any provision of law permitting or
requiring any action to be taken or authorized by the affirmative vote of the
holders of a greater number of votes, any such action shall be effective and
valid if taken or authorized by the affirmative vote of holders of shares
entitled to cast a majority of all the votes entitled to be cast on the matter.
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Section 5.4 Authorization by Board of Stock Issuance. The
Board of Directors may authorize the issuance from time to time of shares of
stock of the Corporation of any class or series, whether now or hereafter
authorized, or securities or rights convertible into shares of its stock of any
class or series, whether now or hereafter authorized, for such consideration as
the Board of Directors may deem advisable (or without consideration in the case
of a stock split or stock dividend), subject to such restrictions or
limitations, if any, as may be set forth in the charter or the Bylaws.
Section 5.5 No Preemptive Rights. Except as may be provided by
the Board of Directors in setting the terms of classified or reclassified shares
of stock pursuant to Section 6.4, no holder of shares of stock of the
Corporation shall, as such holder, have any preemptive right to purchase or
subscribe for any additional shares of stock of the Corporation or any other
security of the Corporation which it may issue or sell.
Section 5.6 Indemnification and Advance of Expenses. a. The
Corporation shall have the power, to the maximum extent permitted by Maryland
law in effect from time to time, to obligate itself to indemnify, and to pay or
reimburse reasonable expenses in advance of final disposition of a proceeding
to, (a) any individual who is a present or former director or officer of the
Corporation or (b) any individual who, while a director or officer of the
Corporation and at the request of the Corporation, serves or has served as a
director, officer, partner or trustee of another corporation, real estate
investment trust, partnership, limited liability company, association, joint
venture, trust, employee benefit plan or any other enterprise from and against
any claim or liability to which such person may become subject or which such
person may incur by reason of his status as a present or former director or
officer of the Corporation. The Corporation shall have the power, with the
approval of the Board of Directors, to provide such indemnification and
advancement of expenses to a person who served a predecessor of the Corporation
in any of the capacities described in (a) or (b) above and to any employee or
agent of the Corporation or a predecessor of the Corporation.
b. Neither the amendment nor repeal of Section 5.6 of
this Article V, nor the adoption or amendment of any other provision of the
charter or the Bylaws of the Corporation inconsistent with Section 5.6 of this
Article V, shall apply to or affect in any respect the applicability of the
provisions of Section 5.6 of this Article V with respect to any act or failure
to act which occurred prior to such amendment, repeal or adoption.
c. The Corporation may, to the fullest extent
permitted by law, purchase and maintain insurance on behalf of any such person
against any liability which may be asserted against such person, as described in
Section 5.6(a) of this Article V, and on any obligation of the Corporation to
indemnify or advance expenses pursuant to the charter or Bylaws of the
Corporation or any resolution of the Board of Directors or contract to which the
Corporation is a party.
d. The rights provided herein shall not be deemed to
limit the right of the Corporation to indemnify or advance expenses to any other
person to the fullest extent permitted by law, nor shall it be deemed exclusive
of any other rights to which any person seeking indemnification or advances of
expenses from the Corporation may be entitled under any agreement, the Bylaws of
the Corporation, a resolution of Stockholders or the Board of Directors, or
otherwise, both as to action in such person's official capacity and as to action
in another capacity while holding such office.
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e. To the maximum extent that Maryland law in effect
from time to time permits limitation of the liability of directors and officers,
no director or officer of the Corporation shall be liable to the Corporation or
its Stockholders for money damages.
Section 5.7 Determinations by Board. The determination as to
any of the following matters, made in good faith by or pursuant to the direction
of the Board of Directors consistent with the charter and in the absence of
actual receipt of an improper benefit in money, property or services or active
and deliberate dishonesty established by a court, shall be final and conclusive
and shall be binding upon the Corporation and every holder of shares of its
stock: the amount of the net income of the Corporation for any period and the
amount of assets at any time legally available for the payment of dividends,
redemption of its stock or the payment of other distributions on its stock; the
amount of paid-in surplus, net assets, other surplus, annual or other net
profit, net assets in excess of capital, undivided profits or excess of profits
over losses on sales of assets; the amount, purpose, time of creation, increase
or decrease, alteration or cancellation of any reserves or charges and the
propriety thereof (whether or not any obligation or liability for which such
reserves or charges shall have been created shall have been paid or discharged);
the fair value, or any sale, bid or asked price to be applied in determining the
fair value, of any asset owned or held by the Corporation; and any other matter
relating to the acquisition, holding and disposition of any assets by the
Corporation or generally to the business and affairs of the Corporation.
Section 5.8 REIT Qualification. The Corporation shall elect to
qualify for federal income tax treatment as a REIT and the Board of Directors
shall use its reasonable best efforts to take such actions as are necessary or
appropriate to preserve the status of the Corporation as a REIT. The Board of
Directors also may determine that compliance with any restriction or limitation
on stock ownership and transfers set forth in Article VII is no longer required
for REIT qualification.
Section 5.9 Removal of Directors. Subject to the rights of
holders of one or more classes or series of Preferred Stock to elect one or more
directors, any director, or the entire Board of Directors, may be removed from
office at any time, but only for cause and then only by the affirmative vote of
the holders of at least a majority of the votes entitled to be cast in the
election of directors. For the purpose of this paragraph, "cause" shall mean
with respect to any particular director a final judgment of a court of competent
jurisdiction holding that such director caused demonstrable material harm to the
Corporation through bad faith or active and deliberate dishonesty.
Section 5.10 Independent Directors.
a. Notwithstanding anything herein to the contrary, at
all times (except during a period not to exceed 60 days following the death,
resignation, incapacity or removal from office of a director prior to expiration
of the director's term of office), a majority of the Board of Directors shall be
comprised of persons (each such person an "Independent Director") who are not
(i) officers or employees of the Corporation or Tower Realty Operating
Partnership, L.P. (the "Operating Partnership") or any subsidiary of the
Corporation or the Operating Partnership, or (ii) Affiliates (as hereinafter
defined) of the Corporation or the Operating Partnership.
b. For purposes of this Section 5.10, "Affiliate" of
the Corporation or the Operating Partnership shall mean (i) any Person that,
directly or indirectly, controls or is controlled by or is under common control
with the Corporation or the Operating Partnership (excluding directors and
Persons serving in similar capacities who are not otherwise an Affiliate of the
Corporation or the Operating
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Partnership). The term "Person" means and includes any natural person,
corporation, partnership, association, trust, limited liability company or any
other legal entity. For purposes of this definition, "control" (including the
correlative meanings of the terms "controlled by" and "under common control
with"), as used with respect to any Person, shall mean the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of such Person, through the ownership of voting securities,
partnership interests or other equity interests.
c. Notwithstanding anything herein to the contrary, no
term or provision of this Section 5.10 of Article V may be added, amended or
repealed in any respect without the affirmative vote of all the Independent
Directors.
Section 5.11 Reserved Powers of Directors. The enumeration and
definition of particular powers of the Board of Directors included in this
Article V 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 provision of the charter
of the Corporation, or construed or deemed by inference or otherwise in any
manner to exclude or limit the powers conferred upon the Board of Directors
under the general laws of the State of Maryland as now or hereafter in force.
ARTICLE VI
SHARES OF STOCK
Section 6.1 Authorized Shares. The Corporation has authority
to issue 150,000,000 shares of common stock, $0.01 par value per share ("Common
Stock"), and 50,000,000 shares of preferred stock, $0.01 par value per share
("Preferred Stock"). The aggregate par value of all authorized shares of stock
having par value is $2,000,000.
Section 6.2 Common Stock. Subject to the provisions of Article
VII, each share of Common Stock shall entitle the holder thereof to one vote.
The Board of Directors may reclassify any unissued shares of Common Stock from
time to time into one or more classes or series of stock.
Section 6.3 Preferred Stock. The Board of Directors may
classify any unissued shares of Preferred Stock and reclassify any previously
classified but unissued shares of Preferred Stock of any series from time to
time, into one or more series of stock.
Section 6.4 Classified or Reclassified Shares. Prior to
issuance of classified or reclassified shares of any class or series, the Board
of Directors by resolution shall: (a) designate that class or series to
distinguish it from all other classes and series of stock of the Corporation;
(b) specify the number of shares to be included in the class or series; (c) set
or change, subject to the provisions of Article VII and subject to the express
terms of any class or series of stock of the Corporation outstanding at the
time, the preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends or other distributions, qualifications and terms and
conditions of redemption for each class or series; and (d) cause the Corporation
to file articles supplementary with the State Department of Assessments and
Taxation of Maryland ("SDAT"). Any of the terms of any class or series of stock
set or changed pursuant to clause (c) of this Section 6.4 may be made dependent
upon facts or events ascertainable outside the charter (including determinations
by the Board of Directors or other facts or events within the control of the
Corporation) and may vary among holders thereof, provided that the manner in
which such facts,
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events or variations shall operate upon the terms of such class or series of
stock is clearly and expressly set forth in the articles supplementary filed
with the SDAT.
Section 6.5 Charter and Bylaws. All persons who shall acquire
stock in the Corporation shall acquire the same subject to the provisions of the
charter and the Bylaws.
ARTICLE VII
RESTRICTION ON TRANSFER AND OWNERSHIP OF SHARES
Section 7.1 Definitions. For the purpose of this Article VII,
the following terms shall have the following meanings:
"Beneficial Ownership" shall mean ownership of shares of
Equity Stock by a Person, whether the interest in such shares is held directly
or indirectly (including by a nominee), and shall include shares of Equity Stock
that would be treated or owned either directly or indirectly through the
application of Section 544 of the Code, as modified by Section 856(h)(1)(B) of
the Code. The terms "Beneficial Owner," "Beneficially Owns," "Beneficially Own,"
and "Beneficially Owned" shall have correlative meanings.
"Beneficiary" shall mean, with respect to any Trust, one or
more organizations described in each of Section 170(b)(1)(a) (other than clauses
(vii) or (viii) thereof) and Section 170(c)(2) of the Code that are named by the
Corporation as the beneficiary or beneficiaries of such Trust, in accordance
with the provisions of Section 7.9.1 of Article VII hereof.
"Board of Directors" shall mean the Board of Directors of the
Corporation.
"Constructive Ownership" shall mean ownership of shares of
Equity Stock by a Person, whether the interest in such shares is held directly
or indirectly (including by a nominee), and shall include shares of Equity Stock
that would be treated as owned either directly or indirectly through the
application of Section 318 of the Code, as modified by Section 856(d)(5) of the
Code. The terms "Constructive Owner," "Constructively Owns," "Constructively
Own," and "Constructively Owned" shall have correlative meanings.
"Equity Stock" shall mean all classes or series of stock of
the Corporation, including, without limitation, Common Stock and Preferred
Stock.
"Initial Public Offering" means the sale of shares of Common
Stock pursuant to the Corporation's first effective registration statement for
such shares of Common Stock filed under the Securities Act of 1933, as amended.
"Look-Through Entity" shall mean an entity (i) that is looked
through for purposes of the "closely held" test in Section 856(h) of the Code
and (ii) each beneficial owner of which would satisfy the Ownership Limit if
such beneficial owner owned directly its proportionate share of the shares of
Equity Stock that are held by the Look-Through Entity, which, by way of example,
could include (i) a pension trust that qualifies for look-through treatment
under Section 856(h)(3) of the Code, (ii) an entity that qualifies as a
regulated investment company under Section 851 of the Code, or (iii) a
corporation.
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"Look-Through Ownership Limit" shall mean 15% of the number of
outstanding shares of each class or series of Equity Stock.
"Market Price" on any date shall mean the average of the
Closing Price for the five consecutive Trading Days ending on such date. The
"Closing Price" on any date shall mean the last sale price, regular way, or, in
case no such sale takes place on such day, the average of the closing bid and
asked prices, regular way, in either case as reported in the principal
consolidated transaction reporting system with respect to securities listed or
admitted to trading on the New York Stock Exchange or, if the shares of Equity
Stock are not listed or admitted to trading on the New York Stock Exchange, as
reported in the principal consolidated transaction reporting system with respect
to securities listed on the principal national securities exchange on which the
shares of Equity Stock are listed or admitted to trading or, if the shares of
Equity Stock are not listed or admitted to trading on any national securities
exchange, the last quoted price, or if not so quoted, the average of the high
bid and low asked prices in the over-the-counter market, as reported by the
National Association of Securities Dealers, Inc. Automated Quotation System or,
if such system is no longer in use, the principal other automated quotations
system that may then be in use or, if the shares of Equity Stock are not quoted
by any such organization, the average of the closing bid and asked prices as
furnished by a professional market maker making a market in the shares of Equity
Stock selected by the Board of Directors.
"Non-Transfer Event" shall mean an event, other than a
purported Transfer, that would cause any Person to Beneficially Own or
Constructively Own shares of Equity Stock in excess of the Ownership Limit or
Look-Through Ownership Limit, as applicable, including, but not limited to, the
granting of any option or entering into any agreement for the sale, transfer or
other disposition of shares of Equity Stock or the sale, transfer, assignment or
other disposition of any securities or rights convertible into or exchangeable
for shares of Equity Stock.
"Operating Partnership" shall mean Tower Realty Operating
Partnership, L.P., a Delaware limited partnership.
"Ownership Limit" shall mean 9.8% of the number or value,
whichever is more restrictive, of the outstanding shares of each class or series
of Equity Stock.
"Permitted Transferee" shall mean any Person designated as a
Permitted Transferee in accordance with the provisions of Section 7.9.5 of
Article VII hereof.
"Person" shall mean an individual, corporation, partnership,
estate, trust, a portion of a trust permanently set aside for or to be used
exclusively for the purposes described in Section 642(c) of the Code,
association, private foundation within the meaning of Section 509(a) of the
Code, joint stock company or other entity and also includes a "group" as that
term is used for purposes of Section 13(d)(3) of the Securities Exchange Act of
1934, as amended.
"Prohibited Owner" shall mean, with respect to any purported
Transfer or Non-Transfer Event, any Person who, but for the provisions of
Section 7.3 of Article VII hereof, would Beneficially Own or Constructively Own
shares of Equity Stock in excess of the Ownership Limit or Look-Through
Ownership Limit, and if appropriate in the context, shall also mean any Person
who would own record title to shares of Equity Stock.
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"Restriction Termination Date" shall mean the first day after
the date of the Initial Public Offering on which this Article VII has been
amended in accordance with Section 7.12 of this Article VII in order to
terminate the REIT status of the Corporation.
"Shares-in-Trust" shall mean any shares of Equity Stock
designated Shares-in-Trust pursuant to Section 7.3 of Article VII hereof.
"Tower Realty Trust Operating Partnership Agreement" shall
mean the Agreement of Limited Partnership of the Operating Partnership, as it
may be amended or amended and restated from time to time.
"Trading Day" shall mean a day on which the principal national
securities exchange on which the shares of Equity Stock are listed or admitted
to trading is open for the transaction of business or, if the shares of Equity
Stock are not listed or admitted to trading on any national securities exchange,
shall mean any day other than a Saturday, a Sunday or a day on which banking
institutions in the State of New York are authorized or obligated by law or
executive order to close.
"Transfer" (as a noun) shall mean any issuance, sale,
transfer, gift, assignment, devise or other disposition of shares of Equity
Stock, whether voluntary or involuntary, whether of record, constructively or
beneficially and whether by operation of law or otherwise. "Transfer" (as a
verb) shall have the correlative meaning.
"Trust" shall mean any separate trust created pursuant to
Section 7.3 of Article VII hereof and administered in accordance with the terms
of Section 7.9 of Article VII hereof, for the exclusive benefit of any
Beneficiary.
"Trustee" shall mean any Person or entity unaffiliated with
both the Corporation and any Prohibited Owner, such Trustee to be designated by
the Corporation to act as trustee of any Trust, or any successor trustee
thereof.
Section 7.2 Restriction on Transfers.
a. Subject to Section 7.8 of Article VII hereof, and
except as provided in Section 7.7 of Article VII hereof, from the date of the
Initial Public Offering and prior to the Restriction Termination Date, (i) no
Person shall Beneficially Own or Constructively Own outstanding shares of Equity
Stock in excess of the Ownership Limit; and (ii) any Transfer that, if
effective, would result in any Person Beneficially Owning or Constructively
Owning shares of Equity Stock in excess of the Ownership Limit shall be void ab
initio as to the Transfer of that number of shares of Equity Stock which would
be otherwise Beneficially Owned or Constructively Owned by such Person in excess
of the Ownership Limit and the intended transferee shall acquire no rights in
such excess shares of Equity Stock.
b. Subject to Section 7.8 of Article VII hereof, from
the date of the Initial Public Offering and prior to the Restriction Termination
Date, any Transfer (whether or not such Transfer is the result of a transaction
entered into through the facilities of the New York Stock Exchange or any other
national securities exchange or automated inter-dealer quotation system) that,
if effective, would result in shares of Equity Stock being Beneficially Owned by
fewer than 100 Persons (determined without reference to any rules of
attribution) shall be void ab initio as to the Transfer of that number of shares
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which would be otherwise beneficially owned (determined without reference to any
rules of attribution) by the transferee, and the intended transferee shall
acquire no rights in such shares of Equity Stock.
c. From the date of the Initial Public Offering and
prior to the Restriction Termination Date, any Transfer of shares of Equity
Stock that, if effective, would result in the Corporation being "closely held"
within the meaning of Section 856(h) of the Code shall be void ab initio as to
the Transfer of that number of shares of Equity Stock which would cause the
Corporation to be "closely held" within the meaning of Section 856(h) of the
Code, and the intended transferee shall acquire no rights in such shares of
Equity Stock.
d. From the date of the Initial Public Offering and
prior to the Restriction Termination Date, any Transfer of shares of Equity
Stock that, if effective, would cause the Corporation to Constructively Own 9.9%
or more of the ownership interests in a tenant of the real property of the
Corporation, the Operating Partnership or any direct or indirect subsidiary
(including, without limitation, partnerships and limited liability companies) of
the Corporation or the Operating Partnership (a "Subsidiary"), within the
meaning of Section 856(d)(2)(B) of the Code, shall be void ab initio as to the
Transfer of that number of shares of Equity Stock which would cause the
Corporation to Constructively Own 9.9% or more of the ownership interests in a
tenant of the Corporation's, the Operating Partnership's or a Subsidiary's real
property, within the meaning of Section 856(d)(2)(B) of the Code, and the
intended transferee shall acquire no rights in such excess shares of Equity
Stock.
Section 7.3 Transfer to Trust.
a. If, notwithstanding the other provisions contained
in this Article VII, at any time after the Initial Public Offering and prior to
the Restriction Termination Date, there is a purported Transfer (whether or not
such Transfer is the result of a transaction entered into through the facilities
of the New York Stock Exchange or any other national securities exchange or
automated inter-dealer quotation system) or Non-Transfer Event such that any
Person would either Beneficially Own or Constructively Own shares of Equity
Stock in excess of the Ownership Limit (or, in the case of a Look- Through
Entity, either Beneficially Own or Constructively Own shares of Equity Stock in
excess of the Look-Through Ownership Limit), then, (i) except as otherwise
provided in Section 7.7 of Article VII hereof, the purported transferee shall
acquire no right or interest (or, in the case of a Non-Transfer Event, the
Person holding record title to the shares of Equity Stock Beneficially Owned or
Constructively Owned by such Beneficial Owner or Constructive Owner, shall cease
to own any right or interest) in such number of shares of Equity Stock which
would cause such Beneficial Owner or Constructive Owner to Beneficially Own or
Constructively Own shares of Equity Stock in excess of the Ownership Limit or
the Look-Through Ownership Limit, as applicable, (ii) such number of shares of
Equity Stock in excess of the Ownership Limit or the Look-Through Ownership
Limit, as applicable (rounded up to the nearest whole share) shall be designated
Shares-in-Trust and, in accordance with the provisions of Section 7.9 of Article
VII hereof, transferred automatically and by operation of law to the Trust to be
held in accordance with that Section 7.9 of Article VII, and (iii) the
Prohibited Owner shall submit such number of shares of Equity Stock to the
Corporation for registration in the name of the Trustee. Such transfer to a
Trust and the designation of shares as Shares-in-Trust shall be effective as of
the close of business on the business day prior to the date of the Transfer or
Non-Transfer Event, as the case may be.
b. If, notwithstanding the other provisions contained
in this Article VII, at any time after the Initial Public Offering and prior to
the Restriction Termination Date, there is a
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purported Transfer or Non-Transfer Event that, if effective, would (i) result in
the shares of Equity Stock being beneficially owned by fewer than 100 Persons
(determined without reference to any rules of attribution), (ii) result in the
Corporation being "closely held" within the meaning of Section 856(h) of the
Code, or (iii) cause the Corporation to Constructively Own 9.9% or more of the
ownership interests in a tenant of the Corporation's, the Operating
Partnership's or a Subsidiary's real property, within the meaning of Section
856(d)(2)(B) of the Code, then (x) the purported transferee shall not acquire
any right or interest (or, in the case of a Non-Transfer Event, the Person
holding record title of the shares of Equity Stock with respect to which such
Non-Transfer Event occurred, shall cease to own any right or interest) in such
number of shares of Equity Stock, the ownership of which by such purported
transferee or record holder would (A) result in the shares of Equity Stock being
beneficially owned by fewer than 100 Persons (determined without reference to
any rules of attribution), (B) result in the Corporation being "closely held"
within the meaning of Section 856(h) of the Code, or (C) cause the Corporation
to Constructively Own 9.9% or more of the ownership interests in a tenant of the
Corporation's, the Operating Partnership's or a Subsidiary's real property,
within the meaning of Section 856(d)(2)(B) of the Code, (y) such number of
shares of Equity Stock (rounded up to the nearest whole share) shall be
designated Shares-in-Trust and, in accordance with the provisions of Section 7.9
of Article VII hereof, transferred automatically and by operation of law to the
Trust to be held in accordance with that Section 7.9 of Article VII, and (z) the
Prohibited Owner shall submit such number of shares of Equity Stock to the
Corporation for registration in the name of the Trustee. Such transfer to a
Trust and the designation of shares as Shares-in-Trust shall be effective as of
the close of business on the business day prior to the date of the Transfer or
Non-Transfer Event, as the case may be.
Section 7.4 Remedies For Breach. If the Corporation, or its
designee, shall at any time determine in good faith that a Transfer has taken
place in violation of Section 7.2 of Article VII hereof or that a Person intends
to acquire or has attempted to acquire Beneficial Ownership or Constructive
Ownership of any shares of Equity Stock in violation of Section 7.2 of Article
VII hereof, the Corporation shall take such action as it deems advisable to
refuse to give effect to or to prevent such Transfer or acquisition, including,
but not limited to, refusing to give effect to such Transfer on the books of the
Corporation or instituting proceedings to enjoin such Transfer or acquisition.
Section 7.5 Notice of Restricted Transfer. Any Person who
acquires or attempts to acquire shares of Equity Stock in violation of Section
7.2 of Article VII hereof, or any Person who owned shares of Equity Stock that
were transferred to the Trust pursuant to the provisions of Section 7.3 of
Article VII hereof, shall immediately give written notice to the Corporation of
such event and shall provide to the Corporation such other information as the
Corporation may request in order to determine the effect, if any, of such
Transfer or Non-Transfer Event, as the case may be, on the Corporation's status
as a REIT.
Section 7.6 Owner Required to Provide Information. From the
date of the Initial Public Offering and prior to the Restriction Termination
Date:
a. Every Beneficial Owner or Constructive Owner of
more than 5%, or such lower percentages as required pursuant to regulations
under the Code (currently Regulation ss.1.857-8(d)), of the outstanding shares
of all classes of stock of the Corporation shall, within 30 days after January 1
of each year, provide to the Corporation a written statement or affidavit
stating the name and address of such Beneficial Owner or Constructive Owner, the
number of shares of Equity Stock Beneficially Owned or Constructively Owned, and
a description of how such shares are held. Each such Beneficial Owner or
Constructive Owner shall provide to the Corporation such additional information
as the Corporation may
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request in order to determine the effect, if any, of such Beneficial Ownership
or Constructive Ownership on the Corporation's status as a REIT and to ensure
compliance with the Ownership Limit or the Look- Through Ownership Limit, as
applicable.
b. Each Person who is a Beneficial Owner or
Constructive Owner of shares of Equity Stock and each Person (including the
stockholder of record) who is holding shares of Equity Stock for a Beneficial
Owner or Constructive Owner shall provide to the Corporation a written statement
or affidavit stating such information as the Corporation may request in order to
determine the Corporation's status as a REIT and to ensure compliance with the
Ownership Limit or the Look-Through Ownership Limit, as applicable.
Section 7.7 Exception. The Ownership Limit shall not apply to
the acquisition of shares of Equity Stock by an underwriter that participates in
a public offering of such shares for a period of 90 days following the purchase
by such underwriter of such shares provided that the restrictions contained in
Section 7.2 of Article VII hereof will not be violated following the
distribution by such underwriter of such shares. The Board of Directors, in its
sole and absolute discretion, may except a Person from the Ownership Limit or
the Look-Through Ownership Limit, if (i) such Person is not (A) an individual
for purposes of Code Section 542(a)(2), as modified by Code Section 856(h) or
(B) treated as the owner of such stock for purposes of Code Section 542(a)(2),
as modified by Code Section 856(h) and the Board of Directors obtains such
representations and undertakings from such Person as are reasonably necessary to
ascertain that no Person's Beneficial or Constructive Ownership of such shares
of Equity Stock will violate Section 7.2(b), 7.2(c) or 7.2(d) of Article VII
hereof, (ii) such Person does not and represents that it will not Beneficially
Own shares of Equity Stock to the extent that such Beneficial Ownership of
Equity Stock would result in the Corporation being "closely held" within the
meaning of Section 856(h) of the Code, or otherwise failing to qualify as a REIT
(including, but not limited to, Beneficial or Constructive Ownership that would
result in the Corporation Constructively Owning an interest in a tenant of the
Corporation (or a tenant of any entity owned or controlled by the Corporation)
that would cause the Corporation, the Operating Partnership or a Subsidiary to
Constructively Own more than a 9.9% interest in such tenant), and the Board of
Directors obtains such representations and undertakings from such Person as are
reasonably necessary to ascertain this fact, and (iii) such Person agrees that
any violation or attempted violation of such representations or undertakings (or
other action which is contrary to the restrictions contained in Sections 7.2
through 7.6 of this Article VII) will result in such shares of Equity Stock that
are in excess of the Ownership Limit being designated as Shares-in-Trust in
accordance with the provisions of section 7.3 of Article VII hereof. The Board
of Directors shall except a Person from the Ownership Limit if the Person
satisfies the Board of Directors, in its sole and absolute discretion, that (a)
such Person qualifies to be treated as a Look-Through Entity, (b) satisfies the
requirements of (i), (ii), and (iii) above, and (c) does not Beneficially Own
shares of Equity Stock in excess of the Look-Through Ownership Limit. The Board
of Directors may, in its sole and absolute discretion, permit a Look-Through
Entity to own shares of Equity Stock in excess of the Look-Through Ownership
Limit if the Look-Through Entity satisfies the Board of Directors that such
share ownership will not adversely affect the Corporation's ability to qualify
as a REIT. In exercising its discretion under this Section 7.7, the Board of
Directors may, but is not required to, obtain a ruling from the Internal Revenue
Service or an opinion of counsel, in either case in form and substance
satisfactory to the Board of Directors, as it may deem necessary or desirable in
order to maintain the Corporation's status as a REIT and, in addition, may
obtain such representations and warrants from the Look-Through Entity that it
may deem necessary or desirable under the circumstances.
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Section 7.8 New York Stock Exchange Transactions.
Notwithstanding any provision contained herein to the contrary, nothing in these
Articles of Amendment and Restatement shall preclude the settlement of any
transaction entered into through the facilities of the New York Stock Exchange,
Inc. The fact that the settlement of any transaction occurs shall not negate the
effect of any other provision of this Article VII and any transferee in such a
transaction shall be subject to all of the provisions and limitations set forth
in this Article.
Section 7.9 Shares-in-Trust.
Section 7.9.1 Trust. Any shares of Equity Stock transferred to
a Trust and designated Shares-in-Trust pursuant to Section 7.3 of Article VII
hereof shall be held for the exclusive benefit of the Beneficiary. The
Corporation shall name a Beneficiary for each Trust within five days after the
establishment thereof. Any transfer to a Trust, and subsequent designation of
shares of Equity Stock as Shares-in-Trust, pursuant to Section 7.3 of Article
VII hereof shall be effective as of the close of business on the business day
prior to the date of the Transfer or Non-Transfer Event that results in the
transfer to the Trust. Shares-in-Trust shall remain issued and outstanding
shares of Equity Stock of the Corporation and shall be entitled to the same
rights and privileges on identical terms and conditions as are all other issued
and outstanding shares of Equity Stock of the same class and series. When
transferred to a Permitted Transferee in accordance with the provisions of
Section 7.9.5 of Article VII hereof, such Shares-in-Trust shall cease to be
designated as Shares-in-Trust.
Section 7.9.2 Dividend Rights. The Trust, as record holder of
Shares-in-Trust, shall be entitled to receive all dividends and distributions as
may be authorized by the Board of Directors on such shares of Equity Stock and
shall hold such dividends or distributions in trust for the benefit of the
Beneficiary. The Prohibited Owner with respect to Shares-in-Trust shall repay to
the Trust the amount of any dividends or distributions received by it that (i)
are attributable to any shares of Equity Stock designated Shares-in-Trust and
(ii) the record date of which was on or after the date that such shares became
Shares-in-Trust. The Corporation shall take all measures that it determines
reasonably necessary to recover the amount of any such dividend or distribution
paid to a Prohibited Owner, including, if necessary, withholding any portion of
future dividends or distributions payable on shares of Equity Stock Beneficially
Owned or Constructively Owned by the Person who, but for the provisions of
Section 7.3 of Article VII hereof, would Constructively Own or Beneficially Own
the Shares-in-Trust; and, as soon as reasonably practicable following the
Corporation's receipt or withholding thereof, paying over to the Trust for the
benefit of the Beneficiary the dividends so received or withheld, as the case
may be.
Section 7.9.3 Rights Upon Liquidation. In the event of any
voluntary or involuntary liquidation, dissolution or winding-up, or any
distribution of the assets of, the Corporation, each holder of Shares-in-Trust
shall be entitled to receive, ratably with each other holder of shares of Equity
Stock of the same class or series, that portion of the assets of the Corporation
which is available for distribution to the holders of such class or series of
shares of Equity Stock. The Trust shall distribute to the Prohibited Owner the
amounts received upon such liquidation, dissolution, or winding-up, or
distribution; provided, however, that the Prohibited Owner shall not be entitled
to receive amounts pursuant to this Section 7.9.3 of Article VII in excess of,
in the case of a purported Transfer in which the Prohibited Owner gave value for
shares of Equity Stock and which Transfer resulted in the transfer of the shares
to the Trust, the price per share, if any, such Prohibited Owner paid for the
shares of Equity Stock and, in the case of a Non-Transfer Event or Transfer in
which the Prohibited Owner did not give value for such shares (e.g., if the
shares were received through a gift or devise) and which Non-Transfer Event or
Transfer, as the case may
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be, resulted in the transfer of shares to the Trust, the price per share equal
to the Market Price on the date of such Non-Transfer Event or Transfer. Any
remaining amount in such Trust shall be distributed to the Beneficiary.
Section 7.9.4 Voting Rights. The Trustee shall be entitled to
vote all Shares-in-Trust. Any vote by a Prohibited Owner as a holder of shares
of Equity Stock prior to the discovery by the Corporation that the shares of
Equity Stock are Shares-in-Trust shall, subject to applicable law, be rescinded
and be void ab initio with respect to such Shares-in-Trust and be recast by the
Trustee, in its sole and absolute discretion; provided, however, that if the
Corporation has already taken irreversible corporate action based on such vote,
then the Trustee shall not have the authority to rescind and recast such vote.
The Prohibited Owner shall be deemed to have given, as of the close of business
on the business day prior to the date of the purported Transfer or Non-Transfer
Event that results in the transfer to the Trust of shares of Equity Stock under
Section 7.3 of Article VII hereof, an irrevocable proxy to the Trustee to vote
the Shares-in-Trust in the manner in which the Trustee, in its sole and absolute
discretion, desires.
Section 7.9.5 Designation of Permitted Transferee. The Trustee
shall have the exclusive and absolute right to designate a Permitted Transferee
of any and all Shares-in-Trust. In an orderly fashion so as not to materially
adversely affect the Market Price of the Shares-in-Trust, the Trustee shall
designate any Person as Permitted Transferee, provided, however, that (i) the
Permitted Transferee so designated purchases for valuable consideration (whether
in a public or private sale) the Shares-in-Trust and (ii) the Permitted
Transferee so designated may acquire such Shares-in-Trust without such
acquisition resulting in a transfer to a Trust and the redesignation of such
shares of Equity Stock so acquired as Shares-in-Trust under Section 7.3 of
Article VII hereof. Upon the designation by the Trustee of a Permitted
Transferee in accordance with the provisions of this Section 7.9.5 of Article
VII, the Trustee shall (i) cause to be transferred to the Permitted Transferee
that number of Shares-in-Trust acquired by the Permitted Transferee, (ii) cause
to be recorded on the books of the Corporation that the Permitted Transferee is
the holder of record of such number of shares of Equity Stock, (iii) cause the
Shares-in-Trust to be canceled, and (iv) distribute to the Beneficiary any and
all amounts held with respect to the Shares-in-Trust after making the payment
to the Prohibited Owner pursuant to Section 7.9.6 of Article VII hereof.
Section 7.9.6 Compensation to Record Holder of Shares of
Equity Stock that Become Shares-in-Trust. Any Prohibited Owner shall be entitled
(following discovery of the Shares-in-Trust and subsequent designation of the
Permitted Transferee in accordance with Section 7.9.5 of Article VII hereof or
following the acceptance of the offer to purchase such shares in accordance with
Section 7.9.7 of Article VII hereof) to receive from the Trustee following the
sale or other disposition of such Shares-in-Trust the lesser of (i) in the case
of (a) a purported Transfer in which the Prohibited Owner gave value for shares
of Equity Stock and which Transfer resulted in the transfer of the shares to the
Trust, the price per share, if any, such Prohibited Owner paid for the shares of
Equity Stock, or (b) a Non-Transfer Event or Transfer in which the Prohibited
Owner did not give value for such shares (e.g., if the shares were received
through a gift or devise) and which Non-Transfer Event or Transfer, as the case
may be, resulted in the transfer of shares to the Trust, the price per share
equal to the Market Price on the date of such Non-Transfer Event or Transfer,
and (ii) the price per share received by the Trustee from the sale or other
disposition of such Shares-in-Trust in accordance with Section 7.9.5 or 7.9.6 of
Article VII hereof. Any amounts received by the Trustee in respect of such
Shares-in-Trust and in excess of such amounts to be paid the Prohibited Owner
pursuant to this Section 7.9.6 shall be distributed to the Beneficiary in
accordance with the provisions of Section 7.9.5 of Article VII hereof. Each
Beneficiary and Prohibited Owner waives any
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and all claims that he may have against the Trustee and the Trust arising out of
the disposition of Shares-in-Trust, except for claims arising out of the gross
negligence or willful misconduct of, or any failure to make payments in
accordance with this Section 7.9.6, by such Trustee or the Corporation.
Section 7.9.7 Purchase Right in Shares-in-Trust.
Shares-in-Trust shall be deemed to have been offered for sale to the
Corporation, or its designee, at a price per share equal to the lesser of (i)
the price per share in the transaction that created such Shares-in-Trust (or, in
the case of devise, gift or Non-Transfer Event, the Market Price at the time of
such devise, gift or Non-Transfer Event) and (ii) the Market Price on the date
the Corporation, or its designee, accepts such offer. Subject to Section 7.9.6
of Article VII hereof, the Corporation shall have the right to accept such offer
for a period of ninety days after the latter of (i) the date of the Non-Transfer
Event or purported Transfer which resulted in such Shares-in-Trust and (ii) the
date the Corporation determines in good faith that a Transfer or Non-Transfer
Event resulting in Shares-in-Trust has occurred, if the Corporation does not
receive a notice of such Transfer or Non-Transfer Event pursuant to Section 7.5
of Article VII hereto.
Section 7.10 Remedies Not Limited. Subject to Section 7.8 of
Article VII hereof, nothing contained in this Article VII shall limit the
authority of the Corporation to take such other action as it deems necessary or
advisable to protect the Corporation and the interests of its stockholders by
preservation of the Corporation's status as a REIT and to ensure compliance with
the Ownership Limit or the Look-Through Ownership Limit, as applicable.
Section 7.11 Legend. Each certificate for shares of Equity
Stock shall substantially bear the following legend:
"The shares represented by this certificate are subject to
restrictions on transfer for the purpose of the Corporation's
maintenance of its status as a real estate investment trust
under the Internal Revenue Code of 1986, as amended (the
"Code"). No Person may (i) Beneficially Own or Constructively
Own shares of Equity Stock in excess of 9.8% of the number or
value of outstanding shares of any class of Equity Stock (or,
in the case of a Look-Through Entity, in excess of 15% of the
number or value of outstanding shares of any class of Equity
Stock), (ii) beneficially own shares of Equity Stock that
would result in the shares of Equity Stock being beneficially
owned by fewer than 100 Persons (determined without reference
to any rules of attribution), (iii) Beneficially Own shares of
Equity Stock that would result in the Corporation being
"closely held" under Section 856(h) of the Code, or (iv)
Constructively Own shares of Equity Stock that would cause the
Corporation to Constructively Own 9.9% or more of the
ownership interests in a tenant of the Corporation's, the
Operating Partnership's or a Subsidiary's real property,
within the meaning of Section 856(d)(2)(B) of the Code. Any
Person who attempts to Beneficially Own or Constructively Own
shares of Equity Stock in excess of the above limitations must
immediately notify the Corporation in writing. If the
restrictions above are violated, the shares of Equity Stock
represented hereby will be transferred automatically and by
operation of law to a Trust and shall be designated
Shares-in-Trust. The foregoing summary does not purport to be
complete
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and is qualified in its entirety by reference to, and all
capitalized terms in this legend have the meanings defined in,
the Corporation's charter, as the same may be amended from
time to time, a copy of which, including the restrictions on
transfer, will be sent without charge to each Stockholder who
so requests."
Instead of the foregoing legend, the certificate may state
that the Corporation will furnish a full statement about certain restrictions on
transferability on request and without charge.
Section 7.12 Amendment. Notwithstanding any other provisions
of the charter or the Bylaws of the Corporation (and notwithstanding that some
lesser percentage may be specified by law, the charter or the Bylaws of the
Corporation), the provisions of this Article VII shall not be amended, altered,
changed or repealed without the affirmative vote of all the Independent
Directors and the holders of not less than two-thirds of the outstanding shares
of stock of the Corporation entitled to vote generally in the election of
directors, voting together as a single class.
Section 7.13 General Provisions
Section 7.13.1 Interpretation and Ambiguities. The Board shall
have the power to interpret and to construe the provisions of this Article VII,
and in the case of an ambiguity in the application of any of the provisions of
this Article VII including any definition contained in Section 7.1, the Board
shall have the power to determine the application of the provisions of this
Article VII with respect to any situation based on the facts known to it, and
any such interpretation, construction or determination shall be final and
binding on all interested parties, including the Stockholders.
Section 7.13.2 Severability. If any provision of this Article
VII or any application of any such provision is determined to be void, invalid
or unenforceable by any court having jurisdiction over the issue, the validity
and enforceability of the remaining provisions shall not be affected and other
applications of such provision shall be affected only to the extent necessary to
comply with the determination of such court.
ARTICLE VIII
AMENDMENTS
Section 8.1 Right to Amend Articles. The Corporation reserves
the right from time to time to make any amendment to its charter, now or
hereafter authorized by law, including any amendment altering the terms or
contract rights, as expressly set forth in this charter, of any shares of
outstanding stock. All rights and powers conferred by the charter on
stockholders, directors and officers are granted subject to this reservation.
Section 8.2 Certain Amendments Requiring Special Stockholder
Vote. No amendment of this charter of the Corporation may be made unless the
same is approved by the board of directors in accordance with Section 2-604 of
the Maryland General Corporation Law and the charter and thereafter approved by
the shareholders. In addition to any other vote of the shareholders that is
required by applicable law, the affirmative vote of two-thirds of the
outstanding shares of capital stock of the Corporation entitled to vote on such
amendment, voting together as a single class, and the affirmative vote
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of two-thirds of the outstanding shares of each class entitled to vote thereon
as a class, shall be required to amend any provisions of this Charter (except to
amend any provision of this Charter relating to the authority of the Corporation
to issue shares of its Capital Stock, including, without limitation Article VI,
Section 1, only a majority rather than two-thirds shall be needed).
ARTICLE IX
AMENDMENT OF BYLAWS
Section 9.1 Amendment by Directors. Except as otherwise
provided by law, the Bylaws of the Corporation may be amended or repealed by the
board of directors by the affirmative vote of a majority of the directors then
in office.
Section 9.2 Amendment by Stockholders. The Bylaws of the
Corporation may be amended or repealed at any annual meeting of stockholders, or
at any special meeting of stockholders called for such purpose, by the
affirmative vote of at least a majority of the outstanding shares of capital
stock of the Corporation entitled to vote on such amendment or repeal, voting
together as a single class.
ARTICLE X
LIMITATION OF LIABILITY
To the maximum extent that Maryland law in effect from time to
time permits limitation of the liability of directors and officers of a
corporation, no director or officer of the Corporation shall be liable to the
Corporation or its stockholders for money damages. Neither the amendment nor
repeal of this Article X, nor the adoption or amendment of any other provision
of the charter or Bylaws inconsistent with this Article X, shall apply to or
affect in any respect the applicability of the preceding sentence with respect
to any act or failure to act which occurred prior to such amendment, repeal or
adoption.
THIRD: The amendment to and restatement of the charter as
hereinabove set forth have been duly advised by the Board of Directors and
approved by the stockholders of the Corporation as required by law.
FOURTH: The current address of the principal office of the
Corporation is as set forth in Article IV of the foregoing amendment and
restatement of the charter.
FIFTH: The name and address of the Corporation's current
resident agent is as set forth in Article IV of the foregoing amendment and
restatement of the charter.
SIXTH: The number of directors of the Corporation and the
names of those currently in office are as set forth in Article V of the
foregoing amendment and restatement of the charter.
SEVENTH: The total number of shares of stock which the
Corporation had authority to issue immediately prior to this amendment and
restatement was 1,000, par value $0.01 per share, all of one class. The
aggregate par value of all shares of stock having par value was $10.
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EIGHTH: The total number of shares of stock which the
Corporation has authority to issue pursuant to the foregoing amendment and
restatement of the charter is 200,000,000, consisting of 150,000,000 shares of
Common Stock, $0.01 par value per share, and 50,000,000 shares of Preferred
Stock, $0.01 par value per share. The aggregate par value of all authorized
shares of stock having par value is $3,500,000.
NINTH: The undersigned President acknowledges these Articles
of Amendment and Restatement to be the corporate act of the Corporation and as
to all matters or facts required to be verified under oath, the undersigned
President acknowledges that to the best of his knowledge, information and
belief, these matters and facts are true in all material respects and that this
statement is made under the penalties for perjury.
[Signature Page follows]
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IN WITNESS WHEREOF, the Corporation has caused these Articles
of Amendment and Restatement to be signed in its name and on its behalf by its
President and attested to by its Secretary on this 16th day of October, 1997.
ATTEST: TOWER REALTY TRUST, INC.
/s/ Susan Cox
- -----------------------------------
By: /s/ Lawrence H. Feldman (SEAL)
Secretary -------------------------President
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TOWER REALTY TRUST, INC.
AMENDED AND RESTATED BYLAWS
ARTICLE I
OFFICES
Section 1. PRINCIPAL OFFICE. The principal office of the Corporation
shall be located at such place or places as the Board of Directors may
designate. The initial principal office of the Corporation shall be 125 West
45th Street, New York, New York 10036.
Section 2. ADDITIONAL OFFICES. The Corporation may have additional
offices at such places as the Board of Directors may from time to time determine
or the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. PLACE. All meetings of stockholders shall be held at the
principal office of the Corporation or at such other place within the United
States as shall be stated in the notice of the meeting.
Section 2. ANNUAL MEETING. An annual meeting of the stockholders for
the election of directors and the transaction of any business within the powers
of the Corporation shall be held on a date and at the time set by the Board of
Directors during the month of May in each year; commencing with the first annual
meeting of stockholders which shall be held in May 1998.
Section 3. SPECIAL MEETINGS. The president, chief executive officer or
Board of Directors may call special meetings of the stockholders. Special
meetings of stockholders shall also be called by the secretary of the
Corporation upon the written request of the holders of shares entitled to cast
not less than twenty-five percent (25%) of all the votes entitled to be cast at
such meeting. Such request shall state the purpose of such meeting and the
matters proposed to be acted on at such meeting. The secretary shall inform such
stockholders of the
<PAGE>
reasonably estimated cost of preparing and mailing notice of the meeting and,
upon payment to the Corporation by such stockholders of such costs,
the secretary shall give notice to each stockholder entitled to notice of the
meeting.
Section 4. NOTICE. Not less than ten nor more than 90 days before each
meeting of stockholders, the secretary shall give to each stockholder entitled
to vote at such meeting and to each stockholder not entitled to vote who is
entitled to notice of the meeting written or printed notice stating the time and
place of the meeting and, in the case of a special meeting or as otherwise may
be required by any statute, the purpose for which the meeting is called, either
by mail or by presenting it to such stockholder personally or by leaving it at
his residence or usual place of business. If mailed, such notice shall be deemed
to be given when deposited in the United States mail addressed to the
stockholder at his post office address as it appears on the records of the
Corporation, with postage thereon prepaid.
Section 5. SCOPE OF NOTICE. Any business of the Corporation may be
transacted at an annual meeting of stockholders without being specifically
designated in the notice, except as otherwise set forth in Section 12(a) and
except for such business as is required by any statute to be stated in such
notice. No business shall be transacted at a special meeting of stockholders
except as specifically designated in the notice.
Section 6. ORGANIZATION. At every meeting of stockholders, the chairman
of the board, if there be one, shall conduct the meeting or, in the case of
vacancy in office or absence of the chairman of the board, one of the following
officers present shall conduct the meeting in the order stated: the vice
chairman of the board, if there be one, the president, the vice presidents in
their order of rank and seniority, or a chairman chosen by the stockholders
entitled to cast a majority of the votes which all stockholders present in
person or by proxy are entitled to cast, shall act as chairman, and the
secretary, or, in his absence, an assistant secretary, or in the absence of both
the secretary and assistant secretaries, a person appointed by the chairman
shall act as secretary.
Section 7. QUORUM. At any 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 such meeting shall constitute a quorum; but this section
shall not affect any requirement under any statute or the charter of the
Corporation for the vote necessary for the adoption of any measure. If, however,
such quorum shall not be present at any meeting of the stockholders, the
stockholders entitled to vote at such meeting, present in person or by proxy,
shall have the power to adjourn the meeting from time to time to a date not more
than 120 days after the original record date without notice other than
announcement at the meeting. At 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.
Section 8. VOTING. A plurality of all the votes cast at a meeting of
stockholders duly called and at which a quorum is present shall be sufficient to
elect a director. Each share
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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 majority of the votes
cast at a meeting of stockholders duly called and at which a quorum is present
shall be sufficient to approve any other matter which may properly come before
the meeting, unless more than a majority of the votes cast is required by
statute or by the charter of the Corporation. Unless otherwise provided in the
charter, each outstanding share, regardless of class, shall be entitled to one
vote on each matter submitted to a vote at a meeting of stockholders.
Section 9. PROXIES. A stockholder may vote the stock owned of record by
him, either in person or by proxy executed in writing by the stockholder or by
his duly authorized attorney in fact. Such proxy shall be filed with the
secretary of the Corporation before or at the time of the meeting. No proxy
shall be valid after eleven months from the date of its execution, unless
otherwise provided in the proxy.
Section 10. (a) VOTING OF STOCK BY CERTAIN HOLDERS. Stock of the
Corporation registered in the name of a corporation, partnership, trust or other
entity, if entitled to be voted, may be voted by an office thereof, a general
partner or trustee thereof, as the case may be, or a proxy appointed by any of
the foregoing individuals, unless some other person who has been appointed to
vote such stock pursuant to a bylaw or a resolution of the governing body of
such corporation or other entity or agreement of the partners of a partnership
presents a certified copy of such bylaw, resolution or agreement, in which case
such person may vote such stock. Any director or other fiduciary may vote stock
registered in his name as such fiduciary, either in person or by proxy.
Shares of stock of the Corporation directly or indirectly owned by it
shall not be voted at any meeting and shall not be counted in determining the
total number of outstanding shares entitled to be voted at any given time,
unless they are held by it in a fiduciary capacity, in which case they may be
voted and shall be counted in determining the total number of outstanding shares
at any given time.
The Board of Directors may adopt by resolution a procedure by which a
stockholder 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 make the certification, 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 of Directors considers necessary or desirable. On receipt of such
certification, the person specified in the certification shall be regarded as,
for the purposes set forth in the certification, the stockholder of record of
the specified stock in place of the stockholder who makes the certification.
3
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(b) EXEMPTION FROM CONTROL SHARE ACQUISITION STATUTE.
Notwithstanding any other provision of the charter of the Corporation or these
Bylaws, Title 3, Subtitle 7 of the Corporations and Associations Article of the
Annotated Code of Maryland (or any successor statute) shall not apply to any
acquisition by any person of shares of stock of the Corporation. This section
may be repealed, in whole or in part, at any time, whether before or after an
acquisition of control shares and, upon such repeal, may, to the extent provided
by any successor bylaw, apply to any prior or subsequent control share
acquisition.
(c) Exemption From Business Combination Statute. Notwithstanding any
other provision of the charter of the Corporation or these Bylaws, Title 3,
Subtitle 6 of the Corporations and Associations Article of the Annotated Code of
Maryland (or any successor statute) shall not apply to any acquisition by any
person of shares of stock of the Corporation. This section may be repealed, in
whole or in part, at any time, whether before or after an acquisition of control
shares and, upon such repeal, may, to the extent provided by any successor
bylaw, apply to any prior or subsequent control share acquisition.
Section 11. INSPECTORS. At any meeting of stockholders, the chairman of
the meeting may appoint one or more persons as inspectors for such meeting. Such
inspectors shall ascertain and report the number of shares represented at the
meeting based upon their determination of the validity and effect of proxies,
count all votes, report the results and perform such other acts as are proper to
conduct the election and voting with impartiality and fairness to all the
stockholders.
Each report of an inspector shall be in writing and signed by him or by
a majority of them if there is more than one inspector acting at such meeting.
If there is more than one inspector, the report of a majority shall be the
report of the inspectors. The report of the inspector or inspectors on the
number of shares represented at the meeting and the results of the voting shall
be prima facie evidence thereof.
Section 12. NOMINATIONS AND STOCKHOLDER BUSINESS
(a) Annual Meetings of Stockholders. (1) Nominations of persons for
election to the Board of Directors and the proposal of business to be considered
by the stockholders may be made at an annual meeting of stockholders (i)
pursuant to the Corporation's notice of meeting, (ii) by or at the direction of
the Board of Directors or (iii) by any stockholder of the Corporation who was a
stockholder of record both at the time of giving of notice provided for in this
Section 12(a) and at the time of the annual meeting of stockholders, who is
entitled to vote at the meeting and who complied with the notice procedures set
forth in this Section 12(a).
(2) For nominations or other business to be properly brought
before an annual meeting by a stockholder pursuant to clause (iii) of paragraph
(a)(1) of this Section 12, 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
4
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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 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 (the "Exchange Act")
(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, (x) the name and address of such stockholder, as they appear on the
Corporation's books, and of such beneficial owner and (y) the number of shares
of each class of stock of the Corporation which are owned beneficially and of
record by such stockholder and such beneficial owner.
(3) Notwithstanding anything in the second sentence of
paragraph (a)(2) of this Section 12 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 12(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.
(b) Special Meetings of Stockholders. 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 (i) pursuant to the
Corporation's notice of meeting, (ii) by or at the direction of the Board of
Directors or (iii) 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 both at the time of giving of notice
provided for in this Section 12(b) and at the time of the special meeting, who
is entitled to vote at the meeting and who complied with the notice procedures
set forth in this Section 12(b). In the event the Corporation calls a special
meeting
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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 be) for election to such position as specified in the Corporation's notice
of meeting, if the stockholder's notice containing the information required by
paragraph (a)(2) of this Section 12 shall be 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 Board of Directors to be elected at
such meeting.
(c) General. (1) Only such persons who are nominated in accordance with
the procedures set forth in this Section 12 shall be eligible to serve as
directors 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 Section 12. 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 Section 12 and, if any proposed nomination or business is not in
compliance with this Section 12, to declare that such defective nomination or
proposal be disregarded.
(2) For purposes of this Section 12, "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 Exchange Act.
(3) Notwithstanding the foregoing provisions of this Section
12, 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 Section 12. Nothing in this Section 12
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 13. VOTING BY BALLOT. Voting on any question or in any election
may be viva voce unless the presiding officer shall order or any stockholder
shall demand that voting be by ballot.
ARTICLE III
DIRECTORS
Section 1. GENERAL POWERS. The business and affairs of the Corporation
shall be managed under the direction of its Board of Directors.
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Section 2. NUMBER, TENURE AND QUALIFICATIONS. At any regular meeting or
at any special meeting called for that purpose, a majority of the entire Board
of Directors may establish, increase or decrease the number of directors,
provided that the number thereof shall never be less than the minimum number
required by the Maryland General Corporation Law, nor more than 15, and further
provided that the tenure of office of a director shall not be affected by any
decrease in the number of directors.
Section 3. ANNUAL AND REGULAR MEETINGS. An annual meeting of the Board
of Directors shall be held immediately after and at the same place as the annual
meeting of stockholders, no notice other than this Bylaw being necessary. The
Board of Directors may provide, by resolution, the time and place, either within
or without the State of Maryland, for the holding of regular meetings of the
Board of Directors without other notice than such resolution.
Section 4. SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called by or at the request of the chairman of the board, president or by
a majority of the directors then in office. The person or persons authorized to
call special meetings of the Board of Directors may fix any place, either within
or without the State of Maryland, as the place for holding any special meeting
of the Board of Directors called by them.
Section 5. NOTICE. Notice of any special meeting of the Board of
Directors shall be delivered personally or by telephone, facsimile transmission,
United States mail or courier to each director at his business or residence
address. Notice by personal delivery, by telephone or a facsimile transmission
shall be given at least two days prior to the meeting. Notice by mail shall be
given at least five days prior to the meeting and shall be deemed to be given
when deposited in the United States mail properly addressed, with postage
thereon prepaid. Telephone notice shall be deemed to be given when the director
is personally given such notice in a telephone call to which he is a party.
Facsimile transmission notice shall be deemed to be given upon completion of the
transmission of the message to the number given to the Corporation by the
director and receipt of a completed answer-back indicating receipt. Neither the
business to be transacted at, nor the purpose of, any annual, regular or special
meeting of the Board of Directors need be stated in the notice, unless
specifically required by statute or these Bylaws.
Section 6. QUORUM. A majority of the directors shall constitute a
quorum for transaction of business at any meeting of the Board of Directors,
provided that, if less than a majority of such directors are present at said
meeting, a majority of the directors present may adjourn the meeting from time
to time without further notice, and provided further that if, pursuant to the
charter of the Corporation or these Bylaws, the vote of a majority of a
particular group of directors is required for action, a quorum must also include
a majority of such group.
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The directors present at a meeting which has been duly called and
convened may continue to transact business until adjournment, notwithstanding
the withdrawal of enough directors to leave less than a quorum.
Section 7. VOTING. The action of the majority of the directors present
at a meeting at which a quorum is present shall be the action of the Board of
Directors, unless the concurrence of a greater proportion is required for such
action by applicable statute.
Section 7A. APPROVAL OF CERTAIN CONTRACTS. Any action pertaining to any
transaction in which the Company is purchasing, selling, leasing or mortgaging
any real estate asset, making a joint venture investment or engaging in any
other transaction in which a director or officer of the Company, or affiliated
contract manager of any property of the Company or any affiliate of the
foregoing, has any direct or indirect interest other than as a result of such
person's status as a director, officer or stockholder of the Company, must be
approved by the affirmative vote of a majority of the Independent Directors even
if the Independent Directors constitute less than a quorum.
Section 7B. EXERCISE OF CERTAIN OPTION CONTRACTS. The exercise by the
Company of its rights, pursuant to the terms and provisions of the Phoenix Land
Parcel Option Contract, dated September 12, 1997, must be approved by the
unanimous affirmative vote of the Independent Directors, even if the Independent
Directors constitute less than a quorum.
Section 7C. EXERCISE OF CERTAIN OPTION CONTRACTS. The exercise by the
Company of its rights, pursuant to the terms and provisions of the Options
Contract between Orlando Option Holding, LLC and the Tower Realty Operating
Partnership, LP, dated September 22, 1997, must be approved by a majority
affirmative vote of Independent Directors, even if the Independent Directors
constitute less than a quorum, and the individual building(s) to be built on the
property is at least 50% preleased prior to commencement of construction, or in
the event the individual building(s) to be built on the property is less than
50% preleased, the Board of Directors unanimously approves the exercise of such
option.
Section 8. TELEPHONE MEETINGS. 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 shall constitute presence in person at
the meeting.
Section 9. INFORMAL ACTION BY DIRECTORS. Any action required or
permitted to be taken at any meeting of the Board of Directors may be taken
without a meeting, if a consent in writing to such action is signed by each
director and such written consent is filed with the minutes of proceedings of
the Board of Directors.
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Section 10. VACANCIES. If for any reason any or all the directors cease
to be directors, such event shall not terminate the Corporation or affect these
Bylaws or the powers of the remaining directors hereunder (even if fewer than
three directors remain). Any vacancy on the Board of Directors for any cause
other than an increase in the number of directors shall be filled by a majority
of the remaining directors, although such majority is less than a quorum. Any
vacancy in the number of directors created by an increase in the number of
directors may be filled by a majority vote of the entire Board of Directors. Any
individual so elected as director shall hold office until the next annual
meeting of stockholders and until his successor is elected and qualifies.
Section 11. COMPENSATION. Directors shall not receive any stated salary
for their services as directors but, by resolution of the Board of Directors,
may receive fixed sums per year and/or per meeting and/or per visit to real
property or other facilities owned or leased by the Corporation and for any
service or activity they performed or engaged in as directors. Directors may be
reimbursed for expenses of attendance, if any, at each annual, regular or
special meeting of the Board of Directors or of any committee thereof and for
their expenses, if any, in connection with each property visit and any other
service or activity they performed or engaged in as directors; but nothing
herein contained shall be construed to preclude any directors from serving the
Corporation in any other capacity and receiving compensation therefor.
Section 12. LOSS OF DEPOSITS. No director shall be liable for any loss
which may occur by reason of the failure of the bank, trust company, savings and
loan association, or other institution with whom moneys or stock have been
deposited.
Section 13. SURETY BONDS. Unless required by law, no director shall be
obligated to give any bond or surety or other security for the performance of
any of his duties.
Section 14. RELIANCE. Each director, officer, employee and agent of the
Corporation shall, in the performance of his duties with respect to the
Corporation, be fully justified and protected with regard to any act or failure
to act in reliance in good faith upon the books of account or other records of
the Corporation, upon an opinion of counsel or upon reports made to the
Corporation by any of its officers or employees or by the accountants,
appraisers or other experts or consultants selected by the Board of Directors or
officers of the Corporation, regardless of whether such counsel or expert may
also be a director.
Section 15. CERTAIN RIGHTS OF DIRECTORS, OFFICERS, EMPLOYEES AND
AGENTS. The directors shall have no responsibility to devote their full time to
the affairs of the Corporation. Any director or officer, employee or agent of
the Corporation, in his personal capacity or in a capacity as an affiliate,
employee, or agent of any other person, or otherwise, may have business
interests and engage in business activities similar to or in addition to or in
competition with those of or relating to the Corporation.
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ARTICLE IV
COMMITTEES
Section 1. NUMBER, TENURE AND QUALIFICATIONS. The Board of Directors
may appoint from among its members an Executive Committee, an Audit Committee, a
Compensation Committee, a Nominating Committee and other committees, composed of
two or more directors, to serve at the pleasure of the Board of Directors. If
appointed, the members of the Audit Committee and Compensation Committee shall
at all times consist solely of Independent Directors (i.e., a director of the
Corporation who is not an officer or employee of the Corporation, any affiliate
of an officer or employee or any affiliate of any advisor to the Corporation
under an advisory agreement, any lessee of any property of the Corporation any
subsidiary of the Corporation or any partnership which is an affiliate of, the
Corporation).
Section 2. POWERS. The Board of Directors may delegate to committees
appointed under Section 1 of this Article any of the powers of the Board of
Directors, except as prohibited by law.
Section 3. MEETINGS. Notice of committee meetings shall be given in the
same manner as notice for special meetings of the Board of Directors. A majority
of the members of the committee shall constitute a quorum for the transaction of
business at any meeting of the committee. The act of a majority of the committee
members present at a meeting shall be the act of such committee. The Board of
Directors may designate a chairman of any committee, and such chairman or any
two members of any committee may fix the time and place of its meeting unless
the Board shall otherwise provide. In the absence of any member of any such
committee, the members thereof present at any meeting, whether or not they
constitute a quorum, may appoint another director to act in the place of such
absent member. Each committee shall keep minutes of its proceedings.
Section 4. TELEPHONE MEETINGS. Members of a committee 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
shall constitute presence in person at the meeting.
Section 5. INFORMAL ACTION BY COMMITTEES. Any action required or
permitted to be taken at any meeting of a committee of the Board of Directors
may be taken without a meeting, if a consent in writing to such action is signed
by each member of the committee and such written consent is filed with the
minutes of proceedings of such committee.
Section 6. VACANCIES. Subject to the provisions hereof, the Board of
Directors shall have the power at any time to change the membership of any
committee, to fill all
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vacancies, to designate alternate members to replace any absent or disqualified
member or to dissolve any such committee.
ARTICLE V
OFFICERS
Section 1. GENERAL PROVISIONS. The officers of the Corporation shall
include a chief executive officer, a president, a secretary and a treasurer and
may include a chairman of the board, a vice chairman of the board, one or more
vice presidents, a chief operating officer, a chief financial officer, one or
more assistant secretaries and one or more assistant treasurers. In addition,
the Board of Directors may from time to time appoint such other officers with
such powers and duties as they shall deem necessary or desirable. The officers
of the Corporation shall be elected annually by the Board of Directors at the
first meeting of the Board of Directors held after each annual meeting of
stockholders, except that the chief executive officer may appoint one or more
vice presidents, assistant secretaries and assistant treasurers. If the election
of officers shall not be held at such meeting, such election shall be held as
soon thereafter as may be convenient. Each officer shall hold office until his
successor is elected and qualifies or until his death, resignation or removal in
the manner hereinafter provided. Any two or more offices except president and
vice president may be held by the same person. In its discretion, the Board of
Directors may leave unfilled any office except that of president, treasurer and
secretary. Election of an officer or agent shall not of itself create contract
rights between the Corporation and such officer or agent.
Section 2. REMOVAL AND RESIGNATION. Any officer or agent of the
Corporation may be removed by the Board of Directors if in its judgment the best
interests of the Corporation would be served thereby, but such removal shall be
without prejudice to the contract rights, if any, of the person so removed. Any
officer of the Corporation may resign at any time by giving written notice of
his resignation to the Board of Directors, the chairman of the board, the
president or the secretary. Any resignation shall take effect at any time
subsequent to the time specified therein or, if the time when it shall become
effective is not specified therein, immediately upon its receipt. The acceptance
of a resignation shall not be necessary to make it effective unless otherwise
stated in the resignation. Such resignation shall be without prejudice to the
contract rights, if any, of the Corporation.
Section 3. VACANCIES. A vacancy in any office may be filled by the
Board of Directors for the balance of the term.
Section 4. CHIEF EXECUTIVE OFFICER. The Board of Directors may
designate a chief executive officer. In the absence of such designation, the
chairman of the board shall be the chief executive officer of the Corporation.
The chief executive officer shall have general responsibility for implementation
of the policies of the Corporation, as
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determined by the Board of Directors, and for the management of the business and
affairs of the Corporation.
Section 5. CHIEF OPERATING OFFICER. The Board of Directors may
designate a chief operating officer. The chief operating officer shall have the
responsibilities and duties as set forth by the Board of Directors or the chief
executive officer.
Section 6. CHIEF FINANCIAL OFFICER. The Board of Directors may
designate a chief financial officer. The chief financial officer shall have the
responsibilities and duties as set forth by the Board of Directors or the chief
executive officer.
Section 7. CHAIRMAN OF THE BOARD. The Board of Directors shall
designate a chairman of the board. The chairman of the board shall preside over
the meetings of the Board of Directors and of the stockholders at which he shall
be present. The chairman of the board shall perform such other duties as may be
assigned to him or them by the Board of Directors.
Section 8. PRESIDENT. The president or chief executive officer, as the
case may be, shall in general supervise and control all of the business and
affairs of the Corporation. In the absence of a designation of a chief operating
officer by the Board of Directors, the president shall be the chief operating
officer. He may execute any deed, mortgage, bond, contract or other instrument,
except in cases where the execution thereof shall be expressly delegated by the
Board of Directors or by these Bylaws to some other officer or agent of the
Corporation or shall be required by law to be otherwise executed; and in general
shall perform all duties incident to the office of president and such other
duties as may be prescribed by the Board of Directors from time to time.
Section 9. VICE PRESIDENTS. In the absence of the president or in the
event of a vacancy in such office, the vice president (or in the event there be
more than one vice president, the vice presidents in the order designated at the
time of their election or, in the absence of any designation, then in the order
of their election) shall perform the duties of the president and when so acting
shall have all the powers of and be subject to all the restrictions upon the
president; and shall perform such other duties as from time to time may be
assigned to him by the president or by the Board of Directors. The Board of
Directors may designate one or more vice presidents as executive vice president
or as vice president for particular areas of responsibility.
Section 10. SECRETARY. The secretary shall (a) keep the minutes of the
proceedings of the stockholders, the Board of Directors and committees of the
Board of Directors in one or more books provided for that purpose; (b) see that
all notices are duly given in accordance with the provisions of these Bylaws or
as required by law; (c) be custodian of the corporate records and of the seal of
the Corporation; (d) keep a register of the post office address of each
stockholder which shall be furnished to the secretary by such
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stockholder; (e) have general charge of the share transfer books of the
Corporation; and (f) in general perform such other duties as from time to time
may be assigned to him by the chief executive officer, the president or by the
Board of Directors.
Section 11. TREASURER. The treasurer shall have the custody of the
funds and securities of the Corporation and shall keep full and accurate
accounts of receipts and disbursements in books belonging to the Corporation and
shall deposit all moneys and other valuable effects in the name and to the
credit of the Corporation in such depositories as may be designated by the Board
of Directors. In the absence of a designation of a chief financial officer by
the Board of Directors, the treasurer shall be the chief financial officer of
the Corporation.
The treasurer shall disburse the funds of the Corporation as
may be ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the president and Board of Directors, at the
regular meetings of the Board of Directors or whenever it may so require, an
account of all his transactions as treasurer and of the financial condition of
the Corporation.
If required by the Board of Directors, the treasurer shall
give the Corporation a bond in such sum and with such surety or sureties as
shall be satisfactory to the Board of Directors for the faithful performance of
the duties of his office and for the restoration to the Corporation, in case of
his death, resignation, retirement or removal from office, of all books, papers,
vouchers, moneys and other property of whatever kind in his possession or under
his control belonging to the Corporation.
Section 12. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS.
The assistant secretaries and assistant treasurers, in general, shall perform
such duties as shall be assigned to them by the secretary or treasurer,
respectively, or by the president or the Board of Directors. The assistant
treasurers shall, if required by the Board of Directors, give bonds for the
faithful performance of their duties in such sums and with such surety or
sureties as shall be satisfactory to the Board of Directors.
Section 13. SALARIES. The salaries and other compensation of the
officers shall be fixed from time to time by the Board of Directors and no
officer shall be prevented from receiving such salary or other compensation by
reason of the fact that he is also a director.
ARTICLE VI
CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 1. CONTRACTS. The Board of Directors may authorize any officer
or agent to enter into any contract or to execute and deliver any instrument in
the name of and on
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behalf of the Corporation and such authority may be general or confined to
specific instances. Any agreement, deed, mortgage, lease or other document
executed by one or more of the directors or by an authorized person shall be
valid and binding upon the Board of Directors and upon the Corporation when
authorized or ratified by action of the Board of Directors.
Section 2. CHECKS AND DRAFTS. All checks, drafts or other orders for
the payment of money, notes or other evidences of indebtedness issued in the
name of the Corporation shall be signed by such officer or agent of the
Corporation in such manner as shall from time to time be determined by the Board
of Directors.
Section 3. DEPOSITS. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the Corporation
in such banks, trust companies or other depositories as the Board of Directors
may designate.
ARTICLE VII
STOCK
Section 1. CERTIFICATES. Each stockholder shall be entitled to a
certificate or certificates which shall represent and certify the number of
shares of each class of stock held by him in the Corporation. Each certificate
shall be signed by the chief executive officer, the president or a vice
president and countersigned by the secretary or an assistant secretary or the
treasurer or an assistant treasurer and may be sealed with the seal, if any, of
the Corporation. The signatures may be either manual or facsimile. Certificates
shall be consecutively numbered; and if the Corporation shall, from time to
time, issue several classes of stock, each class may have its own number series.
A certificate is valid and may be issued whether or not an officer who signed it
is still an officer when it is issued. Each certificate representing shares
which are restricted as to their transferability or voting powers, which are
preferred or limited as to their dividends or as to their allocable portion of
the assets upon liquidation or which are redeemable at the option of the
Corporation, shall have a statement of such restriction, limitation, preference
or redemption provision, or a summary thereof, plainly stated on the
certificate. If the Corporation has authority to issue stock of more than one
class, the certificate shall contain on the face or back a full statement or
summary of the designations and any preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends and other
distributions, qualifications and terms and conditions of redemption of each
class of stock and, if the Corporation is authorized to issue any preferred or
special class in series, the differences in the relative rights and preferences
between the shares of each series to the extent they have been set and the
authority of the Board of Directors to set the relative rights and preferences
of subsequent series. In lieu of such statement or summary, the certificate may
state that the Corporation will furnish a full statement of such information to
any stockholder upon request and without charge. If any class of stock is
restricted by the Corporation as to transferability, the certificate shall
contain a full statement of the restriction
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or state that the Corporation will furnish information about the restrictions to
the stockholder on request and without charge.
Section 2. TRANSFERS. Upon surrender to the Corporation or the transfer
agent of the Corporation of a stock certificate duly endorsed or accompanied by
proper evidence of succession, assignment or authority to transfer, the
Corporation shall issue a new certificate to the person entitled thereto, cancel
the old certificate and record the transaction upon its books.
The Corporation shall be entitled to treat the holder of
record of any share of stock as the holder in fact thereof and, accordingly,
shall not be bound to recognize any equitable or other claim to or interest in
such share or on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of the
State of Maryland.
Notwithstanding the foregoing, transfers of shares of any
class of stock will be subject in all respects to the charter of the Corporation
and all of the terms and conditions contained therein.
Section 3. REPLACEMENT CERTIFICATE. Any officer designated by the Board
of Directors may direct a new certificate to be issued in place of any
certificate previously issued by the Corporation alleged to have been lost,
stolen or destroyed upon the making of an affidavit of that fact by the person
claiming the certificate to be lost, stolen or destroyed. When authorizing the
issuance of a new certificate, an officer designated by the Board of Directors
may, in his discretion and as a condition precedent to the issuance thereof,
require the owner of such lost, stolen or destroyed certificate or the owner's
legal representative to advertise the same in such manner as he shall require
and/or to give bond, with sufficient surety, to the Corporation to indemnify it
against any loss or claim which may arise as a result of the issuance of a new
certificate.
Section 4. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE. The
Board of Directors may set, in advance, a record date for the purpose of
determining stockholders entitled to notice of or to vote at any meeting of
stockholders or determining stockholders entitled to receive payment of any
dividend or the allotment of any other rights, or in order to make a
determination of stockholders for any other proper purpose. Such date, in any
case, shall not be prior to the close of business on the day the record date is
fixed and shall be not more than 90 days and, in the case of a meeting of
stockholders, not less than ten days, before the date on which the meeting or
particular action requiring such determination of stockholders of record is to
be held or taken.
In lieu of fixing a record date, the Board of Directors may
provide that the stock transfer books shall be closed for a stated period but
not longer than 20 days. If the stock transfer books are closed for the purpose
of determining stockholders entitled to notice of or to
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vote at a meeting of stockholders, such books shall be closed for at least ten
days before the date of such meeting.
If no record date is fixed and the stock transfer books are
not closed for the determination of stockholders, (a) the record date for the
determination of stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day on which the notice of
meeting is mailed or the 30th day before the meeting, whichever is the closer
date to the meeting; and (b) the record date for the determination of
stockholders entitled to receive payment of a dividend or an allotment of any
other rights shall be the close of business on the day on which the resolution
of the directors, declaring the dividend or allotment of rights, is adopted.
When a determination of stockholders entitled to vote at any
meeting of stockholders has been made as provided in this section, such
determination shall apply to any adjournment thereof, except when (i) the
determination has been made through the closing of the transfer books and the
stated period of closing has expired or (ii) the meeting is adjourned to a date
more than 120 days after the record date fixed for the original meeting, in
either of which case a new record date shall be determined as set forth herein.
Section 5. STOCK LEDGER. The Corporation shall maintain at its
principal office or at the office of its counsel, accountants or transfer agent,
an original or duplicate share ledger containing the name and address of each
stockholder and the number of shares of each class held by such stockholder.
Section 6. FRACTIONAL STOCK; ISSUANCE OF UNITS. The Board of Directors
may issue fractional stock or provide for the issuance of scrip, all on such
terms and under such conditions as they may determine. Notwithstanding any other
provision of the charter or these Bylaws, the Board of Directors may issue units
consisting of different securities of the Corporation. Any security issued in a
unit shall have the same characteristics as any identical securities issued by
the Corporation, except that the Board of Directors may provide that for a
specified period securities of the Corporation issued in such unit may be
transferred on the books of the Corporation only in such unit.
ARTICLE VIII
ACCOUNTING YEAR
The Board of Directors shall have the power, from time to time, to fix
the fiscal year of the Corporation by a duly adopted resolution.
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ARTICLE IX
DISTRIBUTIONS
Section 1. AUTHORIZATION. Dividends and other distributions upon the
stock of the Corporation may be authorized and declared by the Board of
Directors, subject to the provisions of law and the charter of the Corporation.
Dividends and other distributions may be paid in cash, property or stock of the
Corporation, subject to the provisions of law and the charter.
Section 2. CONTINGENCIES. Before payment of any dividends or other
distributions, there may be set aside out of any assets of the Corporation
available for dividends or other distributions such sum or sums as the Board of
Directors may from time to time, in its absolute discretion, think proper as a
reserve fund for contingencies, for equalizing dividends or other distributions,
for repairing or maintaining any property of the Corporation or for such other
purpose as the Board of Directors shall determine to be in the best interest of
the Corporation, and the Board of Directors may modify or abolish any such
reserve in the manner in which it was created.
ARTICLE X
INVESTMENT POLICY
Subject to the provisions of the charter of the Corporation, the Board
of Directors may from time to time adopt, amend, revise or terminate any policy
or policies with respect to investments by the Corporation as it shall deem
appropriate in its sole discretion.
ARTICLE XI
SEAL
Section 1. SEAL. The Board of Directors may authorize the adoption of a
seal by the Corporation. The seal shall contain the name of the Corporation and
the year of its incorporation and the words "Incorporated Maryland." The Board
of Directors may authorize one or more duplicate seals and provide for the
custody thereof.
Section 2. AFFIXING SEAL. Whenever the Corporation is permitted or
required to affix its seal to a document, it shall be sufficient to meet the
requirements of any law, rule or regulation relating to a seal to place the word
"(SEAL)" adjacent to the signature of the person authorized to execute the
document on behalf
17
<PAGE>
of the Corporation.
ARTICLE XII
INDEMNIFICATION AND ADVANCE OF EXPENSES
To the maximum extent permitted by Maryland Law in effect from time to
time, the Corporation shall indemnify and, without requiring a preliminary
determination of the ultimate entitlement to indemnification, shall pay or
reimburse reasonable expenses in advance of final disposition of a proceeding to
(a) any individual who is a present or former director or officer of the
Corporation and who is made a party to the proceeding by reason of his service
in that capacity, or (b) any individual who, while a director of the Corporation
and at the request of the Corporation, serves or has served another corporation,
real estate investment trust, 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. The Corporation may, with the approval
of its Board of Directors, provide such indemnification and advance for expenses
to a person who served a predecessor of the Corporation in any of the capacities
described in (a) or (b) above and to any employee or agent of the Corporation or
a predecessor of the Corporation.
Neither the amendment nor repeal of this Article, nor the adoption or
amendment of any other provision of the Bylaws or charter of the Corporation
inconsistent with this Article, shall apply to or affect in any respect the
applicability of the preceding paragraph with respect to any act or failure to
act which occurred prior to such amendment, repeal or adoption.
ARTICLE XIII
WAIVER OF NOTICE
Whenever any notice is required to be given pursuant to the charter of
the Corporation 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.
18
<PAGE>
ARTICLE XIV
AMENDMENT OF BYLAWS
The Board of Directors shall have the power to adopt, alter or repeal
any provision of these Bylaws and to make new Bylaws. In addition, any provision
of these Bylaws may be adopted, altered or repealed by the affirmative vote of
the shareholders of at least a majority of the votes entitled to be cast.
19
<PAGE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from the
financial statements of Tower Predecessor for the nine month period ended
September 30, 1997 and the financial statements of Tower Realty Trust, Inc. for
the period from March 27, 1997 (date of inception) through September 30, 1997.
</LEGEND>
Tower Predecessor Tower Realty Trust, Inc.
<S> <C> <C>
<PERIOD-TYPE> 9-Mos 6-Mos
<FISCAL-YEAR-END> Dec-31-1997 Dec-31-1997
<PERIOD-START> Jan-01-1997 Mar-27-1997
<PERIOD-END> Sep-30-1997 Sep-30-1997
<CASH> 4,947 66
<SECURITIES> 0 0
<RECEIVABLES> 6,143 940
<ALLOWANCES> 2,500 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 0 0
<PP&E> 172,969 0
<DEPRECIATION> 44,892 0
<TOTAL-ASSETS> 170,814 12,393
<CURRENT-LIABILITIES> 0 487
<BONDS> 194,638 12,299
0 0
0 0
<COMMON> 0 1
<OTHER-SE> (60,931) (394)
<TOTAL-LIABILITY-AND-EQUITY> 170,814 12,393
<SALES> 0 0
<TOTAL-REVENUES> 20,693 1,180
<CGS> 0 0
<TOTAL-COSTS> 26,308 1,761
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 10,772 229
<INCOME-PRETAX> 0 0
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 6,475 0
<CHANGES> 0 0
<NET-INCOME> 945 (394)
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
